GOVERNMENT TECHNOLOGY SERVICES INC, 10-K, 1998-03-30

GOVERNMENT TECHNOLOGY SERVICES INC
10-K, 1998-03-30
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

Previous: HORACE MANN EDUCATORS CORP /DE/, 10-K, 1998-03-30

Next: FULTON BANCSHARES CORP, 10-K, 1998-03-30

<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
______________________

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO. 0-19394

GOVERNMENT TECHNOLOGY SERVICES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 54-1248422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

4100 LAFAYETTE CENTER DRIVE
CHANTILLY, VIRGINIA 20151-1200
(Address and zip code of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 502-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.005 PAR VALUE
(Title of class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing price of the Common Stock on
February 28, 1998, as reported on The Nasdaq Stock Market, was $32,885,731.

The number of shares outstanding of the registrant's Common Stock on
February 28, 1998, was 6,756,180.

<PAGE>
<PAGE>
2
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be
delivered to stockholders in connection with their Annual Meeting of
Stockholders to be held on May 12, 1998 are incorporated by reference into
Part III of this Form 10-K.

<PAGE>
<PAGE>
3
PART I

ITEM 1. BUSINESS.

THE COMPANY

Government Technology Services, Inc. is a leading dedicated reseller
of microcomputer and Unix workstation hardware, software and networking
products to the Federal government market. (Unless the context indicates
otherwise, all references herein to the capitalized term "Government" shall
refer to the U.S. Federal Government, and all references herein to the non-
capitalized term "government" shall refer generally to any federal, state
or municipal government.) The Company was incorporated in Nevada in 1983
and reincorporated in Delaware in 1986.

On August 16, 1994, the Company purchased Falcon Microsystems, Inc.
("Falcon"), which was a leading reseller of Apple Computer, Inc. ("Apple")
products to the Government for the ten years prior to its acquisition. The
acquisition was part of the Company's corporate strategy to expand and
build upon its presence in the Federal, state and local government markets.
(Unless the context indicates otherwise, all references below to "GTSI" or
the "Company" for periods after August 16, 1994, shall refer to Government
Technology Services, Inc. and Falcon.)

On February 12, 1998, the Company entered into and closed on an Asset
Purchase Agreement with BTG, Inc. and two of its subsidiaries
(collectively, "BTG") under which the Company acquired substantially all of
the assets of the BTG division that resells computer hardware, software and
integrated systems to the Government (the "BTG Division"). The acquired
assets consisted primarily of inventory and rights under certain contracts
and intangible personal property, along with furniture, fixtures, supplies
and equipment. In addition, the Company assumed certain liabilities under
specified contracts of BTG as well as certain liabilities arising from the
ownership or operation of the acquired assets after the closing. The
Company paid at closing $7,325,265 in cash (after a $174,735 adjustment for
accrued vacation liability and satisfaction of an outstanding invoice owed
by BTG) and issued 15,375 shares, having a liquidation preference of
$15,375,000, of a new series of preferred stock designated Series C 8%
Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"). The
Company paid an additional $500,000 in cash upon the release of liens
on certain items of equipment which are part of the acquired assets. A
portion of the consideration, $800,000 in cash and 1,538 shares of Series C
Preferred Stock, is being held under an escrow agreement to secure BTG's
indemnification obligations under the Asset Purchase Agreement. Under the
Asset Purchase Agreement, BTG is obligated to repay to the Company up to
$4.5 million to the extent that there is a shortfall in the amounts that
the Company receives from dispositions of certain inventory acquired.

Pursuant to the Asset Purchase Agreement, the Company agreed to
convene a meeting of stockholders no later than January 1, 1999 (the "First
Meeting") to approve a proposal to convert the Series C Preferred Stock
into 3,000,000 shares of Common Stock (the "Conversion Proposal") and a
proposal to amend the certificate of incorporation to increase the number
<PAGE>
<PAGE>
4
of authorized shares of Common Stock from 10,000,000 to 20,000,000 (the
"Charter Amendment Proposal"). If the Conversion Proposal and the Charter
Amendment Proposal are approved, the Series C Preferred Stock will be
converted automatically into that number of shares of Common Stock equal to
the liquidation preference of the Series C Preferred Stock ($15,375,000 or
$1,000 per share) plus all accrued and unpaid dividends thereon divided by
the conversion price of $5.125. If the Conversion Proposal and the Charter
Amendment Proposal are approved at the Annual Meeting of Stockholders
scheduled for May 12, 1998, which will be the First Meeting, the Series C
Preferred Stock will be converted into 3,000,000 shares of Common Stock.
If the Conversion Proposal and the Charter Amendment Proposal are not
approved at the Annual Meeting, (a) the Company has agreed to convene a
second meeting of stockholders no later than January 1, 2000 to approve the
Conversion Proposal and the Charter Amendment Proposal, and (b) the Series
C Preferred Stock will begin to accrue dividends.

GTSI (r) offers its customers a convenient and cost-effective
centralized source for microcomputer and workstation solutions through its
broad selection of popular products and services at competitive prices.
The Company specializes in understanding both the various information
technology needs and the procurement processes of Government customers.
GTSI sells to all departments and agencies of the Government, state
governments and systems integrators and prime contractors selling to the
government market. In 1997, GTSI's sales directly to Government agencies,
to prime contractors for resale to Government agencies and to state and
local government agencies accounted for 86%, 10% and 4% of sales,
respectively.

The Company commenced operations in 1983 and initially focused on
reselling microcomputer software to Government agencies. In 1985, the
Company expanded its product line to include peripherals and began selling
its full line of products to the state government market. In 1986, the
Company began selling microcomputers and networking products and began
performing network integration services, including configuring, installing
and maintaining microcomputers in local area networks ("LANs"). Since
1987, GTSI has been pursuing formal Government bids in addition to General
Services Administration ("GSA") Schedule contracts. In January 1992, GTSI
began reselling Unix workstations and allied software and peripherals.

GTSI currently offers access to approximately 150,000 information
technology products from approximately 2,100 manufacturers, including
Hewlett-Packard Company ("Hewlett-Packard"), Compaq Computer Corporation
("Compaq"), Panasonic (a division of Matsushita Electric Corporation of
America), Microsoft Corporation ("Microsoft"), CISCO Systems Incorporated
("CISCO"), Sun Microsystems, Inc. ("Sun"), Apple, and International
Business Machines Corporation ("IBM"). The Company provides its vendors
with a low-cost marketing and distribution channel to the many end users
comprising the government market, while virtually insulating these vendors
from most of the complex government procurement rules and regulations.

<PAGE>
<PAGE>
5
GTSI fulfills customer orders from its state-of-the-art 200,000-square
foot distribution center located in Chantilly, Virginia. In addition to
the normal distribution functions, activities at the center include
stocking of popular items for fast delivery, customizing equipment through
the integration of various hardware and software components, and
specialized services such as providing source acceptance inspections and
documentation. The distribution center has the capability of supporting
approximately $1.5 billion in shipments per year. This includes the
capacity to integrate hardware at an estimated rate of 900 to 1,100 per day
including functional and diagnostic testing of all integrated components.
The Company currently plans to increase integration capacity to an
estimated 1,600 to 1,800 units per day. In addition to being able to ship
to any of the 48 contiguous states overnight, the center's location in the
Washington, D.C. metropolitan area allows for expedited deliveries to
anywhere in the world.

"GTSI" is a registered service mark of Government Technology Services,
Inc. All other trademarks and service marks are proprietary to their
respective owners.

BUSINESS STRATEGY

GTSI is committed to, and focused on, the government customer. The
Company's business strategy is to continue to broaden its product offering,
to remain a low-cost provider and to bring new technologies to government
customers by concentrating on the following elements:

FOCUS ON THE GOVERNMENT MARKET. Because of its historical focus on
the Government market, GTSI has developed the expertise and established the
vendor and customer relationships necessary to be a leader in this market.
As a result, GTSI's marketing and sales force is effective at reaching and
servicing the Government market, which consists of procurement and
contracting officers, information resource managers, systems integrators,
value-added resellers ("VARs"), prime contractors and a wide array of end
users. In addition, by focusing on the Government market, the Company has
avoided the significant costs of commercial retail outlets and the
potentially higher credit risk associated with selling solely to commercial
entities.

PURSUE GOVERNMENT CONTRACTS. GTSI pursues Government contracts
ranging in size from as small as a few hundred dollars to as large as
potentially hundreds of millions of dollars in sales. The Company holds a
wide range of Government contracts, including multi-million dollar, multi-
year contracts with the Department of Defense ("DoD") and certain civilian
agencies, as well as several multiple award schedules and Blanket
Purchasing Agreements ("BPAs") with a variety of DoD and civilian agencies
(generally, "contract vehicles"). GTSI also serves as a subcontractor to
companies holding Government contracts. The Company intends to continue to
identify and pursue those contract vehicles that best leverage GTSI's broad
product selection, distribution capabilities and vendor relationships. At
various times GTSI has been awarded, in addition to the GSA Schedule
contracts, the U.S. Air Force Desktop IV Microsystems Contract ("Desktop IV
<PAGE>
<PAGE>
6
Contract"), the National Aeronautics and Space Administration's ("NASA")
Scientific & Engineering Workstation Procurement ("SEWP I Contract"), the
NASA SEWP II Contract, the U.S. Army Portable-1 Contract ("Portable-1
Contract"), the U.S. Army Portable-2 Contract ("Portable-2 Contract"), the
National Institute of Health's ("NIH") Electronic Computer Store ("ECS")
Contract ("NIH Contract") and the U.S. Treasury Department Acquisition-1
Contract ("TDA-1 Contract"), and the U.S. Army Standard Management
Information Systems Contract ("STAMIS Contract"), as well as other
Government contracts of amounts typically under $100,000. The Company also
has been awarded subcontracts to supply products under the U.S. Air Force
Integration for Command, Control, Communications, Computers and
Intelligence Contract ("IC4I") and the U.S. Air Force Desktop V
Microsystems Contract ("Desktop V Contract").

FOCUS ON OFFICE AUTOMATION PRODUCTS. GTSI focused initially on the
rapidly growing market for microcomputer applications software and expanded
successively into the complementary office automation market segments of
peripherals, microcomputers and networking products, including LANs. The
Company continued this product strategy by expanding its product line in
early 1992 to include hardware, software and services for RISC-based Unix
workstations manufactured by Sun and in 1993 to include the full line of
products manufactured by Apple. In 1996, GTSI began focusing on internet
and intranet products and services and entered into an agreement with HP to
add their Unix-Based server products. In future years, the Company intends
to add other complementary office automation products and expanded systems
integration services.

FOCUS ON CUSTOMER SERVICE. In the Company's process orientation and
interaction with its many customers, Company employees focus on attempting
to provide high quality customer service(s) associated with the order,
delivery, installation and repair of microcomputer and workstation
products. By following a "one person - one transaction - one time"
approach to customer service, the Company's employees strive to ensure
customer satisfaction and thereby increase the possibilities for future
business.

PROVIDE A CENTRALIZED SOURCE FOR PROCURING OFFICE AUTOMATION PRODUCTS
AND SERVICES. In addition to offering a full line of microcomputer
hardware, software and peripheral products as well as the leading brand of
workstations, GTSI offers its customers pre- and post-sale technical
support and assistance in the selection, configuration, installation and
maintenance of the products and systems that GTSI sells. Furthermore, by
offering a wide range of microcomputer and workstation products through a
variety of procurement mechanisms, GTSI offers its customers the
convenience, flexibility and cost savings of purchasing from a centralized
source. GTSI believes that its convenient "one-stop shop" for
microcomputer and workstation products is an important factor in its
success in the government market.

<PAGE>
<PAGE>
7
MAINTAIN COMPETITIVE PRICING AND IMPROVE OPERATING EFFICIENCIES. The
government market is price-sensitive. GTSI therefore focuses both on
offering competitive pricing to its customers and on constantly improving
operating efficiencies.

ESTABLISH AND MAINTAIN STRONG VENDOR RELATIONSHIPS. In order to
provide a centralized source of products for its customers, GTSI maintains
strong relationships with leading hardware and software vendors. GTSI
offers its vendors a wide range of marketing and sales services, which
provide them with access to the millions of end users comprising the
government market. In addition, the Company virtually insulates its
vendors from most of the procurement regulatory complexities, costs,
extensive paperwork and complicated billing requirements associated with
the government market.

THE GOVERNMENT PROCUREMENT PROCESS

The Company's 1997 revenues were derived primarily from sales directly
to departments and agencies of the Government and to prime contractors
reselling to the Government market. The Company's sales fall into five
categories: GSA Schedule contracts, indefinite-delivery/indefinite-quantity
("IDIQ") contracts, including government-wide acquisition contracts,
subcontracts, BPAs, and open market.

GSA SCHEDULE CONTRACTS

In 1996, GTSI held four GSA Schedule contracts: Schedule A, Schedule
B/C, Schedule 58 Parts VI and VII, and Schedule E. Schedule A included
general purpose commercial automatic data processing equipment and software
including workstations and connected peripherals equipment. Schedule B/C
included general-purpose automatic data processing equipment (end-user
computers, normally microcomputers and related software) for office use
environment. Schedule 59 Part VI and VII was for telecommunications
products, and Schedule E was for electronic commerce and services. On
November 26, 1997 GSA combined the four schedules under the terms of the
B/C Schedule Contract and the B/C Schedule Contract became the Information
Technology ("IT") Schedule. Products offered under the IT Schedule
Contract include workstations, desktops, laptops, notebooks, servers, laser
printer, color printers, scanners, monitors, modems, hard drives, memory,
networking products, facsimile products, internet and intranet products,
video teleconferencing, maintenance, training and services. GTSI's IT
schedule will expire on March 31, 1999.

The GSA, which is the central procurement agency of the Executive
Branch of the Government, negotiates schedule contracts. Although
Government agencies are not required to purchase products under GSA
Schedule contracts, these contracts provide all Government agencies,
certain international organizations and authorized prime contractors with
an efficient and cost-effective means for buying commercial products. Gov-
ernment agencies and other authorized purchasers (collectively, "GSA
Schedule Purchasers") may purchase goods under GSA Schedule contracts at
predetermined ceiling prices, terms and conditions. GSA Schedule
<PAGE>
<PAGE>
8
Purchasers may place unlimited orders for products under GSA Schedule
contracts. However, agencies are instructed to seek lower prices for
orders exceeding a "maximum order" threshold. This threshold is $25,000
per order for classroom training, $50,000 per order for shrink-wrap
software and $500,000 per order for other software and hardware.

GSA Schedule contracts are awarded on the basis of a number of
factors, the most important of which are compliance with applicable
Government regulations and the prices of the products to be sold. Any
number of competing vendors may be awarded a GSA Schedule contract for a
given product although manufacturers may enter into exclusive
relationships. GSA Schedule contracts require that each bidder must either
be the manufacturer of the product covered by the contract or furnish
evidence of capability to provide a manufacturer's product for the period
of the GSA Schedule contract. Products may be added to a GSA Schedule
contract during its term under certain circumstances with the consent of
both the contractor and Government. GSA Schedule contracts include a GSA
administrative fee calculated on the product price. This fee is collected
by the Company and is remitted quarterly to the GSA.

GTSI's GSA Schedule contracts require the Government to pay for
product shipped under the contracts within 30 days of acceptance by the
Government. The GSA Schedule contracts also permit payment by Government-
issued credit cards. When payment is made by credit card, the Company
often receives payment in less than 30 days. The Government may require
GTSI to accept returns only of incorrectly shipped product. GTSI's GSA
Schedule contracts require GTSI to pass on to customers the vendor's
warranty and to provide for on-site or depot maintenance at a pre-paid flat
fee. GTSI's GSA Schedule contracts also contain price reduction clauses
requiring, among other things, that GTSI pass on to Government customers
certain reduced prices GTSI may receive from its vendors during a
contract's term but prohibiting GTSI to pass on vendor price increases for
a period of one year. To mitigate the potential adverse impact of any such
price increase, the Company requires virtually all vendors acting as
suppliers to GTSI under its GSA Schedule contracts to provide GTSI with
supply and price protection for the duration of the contracts. The
Schedule includes an economic price adjustment clause that permits the
Company to adjust contract prices upward if certain conditions have been
satisfied after a period of one year.

FORMAL BIDS

A significant portion of Government purchases of computer products and
services are made under contracts or purchase orders awarded through formal
competitive bids and negotiated procurements. Since 1987, in addition to
its GSA Schedule and open market business, GTSI has pursued formal
Government bids. Since substantially all of these bids are awarded on the
basis of "best value" to the Government (which, depending on the bid, can
be a combination of price, technical expertise, past performance on other
Government contracts and other factors), GTSI has sought to use its vendor
contacts, purchasing power, distribution strength and procurement expertise
to successfully compete for the business. These major procurements can
<PAGE>
<PAGE>
9
exceed millions of dollars in total revenues, span many years, and provide
a purchasing vehicle for many agencies. The vast majority of the contracts
pursued by GTSI have been fixed-price (i.e., at the time of initial award,
the end-user selling prices are set for the duration of the contract at a
specified level or at specified levels varying over time) and IDIQ (i.e.,
the contract provides no pre-set delivery schedules or minimum purchase
levels). In some cases, various agencies levy a fee on those on purchases
made by departments outside of the agency, which awarded the contract.
These fees are collected by the Company, and as under the GSA contract,
remitted to the respective agency on a contract specified payment schedule.

GTSI's bids group is responsible for evaluating bid opportunities,
identifying key products or services needed to respond to bids, negotiating
favorable agreements with suppliers and subcontractors, preparing written
responses to the solicitation document, meeting all mandatory technical
requirements and, in general, successfully managing the proposal effort.
GTSI's competitors for these contracts typically include major systems
integrators, computer manufacturers and a variety of other systems
integrators, VARs and commercial resellers.

DESKTOP IV CONTRACT. In February 1993, GTSI and Zenith Data Systems
("Zenith") were jointly awarded the Desktop IV Contract. In May 1993,
following a protest filed by several losing bidders at the General Services
Board of Contract Appeals ("GSBCA"), the Desktop IV Contract award to GTSI
and Zenith was affirmed. In August 1993, GTSI began shipments under this
contract. The Desktop IV Contract is a non-mandatory, fixed-price, IDIQ
contract covering the worldwide sale of microcomputer systems, peripherals
and software, along with maintenance, supplies and training to all DoD
agencies, as well as certain other Government agencies. The original
expiration date for systems orders was February 1, 1995, with one option to
extend, solely at the discretion of the Air Force, for a one-year period.
The Air Force exercised its one-year option, which expired February 1,
1996. The Air Force exercised a separate option to procure maintenance and
User Installable Components ("UICs") from February 2, 1996 through February
1, 1997. The Air Force has executed a separate option to procure
maintenance and UICs from February 1, 1997 through February 1, 1998. The
Government's maximum evaluated dollar value for the contract awarded to
GTSI over its three-year maximum life is approximately $655.0 million. The
Company settled an appeal filed at the Armed Services Board of Contract
Appeals in December 1996 regarding certain Desktop IV Contract matters.
See "Legal Proceedings." Sales under the Desktop IV Contract in 1997,
1996, and 1995 were approximately $1.1 million, $29.8 million, and $93.4
million, respectively.

SEWP I CONTRACT. In February 1993, GTSI was awarded its SEWP I
Contract which is one of seven workstation contracts and two peripheral
contracts awarded by NASA under the SEWP program. In August 1995, GTSI
became the first IDIQ contractor to implement Internet credit card and
Electronic Data Interchange ("EDI") ordering for its SEWP customer base.
GTSI's fixed discount, IDIQ contract covers the sale of specified Unix-
based X-terminals, printers, application software and related peripherals
to all NASA centers as well as certain non-NASA agencies and approved prime
<PAGE>
<PAGE>
10
contractors. Products may be added to the contract at fixed discounts from
the manufacturer's catalogue, list, GSA or other published pricing base by
mutual agreement with the Government. Product discounts must be maintained
throughout the applicable contract period provided that the computed price
to the Government cannot exceed GSA Schedule pricing. The contract's
original expiration date was February 18, 1994, with four successive one-
year options. The Government exercised its third one-year option, which
expired on February 18, 1997. The Government did not exercise the fourth
one-year option. Sales under GTSI's SEWP I Contract in 1997, 1996, and
1995 were approximately $19.6 million, $23.8 million, and $8.9 million,
respectively.

PORTABLE-1 CONTRACT. In December 1994, GTSI and International Data
Products, Inc. ("IDP") were jointly awarded the Portable-1 Contract by the
Department of the Army. In February 1995, following a protest filed at the
GSBCA by one of the losing bidders, the Portable-1 Contract award to GTSI
and IDP was affirmed. In February 1995, GTSI began shipments under this
contract. The Portable-1 Contract is a fixed-price, IDIQ contract covering
the world-wide sale of portable microcomputer systems, peripherals and
software, along with maintenance supplies to the Army, DLA and other
Government agencies, excluding the Navy and Air Force. Hardware products
may be added to the contract at to-be-negotiated prices by mutual agreement
with the Government. In such cases, GTSI will likely be required to
provide such updated versions of products to the Government at the same or
at lower prices as the products originally bid. The contract is non-
mandatory and expired on January 24, 1997. The Government's maximum
evaluated dollar value for the contract over its two-year maximum life is
approximately $115.0 million. Sales under the Portable-1 Contract in 1997,
1996 and 1995 were approximately $3.6 million, $24.0 million and $25.2
million, respectively.

NIH ECS I CONTRACT. In September 1995, GTSI and 16 other contractors
were jointly awarded the Electronic Computer Store I ("ECS I") Contract to
provide commercial off-the-shelf personal computer equipment (including
laptops, peripherals, software and operating systems) and related warranty
service to the National Institutes of Health and other agencies of the U.S.
Department of Health and Human Services. The contract is a non-mandatory,
fixed price, IDIQ contract with an original expiration date of September
30, 1996. The Government exercised one option to extend the contract to
September 30, 1997. The Government's maximum evaluated dollar value for
the ECS I Contract over its two-year maximum life is approximately $96.8
million. Sales under the ECS Contract in 1997 and 1996 were approximately
$52 million and $33.6 million, respectively.

TDA-1 CONTRACT. In March 1996, GTSI was awarded the TDA-1 Contract.
The TDA-1 Contract is a fixed-price, IDIQ contract which calls for GTSI to
provide desktop and laptop computers, as well as software and peripherals,
to the U.S. Treasury Department. The contract is non-mandatory with an
original expiration date of March 3, 1997, with one option to extend for a
one-year period. The Government has exercised its option to extend the
contract to September 4, 1998. The Government's maximum evaluated dollar
<PAGE>
<PAGE>
11
value for the contract over its two-year maximum life is approximately
$38.0 million. Shipments under the TDA-1 Contract began in August 1996.
Sales under the TDA-1 Contract in 1997 and in 1996 were approximately $17.6
million and $2.1 million, respectively.

SEWP II CONTRACT. In November 1996, the Company was awarded two SEWP
II Contracts out of 20 awarded by NASA under the SEWP program. The
contract was available for orders in January 1997. Thereafter, NASA
consolidated the contracts so that there are now 16 contracts, of which
GTSI holds one. The SEWP II Contract is a non-mandatory, fixed price, IDIQ
contract for specified Unix-based equipment, printers, application software
and related peripherals to the entire Government and all NASA prime
contractors. Products may be added to the contract at fixed discounts from
the manufacturer's catalogue, list, GSA or other published pricing base by
mutual agreement with the Government. Product discounts must be maintained
throughout the applicable contract period provided that the computed price
to the Government cannot exceed GSA Schedule pricing. The original
contract expiration date was November 15, 1997. The contract includes
three one-year extension options. The Government has exercised its first
one-year option to extend the contract to November 14, 1998. Sales under
the SEWP II contract in 1997 were approximately $20.7 million.

PORTABLE-2 CONTRACT. In December 1996, GTSI was awarded the
Portable-2 Contract, a follow-on to the Portable-1 Contract. The
Portable-2 Contract is a fixed-price, IDIQ contract which calls for GTSI to
provide world-wide sales of notebook computers, application software,
monitors, printers, notebook peripherals and maintenance to the Army, the
Defense Logistics Agency and other Government agencies, excluding the Navy
and the Air Force. The contract is a two-year, dual award contract. Two
competitors protested the award of the contract. In April 1997, the award
to GTSI was affirmed. In May 1997, GTSI began shipments under this
contract. The Government's maximum evaluated dollar value for the contract
over its two-year maximum life is approximately $237 million. Sales under
the Portable-2 contract in 1997 were approximately $19.9 million.

NIH ECS II CONTRACT. In September 1997, GTSI and 45 other contractors
were jointly awarded the Electronic Computer Store II ("ECS II") contract
to provide commercial off-the-shelf personal computer equipment (including
laptops, peripherals, software and operating systems) and related warranty
service to the National Institutes of Health and other agencies of the
Government. The vehicle is a non-mandatory, fixed price, IDIQ contract
with an original expiration date of September 16, 1998. The contract
includes four one-year options. The Government's maximum evaluated dollar
value for the ECS II for the 5-year term of the contract is $1.8 billion.
Sales under the ECS II contract in 1997 were approximately $5.9 million.

STAMIS CONTRACT. In October 1997, GTSI was awarded the U.S. Army's
Standard Management Information System ("STAMIS") Computer Contract II.
The IDIQ contract is a one-year contract with four one-year options to
renew for the purchase of products, and three additional one-year options
for the purchase of service. The Government's maximum evaluated dollar
value for the STAMIS Contract for the entire term of the contract is $469
million. Sales under the STAMIS contract in 1997 were approximately $0.6
million.<PAGE>
<PAGE>
12
SUBCONTRACTS

In 1997, the Company's business included subcontracts for product
supply to companies holding Government integrator prime contracts.

IC4I CONTRACT. In June 1996, the Company was awarded a subcontract by
Systems Research Applications Corporation ("SRA") to provide hardware and
software for use by the Government in connection with SRA's IC4I Contract.
The IC4I Contract is non-mandatory, fixed-price, IDIQ contract which
expires in June 1998 and includes three one-year extension options.
Shipments under the IC4I Contract began in October 1996. Sales under the
subcontract in 1997 and in 1996 were approximately $6.2 million and $0.3
million, respectively.

DESKTOP V CONTRACT. In November 1996, the Company was awarded a
subcontract with Hughes Data Systems to provide monitors and notebooks for
use by the Air Force in connection with the Desktop V Contract. The
subcontract expires in May 2002. Shipments under the subcontract began in
July 1996, and sales under the subcontract in 1997 and in 1996 were
approximately $1.2 million and $3.9 million, respectively.

BLANKET PURCHASE AGREEMENTS

Historically, the Company has held hundreds of BPAs with federal
agencies. A BPA is a simplified but non-mandatory, fixed price, IDIQ
contract for the Government to purchase products, usually by establishing
charge accounts with qualified sources. Agencies typically enter into BPAs
for similar products with several companies. BPAs generally include a list
of products at established prices, individual purchase limits for
authorized purchasers, and other pre-negotiated terms and conditions.
Purchases under BPAs are often paid for with a Government-issued credit
card.

In 1996, the GSA authorized agencies to enter into BPAs with Schedule
holders. The GSA-authorized BPAs incorporate many terms and conditions of
the GSA Schedule contracts, and incorporate many products offered on GSA
Schedule contracts, often at lower prices than available on the GSA
Schedules. The Company normally enters into separate agreements with
vendors in order to offer reduced BPA prices to the Government. The BPA
sales vehicle allows the Company to focus specific vendor relationships on
specific sets of customers. In response to the GSA's authorization, the
Company has increased its emphasis on BPAs.

The Company's major BPAs include: the Naval Information Systems
Management Center BPA for notebook computers and associated equipment, with
estimated aggregate sales among the BPA awardees of $98 million; and the
Naval Information Systems Management Center BPA for desktop and associated
equipment, with estimated sales among the BPA awardees of 7,500 computers
per year; the Air Force Standard Systems Group BPA for printers and
associated products and the GSA Federal Telecommunications Service BPA for
computer equipment.

<PAGE>
<PAGE>
13
OPEN MARKET

Many microcomputer and workstation products may also be resold by GTSI
through open market procurements. These procurements are separate and
apart from GSA Schedules or formal competitive bids, and include simplified
acquisition procedures, requests for quotes, invitations for bids and
requests for proposals. The Company is on most Government bid lists
relevant to its product offerings and responds with proposals to hundreds
of such bid solicitations each year. When awarding contracts, the
Company's customers often evaluate, in addition to price, which is
typically the most important factor, a number of other factors, such as the
vendor's experience, performance record, service, support and financial
strength. Unless purchasing electronically, Government agencies procuring
products not on a Schedule or other contract vehicle must typically
publicize their procurements between $2,500 and $25,000 to allow
competitors to submit price quotes. The Company also sells to Government
prime contractors, including systems integrators, typically through open
market procurements. As a result of recent legislative changes, the
Government is encouraged to make purchases under $2,500 by credit card and
often without competition. In 1996, GTSI initiated a catalog offering for
sales of microcomputer products. Many of these products offered for sale
are for less than $2,500 and are available via credit card purchases.

STATE AND LOCAL CONTRACTS

Most purchases in the state government market are made through
individual competitive procurements, although many state governments issue
invitations for bid for statewide computer term contracts. State and local
procurements typically require formal responses and the posting of "bid
bonds" or "performance bonds" to ensure complete and proper service by a
prospective bidder. Each state maintains a separate code of procurement
regulations that must be understood and complied with in order to
successfully market and sell to that state. GTSI currently maintains
several state and local microcomputer contracts, submits oral and written
bids to state and local governments each month and is on a number of state
and local government bid lists.

GOVERNMENT MARKET CONSIDERATIONS

A substantial portion of the Company's contracts are fixed-price and
IDIQ. The uncertainties related to future contract performance costs,
product life cycles, quantities to be shipped and dates of delivery, among
other factors, make it difficult to predict the future sales and profits,
if any, that may result from such contracts.

Under applicable Government regulations GTSI qualified as a "small
business" during 1997 by virtue of it being a non-manufacturing entity with
a rolling average over the prior 12 months of 500 or fewer employees. As a
small business, GTSI enjoyed a number of significant benefits, including
being able to: compete for designated small business set-aside contracts;
bid pursuant to preferential small purchase procedures for open market
purchases under $100,000 directed to non-manufacturer small businesses;
<PAGE>
<PAGE>
14
qualify as a small business subcontractor to prime contractors on contracts
over $500,000 in which the prime contractor must submit to the Government a
small business subcontracting plan; offer Government agencies the advantage
of having their purchases from GTSI count toward fulfilling their internal
small purchase goals; and avoid having to establish small business
subcontracting plans in order to compete for certain large Government
contracts.

As a result of the acquisition of the BTG Division in February 1998,
GTSI no longer qualifies as a small business for future contract awards.
Although most government contracts entered into before the BTG Division
acquisition will not be affected by this change, the Company cannot predict
the effect, if any, of this change on its operations. GTSI has a number of
possible actions available to it to seek to mitigate an adverse impact to
GTSI of the future loss of its small business status, including the
following: increasing sales through the large number of Government
contracts which are not subject to small purchase procedures; aggressively
implementing GTSI's low-cost, one-stop shop strategy to economically
encourage customers to continue to place orders with GTSI; expanding its
sales to prime contractors qualifying as small or minority-owned
businesses; and increasing its sales to state and other markets not subject
to Government small business regulations. Currently, GTSI cannot precisely
quantify the extent of the impact, if any, on its future results from a
loss of its small business status.

Noncompliance with Government procurement regulations or contract
provisions could result in termination of Government contracts, substantial
monetary fines or damages, suspension or debarment from doing business with
the Government and even civil or criminal liability. During the term of
any suspension or debarment by any Government agency, the contractor could
be prohibited from competing for or being awarded any contract by any
Government agency. In addition, virtually all of the Company's Government
contracts are terminable at any time at the convenience of the Government
or upon default. Upon termination of a Government contract for default,
the Government may also seek to recover from the defaulting contractor the
increased costs of procuring the specified goods and services from a
different contractor. The effect of any of these possible Government
actions or the adoption of new or modified procurement regulations or
practices could adversely affect the Company.

The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its operations as a result
of Government buying and funding patterns. Although these patterns have
historically led to sales being concentrated in the Company's third and
fourth quarters, the seasonality and the unpredictability of the factors
affecting such seasonality make GTSI's quarterly and yearly financial
results difficult to predict and subject to significant fluctuation.

<PAGE>
<PAGE>
15
PRODUCTS

The Company currently offers access to approximately 150,000
information technology products from approximately 2,100 hardware and
software vendors. The Company continuously monitors sales of existing and
newly introduced products to ensure that it carries state-of-the-art
technology products.

HARDWARE. The Company currently resells microcomputers from major
brand name manufacturers, including Hewlett-Packard, Compaq, Panasonic,
Nexar Technologies, Inc. ("Nexar"), Everex, Sun and Apple; and peripherals
from major brand name manufacturers, including Hewlett-Packard, Tektronix,
Sony, Iomega, Panasonic and Kodak. The Company began selling RISC-based
Unix workstations manufactured by Sun in 1992. In 1993, the Company began
selling the full line of products manufactured by Apple and, in connection
with the Desktop IV Contract, GTSI's own private label microcomputers --
GTSI DeskTop (tm) -- manufactured by IBM. The Company no longer sells the
GTSI DeskTop product. Peripherals carried by the Company include disk
drives, CD-ROM drives, printers, video display monitors, plug-in circuit
boards, modems and related products. GTSI's LAN hardware products are
supplemented by the Company's LAN services, which include assisting
customers in selecting, configuring, installing and maintaining LANs.

SOFTWARE. The Company carries microcomputer software from virtually
every leading MS-DOS and Windows microcomputer software vendor, as well as
Sun workstation and Apple software from a number of leading software
publishers. The Company sells packaged application software or licenses
therefor, including word processing, database management, spreadsheet and
graphics programs, for use on IBM, IBM-compatible microcomputers, Apple and
Apple-compatible microcomputers, and on Sun and Hewlett-Packard Unix work-
stations. The Company's microcomputer software vendors include Microsoft,
Symantec IBM/Lotus, Informix, Corel, and Visio. GTSI also sells networking
software, including Novell products.

MARKETING AND SALES

The Company's marketing and sales personnel design and direct the
Company's sales efforts and its market research, telemarketing and direct
mail campaigns; Company-sponsored catalogues and seminars; advertising in
specialty publications; and participation in major trade shows. GTSI
provides training to its marketing and sales force on various government
procurement processes and technical features of the products and services
it offers. All sales personnel have been trained on, and have online
access to, GTSI's computerized system for maintaining price, product
availability, bid, ordering and order-status information.

From inception, GTSI recognized that the size and diversity of the
government market made it imperative to identify and understand the needs
of customers. Through years of intensive effort, GTSI has compiled and
continuously updates one of the most comprehensive databases of federal,
state and local government microcomputer users and their buying patterns.
This proprietary, on-line computerized database currently contains over
<PAGE>
<PAGE>
16
235,000 entries, including an extensive list of agency procurement and
contracting officers, information resource managers, end users, systems
integrators, VARs and prime contractors. GTSI uses this database, among
other things, for targeting telemarketing and direct mail campaigns. The
Company conducts direct mail campaigns consisting of brochures, fliers,
questionnaires, reply cards and other promotional items.

In addition to being an active participant in major federal and state
government trade shows, GTSI sponsors and produces its own federal and
state government seminars and agency-specific shows. GTSI designs these
seminars and shows to provide training and information about microcomputers
and workstations and related services that are of significant interest to
government users. GTSI also produces its own "Expos" in which GTSI and
specific agencies work together to showcase products to key end users and
decision makers. These seminars, shows and expositions are supplemented by
technical support hot lines, customer bulletin boards and an evaluation
library of microcomputer and workstation product profiles, technical
literature and demonstration hardware and software. The Company also
offers simplified software upgrade policies designed specifically for the
Government.

The Company publicly introduced its web site, GTSI Online (sm)
(http:\\www.gtsi.com), on the world wide web in early 1995. The site
presently provides access to certain product, contract and Company
information. Additional features for GTSI's web site, including electronic
order submission, system configuration, technical assistance and order
status checking, are in various stages of development, testing and
implementation. The Company presently intends to make extensive use of its
evolving web site as a sales and marketing tool.

In 1998, the Company plans to expand GTSI Express (sm), a tightly
integrated print and online catalog designed to target the rapidly
expanding base of Government credit card holders. The GTSI Express print
catalog will be revised and re-printed several times a year and distributed
to GTSI and various trade publication customers. GTSI intends to update
the online catalog daily and to provide access to the catalog from GTSI's
web site. All products featured in GTSI Express will be competitively
priced. For popular products, GTSI will offer same day shipping. In
addition, GTSI Express will provide customers with value-added information
such as an online listing of top-selling GTSI products, information
technology industry data and government-related information.

VENDOR RELATIONSHIPS

In order to offer its customers a centralized source for their
microcomputer and workstation needs, the Company establishes and maintains
relationships with key vendors and offers them a number of profitable
opportunities to expand their sales to the government market, including:

o Access to the government market through a significant number of
diverse contract vehicles.

<PAGE>
<PAGE>
17
o Substantial relief from the cost of compliance with procurement
regulations involved in selling directly to the government
market.

o Lower operating costs related to reduction or elimination of
selling and marketing programs, and elimination of non-commercial
billing and collection costs related to the government market.

o Participation in value-added services, including numerous
government-specific marketing programs and end-user technical
support.

The terms of the Company's agreements with its vendors vary widely,
but typically permit the Company to purchase product for resale to at least
the government market. Virtually none of the Company's vendor agreements
requires the Company to purchase any specified quantities of product. The
Company typically requires vendors acting as suppliers to GTSI under its
term Government contracts to provide GTSI with supply and price protection
for the duration of such contracts. Other than supply agreements under
term Government contracts, the Company's vendor agreements are typically
terminable by the vendor on short notice, at will or immediately upon
default by GTSI. These vendor agreements also generally permit GTSI to
return previous product purchases at no charge within certain time limits,
for a restocking fee up to 10% and/or in exchange for other products of
such vendor. The Company also purchases some products from independent
distributors.

Vendors provide the Company with various forms of marketing and sales
assistance, including but not limited to sales incentives and market
development funds. Vendors provide sell-through and other sales incentives
in connection with certain product promotions. Additionally, key vendors
participate with the Company in cooperative advertising and sales events
and typically provide funding which offsets the costs of such efforts. A
reduction in or discontinuance of any of these incentives or significant
delays in receiving reimbursements could materially adversely affect the
Company. As a non-manufacturing reseller, the Company must continue to
obtain products at competitive prices from leading vendors in order to
provide a centralized source of price-competitive products for its
customers and to be awarded government contracts. Although almost all of
GTSI's vendors currently do not have all of their own computer products on
a GSA Schedule contract, one or more may elect to apply for its own GSA
Schedule contract and may do so at lower end-user selling prices than those
GTSI currently offers or could profitably offer. Although GTSI believes
its relationships with its key vendors to be good, a decision by one or
more to sell directly to the Government (especially if at significantly
lower prices than GTSI), to sell their products to GTSI's competitors on
more favorable terms than to GTSI, to allow additional resellers to
represent their products on a GSA Schedule contract, to restrict or
terminate GTSI's rights to sell their products or restrict their products
from being carried on a GSA Schedule contract, could materially adversely
affect the Company.

<PAGE>
<PAGE>
18
CUSTOMERS

The Company's customers are primarily federal, state and local
government agencies and prime contractors to the Government, including
systems integrators. In 1997, the Company sold products or services to
thousands of different customers, including to all agencies and major
departments of the Government, to many state governments and to hundreds of
prime contractors. Although no single customer accounted for greater than
5% of the Company's 1997 sales, aggregate 1997 sales to the Government's
Departments of the Army, Navy and Air Force were 18%, 12% and 11%,
respectively, of GTSI's 1997 sales.

The Company's sales are highly dependent on the Government's demand
for microcomputer and workstation products. Although the Company does not
believe that the loss of any single customer would have a materially
adverse effect on it, a material decline in its overall sales to the
Government as a whole or to certain key agencies thereof could have such an
effect. Reductions in DoD or other Government outlays could occur and may
adversely affect the Company. Furthermore, legislation is periodically
introduced in Congress that, if enacted, may change the Government's
current procurement processes. GTSI cannot predict whether any such
legislative or regulatory proposals will be adopted or, if adopted, the
impact upon its operating results. Changes in the structure, composition
and/or buying patterns of the Government could affect the Company's future
operating results.

BACKLOG

At March 19, 1998, and December 31, 1997, the Company's backlog of
orders was approximately $76.3 million and $38.4 million, respectively, as
compared with approximately $38.8 million and $48.1 million at March 19,
1997 and December 31, 1996, respectively. Backlog consists of written
purchase orders received and accepted by GTSI but not shipped due to either
the unavailability of inventory to fill the order and/or the occurrence of
the customer-specified shipment date (which must be within 30 days to be
considered backlog). Backlog fluctuates significantly from quarter to
quarter because of the seasonality of Government ordering patterns and the
periodic inventory shortages resulting from constrained products.

SERVICE AND WARRANTY

GTSI provides post-sale field service for certain products that it
sells primarily through subcontractors and to a limited extent through the
Company's in-house technical staff. The Company typically warrants prod-
ucts sold to the Government and certain other customers for the same term
as the manufacturer's warranty period although many IDIQ contracts include
provisions for warranties that extend beyond those offered by the
manufacturer. The Company also sells extended warranties on many of the
government contracts. Product repaired while under the manufacturer's
warranty is at the manufacturer's expense; product repaired after
expiration of the manufacturer's and GTSI's warranty, if longer, is at the
customer's expense.

<PAGE>
<PAGE>
19
COMPETITION

The government microcomputer and workstation market is intensely
competitive and subject to rapid change. GTSI competes with certain
leading microcomputer and/or workstation hardware manufacturers, which sell
to the government market directly and/or through representatives other than
the Company, and with a number of systems integrators, government and
commercial resellers and commercial computer retail chains, distributors
and VARs (including companies qualifying as minority-owned, disadvantaged
or small businesses under applicable Government regulations) seeking to
enter or expand their presence in the government market. In 1997, certain
manufacturers selling directly to the Government have gained market share
in the GSA schedule market. A number of GTSI's existing and potential
competitors have greater financial, sales, marketing and technological
resources than the Company.

The Company believes that the principal competitive factors in the
government microcomputer market are price, expertise in the applicable
government procurement processes, breadth of product line, customer and
vendor relationships, financial strength, the technical and other skills of
marketing and sales personnel, distribution capability, available inventory
and customer service and support. The Company believes that the principal
competitive factors in the government workstation market are essentially
the same, except that technical expertise and customer service and support
are often more important and breadth of product line and available
inventory are often less important. The Company believes that it competes
favorably on each of these factors, although to a lesser degree with
respect to technical expertise. GTSI also believes that it has a
competitive advantage over certain of its competitors because of its
procurement expertise and avoidance of costly overhead related to selling
into multiple market segments and maintaining numerous retail outlets. In
addition, the Company's ability to offer a centralized source for purchases
of a wide variety of leading computer products from numerous manufacturers
often provides a competitive advantage over manufacturers who sell only
their own line of products directly to the government.

EMPLOYEES

At February 28, 1998, the Company had 519 employees, including 302 in
sales, marketing and contract management; 107 in operations; and 110 in
executive, finance, information technology, human resources and legal.
None of the Company's employees is represented by a labor union, and the
Company has experienced no labor-related work stoppages.

<PAGE>
<PAGE>
20
ITEM 2. PROPERTIES.

The Company's executive offices are located in an approximately
190,000-square foot group of facilities in Chantilly, Virginia under a
lease expiring in November 1998. GTSI's warehousing and distribution
operations are also located in Chantilly, Virginia in a separate 200,000-
square foot facility under a lease expiring in December 2006. The Company
also has branch sales offices occupying an aggregate of 7,742 square feet
under various multi-year leases expiring at various times throughout 1998.
The Company's two branch sales offices are located in Chicago, Illinois and
Heidelberg, Germany. In 1997 the Company entered into an agreement to build
and lease new executive offices comprising approximately 100,500 square
feet. The lease agreement has a 10 year term with one 5 year option.

ITEM 3. LEGAL PROCEEDINGS.

On October 5 1997, the Company entered into a settlement agreement
with the Department of Justice under which the Company will pay the
Government a total of $400,000 plus $22,000 in legal fees that are to be
paid in three equal installments. Interest will accrue from the date of
settlement and will be paid over the installment period. The agreement
resolves and releases the Company from claims relating to a GSA audit of
the Company's GSA schedule sales for the years 1988 to 1997, and settles
and dismisses with prejudice a qui tam lawsuit filed on behalf of the
Government regarding such GSA schedule sales. The qui tam lawsuit naming
the Company was filed under seal in 1995 and was subject to a court order
prohibiting disclosure of the suit. The qui tam action was filed by the
same individual who filed a similar suit against Novell, Inc. in 1992,
which Novell settled by paying the Government $1.7 million.

At December 31, 1996, the Company recorded a liability of
approximately $3.0 million, which represented management's estimate of the
costs necessary to provide the "upgrades" noted above plus estimated
professional services costs paid in 1997 related to the GSA audit. The
balance of this reserve was approximately $800,000 as of February 28, 1998.

The Company is occasionally a defendant in litigation incidental to
its business. The Company believes that none of such litigation currently
pending against it, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of
operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Inapplicable.

<PAGE>
<PAGE>
21
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

STOCK DATA. The Company's common stock trades on The Nasdaq Stock
Market (sm) under the symbol "GTSI." As of December 31, 1997, there were
210 record holders of the Company's common stock based on information
provided by the Company's transfer agent. The following table sets forth,
for the periods indicated, the high and low closing prices for the
Company's common stock.

1997 1996
------------------- -----------------
Quarter High Low High Low
------- -------- --------- ------- -------
First $ 5 7/8 $ 4 1/2 $ 5 1/4 $ 3 1/4
Second $ 5 7/16 $ 4 3/4 $ 6 7/8 $ 5
Third $ 5 7/8 $ 4 13/16 $ 6 1/4 $ 5 1/8
Fourth $ 5 7/8 $ 4 1/2 $ 7 3/8 $ 5 3/8

The Company has never paid cash dividends. It is the present policy
of the Company to retain earnings to finance the growth and development of
its business, and therefore the Company does not anticipate paying cash
dividends on its common stock in the foreseeable future. Furthermore,
certain financial covenants in the Company's bank credit agreement restrict
the Company's ability to pay cash dividends.

ADDITIONAL INVESTOR RELATIONS INFORMATION. All of the Company's
current required filings with the Securities and Exchange Commission, as
well as press releases and other investor relations information, may be
found at http://www.gtsi.com on the internet's world wide web. For those
without internet access, such information may be obtained without charge by
request to the Company addressed to: Investor Relations, Government
Technology Services, Inc., 4100 Lafayette Center Drive, Chantilly, Virginia
20151-1200.

TRANSFER AGENT. The Company's transfer agent is First Union National
Bank, Shareholder Services Group, 1525 West W.T. Harris Blvd., 3C3,
Charlotte, NC 28288-1153; telephone 1-800-829-8432.

ANNUAL MEETING. The Annual Meeting of Stockholders is scheduled to be
held at 9:00 a.m. on Tuesday, May 12, 1998, at the Company's headquarters
located at 4100 Lafayette Center Drive in Chantilly, Virginia.

<PAGE>
<PAGE>
22
ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data for the three years ended December 31,
1997, 1996, and 1995 are derived from, and are qualified in their entirety
by reference to, the Company's audited Financial Statements and Notes
thereto included elsewhere in this Form 10-K. The December 31, 1997 and
1996 Financial Statements of the Company have been audited by Arthur
Andersen LLP, independent accountants, as indicated in their report, which
is also included elsewhere in this Form 10-K. The December 31, 1995
Financial Statements of the Company were audited by Coopers & Lybrand
L.L.P., independent accountants, whose report is also included in this Form
10-K. The selected financial data for all other periods are derived from
audited financial statements of the Company which are not included in this
Form 10-K.

<TABLE>
<CAPTION>
(In thousands, except per share amounts) TWELVE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996(1) 1995(2) 1994(3) 1993(4) 1992
INCOME STATEMENT DATA: -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . $486,377 $491,642 $526,962 $617,220 $523,612 $396,555
Cost of sales . . . . . . . . . . . . . . . . 449,454 458,076 488,348 569,827 472,909 350,791
-------- -------- -------- -------- -------- --------
Gross margin. . . . . . . . . . . . . . . . . 36,923 33,566 38,614 47,393 50,703 45,764
-------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative. . . . 35,388 36,841 39,645 38,701 33,119 32,080
Depreciation and amortization. . . . . . . 3,539 13,456 3,090 2,358 1,608 1,622
Restructuring charges. . . . . . . . . . . - - 2,953 - - -
-------- -------- -------- -------- -------- --------
Total operating expenses. . . . . . . . . . . 38,927 50,297 45,688 41,059 34,727 33,702
-------- -------- -------- -------- -------- --------
(Loss) income from operations . . . . . . . . (2,004) (16,731) (7,074) 6,334 15,976 12,062
Interest expense, net . . . . . . . . . . . . 3,100 3,138 4,538 2,172 2,010 2,642
-------- -------- -------- -------- -------- --------
(Loss) income before taxes. . . . . . . . . . (5,104) (19,869) (11,612) 4,162 13,966 9,420
Income tax (benefit) provision. . . . . . . . - (2,031) (4,435) 1,576 5,330 3,649
-------- -------- -------- -------- -------- --------
Net (loss) income . . . . . . . . . . . . . . $ (5,104) $(17,838) $ (7,177) $ 2,586 $ 8,636 $ 5,771
======== ======== ======== ======== ======== ========
(Loss) earnings per share (basic and diluted) $ (0.76) $ (2.67) $ (1.09) $ 0.37 $ 1.30 $ 0.91
======== ======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding . . . 6,733 6,690 6,604 6,898 6,654 6,355
======== ======== ======== ======== ======== ========

(1) The quarter ended December 31, 1996 includes a pretax charge of $9.1 million ($8.2 million after tax, or $1.22 per share)
related to the impairment of intangible assets acquired as part of the acquisition of Falcon in 1994.
(2) The quarter ended December 31, 1995 includes a pretax charge of $7.9 million ($4.9 million after tax, or $0.74 per share)
associated with the valuation of inventory and receivables, software licenses, headcount reductions and the consolidation of
certain office and warehouse facilities.
(3) The quarter ended December 31, 1994 includes a pretax charge of $9.9 million ($6.1 million after tax, or $0.89 per share)
related to certain contracts and general merchandise inventories.
(4) The quarter ended December 31, 1993 includes a pretax charge of $1.2 million ($0.7 million after tax, or $0.11 per share)
associated with the valuation of inventory and receivables.

<CAPTION>
(In thousands) DECEMBER 31,
1997 1996(1) 1995(2) 1994(3) 1993(4) 1992
BALANCE SHEET DATA: -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . . . . $ 30,860 $ 34,599 $ 45,597 $ 49,355 $ 63,467 $ 54,181
Total assets. . . . . . . . . . . . . . . . . 137,464 141,001 197,318 209,573 237,342 138,129
Notes payable to banks. . . . . . . . . . . . 21,569 15,828 56,496 70,120 45,007 50,724
Total liabilities . . . . . . . . . . . . . . 97,590 96,153 134,841 140,413 169,774 81,862
Stockholders' equity. . . . . . . . . . . . . 39,874 44,848 62,477 69,160 67,568 56,267
/TABLE
<PAGE>
<PAGE>
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Financial
Statements and Notes. Historical results and percentage relationships
among any amounts in the Financial Statements are not necessarily
indicative of trends in operating results for any future period.

OVERVIEW

GTSI is one of the largest dedicated resellers of microcomputer and
Unix workstation hardware, software and networking products to the
Government. The Company currently offers access to over 150,000
information technology products from more than 2,100 manufacturers. GTSI
also performs network integration services, including configuring,
installing and maintaining microcomputers in local area networks. The
Company sells to virtually all departments and agencies of the Government,
many state governments and several hundred systems integrators and prime
contractors that sell to the government market. GTSI offers its customers
a convenient and cost-effective centralized source for microcomputer and
workstation products through its competitive pricing, broad product
selection and procurement expertise. The Company provides its vendors with
a low-cost marketing and distribution channel to the millions of end users
comprising the government market, while virtually insulating these vendors
from most of the complex government procurement rules and regulations.

Changes in sales throughout the Company's history have been
attributable to increased or decreased unit sales, to expansion of the
Company's product offerings (e.g., peripherals, microcomputers and
networking and workstation products, from 1985 through 1992); to the
addition of new vendors (e.g., IBM, Sun, Panasonic, Apple and Nexar, from
1988 through 1996); and to the addition or expiration of sales contract
vehicles (e.g., the addition of the Desktop IV Contract, the SEWP I
Contract, the NIH Contract and the TDA-1 Contract from 1993 through 1996,
and the expiration of the Companion Contract in 1995 and Desktop IV systems
ordering in 1996). The Company's financial results have fluctuated
seasonally, and may continue to do so in the future, because of the
Government's buying patterns which have historically favorably impacted the
last two calendar quarters and adversely affected the first two calendar
quarters.

The Company's primary strategy is to focus on its core GSA Schedule
business and to compete aggressively on bids in order to win as many
contract vehicles as possible under the various purchasing programs
available to it in the government market. With these contract vehicles in
place, it is then possible for the Company to use its significant product
base and marketing knowledge to sell products which both meet customers'
requirements and provide an attractive financial return to the Company.

<PAGE>
<PAGE>
24
RESULTS OF OPERATIONS

The following table sets forth, for the years indicated, the
percentages that selected items within the income statement bear to sales,
and the annual percentage changes in the dollar amounts of such items.

<TABLE>
<CAPTION>
Percentage Change
Percentage of Sales Years Ended
------------------------------ December 31,
Years Ended December 31, ------------------
------------------------------ 1996 1995
1997 1996(1) 1995(2) to 1997 to 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . 100.0% 100.0 % 100.0 % (1.1)% (6.7)%
Cost of sales . . . . . . . . . . . . . . . . 92.4 93.2 92.7 (1.9) (6.2)
-------- -------- --------
Gross margin. . . . . . . . . . . . . . . . . 7.6 6.8 7.3 10.0 (13.1)
======== ======== ========
Operating expenses:
Selling, general and administrative. . . . 7.3 7.5 7.5 (3.9) (7.0)
Depreciation and amortization. . . . . . . 0.7 2.7 0.6 (73.7) 335.5
Restructuring charges. . . . . . . . . . . - - 0.6 - (100.0)
-------- -------- --------
Total operating expenses. . . . . . . . . . . 8.0 10.2 8.7 (22.6) 10.1
-------- -------- --------
(Loss) income from operations . . . . . . . . (0.4) (3.4) (1.4) (88.0) 136.5
Interest expense, net . . . . . . . . . . . . 0.6 0.6 0.8 (1.2) (30.8)
-------- -------- --------
(Loss) income before taxes. . . . . . . . . . (1.0) (4.0) (2.2) (74.3) 71.1
Income tax (benefit) provision. . . . . . . . - (0.4) (0.8) (100.0) (54.2)
-------- -------- --------
Net (loss) income . . . . . . . . . . . . . . (1.0)% (3.6)% (1.4)% (71.4) 148.5
======== ======== ========

</TABLE>
<PAGE>
The following tables set forth, for the periods indicated, the
approximate sales by product, by contract vehicle and by vendor, along with
related percentages of total sales.

<TABLE>
<CAPTION>
PRODUCT CATEGORY
(Dollars in millions) Years Ended December 31,
--------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Hardware. . . . . . . . . . . . . . . . . . . $ 430.1 88.5% $ 429.7 87.4% $ 456.6 86.6%
Software. . . . . . . . . . . . . . . . . . . 55.1 11.3 50.2 10.2 55.8 10.6
Services. . . . . . . . . . . . . . . . . . . 1.2 0.2 11.7 2.4 14.6 2.8
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 486.4 100.0% $ 491.6 100.0% $ 527.0 100.0%
======== ======== ======== ======== ======== ========

<CAPTION>
CONTRACT VEHICLES
(Dollars in millions) Years Ended December 31,
--------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
GSA Schedules . . . . . . . . . . . . . . . . $ 208.8 31.0% $ 236.6 48.1% $ 234.9 44.6%
IDIQ Contracts. . . . . . . . . . . . . . . . 148.6 43.0 117.8 24.0 148.6 28.2
Open Market . . . . . . . . . . . . . . . . . 107.3 22.0 120.1 24.4 116.0 22.0
Other Contracts . . . . . . . . . . . . . . . 21.7 4.0 17.1 3.5 27.5 5.2
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 486.4 100.0% $ 491.6 100.0% $ 527.0 100.0%
======== ======== ======== ======== ======== ========
</TABLE>

<PAGE>
<PAGE>
25
<TABLE>
<CAPTION>
VENDOR CATEGORY
(Dollars in millions) Years Ended December 31,
--------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Hewlett-Packard . . . . . . . . . . . . . . . $ 105.6 21.7% $ 95.6 19.4% $ 99.2 18.8%
Compaq. . . . . . . . . . . . . . . . . . . . 54.2 11.1 50.5 10.3 49.5 9.4
Panasonic . . . . . . . . . . . . . . . . . . 53.8 11.1 31.9 6.5 24.7 4.7
Microsoft . . . . . . . . . . . . . . . . . . 46.8 9.6 31.6 6.4 16.8 3.2
Sun . . . . . . . . . . . . . . . . . . . . . 21.4 4.4 28.4 5.8 32.1 6.1
Nexar . . . . . . . . . . . . . . . . . . . . 21.0 4.3 11.7 2.4 - -
Apple . . . . . . . . . . . . . . . . . . . . 13.4 2.8 22.7 4.6 43.2 8.2
IBM label . . . . . . . . . . . . . . . . . . 9.2 1.9 43.7 8.9 25.2 4.8
Private Label . . . . . . . . . . . . . . . . - - 0.0 0.0 64.3 12.2
Other . . . . . . . . . . . . . . . . . . . . 161.0 33.1 175.5 35.7 172.0 32.6
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 486.4 100.0% $ 491.6 100.0% $ 527.0 100.0%
======== ======== ======== ======== ======== ========
</TABLE>

1996 COMPARED WITH 1995

SALES. Sales consist of revenues from product shipments and services
rendered net of allowances for customer returns and credits. During 1997,
net sales decreased $5.2 million or 1.1% and were negatively impacted by
$1.2 million in higher Industrial Funding Fees associated with the GSA and
NIH contracts. These fees are collected by the Company and remitted to the
respective agency on a payment schedule determined by the respective
agency. Decreased sales under GSA Schedule and under Open Market Contracts
of $27.8 million and $12.8 million, respectively, were offset by increased
sales under GTSI's various IDIQ Contracts. It is management's belief that
the decline in Open Market sales is primarily attributable to recent
changes in the procurement regulations that allow the Government to
purchase products by other means (e.g., GSA Schedule contracts) in a
quicker and easier manner than was the case before such changes. IDIQ
contract sales rose during 1997 primarily as a result of higher revenue on
the Company's NIH, TDA-1 and SEWP contracts. Revenue from these contracts
rose $19 million, $15 million and $16 million, respectively, from 1996.
However, higher sales from the NIH, TDA-1 and SEWP vehicles were offset by
weaker sales activity on the GSA Schedule B/C contract.

Sales of Hewlett-Packard, Compaq, Panasonic, Microsoft and Nexar
products increased $60.0 million from the prior year and accounted for 58%
of GTSI's total sales activity by Vendor. This increase was offset by
lower sales of IBM Label products which decreased by $34.5 million from the
prior year.

Backlog at December 31, 1997, was approximately $38.4 million, down
20.1% from approximately $48.1 million at December 31, 1996. Backlog was
$76.3 million at March 19, 1998 compared to $38.8 million in the prior
period. The increase is primarily related to orders that were recorded as
part of the BTG Division acquisition, which closed on February 12, 1998.
Backlog represents orders received but for which product has yet to ship.
Generally, the Company fulfills all orders within 30 days from the time the
order is received.

<PAGE>
<PAGE>
26
GROSS MARGIN. Gross margin is sales less cost of sales which includes
product purchase cost, freight and certain other overhead expenses related
to the cost of acquiring products. Over the last seven years, GTSI has
experienced lower gross margin percentages because of pressure on end-user
prices caused by: (1) the leverage of government agencies and other
customers in negotiating low prices; (2) the increasing maturation and
shorter life cycles of leading microcomputer hardware and software products
which causes customers to focus on price as the primary distinguishing
factor among sellers of such products; and (3) the use of low prices by
competitors as the primary means to obtain government market share. In
addition, IDIQ contracts are complex and require service expenses,
including warranty support and software upgrades. Gross margin percentages
vary over time and change significantly depending on the contract vehicle
and product involved; therefore, the Company's overall gross margin
percentages are dependent on the mix and timing of products sold and the
strategic use of contract vehicles that are available to sell its products.

Gross margin increased in 1997 by approximately $3.4 million or 10.0%,
and increased as a percentage of sales from 6.7% to 7.6%. In the fourth
quarter of 1996, the Company recorded $2.2 million in adjustments that were
deemed necessary to provide for contractual obligations, and to reduce
certain trade credits to the amounts ultimately expected to be realized.
Other product cost factors that contributed to the improvement in the gross
margin percentage during 1997 were the recognition of greater price
protection credits and purchase discounts offered by vendors.

OPERATING EXPENSES. Operating expenses in 1997 decreased
approximately $11.4 million, or 22.6%, and improved as a percentage of
sales from 10.2% to 8.0%. The change is primarily attributable to a $9.1
million decrease in amortization expense associated with the accelerated
write-down of intangible assets which was recognized during the fourth
quarter of 1996.

INTEREST EXPENSE. Total interest charges between 1997 and 1996 were
relatively flat, although bank administrative and credit card fees were
higher in 1997 by approximately $0.4 million from the prior period. These
costs were offset by lower interest expenses due to reduced bank borrowings
during certain times throughout 1997.

INCOME TAXES. In 1996, a tax benefit of $2.0 million was recorded as
a result of the Company's operating loss for that period, that was realized
by carrying back the loss to prior years in which the Company recognized
taxable income.

1995 COMPARED WITH 1994

SALES. Sales consist of revenues from product shipments and services
rendered net of allowances for customer returns and credits. During 1996,
sales decreased $35.3 million or 6.7%. Decreases in sales under IDIQ
contracts and sales from Other Contracts of $30.8 million and $10.4
million, respectively, were partially offset by increased Open Market sales
and sales under GSA schedule contracts. The increase in Open Market sales
<PAGE>
<PAGE>
27
primarily resulted from the inclusion of $15.8 million of IBM label product
originally purchased for sale under the Company's Desktop IV Contract which
was commercialized and sold via the open market during the first six months
of 1996. If this product had been sold under the Desktop IV Contract as
originally intended, Open Market sales in 1996 would have declined $5.4
million when compared to the prior year. It is management's belief that
the decline in Open Market sales is primarily attributable to recent
changes in the procurement regulations that allow the Government to
purchase products by other means (e.g., GSA Schedule contracts) in a
quicker and easier manner than was the case before such changes. Sales
under IDIQ contracts declined during 1996 primarily as a result of
decreased sales under the Company's Desktop IV Contract and the lack of
sales under the Companion contract (which expired September 30, 1995) of
$63.6 million and $20.9 million, respectively. These decreases were
partially offset by increases in sales under the Company's NIH contract of
$33.6 million and its SEWP contract of $14.9 million. Other new contracts
procured by the Company during 1996 took longer than expected to be awarded
and, upon award to the Company, did not generate sufficient revenue to
offset the declining sales under contracts which had ended or were near
completion. The slight increase in sales under the Company's GSA Schedule
contracts was primarily comprised of $24.3 million of increased GSA
Schedule B/C sales offset by a decline in sales under GSA schedule A of
$23.3. million.

During 1996, there were no sales of the Company's private label
hardware, which was introduced in 1993 under the Desktop IV Contract (a
decrease of 100.0%). Additionally, sales of Apple products decreased
approximately $20.5 million (47.5%). These decreases were partially offset
by sales of Microsoft and Panasonic products which increased approximately
88.1% and 29.1%, respectively, from $16.8 million to $31.6 million and from
$24.7 million to $31.9 million, respectively. Sales of IBM label products
also increased during 1996 from $25.2 million to $43.7 million (73.5%)
primarily as a result of the company's inclusion of this product on its
Desktop IV Contract. As noted above, $15.8 million of this product was
ultimately sold via the Open Market during the first six months of 1996.

During the period from August 16, 1994 (date of the Falcon
acquisition) to September 1, 1995, the number of employees exceeded
applicable size standards necessary to qualify the Company as a "small
business." Although the Company cannot precisely quantify the specific
effect of this change on its operations, it is believed that sales were
negatively impacted during the period in which the Company was not a
qualified "small business." Beginning September 1, 1995, the Company once
again began to compete for opportunities exclusively reserved for small
business non-manufacturers.

During the fourth quarter of 1995 and the first quarter of 1996, the
executive and legislative branches of the Government could not agree on a
budget for fiscal year 1996. Although the Company cannot precisely
quantify the specific effect of the Government's work stoppage on the
Company's operations, it is believed that sales were negatively impacted
during these periods.

<PAGE>
<PAGE>
28
Backlog at December 31, 1996, was approximately $48.1 million, up by
32.1% from backlog of $36.4 million reported for December 31, 1995.
Backlog represents orders received but for which product has yet to ship.
Generally, the Company fulfills all orders within 30 days from the time the
order is received.

GROSS MARGIN. Gross margin decreased in 1996 by approximately $5.0
million or 13.1%, and decreased as a percentage of sales from 7.3% to 6.8%.
The decrease in absolute dollars is primarily attributable to lower sales
volume and adjustments of approximately $2.2 million recorded by the
Company in the fourth quarter of 1996. Such adjustments were deemed
necessary to provide for contractual obligations, and to reduce certain
trade credits to the amounts ultimately expected to be realized. These
adjustments were also the primary reason for the decline in gross margin
percentage. Other factors that contributed to the decline in gross margin
percentage during 1996 include the open market sale of near-obsolete
inventory noted above (which earned little or no gross margin), a large
drop shipment of product from one of the Company's vendors directly to the
customer at a lower than normal margin, several large software orders and
the increased concentration of sales under the GSA Schedule B/C. GSA
Schedule B/C sales accounted for 48.1% of 1996 sales (as compared with
44.6% of 1995 sales). In 1996, these sales earned margins lower than other
Company sales.

OPERATING EXPENSES. Operating expenses in 1996 increased
approximately $4.6 million, or 10.1%, and increased as a percentage of
sales from 8.7% to 10.2%. This increase is primarily attributable to a
$9.1 million increase in amortization expense associated with the
accelerated write-down of intangible assets which was recognized during the
fourth quarter of 1996. This change was offset by decreases in the
provision for doubtful accounts receivable, personnel expenses and expenses
for contracted services.

RESTRUCTURING CHARGE. For the year ended December 31, 1995, the
Company recorded a $3.0 million restructuring charge ($1.8 million after
tax, or $0.28 per share).

INTEREST EXPENSE. The approximate $1.4 million or 30.8% decrease in
net interest expense in 1996 was due to a combination of lower average
borrowings, lower interest rates and decreased bank fees throughout 1996.

INCOME TAXES. A tax benefit of $2.0 million was recorded in 1996 as a
result of the Company's current year net operating loss. This benefit was
realized by carrying back the loss to prior years in which the Company
recognized taxable income. In 1996, the Company determined that $5.1
million of net deferred tax assets did not satisfy the recognition criteria
set forth in Statement of Financial Accounting Standards ("FAS") 109,
"Accounting for Income Taxes," and a valuation allowance was recorded
against the applicable net deferred tax assets. In 1995, the Company
recorded a tax benefit of $4.4 million.

<PAGE>
<PAGE>
29
NEW ACCOUNTING PRONOUNCEMENTS

The Company will adopt FAS 130, "Reporting Comprehensive Income," and
FAS 131, "Disclosures about Segments of an Enterprise and Related
Information," during 1998. The Company is evaluating the impact of these
statements on its consolidated financial statement presentation.

FAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was adopted by the Company during the
first quarter of 1996. During the fourth quarter of 1996, the Company
recorded a charge of approximately $9.1 million related to the impairment
of intangible assets acquired as part of the acquisition of Falcon in 1994.

FAS 123, "Accounting for Stock-Based Compensation," was adopted by the
Company during 1996. This statement requires disclosure of the fair value
of all stock-based compensation using one of several option-pricing models.

FAS 128, "Earnings Per Share," and FAS 129, "Disclosure of Information
about Capital Structure," were adopted by the Company in the fourth quarter
of 1997, with no material effect on the Company's consolidated financial
statement presentation.

EFFECT OF INFLATION

The Company believes that inflation has not had a material effect on
its operations. However, in the event inflation increases in the future it
could at least temporarily adversely affect the profitability of GTSI's
sales under its Government fixed-price contracts, which generally preclude
the Company from passing on inflation-related or other increases in product
costs to Government customers during the term of a pre-existing contract.
The Company mitigates this risk in part by often obtaining agreements from
certain of its suppliers prohibiting them from increasing their prices to
GTSI during fixed-price, term contracts.

SEASONAL FLUCTUATIONS AND OTHER FACTORS

The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its operations as a result
of Government buying and funding patterns, which also impact the buying
patterns of GTSI's prime contractor customers. These buying and funding
patterns historically have had a significant positive effect on GTSI's
bookings in the third quarter ending September 30 each year (the
Government's fiscal year end), and consequently on sales and net income in
the third and fourth quarters of each year. Quarterly financial results
are also affected by the timing of the award of and shipments of products
under government contracts, price competition in the microcomputer and
workstation industries, the addition of personnel or other expenses in
anticipation of sales growth, product line changes and expansions, and the
timing and costs of changes in customer and product mix. In addition,
customer order deferrals in anticipation of new product releases by leading
microcomputer and workstation hardware and software manufacturers, delays
in vendor shipments of new or existing products, a shift in sales mix to
<PAGE>
<PAGE>
30
more complex requirements contracts with more complex service costs, and
vendor delays in the processing of incentives and credits due GTSI, have
occurred (all of which are also likely to occur in the future) and have
adversely affected the Company's operating performance in particular
periods. The seasonality and the unpredictability of the factors affecting
such seasonality make GTSI's quarterly and yearly financial results
difficult to predict and subject to significant fluctuation. The Company's
stock price could be adversely affected if any such financial results fail
to meet the financial community's expectations.

Additionally, legislation is periodically introduced in Congress that
may change the Government's procurement practices. GTSI cannot predict
whether any legislative or any regulatory proposals will be adopted or, if
adopted, the impact upon its operating results. Changes in the structure,
composition and/or buying patterns of the Government, either alone or in
combination with competitive conditions or other factors, could adversely
affect future results.

LIQUIDITY AND CAPITAL RESOURCES

During 1997, the Company incurred a cash flow loss from operations of
$3.0 million, as compared to generating $45.2 million for the year ended
December 31, 1996. The decrease between the two years relates to a
significant reduction during 1996 in net operating assets (accounts
receivable plus merchandise inventories less accounts payable). The Company
acquired $2.4 million in capital equipment, of which $0.7 million related
to the purchase of a new financial reporting system. Additional
expenditures relate to internal equipment purchases and leasehold
improvements of $0.4 million to the Company's warehouse facility.

On July 28, 1997, the Company and its banks executed the Second
Amended and Restated Business Credit and Security Agreement. The amendment
modified certain terms and conditions contained in the Credit Facility and
effectively eliminated the Company's default condition with respect to
compliance with certain 1996 year-end financial covenants contained in the
Credit Facility. More specifically, the total amount available under the
Credit Facility was reduced from a total of $95 million to $60 million,
with an additional $30 million reduction from February 1 - July 31 of each
year. Further, the Wholesale Financing Facility was increased from $10
million to $20 million, with a $10 million reduction from March 1 - July 31
of each year. Other modifications included the revision of the Credit
Facility's term to one year with a one-year automatic renewal, the addition
of an unused line fee, an increase in the interest rate accrued against
outstanding borrowings, and the modification of certain financial
covenants.

At December 31, 1997, the Company was not in compliance with the
annual covenant covering Net Income and the fourth quarter covenant related
to Tangible Net Worth. On February 3, 1998, the Company obtained waivers
from the Agent for all covenant violations at December 31, 1997. All
amounts due to the Lenders as of December 31, 1997 are classified as
current liabilities, and the available portion of the modified Credit
Facility was $18.7 million at December 31, 1997.
<PAGE>
<PAGE>
31
On February 11, 1998, the Second Amended and Restated Business Credit
and Security Agreement was amended to extend the credit limit for two
months, during which time the total amount available equaled $60.0 million.
For the "Seasonal Reduction Period" commencing March 31, 1998 and ending on
July 31, 1998, the credit available will equal $30 million. Additionally,
the reduction period for the Wholesale Financing facility was amended to
extend from March 31, 1998 to July 31, 1998 during which the available
credit under the facility will equal $10 million.

Interest under the Credit Facility is payable quarterly and is accrued
at a rate equal to the London Interbank Offered Rate ("LIBOR") plus 2.95%
(8.89% at December 31, 1997). Borrowing is limited to 80% of eligible
accounts receivable. The Credit Facility is secured by all of the
operating assets of the Company. Current obligations are first funded and
then all cash receipts are automatically applied to reduce outstanding
borrowings. The Credit Facility also contains certain covenants, including
restrictions on the payment of dividends and repurchase of stock, and
provisions specifying compliance with certain financial ratios.

The Company anticipates that it will continue to rely primarily on
operating cash flow, bank loans and vendor credit to finance its operating
cash needs. The Company believes that such funds should be sufficient to
satisfy the Company's near term anticipated cash requirements for
operations. Nonetheless, the Company may seek additional sources of
capital, including permanent financing over a longer term at fixed rates,
to finance its working capital requirements. The Company believes that
such capital sources will be available to it on acceptable terms, if
needed.

The weighted average number of common and common equivalent shares
outstanding reflects the issuance of 1,815,000 shares of common stock sold
by the Company in its 1991 initial public offering, and the effect of
outstanding option and warrant transactions to date. In 1994, the Board of
Directors authorized a stock repurchase program of the Company. To date,
194,800 shares have been acquired as Treasury Stock. See Note 6 to
Financial Statements.

YEAR 2000

The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium ("Year 2000")
approaches. The Year 2000 problem is complex as certain computer
operations will be affected in some way by the rollover of the two-digit
year value to 00. The issue is whether computer systems will properly
recognize date-sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.

Management is performing a preliminary assessment of the Year 2000
compliance expense and related potential effect on the Company's earnings.
Since such assessment is yet to be completed, there can be no assurance
that any potential Year 2000 problem, if material, can be resolved by the
<PAGE>
<PAGE>
32
Company in a timely or cost effective fashion, or that any difficulty or
inability in resolving such problem will not have a material adverse effect
upon the Company.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995

The renegotiation of the financial covenants contained in the Credit
Facility, and the statements which are not historical facts contained in
this Management's Discussion and Analysis of Financial Condition, Results
of Operations and Notes to Consolidated Financial Statements, are forward-
looking statements that involve certain risks and uncertainties. Actual
results may differ materially based on numerous factors, including but not
limited to competition in the government markets, spending patterns of the
Company's customers, general economic and political conditions, success of
negotiations with the Company's Lenders, changes in government procurement
regulations, and other risks described in this Annual Report on Form 10-K
and in the Company's other Securities and Exchange Commission filings.

<PAGE>
<PAGE>
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Consolidated Financial Statements and Schedule of Government
Technology Services, Inc. and Subsidiary are filed as part of this Form
10-K. Supplemental quarterly financial information is included in Note 9
of Notes to Consolidated Financial Statements.

Index to Financial Statements and Schedule Page

FINANCIAL STATEMENTS:

Reports of Independent Public Accountants. . . . . . . . . . . . . .34

Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . .36

Consolidated Balance Sheets as of December 31,
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . .37

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . .38

Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995. . . . . .39

Notes to Consolidated Financial Statements . . . . . . . . . . . . .40

SCHEDULE:

Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . .56

Schedules not listed above have been omitted because they are not
applicable or the information required to be set forth therein is included
in the financial statements or notes thereto.

<PAGE>
<PAGE>
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Government Technology Services, Inc.

We have audited the accompanying consolidated balance sheets of
Government Technology Services, Inc. and subsidiary as of December 31, 1997
and 1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows, and financial statement schedule, for
the years then ended. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsi-
bility is to express an opinion on these financial statements and financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Government
Technology Services, Inc. and subsidiary as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
index of financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.

ARTHUR ANDERSEN LLP

Washington, D.C.
February 27, 1998

<PAGE>
<PAGE>
35
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Government Technology Services, Inc.

We have audited the consolidated statements of operations, cash flows,
and changes in stockholders' equity and related financial statement
schedule of Government Technology Services, Inc. and Subsidiary listed in
Item 14(a) of this Form 10-K for the year ended December 31, 1995. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations
and cash flows of Government Technology Services, Inc. and Subsidiary for
the year ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.

COOPERS & LYBRAND, L.L.P.

Washington, D.C.
March 1, 1996,
except as to Note 5,
as to which the date was March 26, 1996
<PAGE>
<PAGE>
36
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
(In thousands, except per share amounts) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $486,377 $491,642 $526,962

Cost of sales . . . . . . . . . . . . . . . . . . . . . . 449,454 458,076 488,348
-------- -------- --------

Gross margin. . . . . . . . . . . . . . . . . . . . . . . 36,923 33,566 38,614

Operating expenses. . . . . . . . . . . . . . . . . . . . 38,927 50,297 42,735

Restructuring charges . . . . . . . . . . . . . . . . . . - - 2,953
-------- -------- --------

Loss from operations. . . . . . . . . . . . . . . . . . . (2,004) (16,731) (7,074)

Interest expense, net of interest income of
$325, $265 and $243, respectively . . . . . . . . . . 3,100 3,138 4,538
-------- -------- --------

Loss before taxes . . . . . . . . . . . . . . . . . . . . (5,104) (19,869) (11,612)

Income tax benefit. . . . . . . . . . . . . . . . . . . . - (2,031) (4,435)
-------- -------- --------

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $ (5,104) $(17,838) $ (7,177)
======== ======== ========

Net loss per share (basic and diluted). . . . . . . . . . $ (0.76) $ (2.67) $ (1.09)
======== ======== ========

Weighted average number of shares outstanding . . . . . . 6,733 6,690 6,604
======== ======== ========
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>
<PAGE>
37
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands, except share data) 1997 1996
-------- --------
<S> <C> <C>
ASSETS

Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 856 $ 48
Accounts receivable, net. . . . . . . . . . . . . . . . 90,905 90,116
Merchandise inventories . . . . . . . . . . . . . . . . 33,000 31,844
Net deferred taxes and other. . . . . . . . . . . . . . 3,423 7,367
-------- --------
Total current assets . . . . . . . . . . . . . . . . 128,184 129,375

Property and equipment, net . . . . . . . . . . . . . . . 8,217 9,146
Intangible assets, net. . . . . . . . . . . . . . . . . . 534 788
Net deferred taxes and other. . . . . . . . . . . . . . . 529 1,692
-------- --------

Total assets . . . . . . . . . . . . . . . . . . . . $137,464 $141,001
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable to banks. . . . . . . . . . . . . . . . . 21,569 15,828
Accounts payable. . . . . . . . . . . . . . . . . . . . 67,720 68,707
Accrued liabilities . . . . . . . . . . . . . . . . . . 8,035 10,241
-------- --------
Total current liabilities. . . . . . . . . . . . . . 97,324 94,776

Other liabilities . . . . . . . . . . . . . . . . . . . . 266 1,377
-------- --------

Total liabilities. . . . . . . . . . . . . . . . . . 97,590 96,153
-------- --------

Commitments and contingencies

Stockholders' equity:
Preferred Stock - $0.25 par value, 680,850 shares
authorized; none issued or outstanding . . . . . . . - -
Common Stock - $0.005 par value, 10,000,000 shares
authorized; 6,806,084 shares issued and 6,756,180
outstanding at December 31, 1997 and 6,806,084
shares issued and 6,724,919 outstanding at
December 31, 1996. . . . . . . . . . . . . . . . . . 34 34
Capital in excess of par value. . . . . . . . . . . . . 33,086 33,295
Retained earnings . . . . . . . . . . . . . . . . . . . 7,295 12,399
Treasury stock, 49,904 shares at December 31, 1997
and 81,165 shares at December 31, 1996, at cost. . . (541) (880)
-------- --------

Total stockholders' equity . . . . . . . . . . . . . 39,874 44,848
-------- --------

Total liabilities and stockholders' equity . . . . . $137,464 $141,001
======== ========
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>
<PAGE>
br
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
(In thousands) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $ (5,104) $(17,838) $ (7,177)
-------- -------- --------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 3,539 12,618 3,090
(Gain)/loss on disposal of property and equipment . . . (340) 839 -
Stock compensation. . . . . . . . . . . . . . . . . . . - (13) 47
Restructuring charges . . . . . . . . . . . . . . . . . - - 2,953
(Decrease) increase in cash due to changes in
assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . (789) 13,049 (178)
Merchandise inventories. . . . . . . . . . . . . . . (1,156) 32,671 14,261
Deferred income taxes. . . . . . . . . . . . . . . . 2,466 3,158 (3,211)
Accounts payable . . . . . . . . . . . . . . . . . . (987) 4,647 7,651
Accrued liabilities. . . . . . . . . . . . . . . . . (2,206) (1,685) (687)
Other liabilities. . . . . . . . . . . . . . . . . . (1,111) (465) (559)
Other. . . . . . . . . . . . . . . . . . . . . . . . 2,641 (1,788) (52)
-------- -------- --------
Net cash (used in) provided by operating
activities. . . . . . . . . . . . . . . . . . (3,047) 45,193 16,138
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of property and equipment. . . . . . . . . . . . . (2,377) (4,770) (2,674)
Proceeds from sales of property and equipment. . . . . 361 53 -
-------- -------- --------
Net cash used in investing activities. . . . . . . (2,016) (4,717) (2,674)
-------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) bank notes, net . . . . . . 5,741 (40,668) (13,624)
Proceeds from exercises of stock options and warrants . 130 222 447
Payments under capital lease obligations and other. . . - - (299)
-------- -------- --------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . 5,871 (40,446) (13,476)
-------- -------- --------

Net increase (decrease) in cash . . . . . . . . . . . . . 808 30 (12)
Cash at beginning of year . . . . . . . . . . . . . . . . 48 18 30
-------- -------- --------

Cash at end of year . . . . . . . . . . . . . . . . . . . $ 856 $ 48 $ 18
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 2,744 $ 4,756 $ 3,276
Income taxes . . . . . . . . . . . . . . . . . . . . $ 7 $ 20 $ 5
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>
39
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
For the years ended December 31, 1997, 1996 and 1995
--------------------------------------------------------------
Common Stock Capital Total
------------------- in Stock-
Shares Excess Retained Treasury holders'
(In thousands) Issued Amount of Par Earnings Stock Equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>

Balance, December 31, 1994. . . . . . . . . . . . . . . . 6,789 34 33,819 37,414 (2,107) 69,160

Stock awards and options exercised. . . . . . . . . . . . 17 - (208) - 702 494

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . - - - (7,177) - (7,177)
-------- -------- -------- -------- -------- --------

Balance, December 31, 1995. . . . . . . . . . . . . . . . 6,806 34 33,611 30,237 (1,405) 62,477

Stock awards and options exercised. . . . . . . . . . . . - - (316) - 525 209

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . - - - (17,838) - (17,838)
-------- -------- -------- -------- -------- --------

Balance, December 31, 1996. . . . . . . . . . . . . . . . 6,806 $ 34 $ 33,295 $ 12,399 $ (880) $ 44,848

Stock awards and options exercised. . . . . . . . . . . . - - (209) - 339 130

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . - - - (5,104) - (5,104)
-------- -------- -------- -------- -------- --------

Balance, December 31, 1997. . . . . . . . . . . . . . . . 6,806 $ 34 $ 33,086 $ 7,295 $ (541) $ 39,874
======== ======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>
40
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Government Technology Services, Inc. ("GTSI") operates in a single
business segment and resells microcomputer and workstation hardware,
software and peripherals to agencies of federal, state and local
governments. Business activities also include sales to systems
integrators, prime contractors and other companies reselling information
technology to various government agencies. In August 1994, GTSI acquired
all of the outstanding shares of common stock of Falcon Microsystems, Inc.
("Falcon"). GTSI and Falcon are hereinafter referred to as the "Company."

Pursuant to the Asset Purchase Agreement, the Company agreed to
convene a meeting of stockholders no later than January 1, 1999 (the "First
Meeting") to approve a proposal to convert the Series C Preferred Stock
into 3,000,000 shares of Common Stock (the "Conversion Proposal") and a
proposal to amend the certificate of incorporation to increase the number
of authorized shares of Common Stock from 10,000,000 to 20,000,000 (the
"Charter Amendment Proposal"). If the Conversion Proposal and the Charter
Amendment Proposal are approved, the Series C Preferred Stock will be
converted automatically into that number of shares of Common Stock equal to
the liquidation preference of the Series C Preferred Stock ($15,375,000 or
$1,000 per share) plus all accrued and unpaid dividends thereon divided by
the conversion price of $5.125. If the Conversion Proposal and the Charter
Amendment Proposal are approved at the Annual Meeting of Stockholders
scheduled for May 12, 1998, which will be the First Meeting, the Series C
Preferred Stock will be converted into 3,000,000 shares of Common Stock.
<PAGE>
<PAGE>
41
If the Conversion Proposal and the Charter Amendment Proposal are not
approved at the Annual Meeting, (a) the Company has agreed to convene a
second meeting of stockholders no later than January 1, 2000 to approve the
Conversion Proposal and the Charter Amendment Proposal, and (b) the Series
C Preferred Stock will begin to accrue dividends.

1. ACCOUNTING POLICIES

Significant accounting policies of the Company are summarized below:

BASIS OF CONSOLIDATION. The consolidated financial statements include
the accounts of GTSI and its wholly-owned subsidiary, Falcon. All
significant inter-company accounts and transactions are eliminated in
consolidation.

ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates and the Company periodically re-
evaluates the recorded values of all assets and liabilities.

REVENUE RECOGNITION. The Company recognizes revenue upon shipment of
products and/or acceptance of services rendered.

FINANCIAL INSTRUMENTS. At December 31, 1997 and 1996, the recorded
values of financial instruments such as accounts receivable and payable and
notes payable to banks approximated their fair values, based on the short-
term maturities of these instruments.

ACCOUNTS RECEIVABLE. Accounts receivable principally represents
amounts collectible from the Federal Government and prime contractors to
the Federal Government. Other accounts receivable result from items billed
to suppliers under various agreements involving the sale of their products.
The Company performs ongoing credit evaluations of its non-governmental
customers but generally does not require collateral to support any
outstanding obligation owed to GTSI. Allowances for potential uncollectible
amounts are estimated and deducted from total accounts receivable.

INVENTORIES. Inventories are valued at the lower of cost or market.
Cost is determined using a weighted average method.

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost
less accumulated depreciation. Property and equipment under capital leases
are recorded at the lower of the present value of minimum lease payments or
their fair value at the inception of the lease, less accumulated
amortization. Depreciation and amortization are calculated using the
straight-line method over estimated useful lives ranging from three to ten
years. Property and equipment held under capital leases are amortized
using straight-line methods over the terms of the leases or their estimated
useful lives, whichever is shorter.
<PAGE>
<PAGE>
42
INTANGIBLE ASSETS. Intangible assets are recorded at cost and
amortized using the straight-line method over the following estimated
useful lives.

IMPAIRMENT OF LONG-LIVED ASSETS. To determine recoverability of its
long-lived assets, the Company evaluates the probability that future
undiscounted net cash flows, without interest charges, will be less than
the carrying amount of the assets. It is reasonably possible that future
undiscounted net cash flows, without interest charges, will be less than
the carrying amount of the assets. Impairment is measured at fair value.
During the fourth quarter of 1996, the Company recorded a charge of
approximately $9.1 million related to the impairment of intangible assets
acquired as part of the acquisition of Falcon in 1994.

INCOME TAXES. Deferred income taxes are recognized based on the
estimated future tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Valuation allowances are established
when necessary to reduce deferred tax assets to amounts expected to be
realized. Income tax expense represents the current tax provision for the
period and the change during the period in deferred tax assets and
liabilities.

EARNINGS PER SHARE. Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("FAS") 128, "Earnings Per
Share," which requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to Accounting Principles Bulletin No.
15. Options to purchase approximately 284,000, 368,000 and 35,000 weighted
average shares of Common Stock at December 31, 1997, 1996 and 1995,
respectively, were not included in the computation of earnings per share
due to their anti-dilutive effect. Earnings per share for all other
periods presented have been restated to conform to FAS 128.

MARKETING DEVELOPMENT AND COOPERATIVE ADVERTISING FUNDS. Certain
vendors provide the Company with sales incentive programs. Generally, the
funds received under these programs are determined based on the Company's
purchases and/or sales of the vendor's product. The funds are earned upon
performance of specific promotional programs or upon completion of
predetermined objectives dictated by the vendor. Once earned, the funds
reduce operating expenses. The Company expenses advertising costs as
incurred.

<PAGE>
<PAGE>
43
CHECK OVERDRAFTS. Included in accounts payable at December 31, 1997
and 1996, are approximately $2.0 million and $20.6 million, respectively,
which represent checks that have been issued but have yet to clear the
bank.

RECLASSIFICATIONS. Certain amounts from prior years have been
reclassified to conform to the current year financial statement
presentation.

NEW ACCOUNTING PRONOUNCEMENTS. The Company will adopt FAS 130,
"Reporting Comprehensive Income," and FAS 131, "Disclosures about Segments
of an Enterprise and Related Information," during 1998. The Company is
evaluating the impact of these statements on its consolidated financial
statement presentation.

2. ACCOUNTS RECEIVABLE

The composition of accounts receivable as of December 31, 1997 and
1996 is as follows (in thousands):

1997 1996
-------- --------

Trade accounts receivable. . . . . . . . . . . . $ 79,879 $ 80,795
Vendor and other receivables . . . . . . . . . . 15,119 13,856
-------- --------
94,998 94,651
Less allowance for uncollectible accounts . . (4,093) (4,535)
-------- --------

Accounts receivable, net . . . . . . . . . . . . $ 90,905 $ 90,116
======== ========

<PAGE>
<PAGE>
44
3. PROPERTY AND EQUIPMENT

The composition of property and equipment as of December 31, 1997 and
1996 is as follows (in thousands):

1997 1996
-------- --------

Office furniture and equipment . . . . . . . . . $ 11,819 $ 16,298
Computer software. . . . . . . . . . . . . . . . 2,954 2,024
Other. . . . . . . . . . . . . . . . . . . . . . 2,509 976
-------- --------
17,282 19,298
Less accumulated depreciation and
amortization. . . . . . . . . . . . . . . . . (9,065) (10,152)
-------- --------

Property and equipment, net. . . . . . . . . . . $ 8,217 $ 9,146
======== ========

4. NOTES PAYABLE TO BANKS

On May 2, 1996, the Company executed a three-year credit facility with
a bank (the "Principal Lender") for $40.0 million and a one-year credit
facility with the Other Lenders for an additional $55.0 million (collect-
ively, the "Credit Facility"). Additionally, on June 27, 1996, the Company
executed a separate $10.0 million facility with the Principal Lender for
inventory financing of vendor products (the "Wholesale Financing
Facility"). Interest under the inventory financing facility is accrued at
a rate equal to prime plus 3.00% (11.25% at December 31, 1996). On August
23, 1996, the Company and its banks executed Amendment No. 1 to the Credit
Facility, which modified certain quarterly financial covenants.

On June 30, 1997, the Company and its banks executed the Second
Amended and Restated Business Credit and Security Agreement The agreement
modified some of the terms and conditions contained in the Credit Facility
and effectively eliminated the Company's default condition with certain
1996 year-end financial covenants. The total amount available under the
Credit Facility was reduced from a total of $95 million to $60 million,
with an additional $30 million reduction during the period February 1 -
July 31 of each year. Further, the Wholesale Financing Facility was
increased from $10 million to $20 million, with a $10 million reduction
during the period March 1 - July 31 of each year. Other modifications
included the revision of the Credit Facility's term to one year with a one-
year automatic renewal, the addition of an unused line fee, an increase in
the interest rate accrued against outstanding borrowings, and the
modification of all financial covenants.

<PAGE>
<PAGE>
45
At December 31, 1997, the Company was not in compliance with the
annual covenant covering Net Income and the fourth quarter covenant related
to Tangible Net Worth. On February 3, 1998, the Company obtained waivers
from the Agent for all covenant violations at December 31, 1997. Amounts
due to the Lenders as of December 31, 1997 are classified as current
liabilities and the available portion of the Credit Facility at December
31, 1997 was approximately $18.7 million.

On February 11, 1998, the Second Amended and restated Business Credit
and Security Agreement was revised to limit the total amount available
under the facility to $60 million for an additional two months. The total
available under the facility is reduced to $30 million only during the
period April 1, 1998 to July 31, 1998. As for the Wholesale Financing
facility, the amount available under the agreement remains at $20 million
and is used solely for inventory purchases. The amount available is
reduced to $10 million only during the period April 1, 1998 to July 31,
1998. All other terms of both facilities remain the same. Interest under
the Credit Facility is payable quarterly and is accrued at a rate equal to
the London Interbank Offered Rate ("LIBOR") plus 2.95% (8.89% at December
31, 1997). Borrowing is limited to 80% of eligible accounts receivable.
The Credit Facility is substantially secured by all of the operating assets
of the Company. Current obligations are first funded and then all cash
receipts are automatically applied to reduce outstanding borrowings. The
Credit Facility also contains certain covenants that include restrictions
on the payment of dividends, the repurchase of stock, and provisions
specifying compliance with certain quarterly and annual financial
statistical ratios.

The following information pertains to the notes payable for the years
ended December 31, 1997, 1996 and 1995 (dollars in thousands):

1997 1996 1995
-------- -------- --------

Weighted average interest rate . . . . 8.0% 7.6% 8.8%

Weighted average borrowings. . . . . . $ 18,547 $ 29,625 $ 43,626

<PAGE>
<PAGE>
46
5. INCOME TAXES

The components of the (benefit) provision for income taxes for the
years ended December 31, 1997, 1996 and 1995 are as follows (in thousands):

1997 1996 1995
-------- -------- --------
Current taxes:
Federal. . . . . . . . . . . . . . . $ (2,191) $ (4,579) $ (1,059)
State. . . . . . . . . . . . . . . . (275) (610) (165)
-------- -------- --------

(2,466) (5,189) (1,224)
-------- -------- --------
Deferred taxes:
Federal. . . . . . . . . . . . . . . 2,191 2,848 (2,883)
State. . . . . . . . . . . . . . . . 275 310 (328)
-------- -------- --------

2,466 3,158 (3,211)
-------- -------- --------

Income tax benefit . . . . . . . . . . - (2,031) (4,435)
======== ======== ========

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities and the
amounts used for income tax purposes. In 1997 and 1996, the Company deter-
mined that $7.0 million and $5.1 million, respectively, of net deferred tax
assets were not recoverable. Accordingly, valuation allowances were
recorded against the applicable net deferred tax assets.

<PAGE>
<PAGE>
47
Significant components of the Company's deferred taxes as of December
31, 1997 and 1996 were as follows (in thousands):

Dec. 31, Dec. 31,
1997 1996
-------- --------
Deferred tax assets:
Accounts receivable and inventory
allowances . . . . . . . . . . . . . . . . . $ 2,195 $ 2,507
Intangible assets . . . . . . . . . . . . . 2,029 2,484
Accrued warranty and other contract
costs . . . . . . . . . . . . . . . . . . 564 1,554
Restructuring accrual . . . . . . . . . . . 170 553
Bid and proposal costs. . . . . . . . . . . 356 300
Vacation accrual. . . . . . . . . . . . . . 163 172
Deferred compensation . . . . . . . . . . . 82 131
Rent abatement. . . . . . . . . . . . . . . 73 81
NOL carryforwards . . . . . . . . . . . . . 1,717 -
Other . . . . . . . . . . . . . . . . . . . 10 9
-------- --------

Total deferred tax assets. . . . . . . 7,359 7,791
-------- --------

Deferred tax liabilities:
Depreciation. . . . . . . . . . . . . . . . 381 157
Rent abatement. . . . . . . . . . . . . . . 9 21
-------- --------

Total deferred tax liabilities . . . . 390 178
-------- --------

Net deferred tax assets. . . . . . . . . . . . . 6,969 7,613
Valuation allowance. . . . . . . . . . . . . . . 6,969 5,147
-------- --------

Net deferred tax assets reported . . . . . . . . $ - $ 2,466
======== ========
<PAGE>
<PAGE>
48
The Company's tax benefit for the years ended December 31, 1997, 1996
and 1995 differs from the statutory rate for Federal income taxes as a
result of the following factors:

1997 1996 1995
-------- -------- --------

Statutory rate . . . . . . . . . . . . (34.0)% (34.0)% (34.0)%
State income taxes, net of
Federal tax benefit . . . . . . . (3.7) (3.7) (4.2)
Valuation allowance. . . . . . . . . . 35.7 25.9 -
Other. . . . . . . . . . . . . . . . . 2.0 1.6 -
-------- -------- --------

- (10.2)% (38.2)%
======== ======== ========

<PAGE>
<PAGE>
49
6. STOCKHOLDERS' EQUITY

STOCK OPTIONS AND WARRANTS. The Company has two combination incentive
and non-statutory stock option plans, the "1996 Plan" and the "1994 Plan,"
that provide for the granting of options to employees (both plans) and non-
employee directors (only under the 1996 Plan) to purchase up to 600,000 and
300,000 shares, respectively, of the Company's common stock. In addition,
in May 1997 the Company's Board of Directors adopted the 1997 Non-Officer
Stock Option Plan (the "1997 Plan") under Section (i)(1)(A) of The Nasdaq
Stock Market's National Market Rules. The 1997 Plan provides for the
granting of non-statutory stock options only to employees other than
officers and directors to purchase up to 300,000 shares of the Company's
common stock. Until its expiration on March 15, 1996, the Company had
another combination incentive and non-statutory stock option plan, the
"1986 Plan," that provided for the granting of options to employees to
purchase up to 1,100,000 shares of the Company's common stock. Under the
1997, 1996, 1994 and 1986 Plans, options have a term of up to ten years,
generally vest over three years and option prices are required to be at not
less than 100% of the fair market value of the Company's common stock at
the date of grant and, except in the case of non-employee directors, must
be approved by the Board of Directors or its Compensation Committee.
Options under the 1997, 1996, 1994 and 1986 plans were as follows:

<TABLE>
<CAPTION>
Number Weighted Weighted
of Exercise Average Average
Option Price Price Remaining
shares per share per share Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 Plan:
Outstanding at December 31, 1996. . . . . . . . . . . - - -
Granted. . . . . . . . . . . . . . . . . . . . . . 131,675 $ 4.88- 5.50 $ 4.98
Forfeited or canceled. . . . . . . . . . . . . . . (12,333) 4.88 4.88
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 119,342 $ 4.88- 5.50 $ 5.00 6.4
- ------------------------------------------------------------------------------------------------------------
1996 Plan:
Outstanding at December 31, 1995. . . . . . . . . . . - - -
Granted. . . . . . . . . . . . . . . . . . . . . . 237,000 $ 5.13- 7.31 $ 5.34
Forfeited or canceled. . . . . . . . . . . . . . . - - -
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1996. . . . . . . . . . . 237,000 5.13- 7.31 5.34
Granted. . . . . . . . . . . . . . . . . . . . . . 358,000 4.88- 5.44 5.13
Forfeited or canceled. . . . . . . . . . . . . . . (195,500) 4.88- 6.13 5.21
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 399,500 $ 4.88- 7.31 $ 5.21 7.9
- ------------------------------------------------------------------------------------------------------------
1994 Plan:
Outstanding at December 31, 1994. . . . . . . . . . . 138,000 $10.25-13.44 $ 12.21
Granted. . . . . . . . . . . . . . . . . . . . . . 93,000 3.50- 7.13 4.20
Forfeited or canceled. . . . . . . . . . . . . . . (58,000) 7.13-12.88 11.42
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1995. . . . . . . . . . . 173,000 3.50-12.88 8.28
Granted. . . . . . . . . . . . . . . . . . . . . . 162,500 3.25-12.88 5.46
Forfeited or canceled. . . . . . . . . . . . . . . (44,000) 3.50-12.88 8.11
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1996. . . . . . . . . . . 291,500 3.25-13.44 6.68
Granted. . . . . . . . . . . . . . . . . . . . . . 116,000 5.19- 5.31 5.23
Forfeited or canceled. . . . . . . . . . . . . . . (172,300) 3.50- 6.13 5.30
Exercised. . . . . . . . . . . . . . . . . . . . . (2,700) 3.50- 3.50 3.50
Outstanding at December 31, 1997. . . . . . . . . . . 232,500 $ 3.25-13.44 $ 7.02 5.7
- ------------------------------------------------------------------------------------------------------------
<PAGE>
<PAGE>
50
<CAPTION>
Number Weighted Weighted
of Exercise Average Average
Option Price Price Remaining
shares per share per share Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1986 Plan:
Outstanding at December 31, 1994. . . . . . . . . . . 561,388 $ 4.22-14.25 $ 10.16
Granted. . . . . . . . . . . . . . . . . . . . . . 77,750 3.50 3.50
Forfeited or canceled. . . . . . . . . . . . . . . (56,100) 10.00 10.00
Exercised. . . . . . . . . . . . . . . . . . . . . (3,150) 7.00 7.00
Outstanding at December 31, 1995. . . . . . . . . . . 579,888 3.50-14.25 9.30
Granted. . . . . . . . . . . . . . . . . . . . . . 20,000 3.25 3.25
Forfeited or canceled. . . . . . . . . . . . . . . (470,038) 3.50-12.50 9.95
Exercised. . . . . . . . . . . . . . . . . . . . . (17,550) 3.50- 5.50 5.05
Outstanding at December 31, 1996. . . . . . . . . . . 112,300 3.50-14.25 6.12
Granted. . . . . . . . . . . . . . . . . . . . . . - - -
Forfeited or canceled. . . . . . . . . . . . . . . (27,800) 6.50-10.25 9.65
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 84,500 $ 3.50-14.25 $ 4.95 6.4
- ------------------------------------------------------------------------------------------------------------
Nonstatutory Stock Options:
Outstanding at December 31, 1994. . . . . . . . . . . 210,000 $ 5.13-10.00 $ 7.92
Granted. . . . . . . . . . . . . . . . . . . . . . 895,000 3.75 3.75
Forfeited or canceled. . . . . . . . . . . . . . . (60,000) 5.13-10.00 5.94
Exercised. . . . . . . . . . . . . . . . . . . . . (50,000) 5.13 5.13
Outstanding at December 31, 1995. . . . . . . . . . . 995,000 3.75-10.50 4.10
Granted. . . . . . . . . . . . . . . . . . . . . . 110,000 6.13 6.13
Forfeited or canceled. . . . . . . . . . . . . . . - - -
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1996. . . . . . . . . . . 1,105,000 3.75-10.00 4.35
Granted. . . . . . . . . . . . . . . . . . . . . . 150,000 5.13- 5.25 5.17
Forfeited or canceled. . . . . . . . . . . . . . . - - -
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 1,255,000 $ 3.75-10.00 $ 4.67 7.6
- ------------------------------------------------------------------------------------------------------------
FOR ALL PLANS:
Outstanding at December 31, 1997. . . . . . . . . . . 2,090,842 $ 3.25-14.25 $ 5.06 7.3
- ------------------------------------------------------------------------------------------------------------
</TABLE>

OUTSTANDING AND EXERCISABLE BY PRICE RANGE AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 Life-Years Price at 12/31/96 Price
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>

$ 3.25- $ 4.78 1,019,000 7.8 $ 3.71 973,200 $ 3.73
4.79- 7.13 876,342 7.2 5.81 396,883 5.23
7.14- 10.25 25,000 5.4 8.14 8,150 8.95
10.26- 14.25 170,500 5.6 11.46 111,300 11.62
- --------------- --------------- --------------- --------------- --------------- ---------------

$ 3.25- $14.25 2,090,842 7.3 $ 5.27 1,489,533 $ 4.75
=============== =============== =============== =============== =============== ===============
</TABLE>
<PAGE>
<PAGE>
51
The Company adopted the disclosure requirements of FAS 123,
"Accounting for Stock-Based Compensation," effective for the Company's
December 31, 1996 financial statements. The Company applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for its plans, as allowed under FAS 123. Accordingly, no compensation cost
has been recognized for stock option and stock purchase plans. If
compensation cost for the Company's stock-based compensation plans had been
determined on the fair value at the grant dates for 1997, 1996 and 1995
awards under those plans consistent with the method in FAS 123, the
Company's net loss and net loss per share would have increased to the pro
forma amounts (in thousands, except net loss per share amounts) indicated
below. Because the FAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.

1997 1996 1995
-------- -------- --------

Net loss - pro forma . . . . . . . . . $ (5,411) $(18,818) $ (8,003)

Net loss per share - pro forma
(basic and diluted) . . . . . . . $ (0.80) $ (2.81) $ (1.21)

The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used
for grants for 1997, 1996 and 1995: no dividend yield, 70% volatility,
risk-free interest rates ranging from 5.74% to 6.90%, and expected lives of
three to five years.

At December 31, 1997, in the 1997 Plan options for 40,225 shares were
exercisable and 180,658 options were available for grant; in the 1996 Plan
options for 264,467 shares were exercisable and 80,500 options were
available for grant; in the 1994 Plan options for 106,958 shares were
exercisable and 64,800 options were available for grant; and in the 1986
Plan options for 68,050 shares were exercisable.

STOCK PURCHASE PLAN. The Company has established an Employee Stock
Purchase Plan ("ESPP"). Eligible employees may elect to set aside, through
payroll deduction, up to 15% of their compensation to purchase common stock
of the Company. The maximum number of shares that an eligible employee may
purchase during any offering period is equal to 5% of such employee's
compensation for the 12 calendar-month period prior to the commencement of
an offering period divided by 85% of the fair market value of a share of
common stock on the first day of the offering period. The ESPP is
implemented through one offering during each six-month period beginning
January and July 1. The ESPP purchase price is 85% of the lower of the
fair market value of a share of common stock on the first day or the last
day of the offering period. In the offering periods ended June 30 and
December 31, 1997, employees purchased 13,126 and 15,435 shares,
respectively, at prices of $4.25 and $4.20, respectively. In the offering
periods ended June 30 and December 31, 1996, employees purchased 22,786 and
<PAGE>
<PAGE>
52
10,122 shares, respectively, at prices of $3.72 and $4.78, respectively.
In the offering periods ended June 30 and December 31, 1995, employees
purchased 14,172 and 25,845 shares, respectively, at prices of $5.10 and
$3.72, respectively. The weighted average fair market value of shares
under the ESPP was $4.22, $4.76 and $4.53 in 1997, 1996 and 1995,
respectively. The Company has reserved 250,000 shares of common stock for
the ESPP, of which 93,861 were available for future issuance as of December
31, 1997.

STOCK REPURCHASE PROGRAM. In 1994, the Board of Directors authorized
the open market repurchase of up to 450,000 shares of the Company's common
stock. As of December 31, 1994, the Company had repurchased 194,800 shares
at a cost of $2.1 million. These shares are currently being used by the
Company to satisfy its obligations under the Company's various employee
stock option and purchase plans. In accordance with the terms of the
Credit Facility executed by the Company in May 1996 and, as amended, the
Company is currently precluded from repurchasing its common stock.

RIGHTS PLAN. On December 19, 1994, the Board of Directors of the
Company authorized and declared a dividend of one preferred stock purchase
right (a "Right") for each outstanding share of the Company's common stock
payable to stockholders of record at the close of business on January 3,
1995. Each Right entitled the common stockholder to purchase, in certain
circumstances generally relating to a change in control of the Company, one
one-thousandth of a share of the Company's Series B Junior Participating
Cumulative Preferred Stock, par value $0.25 per share (the "Preferred
Shares") at an exercise price of $40, subject to adjustment.
Alternatively, the Right entitled the holder to purchase common stock of
the Company having a market value equal to two times the exercise price, or
to purchase shares of common stock of the acquiring corporation having a
market value equal to two times the exercise price. The Preferred Shares
conferred to holders certain rights as to dividends, voting and liquidation
in preference to common stockholders. The Rights were non-voting, were not
presently exercisable and traded in tandem with the common stock. The
Rights were redeemable, in whole but not in part, by the Company at $0.01
per Right in accordance with the Rights Plan.

The Rights were scheduled to expire on January 3, 1997, unless earlier
redeemed or exchanged. On November 14, 1996, the Board of Directors of the
Company extended the Rights Plan until the stockholders' vote, at the
annual meeting of stockholders on May 6, 1997, on a proposed three-year
extension of such Rights Plan. At the annual meeting held on May 6, 1997,
the proposal for such three-year extension of the Rights Plan was defeated.

7. COMMITMENTS AND CONTINGENCIES

During the fourth quarter of 1997, the Company recorded an additional
accrual of $1.1 million to account for estimated obligations associated
with state sales tax activity occurring during the years 1992 though 1995.
State sales tax laws generally require collection from customers of sales
tax unless such customers provide valid sales tax exemption certificates.
Sales tax exemption certificates are customarily issued to those companies
that resell products to the federal government.
<PAGE>
<PAGE>
53
In October 1997, the Company entered into a settlement agreement with
the Department of Justice under which the Company will pay the Government a
total of $400,000 plus $22,000 in legal fees that are to be paid in three
equal installments. The agreement resolves and releases the Company from
claims under the previously disclosed GSA audit of the Company's GSA
Schedule sales for the years 1988 to the present, and settles and dismisses
with prejudice a qui tam lawsuit filed on behalf of the Government
regarding such GSA Schedule sales. The qui tam lawsuit naming the Company
was filed under seal in 1995 and has been subject to a court order
prohibiting disclosure of the suit. The qui tam action was filed by the
same individual who filed a similar action against Novell, Inc. in 1992,
which Novell settled by paying the government $1.7 million. The Company
believes it has settled the Government's claims on favorable terms. Prior
to settling with the DOJ, the Company had incurred approximately $1.5
million in attorney and accounting costs in responding to GSA charges and
asserting the Company's defenses to the Government's allegations.

In December 1996, the Company settled litigation pending before the
Armed Services Board of Contract Appeals related to the Company's
obligation to provide "upgrades" of certain computer software under the
Desktop IV Contract. The settlement required the Company to provide,
without charge, certain software licenses to users who registered before
February 28, 1997. At December 31, 1996, the Company recorded a liability
of approximately $3.0 million, which represented management's estimate of
the costs necessary to provide the "upgrades" noted above plus estimated
professional services costs paid in 1997 related to the ongoing GSA audit.

The Company leases office and warehouse space and various equipment
under non-cancelable operating leases. In August 1995, the Company entered
into a ten-year agreement to lease approximately 200,000 square feet of
warehouse space beginning in December 1996 to accommodate the distribution
and storage of merchandise inventories.

In November 1988, the Company executed a ten-year lease for its
corporate headquarters that comprises approximately 120,000 square feet of
office space and 14,000 square feet of warehouse space. The Company also
entered into a nine-year lease for 55,170 square feet of office space in
two buildings beginning December 1, 1989. The lease for the entire
facility expires on November 30, 1998. In October 1997, the Company
entered into an agreement to lease a new administrative facility consisting
of 100,000 square feet of new office space in Chantilly, Virginia. The
agreement has a 10 year term with one five year option period and will
commence on December 1, 1998. The Company is obligated under the lease
agreement to provide to the Landlord a Letter of Credit ("LOC") in the
amount of $2.0 million as a security deposit for all tenant requested <PAGE>
<PAGE>
54
improvements associated with the lease. This deposit will be reduced by
10%, per year, over the life of the lease. Rent expense for the years
ended December 31, 1997, 1996 and 1995 was approximately $3.6 million, $3.4
million, and $3.5 million, respectively. The Company also maintains sales
offices in Chicago and in Germany and has, in each of these locations,
entered into lease agreements. Collective future minimum lease payments as
of December 31, 1997 are as follows (in thousands):

Operating
Year ending December 31, Leases
------------------------ --------

1998. . . . . . . . . . . . . . . $ 3,510
1999. . . . . . . . . . . . . . . 1,764
2000. . . . . . . . . . . . . . . 1,817
2001. . . . . . . . . . . . . . . 1,869
2002. . . . . . . . . . . . . . . 1,925
Thereafter. . . . . . . . . . . . 11,561
--------

Total minimum lease payments . . . . . $ 22,446
========

8. 401(K) PLAN

Effective April 1991, the Company adopted the Employees' 401(k)
Investment Plan (the "Plan"), a savings and investment plan intended to be
qualified under Section 401 of the Internal Revenue Code (the "Code"). All
employees of the Company who are at least 21 years of age and have
completed at least six months of employment with the Company are eligible
to participate. The Plan is voluntary and allows participating employees
to make pretax contributions, subject to limitations under the Code, of a
percentage (not to exceed 15%) of their total compensation. Employee
contributions are fully vested at all times. The Company, in its sole
discretion, may make contributions in amounts, if any, as may be determined
by the Board of Directors for the benefit of all participants. No
contributions to the 401(k) Plan have been made by the Company to date.

9. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth selected unaudited quarterly financial
data and the percentages such items represent of sales. The quarterly
financial data reflect, in the opinion of the Company, all normal and
recurring adjustments necessary to present fairly the results of operations
for such periods. Results of any one or more quarters are not necessarily
indicative of annual results or continuing trends.

<PAGE>
<PAGE>
55
<TABLE>
<CAPTION>
1997 Quarters Ended
----------------------------------------------------------------------------
(In thousands, except per share data) March 31, June 30, September 30, December 31,(1)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . $ 88,407 100.0% $ 94,464 100.0% $ 161,759 100.0% $141,747 100.0%
Gross margin. . . . . . . . . . . . . . . . . . . . 7,130 8.1 6,832 7.2 11,715 7.2 11,246 7.9
Operating expenses. . . . . . . . . . . . . . . . . 9,883 11.2 9,443 10.0 9,312 5.7 10,289 7.3
(Loss) income from operations . . . . . . . . . . . (2,753) (3.1) (2,611) (2.8) 2,403 1.5 957 0.6
Interest expense, net . . . . . . . . . . . . . . . 651 0.8 376 0.4 512 0.3 1,561 1.0
(Loss) income before income taxes . . . . . . . . . (3,404) (3.9) (2,987) (3.2) 1,891 1.2 (604) (0.4)
Net (loss) income . . . . . . . . . . . . . . . . . (3,404) (3.9) (2,987) (3.2) 1,891 1.2 (604) (0.4)
Net (loss) income per share . . . . . . . . . . . . $(0.51) $(0.44) $0.28 $(0.09)
Weighted average number of
common and common
equivalent shares outstanding. . . . . . . . . . 6,725 6,725 6,740 6,741

<CAPTION>
1996 Quarters Ended
----------------------------------------------------------------------------
(In thousands, except per share data) March 31, June 30, September 30, December 31,(1)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . $ 82,792 100.0% $100,809 100.0% $ 163,221 100.0% $144,820 100.0%
Gross margin. . . . . . . . . . . . . . . . . . . . 7,223 8.7 6,853 6.8 11,165 6.8 8,325 5.7
Operating expenses. . . . . . . . . . . . . . . . . 9,314 11.2 8,406 8.3 9,489 5.8 23,088 15.9
(Loss) income from operations . . . . . . . . . . . (2,091) (2.5) (1,553) (1.5) 1,676 1.0 (14,763) (10.2)
Interest expense, net . . . . . . . . . . . . . . . 848 1.0 710 0.7 495 0.3 1,085 0.7
(Loss) income before income taxes . . . . . . . . . (2,939) (3.5) (2,263) (2.2) 1,181 0.7 (15,848) (10.9)
Net (loss) income . . . . . . . . . . . . . . . . . (1,818) (2.2) (1,410) (1.4) 703 0.4 (15,313) (10.6)
Net (loss) income per share . . . . . . . . . . . . ($0.27) ($0.21) $0.10 ($2.28)
Weighted average number of
common and common
equivalent shares outstanding . . . . . . . . . . 6,675 6,677 7,060 6,703

</TABLE>
<PAGE>
<PAGE>
56
GOVERNMENT TECHNOLOGY SERVICES, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)

<TABLE>
<CAPTION>
Balance Charged Balance
at to at
Beginning Costs and End of
Description of Period Expenses Deductions(2) Period
- ------------------------------------------------------------------ --------- --------- ------------- --------
<S> <C> <C> <C> <C>

Year ended December 31, 1997:

Allowance for bad debts . . . . . . . . . . . . . . . . . . . . $ 4,535 $ 2,800 $(3,242) $ 4,093

Allowance for slow-moving and obsolete inventory. . . . . . . . 4,566 6,766 (8,483) 2,849

Allowance for income taxes. . . . . . . . . . . . . . . . . . . 5,147 1,822 - 6,969

Year ended December 31, 1996:

Allowance for bad debts . . . . . . . . . . . . . . . . . . . . $ 4,268 $ 2,761 $(2,494) $ 4,535

Allowance for slow-moving and obsolete inventory. . . . . . . . 8,250 1,591 (5,275) 4,566

Allowance for income taxes. . . . . . . . . . . . . . . . . . . - 5,147 - 5,147

Year ended December 31, 1995:

Allowance for bad debts . . . . . . . . . . . . . . . . . . . . $ 2,269 $ 3,225 $(1,226) $ 4,268

Allowance for slow-moving and obsolete inventory. . . . . . . . 8,827 5,403 (5,980) 8,250

(1) Adjustments and amounts written off during the period.

</TABLE>
<PAGE>
<PAGE>
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

Incorporated by reference to the Registrant's Form 8-K filed with the
Commission on June 17, 1996.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item is incorporated by reference to
the sections of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 1998, entitled "Election of
Directors -- Nominees," "Executive Officers" and "Common Stock Ownership of
Principal Stockholders and Management -- Section 16(a) Beneficial Ownership
Reporting Compliance," to be filed with the Commission.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to
the sections of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 1998, entitled "Election of
Directors -- Compensation of Directors" and "Executive Compensation and
Other Information," to be filed with the Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The information required by this Item is incorporated by reference to
the section of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 1998, entitled "Common Stock
Ownership of Principal Stockholders and Management," to be filed with the
Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference to
the sections of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 1998, entitled "Election of
Directors -- Nominees" and "Executive Compensation and Other Information --
Compensation Committee Interlocks and Insider Participation," to be filed
with the Commission.

<PAGE>
<PAGE>
58
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.

(A) (1) FINANCIAL STATEMENTS

See the Index included in Item 8 on Page 33 of this Form 10-K.

(2) FINANCIAL STATEMENT SCHEDULES

See the Index included in Item 8 on Page 33 of this Form 10-K.

(3) EXHIBITS

2.1 Stock Purchase Agreement by and among the Registrant, Falcon
Microsystems, Inc. and M. Dendy Young dated August 16,
1994(2)(11)

3.1 Certificate of Incorporation, as amended(3)(6)(13)(17)

3.2 Bylaws, as amended

4.1 Rights Agreement dated as of January 3, 1995 by and between the
Registrant and First Union National Bank of North Carolina, as
Rights Agent, which includes as Exhibit B thereto the form of
Rights Certificate(13)

10.1 Amended and Restated 1986 Stock Option Plan,(4) including forms
of Stock Option Agreements and Stock Purchase Agreement(1)(3)

10.2 Employee Stock Purchase Plan, as amended to date(1)(6)

10.3 GSA Schedule B/C Award/Contract No. GS00K95AGS6407 dated April
1, 1996, issued by the General Services Administration to the
Registrant for the three-year period ending March 31,
1999(2)(16), and amendment thereto dated November 26, 1997

10.4 GSA Schedule A Award/Contract No. GS00K94AGS5681 dated October
1, 1993, issued by the General Services Administration to the
Registrant, and Modifications during 1993(2)(9); and
Modifications during the quarter ended December 31, 1994(12)

10.5 Deed of Lease Agreement I dated as of November 17, 1987 between
the Registrant and Enterprise Center Limited Partnership Number
Two covering part of the Registrant's facilities in Chantilly,
Virginia, as amended by Amendment No. One dated December 14,
1988(3)

<PAGE>
<PAGE>
59
10.6 Deed of Lease Agreement II dated as of November 17, 1987
between the Registrant and Enterprise Center Limited
Partnership Number Two covering part of the Registrant's
facilities in Chantilly, Virginia, as amended by Amendment No.
One dated December 14, 1988(3)

10.7 Lease dated March 31, 1993 between the Registrant and West 50
Associates covering office and warehouse facilities(9); and
Amendment thereto dated September 21, 1995(15)

10.8 Letter Agreement dated September 17, 1990, as amended, between
the Registrant and R. M. Rickenbach(1)(3)

10.9 Warrant of the Registrant dated December 6, 1990 issued to
Lawrence J. Schoenberg(1)(6)

10.10 Nonstatutory Stock Option Agreement dated October 9, 1992
between the Registrant and Frank H. Slovenec(1)(6)

10.11 Officer Severance Plan, as amended to date(15)

10.12 GTSI Employees' 401(k) Investment Plan(3); and Amendment No.
1(5); Amendment No. 2 and Amendment No. 3 thereto(15)

10.13 IBM Business Partner Agreement (Dealer Profile, Dealer Exhibit,
Dealer/Retailer Attachment and Remarketer General Terms)
between IBM and the Registrant, effective January 1994(9)

10.14 U.S. Navy Standard Desktop Computer Companion Contract No.
N66032-91-D-0002 dated February 8, 1991; Modification thereof
dated June 28, 1991(4); Modifications during 1992(6); and
Modifications during 1993(2)(9)

10.15 Credit Agreement, dated as of November 17, 1994, by and among
the Registrant and Falcon Microsystems, Inc., as Borrowers; The
Lenders Parties Thereto From Time To Time; and Mellon Bank,
N.A., as Agent(12); and Amendment thereto dated December 29,
1995(15) (see also Exhibit 10.24)

10.16 Stock Bonus Agreement dated August 25, 1993 between the
Registrant and R. M. Rickenbach(1)(8)

10.17 Stock Bonus Agreement dated August 25, 1993 between the
Registrant and Frank H. Slovenec(1)(8)

10.18 Authorized Apple Dealer Sales Agreement between Apple Computer,
Inc. and the Registrant, effective April 1993(7)

<PAGE>
<PAGE>
60
10.19 U.S. Air Force Desktop IV Microsystems Contract No.
F01620-93-D-0001 dated February 2, 1993; Modifications during
1993(2)(9); and Modifications during the quarter ended March
31, 1994(10); and Modifications during the quarter ended June
30, 1995(14)

10.20 National Aeronautics and Space Administration Scientific &
Engineering Workstation Procurement Contract No. NAS5-37008
dated February 19, 1993; Modifications during 1993(2)(9); and
Modifications during the quarter ended March 31, 1994(10)

10.21 Stock Bonus Agreement dated November 16, 1994 between the
Registrant and R. M. Rickenbach(1)

10.22 Stock Bonus Agreement dated November 16, 1994 between the
Registrant and Frank H. Slovenec(1)

10.23 Stock Bonus Agreement dated November 16, 1994 between the
Registrant and Thomas L. Smudz(1)

10.24 Business Credit and Security Agreement dated as of December 29,
1995 among the Registrant, certain Lenders named therein, and
Deutsche Financial Services Corporation, as a Lender and as
Agent; and Amendment thereto dated March 29, 1996(15)

10.25 Lease dated August 11, 1995 between the Registrant and Security
Capital Industrial Trust covering new distribution center
facility(15)

10.26 Letter agreement dated January 16, 1996 between the Registrant
and Microsoft Corporation(15)

10.27 Employment Agreement dated December 18, 1995 between the
Registrant and M. Dendy Young(1)(15)

10.28 Employment Agreement dated December 18, 1995 between the
Registrant and Peter E. Janke(1)(15)

10.29 Settlement Agreement between the Registrant and the U.S. Air
Force with respect to the Desktop IV Microsystems Contract No.
F01620-93-D-0001(2)

10.30 Asset Purchase Agreement dated as of February 12, 1998 among
the Registrant, BTG, Inc., BTG Technology Systems, Inc. and
Concept Automation, Inc. of America (excluding attachments and
exhibits)(17)

10.31 Standstill Agreement between the Registrant and BTG, Inc. dated
as of February 12, 1998(17)

<PAGE>
<PAGE>
61
10.32 Certificate of Designations, Preferences and Rights of Series C
8% Cumulative Redeemable Convertible Preferred Stock of the
Registrant filed February 12, 1998 with the Secretary of State
of Delaware(17)

10.33 1994 Stock Option Plan, as amended to date(1)

10.34 1996 Stock Option Plan(1)

10.35 Employment Agreement dated January 1, 1998 between the
Registrant and M. Dendy Young(1)

10.36 Lease dated December 10, 1997 between the Registrant and Petula
Associates, Ltd. covering new headquarters facility (excluding
attachments and exhibits)

10.37 Second Amended and Restated Business Credit and Security
Agreement, dated as of July 28, 1997, among the Registrant,
Certain Lenders Named [in such agreement], and Deutsche
Financial Services Corporation, as a Lender and as Agent
(excluding attachments and exhibits)

11.1 Computation of Earnings Per Share

23.1 Consent of Arthur Andersen LLP

23.2 Consent of Coopers & Lybrand, L.L.P.

________________________

(1) Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form
10-K.

(2) Confidential treatment has been granted for portions of this
exhibit, and such confidential portions have been removed from
this exhibit pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.

(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-41351) filed with
the Commission on June 21, 1991.

(4) Incorporated by reference to Pre-effective Amendment No. 3 to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-41351) filed with the Commission on
September 20, 1991.

<PAGE>
<PAGE>
62
(5) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-55090) filed with
the Commission on November 25, 1992.

(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1992.

(7) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended March 31,
1993.

(8) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended September
30, 1993.

(9) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1993.

(10) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended March 31,
1994.

(11) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on August 31, 1994, as
amended by Form 8-K/A No. 1 filed with the Commission on
October 31, 1994.

(12) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1994.

(13) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on January 17, 1995.

(14) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended June 30,
1995.

(15) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1995.

(16) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended March 31,
1996.

(17) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on February 12, 1998.

<PAGE>
<PAGE>
63
(B) REPORTS ON FORM 8-K

(1) On October 9, 1997, the Registrant filed a Current Report on
Form 8-K reporting that the Registrant had reached an agreement
of certain legal matters.

(2) On December 19, 1997, the Registrant filed a Current Report on
Form 8-K reporting that the Registrant had signed a letter of
intent for the purchase by the Registrant of the product sales
division of BTG, Inc.

(3) On January 13, 1998, the Registrant filed a Current Report on
Form 8-K reporting that the Registrant had amended the above-
referenced letter of intent.

(4) On January 26, 1998, the Registrant filed a Current Report on
Form 8-K reporting that the Registrant had extended the above-
referenced letter of intent.

(5) On February 12, 1998, the Registrant filed a Current Report on
Form 8-K reporting that the Registrant had completed the
transaction contemplated by the above-referenced letter of
intent.

See the list of Exhibits in Item 14(a)(3) beginning on Page 58
of this Form 10-K.

(D) FINANCIAL STATEMENT SCHEDULES

See the Index included in Item 8 on Page 33 of this Form 10-K.

<PAGE>
<PAGE>
64
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chantilly, Commonwealth of Virginia.

GOVERNMENT TECHNOLOGY SERVICES, INC.

Dated: March 30, 1998 By: /s/ M. Dendy Young
--------------------------------
M. Dendy Young,
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Lawrence J. Schoenberg Chairman of the Board March 30, 1998
- ---------------------------
Lawrence J. Schoenberg

/s/ M. Dendy Young President and March 30, 1998
- --------------------------- Chief Executive Officer
M. Dendy Young (Principal Executive Officer)
and a Director

/s/ Stephen L. Waechter Senior Vice President and March 30, 1998
- --------------------------- Chief Financial Officer
Stephen L. Waechter (Principal Financial and
Accounting Officer)

/s/ Tania Amochaev Director March 30, 1998
- ---------------------------
Tania Amochaev

Director March 30, 1998
- ---------------------------
Dr. Edward H. Bersoff
<PAGE>
<PAGE>
65
Signature Title Date
--------- ----- ----

/s/ Gerald W. Ebker Director March 30, 1998
- ---------------------------
Gerald W. Ebker

/s/ Lee Johnson Director March 30, 1998
- ---------------------------
Lee Johnson

/s/ Steven Kelman Director March 30, 1998
- ---------------------------
Steven Kelman, Ph. D.

/s/ James J. Leto Director March 30, 1998
- ---------------------------
James J. Leto

/s/ John M. Toups Director March 30, 1998
- ---------------------------
John M. Toups

<PAGE>
<PAGE>
66
INDEX TO EXHIBITS
===========================================================================
EXHIBIT |
NUMBER | DESCRIPTION
- ---------------------------------------------------------------------------
3.2 | Bylaws, as amended
- ---------------------------------------------------------------------------
10.3 | Amendment dated November 26, 1997 to GSA Schedule B/C
Award/Contract No. GS00K95AGS6407 dated April 1, 1996, issued
by the General Services Administration to the Registrant for
the three-year period ending March 31, 1999
- ---------------------------------------------------------------------------
10.33 | 1994 Stock Option Plan, as amended to date
- ---------------------------------------------------------------------------
10.34 | 1996 Stock Option Plan
- ---------------------------------------------------------------------------
10.35 | Employment Agreement dated January 1, 1998 between the
Registrant and M. Dendy Young
- ---------------------------------------------------------------------------
10.36 | Lease dated December 10, 1997 between the Registrant and
Petula Associates, Ltd. covering new headquarters facility
(excluding attachments and exhibits)
- ---------------------------------------------------------------------------
10.37 | Second Amended and Restated Business Credit and Security
Agreement, dated as of July 28, 1997, among the Registrant,
Certain Lenders Named [in such agreement], and Deutsche
Financial Services Corporation, as a Lender and as Agent
(excluding attachments and exhibits)
- ---------------------------------------------------------------------------
11.1 | Computation of Earnings Per Share
- ---------------------------------------------------------------------------
23.1 | Consent of Arthur Andersen LLP
- ---------------------------------------------------------------------------
23.2 | Consent of Coopers & Lybrand, L.L.P.
===========================================================================

<PAGE>
AS AMENDED THROUGH
FEBRUARY 12, 1998

GOVERNMENT TECHNOLOGY SERVICES, INC.
______________________________

(A Delaware Corporation)
______________________________

BY-LAWS
______________________________

ARTICLE I

Offices

SECTION 1. Registered Office. The registered office of the Corporation
shall be located in the City of Dover, County of Kent, State of Delaware, and
the name of the resident agent in charge thereof shall be The Corporation
Trust Company.

SECTION 2. Other Offices. The Corporation may also have offices at
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time appoint or the business of the Corporation
may require.

ARTICLE II

Seal

The seal of the Corporation shall, subject to alteration by the Board of
Directors, consist of a flat-faced circular die with the word "Delaware,"
together with the name of the Corporation and the year of incorporation, cut
or engraved thereon.

ARTICLE III

Meetings of Stockholders

SECTION 1. Place of Meeting. Meetings of the stockholders shall be
held either within or without the State of Delaware at such place as the
Board of Directors may fix.

SECTION 2. Annual Meetings. The annual meeting of stockholders shall
be held on the third Tuesday of June of each year or such other date as the
Board of Directors may set by resolution, at such time as the Board of
Directors may fix.

SECTION 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called by the President, or by the directors
(either by written instrument signed by a majority or by resolution adopted
by a vote of the majority), and special meetings shall be called by the
President or the Secretary whenever stockholders owning a majority of the
capital stock issued, outstanding and entitled to vote so request in writing.
Such request of stockholders shall state the purpose or purposes of the
proposed meeting.

SECTION 4. Notice. Written or printed notice of every meeting of
stockholders, annual or special, stating the hour, date and place thereof,
and the purpose or purposes in general terms for which the meeting is called
shall, not less than ten (10) and not more than sixty (60) days before such
meeting, be served upon or mailed to each stockholder entitled to vote
thereat, at his address as it appears upon the stock records of the
Corporation or, if such stockholder shall have filed with the Secretary of
the Corporation a written request that notices intended for him be mailed to
some other address, then to the address designated in such request.

Notice of the hour, date, place and purpose of any meeting of
stockholders may be dispensed with if every stockholder entitled to vote
thereat shall attend either in person or by proxy and shall not object to the
holding of such meeting for lack of proper notice, or if every absent
stockholder entitled to such notice shall in writing, filed with the records
of the meeting, either before or after the holding thereof, waive such
notice.

SECTION 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the presence in person or by proxy at any
meeting of stockholders of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, shall be requisite and shall constitute a quorum. If two or more
classes of stock are entitled to vote as separate classes upon any question,
then, in the case of each such class, a quorum for the consideration of such
question shall, except as otherwise provided by law or by the Certificate of
Incorporation, consist of a majority in interest of all stock of that class
issued, outstanding and entitled to vote. If a majority or, where a larger
quorum is required, such quorum, shall not be represented at any meeting of
the stockholders regularly called, the holders of a majority of the shares
present or represented and entitled to vote thereat shall have power to
adjourn the meeting to another time, or to another time and place, without
notice other than announcement of adjournment at the meeting, and there may
be successive adjournments for like cause and in like manner until the
requisite amount of shares entitled to vote at such meeting shall be
represented; provided, however, that if the adjournment is for more than
thirty (30) days, notice of the hour, date and place of the adjourned meeting
shall be given to each stockholder entitled to vote thereat. Subject to the
requirements of law and the Certificate of Incorporation, on any issue on
which two or more classes of stock are entitled to vote separately, no
adjournment shall be taken with respect to any class for which a quorum is
present unless the Chairman of the meeting otherwise directs. At any meeting
held to consider matters which were subject to adjournment for want of a
quorum at which the requisite amount of shares entitled to vote thereat shall
be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.

SECTION 6. Votes, Proxies. At each meeting of stockholders, every
stockholder of record at the closing of the transfer books, if closed, or on
the date set by the Board of Directors for the determination of stockholders
entitled to vote at such meeting, shall have one vote for each share of stock
entitled to vote which is registered in his name on the books of the
Corporation upon any matter properly brought before the meeting. At each
such meeting every stockholder shall be entitled to vote in person, or by
proxy appointed by an instrument in writing subscribed by such stockholder
and bearing a date not more than three (3) years prior to the meeting in
question, unless said instrument provides for a longer period during which it
is to remain in force.

All elections of directors shall be held by ballot. If the Chairman of
the meeting shall so determine, a vote may be taken upon any other matter by
ballot and shall be so taken upon the request of any stockholder entitled to
vote on such matter.

At any meeting at which a quorum is present, a plurality of the votes
properly cast for election to fill any vacancy on the Board of Directors
shall be sufficient to elect a candidate to fill such vacancy, and a majority
of the votes properly cast upon any other question shall decide the question,
except in any case where a larger vote is required by law, the Certificate of
Incorporation, these By-Laws, or otherwise.

SECTION 7. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.

In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall, by written
notice to the Secretary, request the Board of Directors to fix a record date.
The Board of Directors shall promptly, but in all events within 10 days after
the date on which such a request is received, adopt a resolution fixing the
record date. If no record date has been fixed by the Board of Directors
within 10 days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered
to the Corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or any officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by applicable law, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts the resolution taking such prior
action.

SECTION 8. Organization. The Chairman of the Board, if there be one,
or in his absence the President, or in the absence of the Chairman and the
President, a Vice President, shall call meetings of the stockholders to order
and shall act as chairman thereof. The Secretary of the Corporation, if
present, shall act as secretary of all meetings of stockholders, and, in his
absence, the presiding officer may appoint a secretary.

SECTION 9. Nominations and Stockholder Business. Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors, or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section 9, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 9.

For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to this Section 9, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation, and such business must be a proper subject for stockholder
action under the Delaware General Corporation Law. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 90 days nor more than 180
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the stockholder to be timely must be so delivered
not later than the close of business on the later of the 90th day prior to
such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before
the meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner, and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.

Notwithstanding anything in this Section 9 to the contrary, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement specifying the
size of the increased Board of Directors made by the Corporation at least 130
days prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice required by this Section 9 shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 10th day following the day on which such public announcement is first
made by the Corporation.

Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting
(a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this section, who shall be entitled to vote
at the meeting and who complies with the notice procedures set forth in this
section. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by this section shall be delivered to the
secretary at the principal executive offices of the Corporation not earlier
than the 180th day prior to such special meeting and not later than the close
of business on the later of the 90th day prior to such special meeting or the
10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.

Only such persons who are nominated in accordance with the procedures
set forth in this section shall be eligible for election as directors at any
meeting of stockholders. Only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this section. The chairman of the meeting
shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this section and, if any proposed nomination
or business is not in compliance with this section, to declare that such
defective proposal shall be disregarded.

For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 9, 13, 14 or 15(d) of the Exchange Act.

Notwithstanding the foregoing provisions of this Section 9, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 9. Nothing in this Section 9 shall be
deemed to affect any rights of stockholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.

ARTICLE IV

Directors

SECTION 1. Number. The business and property of the Corporation shall
be conducted and managed by a Board of Directors consisting of not less than
one director, none of whom needs to be a stockholder. The Board shall be
composed of nine directors. The whole number of directors for the ensuing
year shall be fixed at each annual meeting of stockholders, but if the number
is not so fixed, the number shall remain as it stood immediately prior to
such meeting.

At any time during any year the whole number of directors may be
increased or reduced, in each case by vote of a majority of the stock
outstanding and entitled to vote for the election of directors or a majority
of the directors in office at the time of such increase or decrease,
regardless of whether such majority of directors constitutes a quorum.

SECTION 2. Term of Office. Each director shall hold office until the
next annual meeting of stockholders and until his successor is duly elected
and qualified or until his earlier death or resignation, subject to the right
of the stockholders at any time to remove any director or directors as
provided in Section 4 of this Article.

SECTION 3. Vacancies. If any vacancy shall occur among the directors,
or if the number of directors shall at any time be increased, the directors
then in office, although less than a quorum, by a majority vote may fill the
vacancies or newly-created directorships, or any such vacancies or newly-
created directorships may be filled by the stockholders at any meeting.

SECTION 4. Removal by Stockholders. The holders of record of the
capital stock of the Corporation entitled to vote for the election of
directors may in their discretion at any meeting duly called for the purpose,
by a majority vote, remove any director or directors and elect a new director
or directors in place thereof.

SECTION 5. Meetings. Meetings of the Board of Directors shall be held
at such place, within or without the State of Delaware, as may from time to
time be fixed by resolution of the Board or by the President and as may be
specified in the notice or waiver of notice of any meeting. Meetings may be
held at any time upon the call of the Chairman of the Board or the President
or any two (2) of the directors in office by oral, telegraphic or written
notice, duly served or sent or mailed to each director not less than twenty-
four (24) hours before such meeting, except that, if mailed, not less than
seventy-two (72) hours before such meeting. Meetings may be held at any time
and place without notice if all the directors are present and do not object
to the holding of such meeting for lack of proper notice or if those not
present shall, in writing or by telegram, waive notice thereof. A regular
meeting of the Board may be held without notice immediately following the
annual meeting of stockholders at the place where such meeting is held.
Regular meetings of the Board may also be held without notice at such time
and place as shall from time to time be determined by resolution of the
Board.

Unless otherwise restricted by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.

SECTION 6. Quorum. A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the Board there
shall be less than a quorum present, a majority of those present may adjourn
the meeting from time to time without notice other than announcement of the
adjournment at the meeting, and at such adjourned meeting at which a quorum
is present any business may be transacted which might have been transacted at
the meeting as originally noticed.

SECTION 7. Action Without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is
signed by all members of the Board, or of such committee as the case may be,
and such written consent is filed with the minutes of proceedings of the
Board or committee.

SECTION 8. Compensation. Directors shall receive compensation for
their services, as such, and for service on any Committee of the Board of
Directors, as fixed by resolution of the Board of Directors and for expenses
of attendance at each regular or special meeting of the Board or any
Committee thereof. Nothing in this Section shall be construed to preclude a
director from serving the Corporation in any other capacity and receiving
compensation therefor.

ARTICLE V

Committees of Directors

SECTION 1. Executive Committee. The Board of Directors may appoint an
Executive Committee of two (2) or more members, to serve during the pleasure
of the Board, to consist of such directors as the Board may from time to time
designate. The Board of Directors shall designate the Chairman of the
Executive Committee.

(a) Procedure. The Executive Committee shall, by a vote of a majority
of its members, fix its own times and places of meeting, determine
the number of its members constituting a quorum for the transaction
of business, and prescribe its own rules of procedure, no change in
which shall be made save by a majority vote of its members.

(b) Responsibilities. During the intervals between the meetings of the
Board of Directors, except as otherwise provided by the Board of
Directors in establishing such Committee or otherwise, the
Executive Committee shall possess and may exercise all the powers
of the Board in the management and direction of the business and
affairs of the Corporation; provided, however, that the Executive
Committee shall not have the power:

(i) to amend or authorize the amendment of the Certificate of
Incorporation or these By-Laws;

(ii) to issue stock;

(iii) to authorize the payment of any dividend;

(iv) to adopt an agreement of merger or consolidation of the
Corporation or to recommend to the stockholders the sale, lease or
exchange of all or substantially all the property and business of
the Corporation; or

(v) to recommend to the stockholders a dissolution of the
Corporation.

(c) Reports. The Executive Committee shall keep regular minutes of its
proceedings, and all action by the Executive Committee shall be
reported promptly to the Board of Directors. Such action shall be
subject to review, amendment and repeal by the Board, provided that
no rights of third parties shall be adversely affected by such
review, amendment or repeal.

(d) Appointment of Additional Members. In the absence or
disqualification of any member of the Executive Committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.

SECTION 2. Audit Committee. The Board of Directors may appoint an
Audit Committee of two (2) or more members who shall not be officers or
employees of the Corporation to serve during the pleasure of the Board. The
Board of Directors shall designate the Chairman of the Audit Committee.

(a) Procedure. The Audit Committee, by a vote of a majority of its
members, shall fix its own times and places of meeting, shall
determine the number of its members constituting a quorum for the
transaction of business, and shall prescribe its own rules of
procedure, no change in which shall be made save by a majority vote
of its members.

(b) Responsibilities. The Audit Committee shall review the annual
financial statements of the Corporation prior to their submission
to the Board of Directors, shall consult with the Corporation's
independent auditors, and may examine and consider such other
matters in relation to the internal and external audit of the
Corporation's accounts and in relation to the financial affairs of
the Corporation and its accounts, including the selection and
retention of independent auditors, as the Audit Committee may, in
its discretion, determine to be desirable.

(c) Reports. The Audit Committee shall keep regular minutes of its
proceedings, and all action by the Audit Committee shall, from time
to time, be reported to the Board of Directors as it shall direct.

(d) Appointment of Additional Members. In the absence or
disqualification of any member of the Audit Committee, the member
or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.

SECTION 3. Other Committees. The Board of Directors, by vote of a
majority of the directors then in office, may at any time appoint one or more
other committees from and outside of its own number. Every such committee
must include at least one member of the Board of Directors. The Board may
from time to time designate or alter, within the limits permitted by law, the
Certificate of Incorporation and this Article, if applicable, the duties,
powers and number of members of such other committees or change their
membership, and may at any time abolish such other committees or any of them.

(a) Procedure. Each committee, appointed pursuant to this Section,
shall, by a vote of a majority of its members, fix its own times
and places of meeting, determine the number of its members
constituting a quorum for the transaction of business, and
prescribe its own rules of procedure, no change in which shall be
made save by a majority vote of its members.

(b) Responsibilities. Each committee, appointed pursuant to this
Section, shall exercise the powers assigned to it by the Board of
Directors in its discretion.

(c) Reports. Each committee appointed pursuant to this Section shall
keep regular minutes of proceedings, and all action by each such
committee shall, from time to time, be reported to the Board of
Directors as it shall direct.

(d) Appointment of Additional Members. In the absence or
disqualification of any member of each committee, appointed
pursuant to this Section, the member or members thereof present at
any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such
absent or disqualified member.

SECTION 4. Term of Office. Each member of a committee shall hold
office until the first meeting of the Board of Directors following the annual
meeting of stockholders (or until such other time as the Board of Directors
may determine, either in the vote establishing the committee or at the
election of such member or otherwise) and until his successor is elected and
qualified, or until he sooner dies, resigns, is removed, is replaced by
change of membership or becomes disqualified by ceasing to be a Director
(where membership on the Board is required), or until the committee is sooner
abolished by the Board of Directors.

ARTICLE VI

Officers

SECTION 1. Officers. The Board of Directors shall elect a President,
a Secretary and a Chief Financial Officer, and, in their discretion, may
elect a Chairman of the Board, a Chief Executive Officer, one or more
Executive Vice Presidents, Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and such other officers as deemed necessary or
appropriate. The Chief Executive Officer (in addition to and not in lieu of
such authority as is held by the Board of Directors) may appoint one or more
Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and such
other officers as are equal to or subordinate to such positions as he deems
necessary or appropriate. Each officer shall hold office for the term
provided by the vote of the Board, or, with respect to those officers he has
authority to appoint and has in fact appointed, for the term designated by
the Chief Executive Officer, except that each officer will be subject to
removal from office in the discretion of the Board or the Chief Executive
Officer, as the case may be, as provided herein. The powers and duties of
more than one office may be exercised and performed by the same person.

SECTION 2. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors, at any regular or
special meeting.

SECTION 3. Chairman of the Board. The Chairman of the Board of
Directors, if elected, shall be a member of the Board of Directors and shall
preside at its meetings. He shall advise and counsel with the President, and
shall perform such duties as from time to time may be assigned to him by the
Board of Directors. The Board of Directors may also elect a Vice Chairman of
the Board who, if elected, shall be a member of the Board of Directors and
may preside at its meetings. Any person occupying the position or having the
title of Chairman of the Board or Vice Chairman of the Board shall not,
merely in such capacity or because of such title, be either an officer or
employee of the Corporation unless the Board duly adopts a resolution with
respect to such person subsequent to his/her election to such position
specifically designating such position as an officer and/or employee position
specifically with respect to such person.

SECTION 4. Chief Executive Officer. Subject to such supervisory
powers, if any, as may be given by the Board of Directors to the Chairman of
the Board, if there be such an officer, and subject to the control of the
Board of Directors, the Chief Executive Officer of the Corporation, if there
be such an officer, shall have general supervision, direction and control of
the business and officers of the Corporation. Subject to the Board of
Directors, the Chief Executive Officer shall be the final arbiter in all
differences between the officers of the Corporation and his decision as to
any matter affecting the Corporation shall be final and binding as between
the officers of the Corporation. The Chief Executive Officer shall preside
at all meetings of the shareholders and, in the absence of the Chairman of
the Board, or if there be none, at all meetings of the Board of Directors.
The Chief Executive Officer shall have the general powers and duties of
management usually vested in the office of chief executive officer of a
corporation and shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Board of Directors or
prescribed by the By-Laws.

SECTION 5. President. Subject to the control of the Board of Directors
and the Chief Executive Officer of the Corporation, if there be such an
officer, the President of the Corporation shall have such general powers and
duties of management as may be assigned to him from time to time by the Board
of Directors or the Chief Executive Officer of the Corporation or prescribed
by the By-Laws. In the absence or disability of the Chief Executive Officer,
or if there be none, the President shall perform all the duties of the Chief
Executive Officer, and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chief Executive Officer.

SECTION 6. Executive Vice Presidents, Vice Presidents and Other
Officers. Each Executive Vice President, Vice President, Assistant Vice
President, Assistant Secretary and such other officers as may be duly elected
or appointed under these By-Laws shall have and exercise such powers and
shall perform such duties as from time to time may be assigned to him by the
Board of Directors, the Chief Executive Officer or the President.

SECTION 7. Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders and of the Board of Directors in books provided
for the purpose; he shall see that all notices are duly given in accordance
with the provisions of law and these By-Laws; he shall be custodian of the
records and of the corporate seal or seals of the Corporation; he shall see
that the corporate seal is affixed to all documents the execution of which,
on behalf of the Corporation under its seal, is duly authorized, and, when
the seal is so affixed, he may attest the same; he may sign, with the Chief
Executive Officer, President, an Executive Vice President or a Vice
President, certificates of stock of the Corporation; and, in general, he
shall perform all duties incident to the office of secretary of a
corporation, and such other duties as from time to time may be assigned to
him by the Board of Directors.

SECTION 8. Assistant Secretaries. The Assistant Secretaries in order
of their seniority shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as the Board of Directors shall prescribe or as from time
to time may be assigned by the Secretary.

SECTION 9. Chief Financial Officer. The Chief Financial Officer of the
Corporation shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of
the Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus, and shares. The books of
account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositaries as may
be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors of the By-Laws.

SECTION 10. Subordinate Officers. The Board of Directors may appoint
such subordinate officers as it may deem desirable. Each such officer shall
hold office for such period, have such authority and perform such duties as
the Board of Directors may prescribe. The Board of Directors may, from time
to time, authorize any officer to appoint and remove subordinate officers and
to prescribe the powers and duties thereof.

SECTION 11. Compensation. The Board of Directors shall fix the
compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers, in
conjunction with the Chairperson of the Compensation Committee, as the case
may be.

SECTION 12. Removal. Any officer of the Corporation may be removed,
with or without cause, by action of the Board of Directors or the Chief
Executive Officer.

SECTION 13. Bonds. The Board of Directors may require any officer of
the Corporation to give a bond to the Corporation, conditional upon the
faithful performance of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.

ARTICLE VII

Certificates of Stock

SECTION 1. Form and Execution of Certificates. The interest of each
stockholder of the Corporation shall be evidenced by a certificate or
certificates for shares of stock in such form as the Board of Directors may
from time to time prescribe. The certificates of stock of each class shall
be consecutively numbered and signed by the President, an Executive Vice
President or a Vice President and by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer of the Corporation, and may be
countersigned and registered in such manner as the Board of Directors may by
resolution prescribe, and shall bear the corporate seal or a printed or
engraved facsimile thereof. Where any such certificate is signed by a
transfer agent or transfer clerk acting on behalf of the Corporation, the
signatures of any such President, Executive Vice President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be
facsimiles, engraved or printed. In case any officer or officers, who shall
have signed, or whose facsimile signature or signatures shall have been used
on, any such certificate or certificates, shall cease to be such officer or
officers, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be issued and delivered by
the Corporation as though the person or persons who signed such certificate
or certificates or whose facsimile signature or signatures shall have been
used thereon had not ceased to be such officer or officers.

In case the corporate seal which has been affixed to, impressed on, or
reproduced in any such certificate or certificates shall cease to be the seal
of the Corporation before such certificate or certificates have been
delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered by the Corporation as though the seal
affixed thereto, impressed thereon or reproduced therein had not ceased to be
the seal of the Corporation.

Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to law, the Certificate of Incorporation,
these By-Laws, or any agreement to which the Corporation is a party, shall
have the restriction noted conspicuously on the certificate, and shall also
set forth, on the face or back, either the full text of the restriction or a
statement of the existence of such restriction and (except if such
restriction is imposed by law) a statement that the Corporation will furnish
a copy thereof to the holder of such certificate upon written request and
without charge.

Every certificate issued when the Corporation is authorized to issue
more than one class or series of stock shall set forth on its face or back
either the full text of the preferences, voting powers, qualifications, and
special and relative rights of the shares of each class and series authorized
to be issued, or a statement of the existence of such preferences, powers,
qualifications and rights, and a statement that the Corporation will furnish
a copy thereof to the holder of such certificate upon written request and
without charge.

SECTION 2. Transfer of Shares. The shares of the stock of the
Corporation shall be transferred on the books of the Corporation by the
holder thereof in person or by his attorney lawfully constituted, upon
surrender for cancellation of certificates for the same number of shares,
with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof or guaranty of the authenticity of
the signature as the Corporation or its agents may reasonably require. The
Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have
express or other notice thereof, save as expressly provided by law or by the
Certificate of Incorporation. It shall be the duty of each stockholder to
notify the Corporation of his post office address.

SECTION 3. Closing of Transfer Books. The stock transfer books of the
Corporation may, if deemed appropriate by the Board of Directors, be closed
for such length of time not exceeding fifty (50) days as the Board may
determine, preceding the date of any meeting of stockholders or the date for
the payment of any dividend or the date for the allotment of rights or the
date when any issuance, change, conversion or exchange of capital stock shall
go into effect, during which time no transfer of stock on the books of the
Corporation may be made.

SECTION 4. Dates of Record. If deemed appropriate, the Board of
Directors may fix in advance a date for such length of time not exceeding
sixty (60) days (and, in the case of any meeting of stockholders, not less
than ten (10) days) as the Board may determine, preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights or the date when any issuance, change,
conversion or exchange of capital stock shall go into effect, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, any such meeting or entitled to receive payment of any such dividend
or to any such allotment of rights, or to exercise the rights in respect of
any such issuance, change, conversion or exchange of capital stock, as the
case may be, and in such case only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to
vote at, such meeting, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation
after any record date fixed as aforesaid. If no such record date is so
fixed, the record date shall be determined by applicable law.

SECTION 5. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate of stock, a new certificate may be issued
under the following conditions:

(a) The owner of said certificate shall file with the Secretary or any
Assistant Secretary of the Corporation an affidavit giving the
facts in relation to the ownership, and in relation to the loss or
destruction of said certificate, stating its number and the number
of shares represented thereby; such affidavit shall be in such form
and contain such statements as shall satisfy the President, any
Executive Vice President, Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer, that
said certificate has been accidentally destroyed or lost, and that
a new certificate ought to be issued in lieu thereof. Upon being
so satisfied, any such officer shall require such owner to furnish
the Corporation a bond in such penal sum and in such form as he may
deem advisable, and with a surety or sureties approved by him, to
indemnify and save harmless the Corporation from any claim, loss,
damage or liability which may be occasioned by the issuance of a
new certificate in lieu thereof. Upon such bond being so filed, a
new certificate for the same number of shares shall be issued to
the owner of the certificate so lost or destroyed; and the transfer
agent and registrar, if any, of stock shall countersign and
register such new certificate upon receipt of a written order
signed by any such officer, and thereupon the Corporation will save
harmless said transfer agent and registrar in the premises. In
case of the surrender of the original certificate, in lieu of which
a new certificate has been issued, or the surrender of such new
certificate, for cancellation, the bond of indemnity given as a
condition of the issue of such new certificate may be surrendered;
or

(b) The Board of Directors of the Corporation may by resolution
authorize and direct any transfer agent or registrar of stock of
the Corporation to issue and register respectively from time to
time without further action or approval by or on behalf of the
Corporation new certificates of stock to replace certificates
reported lost, stolen or destroyed upon receipt of an affidavit of
loss and bond of indemnity in form and amount and with surety
satisfactory to such transfer agent or registrar in each instance
or upon such terms and conditions as the Board of Directors may
determine.

ARTICLE VIII

Execution of Documents

SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on
the Corporation's bank accounts and all bills of exchange and promissory
notes, and all acceptances, obligations and other instruments for the payment
of money, shall be signed by such officer or officers, or agent or agents, as
shall be thereunto authorized from time to time by the Board of Directors,
which may in its discretion authorize any such signatures to be facsimile.

SECTION 2. Execution of Contracts, Assignments, etc. Unless the Board
of Directors shall have otherwise provided generally or in a specific
instance, all contracts, agreements, endorsements, assignments, transfers,
stock powers, or other instruments shall be signed by the President, any
Executive Vice President, any Vice President, the Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer. The Board of Directors
may, however, in its discretion, require any or all such instruments to be
signed by any two or more of such officers, or may permit any or all of such
instruments to be signed by such other officer or officers, agent or agents,
as it shall be thereunto authorize from time to time.

SECTION 3. Execution of Proxies. The President, any Executive Vice
President or any Vice President, and the Secretary, the Treasurer, any
Assistant Secretary or any Assistant Treasurer, or any other officer
designated by the Board of Directors, may sign on behalf of the Corporation
proxies to vote upon shares of stock of other companies standing in the name
of the Corporation.

ARTICLE IX

Inspection of Books

The Board of Directors shall determine from time to time whether, and if
allowed, to what extent and at what time and places and under what conditions
and regulations, the accounts and books of the Corporation (except such as
may by law be specifically open to inspection) or any of them, shall be open
to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except
as conferred by the laws of the State of Delaware, unless and until
authorized so to do by resolution of the Board of Directors or of the
stockholders of the Corporation.

ARTICLE X

Fiscal Year

The fiscal year of the Corporation shall be determined from time to time
by vote of the Board of Directors.

ARTICLE XI

Amendments

These By-Laws may be altered, amended, changed or repealed and new
By-Laws adopted by the stockholders or by the Board of Directors, in either
case at any meeting called for that purpose at which a quorum shall be
present. Any By-Law, whether made, altered, amended, changed or repealed by
the stockholders or the Board of Directors may be repealed, amended, changed,
further amended, changed, repealed or reinstated, as the case may be either
by the stockholders or by the Board of Directors, as herein provided; except
that this Article may be altered, amended, changed or repealed only by vote
of the stockholders.

ARTICLE XII

Indemnification

SECTION 1. Indemnification.

(a) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding or investigation, whether civil, criminal,
administrative or investigative and whether external or internal to the
Corporation (other than a judicial action or suit brought by or in the right
of the Corporation) by reason of the fact that he or she is or was a
director, officer or employee of the Corporation, or that, being or having
been such a director, officer, or employee, he or she is or was serving at
the request of the Corporation as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to hereafter as an "Agent"),
against expenses (including attorneys' fees) judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, or any appeal therein, if
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such conduct was unlawful. The termination of any action, suit or
proceeding -- whether by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent -- shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he or she reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his or her conduct was unlawful.

(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
judicial action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was an Agent
(as defined above) against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense, settlement or
appeal of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation in the performance of his or her duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or other such court
shall deem proper.

(c) Notwithstanding the other provisions of this Article, to the extent
that an Agent has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice or the
settlement of an action without admission of liability, in defense of any
action, suit or proceeding referred to in this Section or in defense of any
claim, issue or matter therein or on appeal from any such action, suit,
proceeding, claim or matter, he or she shall be indemnified against all
expenses incurred in connection therewith.

(d) Any indemnification provided pursuant to this Section 1 shall be
paid promptly, and in any event within sixty (60) days of the final
disposition of the action, suit or proceeding, upon the written request of
the Agent, unless with respect to claims for indemnification under Paragraphs
(a) or (b) of this Section, a determination is reasonably and promptly made
by the Board of Directors by a majority vote of a quorum of disinterested
directors that such Agent acted in a manner set forth in such Paragraphs as
to justify the Corporation's not indemnifying the Agent.

SECTION 2. Authorization. Any indemnification under Section 1 of this
Article (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1
of this Article. Such determination shall be made: (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.

SECTION 3. Expense Advance. Costs, charges and expenses (including
attorneys' fees) incurred by or on behalf of a director or officer in
defending any action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final
disposition of such matter, and in any event within sixty (60) days of the
receipt by the Corporation of a demand therefor, upon receipt of an
undertaking by or on behalf of such director or officer to repay the amount
of all such advances if it shall be ultimately determined that he or she is
not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses incurred by employees and agents of the Corporation
who are not officers, directors or employees may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.

SECTION 4. Nonexclusivity. The rights provided by this Article shall
not be deemed exclusive of, and shall not affect, any other rights to which
those seeking indemnification or advancement of expenses may be entitled
under any law, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office. All rights to
indemnification under this Article shall be deemed to be provided by a
contract between the Corporation and the Agent who serves in such capacity at
any time while these By-Laws and other relevant provisions of the Delaware
General Corporation Law and other applicable law, if any, are in effect. Any
repeal or modification thereof shall not affect any rights or obligations
then existing.

SECTION 5. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions
of this Article. The Corporation may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.

SECTION 6. "The Corporation." For the purposes of this Article,
references to "the Corporation" include any constituent corporation absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents, as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or trustee of
such a constituent corporation or who, being or having been such a director,
officer, employee or trustee, is or was serving at the request of such
constituent corporation as director, officer, employee, or trustee of another
corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article with respect
to the resulting or surviving corporation as such person would have stood
with respect to such a constituent corporation if its separate existence had
continued.

SECTION 7. "Other Enterprises." For purposes of this Article,
references to "other enterprise" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service of an Agent which
imposes duties on, or involves services by, such Agent with respect to any
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he or she reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article.

SECTION 8. Benefit. The rights provided by, or granted pursuant to,
this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. Such
rights shall be enforceable by the Agent in any court of competent
jurisdiction, if the board or independent legal counsel denies Agent's claim,
in whole or in part, or if no disposition of such claim is made within the
respective time periods provided by this Article. Agent's costs and expenses
incurred in connection with successfully establishing, in whole or in part,
his or her right to such indemnification or advancements in any such
proceeding shall also be indemnified by the Corporation. If this Article or
any portion thereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless indemnify
each Agent as to expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, appeal,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action
or suit brought by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated, or by any other applicable law.

SECTION 9. Amendment. Notwithstanding any other provision of these
By-Laws, this Article XII may be altered, amended or repealed by the Board of
Directors only pursuant to the affirmative vote of 80 percent or more of all
members of the board in office at the time of such alteration, amendment or
repeal.

<PAGE>
<TABLE>
<S> <C>
AMENDMENT OF SOLICITATION / MODIFICATION OF CONTRACT CONTRACT ID CODE PAGE OF PAGES
1 48

2. MODIFICATION NO. 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE REQ. NO. 5. PROJECT NO (If applicable)
78 SEE 16C

6. ISSUED BY CODE 7. ADMINISTERED BY (If other than Item 6) CODE

GSA/FSS/FCI
ADP ACQUISITION CENTER, ROOM 1017
1941 JEFFERSON DAVIS HIGHWAY
ARLINGTON, VA 22202

8. NAME AND ADDRESS OF CONTRACTOR (No. street, country, State and ZIP Code) [X] 9A. AMENDMENT OF SOLICITATION NO.

GOVERNMENT TECHNOLOGY SERVICES, INC.
4100 LAFAYETTE CENTER DRIVE 9B. DATED (SEE ITEM 11)
CHANTILLY, VA 20151-1200
10A. MODIFICATION OF CONTRACT/ORDER
NO.
X GS-35F-4120D
10B. DATED (SEE ITEM 13)
CODE FACILITY CODE 4/1/96

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

[ ] The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers [ ] is
extended, [ ] is not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of
the following methods: (a) By completing Items 8 and 15, and returning _____ copies of the amendment; (b) By acknowledging receipt
of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the
solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an
offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the
solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA (If required)

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT ORDER NO. AS DESCRIBED IN ITEM 14.
[X]
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT
ORDER NO. IN ITEM 10A.

X B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office,
appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO THE AUTHORITY OF:

D. OTHER (Specify type of modification and authority)

E. IMPORTANT: Contractor [ ] is not, [X] is required to sign this document and return 2 copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where
feasible.)

The above referenced contract under FSC Group 70, Part I, Section B/C Multiple Award Schedule is hereby modified
as follows:

The modification merges the FSC Group 70, Part I, Sections, A, D, E and the FSC Group 58, VI and VII solicitations
in the FSC Group 70, Part I, Section B/C Multiple Award Schedule. The title of the merged solicitation is changed
to:

Federal Supply Service Information Technology Schedule (FSS ITS)

All other Terms and Conditions remain the same, except as indicated below:

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains
unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print) 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)

Joel A. Lipkin Michael D. Butterfield
Vice President, Business Development

15B. CONTRACTOR/OFFEROR 15C. DATE SIGNED 16B. UNITED STATES OF AMERICA 16C. DATE SIGNED

/s/ Joel A. Lipkin 25 July 97 BY /s/ Michael D. Butterfield 11/26/97
(Signature of person authorized to sign) (Signature of Contracting Officer)

NSN 7540-01-152-8070 30-105 STANDARD FORM 30 (REV. 10-83)
</TABLE>
<PAGE>
<PAGE>
FEDERAL SUPPLY SERVICE
INFORMATION TECHNOLOGY SCHEDULE
AUTHORIZED ADP SCHEDULE PRICELIST

GENERAL PURPOSE COMMERCIAL INFORMATION TECHNOLOGY EQUIPMENT

SPECIAL ITEM NUMBERS (SINS):

132-3 Leasing
132-8 Purchase of Hardware
132-12 Maintenance and Repair
132-33 Perpetual Software License
132-34 Maintenance of Software
132-50 Training
132-51 Information Technology Professional Services
132-52 Electronic Commerce Services

CATEGORY
FSC CLASSES CODE

7010 SYSTEM CONFIGURATION
1. End User Computer/Desktop G
2. Professional Workstation O
3. Server P
4. Laptop/Portable/Notebook N
7. Optical and Imaging Systems K
8. Other Systems Configuration Equipment, Not Elsewhere Classified
D
7025 INPUT/OUTPUT AND STORAGE DEVICES
1. Printers A
2. Display B
3. Graphics including Video Graphics, Light Pen, Digitizers,
Scanners, Touch Screen K
4. Network Equipment J
5. Other Communication Equipment W
6. Optical Recognition Input/Output Devices K
7. Storage Devices including Magnetic Storage,
Magnetic Tape and Optical Disk C
8. Other Input/Output and Storage Devices, Not Elsewhere Classified
C

(Continued on the following page)

GOVERNMENT TECHNOLOGY SERVICES, INC.
4100 LAFAYETTE CENTER DRIVE
CHANTILLY, VIRGINIA 20151
SALES: 1-800-999-GTSI

CONTRACT #GS-35F-4120D
PERIOD COVERED BY THE CONTRACT: APRIL 1, 1996 THROUGH MARCH 31, 1999
MODIFICATIONS THROUGH #78 INCORPORATED HEREIN

GENERAL SERVICES ADMINISTRATION
FEDERAL SUPPLY SERVICE

Products and ordering information in this Authorized ADP Schedule Price List
is also available on the GSA Advantage! System.
Agencies can browse GSA Advantage! by accessing GSA's Home Page via Internet
at www.gsa.gov

CATEGORY
FSC CLASSES CODE

7035 ADP SUPPORT EQUIPMENT
1. ADP Support Equipment E
7042 MINI AND MICRO COMPUTER CONTROL DEVICES
1. Microcomputer Controlled Devices E
2. Video Teleconferencing Equipment E
7050 ADP COMPONENTS
1. ADP Boards F
5995 CABLE, CORD, AND WIRE ASSEMBLIES: COMMUNICATIONS EQUIPMENT
1. Communication Equipment Cable I
6015 FIBER OPTIC CABLES
1. Fiber Optic Cable I
6145 WIRE AND CABLE, ELECTRICAL
1. Coaxial Cable I
5810 COMMUNICATIONS SECURITY EQUIPMENT AND COMPONENTS
1. Communications Security Equipment and Components X1
5815 TELETYPE AND FACSIMILE EQUIPMENT
1. Facsimile Equipment X2
D399 OTHER ADP AND TELECOMMUNICATIONS SERVICES
1. Installation, De-Installation, and Re-Installation of Above
Equipment Z
7030 INFORMATION TECHNOLOGY SOFTWARE H
1. Operating System Software H
2. Application Software H
3. EDI Translation and Mapping Software H
4. Enabled E-Mail Message Based Products H
5. Internet Software H
6. Database Management Programs H
7. Other Software, Not Elsewhere Classified H
D301 Resources and Facilities Management S
D302 Database Planning and Design
D306 Systems Analysis and Design S
D307 Network Services S
D308-1 Programming S
D308-2 Millennium Conversion Services (Y2K) S
D311 Conversion and Implementation Support S
D316 Network Services' Project Management S
D317 Data/Records Management S
D317 Subscription/Publications includes CD-ROM and Magnetic Media S
for Technology Assessment and Acquisition Subscription-CD-ROM
Publications and Other Electronic Media
D304-1 Value Added Network Services (VANs) S
D304-2 E-mail Services S
D304-3 Internet Access Services S
D399-1 Other Data Transmission Services, Not Elsewhere Classified -
Except S
"Voice" and Pager Services

TABLE OF CONTENTS

PAGE

Information for Ordering Offices 1

General Terms and Conditions Applicable to All Special Item Numbers
7

Terms and Conditions Applicable to Lease of Commercial Information Technology

Equipment (132-3) 9

Terms and Conditions Applicable to Purchase of General Purpose Commercial
Information Technology Equipment (132-8) 14

Terms and Conditions Applicable to Maintenance of Government-Owned General
Purpose
Information Technology Equipment After Expiration of Warranty Provision
(132-12) 19

Terms and Conditions Applicable to Perpetual Software License (132-33) and
Maintenance
of General Purpose Commercial Information Technology Software
(132-34) 22

Terms and Conditions Applicable to Purchase of Training Related to General
Purposes
Information Technology Equipment (132-50) 24

Terms and Conditions Applicable to ADP Services for General Purpose
Commercial
Automatic Data Processing Equipment (132-51) 26

APPENDICES:

A - GTSI Branch Offices 27
B - Orders By Federal Government Cost Reimbursement Prime Contractors &
Management
Operating Contractors 28
C - Logistics Support Privileges 29
D - GTSI Installation and Integration Rates 30
E - National Service Locations 31
F - GTSI Service Centers 32
G - Maintenance Agreement 33
H - Professional Services Program 34
I - Enhanced Warranty Service Program 43

IT SCHEDULE PRICE LIST

INFORMATION FOR ORDERING OFFICES

1. Geographic Scope of Contract

The geographic scope of this contract is the 48 contiguous states, the
District of Columbia, Alaska, Hawaii, U.S.
territories and commonwealths, and overseas U.S. Government installations
[including international organizations of
which the U.S. is a member (i.e., NATO, the U.N., etc.)]. Certain services
under this contract (i.e., leased lines for
Internet access) may not be available outside the 48 contiguous states. Call
GTSI for up-to-date information.

2. GTSI's Ordering Address and Payment Address

Ordering Address

Government Technology Services, Inc.
4100 Lafayette Center Drive
P.O. Box 10808
Chantilly, Virginia 20151

Toll Free #: 1-800-999-GTSI
Local: (703) 502-2000
FAX: (703) 222-5200
Internet: http://www.GTSI.com

Payment Address

PAYMENT BY BANK WIRE REQUESTED. Bank account information for wire transfer
payment is as follows:

CoreStates Bank, N.A.
Philadelphia, PA
ABA: 031000011
Account: 14126-35103
For Credit to GTSI

Payment by check, submit to:

Send payment to: CoreStates Bank, N.A.
GTSI
P.O. Box 8500-8195
Philadelphia, PA 19178-8195

Credit Cards

Government Commercial Credit Cards are acceptable for payment.

Technical or Ordering Assistance

For technical and/or ordering assistance, ordering agencies should call GTSI
at the telephone numbers listed on the
cover or in Appendix A of this Schedule Pricelist.

3. Service Locations

See Appendices E, F and I.

4. Statistical Data for Government Ordering Office Completion of Standard
Form 279:

Block 9 G. Order/Modification under Federal Schedule
Block 16 GTSI Establishment Code (DUNS): 10793-9357
Block 30 Type of Contractor: B. Other SMALL Business
Block 31 Woman-Owned Small Business: No
Block 36 GTSI's Tax Identification No.: 54-1248422

CAGE Code: GTSI's Commercial and Government Entity Code is 8Y261.

GTSI Establishment Code: 10-894-945E

5. F.O.B. Point

For both Hardware and Software, the F.O.B. point is destination (expedited
delivery is FOB Origin - see paragraph 6)
for all locations within the 48 contiguous states and the District of
Columbia. GTSI, at various times during the contract
period, may conduct promotions for F.O.B. destination to Alaska and/or
Hawaii. Please contact your GTSI sales
representative for current status of F.O.B. point promotions.

For overseas locations and Alaska, Hawaii and the U.S. territories and
commonwealths, the F.O.B. point is destination
to the port of embarkation within the continental U.S. or F.O.B. origin if
GTSI is required to effect shipment direct to
locations outside the continental United States (CONUS).

All CONUS shipments shall be made F.O.B. destination. Delivery for all
APO/FPO locations shall be made F.O.B.
destination to the APO/FPO shipping point or a designated CONUS U.S.
Government forwarder.

Note: When ordering for overseas delivery, be sure to include the following
information to speed the delivery process:

1) Name of individual to contact for order questions/clarifications,
2) Customer commercial phone number, with country and city code,
3) Customer facsimile number,
4) Voltage requirements (110V or 220V),
5) Identify host system (manufacturer and model) when ordering
software or
peripherals.

6. Shipment and Delivery

Shipment

Same day shipping on GTSI's top 1,200 in-stock products for orders
placed by 2:00 p.m. EST.

Delivery

Next day and second day delivery available for in-stock products. Terms are
FOB Origin.

Standard delivery will normally be 15 to 90 days after receipt of order or as
otherwise agreed between GTSI and the
Government. Terms are FOB Destination.

7. Discounts

a.) Prices listed are net after discount.

b.) Payment terms - Net 30 days from date of invoice or date of acceptance,
whichever is later. See paragraph 18
for definition of acceptance.

FAR Clause 52.232.25 PROMPT PAYMENT is incorporated into this contract by
reference and has the same
force and effect as if it was given in full text.

c.) Government Educational Institutions are offered the same discounts as all
other Government customers.

8. Foreign Produced Items

All items listed herein are domestic end products, from designated countries
under the Trade Agreements Act or are
Canadian, Mexican or U.S. made end products. For point of production, see
pricing pages.

9. Availability of Export Packing

Export packing is available at extra cost outside the scope of this
contract.

10. Small Requirements

The minimum dollar value of an order to be issued under this contract is $100
except for Special Item 132-3 (Leasing),
the minimum dollar value of an order is $500,000.

11. Maximum Order - (These are NOT order limitations - see paragraph 11b)

o Leasing (132-3), Purchase of Equipment (132-8),
Perpetual Software License (132-33), Information
Technology Professional Services (132-51) and
Electronic Commerce Service (132-52) - $500,000

o Perpetual Software License (132-33)
Shrink-wrapped product - $ 50,000

o Classroom Training (SIN 132-50) - $ 25,000

Note: Maximum Order does not apply to SIN 132-12 Maintenance of Equipment or
132-34 Maintenance of Software.

11b. Orders that Exceed the Maximum Order (I-FSS-125)(AUG 1995)

(a) In accordance with FAR 8.404 there may be circumstances where an ordering
activity finds it advantageous to
request a price reduction such as where a quantity of an individual order
clearly indicates the potential for obtaining
a reduced price. To assist customer agencies to determine when they should
seek a price decrease, a level called a
maximum order has been established under the contract. When an agency order
exceeds this amount it is
recommended that the ordering activity request a reduced price.

(b) GTSI may:

(1) offer a new lower price for this specific requirement (the Price
Reduction clause is not applicable to orders
placed over the Maximum Order in FAR 52.216-19)

(2) offer the lowest price available under the contract; or

(3) decline the order, orders must be returned in accordance with FAR
52.216-19

(c) A delivery order for quantities that exceed the maximum order may be
placed with GTSI in accordance with FAR
8.404. The order will be placed under this contract.

(d) Sales for orders that exceed the Maximum Order shall be reported in
accordance with GSAR 552.238-72.

12. Federal ADP/Telecommunication Standards Requirements

Federal departments and agencies acquiring products from this Schedule must
comply with the provisions of the Federal
Standards Program, as appropriate (reference: NIST Federal Standards Index).
Inquiries to determine whether or not
specific products listed herein comply with Federal Information Processing
Standards (FIPS) or Federal
Telecommunications Standards (FED-STD) which are cited by ordering offices
shall be responded to promptly by GTSI.

12.1. Federal Information Processing Standards Publications (FIPS PUBS)

Information Technology products under this Schedule that do not conform to
Federal Information Processing Standards
(FIPS) should not be acquired unless a waiver has been granted in accordance
with the applicable "FIPS Publication".
Federal Information Processing Standards Publications (FIPS PUBS) are issued
by the National Bureau of Standards,
Department of Commerce, pursuant to Section 111 of the Federal Property and
Administrative Services Act 1949,
amended, 79 Stat. 1127 (40 U.S.C. 759). Information concerning their
availability and applicability should be obtained
from the National Technical Information Service (NTIS), 5285 Port Royal Road,
Springfield, Virginia, 22161. FIPS
PUBS include voluntary standards when these are adopted for Federal use.
Individual orders for FIPS PUBS should be
referred to the NTIS Sales Office and orders for subscription service should
be referred to the NTIS Subscription Officer
both at the above address, telephone number (703) 487-4650.

12.2 Federal Telecommunication Standards (FED-STD)

Telecommunication products under this Schedule that do not conform to Federal
Telecommunication Standards (FED-
STD) should not be acquired unless a waiver has been granted in accordance
with the applicable "FED-STD". Federal
Telecommunication Standards are issued by the U.S. Department of Commerce,
National Institute of Standards and
Technology (NIST), pursuant to the National Security Act. Ordering
information and information concerning the
availability of FED-STDs should be obtained from the GSA, Federal Supply
Service, Specification Section, 470 East
L'Enfant Plaza, Suite 8100, SW, Washington, DC 20407, telephone number (202)
619-8925. Please include a self-
addressed mailing label when requesting information by mail. Information
concerning their applicability can be
obtained by writing or calling the U.S. of Commerce, National Institute of
Standards and Technology, Gaithersburg,
MD 20899, telephone number (301) 975-2833.

13. Security Requirements

In the event security requirements are necessary, the ordering activities may
incorporate in their delivery order(s) a
security clause in accordance with current laws, regulations and individual
agency policy; however, the burden of
administering the security requirements shall be with the ordering agency.
If any costs are incurred as a result of the
inclusion of security requirements, such costs will be negotiated by the
ordering agency with GTSI on an open market
basis outside the scope of this contract.

14. Telephone Protection Act (TCPA) of 1991

Telephone facsimile machines; identification of the sender of the message.
It shall be unlawful for any person within
the United States to use a computer or other electronic device to send any
message via a telephone facsimile machine
unless such message clearly contains, in a margin at the top or bottom of
each transmitted page or on the first page of
the transmission, the date and time it is sent and an identification of the
business, other entity, or individual sending the
message and the telephone number of the sending machine or of such business,
other entity or individual. Telephone
facsimile machines manufactured on and after December 20, 1992, must clearly
mark such identifying information on
each transmitted message.

15. Telecommunications Equipment Requirements

End users/ordering activities are responsible for obtaining any required
approval of the telecommunications company
servicing their area before installing equipment ordered from this contract.

16. Contract Administration for Ordering Offices

Any ordering office, with respect to any one or more purchase orders placed
by it under this contract, may exercise the
same rights of termination as might the GSA Contracting Officer under
provisions of FAR 52.249-1, 52.249-2 and
52.249-8.

17. GSA Advantage!

The GSA Advantage! is an on-line, interactive electronic information and
ordering system that provides on-line access
to vendors' schedule prices with ordering information. GSA Advantage! will
allow the user to perform various searches
across all contracts, including but not limited to:

(1) Manufacturer;

(2) Manufacturer's Part Number; and

(3) Product category(ies)

Agencies can browse GSA Advantage! by accessing the Internet World Wide Web
utilizing a browser (e.g.: Netscape).
The Internet address is http://www.gsa.gov.

18. Use of FSS ITS Schedule Contracts [FAR 8.404]

(a) Ordering activities can place orders of $2,500 or less with any GSA
Federal Supply Schedule contractor. GSA has
already determined the prices of items under these contracts to be fair and
reasonable.

(b) To reasonably ensure that a selection represents the best value and meets
the agency's needs at the lowest overall
cost, before placing an order of more than $2,500, an ordering activity
should:

(1) Consider reasonably available information about products offered under
Multiple Award Schedule
contracts; this standard is met if the ordering activity does the following:

(i) Considers the products and prices contained in any GSA MAS automated
information system
(e.g., GSA Advantage!); or
(ii) if automated information is not available reviews at least three (3)
price lists.

(2) In selecting the best value item at the lowest overall cost (the price of
the item plus administrative costs),
the ordering activity may consider such factors as-

(i) Special features of one item not provided by comparable items which are
required in effective
program performance;

(ii) Trade-in considerations;

(iii) Probable life of the item selected as compared with that of a
comparable item;

(iv) Warranty conditions; and

(v) Maintenance availability.

(3) Give preference to the items of small business concerns when two or more
items at the same delivered
price will meet an ordering activity's needs.

(c) MAS contractors will not be required to pass on to all schedule users a
price reduction extended only to an
individual agency for a specific order. There may be circumstances where an
ordering activity finds it advantageous
to request a price reduction, such as where the ordering activity finds that
a schedule product is available elsewhere
at a lower price, or where the quantity of an individual order clearly
indicates the potential for obtaining a reduced
price.

(d) Ordering activities should document orders of $2,500 or less by
identifying the contractor the item was purchased
from, the item purchased, and the amount paid. For orders over $2,500, MAS
ordering files should be documented
in accordance with internal agency practices. Agencies are encouraged to
keep documentation to a minimum.

19. Partial Shipment/Partial Payment

GTSI will attempt to ship all orders complete; however, this is not always
possible. Agencies are advised that partial
shipments may occur and GTSI will invoice each partial shipment separately.
The ordering agency must pay for each
shipment as invoiced by GTSI.

If the agency does not wish to accept a partial shipment, the agency should
specify that the order is to ship complete.
Specification of "No Partial Shipments" on a delivery order may result in
delivery delays.

20. Acceptance

Equipment must operate in accordance with manufacturer's published
specifications. Acceptance of all equipment and
licensed programs delivered under this Contract shall be deemed to have
occurred the first scheduled workday following
receipt of the equipment and licensed programs by the Government unless the
equipment or licensed programs have
been damaged during shipment or are found upon receipt, to be defective in
materials and/or workmanship. The
Government is relieved of all risk of loss or damage prior to delivery of the
equipment and licensed programs. The
warranty period begins upon acceptance.

21. Use of this Contract by Government Contractors

GTSI will honor orders under this Contract from authorized Federal Government
cost reimbursement prime Contractors
who furnish to GTSI written evidence that in using this Contract they are
authorized by the Government to procure from
such Contract. Such orders must include the statement set forth in Appendix
B. Title to any machines purchased by
Federal Government cost reimbursement prime Contractors shall vest directly
to the Government.

22. Open Market Items on GTSI's GSA Schedule Delivery Orders

Agencies may include open market items on GTSI's GSA Schedule contract
delivery orders. Open market procurement
regulations should be followed for these items. The open market items on the
GTSI GSA Schedule delivery order must
be clearly identified as such. Open market items ordered on a GTSI GSA
Schedule delivery order will not be governed
by the terms and conditions of the GTSI GSA Schedule contract.

23. Year 2000 Warranty - Commercial Supply Items

GTSI has identified products that the manufacturers warrant comply with the
following Year 2000 Warranty in the
pricing section:

Each hardware, software, and firmware product delivered under this contract
and listed below shall be able to
accurately process date data (including, but not limited to, calculating,
comparing, and sequencing) from, into,
and between the twentieth and twenty-first centuries, including leap year
calculations, when used in accordance
with the product documentation provided by the contractor, provided that all
listed or unlisted products (e.g.
hardware, software, firmware) used in combination with such listed product
properly exchange date data with
it. If the contract requires that specific listed products must perform as a
system in accordance with the
foregoing warranty, then that warranty shall apply to those listed products
as a system. The duration of this
warranty and the remedies available to the Government for breach of this
warranty shall be as defined in, and
subject to, the terms and limitations of the contractor's standard commercial
warranty or warranties contained
in this contract, provided that notwithstanding any provision to the contrary
in such commercial warranty or
warranties, the remedies available to the Government under this warranty
shall include repair or replacement of
any listed product whose non-compliance is discovered and made known to the
contractor in writing within
ninety (90) days after acceptance. Nothing in this warranty shall be
construed to limit any rights or remedies
the Government may otherwise have under this contract with respect to defects
other than Year 2000
performance.

GENERAL TERMS AND CONDITIONS
APPLICABLE TO ALL SPECIAL ITEM NUMBERS

The following Terms and Conditions are applicable to all Special Item
Numbers:

1. Geographic Scope of Contract

The geographic scope of this contract is the 48 contiguous states, the
District of Columbia, Alaska, Hawaii, the U.S.
territories and commonwealths and overseas U.S. Government installations
[including international organizations of
which the U.S. is a member (i.e., NATO, the U.N., etc.)]. Certain services
under this contract (i.e., leased lines for
Internet access) may not be available outside the 48 contiguous states. Call
GTSI for up-to-date information. See also
paragraph 1 in SIN 132-12.

2. GTSI Commitments, Warranties and Representations

a. For purposes of this contract, commitments, warranties and representations
include, in addition to those agreed
for the entire schedule contract:

(1) Time of delivery/installation quotations for individual orders;

(2) Technical representations and/or warranties of products concerning
performance, total systems'
performance and/or configuration, physical, design and/or functional
characteristics and capabilities of
a product/equipment/ service/software package submitted in writing in
response to requirements which
result in orders under this schedule contract;

(3) Any representations and/or warranties concerning the products made in any
literature, description,
drawings and/or specifications furnished by GTSI.

b. The above is not intended to enlarge the scope of this schedule contract
for individual orders. Prices, options,
terms and conditions of any order are limited strictly to those specified in
the schedule contract and pricelist
and agreed to by GSA.

3. Overseas Installations

The terms and conditions of this contract shall apply to all orders for
delivery, maintenance and repair of equipment in
areas listed in the pricelist outside the 48 contiguous states and the
District of Columbia except for the following
modifications:

a. In place of a delivery date for equipment, a shipping date shall be
specified on the order.

b. Upon request of GTSI, the Government may provide logistics support, as
available, in overseas areas in
accordance with all applicable Government regulations, to GTSI's technical
personnel whose services are
exclusively required for the fulfillment of the terms and conditions of this
contract (Purchase and Maintenance
Service). See Appendix C for further terms and conditions regarding
Logistics Support.

c. For repair of equipment under warranty, refer to the guarantee terms of
this pricelist.

4. Partial Shipments/Partial Payments

5. Substitutions

GTSI may substitute, with the ordering agency's approval, product of equal or
greater functionality for an equal price
than what was ordered. The substitute product must comply with the Trade
Agreements Act provisions.

6. FAR and GSAR Clauses

This contract incorporates the following clauses by reference. These clauses
have the same force and effect as if they
were given in full text.

Clause Number Date Title

FAR 52.232.25 June 1997 Prompt Payment
FAR 52.232.28 Apr 1989 Electronic Funds Transfer Payment Methods
GSAR 552.232-70 Apr 1989 Payments by Electronic Funds Transfer
GSAR 552.232.72 Apr 1989 Invoice Requirements
FAR 52.213-1* Aug 1988 Fast Payment Procedures

*If applicable to the ordering agency

7. Order Acceptance

GTSI may return an order written against this contract within 15 days after
receipt if the order does not conform to the
terms, conditions and pricing contained in this contract.

TERMS AND CONDITIONS APPLICABLE TO LEASE OF COMMERCIAL
INFORMATION TECHNOLOGY EQUIPMENT (SPECIAL ITEM 132-3)

1. STATEMENT

It is understood by all parties to this contract that this is a lease
arrangement. In that regard, the Government, as Lessee,
contemplates fulfilling that agreement. Each lease transaction hereunder
shall be initiated by a Delivery Order which
shall, either itself or through a Statement of Work or other attachment,
specify the terms of the transaction.

2. TERM

The date the Government accepts the equipment is the Commencement Date. The
term will begin on the
Commencement Date and continue through the end of the Term unless the
Government does not exercise its right to
extend the Lease Agreement. For acceptance to occur the equipment must
operate in accordance with manufacturers
published specifications. The Government must give written notification of
acceptance or rejection. If the Government
does not provide written acceptance or rejection within ten days (the later
of the date of receipt or installation), the
Government shall be deemed to have accepted the equipment.

3. UPGRADES AND ADDITIONS

a. Lessee may affix or install any accessory, addition, upgrade, equipment or
device on the Equipment ("Additions")
provided that such Additions:

(i) can be removed without causing material damage to the Equipment,
(ii) do not reduce the value of the Equipment, and
(iii) are obtained from or approved by Lessor and are not subject to the
interest of any third party other than Lessor.

b. Any other Additions may not be installed without Lessor`s prior written
consent. At the end of the Term, Lessee
shall remove any Additions which:

(i) were not leased by Lessor, and
(ii) are readily removable without causing material damage or impairment of
the intended function, use, or value of
the Equipment and restore Equipment to its original configuration.

c. Any Additions which are not so removable will become the Lessor's property
(lien free).

d. Equipment Modifications:

(i) Modifications to Equipment may not be placed when (1) the modification
has an aggregated purchase price of
less than $25,000; or (2) there are fewer than twelve (12) months remaining
on the lease for the Equipment
being modified. When either of these conditions exists, the modification can
only be made upon payment of the
purchase price of the modification.

(ii) For each Equipment modification (including upgrades and additions)
placed under the lease, the term of the
Equipment modification will be coterminous with the Lease Term for the
Equipment being modified. The lease
shall continue for its Term; and the Government shall issue a modification to
its delivery order which sets forth
the new monthly lease payment.

4. USE, MAINTENANCE AND INSTALLATION

a. Maintenance and installation, when applicable, may be included in the
Lease payment. Alternatively, with written
consent of lessor, lessee may purchase installation and/or maintenance
services from a Third Party or perform
installation and/or service maintenance itself. In either event, basic
maintenance must be in effect for the Term of
the Lease for all Equipment under this agreement. If Third Party installation
and/or maintenance is used, lessee
shall furnish evidence of such installation and/or maintenance to lessor.

b. The maintenance rate and terms and conditions will be at the rates and
terms and conditions as stated in the
monthly maintenance section of Special Item No. 132-3 of this contract.
Maintenance rates and terms and
conditions during subsequent renewal periods of this contract will be those
of the prevailing GSA Schedule contract
in force and effect during the renewal periods throughout the terms of the
agreement.

c. Installation rates and terms and conditions will be at the rate and terms
and conditions of the prevailing GSA
Schedule contract in effect.

d. The Government shall keep records of the location of the Equipment and use
best efforts to provide the Lessor with
thirty (30) days written notice of any intended relocation of the Equipment,
and all expenses of the relocation shall
be paid by the Lessee including transportation and reinstallation at the new
site. Lease payments shall continue even
if the Government relocates Equipment.

5. ORDERS

a. Orders placing Equipment under a Lease must specify that the Equipment
being Leased must include maintenance
as specified in paragraph 4.

b. All orders shall remain in effect until the planned expiration date.
Termination of the Lease can only be made
pursuant to paragraph 9.

c. Orders under Lease shall not be deemed to obligate succeeding fiscal year
`s funds or otherwise commit the
Government to renewal.

d. The minimum order quantity for any individual Order shall be $500,000 in
GSA Purchase Value.

e. Any Order may be clarified or modified through the attachment of
supplemental terms and conditions.

6. TITLE

Equipment shall be deemed to be personal property. Lessee shall have no
right or interest in the Equipment except as
provided in this Lease and shall hold the Equipment subject and subordinate
to the rights of Lessor.

7. LEASE PAYMENTS

Lease payments shall accrue from the Commencement Date. The Lessor, or its
assignee, shall invoice the Government
for each monthly lease payment. The first invoice shall be delivered to the
Lessee at the end of the month in which
acceptance occurs, and monthly thereafter. A fraction of a month for a
partial month of usage will be billed for the first
and last month if applicable. The Lessee shall make payment monthly within
thirty (30) days of receipt of a proper
invoice, and all late payments shall include interest in accordance with the
Prompt Payment Act. The monthly lease
payments shall remain fixed for the term, unless the payments are adjusted as
the result of an Equipment modification.
Alternate payment plans may be available and shall be set forth in
supplemental terms and conditions to an Order.

Payments shall be made to a bank or financing company of Lessor `s choice.
The Government acknowledges that the
bank or financing company does not assume GTSI `s obligations hereunder, and
agrees to make all payments owed to
Lessor without abatement.

8. RISK OF LOSS OR DAMAGE

The Government is relieved from all risk of loss or damage to the Equipment
during periods of transportation,
installation and during the entire time the equipment is in possession of the
government, except when loss or damage is
due to the fault or negligence of the government. The government shall assume
risk of loss or damage to the equipment
during relocation unless the GTSI shall undertake such relocation.

9. LEASE END/DISCONTINUANCE OPTIONS

Upon written notice given at lease ninety (90) days prior to expiration of
the Lease Term, and provided Lessee is not in
default, Lessee may:

i. exercise any Purchase options set forth in the Lease, or
ii. renew the Lease, or
iii. return the Equipment to Lessor at the expiration date of the Lease
pursuant to paragraph 10.

10. RETURN OF EQUIPMENT

Within thirty (30) days after the date of termination for convenience of the
Government or non-renewal of the Lease
Agreement, the Government shall, at its own risk and expense, have the
Equipment packed for shipment in accordance
with the Lessor `s specifications and shall return the Equipment to the
Lessor in the same condition as when delivered,
ordinary wear and tear excepted. Upon request by the Government and at the
Government `s expense, the Lessor shall
assist in the de-installation and packing of Equipment so terminated or
non-renewed. Such services, if required, are
outside the scope of the Contract.

ATTACHMENT TO DELIVERY ORDER
Definitions:

Government: The issuing entity as set forth on the Delivery Order.
Contractor: GTSI
Asset(s): As described in the Delivery Order.
Lease Payment: The periodic payment set forth in the Delivery Order.
Lease Term: The entire length of time for which the Asset(s) are
scheduled to be leased, as set forth in the Delivery Order.
First Lease Payment Due Date: 30 days from First Invoice (issuable on last
day of month
of Acceptance).

Terms and Conditions:

1. These terms and conditions shall be deemed incorporated into the
attached Delivery Order.

2. Termination for Convenience shall be governed by FAR 52.249-2. 3.
Government hereby acknowledges and agrees that
it has specifically elected the Term of the Order. Contractor has relied on
such representation in determining the fair
Lease Payment. In the event Government exercises its right to terminate for
convenience under FAR 52.249-2, any
schedule of charges agreed to by Lessor and any entity financing Lessor's
acquisition of the leased equipment, and
reasonably calculated to compensate that entity for the present value of
expected lease payments on the terminated
portion of any lease, shall be considered under FAR 52.249-2.

3. RATES

(a) For purposes of orders placed under this Special Item Number, the
interest rate to be applied shall be equivalent
to:
400 basis points over comparable term Treasury bills

at the close of business on the last business day of the preceding week in
which the Delivery Order is issued, as
published in Federal Reserve statistical release H.15.

(b) The residual value is the estimated fair market value at the time the
leased product is returned to GTSI. When
the ordering office contacts GTSI for pricing and availability, the ordering
office will identify the product that it
intends to lease and the proposed term for the lease. GTSI will provide (for
negotiation with the Ordering
Office), GTSI's current estimate of the fair market value of the product at
the end of the term of the lease.

(c) The interest rate is calculated by adding the rate differential to the
index rate for a comparable time period.
The lease payment is calculated with the aid of a financial calculator or
computer software package.

(d) For Lease to Ownership, payments will be calculated based on the
Equipment cost as shown in the Schedule,
less any discounts.

(e) For Lease with Option to Own, payments will be calculated based on the
Equipment cost as shown in the
Schedule (less any discounts) less the residual value.

(f) The Industrial Funding Fee (IFF), to be paid by Contractor, shall be
based on quarterly lease receipts.

4. LOSS OR DAMAGE

(a) When loss or damage is due to the fault or negligence of the government,
Government is obligated to pay all
Lease Payments under the Contract. Alternatively, with written consent of
lessor, lessee may purchase
equipment at the current fair market price, or the total sum of the remainder
lease payments plus the residual
value, less interest, or pay to have the equipment repaired. If equipment is
repaired, lessee shall furnish
evidence of such repairs to lessor, and are subject to approval from lessor.

(b) If any Asset is damaged, Government shall promptly notify the Contractor
and shall, at Government's expense,
within sixty (60) days of such damage, cause to be made such repairs as are
necessary to return such Asset(s) to
its previous condition.

(c) In the event any Asset is destroyed, damaged beyond repair, lost, stolen,
or taken by governmental action for a
stated period extending beyond the Lease Term (an "Event of Loss"),
Government shall promptly notify
Contractor and either

(i) replace the Asset(s) or

(ii) purchase equipment at the current fair market price, or the total sum of
the remainder lease payments on
the next Lease Payment date following such Event of Loss plus the residual
value. After payment of such
Amount and all Lease Payments due and owing on or before such Lease Payment
date, Government's
obligation to pay further Lease Payments allocable to the Asset(s) which
suffered the Event of Loss shall
cease.

(d) The Government is relieved from all risk of loss or damage to the
Equipment during periods of transportation,
installation and during the entire time the equipment is in possession of the
government, except when loss or
damage is due to the fault or negligence of the government. The government
shall assume risk of loss or
damage to the equipment during relocation unless the contractor shall
undertake such relocation.

5. Government shall keep the Asset(s) free and clear of all levies, liens and
encumbrances, except those in favor of
Contractor and its assigns in accordance with the provisions of FAR 52.229-1.

6. Government shall be solely responsible for arranging and paying for the
delivery, installation, maintenance and repair of
the Asset(s).

7. If Government desires a change or addition to its Asset configuration,
then Government shall give Contractor sixty (60)
days prior written notice thereof. Contractor will respond in writing within
fifteen (15) days from receipt of such
request. The price for the change or addition will take into account the
remaining term of the existing Contract, the
price of the change or addition requested and the term of the new Contract.

8. ________________ is the Contractor `s assignee for payments due
("Assignee"). All Lease Payments shall be directed to
the Assignee as follows: ______________, ___________, ___________. No
modifications will by issued changing the
name and/or address of the Assignee without the prior written consent
thereof. Government acknowledges that Assignee
does not assume Contractor `s obligations hereunder and agrees to make all
payments owed to Assignee without
abatement and not to assert against Assignee any claim, defense, setoff,
recoupment or counterclaim which the
Government may possess against the Contractor or any other party for any
reason.

9. PRICING

Lessee shall make monthly Lease payments on the Equipment. Lease Payments for
each item of Equipment shall be
calculated by the "Lease Formula" set forth below:

Payment = (A-B)*C

A = Purchase Price ("PP")
B = Residual Value ("RV")
C = Factor Rate ("FR")

If during the term of any lease, lessee orders any addition(s) or
modification(s), such Addition(s) or Modification(s)
shall run concurrently with the equipment to which they pertain. The parties
shall agree on lease rate factors applicable
for the remainder of the lease term. Lease payments for such Additions or
modifications shall be paid monthly to which
they pertain.

10. END OF TERM OPTION TO PURCHASE/LEASE

(a) The government has the option to purchase the equipment during or at the
end of the term. The purchase
option price will be calculated as follows; the lesser of Residual value, or
Fair Market Value at the end of term,
or an amount equal to, dependent upon the lease term, twenty-five (25)
percent (12 month lease), twenty-one
(21) percent (24 month lease), eighteen (18) percent 36 month lease), or
fifteen (15) percent (48 month lease)
of the initial GSA Selling Price. The government is required to receive three
(3) quotes, to determine Fair
Market Value.

(b) The government has the option to continue to lease the equipment at the
end of each term. If the Government
wishes to continue to lease, by using the formula in nine (9), above, the
price will be calculated as follows; the
lesser of Residual Value, or Fair Market Value at the end of term, or an
amount equal to, dependent upon the
lease term, twenty-five (25) percent (12 month lease), twenty-one (21)
percent (24 month lease), eighteen (18)
percent (36 month lease), or fifteen (15) percent (48 month lease) of the
initial GSA Selling Price.

11. Prompt Payment shall apply to leasing, Special Item Number (SIN) 132-3.

12. Taxes. Notwithstanding the provisions of FAR 52.229-3 FEDERAL, STATE &
LOCAL TAXES, JAN 1991, the
schedule Lease prices exclude all use or sales taxes and duties levied on or
measured by the Contract or sales price of the
supplies furnished under this Lease. Lease prices include any Personal
Property Taxes properly assessed by the
applicable taxing authority, and such taxes shall be paid by GTSI. The
Government agrees that should any use or sales
taxes be assessed as a result of this Lease, the Government agrees either to
pay such taxes or to provide GTSI with the
documentation necessary to sustain an exemption from the applicable taxing
authority.

TERMS AND CONDITIONS APPLICABLE TO PURCHASE OF GENERAL PURPOSE
COMMERCIAL INFORMATION TECHNOLOGY EQUIPMENT
(SPECIAL ITEM NUMBER 132-8)

1. Material and Workmanship

All equipment furnished hereunder must satisfactorily perform the function
for which it is intended.

2. Orders

A written order, EDI order (GTSI OnLine,SM GSA Advantage! and FACNET), credit
card order or, in the case of BPA's
or BOA's, a telephone order shall be the only basis for purchase in
accordance with the provisions of this contract. If
time of delivery extends beyond the expiration date of the contract, GTSI
will be obligated to meet the delivery and
installation date specified in the original order.

3. Transportation of Equipment

a. F.O.B. Point: All purchased equipment prices cover delivery to
destination at any point located within the forty-
eight (48) contiguous states and the District of Columbia. All other
deliveries are F.O.B. point of embarkation.
The Government may, at its option, elect to have the shipment made via air or
express delivery directly from GTSI
and will pay all associated freight charges on an open market basis.

b. Packing and Unpacking.

The Government shall furnish such labor as may be necessary for packing,
unpacking, and placement of equipment
when in the possession of the Government.

4. Installation, Technical Services and Manuals

a. Operating and Maintenance Manuals. GTSI shall furnish the Government with
one (1) copy of all operating
manuals normally provided by the manufacturer for the equipment ordered.

b. GTSI does not install equipment OCONUS.

c. Upon request of the Government, GTSI shall modify equipment so that it
will operate on a 50 or 60 cycle current
without additional charge if available at no additional charge from the
manufacturer. If there is an additional
charge from the manufacturer, this charge will be borne by the Government.

d. GTSI or its designee shall install Sun Enterprise systems (new only)
purchased from GTSI as a system at no
additional charge, provided installation is within fifty (50) mile radius of
a service location. Components added to
an existing system will be installed at the rates indicated in the price
list.

e. Installation and Integration Services - All Other Equipment. GTSI offers
the following installation and integration
services. See Appendix D for charges.

925-600 Integration - Per External Device
This part number applies to printers, plotters and any other external device
that uses an RS-232 or Parallel
(Centronics) interface. It must be ordered for each device requiring
integration. External devices are tested for
correct operation by completing an internal self-test. If sold with CPU
integration (925-601), a communication test
will also be performed. This service is performed at GTSI headquarters in
Chantilly, VA and is not available on-
site. External devices that require a specialized interface card, e.g.
external hard drives, CD ROM's, floppy drives
and tape back-ups, etc., are tested only as a part of the system integration
(925-601).

925-601 Integration - Per CPU
This part number applies to CPUs only and must be ordered at the same time
each CPU requiring integration is
ordered. A DOS or DOS/WINDOWS operating system will be loaded onto systems
containing a bootable drive.
The loading/installation of advanced operating systems e.g. XENIX, UNIX, OS/2
(warp), Windows NT and
Network OS is excluded. Each system component and option is configured into
the CPU. Whenever possible,
verification of correct operation is obtained by performing the appropriate
vendor diagnostics. This service is
performed at GTSI headquarters in Chantilly, VA and is not available on-site.

925-608 Install S/W During Integration - Each Package
This service must be separately ordered for each software package to be
installed and is not available under this part
number for network software. See Appendix H for installation related network
services. Each package is installed
on the hard disk in its own directory in compliance with the manufacturer's
standard installation procedures. This
service is performed at GTSI headquarters in Chantilly, VA and is not
available on-site. If integrated packages
such as MS Office are to be installed, one service code (925-608) must be
used for each application contained with
the package. In this example, MS Office contains a total of four
applications (Excel, Word, PowerPoint and Mail).
Therefore, four service codes (925-608) should be ordered to cover the
installation of this package onto one CPU.

925-SUN Sun Product Configuration Services (Includes all Workstation
Hardware)
This product configuration service will be performed at GTSI's facilities in
Chantilly, Virginia prior to shipping:
Assemble hardware; Probe system using firmware diagnostics to confirm device
recognition; Verify correct
environment parameters; Boot SunOS and run online diagnostics and verify
hardware functionality using online
tools.

925-163 Configuration of Mixed Products (Sun and non-Sun)
This service consists of the following tasks: Assemble hardware; Probe
system using firmware diagnostics to
confirm device recognition; Verify correct environment parameters; Set
Default boot device; Boot SunOS and run
online diagnostics and verify hardware functionality using online tools.

Telecommunications Equipment:

1) Design Assistance. If applicable, GTSI shall provide design assistance
to Government users seeking to
purchase telecommunications equipment. Upon receipt of a Government request
for design assistance, the
GTSI shall, within five (5) days, schedule a site visit/site survey, to be
held within ten (10) working days of
the initial Government request. GTSI's representative for the site
visit/site survey shall be at least equal to the
position of a Customer Service Representative (CSR). The site visit/site
survey conducted by GTSI, in
accordance with the Government's request for design assistance, shall be
charged outside the scope of this
contract.

2) Installation. Installation is the initial setting in place and
connecting of telecommunications equipment,
cabling, or cable cross connects. When the equipment provided under this
contract is not self-installable,
GTSI's (or its designee's) qualified personnel shall be available to the
Government to install the equipment.
Prior to the start of installation, the installation/design plan must be
provided by the Government or GTSI (as
agreed upon). This installation/design plan may include, but is not limited
to, the following: floor plans,
cable runs, terminal locations, schematic drawings, circuit and wiring
diagrams, and system software
configurations. Site preparation specifications shall be furnished by GTSI as
a part of the equipment proposal.
These specifications shall be in sufficient detail to ensure that the
equipment to be installed shall operate in an
environmentally efficient manner. The Government shall prepare the site at
its own expense, in accordance
with GTSI's specifications, at least fifteen (15) to thirty (30) calendar
days prior to the installation date or as
agreed to by the Government and GTSI. It is GTSI's responsibility to ensure
that all work conforms to
accepted industry installation practices. The installation of cabling and
wiring must meet all regulatory and
industry standards.

3) De-Installation. Deinstallation is the disconnection of telecommunications
equipment and, when requested by
the Government, cable and wiring. Deinstallation includes all labor, tools,
and incidental parts or materials
necessary to accomplish equipment removal (including cabling that was
installed by GTSI, if requested by the
Government). The only time that both an installation and a deinstallation
charge will occur on a delivery order
for the same piece of equipment, is when the equipment is deinstalled in one
building or campus and
reinstalled in another building or campus. Deinstallation shall NOT include
packaging for shipment or
movement to a different building outside of a campus area, unless requested
by the agency.

4) Re-Installation. Reinstallation is the installation of previously
de-installed telecommunications equipment
outside a building or campus area, or installation of previously stored
equipment.

f. Training and Technical Support

1. Training. If GTSI performs the installation of Sun SPARC cluster systems
and Sun SPARC data center
systems then, without additional charge, GTSI shall demonstrate basic
operating functions of the hardware at
the Government's location immediately after installation.
2. Technical Support. End user technical support is available Monday through
Friday, 8:00 a.m. to 6:00 p.m.
Eastern Standard Time (EST). The telephone number is (800) 333-GTSI.

5. Acceptance

6. Warranty for Hardware

a. The manufacturer warranty periods shown in the pricelist will begin on the
date of acceptance. GTSI (or its
designee) will furnish all maintenance, machine adjustments, repairs and
parts at a GTSI designated location
beginning from the date of acceptance and extending for the periods of time
defined in the price pages of this
pricelist.

b. All parts replaced during the warranty period shall become the property of
GTSI (or its designee).

c. Prior to the expiration of the warranty period, whenever equipment is
shipped for repair or mechanical replacement
purposes, the cost of ground transportation to GTSI's service department
shall be the responsibility of GTSI. This
warranty shall apply to the replacement machine from the date of delivery.
For equipment being returned from
overseas installations, GTSI will pay for the freight charges via ground
transportation from the point of entry within
the continental United States.

d. GTSI will, at its option, repair or replace the equipment and bear the
cost of returning the equipment to the
Government's location. For equipment being returned to overseas
installations, GTSI will pay for the freight
charges via ground transportation to the point of exit within the continental
United States.

e. GTSI shall be responsible for any damage or loss from the time the
equipment is removed from the Government
location until the equipment is returned to such location. In the case of
equipment in overseas locations, GTSI shall
be responsible for any damage or loss when the equipment is within the
continental United States (either during
transportation or repair).

f. This warranty does not apply if damage to the equipment is occasioned by
the fault or negligence of the
Government.

g. Inspection and repair of defective equipment under this warranty will be
performed at GTSI's Service Center
(Appendix F). The turnaround time for repair of defective equipment is three
weeks after receipt at the GTSI
Service Center. Before returning any product for repair, a service call must
be made to GTSI's Technical Service
Department at 800-333-4874 for issuance of a valid Service Reference Number
and identification of the appropriate
repair facility. Units sent in without this number will be returned at the
Government's expense.

h. If a product is returned to GTSI for warranty repair and the returned unit
does not require repair, GTSI may invoice
the customer outside the scope of this contract for expenses incurred to test
the equipment and for shipping charges
to and from the customer location.

i. GTSI Desktop computers receive a one-year on-site warranty in CONUS
locations. GTSI Desktop computers in
OCONUS locations receive a one-year mail-back warranty (reference paragraph
g above). Options or peripherals
purchased separately and installed within or connected externally to the
computer receive the standard
manufacturer's warranty.

j. See Appendix I for Enhanced Warranty Service Program.

7. Purchase Price for Ordered Equipment

The purchase price that the Government will be charged will be the Government
price in effect at the time the order is
dated or the time the order is entered into GTSI's order system, whichever is
lesser.

8. Responsibilities of GTSI - Telecommunications Equipment

GTSI shall comply with all laws, ordinances, and regulations (Federal, State,
City or otherwise) covering work of this
character, and shall include all costs, if any, of such compliance in the
prices quoted in this offer. In particular, the
telephone service provided, associated equipment, and distribution facilities
shall comply with the Federal
Communications Commission (FCC) rules and corresponding regulations of the
National Telecommunications and
Information Administration (NTIA). GSA will not exempt any carrier services,
equipment, etc., which is on
Government premises, from the limits established to prevent harmful
electromagnetic interference. (See Part 15 of the
FCC Rules and Chapter 7 of the NTIA Manual.)

9. Trade-in of Information Technology (FIP) Equipment

When an agency determines that FIP equipment will be replaced, the agency
shall follow the contracting policies and
procedures in the Federal Acquisition Regulation (FAR), the policies and
procedures regarding Disposition of
Information Technology Excess Personal Property in the Federal Property
Management Regulations (FPMR)(41 CFR
101-43.6), and the policies and procedures on exchange/sale contained in FPMR
41 CFR part 101-46.

10. Product Returns - Government or GTSI error

Product may be returned if an error was made in ordering by the Government or
in shipment by GTSI as follows:

a. Government Ordering Error

1) Returns will be accepted under the following conditions:

(i) The return is requested within 30 days from the date of invoice
(ii) The product is unused, unopened and is returned to GTSI in its original
packaging
(iii) All items originally shipped with the product including booklets,
instruction manuals and warranty
information, are returned with the product
(iv) The Government agrees to pay a re-stock fee of 15% and pay for freight
to return the shipment to GTSI

2) Returns are to be pre-approved by a GTSI Customer Support Representative
available at (800) 459-GTSI. The
Government shall be prepared to provide the invoice number, serial number(s),
GTSI part number, product
description and a brief synopsis of the problem to the Customer Support
Representative.

3) After GTSI Customer Support approval, a Return Authorization (R.A.) number
will be assigned. The R.A.
number must be clearly marked on the shipping label of the returned product.
Any item received by GTSI
without a Return Authorization will be returned to the sender.

4) The Government shall ship the equipment to GTSI immediately after receipt
of the Return Authorization
(R.A.) number but no later than forty-five (45) days from the date of
invoice.

5) Returns will be inspected by GTSI. Any returns which fail to meet any of
the above mentioned requirements in
paragraph 10.a.1) will not be accepted by GTSI. The product will be returned
to the Government, at the
Government's expense, and the Government will retain full financial
responsibility for payment per terms of the
delivery order and this contract.

b. GTSI Shipment Error

1) Returns will be accepted under the following conditions:

4) The Government shall ship the equipment to GTSI immediately after receipt
of the Return Authorization
(R.A.) number but no later than forty-five (45) days from the date of
invoice.

5) Returns will be inspected by GTSI. Any returns which fail to meet any of
the above mentioned requirements in
paragraph 10.b.1) will not be accepted by GTSI. The product will be returned
to the Government, at the
Government's expense, and the Government will retain full financial
responsibility for payment per terms of the
delivery order and this contract.

c. Defective Product

The manufacturer warranty applies to defective products. GTSI will not
accept returns for defective product. See
paragraph 6 "Warranty for Hardware" of this section.

11. Risk of Loss or Damage

FOB Destination - The Government is relieved from all risk of loss or damage
to the equipment prior to the first day of
acceptance (see paragraph 5), except when loss or damage is due to the fault
or negligence of the Government.

FOB Origin - The Government is responsible for the risk of loss or damage to
the equipment at point of shipment.

TERMS AND CONDITIONS APPLICABLE TO MAINTENANCE OF
GOVERNMENT-OWNED GENERAL PURPOSE INFORMATION TECHNOLOGY
EQUIPMENT AFTER EXPIRATION OF WARRANTY PROVISIONS
(SPECIAL ITEM NUMBER 132-12)

1. Service Areas

National Service. The on-site monthly maintenance rates listed in the
maintenance section of the price pages are
applicable to all Government locations within a fifty (50) mile radius of the
cities listed in Appendix E (call GTSI on 1-
800-333-GTSI for the most current listing). For locations outside the fifty
(50) mile radius, on site maintenance may be
available under this contract at the incremental charges outlined in Appendix
G (call GTSI on 1-800-333-GTSI for
availability).

2. Loss or Damage

When GTSI's service personnel remove equipment to their establishment for
repairs, GTSI shall be responsible for any
damage or loss from the time the equipment is removed from the Government
installation until it is returned to such
installation.

3. Maintenance Order

a. A written order, EDI order (GTSI OnLine,SM GSA Advantage! And FACNET),
credit card order or, in the case
of BPA's or BOA's, a telephone order shall be the only basis for maintenance
in accordance with the terms of
this contract. GTSI shall confirm orders within fifteen (15) calendar days
from the date of receipt, except that
confirmation of orders shall be considered automatic for renewals of
maintenance (Special Item Number 132-
12); automatic acceptance of order renewals for maintenance service shall
apply for machines which may have
been discontinued from use for temporary periods of time not longer than 120
calendar days. If the order is not
confirmed by GTSI as prescribed in this paragraph, the order shall be
considered to be confirmed by GTSI.

b. GTSI shall honor orders for maintenance for periods of at least six
months (subject to the availability of
funding). Maintenance orders for periods of less than six months are
acceptable if the maintenance service
effective date is the first day after expiration of the equipment's warranty.
If the equipment was not under
GTSI's warranty responsibility prior to the establishment of a maintenance
contract or there has been a lapse
between the warranty expiration and the desired effective date of maintenance
service, in order to determine
that the equipment is in good operating condition, it shall be subject to
inspection by GTSI (or GTSI's
authorized representative). Such inspections will be charged outside the
scope of this contract. If the
inspection reveals that the equipment is not in good operating condition and
the Government desires placing
the equipment under a maintenance contract, the costs necessary to place the
equipment in proper operating
condition are to be borne by the Government outside the scope of this
contract. Maintenance service shall
commence on the 1st or the 15th of the month which shall be written into the
maintenance order.

c. Maintenance may be discontinued by the Government thirty (30) calendar
days after written notice, or shorter
notice when agreed to by GTSI - such notice to become effective thirty (30)
calendar days from the date on the
notification; however, the Government may extend the original discontinuance
date upon written notice to
GTSI, provided such notice is furnished at least ten (10) calendar days prior
to the original discontinuance date.

d. Annual Funding. When annually appropriated fiscal funds are cited on a
maintenance order, the period of
maintenance shall automatically expire on September 30th of the contract
period or at the end of the contract
period, whichever occurs first. Renewal or modification of a maintenance
order citing the new appropriation
shall be required if maintenance is to continue during any remainder of the
contract period. Such renewal or
modification must be received by GTSI by October 30th to prevent lapse of
maintenance coverage.

e. Cross-Year Funding Within Contract Period. Where an ordering office's
specific appropriation authority
provides for a contract period of twelve (12) months which may cross fiscal
years, the ordering office may place
an order under the schedule contract for a period up to the expiration of the
contract period (despite the
intervening fiscal year ending).

f. The effective date of maintenance service, the maintenance coverage
selected in accordance with this Special
Item, the type and model number(s) and serial number of equipment, monthly
maintenance amount, GTSI's
GSA contract number, and customer contact name and phone number must be
included on the order.

4. Scope

a. GTSI will provide maintenance on designated equipment listed herein as
may be requested by the Government
during the contract term.

b. Equipment being placed under this maintenance service contract shall be
in good operating condition.

c. If the equipment was not under GTSI's maintenance or warranty
responsibility prior to the establishment of a
maintenance contract, in order to determine that the equipment is in good
operating condition, it shall be
subject to inspection by GTSI and such inspections will be charged on an open
market basis.

d. Cost of any repairs performed for the purpose of placing the equipment
in good operating condition shall be
borne by GTSI if such equipment was under its warranty or maintenance
responsibility prior to the effective
date of the maintenance order.

e. If the equipment was not under GTSI's responsibility, the costs
necessary to place the equipment in proper
operating condition are to be borne by the Government on an open market
basis.

5. Liability for Injury or Damage

GTSI shall not be liable for any injury to Government personnel or damage to
Government property arising from the use
of equipment maintained by GTSI unless such injury or damage was due to the
fault or negligence of GTSI.

6. Responsibilities of the Government

a. Government personnel shall not perform maintenance or attempt repairs to
equipment while such equipment is
under purview of this contract unless agreed to by GTSI.

b. Subject to security regulation, the Government shall permit access to
the equipment which is to be maintained.

c. Site environmental conditions should take into consideration the
manufacturer's environmental specifications.

d. The Government will notify GTSI in writing, at least thirty (30) days in
advance, of any proposed relocation of
covered equipment and GTSI will determine whether the new location is
eligible for maintenance coverage.
GTSI may adjust its charges for servicing covered equipment based on the new
location. See Appendix G.

7. Maintenance Service

a. All service calls should be made to the GTSI Technical Service
Department 800-333-GTSI.

b. On-Call Maintenance Service. GTSI will render maintenance service to
keep the equipment in, or restore the
equipment to, good working order. This maintenance service includes
unscheduled, on-call remedial
maintenance. Maintenance may include lubrication, adjustments and
replacement of maintenance parts
deemed necessary by GTSI. Maintenance parts may or may not be manufactured
by the original equipment
manufacturer, may be altered to enhance maintainability, and may be new or
reconditioned to perform as new.
All maintenance parts will be furnished on an exchange basis, and the
exchanged parts will become the
property of GTSI. Maintenance service provided under this Special Item
Number does not assure uninterrupted
operation of the equipment.

8. Maintenance Charges

a. Availability. Maintenance is only available for products listed under
Special Item Number 132-12.
Maintenance for add-on products may be available outside the scope of this
contract. Contact your Account
Executive for further details.

b. Regular Hours.

(1) GTSI shall bear all costs of maintenance, including labor and parts, and
such other expenses as are
necessary to keep the equipment in good operating condition, provided that
required repairs are not
occasioned by fault or negligence of the Government. Repair of damage or
increase in service time caused
by accident, misuse, disaster, abuse, alterations, attachments, non-GTSI
approved parts or repairs, failure
to provide a suitable operating environment or the use of the machine for a
purpose other than intended
will be billed at the regular hourly rate.

(2) The basic monthly rates for each make and model of machine shall entitle
the Government to remedial
maintenance service during the principal period of maintenance, 8:00 AM to
5:00 PM, local time,
CONUS, Monday through Friday, exclusive of holidays observed at the
Government location.

(3) There shall be no additional charge for remedial maintenance requested
during regular hours regardless of
when such maintenance is performed unless the Government directs that the
remedial maintenance be
performed outside "Regular Hours".

(4) If GTSI responds to an on-site maintenance call and the failure is
attributable to equipment not covered
under the maintenance order, or operator or software error, GTSI may invoice
the customer outside the
scope of this contract for the time spent diagnosing the problem.

c. After regular hours.

Should the Government require that remedial maintenance be performed outside
of "Regular Hours", charges
for such maintenance will be as indicated in Appendix G. A minimum of 2
(two) hours will be charged.
Periods of less than one hour will be prorated to the nearest quarter hour.

d. Premium Response Escalator

Premium response is available for an additional monthly charge. See Appendix
G.

10. Invoices and Payments

a. Invoices for maintenance service shall be submitted by GTSI monthly or
quarterly, after completion of such
period.

b. Payment for maintenance services of less than one month's duration shall
be prorated at 1/30th of the monthly
rate for each calendar day.

TERMS AND CONDITIONS APPLICABLE TO PERPETUAL SOFTWARE LICENSE (SPECIAL
ITEM 132-33) AND MAINTENANCE (SPECIAL ITEM 132-34) OF GENERAL PURPOSE
COMMERCIAL INFORMATION TECHNOLOGY SOFTWARE

1. Purchase Terms

a. Acceptance. The Government shall accept or reject software in writing
within 45 days from the date of invoice.

b. Warranty. With the exception of Sun products, all software furnished
pursuant to the terms of this contract will
be unconditionally guaranteed for defects in the disk for a period of one (1)
year (or longer period, if a greater
length of time is provided commercially) beginning on the first day of
acceptance (see definition of acceptance
in paragraph 18 of "Information for Ordering Offices"). All Sun software is
guaranteed for defects in the
diskette or CD for a period of 90 days beginning on the first day of
acceptance.

2. Utilization Limitations

The Government agrees to refrain from changing or removing any insignia or
lettering from the software or
documentation that is provided, or producing copies of manuals or disks,
except one copy for backup purposes, as
allowed by the manufacturer. The Government also agrees to comply with the
following:

a. Title to and ownership of the software and documentation, and any
reproductions thereof, shall remain with the
manufacturer.

b. Use of the software and documentation shall be limited to the facility for
which the software is acquired.

c. FAR clauses 52.227-14 Rights in Data-General (Jun 1987) and 52.227-19
Commercial Computer Software--
Restricted Rights (Jun 1987) are incorporated by reference as part of this
pricelist.

3. Technical Support

End user technical support is available Monday through Friday, 8:00 a.m. to
6:00 p.m. Eastern Standard Time (EST).
The telephone number is (800) 333-GTSI.

4. Risk of Loss or Damage

FOB Destination - The Government is relieved from all risk of loss or damage
to the equipment prior to the first day of
acceptance (see paragraph 18 of "Information for Ordering Offices"), except
when loss or damage is due to the fault or
negligence of the Government.

FOB Origin - The Government is responsible for the risk of loss or damage to
the equipment at point of shipment.

5. Product Returns - Government or GTSI error

Product may be returned if an error was made in ordering by the Government or
in shipment by GTSI as follows:

a. Government Ordering Error

1) Returns will be accepted under the following conditions:

i) The return is requested within 30 days from the date of shipment
ii) The product is unused and unopened
iii) The product is not obsolete or discontinued by the manufacturer
iv) The product is not a special order item
v) The product is returned to GTSI in its original packaging
vi) All items originally shipped with the product including booklets,
instruction manuals and
warranty information, are returned with the product
vii) The Government agrees to pay a re-stock fee of 15% and pay for freight
to return the shipment to
GTSI

2) Returns are to be pre-approved by a GTSI Customer Support Representative
available at (800) 459-GTSI.
The Government shall be prepared to provide the invoice number, serial
number(s), GTSI part number,
product description and a brief synopsis of the problem to the Customer
Service Representative.

3) After GTSI Customer Support approval, a Return Authorization (R.A.)
number will be assigned. The R.A.
number must be clearly marked on the shipping label of the returned product.
Any item received by GTSI
without a Return Authorization will be returned to the sender.

4) The Government shall ship the equipment to GTSI within fourteen (14) days
after receipt of the R.A.
number.

5) Returns will be inspected by GTSI. Any returns which fail to meet any of
the above mentioned
requirements in paragraph 5.a. 1) will not be accepted by GTSI. The product
will be returned to the
Government, at the Government's expense, and the Government will retain full
financial responsibility for
payment per terms of the delivery order and this contract.

b. GTSI Shipment Error

1) Returns will be accepted under the following conditions:

i) The return is requested within 30 days from the date of shipment
ii) The product is unused and unopened
iii) The product is returned to GTSI in its original packaging
iv) All items originally shipped with the product including booklets,
instruction manuals and warranty
information, are returned with the product

2) Returns are to be pre-approved by a GTSI Customer Support Representative
available at (800) 459-GTSI.
The Government shall be prepared to provide the invoice number, serial
number(s), GTSI part number,
product description and a brief synopsis of the problem to the Customer
Service Representative.

4) The Government shall ship the equipment to GTSI within fourteen (14) days
after receipt of the R.A.
number.

Returns will be inspected by GTSI. Any returns which fail to meet any of the
above mentioned requirements in
paragraph 5.b (1) will not be accepted by GTSI. The product will be returned
to the Government, at the Government's
expense, and the Government will retain full financial responsibility for
payment per terms of the delivery order and this
contract.

TERMS AND CONDITIONS APPLICABLE TO PURCHASE OF TRAINING RELATED TO
GENERAL PURPOSE INFORMATION TECHNOLOGY EQUIPMENT
(SPECIAL ITEM NUMBER 132-50)

1. Scope

a. GTSI (or its designated training provider) shall provide classroom
training normally available to its other
customers, which is necessary to permit Government users to make full,
efficient use of general purpose
commercial IT products. Classroom training is restricted to training courses
for those products within the
scope of this solicitation.

b. GTSI shall provide training at GTSI's facility, one of its designated
training provider's facilities and/or at the
Government's location, as agreed to by GTSI and the Government.

2. Order

A written order, EDI order (GTSI OnLine,SM GSA Advantage! And FACNET), credit
card order or, in the case of
BPA's or BOA's, a telephone order shall be the only basis for the purchase of
classroom training in accordance with the
terms of this contract. The written order shall include the student's name,
course title, course date and time and the
contracted dollar amount of the course.

3. Time of Delivery

GTSI or one of its training providers shall conduct classroom training on the
date (time, day, month and year) agreed to
by GTSI and the Government.

4. Cancellation and Rescheduling

a. The Government will notify GTSI at least one week before the scheduled
training date, if a student will be
unable to attend. GTSI will then permit the Government to either cancel the
order or reschedule the classroom
training at no additional charge. In the event the training class is
rescheduled, the Government will modify its
original training order to specify the time and date of the rescheduled
training class.

b. In the event the Government fails to cancel or reschedule a training
course within the time frame specified in
paragraph a. above, the Government will be liable for the contracted dollar
amount of the training course.
GTSI agrees to permit the Government to reschedule a student who fails to
attend a training class within ninety
(90) days from the original course date, at no additional charge.

c. The Government reserves the right to substitute one student for another
up to the first day of class.

5. Follow-up Support

GTSI (or its designated training provider) agrees to provide each student
with unlimited telephone support for the period
of one (l) year from the completion of the training class. During this
period, the student may contact the contractor's
instructors for refresher assistance and answers to related course curriculum
questions.

6. Liability for Injury or Damage

Contractor (GTSI or its designated training provider) shall not be liable for
any injury to the students, or damage to
Government property arising from contractor-provided classroom training,
unless such injury or damage is due to the
fault or negligence of the Contractor.

7. Purchase Price for Classroom Training

The purchase price that the Government will be charged will be the Government
purchase price in effect on this GSA
Schedule contract at the time the delivery order is dated or the time the
order is entered into GTSI's order system,
whichever is lesser.

8. Invoices and Payment

Invoices for classroom training shall be submitted by GTSI after Government
completion of the training course.
Charges for classroom training must be paid in arrears (31 U.S.C. 3324).

9. Format and Content of Classroom Training

a. The contractor (GTSI or its designated training provider) shall provide
written materials (i.e., manuals, handbooks,
texts, etc.) normally provided with course offerings. Such documentation
will become the property of the student
upon completion of the training class.

b. For hands-on training courses, there must be a one-to-one assignment of
computer workstations to students.

c. The contractor (GTSI or its designated training provider) shall provide
each student with a Certificate of Training
at the successful completion of each training course.

d. The contractor (GTSI or its designated training provider) shall provide
the following information for each training
course offered:

(l) The course title and a brief description of the course content, to
include the course format (e.g., lecture,
discussion, hands-on training);

(2) The length of the course;

(3) Mandatory and desirable pre-requisites for student enrollment;

(4) The minimum and maximum number of students per class;

(5) The locations where the course is offered;

(6) Class schedules; and

(7) Price [per student, per class (if applicable)]

TERMS AND CONDITIONS APPLICABLE TO ADP SERVICES FOR GENERAL PURPOSE
COMMERCIAL AUTOMATIC DATA PROCESSING EQUIPMENT
(SPECIAL ITEM 132-51)

Additional terms and conditions applicable to ADP Services may be found in
Appendix H

1. ORDER

Agencies may use written orders, EDI orders, credit card orders, blanket
purchase orders, individual purchase orders, or
task orders for ordering services under this contract. Blanket Purchase
Orders shall not extend beyond the end of the
contract period.

2. INVOICES AND PAYMENT

Invoices for ADP Services shall be submitted by GTSI as soon as possible
after completion of the work. Payment under
blanket purchase orders will be made monthly or quarterly as agreed to
between GTSI and the Government customer.
Invoices shall be submitted separately to each Government office ordering
services under the contract. Prompt Payment
Discount, if applicable, shall be shown on the invoice.

APPENDIX A
GTSI BRANCH OFFICES

All Orders are to be sent to GTSI's Corporate Office in Chantilly, Virginia.

GTSI HEADQUARTERS GTSI Los Angeles
4100 Lafayette Center Drive One Centerpoint Drive
P.O. Box 10808 Suite 250
Chantilly, VA 22021-0808 LaPalma, CA 90623-1058
Tel: 800-999-GTSI(4874) Tel: 800-678-8408
Fax: 703-222-5274 Fax: 714-523-2090
Fax Response: 703-222-5292
Tech Support: 800-832-4384 GTSI Norfolk
BBS: 703-222-5227 240 Corporate Blvd.
Suite 104
GTSI Atlanta Norfolk, VA 23502
4170 Ashford Dunwoody Road Tel: 804-455-6551
Suite 270 Fax: 804-455-6554
Atlanta, GA 30319
Tel: 800-841-0150 GTSI Germany
Fax: 404-252-0995 CMR 419
APO AE 09102
GTSI Chicago Tel: 011-49-6224-71031
5600 North River Road Fax: 011-49-6224-76282
Suite 750
Rosemont, IL 60018-5241
Tel: 847-292-4874
Fax: 847-292-4884

APPENDIX B
ORDERS BY FEDERAL GOVERNMENT COST REIMBURSEMENT
PRIME CONTRACTORS AND MANAGEMENT AND OPERATING CONTRACTORS

Federal Government Cost Reimbursement Prime Contractors and Management and
Operating Contractors are authorized to
order under this ADP Schedule Contract provided each type of Contractor
complies with the provisions appropriate to the type of
Contractor set forth below:

a. A Federal Government Cost Reimbursement Prime Contractor is a company
contracting directly with a Federal Agency
under the terms of which contract the Prime Contractor receives payment for
its allowable incurred costs. GTSI will
accept orders from such Contractors under this Schedule Contract providing
that:

(1) A written authorization provided to the Federal Government Cost
Reimbursement Prime Contractor by the
Federal Agency states that the named Federal Government Cost Reimbursement
Prime Contractor is authorized
to procure from GSA Supply sources in the performance of prime contract
number _________________ and
title to any equipment purchased by the Contractor will vest in the U.S.
Government, and a copy of such
authorization is furnished to GTSI by the Federal Government Cost
Reimbursement Prime Contractor; and

(2) Each order placed by the authorized Federal Government Cost
Reimbursement Prime Contractor states:

"This order is placed under terms of your GSA Schedule Contract pursuant to
a written authorization dated
__________, and furnished to GTSI. Regardless of the terms and conditions
contained in this order, the terms
and conditions of the GTSI GSA Schedule Contract will be the only terms and
conditions applicable to this
transaction."

It is understood and agreed that title to any machines purchased hereunder
shall vest directly in the Government at the
time of acceptance. Machines purchased and programs licensed hereunder will
be utilized solely for the performance of
the cost reimbursement prime contract under which this authorization was
granted. Maintenance service ordered
hereunder is solely for the purpose of maintaining Government owned machines.

Note: Written authorization provided to cost reimbursement prime Contractors
by the Government should specifically
state that the prime Contractor "is authorized to procure from GSA supply
sources" and should not be limited solely to
authorization to purchase if it is intended that Special Items other than
Special Item 132-8 are to be utilized by the
Contractor.

b. A Federal Government Management and Operating Contractor (MOC) is a
prime Contractor under contract with the
Department of Energy (or any other Federal Agency authorized by statute to
enter into Management and Operating
Contracts) to operate, maintain, or support on behalf of the Government, a
"Government-owned or -controlled research,
development, special production, or testing establishment wholly or
principally devoted to one or more major programs
of the contracting Federal Agency." GTSI will accept orders from such MOC's
under this Schedule Contract provided
that:

(1) A written authorization provided to the MOC by the Federal
Agency states that the named MOC is
authorized to procure from GSA Supply sources in the performance of MOC
contract number
_________________ and title to any equipment purchased by the MOC will vest
in the U.S. Government, and
a copy of such authorization is furnished to GTSI by the MOC; and

(2) Each order placed by the authorized MOC states:

"This order is placed under terms of your GSA Schedule Contract pursuant to
a written authorization
dated__________ and furnished to GTSI. Regardless of the terms and
conditions contained in this order, the
terms and conditions of the GTSI GSA Schedule Contract will be the only terms
and conditions applicable to
this transaction."

Note: Written authorization provided to the MOC by the Government should
specifically state that the prime Contractor
"is authorized to procure from GSA supply sources" and should not be limited
solely to authorization to purchase if it is
intended that Special Items other than Special Item 132-8 are to be utilized
by Contractor.

APPENDIX C
LOGISTICS SUPPORT PRIVILEGES

GTSI may require Logistics Support in overseas areas in order to meet
contract obligations. The ordering activities should obtain
the required support in accordance with their applicable regulations prior to
the issuance of any delivery orders under this
contract. GTSI will provide all the necessary information required by the
applicable regulations in order to assist the ordering
activity in obtaining the Logistic Support Privileges. The ordering agency,
in all cases, will make the decision as to whether
GTSI will be granted the requested support. The General Services
Administration will neither assist in the decision or arbitrate
any dispute pertaining to Logistics Support. Logistic Support to be
furnished by the Government hereunder includes, but is not
limited to, the following:

The use of:

(1) Military or other U.S. Government Clubs, exchanges, other
non-appropriate fund organizations.

(2) Military or other U.S. Government commissary stores.

(3) Military or other U.S. Government Postal facilities.

(4) Utilities and services in accordance with priorities, rates or tariffs
established by military or other U.S. Government
agencies.

(5) Military Payment Certificate (MPC), where applicable.

(6) Military or other U.S. Government banking facilities.

(7) Military or other U.S. Government provided telephone lines, and services
with direct dialing capability and access to
AUTOVON. The precedence of usage shall be coincident with the urgency of the
requirement and in accordance with
Government/Military regulations.

APPENDIX D
GTSI INSTALLATION AND INTEGRATION RATES

Part Number Price Service

925-600 $26.00 Integration - External Device, at
GTSI, Chantilly, VA

925-601 $53.00 Integration - CPU at GTSI, Chantilly,
VA

925-608 $26.00 Installation - Software Per Package
During Integration at GTSI,
Chantilly, VA

925-SUN $102.00 Configuration of SUN products at
GTSI, Chantilly, VA

925-163 $128.00 Configuration of Mixed Sun and
non-SUN products at GTSI,
Chantilly, VA

APPENDIX E
NATIONAL SERVICE LOCATIONS

State
City
State
City
State
City
Alabama
Birmingham
Michigan
Ann Arbor
Pennsylvania
Allentown

Huntsville

Battle Creek

Harrisburg
Arizona
Phoenix

Detroit

King of Prussia
California
Livermore

Flint

Philadelphia

Los Angeles

Grand Rapids

Pittsburgh

Novato

Howell/Brighton

Reading

Oakland

Lansing
Rhode Island
Warwick

Orange County

Monroe
South Carolina
Greenville

Sacramento

Muskegon
South Dakota
Rapid City

San Bernadino

Pontiac
Tennessee
Chattanooga

San Diego

Port Huron

Knoxville

San Francisco

Saginaw

Memphis

San Jose
Minnesota
Minneapolis

Nashville
Colorado
Colorado Springs
Missouri
St. Louis
Texas
Austin

Denver
Nebraska
Lincoln

Dallas

Ft. Collins

Omaha

Ft. Worth
Connecticut
Hartford

Omaha-CRC

Houston

Shelton
Nevada
Las Vegas

San Antonio

Stamford
New Jersey
Clifton
Utah
Salt Lake City
Delaware
Delaware

Edison
Virginia
Norfolk/Hampton
DC
Washington

South Jersey

Richmond
Florida
Jacksonville
New Mexico
Albuquerque

Roanoke/Lynchburg

Miami
New York
Albany
Washington
Seattle

Orlando

Buffalo
Wisconsin
Appleton

Tampa

Melville

Beloit/Janesville
Georgia
Atlanta

New York City

Madison
Hawaii
Honolulu

Rochester

Milwaukee
Idaho
Boise

Syracuse

Oshkosh
Illinois
Chicago-North

White Plains

Stevens Point

Chicago-South
North Carolina
Charlotte

Wausau

Rockford

Greensboro

Indiana
Indianapolis

Raleigh

South Bend

Winston-Salem

Iowa
Des Moines
Ohio
Akron

Kansas
Kansas City

Cincinnati

Topeka

Cleveland

Wichita

Columbus

Kentucky
Louisville

Dayton

Louisiana
New Orleans

Toledo

Shreveport
Oklahoma
Oklahoma City

Maryland
Baltimore

Tulsa

Lanham
Oregon
Portland

Massachusetts
Boston

Springfield

Worcester

APPENDIX F
GTSI SERVICE CENTERS

Corporate (Washington, DC Area)
4100 Lafayette Center Drive
Chantilly, VA 20151
800-333-GTSI
(703) 222-5219 (FAX)

APPENDIX G
MAINTENANCE AGREEMENT

GTSI Supported Locations Only

The following does not apply to SUN products - see Sun-related Travel Uplifts
Below

INCREMENTAL TRAVEL COST:

Miles from a Service Center Per Unit/System Per Month

0-50 $ 0.00
51-125 $10.00
126-150 $15.00
151-175 $20.00
176-200 $25.00
200+ MILES NOT AVAILABLE

ADDITIONAL RATES FOR SERVICES PERFORMED OUTSIDE THE PRINCIPAL PERIOD OF
MAINTENANCE:

*Hourly Rate
GTSI Supported Cities After Hours Sunday and Holidays

Washington, DC $141.00 $182.00

*Note: A minimum of two (2) hours will be charged; Fractional hours will
be computed to the nearest quarter hour.

PREMIUM RESPONSE ESCALATOR:

Miles from a Service Center Standard Response Premium
Response

0-50 8 Work Hours 4 Work Hours
51-100 12 Work Hours 8 Work Hours
101-150 16 Work Hours 12 Work Hours
151-200 24 Work Hours 16 Work Hours

Service charges for "Premium Response" will be based on a 30% increase over
standard monthly maintenance charges.

TRAVEL ZONE UPLIFTS FOR MAINTENANCE OF SUN PRODUCTS:

GTSI offers on-call hardware service coverage for sites within 300 miles of
a National Service location. Additional charges will
be added to an on-call service contract for service beyond 50 miles.

Travel Zone Uplifts

Zone Distance Increase in Contract Price

A 0-50 No Charge
B 51-100 Monthly Maintenance Charge (MMC)
+ 5%
C 101-150 MMC + 15%
D 151-250 MMC + 30%
E 251-300 MMC + 50%

Notes:
? Two (2) hour response not available beyond Zone A
? Please contact your local GTSI Account Executive to obtain ordering and
pricing information for travel zone uplifts

APPENDIX H
PROFESSIONAL SERVICES PROGRAM

1. Services to be Provided

GTSI (or its designee) will provide Professional Services during the
Principal Period of Service (PPS) as described in this section.
GTSI service offerings are described in Table A of Appendix H. Professional
Services skill sets for Block Unit of Time Services
are described in Table B of Appendix H. Work to be performed will be
consistent with products listed in Table C of Appendix H.
Services will be provided from the locations shown in Table D of Appendix H.

2. Ordering of Services and Delivery Schedule

The Delivery Schedule is "As Ordered" with a minimum advance notice of 10
working days for all work performed within the
scope of this Program. Services may be ordered in Block Units of Time (half
day, day, week, month, etc.) and some services may
be ordered by Service Delivery Blocks. Some services may be ordered both
ways at the option of the Government. Actual and
Scheduled date and time of service delivery is subject to resource
availability and may require more than the minimum 10
working days notice. In this event, GTSI will work with the Government to
reach a mutually agreeable schedule to address the
service delivery requirements, or advise the Government that resource
constraints will prevent GTSI from performing the
requested services.

3. PPM and OPPM

Services shall be performed during the Principle Period of Service (PPS).
For this Program the PPS shall be from 8:00 a.m. to
5:00 p.m., local time, Monday through Friday, excluding government holidays.
Services ordered that are to be performed outside
that time period shall be considered Outside of the Principal Period of
Service (OPPS) and charges will be outside of the scope of
this contract.

4. End User Locations to be Serviced and Service Delivery Locations

Service will be provided to any Government end-user location in the
forty-eight contiguous continental United States (CONUS)
and Hawaii. Service shall be ordered from GTSI's Chantilly, Virginia
location. Service shall be delivered from the nearest
Service Delivery Location to the end-user for which there is a qualified and
available resource. These locations are shown in
Table D and are subject to change from time to time. If the Government
location is outside of a fifty-mile radius from the
delivering location, service will be subject to a travel surcharge. The
linear distance in miles between the Service Delivery
Location which delivers service and the location at which service was
delivered to the end-user shall constitute the distance
between sites used in calculation of travel charges.

5. Equipment List

GTSI will perform services on Government provided equipment. Service is
limited to work on products shown in Table C.

6. Block Unit of Time

Block Units of Time are units of time by which a customer may order service.
Service will be performed for that amount of time.
If the work requested is not completed within the amount of time ordered
under Block Unit(s) of Time, GTSI (or its designee)
will either cease work or if authorized by the Government, GTSI (or its
designee) will continue to work until completion by
charging for an additional unit(s) of time in accordance with Paragraph 10.
GTSI will bill the Government for the lowest
number of block units of time required to complete the work. Billing for
Block Unit(s) of Time will be based upon whole blocks;
upon conclusion of service delivery under a Block Unit of Time order any
remaining partial block of time will be billed as a full
Block Unit of Time.

7. Service Delivery Blocks

GTSI has defined Service Delivery Blocks (Blocks) which may be ordered by the
Government in lieu of ordering services by
block unit of time. A Block is defined as an orderable unit of service which
is a logical extension of the Service Offerings under
which service is provided. Descriptions of specific Blocks are found along
with the service offerings in Table A. Orders by
Block must be reviewed and approved by GTSI before acceptance of the order.
When service is ordered by Block(s), then GTSI
agrees to complete the work ordered within the number of Service Blocks
agreed to.

8. Completion of Service

The standard GTSI (or its designee's) work order will be signed by the
Government upon completion of service.

9. Pricing

Services are priced on a billable call basis and may be ordered in one of two
ways: Personnel may be ordered by skill set on a
Block Unit of Time basis or, where applicable, service delivery may be
ordered by Service Delivery Blocks (these terms are
described in Paragraph 6 and 7, respectively, above). Pricing for each is
provided in Paragraph 10, Block Unit of Time Rates and
Table A, Service Delivery Blocks. Prices are applicable for work performed
during the PPM within 50 miles of a Service
Location in accordance with Table D. Services performed beyond 50 miles from
a Service Location are subject to excess travel
provisions as identified in Paragraph 13.

10. Block Unit of Time Rates

The rates shown below are to provide an Engineer of the appropriate skill set
as identified in Table B at the Government's
location for the block of time shown. These rates will not be reduced if the
full amount of time is not required to perform the
service ordered. When partial units of time are worked, the full unit of time
rate will apply. If work required exceeds the block
unit of time ordered, the next appropriate block of time must be forwarded in
a delivery order to GTSI before work is completed.

Engineer Block Unit of Time Rates

Engineer Skill Set
Half Day (1)
Full Day (2)
Week (3)
Month (4)

Consulting Engineer

3273-119291
3273-119292
3273-119293

N/A (5)
$1,327
$6,633
$29,847

Project Engineer Enterprise
3273-119294
3273-119295
3273-119296
3273-119297

$527
$1,000
$4,885
$21,230
Senior Enterprise Systems
Engineer
3273-119298
3273-119299
3273-119300
3273-119301

$425
$804
$3,931
$17,090
Senior Network Systems
Engineer
3273-119302
3273-119303
3273-119304
3273-119305

$379
$717
$3,506
$15,240

Network Systems Engineer
3273-119306
3273-119307
3273-119308
3273-119309

$324
$614
$3,000
$13,037

Network Engineer
3273-119310
3273-119311
3273-119312
3273-119313

$221
$419
$2,047
$8,898

(1) A half day is defined as four hours of time at the Government's location.
(2) A full day is defined as nine hours of time at the Government's location,
less breaks and a meal period.
(3) A week is defined as five full days of time at the Government's location.
(4) A month is defined as the number of full PPM work days in a calendar
month at the Government's location, or if not
ordered on an even calendar month basis, 22 full days and one half day at the
Government's location.
(5) N/A means this skill set is not offered for this block unit of time.

11. Service Delivery Block Rates

When Service is ordered by Service Delivery Block, the Block prices shown in
Table A shall apply. Prices shown are for one
Engineer per Service Delivery Block.

12. Service Outside of the Principal Period of Service (PPS)

Service performed outside of the Principal Period of Service (PPS) will be
charged outside the scope of this contract. In no event
will services outside the scope of this contract be performed without prior
authorization from the Government to GTSI in the
form of a delivery order to GTSI.

13. Excess Travel

Block Unit of Time Rates includes an allowance for local travel time and
expenses based upon a 50-mile local service area
around the Service Locations in Table D. For service beyond 50 miles from an
Table D Service Location, excess travel time is
defined as the actual travel time in excess of 1.5 hours allowance (the
estimated average travel time within 50 mile local service
area) and is to be included in the calculation of time spent at customer
location. For instance, if the excess travel time totals 2
hours for a Full Day Block - the engineer will spend 2 hours less on site
completing the service call, maintaining the overall total
for the Full Day Block consistent at 8 hours.

For service delivery requested beyond reasonable one day, round trip, ground
travel from an Table D Service Location, travel
surcharges shall apply in an amount equal to the actual and reasonable
increased cost of travel and labor outside the scope of this
contract.

14. Milestone Payments

In the event that a task performed under this Program continues for more than
30 days, GTSI will invoice the Government for
the Block Unit of Time Rates performed during the previous month or, in the
case of Service Delivery Blocks, for the percentage
of completion attained during the previous month.

TABLE A
GTSI SERVICE OFFERINGS

GTSI (or its designee) shall perform all services called for in the Statement
of Work in accordance with one of the Service
Offerings contained in this section. All services performed assume the
end-user equipment support infrastructure (for example,
the network architecture, topology, protocols in use, power, cabling, wiring,
the general conditions of the surrounding
environment, etc.) is fully installed and functional and sufficient to
support the specific services requested. All services assume
equipment supported has been purchased through GTSI within 30 days of the
time service is ordered. Services on equipment
which has not been purchased from GTSI or purchased from GTSI more than 30
days prior to time of service being ordered is
obtained by ordering the appropriate Configuration Assessment. All services
described herein do not include provision of any
parts nor do they include removal of packaging material or trash from the
user location. All services must be ordered in
accordance with this Program and require pre-approval and acceptance by GTSI.
Each equipment item serviced must be located
within 20 feet of the final service location. See Table C for a list of
supported network operating systems.

1. Network File Server Integration

GTSI's Network Engineers will, at GTSI's integration facility, assemble and
integrate all purchased internal server
hardware components. This includes memory, fixed disks, internal tape backup
units, and network interface cards.
This service also includes installation of the Supported network operating
system, creation of default accounts, and
telephone technical support during the first 30 days following the completion
of the server installation. Contact
GTSI's Professional Services Group for a list of Supported operating systems.

Part Number 975-SERV-INT $223.00

1.1 On-site Uplift

GTSI will perform the above service at the customer's designated location,
within a 50-mile radius of Washington,
DC. For server installations outside of the Washington, DC area, this server
on-site uplift must be purchased as
well as all travel and per diem expenses must be prepaid by the customer.
Travel and per diem expenses will be
purchased outside the scope of this contract.

Part Number 975-SERV-INT-SITE $446.00

1.2 Customization Uplift

This service will be performed either at GTSI's facility or at the customer's
designated location (if 1.1 "On-site Uplift"
is purchased). GTSI will perform up to four hours of pre-approved
customization to Supported network server, such as
additional user setup or applications installation.

Part Number 975-SERV-INT-CUST $297.00

2. Network Applications Server Integration

GTSI's Network Engineers will, at GTSI's integration facility, assemble and
integrate all purchased internal server
hardware components required for the applications server to function at its
default parameters. This includes
memory, fixed disks, internal tape backup units, and network interface cards.
This service also includes installation
of the Supported network operating system, if required; installation of the
Supported application (i.e. Internet
Software, SQL software, Network Management Software, Communications Gateway
Software, etc.); creation of
default accounts and technical telephone support during the first 30 days
following the completion of the
applications server installation. Contact GTSI's Professional Services Group
for a list of Supported operating
systems and applications.

Part Number 975-APPSSERV-INT $670.00

2.1 On-site Uplift

Part Number 975-APPSSERV-INT-SITE $446.00

2.2 Customization Uplift

This service will be performed either at GTSI's facility or at the customer's
designated location (if 2.1 "On-site
Uplift" is purchased). GTSI will perform up to four hours of pre-approved
customization to a Supported network
server, such as additional user setup or applications installation.

Part Number 975-APPSSERV-INT-CUST $297.00

3. Network Node Installation

This service is performed at the customer's designated location, within a 50
mile radius of Washington, DC, for up
to 5 network nodes. Network node installation includes integration of the
network interface card in the personal
computer, resolution of hardware conflicts, connection of the personal
computer to the existing LAN, and creation
of boot disk or file for network login. This service does not include
applications support at the personal computer.

Part Number 975-NODE-INT $372.00

3.1 Customization Uplift

GTSI network engineers will perform up to 5 hours of pre-approved
customization to Supported network nodes,
such as additional application troubleshooting or applications installation.

Part Number 975-NODE-INT-CUST $372.00

4. Network Peripheral Device Installation

This service is performed at the customer's designated location, within a
50-mile radius of Washington, DC.
GTSI's network engineer will, in conjunction with a server installation,
install supported external peripheral
components such as storage devices or shared printers in conjunction with a
network file server integration with on-
site uplift. Contact GTSI's Professional Services Group for a list of
Supported peripherals.

Part Number 975-PERIPH-INT $148.00

5. Network Communications Device Installation

This service is performed at the customer's designated location, within a
50-mile radius of Washington, DC.
GTSI's network engineers will install a Supported network communications
device, such as a router, switch, or
intelligent hub in the customer's existing network center or wiring closet.
This service does not include network
cabling. Contact GTSI's Professional Services Group for a list of Supported
network communications devices.

Part Number 975-COMDEV-INT $1,489.00

6. Network Study or Needs Analysis

GTSI's Professional Services Group will perform a pre-approved network study
or needs analysis according to a
customer/GTSI negotiated Statement of Work. This service will typically
include conducting up to 5 individual 1
hour interviews for network use and needs information; analyzing existing
network traffic, if applicable;
researching appropriate technical solutions; and presenting a written
document and a verbal presentation outlining
GTSI's recommendations.

Part Number 975-STUDY $14,895

7. Communications On-site Support Per Hour

GTSI's Professional Services Organization will provide on-site communications
support by a Communications
Engineer on an hourly basis (2 hour minimum) in the Washington, DC area.
Statement of work must be pre-
approved by the Professional Services Organization.

Part Number 975-COMM-HR $149

TABLE B
SKILLS SET

Personnel with the following skill sets will be used by GTSI (or its
designee) for this program.

Consulting Engineer (CEE):

Minimum/General Experience- The CE usually has more than five years
experience in systems business consulting and expertise
on systems architecture and network-related topologies and solutions. In
addition, a minimum seven of years job experience in
the information systems field, and three years experience in information
technology design are required to qualify for this
position.

Functional Responsibility- This individual is responsible for high-level
consulting, focusing on Microsoft or similar networking
products and services to customers within a given focus area, normally on a
national scale. This individual identifies and
resolves project issues. The CE delivers briefings, status reports,
presentations, and milestone deliverables to clients. Through
reading, hands-on work, and attendance at briefings and conferences, this
person maintains a current understanding of technical
issues. The CE maintains relationships with vendor personnel, as a resource
for obtaining current information about products,
strategies, and approaches. This individual must also demonstrate the
ability to professionally deliver and document project
materials, "gap" analysis, systems designs and white papers.

Minimum Education- The CE typically requires a BS degree in Computer
Science, systems engineering or related field.
Microsoft MCSE certification or equivalent experience in installation,
configuration and administration of Microsoft networking
products is required. Successful completion of formalized project management
education and a minimum of two years
experience in process improvement or re-engineering activities.

Project Engineer, Enterprise (PEE):

Minimum/General Experience- The position of PE typically requires 3-5 years
experience in technical project management and
LAN/WAN integration implementation as well as certification in each of the
primary connectivity vendors and the majority of
operating systems. The PE must have expert knowledge of servers and sub
systems, bridges, routers, and gateways. Expert
understanding of risk management, problem management, and rollout support and
supervision are also required. Advanced
understanding of complex integration, mainframe connectivity, disaster
recovery, network analyzing and tuning, messaging
services, LAN / Wan design, and network management are necessary.

Functional Responsibility- The PE is responsible for designing complex
LAN/WAN integration projects, focusing on Microsoft
or similar networking products and services. The PE has excellent project
management skills applicable to medium to large
projects. The PE manages technical aspects of a project, and provides
leadership and guidance to team members as well as the
client. This individual reviews operating systems configurations, provides
support for remote engineers during rollout projects,
and creates training handbooks for remote users. The individual develops
skills to plan and manage client needs in operating
system arena, including Windows NT Server, Back Office, Windows 95, Novell
NetWare, and others.

Minimum Education- This position usually requires a BS degree in computer
science, systems engineering or related field - or a
strong equivalent combination of training and experience. Microsoft MCSE
certification or equivalent experience in installation,
configuration and administration of Microsoft networking products is
required. This individual must possess a working
knowledge of multiple protocols such as ATM, ISDN, Frame Relay, SMDS, T1,
Fractional T1, FDDI, and CDPD.

Senior Enterprise Systems Engineer (SESE):

Minimum/General Experience- The SESE position requires 3-5 years experience
in LAN/WAN network installations. In
addition, it requires certification in each of the primary connectivity
vendors and advanced knowledge of multiple Network
Operating Systems and protocols. The Senior Enterprise Systems Engineer is
required to demonstrate advanced knowledge of
servers, bridges, gateways, and routers. This individual possesses advanced
knowledge of mainframe connectivity, disaster
recovery, LAN analyzing and tuning, email, network management, and LAN/WAN
Design.

Functional Responsibility- The SESE is responsible for medium and large
installations, focusing on Microsoft or similar
networking products and services. This individual provides technical
expertise in communications and LAN/WAN networking
installations, consults to clients regarding complex systems implementation,
and acts in a lead capacity to more junior engineers.
Duties for this position include leading integration projects of significant
complexity, resolving problems requiring technical
expertise, and advising clients on the necessary technology to achieve their
LAN/WAN and connectivity goals. The SESE assists
in design and development of LAN and WANs. The SESE participates in systems
design, configuration, implementation and
planning. In addition, this individual estimates systems engineering
services and provides leadership and guidance to project
teams. The SESE also conducts training programs to clients or junior
engineers in the operation and maintenance of products.

Minimum Education- This position typically requires a BS degree in computer
science, systems engineering or related field.
Microsoft MCSE certification or equivalent experience in installation,
configuration and administration of Microsoft networking
products is required.

Senior Network Systems Engineer (SNSE):

Minimum/General Experience- The SNSE must have 2-3 years experience in
network installations, and advanced knowledge of
servers and subsystems, bridges and gateways, protocols, LAN design, LAN
analyzing and tuning, communications, connectivity,
and disaster recovery. The individual must demonstrate a working knowledge
of Routers.

Functional Responsibility- The SNSE is responsible for small, medium and
some large LAN/WAN network installation projects,
focusing on Microsoft or similar networking products and services. This
individual provides technical advice and assistance in
communications and networking, supports clients regarding installation,
maintenance, and repairs, and contributes to project
implementation. The SNSE installs and updates Local Area Networks (LAN) and
Wide Area Network (WAN) operating
systems. This individual performs lead technical role on projects, and
provides supervision and direction to project team
members. The SNSE maintains certification with networking technology
vendors, and improves self-knowledge by reading trade
journals and attending vendor activities.

Minimum Education- For this position, a BS degree in computer science,
systems engineering or related field is preferred. A
degree may be replaced by very strong experience and training in the field.
The position typically requires certification in two or
more networking technologies or networking operating systems, and primary
connectivity vendors. Microsoft MCSE
certification or active participation in training program toward MCSE
certification is required.

Network Systems Engineer (NSE):

Minimum/General Experience- The NSE must demonstrate comprehensive knowledge
of hardware configuration,
troubleshooting, and repair as well as in-depth knowledge of memory
management. In addition, the NSE must possess
knowledge of network operating systems, and network technology installation
and configuration. The NSE must demonstrate
advanced knowledge of workstations, hubs, bridges, network printers and
servers, as well as advanced knowledge of network
administration, and integration. In addition, the NSE must have a working
knowledge of protocols and disaster recovery.

Functional Responsibility- The NSE is responsible for small to medium
network installations, focusing on Microsoft or similar
networking products and services. The NSE installs, configures,
troubleshoots and repairs Local Area Networks (LANs), and
analyzes systems to ensure that the network set up is complete. This
individual provides LAN administration, network
applications and LAN problem determination support to clients.

Minimum Education- This Position typically requires a BS degree in computer
science or systems engineering, or certification
from a school of technical training. The position also requires
certifications in at least one network operating system or network
technology (two preferred) and the relevant hardware/software, or active
participation in training program toward such
certifications. Active participation in training program toward MCSE
certification is recommended.

Network Engineer (NE):

Minimum/General Experience- The NE must demonstrate strong skills with
regard to stand-alone and networked workstations
and printers, including the ability to configure a workstation from start to
finish. Comprehensive knowledge of hardware
configuration, troubleshooting and repair as well as in-depth knowledge of
memory management is required. The NE must
posses a working knowledge of hubs, bridges, and servers, and advanced
knowledge of at least two operating systems, as well as
familiarity with network protocols.

Functional Responsibility- The NE installs Local Area Networks (LANs) and
troubleshoots network workstations, installs
computer systems and related peripherals, and participates in configuration
and administration of LANs, focusing on Microsoft
or similar networking products and services. Duties of the Network Engineer
also include delivery of end-user desktop support
for both Operating Systems and Applications to Clients.

Minimum Education- This Position typically requires a BS degree in computer
science or systems engineering, or certification
from a school of technical training or equivalent combination of training and
experience. Active participation in training
program toward MCSE certification is recommended.

TABLE C
GTSI SUPPORTED PRODUCTS

This table includes lists of the operating systems/network operating systems
and hardware products that GTSI (or its designee)
supports within the scope, and subject to the terms and conditions, of this
Program Description.

GTSI (or its designee) Supported Operating Systems/Network Operating Systems:

GTSI (or its designee) supports Microsoft DOS, Windows, version 3.x and 95,
Windows NT, and Windows NT Advanced
Server, BackOffice, including SQL Server, SNA Server, Internet Server, SMS,
Exchange Server, Novel Netware, Novell
Groupwise, Lotus Notes and Banyan.

GTSI (or its designee) Supported Hardware Products:

GTSI (or its designee) supports desktop personal computers containing Intel
80x86, Motorola 68000 series, and IBM/Motorola
PowerPC processor platforms, as well as all related desktop components,
including modems, disk drives, monitor, keyboard,
mouse, network interface card (Token Ring, Ethernet, Arcnet only), CD-ROM
drive, sound card, motherboard, internal power
supply, tape backup drives.

GTSI (or its designee) supports network servers containing Intel 80x86,
Motorola 68000 series, and IBM/Motorola PowerPC
processor platforms. Supported LAN/WAN equipment includes communication
hubs, repeaters, bridges, routers, print servers,
communication servers, tape backup drives. We also support HP LaserJet
printer platform, including laser printer "clones" with
print volume speed up to 25 pages per minute and dot matrix, line and band
printers designed for desktop or PC network
connections. High-speed (mainframe) laser printers are not supported, and
software or equipment not contained in the above
categories is not supported.

GTSI (or its designee)'s ability to provide support on the above equipment is
contingent upon the availability of technical
documentation and manufacturer's telephone help line. Support for other items
can be provided upon mutual agreement with
assistance from Customer for training and technical assistance.

TABLE D
SERVICER LOCATIONS

City Branch Location State City Branch
Location State
Albany
Albany
NY
Memphis
Memphis
TN
Atlanta
Atlanta
GA
Milwaukee
New Berlin
WI
Boston
Boston
MA
New York
New York
NY
Buffalo
Amherst
NY
Oakland
Oakland
CA
Central Florida
Maitland
FL
Philadelphia
King of Prussia
PA
Charlotte
Charlotte
NC
Phoenix
Phoenix
AZ
Chicago
Wooddale
IL
Pittsburgh
Pittsburgh
PA
Cincinnati
Cincinnati
OH
Plymouth
Plymouth
MN
Cleveland
Cleveland
OH
Portland
Portland
OR
Columbia
Columbia
SC
Richmond
Glen Allen
VA
Columbus
Columbus
OH
Rochester
Rochester
NY
Dallas
Irving
TX
Rocky Hill
Rocky Hill
CT
Dayton
Miamisburg
OH
Sacramento
Rancho Cordova
CA
Denver
Greenwood Village
CO
San Antonio / Austin
San Antonio
TX
Detroit
Bingham Farms
MI
Seattle
Seattle
WA
Elmwood Park
Elmwood Park
NJ
South Florida
Ft. Lauderdale
FL
Hawaii
Honolulu
HI
St. Louis
St. Louis
MO
Houston
Houston
TX
Stamford
Stamford
CT
Indianapolis
Indianapolis
IN
Syracuse
Syracuse
NY
Kansas City
Lenexa
KS
Toledo
Toledo
OH
Los Angeles
LaPalma
CA
Washington, DC
Vienna
VA

Waltham
Waltham
MA

The above locations are subject to change from time to time with notice from
GTSI to the Government.

APPENDIX I
ENHANCED WARRANTY SERVICE PROGRAM

1. Services to be Provided

GTSI (or its designee) will provide to Government customers on-site and depot
parts and labor covered maintenance services
during the Principal Period of Maintenance (PPM) as described in this
section.

2. Individual Equipment Item Service Delivery Ordering and Duration

Service may be ordered at time of product sale by the Government or at any
time thereafter within the original OEM warranty
period for that item. Warranty services ordered at the time of product sale
by the Government are effective immediately. Service
ordered after the delivery of a covered product will be effective after a 15
working day waiting period, will have a service
effective date retroactive to the original equipment delivery date, and shall
not be subject to a price pro-ration or discount.

When the Government orders warranty service, relevant information is to be
provided to contain sufficient end-user and
equipment data to enable GTSI to deliver service. The duration of service
for each item of equipment will be one, three, or five
years, dependent upon the service period option ordered by the Government as
described in this section, always starting from the
original ship date of the equipment.

3. Depot Support Procedures

Laptop, notebook computers, and other items of equipment as may be designated
in the Enhanced Warranty pricelists will be
repaired using this Program's depot repair procedure. At the time of the
service call, GTSI (or its designee) will instruct the
Government to return the product to a GTSI (or designee) depot. This process
will be at no expense to the Government. Upon
receipt at the depot, a depot engineer will determine whether the defective
equipment is defective as a result of normal wear and
tear, which is supported under this Enhanced Warranty Service Program; or
defective due to misuse, which is service outside the
scope of this contract. If the defect is not due to misuse, the defective
unit will be repaired at the depot center and will be
returned to the Government. The average turnaround for depot service is
three to five business days after receipt of the item at
the depot. No loaned equipment is supplied under this Program.

Equipment malfunctions due to improper connection or installation of external
devices; maintenance of external devices not
purchased under this contract (such as CD-ROM drives and tape backup drives)
and defects due solely to Government fault or
negligence are considered service outside the scope of work of this Program.
In this situation the Government may elect to have
the equipment repaired at the rates outlined in paragraph 17 or have the
depot engineer return the equipment.

4. Principle Period of Maintenance (PPM)

Service calls will be received by GTSI (or its designee) and responded to
during standard PPM hours, which shall be 8:00 a.m. to
5:00 p.m. local time, Monday through Friday, excluding Government holidays.

5. OEM Warranty

This Program does not cover equipment that does not come with an OEM service
warranty.

6. Response Time / Repair Time

Response time shall be elected by the Government when service is originally
ordered. The response time options are same day,
next business day, or two-business day response. Repair time shall be the
day following the response time. Same day response
calls must be received by GTSI (or its designee) by 4:00 p.m. local time.
All responses by GTSI (or its designee) may be
telephonic, at the option of GTSI (or its designee). All repair and response
times are during the PPM.

7. End-user Locations Supported

GTSI (or its designee) will provide support to all end-users located in the
48 contiguous continental United States as well as
Alaska and Hawaii. Rates are based upon the linear distance in miles from
the end-user's location to the nearest Service
Delivery Point (see Table 2 of this Appendix).

8. Service Delivery Points

Service Delivery Points are shown at Table 2. These locations are subject to
update by GTSI.

9. Equipment To Be Supported

GTSI (or its designee) will support all equipment configurations listed in
Table 3, Supported Equipment List, exactly as
described in that list. Any equipment not listed in this table is not
supported within the scope of this contract. GTSI will update
this list from time to time as necessary. The list indicates whether the
equipment is supported by on-site or depot services. GTSI
will not sell Enhanced Warranty Service in conjunction with PCs generally
designated by the manufacturer to be "server
models."

10. Customer Retention of Parts

This Program requires that GTSI retain broken and/or defective parts. From
time to time data security or other requirements
may necessitate that the Government retain parts. In instances where the
Government must retain a replaced component, the
entire service call shall become billable outside the scope of this program
at the rates shown in paragraph 17.

11. Software Reloads

Repairs do not include reload of application or operating system software
(with the exception of DOS). The Government end-
user is responsible for reload of all network and desktop operating systems,
application software, and data. GTSI (or its
designee) will provide these services, if requested, at rates outside the
scope of this contract.

12. Installation of Equipment

At the request of the Government, GTSI (or its designee) will install or
move equipment purchased from GTSI outside the scope
of this program at the rates shown in paragraph 17.

13. Preventative Maintenance

Covered maintenance for equipment does not include any preventative
maintenance services as described by the OEM.
Preventative maintenance services are defined to include installation of
preventative maintenance kits, printer cleaning and
adjustments of paper feed mechanisms.

14. Enhanced Warranty Service Pricing

Covered maintenance pricing for on site and depot warranty services are shown
in Table 1. These prices are for warranty service
within 100 miles of a Service Delivery Point (see Table 2) or at the GTSI
(or its designee) depot as appropriate.

15. Warranty Service Uplift For Service Beyond 100 Miles

Covered maintenance enhanced warranty service beyond 100 miles, but less than
200 miles, from a Service Delivery Point (see
Table 2) shall be subject to a uplift factor of 200%. Service beyond 200
miles from a Service Delivery Point (see Table 2) shall
be subject to an uplift of 400%. These uplift factors shall be applied to
the prices shown in Table 1.

16. Extended PPM Services

GTSI offers extended PPM services as a means of extending the number of days
per week and/or the number of hours per day of
PPM coverage. This service option provides the same response and repairs
times as regular coverage, and is available for all
equipment. The following uplift factors should be applied to the price for
the covered equipment item to extend the service PPM.
The Extended PPM services are only available to customers within 100 miles of
a Service Delivery Point listed in Table 2.

PPM Coverage Desired
9 Hours PPM
24 Hours (PPM)
Monday - Friday
Standard
111%1
Monday - Sunday
108%2
122%3

1 Twenty-four-hour PPM, Monday through Friday, except Government holidays.
2 Nine-hour PPM from 8:00 a.m. to 5:00 p.m. local time, Monday through
Sunday, except Government holidays.
3 Twenty-four-hour PPM, Monday through Sunday, except Government holidays

17. Service Outside the Scope of this Program

All service outside the scope of this program performed during the standard
PPM by a GTSI (or its designee) field engineer shall
be at the rate of $89.00 per hour with a two hour minimum, billed portal to
portal. All service outside the scope of this program
performed outside the standard PPM by a GTSI (or its designee) field engineer
shall be billed at the rate of $161.00 per hour with
a two hour minimum, billed portal to portal. Parts shall be priced at a 10%
discount from list pricing. GTSI (or its designee)
will not perform work outside the scope of this program without a delivery
order from the Government customer.

18. Government Holidays

Government recognized holidays are listed below.
New Year's Day
January 1st
Martin Luther King Day
Third Monday in January
President's Day
Third Monday in February
Memorial Day
Fourth Monday in May
Independence Day
July 4th
Labor Day
First Monday in September
Columbus Day
Second Monday in October
Veterans Day
November 11th
Thanksgiving Day
Fourth Thursday in November
Christmas Day
December 25th

In the event that a holiday should fall on a Saturday, the Government holiday
will be considered to be the Friday preceding the
actual holiday. In those instances when a holiday falls on a Sunday, the
Government holiday will be considered to be the
following Monday.

19. Additional Terms and Conditions

GTSI assumes no security clearances or escorts are required to perform these
Enhanced Warranty Services.

APPENDIX I

TABLE 1 - ENHANCED WARRANTY SERVICE PRICING

APPLE EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-119314
3273-119315
3273-119316
3273-119317
3273-119318
3273-119319
3273-119320
3273-119321
3273-118903

$130
$106
$96
$372
$303
$274
$592
$487
$443

Desktop System #2
3273-118904
3273-118905
3273-118906
3273-118907
3273-118908
3273-118909
3273-118910
3273-118911
3273-118912

$106
$87
$78
$304
$248
$224
$482
$397
$361

8MB Memory
3273-119385
3273-119386
3273-119387
3273-119388
3273-119389
3273-119390
3273-119391
3273-119392
3273-119393

$7
$5
$5
$19
$15
$14
$31
$25
$23

Additional Hard Drive
3273-119394
3273-119395
3273-119375
3273-119376
3273-119377
3273-119378
3273-119379
3273-119380
3273-119381

$24
$19
$18
$68
$55
$50
$110
$91
$82

CD-ROM
3273-119382
3273-119383
3273-119384
3273-119322
3273-119323
3273-119324
3273-119325
3273-119326
3273-119327

$17
$14
$13
$49
$40
$36
$79
$65
$59

14"-16" Monitor
3273-119328
3273-119329
3273-119330
3273-119331
3273-119332
3273-119333
3273-119334
3273-119335
3273-119336

$20
$17
$15
$58
$48
$43
$94
$78
$71

17" Monitor
3273-119337
3273-119338
3273-119339
3273-119340
3273-119341
3273-119342
3273-119343
3273-119344
3273-119345

$24
$19
$18
$68
$55
$50
$110
$91
$82

Above 17" Monitor
3273-119346
3273-119347
3273-119348
3273-119349
3273-119350
3273-119351
3273-119352
3273-119353
3273-119354

$41
$33
$30
$117
$95
$86
$189
$155
$141

Tape Backup
3273-119355
3273-119356
3273-119357
3273-119358
3273-119359
3273-119360
3273-119361
3273-119362
3273-119363

$41
$33
$30
$117
$95
$86
$189
$155
$141

Laser Printer, 1-8 ppm
3273-119364
3273-119365
3273-119366
3273-119367
3273-119368
3273-119369
3273-119370
3273-119371
3273-119372

$67
$61
$56
$191
$176
$160
$317
$294
$270

Laser Printer, 9-16 ppm
3273-119373
3273-119374
3273-119396
3273-119397
3273-119398
3273-119399
3273-119400
3273-119401
3273-119402

$133
$123
$112
$382
$351
$321
$634
$587
$541

Laser Printer, 17-24 ppm
3273-119403
3273-119404
3273-119405
3273-119406
3273-119407
3273-119408
3273-119409
3273-119410
3273-119411

$267
$246
$224
$763
$702
$642
$1,268
$1,175
$1,082

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

All items may be ordered independently of each other with the exception of
items 3-9. Items 3-9 must be ordered in conjunction
with items 1 or 2 and must be installed and configured when placed under
enhanced warranty. When items 3-9 are ordered, the
total price of service includes all prices of the items ordered from
categories 3-9 plus item 1 or 2 as appropriate.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

Prices for generic equipment (i.e. equipment from manufacturers other than
the OEM listed) are found in the Generic Equipment
Warranty Services Pricelist. Generic equipment may be ordered as additions
to items 1 & 2 by adding the appropriate prices
from the Generic Equipment Warranty Services Pricelist.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

AST EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-119412
3273-119413
3273-119414
3273-119415
3273-119416
3273-119417
3273-119418
3273-119419
3273-119420

$86
$68
$61
$246
$195
$173
$483
$393
$356

Desktop System #2
3273-119421
3273-119422
3273-119423
3273-119424
3273-119425
3273-119426
3273-119427
3273-119428
3273-119429

$73
$58
$52
$208
$165
$148
$399
$325
$295

8MB Memory
3273-119430
3273-119431
3273-119432
3273-119433
3273-119434
3273-119435
3273-119436
3273-119437
3273-119438

$4
$3
$3
$11
$8
$7
$24
$19
$17

Additional Hard Drive
3273-119439
3273-119440
3273-119441
3273-119442
3273-119443
3273-119444
3273-119445
3273-119446
3273-119447

$13
$10
$9
$38
$29
$26
$84
$68
$61

CD-ROM
3273-119448
3273-119449
3273-119450
3273-119451
3273-119452
3273-119453
3273-119454
3273-119455
3273-119456

$10
$7
$6
$27
$21
$18
$60
$48
$44

14"-16" Monitor
3273-119457
3273-119458
3273-119459
3273-119460
3273-119461
3273-119462
3273-119463
3273-119464
3273-119465

$21
$18
$16
$61
$50
$46
$97
$80
$73

17" Monitor
3273-119466
3273-119467
3273-119468
3273-119469
3273-119470
3273-119471
3273-119472
3273-119473
3273-119474

$25
$21
$19
$71
$59
$53
$113
$93
$85

Above 17" Monitor
3273-119475
3273-119476
3273-119477
3273-119478
3273-119479
3273-119480
3273-119481
3273-119482
3273-119483

$43
$35
$32
$122
$101
$92
$193
$160
$146

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

All items may be ordered independently of each other with the exception of
items 3-8. Items 3-8 must be ordered in conjunction
with items 1 or 2 and must be installed and configured when placed under
enhanced warranty. When items 3-8 are ordered, the
total price of service includes all prices of the items ordered from
categories 3-8 plus item 1 or 2 as appropriate.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.
Prices for generic equipment (i.e. equipment from manufacturers other than
the OEM listed) are found in the Generic Equipment
Warranty Services Pricelist. Generic equipment may be ordered as additions
to items 1 & 2 by adding the appropriate prices
from the Generic Equipment Warranty Services Pricelist.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

COMPAQ EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-119484
3273-119485
3273-119486
3273-119487
3273-119488
3273-119489
3273-119490
3273-119491
3273-119492

$101
$81
$73
$288
$233
$210
$519
$426
$387

Desktop System #2
3273-119493
3273-119494
3273-119495
3273-119496
3273-119497
3273-119498
3273-119499
3273-119500
3273-119501

$77
$62
$56
$220
$178
$160
$409
$336
$305

8MB Memory
3273-119502
3273-119503
3273-119504
3273-119505
3273-119506
3273-119507
3273-119508
3273-119509
3273-119510

$4
$3
$3
$12
$10
$9
$25
$21
$19

Additional Hard Drive
3273-119511
3273-119512
3273-119513
3273-119514
3273-119515
3273-119516
3273-119517
3273-119518
3273-119519

$14
$11
$10
$41
$32
$29
$87
$70
$64

CD-ROM
3273-119520
3273-119521
3273-119522
3273-119523
3273-119524
3273-119525
3273-119526
3273-119527
3273-119528

$10
$8
$7
$29
$23
$20
$62
$50
$46

14"-16" Monitor
3273-119529
3273-119530
3273-119531
3273-119532
3273-119533
3273-119534
3273-119535
3273-119536
3273-119537

$21
$17
$15
$59
$48
$43
$95
$78
$71

17" Monitor
3273-119538
3273-119539
3273-119540
3273-119541
3273-119542
3273-119543
3273-119544
3273-119545
3273-119546

$24
$20
$18
$69
$56
$51
$111
$91
$83

Above 17" Monitor
3273-119547
3273-119548
3273-119549
3273-119550
3273-119551
3273-119552
3273-119553
3273-119554
3273-119555

$41
$34
$30
$118
$96
$87
$189
$156
$142

Tape Backup
3273-119556
3273-119557
3273-119558
3273-119559
3273-119560
3273-119561
3273-119562
3273-119563
3273-119364

$27
$22
$20
$78
$62
$56
$155
$127
$115

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

HP EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-119565
3273-119566
3273-119567
3273-119568
3273-119569
3273-119570
3273-119571
3273-119572
3273-119573

$81
$63
$56
$233
$181
$160
$471
$381
$344

Desktop System #2
3273-118687
3273-118688
3273-118689
3273-118690
3273-118691
3273-118692
3273-118693
3273-118694
3273-118695

$67
$52
$46
$191
$148
$130
$384
$310
$280

Additional Hard Drive
3273-118696
3273-118697
3273-118698
3273-118699
3273-118700
3273-118701
3273-118702
3273-118703
3273-118704

$25
$21
$19
$72
$60
$54
$114
$94
$86

CD-ROM
3273-118705
3273-118706
3273-118707
3273-118708
3273-118709
3273-118710
3273-118711
3273-118712
3273-118713

$18
$15
$14
$52
$43
$39
$81
$67
$61

14"-16" Monitor
3273-118714
3273-118715
3273-118716
3273-118717
3273-118718
3273-118719
3273-118720
3273-118721
3273-118722

$22
$18
$16
$62
$51
$47
$98
$81
$74

17" Monitor
3273-118723
3273-118724
3273-118725
3273-118726
3273-118727
3273-118728
3273-118729
3273-118730
3273-118731

$25
$21
$19
$73
$60
$55
$114
$94
$86

Above 17" Monitor
3273-118732
3273-118733
3273-118734
3273-118735
3273-118736
3273-118737
3273-118738
3273-118739
3273-118740

$44
$36
$33
$125
$103
$94
$195
$162
$148

Tape Backup
3273-118741
3273-118742
3273-118743
3273-118744
3273-118745
3273-118746
3273-118747
3273-118748
3273-118749

$43
$35
$32
$122
$100
$91
$193
$159
$145

Laser Printer, 1-8 ppm
3273-118750
3273-118751
3273-118752
3273-118753
3273-118754
3273-118755
3273-118756
3273-118757
3273-118758

$73
$68
$62
$208
$193
$178
$332
$309
$286

Laser Printer, 9-16 ppm
3273-118759
3273-118760
3273-118761
3273-118762
3273-118763
3273-118764
3273-118765
3273-118766
3273-118767

$146
$135
$124
$416
$386
$356
$664
$618
$571

Laser Printer, 17-24 ppm
3273-118768
3273-118769
3273-118770
3273-118771
3273-118772
3273-118773
3273-118774
3273-118775
3273-118776

$265
$244
$222
$757
$697
$636
$1,263
$1,170
$1,077

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

IBM EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-118777
3273-118778
3273-118779
3273-118780
3273-118781
3273-118782
3273-118783
3273-118784
3273-118785

$71
$53
$45
$203
$151
$130
$445
$356
$318

Desktop System #2
3273-118786
3273-118787
3273-118788
3273-118789
3273-118790
3273-118791
3273-118792
3273-118793
3273-118794

$61
$46
$40
$175
$132
$114
$370
$296
$266

8MB Memory
3273-118795
3273-118796
3273-118797
3273-118798
3273-118799
3273-118800
3273-118801
3273-118802
3273-118803

$3
$2
$2
$8
$5
$4
$21
$17
$15

Additional Hard Drive
3273-118804
3273-118805
3273-118806
3273-118807
3273-118808
3273-118809
3273-118810
3273-118811
3273-118812

$10
$7
$5
$28
$19
$15
$75
$59
$52

CD-ROM
3273-118813
3273-118814
3273-118815
3273-118816
3273-118817
3273-118818
3273-118819
3273-118820
3273-118821

$7
$5
$4
$20
$14
$11
$54
$42
$37

14"-16" Monitor
3273-118822
3273-118823
3273-118824
3273-118825
3273-118826
3273-118827
3273-118828
3273-118829
3273-118830

$8
$6
$5
$24
$16
$13
$64
$51
$45

17" Monitor
3273-118831
3273-118832
3273-118833
3273-118834
3273-118835
3273-118836
3273-118837
3273-118838
3273-118839

$10
$7
$5
$28
$19
$15
$75
$59
$52

Above 17" Monitor
3273-118840
3273-118841
3273-118842
3273-118843
3273-118844
3273-118845
3273-118846
3273-118847
3273-118848

$17
$11
$9
$48
$33
$27
$129
$101
$90

Tape Backup
3273-118849
3273-118850
3273-118851
3273-118852
3273-118853
3273-118854
3273-118855
3273-118856
3273-118857

$19
$14
$12
$55
$40
$34
$135
$107
$96

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

LEXMARK EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Laser Printer, 1-8 ppm
3273-118858
3273-118859
3273-118860
3273-118861
3273-118862
3273-118863
3273-118864
3273-118865
3273-118866

$73
$67
$62
$208
$193
$178
$332
$309
$285

Laser Printer, 9-16 ppm
3273-118867
3273-118868
3273-118869
3273-118870
3273-118871
3273-118872
3273-118873
3273-118874
3273-118875

$135
$125
$114
$387
$357
$327
$639
$592
$546

Laser Printer, 17-24 ppm
3273-118876
3273-118877
3273-118878
3273-118879
3273-118880
3273-118881
3273-118882
3273-118883
3273-118884

$263
$242
$220
$751
$691
$630
$1,258
$1,165
$1,072

14
Dot Matrix Printer,
<300 cps
3273-118885
3273-118886
3273-118887
3273-118888
3273-118889
3273-118890
3273-118891
3273-118892
3273-118893

$56
$46
$41
$161
$130
$118
$285
$234
$213

15
Dot Matrix Printer,
300-600 cps
3273-118894
3273-118895
3273-118896
3273-118897
3273-118898
3273-118899
3273-118900
3273-118901
3273-118902

$92
$74
$66
$262
$211
$190
$431
$353
$320

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

NEC EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-118913
3273-118914
3273-118915
3273-118916
3273-118917
3273-118918
3273-118919
3273-118920
3273-118921

$86
$68
$60
$247
$194
$171
$483
$392
$354

Desktop System #2
3273-118922
3273-118923
3273-118924
3273-118925
3273-118926
3273-118927
3273-118928
3273-118929
3273-118930

$64
$49
$43
$184
$141
$124
$378
$305
$274

CD-ROM
3273-118931
3273-118932
3273-118933
3273-118934
3273-118935
3273-118936
3273-118937
3273-118938
3273-118939

$16
$13
$12
$46
$38
$35
$76
$64
$58

14"-16" Monitor
3273-118940
3273-118941
3273-118942
3273-118943
3273-118944
3273-118945
3273-118946
3273-118947
3273-118948

$19
$16
$14
$54
$45
$41
$90
$75
$69

17" Monitor
3273-118949
3273-118950
3273-118951
3273-118952
3273-118953
3273-118954
3273-118955
3273-118956
3273-118957

$22
$18
$17
$63
$52
$48
$106
$88
$80

Above 17" Monitor
3273-118958
3273-118959
3273-118960
3273-118961
3273-118962
3273-118963
3273-118964
3273-118965
3273-118966

$35
$29
$26
$101
$82
$75
$175
$144
$132

Laser Printer, 1-8 ppm
3273-118967
3273-118968
3273-118969
3273-118970
3273-118971
3273-118972
3273-118973
3273-118974
3273-118975

$77
$72
$66
$220
$205
$190
$342
$319
$296

Laser Printer, 9-16 ppm
3273-118976
3273-118977
3273-118978
3273-118979
3273-118980
3273-118981
3273-118982
3273-118983
3273-118984

$154
$143
$133
$440
$409
$379
$684
$638
$591

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

All items may be ordered independently of each other with the exception of
items 3-6. Items 3-6 must be ordered in conjunction
with items 1 or 2 and must be installed and configured when placed under
enhanced warranty. When items 3-6 are ordered, the
total price of service includes all prices of the items ordered from
categories 3-6 plus item 1 or 2 as appropriate.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

OKIDATA EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Laser Printer, 1-8 ppm
3273-118985
3273-118986
3273-118987
3273-118988
3273-118989
3273-118990
3273-118991
3273-118992
3273-118993

$73
$68
$62
$208
$193
$178
$332
$309
$286

15
Dot Matrix Printer,
300-600 cps
3273-118994
3273-118995
3273-118996
3273-118997
3273-118998
3273-118999
3273-119000
3273-119001
3273-119002

$102
$84
$77
$292
$241
$220
$457
$379
$346

16
Dot Matrix Printer,
>600 cps
3273-119003
3273-119004
3273-119005
3273-119006
3273-119007
3273-119008
3273-119009
3273-119010
3273-119011

$303
$250
$228
$866
$716
$653
$1,355
$1,124
$1,027

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

ZENITH EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-119012
3273-119013
3273-119014
3273-119015
3273-119016
3273-119017
3273-119018
3273-119019
3273-119020

$109
$90
$82
$313
$257
$234
$540
$448
$409

Desktop System #2
3273-119021
3273-119022
3273-119023
3273-119024
3273-119025
3273-119026
3273-119027
3273-119028
3273-119029

$84
$69
$63
$240
$197
$179
$426
$353
$322

8MB Memory
3273-119030
3273-119031
3273-119032
3273-119033
3273-119034
3273-119035
3273-119036
3273-119037
3273-119038

$5
$4
$4
$14
$11
$10
$26
$22
$20

Additional Hard Drive
3273-119039
3273-119040
3273-119041
3273-119042
3273-119043
3273-119044
3273-119045
3273-119046
3273-119047

$17
$14
$12
$48
$39
$35
$92
$76
$70

CD-ROM
3273-119048
3273-119049
3273-119050
3273-119051
3273-119052
3273-119053
3273-119054
3273-119055
3273-119056

$12
$10
$9
$34
$28
$25
$66
$55
$50

14"-16" Monitor
3273-119057
3273-119058
3273-119059
3273-119060
3273-119061
3273-119062
3273-119063
3273-119064
3273-119065

$22
$18
$16
$63
$52
$47
$98
$81
$74

17" Monitor
3273-119066
3273-119067
3273-119068
3273-119069
3273-119070
3273-119071
3273-119072
3273-119073
3273-119074

$26
$21
$19
$73
$60
$55
$114
$95
$87

Above 17" Monitor
3273-119075
3273-119076
3273-119077
3273-119078
3273-119079
3273-119080
3273-119081
3273-119082
3273-119083

$44
$36
$33
$125
$103
$94
$196
$162
$148

Tape Backup
3273-119084
3273-119085
3273-119086
3273-119087
3273-119088
3273-119089
3273-119090
3273-119091
3273-119092

$30
$24
$22
$85
$70
$64
$161
$133
$122

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

NEXAR EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

Desktop System #1
3273-119093
3273-119094
3273-119095
3273-119096
3273-119097
3273-119098
3273-119099
3273-119100
3273-119101

$116
$97
$89
$332
$277
$254
$557
$464
$425

Desktop System #2
3273-119102
3273-119103
3273-119104
3273-119105
3273-119106
3273-119107
3273-119108
3273-119109
3273-119110

$89
$75
$68
$256
$213
$195
$440
$367
$336

8MB Memory
3273-119111
3273-119112
3273-119113
3273-119114
3273-119115
3273-119116
3273-119117
3273-119118
3273-119119

$5
$4
$4
$15
$13
$12
$28
$23
$21

Additional Hard Drive
3273-119120
3273-119121
3273-119122
3273-119123
3273-119124
3273-119125
3273-119126
3273-119127
3273-119128

$18
$15
$14
$53
$44
$40
$97
$81
$74

CD-ROM
3273-119129
3273-119130
3273-119131
3273-119132
3273-119133
3273-119134
3273-119135
3273-119136
3273-119137

$13
$11
$10
$38
$31
$29
$69
$58
$53

14"-16" Monitor
3273-119138
3273-119139
3273-119140
3273-119141
3273-119142
3273-119143
3273-119144
3273-119145
3273-119146

$23
$19
$17
$65
$55
$50
$100
$84
$77

17" Monitor
3273-119147
3273-119148
3273-119149
3273-119150
3273-119151
3273-119152
3273-119153
3273-119154
3273-119155

$27
$22
$20
$76
$64
$58
$117
$98
$89

Above 17" Monitor
3273-119156
3273-119157
3273-119158
3273-119159
3273-119160
3273-119161
3273-119162
3273-119163
3273-119164

$46
$38
$35
$131
$109
$100
$201
$167
$153

Tape Backup
3273-119165
3273-119166
3273-119167
3273-119168
3273-119169
3273-119170
3273-119171
3273-119172
3273-119173

$32
$26
$24
$91
$75
$69
$166
$138
$127

NOTES:

See Table 3 for detailed definitions of covered equipment.

Prices shown are for equipment made by the manufacturer.

Items 1 & 2 above may include modems, NIC cards, hard drives, memory and
CD-ROMs from manufacturers other than the
OEM.

RAM may only be ordered in 8mb increments.

Items 1 & 2 are eligible for enhanced warranty support only as described in
paragraph 9 of the Extended Warranty Services
terms and conditions in Appendix I.

GENERIC EQUIPMENT WARRANTY SERVICES PRICING

COVERAGE PERIOD OPTIONS

ONE YEAR
THREE YEARS
FIVE YEARS
Equipment
Item
Number

EQUIPMENT

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

SAME
DAY

NEXT
DAY

TWO
DAY

8MB Memory
3273-119174
3273-119175
3273-119176
3273-119177
3273-119178
3273-119179
3273-119180
3273-119181
3273-119182

$8
$6
$6
$22
$18
$17
$33
$28
$26

Additional Hard Drive
3273-119183
3273-119184
3273-119185
3273-119186
3273-119187
3273-119188
3273-119189
3273-119190
3273-119191

$27
$22
$20
$76
$64
$58
$117
$98
$89

CD-ROM
3273-119192
3273-119193
3273-119194
3273-119195
3273-119196
3273-119197
3273-119198
3273-119199
3273-119200

$19
$16
$15
$55
$45
$42
$84
$70
$64

14"-16" Monitor
3273-119201
3273-119202
3273-119203
3273-119204
3273-119205
3273-119206
3273-119207
3273-119208
3273-119209

$23
$19
$17
$65
$55
$50
$100
$84
$77

17" Monitor
3273-119210
3273-119211
3273-119212
3273-119213
3273-119214
3273-119215
3273-119216
3273-119217
3273-119218

$27
$22
$20
$76
$64
$58
$117
$98
$89

Above 17" Monitor
3273-119219
3273-119220
3273-119221
3273-119222
3273-119223
3273-119224
3273-119225
3273-119226
3273-119227

$46
$38
$35
$131
$109
$100
$201
$167
$153

Tape Backup
3273-119228
3273-119229
3273-119230
3273-119231
3273-119232
3273-119233
3273-119234
3273-119235
3273-119236

$46
$38
$35
$131
$109
$100
$201
$167
$153

NOTES - All pricing above is subject to the following:

See Table 3 for detailed definitions of covered equipment.

Items above may be ordered ONLY as additions to equipment items 1 or 2 shown
on the OEM specific pricelists.

When the above items are ordered as additions, the total price of service
includes all prices of the items ordered from the above
categories plus item 1 or 2 from one of the OEM specific pricelists, as
appropriate.

LAPTOP EQUIPMENT WARRANTY SERVICES PRICING

DEPOT ONLY
EQUIPMENT
ONE YEAR
THREE YEAR

Apple
3273-119237
3273-119238

$61
$183

AST
3273-119239
3273-119240

$61
$183

Compaq
3273-119241
3273-119242

$61
$183

Hewlett-Packard
3273-119243
3273-119244

$61
$183

IBM
3273-119245
3273-119246

$61
$183

NEC
3273-119247
3273-119248

$61
$183

Panasonic
3273-119249
3273-119250

$61
$183

Toshiba
3273-119251
3273-119252

$61
$183

NOTES - All pricing above is subject to the following:

See Table 3 for detailed definitions of covered equipment.

Pricing is for depot repair service.

One-year price is available for all laptops listed.

Three-year price is available only when underlying OEM warranty for parts and
labor is of three years duration.

TABLE 2 - SERVICE DELIVERY POINTS

Major City
Location
Birmingham, AL
Birmingham, AL
Mobile, AL
Mobile, AL
Little Rock, AR
Little Rock, AR
Phoenix, AZ
Phoenix, AZ
Tucson, AZ
Tucson, AZ
Yuma, AZ
Yuma, AZ
Fresno, CA
Fresno, CA
Los Angeles, CA
La Palma, CA
Sacramento, CA
Rancho Cordova, CA
San Diego, CA
San Diego, CA
San Francisco, CA
Oakland, CA
Colorado Springs, CO
Colorado Springs, CO
Englewood, CO
Englewood, CO
Fort Collins, CO
Fort Collins, CO
Hartford, CT
Hartford, CT
Rocky Hill, CT
Rocky Hill, CT
Stamford, CT
Stamford, CT
Baltimore, DC
Jessup, MD
Washington, DC
Vienna, VA
Jacksonville, FL
Jacksonville, FL
Miami, FL
Fort Lauderdale, FL
Orlando, FL
Maitland, FL
Tampa, FL
Tampa, FL
Albany, GA
Albany, GA
Atlanta, GA
Atlanta, GA
Columbus, GA
Columbus, GA
Macon, GA
Macon, GA
Savannah, GA
Savannah, GA
Honolulu, HI
Honolulu, HI
Des Moines, IA
Des Moines, IA
Chicago, IL
Wood Dale, IL
Evansville, IN
Evansville, IN
Fort Wayne, IN
Fort Wayne, IN
Indianapolis, IN
Indianapolis, IN
Kansas City, KS
Shawnee Mission, KS
Wichita, KS
Wichita, KS
Louisville, KY
Louisville, KY
New Orleans, LA
Metairie, LA
Boston, MA
Waltham, MA
Boston, MA
Boston, MA
Leominster, MA
Leominster, MA
Portland, ME
Portland, ME
Detroit, MI
Dearborn, MI
Grand Rapids, MI
Grand Rapids, MI
Lansing, MI
Lansing, MI
Saginaw, MI
Saginaw, MI
Southfield, MI
Southfield, MI
Minneapolis, MN
Minneapolis, MN
Saint Louis, MO
Saint Louis, MO
Jackson, MS
Jackson, MS
Charlotte, NC
Charlotte, NC
Greensboro, NC
Greensboro, NC
Raleigh, NC
Raleigh, NC
Omaha, NE
Omaha, NE
Patterson, NJ
Elmwood Park, NJ
Albuquerque, NM
Albuquerque, NM
Las Vegas, NV
Las Vegas, NV
Reno, NV
Reno, NV
Albany, NY
Albany, NY
Buffalo, NY
Buffalo, NY
Long Island, NY
Smithtown, NY
New York, NY
New York, NY
Rochester, NY
Rochester, NY
Syracuse, NY
Syracuse, NY
Cincinnati, OH
Cincinnati, OH
Cleveland, OH
Cleveland, OH
Columbus, OH
Columbus, OH
Dayton, OH
Miamisburg, OH
Toledo, OH
Toledo, OH
Oklahoma City, OK
Oklahoma City, OK
Tulsa, OK
Tulsa, OK
Portland, OR
Portland, OR
Allentown, PA
Allentown, PA
Philadelphia, PA
King Of Prussia, PA
Pittsburgh, PA
Pittsburgh, PA
Charleston, SC
Charleston, SC
Columbia, SC
Columbia, SC
Sioux Falls, SD
Sioux Falls, SD
Knoxville, TN
Knoxville, TN
Memphis, TN
Memphis, TN
Nashville, TN
Nashville, TN
Austin, TX
Austin, TX
Beaumont, TX
Beaumont, TX
Dallas, TX
Irving, TX
El Paso, TX
El Paso, TX
Houston, TX
Houston, TX
Longview, TX
Longview, TX
Lubbock, TX
Lubbock, TX
San Antonio, TX
San Antonio, TX
Salt Lake City, UT
Salt Lake City, UT
Norfolk, VA
Virginia Beach, VA
Richmond, VA
Glen Allen, VA
Roanoke, VA
Roanoke, VA
Redmond, WA
Redmond, WA
Spokane, WA
Spokane, WA
Milwaukee, WI
Waukesha, WI

TABLE 3 - SUPPORTED EQUIPMENT LIST

On-site warranty services are offered for the equipment listed in the table
below:

Item
#
Equipment
Maximum Configuration
1
OEM's Desktop System 1
Pentium 200mhz CPU (Apple: Power PC 604, 180mhz)

2.5 GB HDD

32MB RAM

NIC Card

14-17" Monitor

CD-ROM (Single Disk)

Internal Modem (28.8)
2
OEM's Desktop System 2
Pentium 200mhz CPU (Apple: Power PC 604, 180mhz)

2.5 GB HDD

32MB RAM

NIC Card

CD-ROM (Single Disk)

Internal Modem (28.8)
3
OEM's 8mb Memory
8MB RAM
4
OEM's Additional hard drive
2.5 GB HDD
5
OEM's CD-ROM
Single Disk
6
OEM's Monitor
Up to 16"
7
OEM's Monitor
17"
8
OEM's Monitor
Above 17"
9
OEM's Tape Backup (internal or external)
8GB Storage, Single Cassette
10
OEM's Laser Printer
1-8 pages per minute
11
OEM's Laser Printer
9-16 pages per minute
12
OEM's Laser Printer
17-24 pages per minute
13
OEM's Laser Printer
Greater than 24 pages per minute
14
OEM's Dot Matrix Printer
Up to 300 chrs/second
15
OEM's Dot Matrix Printer
300-600 chrs/second
16
OEM's Dot Matrix Printer
Greater than 600 chrs/second
17
Generic Memory (internal)
8MB RAM
18
Generic Hard Drive (internal or external)
2.5 GB HDD
19
Generic CD-ROM (internal or external)
Single Disk
20
Generic 14-16" Monitor

21
Generic 17" Monitor

22
Generic above 17" Monitor

23
Generic Tape Backup (internal)
8GB Storage, Single Cassette

Depot warranty services are offered for the laptop and notebook computer
equipment listed in the table below:

Laptop and Notebook OEM's
Covered Configurations

Apple
All Internal Components
AST
All Internal Components
Compaq
All Internal Components
Hewlett-Packard
All Internal Components
IBM
All Internal Components
NEC
All Internal Components
Panasonic
All Internal Components
Toshiba
All Internal Components

GTSI's Contract #GS-35F-4120D 42

<PAGE>
AS AMENDED THROUGH
MAY 7, 1996

GOVERNMENT TECHNOLOGY SERVICES, INC.
1994 STOCK OPTION PLAN

1. Establishment and Purposes of the Plan.
Government Technology Services, Inc. hereby establishes this 1994 Stock
Option Plan to promote the interests of the Company and its stockholders by
(i) helping to attract and retain the services of selected key employees of
the Company who are in a position to make a material contribution to the
successful operation of the Company's business, (ii) motivating such persons,
by means of performance-related incentives, to achieve the Company's business
goals and (iii) enabling such persons to participate in the long-term growth
and financial success of the Company by providing them with an opportunity to
purchase stock of the Company.
2. Definitions.
The following definitions shall apply throughout the Plan:
a. "Affiliate" shall mean any entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Company.
b. "Board of Directors" shall mean the Board of Directors of the
Company.
c. "Code" shall mean the Internal Revenue Code of 1986, as amended.
References in the Plan to any section of the Code shall be deemed to include
any amendment or successor provisions to such section and any regulations
issued under such section.
d. "Common Stock" shall mean the common stock, par value $0.005 per
share, of the Company.
e. "Company" shall mean Government Technology Services, Inc., a
Delaware corporation and any "subsidiary" corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.
f. "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan or, if no Committee
shall be appointed or in office, the Board of Directors.
g. "Continuous Employment" shall mean the absence of any interruption
or termination of employment by the Company. Continuous Employment shall not
be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Committee or in the case of transfers
between locations of the Company.
h. "Disinterested Person" shall mean an administrator of the Plan who
during the one year prior to service as an administrator of the Plan, has not
been granted or awarded, and during such service, is not granted or awarded
stock options or stock appreciation rights pursuant to the Plan or any other
plan of the Company or any of its Affiliates entitling the participants
therein to acquire stock, stock options or stock appreciation rights of the
Company or any Affiliates, except for any plan under which the award of
stock, stock options or stock appreciation rights is not subject to the
discretion of any person or persons.
i. "Employee" shall mean any employee of the Company, including
officers and directors who are also employees.
j. "Fair Market Value" shall mean, with respect to Shares, the fair
market value per Share on the date an option is granted and, so long as the
Shares are quoted on the National Association of Securities Dealers Automated
Quotations ("Nasdaq") System), the Fair Market Value per Share shall be the
closing price on the Nasdaq Stock Market as of the date of grant of the
Option, as reported in The Wall Street Journal or, if there are no sales on
such date, on the immediately preceding day on which there were reported
sales.
k. "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
l. "Non-Statutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.
m. "Option" shall mean a stock option to purchase Common Stock granted
to an Optionee pursuant to the Plan.
n. "Option Agreement" means a written agreement substantially in one
of the forms attached hereto as Exhibit A, or such other form or forms as the
Committee (subject to the terms and conditions of the Plan) may from time to
time approve, evidencing and reflecting the terms of an Option.
o. "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to the Plan.
p. "Optionee" shall mean any Employee who is granted an Option.
q. "Plan" shall mean this Government Technology Services, Inc. 1994
Stock Option Plan.
r. "Shares" shall mean shares of the Common Stock or any shares into
which such Shares may be converted in accordance with Section 10 of the Plan.
3. Shares Reserved.
The maximum aggregate number of Shares reserved for issuance pursuant to
the Plan shall be 300,000 Shares or the number of shares of stock to which
such Shares shall be adjusted as provided in Section 10 of the Plan. Such
number of Shares may be set aside out of authorized but unissued Shares not
reserved for any other purpose, or out of issued Shares acquired for and held
in the treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any Option terminating,
expiring or canceled for any reason prior to its exercise in full, shall
again become available for Options thereafter granted under the Plan, and the
same shall not be deemed an increase in the number of Shares reserved for
issuance under the Plan.
4. Administration of the Plan.
a. The Plan shall be administered by a Committee designated by the
Board of Directors to administer the Plan and comprised of not less than two
directors, each of whom is a Disinterested Person. In addition, each
director designated by the Board of Directors to administer the Plan shall be
an "outside director" as defined in the Treasury regulations issued pursuant
to Section 162(m) of the Code. Members of the Committee shall serve for such
period of time as the Board of Directors may determine or until their
resignation, retirement, removal or death, if sooner. From time to time the
Board of Directors may increase the size of the Committee and appoint
additional members thereto, remove members (with or without cause) and
appoint new members in substitution therefor or fill vacancies however
caused.
b. Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion: (i) to grant Incentive Stock Options, in
accordance with Section 422 of the Code, or Non-Statutory Stock Options; (ii)
to determine, upon review of relevant information, the Fair Market Value per
Share; (iii) to determine the exercise price of the Options to be granted to
Employees in accordance with Section 6(c) of the Plan; (iv) to determine the
Employees to whom, and the time or times at which, Options shall be granted,
and the number of Shares subject to each Option; (v) to prescribe, amend and
rescind rules and regulations relating to the Plan subject to the limitations
set forth in Section 12 of the Plan; (vi) to determine the terms and
provisions of each Option granted to Optionees under the Plan and each Option
Agreement (which need not be identical with the terms of other Options and
Option Agreements) and, with the consent of the Optionee, to modify or amend
an outstanding Option or Option Agreement; (vii) to accelerate the exercise
date of any Option; (viii) to determine whether any Optionee will be required
to execute a stock repurchase agreement or other agreement as a condition to
the exercise of an Option, and to determine the terms and provisions of any
such agreement (which need not be identical with the terms of any other such
agreement) and, with the consent of the Optionee, to amend any such
agreement; (ix) to interpret the Plan or any agreement entered into with
respect to the grant or exercise of Options; (x) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Options or agreements relating to the grant or exercise thereof; and (xi) to
make such other determinations and establish such other procedures as it
deems necessary or advisable for the administration of the Plan.
Notwithstanding anything else herein, the Committee shall not have the
authority to adjust or amend the exercise price of any Options previously
awarded to any Optionee, whether through amendment, cancellation, replacement
grant or other means.
c. All decisions, determinations and interpretations of the Committee
shall be final and binding on all Optionees and any other holders of any
Options granted under the Plan.
d. The Committee shall keep minutes of its meetings and of the actions
taken by it without a meeting. A majority of the Committee shall constitute
a quorum, and the actions of a majority at a meeting, including a telephone
meeting, at which a quorum is present, or acts approved in writing by a
majority of the members of the Committee without a meeting, shall constitute
acts of the Committee.
e. The Company shall pay all original issue and transfer taxes with
respect to the grant of Options and/or the issue and transfer of Shares
pursuant to the exercise thereof, and all other fees and expenses necessarily
incurred by the Company in connection therewith; provided, however, that the
person exercising an Option shall be responsible for all payroll,
withholding, income and other taxes incurred by such person on the date of
exercise of an Option or transfer of Shares.
5. Eligibility.
Options may be granted under the Plan only to Employees. An Employee
who has been granted an Option may, if he or she is otherwise eligible, be
granted additional Options.
6. Terms and Conditions of Options.
Options granted pursuant to the Plan by the Committee shall be either
Incentive Stock Options or Non-Statutory Stock Options and shall be evidenced
by an Option Agreement providing, in addition to such other terms as the
Committee may deem advisable, the following terms and conditions:
a. Time of Granting Options. The date of grant of an Option shall for
all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.
b. Number of Shares. Each Option Agreement shall state the number of
Shares to which it pertains and whether such Option is intended to constitute
an Incentive Stock Option or a Non-Statutory Stock Option. The maximum
number of Shares which may be awarded as Options under the Plan during any
calendar year to any Optionee is 100,000 Shares. If an Option held by an
Employee of the Company is canceled, the canceled Option shall continue to be
counted against the maximum number of Shares for which Options may be granted
to such Employee and any replacement Option granted to such Employee shall
also count against such limit.
c. Exercise Price. The exercise price per Share for the Shares to be
issued pursuant to the exercise of an Option, shall be such price as is
determined by the Committee; provided, however, such price shall in no event
be less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant with respect to both Non-Statutory Stock Options and
Incentive Stock Options.
In the case of an Incentive Stock Option granted to an Employee
who, at the time the Incentive Stock Option is granted, owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the combined voting
power of all classes of stock of the Company, the exercise price per Share
shall be no less than one-hundred-ten percent (110%) of the Fair Market Value
per Share on the date of grant.
d. Medium and Time of Payment. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee and may consist entirely of
cash, check or such other consideration and method of payment permitted under
any laws to which the Company is subject which is approved by the Committee;
provided, however, that the Optionee shall be required to pay in cash an
amount necessary to satisfy the Company's withholding obligations. In the
case of an Incentive Stock Option, such provision shall be determined on the
date of the grant.
e. Term of Options. The term of an Incentive Stock Option may be up
to ten (10) years from the date of grant thereof; provided, however, that the
term of an Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock
of the Company, shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option.
The term of a Non-Statutory Stock Option may be up to ten (10)
years from the date such Employee first becomes vested in any portion of an
Option award.
The term of any Option may be less than the maximum term provided
for herein as specified by the Committee upon grant of the Option and as set
forth therein.
f. Maximum Amount of Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time an Incentive Stock Option
is granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year under
all incentive stock option plans of the Company exceeds One Hundred Thousand
Dollars ($100,000), the Options in excess of such limit shall be treated as
Non-Statutory Stock Options.
7. Exercise of Option.
a. In General. Any Option granted hereunder to an Employee shall be
exercisable at such times and under such conditions as may be determined by
the Committee and as shall be permissible under the terms of the Plan,
including any performance criteria with respect to the Company and/or the
Optionee as may be determined by the Committee. An Option may be exercised
in accordance with the provisions of the Plan as to all or any portion of the
Shares then exercisable under an Option from time to time during the term of
the Option. However, an Option may not be exercised for a fraction of a
Share.
b. Procedure. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company at its principal
business office in accordance with the terms of the Option Agreement by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company,
accompanied by any other agreements required by the terms of the Plan and/or
Option Agreement or as required by the Committee and payment by the Optionee
of all payroll, withholding or income taxes incurred in connection with such
Option exercise (or arrangements for the collection or payment of such tax
satisfactory to the Committee are made). Full payment may consist of such
consideration and method of payment allowable under Section 6(d) of the Plan.
c. Decrease in Available Shares. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
d. Exercise of Stockholder Rights. Until the Option is properly
exercised in accordance with the terms of this section, no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the Option is
exercised, except as provided in Section 10 of the Plan.
e. Termination of Eligibility. If an Optionee ceases to serve as an
Employee for any reason other than death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) and thereby terminates
his or her Continuous Status as an Employee he or she may, but only within
one (1) month, or such other period of time not exceeding three (3) months in
the case of an Incentive Stock Option (or in the case of an Optionee subject
to Rule 16b-3 of the Securities Exchange Act of 1934, as amended, the greater
of six (6) months from the date of the Option award or three (3) months from
the date of termination of employment) or six (6) months in the case of a
Non-Statutory Stock Option as is determined by the Committee at the time of
granting the Option, following the date he or she ceases his or her
Continuous Status as an Employee (subject to any earlier termination of the
Option as provided by its terms), exercise his or her Option to the extent
that he or she was entitled to exercise it at the date of such termination.
To the extent that he or she was not entitled to exercise the Option at the
date of such termination, or if he or she does not exercise such Option
(which he or she was entitled to exercise) within the time specified herein,
the Option shall terminate. Notwithstanding anything to the contrary herein,
the Committee may at any time and from time to time prior to the termination
of a Non-Statutory Stock Option, with the consent of the Optionee, extend the
period of time during which the Optionee may exercise his or her Non-
Statutory Stock Option following the date he or she ceases his or her
Continuous Status as an Employee; provided, however, that the maximum period
of time during which a Non-Statutory Stock Option shall be exercisable
following the date on which an Optionee terminates his or her Continuous
Status as an Employee shall not exceed an aggregate of six (6) months, that
the Non-Statutory Stock Option shall not be, or as a result of such extension
become, exercisable after the expiration of the term of such Option as set
forth in the Option Agreement and, notwithstanding any extension of time
during which the Non-Statutory Stock Option may be exercised, that such
Option, unless otherwise amended by the Committee, shall only be exercisable
to the extent the Optionee was entitled to exercise it on the date he or she
ceased his or her Continuous Status as an Employee.
f. Death or Disability Of Optionee. If an Optionee's Continuous
Status as an Employee ceases due to death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) of the Optionee, the
Option may be exercised within six (6) months (or such other period of time
not exceeding one (1) year as is determined by the Committee at the time of
granting the Option) following the date of death or termination of employment
due to permanent or total disability (subject to any earlier termination of
the Option as provided by its terms), by the Optionee in the case of
permanent or total disability, or in the case of death by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but in any case (unless otherwise determined by the
Committee at the time of granting the Option) only to the extent the Optionee
was entitled to exercise the Option at the date of his or her termination of
employment by death or permanent and total disability. To the extent that he
or she was not entitled to exercise such Option at the date of his or her
termination of employment by death or permanent and total disability, or if
he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
g. Expiration of Option. Notwithstanding any provision in the Plan,
including but not limited to the provisions set forth in Sections 7(e) and
7(f), an Option may not be exercised, under any circumstances, after the
expiration of its term.
h. Conditions on Exercise and Issuance. As soon as practicable after
any proper exercise of an Option in accordance with the provisions of the
Plan, the Company shall deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates
representing the Shares for which the Option shall have been exercised. The
time of issuance and delivery of the certificate or certificates representing
the Shares for which the Option shall have been exercised may be postponed by
the Company for such period as may be required by the Company, with
reasonable diligence, to comply with any law or regulation applicable to the
issuance or delivery of such Shares.
Options granted under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental
agencies, authorizing the Company to issue such Options and Shares issuable
upon exercise thereof. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, applicable state law, the
rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and may be further
subject to the approval of counsel for the Company with respect to such
compliance.
i. Withholding or Deduction for Taxes. The grant of Options hereunder
and the issuance of Shares pursuant to the exercise thereof is conditioned
upon the Company's reservation of the right to withhold, in accordance with
any applicable law, from any compensation or other amounts payable to the
Optionee any taxes required to be withheld under Federal, state or local law
as a result of the grant or exercise of such Option or the sale of the Shares
issued upon exercise thereof. To the extent that compensation and other
amounts, if any, payable to the Optionee are insufficient to pay any taxes
required to be so withheld, the Company may, in its sole discretion, require
the Optionee, as a condition of the exercise of an Option, to pay in cash to
the Company an amount sufficient to cover such tax liability or otherwise to
make adequate provision for the delivery to the Company of cash necessary to
satisfy the Company's withholding obligations under Federal and state law.
8. Non-transferability of Options.
Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law, other than by will or by
the laws of descent or distribution or transfers between spouses incident to
a divorce.
9. Holding Period.
In the case of officers and directors of the Company, at least six (6)
months must elapse from the date of grant of the Option to the date of
disposition of the underlying Shares.
10. Adjustment Upon Change in Corporate Structure.
a. Subject to any required action by the stockholders of the Company,
the number of Shares covered by each outstanding Option, and the number of
Shares which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the exercise or purchase
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split or combination or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in
the number of issued Shares effected without receipt of consideration by the
Company (other than stock awards to Employees or directors); provided,
however, that the conversion of any convertible securities of the Company
shall not be deemed to have been effected without the receipt of
consideration. Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to the Plan or an Option.
b. In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of
the assets of the Company (other than in the ordinary course of business), or
the merger or consolidation of the Company with or into another corporation,
as a result of which the Company is not the surviving and controlling
corporation, the Board of Directors shall (i) make provision for the
assumption of all outstanding options by the successor corporation or (ii)
declare that any Option shall terminate as of a date fixed by the Board of
Directors which is at least thirty (30) days after the notice thereof to the
Optionee and shall give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable provided such exercise does not
violate Section 7(e) of the Plan.
c. No fractional shares of Common Stock shall be issuable on account
of any action aforesaid, and the aggregate number of shares into which Shares
then covered by the Option, when changed as the result of such action, shall
be reduced to the largest number of whole shares resulting from such action,
unless the Board of Directors, in its sole discretion, shall determine to
issue scrip certificates in respect to any fractional shares, which scrip
certificates, in such event shall be in a form and have such terms and
conditions as the Board of Directors in its discretion shall prescribe.
11. Stockholder Approval.
Effectiveness of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted; provided, however, that Options may be granted
pursuant to the Plan subject to subsequent approval of the Plan by such
stockholders. Stockholder approval shall be obtained by the affirmative
votes of the holders of a majority of voting Shares present or represented
and entitled to vote at a meeting of stockholders duly held in accordance
with the laws of the state of Delaware.
12. Amendment and Termination of the Plan.
a. Amendment and Termination. The Committee may amend or terminate
the Plan from time to time in such respects as the Committee may deem
advisable and shall make any amendments which may be required so that Options
intended to be Incentive Stock Options shall at all times continue to be
Incentive Stock Options for the purpose of Section 422 of the Code; provided,
however, that without approval of the holders of a majority of the voting
Shares present or represented and entitled to vote at a valid meeting of
stockholders, no such revision or amendment shall (i) materially increase the
benefits accruing to participants under the Plan; (ii) materially increase
the number of Shares which may be issued under the Plan, other than in
connection with an adjustment under Section 10 of the Plan; (iii) materially
modify the requirements as to eligibility for participation in the Plan; (iv)
materially change the designation of the class of Employees eligible to be
granted Options; (v) remove the administration of the Plan from the
Committee; or (vi) extend the term of the Plan beyond the maximum term set
forth in Section 15 hereunder.
b. Effect of Amendment or Termination. Except as otherwise provided
in Section 10 of the Plan, any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force
and effect as if the Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Company, which agreement must
be in writing and signed by the Optionee and the Company. Notwithstanding
anything to the contrary herein, this 1994 Stock Option Plan shall not
adversely affect, unless mutually agreed in writing by the Company and an
Optionee, the terms and provisions of any Option granted prior to the date
the Plan was approved by stockholders as provided in Section 11 of the Plan.
13. Indemnification.
No member of the Committee or of the Board of Directors shall be liable
for any act or action taken, whether of commission or omission, except in
circumstances involving willful misconduct, or for any act or action taken,
whether of commission or omission, by any other member or by any officer,
agent, or Employee. In addition to such other rights of indemnification they
may have as members of the Board of Directors, or as members of the
Committee, the Committee shall be indemnified by the Company against
reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken, by commission or omission, in connection
with the Plan or any Option taken thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for willful misconduct in the
performance of his or her duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding, a Committee member shall
in writing offer the Company the opportunity, at its own expense, to handle
and defend the same.
14. General Provisions.
a. Other Plans. Nothing contained in the Plan shall prohibit the
Company from establishing additional incentive compensation arrangements.
b. No Enlargement of Rights. Neither the Plan, nor the granting of
Shares, nor any other action taken pursuant to the Plan shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Company will retain an Employee for any period of time, or at any particular
rate of compensation. Nothing in the Plan shall be deemed to limit or affect
the right of the Company or any such corporations to discharge any Employee
thereof at any time for any reason or no reason.
No Employee shall have any right to or interest in Options
authorized hereunder prior to the grant thereof to such eligible person, and
upon such grant he or she shall have only such rights and interests as are
expressly provided herein and in the related Option Agreement, subject,
however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
c. Notice. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to
time) at its principal office, and any notice to be given to an Optionee whom
an Option is granted hereunder shall be delivered personally or addressed to
him or her at the address given beneath his or her signature on his or her
Stock Option Agreement, or at such other address as such Optionee or his or
her transferee (upon the transfer of the Optioned Stock) may hereafter
designate in writing to the Company. Any such notice shall be deemed duly
given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited, postage and registry or
certification fee prepaid, in a post office or branch post office regularly
maintained by the United States Postal Service. It shall be the obligation
of each Optionee holding Shares purchased upon exercise of an Option to
provide the Secretary of the Company, by letter mailed as provided
hereinabove, with written notice of his or her direct mailing address.
d. Applicable Law. To the extent that Federal laws do not otherwise
control, the Plan shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the conflict of laws rules
thereof.
e. Incentive Stock Options. The Company shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Incentive Stock
Options are not incentive stock options as defined in Section 422 of the
Code.
f. Information to Optionees. The Company shall provide without charge
to each Optionee copies of such annual and periodic reports as are provided
by the Company to its stockholders generally.
g. Availability of Plan. A copy of the Plan shall be delivered to the
Secretary of the Company and shall be shown by him or her to any eligible
person making reasonable inquiry concerning it.
h. Severability. In the event that any provision of the Plan is found
to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though
the invalid or unenforceable provision was not contained herein.
15. Effective Date and Term of Plan.
The Plan shall become effective upon stockholder approval as provided in
Section 11 of the Plan. The Plan shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 12 of the Plan.
<PAGE>
CERTIFICATE OF CORPORATE SECRETARY

The undersigned Corporate Secretary of Government Technology Services,
Inc. (the "Company") hereby certifies that the foregoing is a true and
correct copy of the Company's 1994 Stock Option Plan, as amended through May
7, 1996.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
7th day of May, 1996.

/s/ Worth D. MacMurray
Worth D. MacMurray
Corporate Secretary

GOVERNMENT TECHNOLOGY SERVICES, INC.
1996 STOCK OPTION PLAN

1. Establishment and Purposes of the Plan.
Government Technology Services, Inc. hereby establishes this 1996 Stock
Option Plan to promote the interests of the Company and its stockholders by
(i) helping to attract and retain the services of non-employee directors and
selected key employees of the Company who are in a position to make a
material contribution to the successful operation of the Company's business,
(ii) motivating such persons, by means of performance-related incentives, to
achieve the Company's business goals and (iii) enabling such persons to
participate in the long-term growth and financial success of the Company by
providing them with an opportunity to purchase stock of the Company.
2. Definitions.
The following definitions shall apply throughout the Plan:
a. "Affiliate" shall mean any entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Company.
b. "Board of Directors" shall mean the Board of Directors of the
Company.
c. "Code" shall mean the Internal Revenue Code of 1986, as amended.
References in the Plan to any section of the Code shall be deemed to include
any amendment or successor provisions to such section and any regulations
issued under such section.
d. "Common Stock" shall mean the common stock, par value $0.005 per
share, of the Company.
e. "Company" shall mean Government Technology Services, Inc., a
Delaware corporation and any "subsidiary" corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.
f. "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan or, if no Committee
shall be appointed or in office, the Board of Directors.
g. "Continuous Employment" shall mean the absence of any interruption
or termination of employment by the Company. Continuous Employment shall not
be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Committee or in the case of transfers
between locations of the Company.
h. "Disinterested Person" shall mean an administrator of the Plan who
satisfies the requirements, if any, imposed on administrators of plans in
order for the grant of Options to be exempt under any version of Rule 16b-3
under the Securities Exchange Act of 1934, as amended, that is relied on by
the Company..
i. "Employee" shall mean any employee of the Company, including
officers and directors who are also employees.
j. "Fair Market Value" shall mean, with respect to Shares, the fair
market value per Share on the date an option is granted and, so long as the
Shares are quoted on the National Association of Securities Dealers Automated
Quotations ("Nasdaq") System), the Fair Market Value per Share shall be the
closing price on the Nasdaq Stock Market as of the date of grant of the
Option, as reported in The Wall Street Journal or, if there are no sales on
such date, on the immediately preceding day on which there were reported
sales.
k. "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
l. "Non-Employee Director" shall mean any director of the Company who
is not an Employee of the Company.
m. "Non-Statutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.
n. "Option" shall mean a stock option to purchase Common Stock granted
to an Optionee pursuant to the Plan.
o. "Option Agreement" means a written agreement substantially in one
of the forms attached hereto as Exhibit A, or such other form or forms as the
Committee (subject to the terms and conditions of the Plan) may from time to
time approve, evidencing and reflecting the terms of an Option.
p. "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to the Plan.
q. "Optionee" shall mean any Employee or Non-Employee Director who is
granted an Option.
r. "Plan" shall mean this Government Technology Services, Inc. 1996
Stock Option Plan.
s. "Shares" shall mean shares of the Common Stock or any shares into
which such Shares may be converted in accordance with Section 11 of the Plan.
3. Shares Reserved.
The maximum aggregate number of Shares reserved for issuance pursuant to
the Plan shall be 600,000 Shares or the number of shares of stock to which
such Shares shall be adjusted as provided in Section 11 of the Plan. Such
number of Shares may be set aside out of authorized but unissued Shares not
reserved for any other purpose, or out of issued Shares acquired for and held
in the treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any Option terminating,
expiring or canceled for any reason prior to its exercise in full, shall
again become available for Options thereafter granted under the Plan, and the
same shall not be deemed an increase in the number of Shares reserved for
issuance under the Plan.
4. Administration of the Plan.
a. The Plan shall be administered by a Committee designated by the
Board of Directors to administer the Plan and comprised of not less than two
directors, each of whom is a Disinterested Person. In addition, each
director designated by the Board of Directors to administer the Plan shall be
an "outside director" as defined in the Treasury regulations issued pursuant
to Section 162(m) of the Code. Members of the Committee shall serve for such
period of time as the Board of Directors may determine or until their
resignation, retirement, removal or death, if sooner. From time to time the
Board of Directors may increase the size of the Committee and appoint
additional members thereto, remove members (with or without cause) and
appoint new members in substitution therefor or fill vacancies however
caused.
b. Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion: (i) to grant Incentive Stock Options, in
accordance with Section 422 of the Code, or Non-Statutory Stock Options; (ii)
to determine, upon review of relevant information, the Fair Market Value per
Share; (iii) to determine the exercise price of the Options to be granted to
Employees in accordance with Section 7(c) of the Plan; (iv) to determine the
Employees to whom, and the time or times at which, Options shall be granted,
and the number of Shares subject to each Option; (v) to prescribe, amend and
rescind rules and regulations relating to the Plan subject to the limitations
set forth in Section 13 of the Plan; (vi) to determine the terms and
provisions of each Option granted to Optionees under the Plan and each Option
Agreement (which need not be identical with the terms of other Options and
Option Agreements) and, with the consent of the Optionee, to modify or amend
an outstanding Option or Option Agreement; (vii) to accelerate the exercise
date of any Option; (viii) to determine whether any Optionee will be required
to execute a stock repurchase agreement or other agreement as a condition to
the exercise of an Option, and to determine the terms and provisions of any
such agreement (which need not be identical with the terms of any other such
agreement) and, with the consent of the Optionee, to amend any such
agreement; (ix) to interpret the Plan or any agreement entered into with
respect to the grant or exercise of Options; (x) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the
grant of an Option previously granted or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Options or agreements relating to the grant or exercise thereof; and (xi) to
make such other determinations and establish such other procedures as it
deems necessary or advisable for the administration of the Plan.
Notwithstanding anything else herein, the Committee shall not have the
authority to adjust or amend the exercise price of any Options previously
awarded to any Optionee, whether through amendment, cancellation, replacement
grant or other means.
c. All decisions, determinations and interpretations of the Committee
shall be final and binding on all Optionees and any other holders of any
Options granted under the Plan.
d. The Committee shall keep minutes of its meetings and of the actions
taken by it without a meeting. A majority of the Committee shall constitute
a quorum, and the actions of a majority at a meeting, including a telephone
meeting, at which a quorum is present, or acts approved in writing by a
majority of the members of the Committee without a meeting, shall constitute
acts of the Committee.
e. The Company shall pay all original issue and transfer taxes with
respect to the grant of Options and/or the issue and transfer of Shares
pursuant to the exercise thereof, and all other fees and expenses necessarily
incurred by the Company in connection therewith; provided, however, that the
person exercising an Option shall be responsible for all payroll,
withholding, income and other taxes incurred by such person in respect of the
exercise of an Option or transfer of Shares.
5. Eligibility.
Non-Statutory Stock Options may be granted under the Plan to Employees
and Non-Employee Directors; Incentive Stock Options may be granted under the
Plan only to Employees. An Employee or Non-Employee Director who has been
granted an Option may, if he or she is otherwise eligible, be granted
additional Options.
6. Non-Employee Directors.
Notwithstanding the powers set forth in Section 4(b) of the Plan, the
Committee shall have no power to determine eligibility for grants of Non-
Statutory Stock Options or the number of Shares for which Non-Statutory Stock
Options may be granted or the timing or exercise price of Non-Statutory Stock
Options granted to any Non-Employee Director.
All Non-Employee Directors of the Company are granted automatically a
Non-Statutory Stock Option to purchase up to 15,000 Shares, and a Non-
Employee Director elected to serve as Chairman of the Board is granted
automatically a Non-Statutory Stock Option to purchase up to an additional
15,000 Shares, of the Company's Common Stock: (1) as of the date such person
is initially elected to serve as a Non-Employee Director and/or as Chairman,
respectively, and (2) as of the date such person is re-elected as a Non-
Employee Director each year at an annual stockholders' meeting or is re-
elected to serve as Chairman of the Board. Any such Shares shall vest and
become exercisable, cumulatively, in 12 equal monthly installments commencing
on the last business day of the month of grant; provided that if an Optionee
ceases to serve as a Non-Employee Director during any month, the Option shall
cease to vest and become exercisable with respect to any subsequent month(s).
In the event that the initial election of a Non-Employee Director or
Chairman occurs prior to an annual stockholders' meeting, the Non-Employee
Director shall receive a pro rata option grant (or, in the case of Chairman,
an additional pro rata option grant) in connection with his or her election,
and the related Shares shall vest and become exercisable, cumulatively, in
equal monthly installments.
If an Optionee ceases to serve as a Non-Employee Director for any
reason, he or she may, but only within six months following the date he or
she ceases to serve on the Board of Directors, exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination. To the extent that he or she does not exercise such Option
(which he or she was entitled to exercise) within the time specified herein,
the Option shall terminate.
The consideration to be paid for the Shares to be issued upon exercise
of an Option by a Non-Employee Director shall consist entirely of cash, check
or broker's commitment to pay, or some combination thereof.
7. Terms and Conditions of Options.
Options granted pursuant to the Plan by the Committee shall be either
Incentive Stock Options or Non-Statutory Stock Options and shall be evidenced
by an Option Agreement providing, in addition to such other terms as the
Committee may deem advisable, the following terms and conditions:
a. Time of Granting Options. The date of grant of an Option shall,
except in the case of Non-Employee Directors, be the date on which the
Committee makes the determination granting such Option. Notice of the
determination shall be given to each Optionee within a reasonable time after
the date of such grant.
b. Number of Shares. Each Option Agreement shall state the number of
Shares to which it pertains and whether such Option is intended to constitute
an Incentive Stock Option or a Non-Statutory Stock Option. The maximum
number of Shares which may be subject to Options granted under the Plan
during any calendar year to any Optionee is 100,000 Shares. If an Option
held by an Employee of the Company is canceled, the canceled Option shall
continue to be counted against the maximum number of Shares for which Options
may be granted to such Employee and any replacement Option granted to such
Employee shall also count against such limit.
c. Exercise Price. The exercise price per Share for the Shares to be
issued pursuant to the exercise of an Option shall be such price as is
determined by the Committee; provided, however, that with respect to both
Non-Statutory Stock Options and Incentive Stock Options such price shall in
no event be less than 100% of the Fair Market Value per Share on the date of
grant, except that the Committee may specifically provide that the exercise
price of an Option may be higher or lower in the case of an Option granted to
employees of a company acquired by the Company in assumption and substitution
of options held by such employees at the time such company is acquired.
In the case of an Incentive Stock Option granted to an Employee
who, at the time the Incentive Stock Option is granted, owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of
the Code) stock possessing more than 10% of the combined voting power of all
classes of stock of the Company, the exercise price per Share shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
d. Medium and Time of Payment. Except in the case of Non-Employee
Directors, the consideration to be paid for the Shares to be issued upon
exercise of an Option and to be paid to satisfy any withholding tax
obligation incident thereto, including the method of payment, shall be
determined by the Committee and, subject to approval by the Committee, may
consist entirely or in any combination of cash, check, a commitment to pay by
a broker or Shares held by the Optionee or issuable upon exercise of the
Option, or such other consideration and method of payment permitted under any
laws to which the Company is subject. In the case of an Incentive Stock
Option, such provision shall be determined on the date of the grant.
e. Term of Options. The term of an Incentive Stock Option may be up
to 10 years from the date of grant thereof; provided, however, that the term
of an Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company, shall be five years from the date of grant thereof or such shorter
term as may be provided in the Option.
The term of a Non-Statutory Stock Option, in the case of an
Employee, may be up to 10 years from the date such Employee first becomes
vested in any portion of an Option award; and in the case of Non-Employee
Director, shall be 10 years from the date of grant thereof.
The term of any Option, other than an Option awarded to a Non-
Employee Director, may be less than the maximum term provided for herein as
specified by the Committee upon grant of the Option and as set forth therein.
f. Maximum Amount of Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time an Incentive Stock Option
is granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year under
all incentive stock option plans of the Company exceeds $100,000, the Options
in excess of such limit shall be treated as Non-Statutory Stock Options.
8. Exercise of Option.
a. In General. Any Option granted hereunder to an Employee shall be
exercisable at such times and under such conditions as may be determined by
the Committee and as shall be permissible under the terms of the Plan,
including any performance criteria with respect to the Company and/or the
Optionee as may be determined by the Committee. Any Option granted hereunder
to a Non-Employee Director shall be exercisable at such times and under such
conditions as set forth in Section 6 of the Plan.
An Option may be exercised in accordance with the provisions of the
Plan as to all or any portion of the Shares then exercisable under an Option
from time to time during the term of the Option. However, an Option may not
be exercised for a fraction of a Share.
b. Procedure. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company at its principal
business office in accordance with the terms of the Option Agreement by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company,
accompanied by any other agreements required by the terms of the Plan and/or
Option Agreement or as required by the Committee and payment by the Optionee
of all payroll, withholding or income taxes incurred in connection with such
Option exercise (or arrangements for the collection or payment of such tax
satisfactory to the Committee are made). Full payment may consist of such
consideration and method of payment allowable under Section 7(d) of the Plan.
c. Decrease in Available Shares. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
d. Exercise of Stockholder Rights. Until the Option is properly
exercised in accordance with the terms of this section, no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the Option is
exercised, except as provided in Section 11 of the Plan.
e. Termination of Eligibility. If an Optionee ceases to serve as an
Employee for any reason other than death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) and thereby terminates
his or her Continuous Status as an Employee he or she may, but only within
one month, or such other period of time not exceeding three months in the
case of an Incentive Stock Option (or in the case of an Optionee subject to
Rule 16b-3 of the Securities Exchange Act of 1934, as amended, the greater of
six months from the date of the Option award or three months from the date of
termination of employment) or six months in the case of a Non-Statutory Stock
Option, in each case as is determined by the Committee, following the date he
or she ceases his or her Continuous Status as an Employee (subject to any
earlier termination of the Option as provided by its terms), exercise his or
her Option to the extent that he or she was entitled to exercise it at the
date of such termination. To the extent that he or she was not entitled to
exercise the Option at the date of such termination, or if he or she does not
exercise such Option (which he or she was entitled to exercise) within the
time specified herein, the Option shall terminate. Notwithstanding anything
to the contrary herein, the Committee may at any time and from time to time
prior to the termination of a Non-Statutory Stock Option, with the consent of
the Optionee, extend the period of time during which the Optionee may
exercise his or her Non-Statutory Stock Option following the date he or she
ceases his or her Continuous Status as an Employee; provided, however, that
the maximum period of time during which a Non-Statutory Stock Option shall be
exercisable following the date on which an Optionee terminates his or her
Continuous Status as an Employee shall not exceed an aggregate of six months,
that the Non-Statutory Stock Option shall not be, or as a result of such
extension become, exercisable after the expiration of the term of such Option
as set forth in the Option Agreement and, notwithstanding any extension of
time during which the Non-Statutory Stock Option may be exercised, that such
Option, unless otherwise amended by the Committee, shall only be exercisable
to the extent the Optionee was entitled to exercise it on the date he or she
ceased his or her Continuous Status as an Employee.
f. Death or Disability Of Optionee. If an Optionee's Continuous
Status as an Employee ceases due to death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) of the Optionee, the
Option may be exercised within six months (or such other period of time not
exceeding one year as is determined by the Committee) following the date of
death or termination of employment due to permanent or total disability
(subject to any earlier termination of the Option as provided by its terms),
by the Optionee in the case of permanent or total disability, or in the case
of death by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but in any case (unless
otherwise determined by the Committee) only to the extent the Optionee was
entitled to exercise the Option at the date of his or her termination of
employment by death or permanent and total disability. To the extent that he
or she was not entitled to exercise such Option at the date of his or her
termination of employment by death or permanent and total disability, or if
he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
g. Expiration of Option. Notwithstanding any provision in the Plan,
including but not limited to the provisions set forth in Sections 8(e) and
8(f), an Option may not be exercised, under any circumstances, after the
expiration of its term.
h. Conditions on Exercise and Issuance. As soon as practicable after
any proper exercise of an Option in accordance with the provisions of the
Plan, the Company shall deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates
representing the Shares for which the Option shall have been exercised. The
time of issuance and delivery of the certificate or certificates representing
the Shares for which the Option shall have been exercised may be postponed by
the Company for such period as may be required by the Company, with
reasonable diligence, to comply with any law or regulation applicable to the
issuance or delivery of such Shares.
Options granted under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental
agencies, authorizing the Company to issue such Options and Shares issuable
upon exercise thereof. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, applicable state law, the
rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and may be further
subject to the approval of counsel for the Company with respect to such
compliance.
i. Withholding or Deduction for Taxes. The grant of Options hereunder
and the issuance of Shares pursuant to the exercise thereof is conditioned
upon the Company's reservation of the right to withhold, in accordance with
any applicable law, from any compensation or other amounts payable to the
Optionee any taxes required to be withheld under Federal, state or local law
as a result of the grant or exercise of such Option or the sale of the Shares
issued upon exercise thereof. To the extent that compensation and other
amounts, if any, payable to the Optionee are insufficient to pay any taxes
required to be so withheld, the Company may, in its sole discretion, require
the Optionee, as a condition of the exercise of an Option, to pay in cash to
the Company an amount sufficient to cover such tax liability or otherwise to
make adequate provision for the delivery to the Company of cash necessary to
satisfy the Company's withholding obligations under Federal and state law.
9. Non-transferability of Options.
Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law, other than by will or by
the laws of descent or distribution or, if permitted of Options granted under
Rule 16b-3, transfers between spouses incident to a divorce.
10. Holding Period.
In the case of officers and directors of the Company, at least six
months must elapse from the date of grant of the Option to the date of
disposition of the underlying Shares.
11. Adjustment Upon Change in Corporate Structure.
a. Subject to any required action by the stockholders of the Company,
the number of Shares covered by each outstanding Option, and the number of
Shares which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the exercise or purchase
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split or combination or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in
the number of issued Shares effected without receipt of consideration by the
Company (other than stock awards to Employees or directors); provided,
however, that the conversion of any convertible securities of the Company
shall not be deemed to have been effected without the receipt of
consideration. Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to the Plan or an Option.
b. In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of
the assets of the Company (other than in the ordinary course of business), or
the merger or consolidation of the Company with or into another corporation,
as a result of which the Company is not the surviving and controlling
corporation, the Board of Directors shall (i) make provision for the
assumption of all outstanding options by the successor corporation or (ii)
declare that any Option shall terminate as of a date fixed by the Board of
Directors which is at least 30 days after the notice thereof to the Optionee
and shall give each Optionee the right to exercise his or her Option as to
all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable provided such exercise does not
violate Section 8(e) of the Plan.
c. No fractional shares of Common Stock shall be issuable on account
of any action aforesaid, and the aggregate number of shares into which Shares
then covered by the Option, when changed as the result of such action, shall
be reduced to the largest number of whole shares resulting from such action,
unless the Board of Directors, in its sole discretion, shall determine to
issue scrip certificates in respect to any fractional shares, which scrip
certificates, in such event shall be in a form and have such terms and
conditions as the Board of Directors in its discretion shall prescribe.
12. Stockholder Approval.
Effectiveness of the Plan shall be subject to approval by the
stockholders of the Company within 12 months before or after the date the
Plan is adopted; provided, however, that Options may be granted pursuant to
the Plan subject to subsequent approval of the Plan by such stockholders.
Stockholder approval shall be obtained by the affirmative votes of the
holders of a majority of voting Shares present or represented and entitled to
vote at a meeting of stockholders duly held in accordance with the laws of
the state of Delaware.
13. Amendment and Termination of the Plan.
a. Amendment and Termination. Except as provided in Section 13(b) of
the Plan, the Committee may amend or terminate the Plan from time to time in
such respects as the Committee may deem advisable and shall make any
amendments which may be required so that Options intended to be Incentive
Stock Options shall at all times continue to be Incentive Stock Options for
the purpose of Section 422 of the Code; provided, however, that without
approval of the holders of a majority of the voting Shares present or
represented and entitled to vote at a valid meeting of stockholders, no such
revision or amendment shall be made that affects the ability of Options
thereafter granted under the Plan to satisfy Rule 16b-3.
b. Effect of Amendment or Termination. Except as otherwise provided
in Section 11 of the Plan, any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force
and effect as if the Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Company, which agreement must
be in writing and signed by the Optionee and the Company. Notwithstanding
anything to the contrary herein, this 1996 Stock Option Plan shall not
adversely affect, unless mutually agreed in writing by the Company and an
Optionee, the terms and provisions of any Option granted prior to the date
the Plan was approved by stockholders as provided in Section 12 of the Plan.
14. Indemnification.
No member of the Committee or of the Board of Directors shall be liable
for any act or action taken, whether of commission or omission, except in
circumstances involving willful misconduct, or for any act or action taken,
whether of commission or omission, by any other member or by any officer,
agent, or Employee. In addition to such other rights of indemnification they
may have as members of the Board of Directors, or as members of the
Committee, the Committee shall be indemnified by the Company against
reasonable expenses, including attorneys' fees actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken, by commission or omission, in connection
with the Plan or any Option taken thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for willful misconduct in the
performance of his or her duties; provided that within 60 days after
institution of any such action, suit or proceeding, a Committee member shall
in writing offer the Company the opportunity, at its own expense, to handle
and defend the same.
15. General Provisions.
a. Other Plans. Nothing contained in the Plan shall prohibit the
Company from establishing additional incentive compensation arrangements.
b. No Enlargement of Rights. Neither the Plan, nor the granting of
Shares, nor any other action taken pursuant to the Plan shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Company will retain an Employee or a Non-Employee Director for any period of
time, or at any particular rate of compensation. Nothing in the Plan shall
be deemed to limit or affect the right of the Company or any such
corporations to discharge any Employee thereof at any time for any reason or
no reason. Nothing in the Plan shall in any way limit or affect the right of
the Board of Directors or the stockholders of the Company to remove any Non-
Employee Director or otherwise terminate his or her service as a director of
the Company.
No Employee or Non-Employee Director shall have any right to or
interest in Options authorized hereunder prior to the grant thereof to such
eligible person, and upon such grant he or she shall have only such rights
and interests as are expressly provided herein and in the related Option
Agreement, subject, however, to all applicable provisions of the Company's
Certificate of Incorporation, as the same may be amended from time to time.
c. Notice. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to
time) at its principal office, and any notice to be given to an Optionee whom
an Option is granted hereunder shall be delivered personally or addressed to
him or her at the address given beneath his or her signature on his or her
Stock Option Agreement, or at such other address as such Optionee or his or
her transferee (upon the transfer of the Optioned Stock) may hereafter
designate in writing to the Company. Any such notice shall be deemed duly
given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and actually received by the Company. It
shall be the obligation of each Optionee holding Shares purchased upon
exercise of an Option to provide the Secretary of the Company, by letter
mailed as provided hereinabove, with written notice of his or her direct
mailing address.
d. Applicable Law. To the extent that Federal laws do not otherwise
control, the Plan shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the conflict of laws rules
thereof.
e. Incentive Stock Options. The Company shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Incentive Stock
Options are not incentive stock options as defined in Section 422 of the
Code.
f. Information to Optionees. The Company shall provide without charge
to each Optionee copies of such annual and periodic reports as are provided
by the Company to its stockholders generally.
g. Availability of Plan. A copy of the Plan shall be delivered to the
Secretary of the Company and shall be shown by him or her to any eligible
person making reasonable inquiry concerning it.
h. Severability. In the event that any provision of the Plan is found
to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though
the invalid or unenforceable provision was not contained herein.
16. Effective Date and Term of Plan.
The Plan shall become effective upon stockholder approval as provided in
Section 12 of the Plan. The Plan shall continue in effect for a term often
years unless sooner terminated under Section 13 of the Plan.

<PAGE>
CERTIFICATE OF CORPORATE SECRETARY

The undersigned Corporate Secretary of Government Technology Services,
Inc. (the "Company") hereby certifies that the foregoing is a true and
correct copy of the Company's 1996 Stock Option Plan, as adopted by the
Company's stockholders on May 7, 1996.

IN WITNESS WHEREOF, the undersigned has executed this document as of the
7th day of May, 1996.

/s/ Worth D. MacMurray
Worth D. MacMurray
Corporate Secretary

<PAGE>
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is made and entered into as of January 1,
1998, by and between Government Technology Services, Inc., a Delaware
corporation ("Employer"), and M. Dendy Young ("Employee");

WHEREAS, Employer desires to employ Employee as Employer's president and
chief executive officer and to have Employee as member of Employer's board of
directors (the "Board");

WHEREAS, Employer desires to ensure that, if a Change of Control (as
defined below) appears possible, Employee will be in a secure position from
which he can objectively engage in any potential deliberations or
negotiations respecting such Change of Control without fear of any direct or
implied threat to his employment, status and responsibilities; and

WHEREAS, Employee desires to be employed by Employer and to have the
foregoing assurances;

NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the adequacy of which
is hereby acknowledged, Employer and Employee, each intending to be legally
bound, agree as follows:

1. Term. The term of Employee's employment hereunder shall commence
on January 1, 1998 and shall continue until December 31, 2000, except as
otherwise provided in Section 6 (the "Term").

2. Duties

(a) Offices. During the Term, Employer shall serve as a member of
Employer's Board, and as Employer's president and chief executive officer,
and the Board shall re-nominate Employee as a director of Employer and
reappoint Employee as Employer's president and chief executive officer, and
Employee shall perform the duties of those positions, as assigned to him by
the Board. Employer agrees, however, that Employee will be assigned only
duties of the type, nature and dignity normally assigned to the president and
chief executive officer of a corporation of the size, stature and nature of
Employer. During the Term, Employee shall report directly to the Board.

(b) Full-Time Basis. During the Term, Employee shall devote, on
a full-time basis, his services, skills and abilities to his employment
hereunder, excepting periods of vacation, illness or Disability (as defined
below).

3. Compensation

(a) Salary. During the Term, as compensation for services
rendered by Employee hereunder, Employer shall pay to Employee not less than
$300,000 per year, reviewed annually by the Board of Directors, payable
biweekly in accordance with Employer's standard payroll schedule, plus a
$150,000 annual bonus, payable quarterly, within 30 days after the end of
each fiscal quarter. Eligibility for the bonus payment shall be determined
as follows: 50% upon attainment of earnings before interest and taxes
("EBIT") (adjusted for Board-approved one-time charges (e.g. acquisition
costs)) to be determined annually by the Board (provided, however, that for
1998 the EBIT target shall be 1%); and 50% upon attainment of a return on
assets to be determined annually by the Board. Return on assets shall be
defined as annualized net income divided by average assets calculated on a
12-month rolling average. Bonus payments shall be paid in ratio to the
percentage of the goal achieved contingent upon achievement of at least 80%
of the target. Examples of the quarterly bonus payments are included as
Attachment A to this Agreement.

(b) Tax Withholdings. Employer shall withhold from Employee's
compensation hereunder and pay to the appropriate governmental agencies
payroll taxes, including income, social security, and unemployment
compensation taxes, required by the federal, state and local governments with
jurisdiction over Employer.

4. Benefits. During the Term, Employee shall be entitled to such
comparable fringe benefits and perquisites as may be provided to any or all
of Employer's senior officers pursuant to policies established from time to
time by the Board. These fringe benefits and perquisites shall include
Employee's participation in compensatory, benefit and incentive plans and
arrangements, including stock option and stock purchase plans, deferred
compensation and profit participation plans, as well as holidays, group
health insurance, short term and long term disability insurance and life
insurance, and supplemental executive health care benefits. Also, during the
Term, Employee shall be entitled to 20 business days paid leave per annum and
to accrue unused leave from year to year and to be reimbursed for the costs
of physical examinations up to $500 per annum.

5. Expenses and Other Perquisites. Employer shall reimburse Employee
for all reasonable and proper business expenses incurred by him in the
performance during the Term of his duties hereunder, in accordance with
Employer's customary practices for senior officers, and provided such
business expenses are reasonably documented. Further, Employer shall
reimburse Employee for the monthly dues to the Tower Club. In addition,
during the Term, Employer shall continue to provide Employee with an office
and suitable office fixtures, telephone services, and secretarial assistance
of a nature appropriate to Employee's position and status.

6. Termination

(a) By Employer

(i) Termination for Cause. Employer may, for Cause (as
defined below), terminate the Term at any time upon 10 business days' prior
notice to Employee. In any event, as of the termination date, Employee shall
be relieved of all of his duties hereunder and Employee shall not be entitled
to the accrual or provision of any compensation or benefit, after the
termination date but Employee shall be entitled to the provision of all
compensation and other benefits that shall have accrued as of the termination
date, including all vested Options, paid leave benefits, and reimbursement of
incurred business expenses.

(ii) Termination Without Cause. Employer may, in its sole
discretion, without Cause, terminate the Term at any time by providing
Employee with 60 days' prior notice thereof and by paying, on or before the
Termination Date, a lump sum equal to 12 months salary plus accrued bonus to
date. Employee shall be entitled to the provision of all compensation and
other benefits that shall have accrued as of the termination date, including
all vested Options, paid leave benefits, and reimbursement of incurred
business expenses.

(iii) Definition of Cause. Termination by Employer of
Employee's employment for "Cause" means termination as a result of: (1)
deliberate and premeditated acts against the Employer's best interests; or
(2) acts or omissions involving unacceptable performance or conduct (examples
of which include, but are not limited to: failure or refusal to perform
assigned duties or to follow Employer's policies, as determined in the sole
discretion of Employer; commission of sexual harassment or other employment
practice liabilities; excessive absenteeism; unlawful use or possession of
drugs or misuse of legal drugs or alcohol; misappropriation of an Employer
asset or opportunity; the offer, payment, solicitation or acceptance of any
bribe or kickback with respect to Employer's business; the assertion,
representation or certification of any false claim or statement to a customer
of Employer; or indictment or conviction for any felony whatsoever or for any
misdemeanor involving moral turpitude); or (3) inability for any reason to
perform the essential functions of the position; or (4) other conduct deemed
by Employer to be inappropriate for an officer or harmful to Employer's
interests or reputation. In the event of (4), above, Employee shall be given
10 days after receipt of written notice to cure such inappropriate or harmful
activity.

(b) Death or Disability. The Term shall be terminated immediately
and automatically upon Employee's death or "Disability." The term
"Disability" shall mean Employee's inability to perform all of the essential
functions of his position hereunder for a period of 26 consecutive weeks or
for an aggregate of 150 work days during any 12-month period by reason of
illness, accident or any other physical or mental incapacity, as may be
permitted by applicable law. Employee's capability to continue performance
of Employee's duties hereunder shall be determined by a panel composed of two
independent medical doctors appointed by the Board and one appointed by
Employee or his designated representative.

(i) Employee may, in his sole discretion, without cause,
terminate the Term at any time by providing Employer with 60 days' written
notice. If Employee exercises such termination right, Employer may, at its
option, at any time after receiving such notice from Employee, relieve him of
his duties and terminate the Term at any time prior to the expiration of said
notice period. If the Term is terminated by Employee pursuant to this
Section 6(c)(i), Employee shall be entitled to the provision of all
compensation and other benefits that shall have accrued as of the termination
date, including all vested Options, paid leave benefits, and reimbursement of
incurred business expenses, but shall not be entitled to any further accrual
or provision of any other compensation or benefits after the termination
date.

(ii) If, during the Term, a Change of Control (as defined
below) occurs and, without his consent, Employee is assigned duties
materially inconsistent with his position and status with Employer hereunder,
Employee may, in his sole discretion, terminate the Term upon 5 days' notice
to Employer. If Employee exercises such termination right, Employer may, at
its Option, at any time after receiving such notice from Employee, relieve
him of his duties hereunder and terminate the Term at any time prior to the
expiration of said notice period. If this Agreement is terminated by
Employee or Employer pursuant to this Section 6(c)(ii), Employee shall
receive, on or before the Termination Date, a lump sum equal to one year's
salary plus Employee shall be entitled to the provision of all compensation
and other benefits that shall have accrued as of the termination date,
including all vested Options, paid leave benefits, and reimbursement of
incurred business expenses.

(d) Change of Control. For purposes of this Section 6, a "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events: (i) any "person," including a "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 promulgated thereunder (collectively the "Exchange
Act"), other than a trustee or other fiduciary holding voting securities of
Employer ("Voting Securities") under any employment benefit plan, becomes the
beneficial owner, as defined under the Exchange Act, directly or indirectly,
whether by purchase or acquisition or agreement to act in concert or
otherwise, of 35% or more of the outstanding Voting Securities; (ii) the
stockholders of Employer approve a merger or consolidation of Employer with
any other corporation, other than a merger or consolidation which would
result in the Voting Securities of Employer outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
the surviving entity) more than 50% of the combined voting power of the
Voting Securities of Employer or such surviving entity outstanding
immediately after such merger or consolidation; (iii) Employer's stockholders
approve an agreement to merge, consolidate, liquidate, or sell all or
substantially all of Employer's assets.

7. Non-Waiver. It is understood and agreed that one party's failure
at any time to require the performance by the other party of any of the
terms, provisions, covenants or conditions hereof shall in no way affect the
first party's right thereafter to enforce the same, nor shall the waiver by
either party of the breach of any term, provision, covenant or condition
hereof be taken or held to be a waiver of any succeeding breach.

8. Severability. If any provision of this Agreement conflicts with
the law under which this Agreement is to be construed, or if any such
provision is held invalid or unenforceable by a court of competent
jurisdiction or any arbitrator, such provision shall be deleted from this
Agreement and the Agreement shall be construed to give full effect to the
remaining provisions thereof.

9. Governing Law. This Agreement shall be interpreted, construed and
governed according to the laws of the Commonwealth of Virginia, without
regard to the conflict of law provisions thereof.

10. Construction. Both Employee and Employer have received independent
legal advice with respect to the advisability of entering into this Agreement
and neither has been entitled to rely upon nor has in fact relied upon the
advice of the other party or such other party's counsel in entering into this
Agreement. The paragraph headings and captions contained in this Agreement
are for convenience only and shall not be construed to define, limit or
affect the scope or meaning of the provisions hereof. All references herein
to Sections shall be deemed to refer to Sections of this Agreement.

11. Entire Agreement. This Agreement contains and represents the
entire agreement of Employer and Employee and supersedes all prior
agreements, representations or understandings, oral or written, express or
implied with respect to the subject matter hereof. Notwithstanding this
provision, however, nothing in this Agreement shall affect Employee's stock
option rights provided in the December 18, 1995 agreement between Employer
and Employee, nor shall it affect the stock option rights nor the payments
due under the Non-Competition and Consulting Agreement dated August 16, 1994.
This Agreement may not be modified or amended in any way unless in writing
signed by each of Employer and Employee.

12. Assignability. Neither this Agreement nor any rights or
obligations of Employer or Employee hereunder may be assigned by Employer or
Employee without the other party's prior written consent. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of
Employer and Employee and their heirs, successors and assigns.

13. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed properly given if delivered personally or sent by
certified or registered mall, postage prepaid, return receipt requested, or
sent by telegram, telex, fax or similar form of telecommunication, and shall
be deemed to have been given when received. Any such notice or communication
shall be addressed: (a) if to Employer, to General Counsel, 4100 Lafayette
Center Drive, Chantilly, Virginia 20151-1200; or (b) if to Employee, to his
last known home address on file with Employer; or to such other address as
Employer or Employee shall have furnished to the other in writing.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective as of the date first above-written.

Government Technology Services, Inc.
M. Dendy Young

By: /s/ James J. Leto Signature: /s/ M. Dendy Young

Print Name: James J. Leto

Print Title: Director <PAGE>
Attachment A

Examples of Calculation of Quarterly Bonus

DEED OF LEASE

by and between

PETULA ASSOCIATES, LTD.

("Landlord")

and

GOVERNMENT TECHNOLOGY SERVICES, INC.

("Tenant")

'11/13/97
<PAGE>
TABLE OF CONTENTS

Section Page

1. DEMISE
..................................................
1

2. TERM...................................................
. 1

3. RENT...................................................
. 7

4. PERMITTED
USE........................................... 13

5. EXPENSES
............................................... 14

6. ADDITIONAL
RENT.......................................... 17

7. SORTING AND SEPARATION OF REFUSE AND
TRASH............... 19

8. HAZARDOUS
SUBSTANCES..................................... 20

9. INSURANCE..............................................
.. 22

10. DAMAGE OR
DESTRUCTION.................................... 10

11. INDEMNIFICATION........................................
.. 25

12. ASSIGNMENT AND
SUBLETTING................................ 27

13. CARE OF
PREMISES......................................... 33

14. ALTERATION BY
TENANT..................................... 33

15. CONDEMNATION...........................................
.. 35

16. SUBORDINATION..........................................
.. 35

17. ACCESS TO
PREMISES....................................... 38

18. RULES AND
REGULATIONS.................................... 39

19. COVENANTS OF RIGHT TO
LEASE.............................. 39

20. MECHANICS
LIENS.......................................... 39

21. EXPIRATION OF LEASE AND SURRENDER OF
POSSESSION.......... 40

22. DEFAULT-REMEDIES.......................................
. 41

23. RE-ENTRY BY
LANDLORD..................................... 48

24. ADDITIONAL RIGHTS TO
LANDLORD............................ 49

25. SUCCESSORS, ASSIGNS AND
LIABILITY........................ 49

26. NOTICES................................................
.. 49

27. MORTGAGEE'S
APPROVAL..................................... 50

28. ESTOPPEL
CERTIFICATES.................................... 51

29. DEFAULT RATE OF
INTEREST................................. 51

30. EXCULPATORY
PROVISIONS................................... 51

31. MORTGAGEE
PROTECTION..................................... 52

32. RECIPROCAL COVENANT ON NOTIFICATION OF ADA
VIOLATIONS.... 52

33. LAWS THAT
GOVERN......................................... 53

34. FINANCIAL
STATEMENTS..................................... 53

35. PARKING................................................
.. 53

36. SIGNAGE................................................
.. 54

37. RECORDATION............................................
.. 55

38. FORCE
MAJEURE............................................
55

39. LANDLORD'S
LIEN.......................................... 56

40. BROKERS................................................
.. 57

41. CONFIDENTIALITY........................................
.. 57

42. LEASE/DEED OF
LEASE...................................... 58

43. RIGHT OF FIRST
OFFER..................................... 58

44. MISCELLANEOUS..........................................
.. 59

45. ROOF-TOP
EQUIPMENT...................................... 60

EXHIBIT A - Land
EXHIBIT B - Work Agreement
EXHIBIT B-1 - Current Site Plan
EXHIBIT B-2 - Form of Environmental Certification
EXHIBIT B-3 - Current Specification
EXHIBIT C - Declaration of Lease Commencement
EXHIBIT D - Rules and Regulations
EXHIBIT E - Avion (R) Signage Program
EXHIBIT F - License Agreement
EXHIBIT F-1 - Location of License Area
EXHIBIT F-2 - Intentionally Deleted
EXHIBIT F-3 - Minimum Equipment Requirements
EXHIBIT F-4 - Contractor Insurance Requirements
EXHIBIT G Non-Disturbance Agreement
<PAGE>
DEED OF LEASE

THIS DEED OF LEASE ("Lease") is made this 10th day of
December, 1997, by and between PETULA ASSOCIATES, LTD.,
whose address for the purpose of this Lease shall be 711
High Street, Des Moines, Iowa 50392-1370, Attn: CRE
Equities/Mid-Atlantic Team, hereinafter referred to as
"Landlord", and GOVERNMENT TECHNOLOGY SERVICES, INC.,
hereinafter referred to as "Tenant".

IT IS AGREED AS FOLLOWS:

1. DEMISE.

Landlord does hereby lease to Tenant and Tenant does
hereby lease from Landlord the premises consisting of
the Improvements to be constructed upon the land
("Land") described on Exhibit A attached hereto and
made a part hereof and any selected parking located on
the Land which Tenant is entitled to utilize pursuant
to Section 35 hereof (the Improvements, together with
the portion of the Land on which the Improvements and
any related parking are located, is herein referred to
as the "Premises" or the "Property").

Improvements. The Improvements (also referred to in
Exhibit B as the "Base Building Work") shall mean the
building to be constructed on the Land in accordance
with the Work Agreement attached hereto as Exhibit B,
to contain approximately one hundred thousand five
hundred (100,500) rentable square feet as defined by
the Building Owners and Managers Association
International's Standard Method for Measuring Floor
Area in Office Buildings dated June 7, 1996, as
approved by the American National Standards Institute,
Inc. (ANSI/BOMA Z65.1-1996) (the "BOMA method"). Upon
substantial completion of the Improvements, the
rentable area of the Improvements shall be determined
in accordance with the BOMA method by the Architect (as
herein defined). The rentable area of the Improvements
as so determined shall be controlling for purposes of
establishing the Rent hereunder.

2. TERM.

(A) Initial Term

(1) The term of this Lease ("Lease Term") shall,
subject to Section 2(C) hereof and Section
10(c) of Exhibit B hereto, be for a period of
120 months, commencing on the date of
Substantial Completion of the Improvements
and the Tenant Work (all as more fully set
forth in Exhibit B) ("Commencement Date") and
ending at 11:59 p.m. on the day ("Expiration
Date") immediately preceding the tenth (10th)
anniversary of the Commencement Date;
provided that, if the Commencement Date is a
day other than the first (1st) day of a
calendar month, the Expiration Date shall be
the last day of the month in which the tenth
(10th) anniversary of the Commencement Date
shall occur. Except as provided below,
Tenant shall not be obligated to pay Rent
until possession of the Premises is tendered
to Tenant with the Improvements and the
Tenant Work therein Substantially Complete.
If the Commencement Date is a date other than
the first day of the month, Rent for the
month in which the Commencement Date occurs
shall be prorated on a daily basis.

(2) If Tenant occupies the Premises prior to the
Commencement Date, other than for purposes of
installation of telephones, cabling, special
equipment, trade fixtures and furniture in
accordance with Section 12(a) of Exhibit B,
such occupancy shall be subject to all
provisions hereof and shall not advance the
last day of the Lease Term, and Tenant shall
pay Rent for such period at the initial
monthly rate set forth below.

(3) If Landlord is delayed in Substantially
Completing the Landlord's Work (as defined in
Exhibit B) or in tendering possession of the
Premises with the Landlord's Work therein
Substantially Complete, in whole or part, by
a Tenant Delay, Rent and Additional Rent
shall, nonetheless, commence on that date on
which the Improvements and the Tenant Work
would have been Substantially Completed but
for the Tenant Delay (e.g., if there are two
(2) days of Tenant Delay and the Premises are
tendered to Tenant with the Improvements and
the Tenant Work Substantially Complete on
December 15, Rent and Additional Rent shall
accrue from December 13th).

(4) Subject to the terms of the last sentence of
this Section 2(a)(4), notwithstanding
anything herein contained to the contrary, if
construction of the Improvements has not
commenced on or before the Commencement
Deadline, Tenant shall have the right to
terminate this Lease by written notice
("Tenant's Commencement Termination Notice")
delivered to Landlord not earlier than the
Commencement Deadline and not later than ten
(10) calendar days after the Commencement
Deadline (but in all events not later than
commencement of construction of the
Improvements), in which event (i) this Lease
shall cease and terminate without payment to
Tenant of any penalty, compensation or any
portion of the Allowance (as herein defined),
and without reimbursement of any costs,
damages, expenses or fees suffered or
incurred by or on behalf of Tenant, as if the
date on which Tenant's Commencement
Termination Notice is delivered to Landlord
was the Expiration Date, and (ii) Landlord
shall return to Tenant any Security Deposit
and any prepaid Rent. As used herein, the
term "Commencement Deadline" shall mean
August 1, 1998 [subject to a day-for-day
extension for each day of delay attributable
to Tenant Delays, which Commencement Deadline
shall not be subject to delay for "Force
Majeure" (as defined in Section 38 below)];
provided that, if Tenant fails to timely
terminate this Lease pursuant to this Section
2(A)(4), then for purposes of Section
2(A)(5), the term "Commencement Deadline"
shall mean the date on which the Permit (as
defined in Exhibit B) is issued by Fairfax
County. Despite the foregoing, in the event
that the "Construction Lender" (as defined in
Section 16(B)(3) below) has foreclosed upon
the Property or has accepted a deed in lieu
of foreclosure, and, subject to the
provisions of Section 38 below, is diligently
pursuing completion of the work to be
performed by Landlord under Exhibit B hereto,
Tenant shall not have the right to terminate
the Lease pursuant to the provisions of this
Section 2(A)(4).

(5) Notwithstanding anything herein contained to
the contrary, if the Landlord's Work
(exclusive of "long-lead" items and Punch
List Work items, as defined herein) is not
Substantially Complete within eleven (11)
months after the Commencement Deadline
(subject to a day-for-day extension for each
day of delay which occurs after the
Commencement Deadline and is attributable to
Tenant Delays, the "Completion Deadline")
and, as a result, Tenant is unable to
lawfully (and, in fact, does not) occupy the
Premises and use the Premises for the uses
permitted hereby, Tenant shall have the right
to deliver a sixty (60) day written notice of
termination ("Tenant's Completion Termination
Notice") delivered to Landlord not earlier
than the Completion Deadline nor later than
ten (10) calendar days after the Completion
Deadline (but in all events not later than
commencement of the Tenant's Work). If
Tenant timely delivers the Tenant's
Completion Termination Notice and the
Landlord's Work (exclusive of "long-lead"
items and Punch List Work items, as defined
herein) is not Substantially Complete within
sixty (60) days after delivery of Tenant's
Completion Termination Notice (subject to a
day-for-day extension for each day of delay
which occurs after such delivery of Tenant's
Completion Termination Notice and which is
attributable to Tenant Delays), and, as a
result, Tenant is unable to lawfully (and, in
fact, does not) occupy the Premises and use
the Premises for the uses permitted hereby ,
this Lease shall automatically cease and
terminate without payment of penalty or
compensation as if the date on which such 60-
day period (as the same may be extended as
aforesaid) expires was the Expiration Date,
and Landlord shall return to Tenant any
Security Deposit and any prepaid Rent.

(B) Commencement Certificate.

At the request of Landlord at any time after
the Commencement Date has occurred, Tenant
hereby agrees to execute a declaration in the
form attached hereto as Exhibit C
("Declaration") as incorporated herein by
reference. Tenant's failure to execute the
Declaration shall not affect the Commencement
Date or the Lease Term, as same are
determined by the terms of this Lease.

(1) Provided no Event of Default is in existence
under this Lease at the time of the exercise
of the Extension Option or thereafter
(through and including the commencement date
of the Extension Period), and provided that
this Lease shall not theretofore have been
terminated, Tenant shall have one (1) non-
recurring option (the "Extension Option") to
extend the Expiration Date of the Lease Term
for a period of five (5) consecutive years
(the "Extension Period"). The Extension
Period shall commence on the day following
the Expiration Date determined under Section
2(A) [as the same may be extended pursuant to
Section 10(c) of Exhibit B hereto] and end on
the fifth (5th) anniversary of the scheduled
Expiration Date determined under Section 2(A)
[as the same may be extended pursuant to
Section 10(c) of Exhibit B hereto]. The
Extension Period shall be upon the same terms
and conditions contained herein except that
(A) the Rent payable in the Extension Period
shall be adjusted on the first (1st) day of
the Extension Period to equal one hundred
percent (100%) of the then-prevailing fair
market rental rate for the Premises (the "New
Rental Rate"), and shall thereafter be
subject to adjustment in accordance with the
provisions of Section 3(B) hereof and (B)
Tenant shall have no option to extend the
Expiration Date of the Lease Term beyond the
last day of the Extension Period.

(2) Tenant may exercise the Extension Option only
by delivering binding written notice (the
"Extension Option Notice") to Landlord of
Tenant's election to exercise the Extension
Option not later than twelve (12) months
prior to the commencement of the Extension
Period; provided that (i) Tenant's Extension
Option Notice shall be ineffective unless the
same designates Tenant's broker for purposes
of arbitration if the parties are unable to
agree on the New Rental Rate, and (ii) if
Tenant delivers its Extension Option Notice
to Landlord more than twelve (12) months in
advance, Tenant may elect to rescind its
Extension Option Notice at any time which is
at least three hundred fifteen (315) days
prior to the commencement of the Extension
Period (and in all events prior to the
execution of a binding agreement to extend
this Lease for the Extension Period), on the
condition that Tenant reimburses Landlord
upon demand for any out-of-pocket costs
incurred by or on behalf of Landlord in
connection with the determination of the New
Rental Rate and/or preparation of a lease
amendment extending this Lease for the
Extension Period. Landlord and Tenant agree
to negotiate in good faith for a period of
thirty (30) days to attempt to reach
agreement on the New Rental Rate applicable
to the Extension Period, promptly following
delivery of Tenant's Extension Option Notice.
If the parties fail to agree on such New
Rental Rate within said thirty (30) day
period, the determination of fair market
rental rate for the Premises shall be
arbitrated by brokers as set forth below
(each party hereby agreeing to submit the
determination of the fair market rental rate
for the Premises to arbitration in the manner
provided herein, if the parties are unable to
agree on the New Rental Rate within said
thirty (30) day period). Landlord shall
designate the broker appointed by it within
ten (10) business days after the expiration
of the aforesaid thirty (30) day period, and
each party shall by written notice (a copy of
which shall be provided to the other party
hereto) instruct their respective brokers to
commence such arbitration within ten (10)
business days after the expiration of the
aforesaid thirty (30) day period.

(3) In the event the Tenant designates a broker
and the Landlord fails to so designate a
broker within the aforesaid ten (10) business
day period, the broker appointed by the
Tenant shall proceed to make his valuation,
in which case the fair market rental rate of
the Premises shall be as determined by such
broker (such determination to be binding on
Landlord and Tenant). In the event each
party designates a broker as aforesaid, each
broker shall proceed to make an independent
determination of the then-prevailing fair
market rental rate of the Premises within
thirty (30) days after appointment of
Landlord's broker.

(4) Each broker shall render a separate written
report, within thirty (30) days after
appointment of Landlord's broker, of such
broker's estimate of the then-prevailing fair
market rental rate for the Premises as of the
commencement of the Extension Period. If the
values contained in the written reports
differ by five percent (5%) or less of the
greater of such values, the New Rental Rate
shall be one hundred percent (100%) of the
arithmetic average of such values (such
determination to be binding on Landlord and
Tenant). If the values contained in the
written reports differ to a greater extent
than set forth above, the brokers shall,
within five (5) days, promptly jointly
appoint a third broker. If the two brokers
so appointed shall fail to agree upon the
selection of a third broker within ten (10)
days after the expiration of such 30-day
period, then either party, upon written
notice to the other, may request such
appointment by the American Arbitration
Association (or any organization successor
thereto). The parties shall cooperate to
expedite such appointment. Within twenty
(20) days of his appointment, the third
broker shall render a written report of his
opinion of the value of the then-prevailing
fair market rental rate for the Premises as
of the commencement of the Extension Period.
One hundred percent (100%) of the arithmetic
average of the values in the three (3)
evaluation reports shall then be the New
Rental Rate for the Extension Period (which
determination shall be binding on Landlord
and Tenant); provided, however, that if the
lowest or highest of the three (3)
evaluations, or both, varies by more than ten
(10%) from the middle evaluation, such
evaluation or evaluations so varying shall be
disregarded in computing said average.

(5) In the event the New Rental Rate has not been
determined on or before the commencement of
the Extension Period, the Rent payable by
Tenant until such determination shall be
deemed equal to the Rent payable by Tenant
pursuant to Section 3(A) immediately prior to
the commencement of the Extension Period (as
the same may be adjusted hereunder);
provided, however, within fifteen (15) days
of such determination, Tenant shall pay
Landlord the excess of (i) the monthly
installments of monthly Rent as calculated
for the first (1st) year of the Extension
Period, above (ii) the monthly installments
of Rent actually paid by the Tenant, in
respect of each month commencing on or after
the commencement of the Extension Period but
prior to such determination, or Landlord
shall credit Tenant for any excess rent paid
by Tenant if the rental rate has declined,
and Tenant shall thereafter pay Rent for such
Extension Period as determined and adjusted
hereunder.

(6) All valuations of the fair market rental rate
of the Premises shall be in writing and shall
be expressed in terms of an annual rent.
Each broker's determination shall be based on
all relevant factors affecting fair market
rental rate, including, but not limited to
(and without limiting the scope of such
relevant factors), other terms of this Lease
which are applicable to the Extension Period
(including, but not limited to, the services
provided by Landlord and those which are
provided by Tenant, and the absence of any
concessions such as free rent or construction
allowance), the duration of the Extension
Period, the age and quality of the Building
(as defined in Exhibit B) and the Premises,
current "market" concessions, the fact that
the determination is for a renewal, the fact
that the determination is for a renewal as of
a future date, and (if true) that no
brokerage commission will be payable with
respect to the Extension Period. To the
extent a reasonable sample is available, each
broker shall use as a basis for comparison
the rent for leases entered into for
comparable space in comparable buildings in
the submarket of Chantilly, Virginia in which
the Premises is located, within the period
which commences twelve (12) months prior to
the date of such determination, which leases
shall commence at approximately the same time
as the Extension Period.

(7) Each broker appointed hereunder shall be an
independent, licensed real estate broker in
the Commonwealth of Virginia, not affiliated
with either party, specializing in commercial
real estate in Chantilly, Virginia, having
not less than ten (10) years relevant
experience, and shall be qualified by
experience and ability to appraise the fair
market rental for the Premises. The party
appointing each broker shall be obligated,
promptly after receipt of the valuation
report prepared by the broker appointed by
such party, to deliver a copy of such
valuation report to the other party in the
manner provided elsewhere in this Lease for
the delivery of notices. If a third broker
is appointed, the third broker shall be
directed, at the time of his appointment, to
deliver copies of his valuation report,
promptly upon its completion, to Landlord and
Tenant in the manner provided elsewhere in
this Lease for the delivery of notices. The
fees and other costs of each of the first two
brokers shall be borne by the party
appointing each such broker, with the fees
and other costs of the third broker being
shared equally by Landlord and Tenant.

(8) Unless otherwise agreed in writing by
Landlord and Tenant at the time the New
Rental Rate is determined, it is understood
that the New Rental Rate shall be the initial
Rent for the first (1st) Lease Year of the
Extension Period, and that such Rent shall be
subject thereafter to annual escalations, on
each successive anniversary of the
commencement of the Extension Period, based
on the provisions of Section 3(B).

(9) Tenant's failure to timely deliver the
Tenant's Extension Option Notice shall render
the Extension Option null and void.

3. RENT.

(A) Rent. Tenant shall pay for the use and occupancy
of the Premises an annual base rental ("Rent")
equal to Ten and Fifteen One Hundred Dollars
($10.15) per rentable square foot of the
Improvements payable in equal monthly
installments. Rent shall be paid on the first day
of each month in advance without demand or notice
(except as otherwise expressly provided herein),
deduction, offset, or counterclaim during the
Lease Term. Rent for any period during the Lease
Term which is less than one month shall be a pro
rata portion of the monthly installment, provided
that if the Commencement Date is not the first
(1st) day of a calendar month, such pro rata
portion shall be added to the Rent for the first
(1st) Lease Year. Rent shall be payable in lawful
money of the United States to Landlord at the
address stated herein or to such other persons or
at such other places as Landlord may designate in
writing.

(B) Escalation of Rent. Commencing on the first day
of the second Lease Year (as hereinafter defined)
and on the first day of each Lease Year thereafter
during the Lease Term (each an "Adjustment Date"),
Tenant shall pay to Landlord on the first day of
each month as Rent an amount (the "Adjustment
Amount") equal to the sum of (i) the Rent in
effect immediately preceding the current
Adjustment Date plus (ii) three percent (3%) of
the Rent in effect immediately preceding such
Adjustment Date. The Adjustment Amount shall then
be deemed to be the Rent in effect and shall be
deemed to be the Rent in effect for purposes of
calculating the next Adjustment Amount.

"Lease Year" shall mean the twelve (12) month
periods within the Lease Term, the first Lease
Year commencing on the Commencement Date and
terminating on the last day of the twelfth full
calendar month after the Commencement Date, with
each subsequent Lease Year commencing on the date
immediately following the last day of the
preceding Lease Year and continuing for a period
of twelve (12) full calendar months, except that
the last Lease Year of the Lease Term shall
terminate on the date this Lease expires or is
otherwise terminated.

(C) Place of Payment. Rent, Additional Rent and other
sums owed by Tenant shall be paid to Landlord at
the offices of Landlord's property manager at 1115
30th Street, N.W., Washington, D.C. 20007 or at
such place as Landlord may designate from time to
time in writing.

(D) Late Charge. Tenant hereby acknowledges that late
payment by Tenant of Rent, Additional Rent or
other sums due hereunder will cause Landlord to
incur collection costs not contemplated by this
Lease. Therefore, if any installment of Rent,
Additional Rent or any other sum due from Tenant
shall not be received by Landlord when such amount
is due, Tenant shall pay to Landlord a late charge
of five percent (5%) of such overdue amount;
provided that, Landlord agrees to waive the
imposition of such late charge on the first (1st)
occasion in any twelve (12) month period on the
conditions that no such late charge waiver has
been granted or exercised in the preceding twelve
(12) months, and the overdue payment is paid
within five (5) business days after notice from
Landlord that the payment was not paid when due.
Additionally, Tenant shall pay to Landlord the
Default Rate (as set forth in Section 29) on all
sums in default. Acceptance of such late charge
and/or the Default Rate by Landlord shall in no
event constitute a waiver of Tenant's default with
respect to such overdue amount, or prevent
Landlord from exercising any other right or remedy
available to Landlord.

(E) Security Deposit.

(1) Purpose of Security Deposit. The Security
Deposit shall be held by Landlord as security
for Tenant's faithful performance of Tenant's
obligations hereunder, with such Security
Deposit securing Tenant's obligations
hereunder subject to the terms and conditions
set forth in this Section 3(E).

(2) Required Amount. Tenant shall, at all times,
ensure that the aggregate amount of all
Permitted Security (as herein defined) held
by Landlord from time to time (the "Security
Deposit") is equal to the then-current
Required Amount. If, as a result of the
application of all or any part of the
Security Deposit in accordance with the terms
hereof, the Security Deposit shall be less
than the then-current Required Amount, Tenant
shall, within fifteen (15) days of Landlord's
written demand, provide Landlord with
additional Permitted Security equal to the
amount of the deficiency. Tenant's failure
to restore the Security Deposit to the then-
current Required Amount when and as required
hereby shall constitute a material breach of
this Lease. As used herein, the term
"Required Amount" shall initially mean the
sum of Two Million Dollars ($2,000,000.00).
The "Required Amount" shall be reduced on
each Reduction Date by Two Hundred Thousand
Dollars ($200,000). "Reduction Date" shall
mean the first (1st) day of each Lease Year
commencing on or after the first (1st) day of
the second (2nd) Lease Year, on which no
Event of Default is in existence hereunder.

(3) Initial Deposits. Tenant shall deposit with
Landlord upon execution hereof Permitted
Security in the amount of Six Hundred
Thousand Dollars ($600,000.00). Landlord
agrees to provide Tenant with written notice
(the "LC Notice") of the date that
construction of the Improvements either (x)
is estimated to commence, or (y) has already
commenced. Upon the later to occur of the
date that is two (2) days prior to the date
construction is scheduled to commence on the
Improvements pursuant to the Work Agreement
(Exhibit B), or the date which is ten (10)
days after the date that Tenant receives the
LC Notice, Tenant shall deposit with Landlord
additional Permitted Security in the amount
of One Million Four Hundred Thousand Dollars
($1,400,000.00), to increase the total amount
of Permitted Security to Two Million Dollars
($2,000,000.00).

(4) Permitted Security. Tenant shall provide the
Security Deposit to Landlord in the form of
one or more letters of credit ("LC") meeting
the criteria set forth in Section 3(E)(7)
("Permitted Security"); provided that, the
aggregate number of LCs forming a part of the
Security Deposit shall at no time exceed four
(4). Tenant shall immediately notify
Landlord in writing if Tenant acquires actual
knowledge (from a source other than Landlord)
that any LC provided to Landlord no longer
constitutes Permitted Security.

(5) Qualified Issuer. As used herein, the term
"Qualified Issuer" shall mean a federally-
insured commercial bank or other federally-
insured financial institution which has an
office (whether of its own or a correspondent
bank) located in the greater Washington, D.C.
metropolitan area at which Permitted Security
(or a sight draft drawn thereon) may be
presented for payment (a "DC Payment
Office"), and which has a Qualified Credit
Rating. Whether an institution is a
Qualified Issuer shall be subject to
continuous review (i.e., an institution shall
no longer be considered a Qualified Issuer at
any time after the loss of federal insurance,
the closure of all DC Payment Offices, or
loss of a Qualified Credit Rating). As used
herein, the term "Qualified Credit Rating"
shall mean at least Prime-2 (or then-current
equivalent) by Moody's Investor Services,
Inc., at least A-2 (or then-current
equivalent) by Standard & Poor's Corporation,
or B- by Lace Financial Corporation.
Landlord hereby acknowledges that, as of the
date of this Lease, Landlord considers
Deutsche Bank to be a Qualified Issuer.

(6) Substitute Security. If the Security Deposit
is, at any time, less than the Required
Amount (whether due to application of the
Security Deposit pursuant to the terms
hereof, the loss of a Qualified Credit Rating
by the issuer of some or all of assets
delivered to Landlord for purposes of forming
a part of the Security Deposit, or
otherwise), Tenant shall deliver to Landlord
additional Permitted Security sufficient to
restore the Security Deposit to the Required
Amount, not later than fifteen (15) business
days after Landlord's written demand.

(7) Special LC Requirements. Each LC forming all
or a part of the Security Deposit shall meet
each of the following criteria:

(A) the LC shall be transferable,
fully-funded, and run in favor of
Landlord;

(B) the LC shall be issued by a Qualified
Issuer (as herein defined);

(C) the LC shall be irrevocable for a period
of one (1) year, and provide that it is
automatically renewable for successive
one (1) year periods unless the issuer
notifies Landlord by certified mail,
return receipt request, at least thirty
(30) days in advance of the expiration
date thereof, that the issuer will not
renew the LC;

(D) the LC shall be in such form, and shall
contain such terms, as are reasonably
acceptable to Landlord, providing, among
other things, in substance that:

(1) Landlord and its successors and
assigns shall have the right to
draw down an amount up to the then-
current face amount of the letter
of credit upon presentation to the
issuing bank of Landlord's own
declaration signed or purportedly
signed by or on its behalf, reading
as follows:

(i) that the declarant has
authority to make the
declaration on behalf of the
Landlord;

(ii) that the declaration is made
pursuant to the terms of the
letter of credit number; and

(iii) that Landlord is entitled
to draw down the letter of
credit under the terms of
Section 3(E)(9)(A) or
3(E)(9)(B) of the lease made
between Landlord and Tenant.

(2) The LC will be honored by the
issuer without inquiry as to the
accuracy of the accompanying
declaration, and regardless of
whether Tenant disputes the content
of such declaration; and

(3) In the event of a transfer of
Landlord's interest in the
Premises, Landlord shall have the
right to transfer the LC to the
transferee.

(4) Notwithstanding the foregoing,
Landlord agrees that the terms of
the LC may limit draws upon the LC
pursuant to Section 3(E)(9)(A) to
not more than Two Hundred Thousand
Dollars ($200,000.00) in any period
of ten (10) consecutive days.

(8) Treatment of Cash Security Deposit. Any cash
sums forming all or a part of the Security
Deposit as a result of a draw upon a letter
of credit shall be kept in a separately
designated security deposit account in a
federally-insured bank (which may include
other security deposits), with interest
thereon accruing forming a part of the
Security Deposit.

(9) Right to Draw Upon Security Deposit.

(A) Upon the occurrence of any monetary
Event of Default, Landlord and its
successors and assigns shall have the
right to negotiate, present for payment,
draw upon, use, apply or retain all or a
portion of the Security Deposit for the
payment of the Rent, Additional Rent or
other charge, payment or sum due to
Landlord from Tenant, provided in no
event shall the amount of any such draw
exceed the amount required to cure such
monetary Event of Default.

(B) Upon (i) Tenant's failure, within
fifteen (15) business days after
delivery of written notice to Landlord
from the issuer of an LC forming all or
a part of the Security Deposit that the
issuer will not renew the LC, to deliver
to Landlord additional Permitted
Security in an amount equal to the LC
which will not be renewed, or (ii)
Tenant's failure, within fifteen (15)
business days after written notice from
Landlord that the some or all of the
assets delivered to Landlord to form a
part of the Security Deposit no longer
meet the criteria to be considered
Permitted Security (whether due to a
reduction in an LC issuer's credit
rating or otherwise), to deliver to
Landlord additional Permitted Security
sufficient to restore the Security
Deposit to the Required Amount, Landlord
and its successors and assigns shall
have the right to negotiate, present for
payment, and/or draw upon any portion of
the Security Deposit (or any LC then
held by Landlord and formerly
constituting a part of the Security
Deposit) not in the form of cash, and to
hold the proceeds of such negotiation,
presentment or draw (together with all
cash already forming a part of the
Security Deposit) as a cash Security
Deposit; provided that, Tenant shall
substitute additional Permitted Security
for the cash so held upon Landlord's
demand (in which event Landlord shall
return to Tenant the portion of the cash
held equal to the amount of such
additional Permitted Security).

(10) Transfer of Security Deposit.

(A) Tenant acknowledges and agrees that
Landlord shall have the right to
transfer the Security Deposit to any
assignee or other transferee of
Landlord's interest in the Property,
subject to the terms hereof, and that
the provisions hereof shall apply to
every such assignment or transfer to a
new Landlord. Upon delivery of the
Security Deposit to any assignee or
other transferee of Landlord's interest
in the Premises, Landlord shall
thereupon be discharged from any further
liability with respect to the Security
Deposit.

(B) Each Permitted Security forming a part
of the Security Deposit shall expressly
permit transfer of such Permitted
Security (whether by endorsement without
recourse, delivery, assignment, or re-
issuance in the name of the new
Landlord), and shall require the issuer
to acknowledge and accept the transfer
upon execution and delivery of a form of
transfer agreement which complies with
the issuer's reasonable requirements and
payment of a reasonable and customary
transfer fee (which fee, if such fee
exceeds One Hundred Dollars ($100.00)
and is paid by Landlord, shall be repaid
by Tenant to Landlord upon demand). If
any issuer fails, within ten (10) days
after being notified of such transfer
and delivery of the transfer agreement
and payment of the transfer fee, to
acknowledge and accept the transfer of
the Permitted Security which it has
issued, Tenant shall deliver to Landlord
additional Permitted Security equal to
the amount of Permitted Security for
which such issuer has failed to
acknowledge and accept the transfer
(Tenant hereby acknowledging and
agreeing that Tenant shall be solely
responsible for any and all fees in
excess of One Hundred Dollars ($100.00)
charged by the issuer of such additional
Permitted Security.

(11) Return of Security Deposit. If Tenant
performs all of Tenant's obligations
hereunder, the Security Deposit, or so much
thereof as has not theretofore been applied
by Landlord, shall be returned with any
unpaid interest accrued thereon (if any) to
Tenant (or at Landlord's option, to the last
assignee, if any, of Tenant's interest
hereunder) within thirty (30) days of the
later of (i) the last day of the Lease Term,
(ii) the date Tenant vacated the Premises, or
(iii) the date Tenant has fulfilled all its
obligations hereunder.

(12) Covenant Against Assignment or Encumbrance.
Tenant further covenants that it will not
assign, encumber or otherwise transfer any or
all of Tenant's interest in any portion of
the Security Deposit, and acknowledges that
neither Landlord nor its successors or
assigns will be bound by any attempted
assignment, encumbrance or other transfer.

(13) No Trust Relationship. No trust relationship
is created herein between Landlord and Tenant
regarding the Security Deposit.

(14) Rights Against Mortgagee. Tenant hereby
agrees not to look to any mortgagee as
mortgagee, mortgagee-in-possession or
successor in title to the Premises for
accountability for the Security Deposit
unless (but only to the extent) the Security
Deposit has actually been received by said
mortgagee as security for Tenant's
performance of this Lease. Notwithstanding
the foregoing, this Section 3(E)(14) shall
not apply to Principal Mutual Life Insurance
Company or any of its wholly-owned
subsidiaries, it being understood and agreed
that, if Principal Mutual Life Insurance
Company or its wholly-owned subsidiaries are
the mortgagee-in-possession or successor in
title to the Premises, such party shall be
responsible to account for and apply the
Security Deposit in accordance with the terms
of this Lease (regardless of whether such
party has actually received the Security
Deposit).

4. PERMITTED USE.

Tenant covenants that the Premises will be used solely
(if at all) for the following uses (collectively, the
"Permitted Use"): (1) general office purposes; (2)
warehouse use; (3) cafeteria use; (4) sales
presentations; (5) equipment demonstrations; (6)
seminars; (7) consulting purposes; and (8) catalogue,
mail and telephone sales. Tenant further covenants
that the Premises will not be used or occupied for any
unlawful purposes. Tenant agrees to and shall use the
Premises solely for the purpose of conducting the
Permitted Use and for no other business or purpose.
Tenant acknowledges that the Permitted Use is not a use
granted exclusively to Tenant and that Landlord
reserves the right to lease premises in the Property to
others for the same or a similar permitted use. Tenant
further acknowledges that it has received no written or
oral inducements from Landlord or any of Landlord's
representatives concerning this Lease (other than as
specifically set forth herein) or that Tenant will be
granted any such exclusive rights. Tenant shall not
commit or allow to be committed any waste upon the
Premises, or any public or private nuisance.
<PAGE>
5. EXPENSES.

(A) Taxes

(1) Landlord shall pay all taxes applicable to
the Property which are payable during the
Lease Term.

(2) As used herein, the term "taxes" shall mean
real estate taxes, assessments (whether
general or special), sewer rents, rates and
charges, transit and transit district taxes,
taxes based upon the receipt of Rent or other
payments hereunder, and any other federal,
state or local governmental charge, general,
special, ordinary or extraordinary (but not
including income or franchise taxes,
inheritance, estate or gift taxes, net profit
taxes or any other taxes imposed upon or
measured by Landlord's net income or profits,
except as provided herein), which may now or
hereafter be levied, assessed or imposed
against the Property or Premises ("Taxes").
If the Property is assessed as part of a
larger parcel of land, Taxes shall only
include the portion thereof which is
allocable to the Property. The allocation
referenced in the preceding sentence shall be
based on the ratio of the rentable area of
the Improvements to the rentable area of all
improvements upon such larger parcel of land,
in the following manner: (i) until the
construction commences for improvements other
than the Improvements on such parcel of land,
(A) the assessment for improvements shall be
entirely allocated to the Property, and (B)
the assessment for the land shall be
allocated based on the sum of (1) the
rentable area of the Improvements, plus (2)
the rentable areas of the other proposed
improvements on such land as set forth on
that certain site plan which is entitled
"Site/Grading Plan, GTSI Headquarters @
Avion, Parcel "D-1"," prepared by Rinker-
Detwiler & Associates, P.C. as Job Number 97-
065-H, dated October ___, 1997, (the "Current
Site Plan") attached hereto as Exhibit B-1
(as such rentable areas may be modified from
time to time)]; and (ii) once the
construction of improvements other than the
Improvements on such parcel of land has
commenced, the assessment for improvements
and land shall be allocated as stated on the
relevant tax bill(s) or assessor's
worksheet(s) (or, if not separately
allocated, based on the sum of (1) the
rentable area of the Improvements, plus (2)
the rentable areas of the proposed
improvements on such land for which
construction has commenced). To the extent
any Tax may be paid without penalty or
interest in installments over a number of
years, such Tax shall be included in Taxes
for any year only to the extent of the
installments allocable to such year (as if
Landlord had elected to pay such Tax over the
longest possible period, whether or not
Landlord has so elected). Provided Tenant
shall timely pay its Pro Rata Share of Taxes,
"Taxes" shall exclude any penalties or
interest thereon. As of the date hereof,
Landlord estimates that the Taxes for
calendar year 1999 will be $80,400.00.
Landlord agrees to deliver a copy of each
assessment notice on the Property promptly
following the receipt thereof. Additionally,
Landlord shall have no obligation to protest
Taxes, but if Landlord does protest Taxes,
the actual out-of-pocket cost of such protest
shall also be deemed Taxes. Landlord shall
advise Tenant upon request (to be made not
more than fourteen (14) days in advance of
the filing deadline for protest of the
current tax assessment) whether Landlord
intends to protest the current tax
assessment. If Landlord advises Tenant that
Landlord does not intend to protest such
current tax assessment, Tenant shall have the
right to challenge or appeal such assessment
in Landlord's name but at Tenant's sole
expense, and Landlord shall cooperate in such
challenge or appeal (including executing such
forms as may be reasonably necessary to
institute and prosecute such action);
provided that, Tenant shall have no right to
challenge or appeal any Tax assessment during
the last two (2) years of the Lease Term.

(B) Landlord shall provide insurance for the Property
as set forth in Subsection 9(A) ("Insurance"). If
Landlord has a net worth in excess of Fifty
Million Dollars ($50,000,000.00), Landlord shall
have the right to self-insure (in which event,
Operating Expenses shall include the reasonable
costs which would have been incurred if Landlord
had obtained the insurance set forth in Section
9(A) from a third party); provided that, in all
events Landlord may self-insure the first Fifty
Thousand Dollars ($50,000.00) of liability risk
with regard to the Property (whether through
deductibles, co-insurance or otherwise).

(C) (1) Landlord shall provide for the following
throughout the Lease Term as they relate to
the Premises: (a) landscaping; (b) property
management; and (c) the maintenance, repair
and/or replacement of the Premises and
Improvements as follows: (i) the roof; (ii)
all structural components of the Premises and
Improvements; (iii) the parking lot (except
as expressly provided in Section 35 hereof),
(iv) sidewalks, alleys and any and all access
drives, including the removal of snow and ice
therefrom (provided that, Tenant shall have
the right to perform its own snow removal, at
Tenant's sole cost and risk, if Landlord
fails to promptly commence snow removal when
and as reasonably required to permit access
to the Premises); (v) fire sprinkler and fire
control systems (if any); (vi) exterior plate
glass; (vii) life safety systems and
equipment; and (viii) repairs of items under
warranty. Landlord agrees to maintain the
foregoing systems and components in a first-
class manner throughout the Lease Term;
provided that, Landlord shall have no
liability for failure to maintain or repair
the same unless and until Landlord shall fail
to perform such maintenance or make such
repairs within a reasonable time after
acquiring actual knowledge of the need for
such maintenance or repairs.

(2) Tenant (and not Landlord) shall provide
throughout the Lease Term, at Tenant's sole
expense, all other maintenance, repair and/or
replacement (as and when reasonably required)
of the Premises and Improvements (including,
but not limited to, (a) heating and air
conditioning equipment, lines and fixtures;
(b) plumbing equipment, lines and fixtures,
excluding fire sprinkler and fire control
systems (if any); (c) electrical equipment,
lines and fixtures; (d) all other utility
equipment, lines and fixtures; and (e) all
ingress-egress doors to the Property), all as
reasonably required in order to maintain the
Improvements and the Tenant Work in good
working order and condition. Notwithstanding
the foregoing, Landlord shall perform any of
the services listed in this Section 5(C)(2)
upon Tenant's written request, in which event
all reasonable costs, expenses and fees
incurred by or on behalf of Landlord to
perform the same shall constitute Operating
Expenses.

(D) Tenant shall pay all utility bills incurred,
including, but not limited to, water, gas,
electricity, fuel, light, heat and power bills,
when and as due. If Tenant shall fail to pay any
utility bill when and as due, Landlord shall have
the right to pay such utility bill on Tenant's
behalf (in which event the amount so paid shall be
deemed Additional Rent which shall be repaid by
Tenant upon demand). Landlord shall not be liable
for any failure to furnish, or for any loss,
injury or damage caused by or resulting from any
variation, interruption or failure of utility
services. In the event of (i) any interruption of
essential utilities or services due to Landlord's
gross negligence or willful misconduct, which
interruption or failure continues for more than
three (3) consecutive business days, then,
provided such interruption or failure shall render
a material portion of the Premises untenantable,
all Rent and Additional Rent payable hereunder
with respect to such portion of the Premises shall
thereafter be abated until such portion of the
Premises is tenantable.

(E) Tenant, at Tenant's sole expense, shall comply
with all laws, rules, orders, ordinances,
directions, regulations and requirements of
federal, state, county, and municipal authorities
now in force or which may hereafter be in force,
with respect to the use, repair, replacement,
maintenance, occupancy or alteration of the
Premises by Tenant or Tenant's Agents (as herein
defined); provided that, Tenant shall have no
obligation to perform structural alterations or
improvements, unless such structural alterations
or improvements (i) are required by law as a
result of Tenant's or Tenant's Agents' specific
use or manner of use of the Premises, or repair of
the Premises, or (ii) would not have been required
to be performed but for additions, alteration,
improvements or modifications made by or on behalf
of Tenant. Landlord shall perform all structural
alterations or improvements which are not Tenant's
responsibility pursuant to the terms hereof.

(F) Except as otherwise expressly provided herein, the
Tenant will keep, maintain and preserve the
Premises in a good condition, ordinary wear and
tear excepted, and shall provide all services,
maintenance and repair require to keep the
Premises in such condition. Without limiting the
foregoing, Tenant, at its sole cost and expense,
will provide janitorial service for the Premises
and interior and exterior window washing for the
Premises. Except as provided in Section 5(C)(1)
above, Tenant, at the Tenant's sole cost and
expense, shall also make all interior repairs and
replacements to the Premises, including, but not
limited to, interior walls, doors and windows,
floors, floor coverings and light bulbs.

(G) All costs, expenses and fees incurred by or on
behalf of Landlord in connection with providing
any of the items in Subsections 5(B) and 5(C), to
the extent paid by or on behalf of Landlord shall
be referred to as "Operating Expenses"; provided
that, the amount of the property management fee
included in Operating Expenses shall not exceed
(i) Two Thousand Five Hundred Fifty-One Dollars
($2,551.00) per month during the first (1st)
calendar year of the Lease Term (which amount, as
of the date of this Lease, is deemed by Landlord
and Tenant to be the fair market value of the
goods and services provided in exchange for such
property management fee), and (ii) in any
subsequent calendar year, the fair market value of
the goods and services provided in exchange
therefor. For purposes of determining the fair
market value of the goods and services provided in
exchange for the property management fee, not more
often than once every third (3rd) calendar year
Landlord shall, upon Tenant's written request,
conduct a survey of the property management fees
paid to first-class property management companies
serving the Chantilly, Virginia submarket with
respect to single-story, single-tenant buildings
located in a similar office parks in the
Chantilly, Virginia submarket which are leased
with similar tenant responsibilities, and shall
provide to Tenant a copy of such survey. In the
event of any dispute between Landlord and Tenant
on the fair market value of the goods and services
provide in exchange for the property management
fee, Landlord and Tenant shall submit such dispute
to binding arbitration pursuant to the Uniform
Arbitration Act as adopted by the Commonwealth of
Virginia, Va. Code Ann. 8.01-581.01 et seq. (as
the same may be amended from time to time).
Tenant further acknowledges that the portion
allocable to the Premises of the reasonable costs
incurred in connection with the operation and
management of, and providing and obtaining
maintenance, landscaping, utilities and repairs
for Avion (R) Business Park shall constitute
Operating Expenses.

6. ADDITIONAL RENT.

(A) Tenant shall pay its Pro Rata Share of Taxes and
Operating Expenses ("Tenant's Share"). As soon as
practicable each year during the Lease Term,
Landlord shall furnish to Tenant a detailed
estimate of Tenant's Share for the timeframe in
question (broken down on a category by category
basis). Tenant acknowledges that Landlord has
provided Tenant with a non-binding estimate of the
Tenant's Share for calendar year 1999, prior to
the execution hereof. Tenant shall pay to
Landlord the estimate for Tenant's Share in equal
monthly installments at the same time and place as
Rent is to be paid. Landlord will furnish a
statement of the actual Tenant's Share no later
than April 1 of each year during the Lease Term,
including the year following the year in which the
Lease expires or is otherwise terminated. In the
event that Landlord is, for any reason, unable to
furnish the statement of the actual Tenant's Share
within the time specified above, Landlord will
furnish such statement as soon thereafter as
practicable with the same force and effect as the
statement would have had if delivered within the
time specified above. Tenant will pay to Landlord
any deficiency as shown by such statement within
thirty (30) days of receipt of such statement.
Provided no Event of Default by Tenant is in
existence under this Lease, Landlord will refund
to Tenant any excess as shown by such statement
within thirty (30) days of the date of the
statement; provided that, if an Event of Default
by Tenant is in existence, Landlord shall refund
to Tenant the amount of such excess at such time
as all Events of Default have been cured.
Landlord will keep books and records showing the
Operating Expenses in accordance with generally
accepted accounting principles.

(B) Any and all payments (other than Rent) required to
be made by Tenant pursuant to this Lease shall be
deemed additional Rent ("Additional Rent").
Landlord shall have the same rights and remedies
for said payments as for Rent.

(D) Tenant's Right to Audit. If Tenant disputes any
Operating Expenses or Taxes statement, Tenant must
provide Landlord with specific written objections
within one hundred eighty (180) days after
receiving the statement (failing which, the
statement will be deemed conclusive). Within 30
days after receiving these objections, Landlord
will either adjust the disputed statement in
response to Tenant's objection(s) and credit any
overpayment to Tenant as stated above, or notify
Tenant that it believes Tenant's objection is
without merit (it being agreed that, if Landlord
fails to respond within such 30-day period,
Landlord shall be deemed to have agreed to adjust
the disputed statement in response to Tenant's
objection(s) and credit any overpayment to Tenant
as stated above). If Tenant timely disputes a
statement and Landlord notifies Tenant that
Tenant's objection is without merit, Tenant may --
if no Event of Default by Tenant is then in
existence -- cause (i) qualified accounting
employees of Tenant, or (ii) an independent,
certified public accountant ("CPA") to audit the
supporting data for the disputed statement (in
which event, such supporting data shall be made
available to the employee or CPA). However,
Tenant may not exercise its audit right unless the
audit commences within thirty (30) days after
Landlord notifies Tenant that Tenant's objection
is without merit, nor may Tenant audit any
statement more than once (it being understood that
the foregoing prohibition against multiple audits
of the same statement shall not be deemed to
prohibit the examination of the same documents
more than once in the course of the same audit).
Any CPA selected by Tenant to conduct an audit
must have least 5 years experience performing
operating expense pass-through audits for
commercial office buildings in the metropolitan
Washington, D.C. area, and must be approved by
Landlord. Landlord's approval will not be
unreasonably withheld or delayed, if such CPA (a)
is not compensated on a contingency fee basis, and
(b) signs a confidentiality agreement in form
reasonably acceptable to Landlord (Landlord hereby
agreeing that no such confidentiality agreement
shall prohibit the disclosure, in any action or
suit instituted by Tenant against Landlord with
regard to the audited Operating Expenses or Taxes,
of information required to institute or prosecute
such action or suit, but such confidentiality
agreement may require Tenant and the CPA to agree
to reasonable protective orders in connection
therewith). Each audit under this Section 6(D)
must be conducted at Landlord's property manager's
Washington, D.C. area office. If Landlord does
not agree with the audit results of the CPA Tenant
selects, or Tenant's employee(s), Landlord and
Tenant will endeavor to resolve their differences
(failing which, the dispute will be conclusively
determined based on an independent audit by a
third-party CPA selected by the parties or,
failing agreement, appointed by the American
Arbitration Association or any recognized
successor thereto upon application by either
party). The parties will make any necessary
adjustments in accordance with the third-party CPA
audit. Tenant must pay all costs and expenses of
Tenant's audit (including, but not limited to,
reasonable copying charges), unless the amounts
paid by Tenant to Landlord for the year in
question exceeded the amounts to which Landlord
was entitled by more than 6%, in which event
Landlord will reimburse Tenant for the reasonable
costs incurred in connection with Tenant's audit.
If the third-party CPA audit shows Tenant has
underpaid Operating Expenses or Taxes (or both),
in addition to paying to Landlord the underpayment
amount, Tenant shall reimburse Landlord upon
demand for all reasonable costs, expenses and fees
incurred by Landlord in connection with such
dispute. If a third-party CPA ultimately resolves
the dispute, the losing party shall pay the costs
incurred in connection with the third-party CPA
audit (including, but not limited to, reasonable
copying charges). Tenant has no right to withhold
or reduce any performance by Tenant under the
Lease pending or based upon any audit under this
Section 6(D).

7. SORTING AND SEPARATION OF REFUSE AND TRASH.

Tenant shall be responsible for contracting for all
trash removal services. Tenant covenants and agrees,
as its sole cost and expense, to comply with all
present and future laws, orders and regulations of all
state, federal, municipal and local governments,
departments, commissions and boards regarding the
collection, sorting, separation and recycling of waste
products, garbage, refuse and trash. Tenant shall pay
all costs, expenses, fines, penalties or damages that
may be imposed on Landlord or Tenant by reason of
Tenant's failure to comply with the provisions of this
Section 7, and, at Tenant's sole cost and expense,
shall indemnify, defend and hold Landlord harmless
(including legal fees and expenses) from and against
any actions, claims and suits arising from such
noncompliance, utilizing counsel reasonably
satisfactory to Landlord.

8. HAZARDOUS SUBSTANCES.

(A) The term "Hazardous Substances" shall mean
pollutants, contaminants, toxic or hazardous
wastes, or any other substances, the use and/or
the removal of which is required or the use of
which is restricted, prohibited or penalized by
any "Environmental Law", which term shall mean any
federal, state or local law, regulation, order,
ordinance or other statute of a governmental or
quasi-governmental authority relating to pollution
or protection of the environment. Tenant hereby
agrees that (A) no activity will be conducted on
the Premises that will produce any Hazardous
Substances, except for such activities that are
part of the ordinary course of Tenant's business
activities (the "Permitted Activities") provided
said Permitted Activities are conducted in
accordance with all Environmental Laws and have
been acknowledged and consented to in advance in
writing by Landlord (such consent not to be
unreasonably withheld); Tenant shall be
responsible for obtaining any required permits and
paying any fees and providing any testing required
by any governmental agency in connection with the
Permitted Activities; (B) the Premises will not be
used in any manner for the storage of any
Hazardous Substances except for the temporary
storage of such materials (the "Permitted
Materials") that are used in the ordinary course
of the Permitted Activities, provided such
Permitted Materials are properly stored in a
manner and location meeting all Environmental Laws
and acknowledged and consented to in advance in
writing by Landlord (such consent not to be
unreasonably withheld); Tenant shall be
responsible for obtaining any required permits and
paying any fees and providing any testing required
by any governmental agency in connection with the
Permitted Materials; (C) no portion of the
Premises will be used as a landfill or a dump; (D)
Tenant will not install any underground tanks of
any type; (E) Tenant will not cause any surface or
subsurface conditions to exist or come into
existence that constitute, or with the passage of
time may constitute a public or private nuisance;
(F) Tenant will not knowingly or negligently
permit any Hazardous Substances to be brought onto
the Premises by or on behalf of Tenant, except for
the Permitted Materials described above, and if so
brought thereon, the same shall be immediately
removed, with proper disposal, and all required
cleanup procedures shall be diligently undertaken
pursuant to all Environmental Laws. Landlord or
Landlord's representative shall have the right but
not the obligation to enter the Premises for the
purpose of inspecting the storage, use and
disposal of Permitted Materials to ensure
compliance with all Environmental Laws. Should it
be determined, in Landlord's sole (but reasonable)
opinion, that said Permitted Materials are being
improperly stored, used, or disposed of, then
Tenant shall immediately take such corrective
action as is reasonably requested by Landlord.
Should Tenant fail to take such corrective action
within ten (10) days (or such shorter period as is
reasonable under the circumstances), Landlord
shall have the right to perform such work and
Tenant shall promptly reimburse Landlord for any
and all actual, out-of-pocket costs associated
with said work. If at any time during or after
the Lease Term, the Premises are found to be
contaminated by Hazardous Materials as a
consequence of the acts or omissions of Tenant or
any of Tenant's Agents, or any surface or
subsurface conditions exist at the Property as a
consequence of the acts or omissions of Tenant or
any of Tenant's Agents, Tenant shall diligently
institute proper and thorough cleanup procedures
at Tenant's sole cost, and Tenant agrees to
indemnify, defend and hold harmless Landlord, its
lenders, any managing agents and leasing agents of
the Property, and their respective agents,
partners, officers, directors and employees, from
all claims, demands, actions, liabilities, costs,
expenses, penalties (whether civil or criminal),
damages (actual or punitive) and obligations of
any nature arising from or as a result of such
contamination or conditions. The foregoing
indemnification and the responsibilities of Tenant
shall survive the termination or expiration of
this Lease.

(B) Except with regard to the use, storage and
disposal, in accordance with applicable law, of
Hazardous Substances utilized in the ordinary
course of the maintenance, repair and/or operation
of the Property ("Landlord's Permitted
Substances"), Landlord agrees that it will be
fully responsible for all costs, expenses, damages
or liabilities which may occur from the use,
storage, disposal, release, spill or discharge of
Hazardous Substances by Landlord or its agents,
representatives, employees or contractors while
acting within the scope of their employment, and
it shall indemnify, defend and hold harmless
Tenant and its agents, employees, partners,
officers, directors, invitees, assignees,
sublessees, contractors and others for whose
actions Tenant is responsible (collectively,
"Tenant's Agents") from all claims, demands,
actions, liabilities, reasonable costs, reasonable
expenses, penalties (whether civil or criminal),
damages (actual or punitive) and obligations of
any nature to the extent arising from or as a
result of any violation of this Section 8(B). The
foregoing indemnification and the responsibilities
of Landlord shall survive the termination or
expiration of this Lease.

(C) During and after the Lease Term, Tenant and
Landlord shall each promptly provide the other
with copies of all summons, citations, directives,
information inquiries or requests, notices of
potential responsibility, notices of violation or
deficiency, orders or decrees, claims, complaints,
investigations, judgments, letters, notices of
environmental liens, and other communications,
issued or threatened in writing, from the United
States Environmental Protection Agency,
Occupational Safety and Health Administration, the
Commonwealth of Virginia Department of
Environmental Quality, or other federal, state or
local agency or authority, or any other entity or
individual, whether public or private, concerning
(i) any Hazardous Substance regarding the Property
or the Premises; (ii) the imposition of any
environmental lien on the Property or the
Premises; or (iii) any alleged violation of or
responsibility under any Environmental Law, with
respect to the Property.

9. INSURANCE.

(A) INSURANCE BY LANDLORD.

Landlord shall, during the Lease Term, procure and
keep in force the following insurance (it being
understood that the cost of commercially
reasonable premiums and deductibles incurred or
paid by or on behalf of Landlord in connection
therewith will be deemed Additional Rent payable
by Tenant pursuant to Section 5 and Section 6
(Tenant hereby acknowledging that, as of the date
hereof, Landlord's deductible in connection with
its casualty insurance is $10,000 per occurrence,
and such deductible is commercially reasonable)):

(1) Property insurance insuring the Premises and
Improvements and rental income insurance
(i.e., loss of rents insurance) for perils
covered by the causes of loss - special form
(all risk) and in addition coverage for
flood, earthquake and boiler and machinery
(if applicable). Such coverage (except for
flood and earthquake) shall be written on a
replacement cost basis equal to ninety
percent (90%) of the full insurable
replacement value of the foregoing and shall
not cover Tenant's equipment, trade fixtures,
inventory, fixtures or personal property
located on or in the Premises.

(2) Commercial general liability insurance
against any and all claims for death, bodily
injury and property damage occurring in or
about the Premises or the land. Such
insurance shall have a combined single limit
of not less than One Million Dollars
($1,000,000) per occurrence per location with
a Two Million Dollars ($2,000,000) aggregate
limit, and shall name Tenant as an additional
insured.

(3) Such other insurance as Landlord deems
reasonably necessary and prudent, consistent
with the insurance customarily maintained by
comparable buildings in the Chantilly
submarket of Fairfax County, Virginia, or as
reasonably required by Landlord's
beneficiaries or mortgagees of any deed of
trust or mortgage encumbering the Premises.

(B) INSURANCE BY TENANT.

Tenant shall, during the Lease Term, procure and
keep in force the following insurance:

(1) Commercial general liability insurance naming
Landlord and Landlord's managing agent for
the Premises as additional insureds against
any and all claims for death, bodily injury
and property damage occurring in, or about
the Premises arising out of Tenant's use and
occupancy of the Premises. Such insurance
shall have a combined single limit of not
less than One Million Dollars ($1,000,000)
per occurrence with Two Million Dollars
($2,000,000) aggregate limit and excess
umbrella liability insurance in the amount of
Two Million Dollars ($2,000,000). If Tenant
has other locations that it owns or leases,
the policy shall include an aggregate limit
per location endorsement conforming to the
foregoing. Such liability insurance shall be
primary and not contributing with any
insurance available to Landlord and
Landlord's insurance shall be in excess
thereto. In no event shall the limits of
such insurance be considered as limiting the
liability of Tenant under this lease.

(2) Personal property insurance insuring all
equipment, trade fixtures, inventory,
fixtures and personal property located on or
in the Premises for perils covered by the
cause of loss - special form (all risk) and
in addition, coverage for flood, earthquake
and boiler and machinery (if applicable).
Such insurance shall be written on a
replacement cost basis in an amount equal to
ninety percent (90%) of the full replacement
value of the aggregate of the foregoing.

(3) Workers' compensation insurance in accordance
with statutory law and employers' liability
insurance with a limit of not less than
$100,000 per accident, $500,000 for a disease
policy limit, and $100,000 for disease limit
for each employee.

(4) Business interruption insurance in such
amounts, if any, that Tenant in its prudent
business judgment, elects to maintain, from
time to time, it being understood and agreed
that if there is any conflict between the
provisions of this Section 9(B)(4) and the
provisions of Section 9 (B)(5),the provisions
of this Section 9(B)(4) shall govern and
control.

(5) Such other insurance as Landlord deems
necessary and prudent, consistent with the
insurance customarily required to be
maintained by tenants of comparable buildings
in the Chantilly submarket of Fairfax County,
Virginia, or as reasonably required by
Landlord's beneficiaries or mortgagees of any
deed of trust or mortgage encumbering the
Property.

The policies required to be maintained by Tenant
and the policies required to be maintained by
Landlord shall each be issued by companies rated
AX or better in the most current issue of Best's
Insurance Reports. Insurers shall be licensed or
authorized to do business in the state in which
the Premises is located and domiciled in the
United States. Any deductible amounts under any
of Tenant's insurance policies required hereunder
shall not exceed $10,000. Certificates of
insurance (certified copies of the policies shall
be provided upon Landlord's request) shall be
delivered to Landlord prior to the Commencement
Date and annually thereafter at least thirty (30)
days prior to the expiration date of the old
policy. Tenant shall have the right to provide
insurance coverage which it is obligated to carry
pursuant to the terms hereof in a blanket policy,
provided such blanket policy expressly affords
coverage to the Premises, and to Landlord, as
required by this Lease. Each policy of insurance
shall provide notification to Landlord at least
ten (10) days prior to any cancellation or
modification to reduce the insurance coverage. In
the event Tenant does not purchase the insurance
required by this Lease or fails to keep the same
in full force and effect, Landlord may (but shall
not be obligated to), upon forty-eight (48) hours
notice (or, in the case of the lapse of Tenant's
general liability insurance, without notice),
purchase the required insurance and pay the
premium. The Tenant shall repay to Landlord, as
Additional Rent the amount so paid promptly upon
demand. In addition, Landlord may recover from
Tenant and Tenant agrees to pay, as Additional
Rent, any and all reasonable expenses (including
reasonable attorneys' fee) and damages which
Landlord may sustain by reason of the failure of
Tenant to obtain and maintain such insurance.

Landlord and Tenant mutually waive their
respective rights of recovery against each other
for any loss of, or damage to, either parties'
property, to the extent that such loss or damage
is insured by an insurance policy required to be
in effect at the time of such loss or damage.
Each party shall obtain any special endorsements,
if required by its insurer, whereby the insurer
waives its rights of subrogation against the other
party. This clause shall not apply in those cases
where waiver of subrogation would cause either
parties' insurance to be voided or otherwise made
uncollectible.

10. DAMAGE OR DESTRUCTION.

If (i) the Premises shall be materially damaged or
destroyed during the last year of the Lease Term (it
being agreed that, if the Extension Option was
exercised prior to such damage or destruction and
Tenant's right of rescission thereof has lapsed or is
waived in writing by Tenant not later than the earlier
of (x) 315 days in advance of the Expiration Date, or
(y) thirty (30) days after the date of such damage or
destruction, the last year of the Lease Term shall be
deemed to be the last year of the Extension Period), or
(ii) the Premises is damaged or destroyed to such
extent that the damage or destruction cannot be
repaired within a period of three hundred sixty-five
(365) days of the date of such damage or destruction,
either Landlord or Tenant may terminate this Lease by
written notice (the "Damage Notice") delivered to the
other within sixty (60) days of the date of such damage
or destruction (and in such event this Lease shall
terminate as of date of such damage or destruction as
if such date were the Expiration Date hereof). In
addition, Landlord, at its sole option, shall have the
right to cancel and terminate this Lease, by written
notice (the "Section 10 Notice") delivered to Tenant
not later than sixty (60) days after the date of damage
or destruction, in the event (i) the Premises is
materially damaged or destroyed, (ii) the unexpired
portion of the Lease Term which will remain after
completion of rebuilding or restoration of the Premises
(based on the estimated time for rebuilding or
restoration from a reputable, independent contractor)
is less than forty-two (42) months [it being agreed
that, for purposes of the foregoing calculation, if the
Extension Option was exercised prior to such damage or
destruction and Tenant's right of rescission thereof
has lapsed or is waived in writing by Tenant not later
than the earlier of (x) 315 days in advance of the
Expiration Date, or (y) thirty (30) days after the date
of such damage or destruction, less than forty-two (42)
months of the Extension Period will remain unexpired
after completion of rebuilding or restoration of the
Premises, based upon the estimated time for such
rebuilding or restoration], and (iii) Tenant shall fail
to execute and deliver to Landlord within thirty (30)
days after the date that Tenant received the Section 10
Notice an extension of the Lease Term equal to the
amount of time by which the remaining Lease Term
(which, if the Extension Option is not exercised prior
to such damage or destruction or if Tenant's right of
rescission thereof has not lapsed or is not waived in
writing by Tenant within thirty (30) days after the
date of such damage or destruction, shall exclude the
Extension Period, and in all events shall exclude the
estimated time to rebuild or restore the Premises) is
less than forty-two (42) months, upon the same terms
and conditions set forth herein except that the Rent
for the period of such extension shall equal the
then-escalated Rent in effect immediately prior to the
expiration of the Lease Term, subject to escalation in
the same manner in effect immediately prior to the
expiration of the Lease Term. If Landlord delivers
neither the Damage Notice or the Section 10 Notice to
Tenant within sixty (60) days after the date of the
damage or casualty, Landlord shall be deemed to have
waived its right to terminate this Lease in connection
with such damage or destruction. If this Lease is not
terminated, then Landlord shall repair and restore the
Premises (exclusive of Tenant's equipment, trade
fixtures, inventory, fixtures and personal property)
with all reasonable speed (but in all events not later
than twelve (12) months after the date of the damage)
to substantially the same condition as immediately
prior to such damage or destruction, and the Rent and
Additional Rent or a just and proportionate part
thereof, according to Tenant's ability to utilize the
Premises in its damaged condition, shall be abated
until the Premises shall have been repaired and
restored by Landlord.

11. INDEMNIFICATION.

(A) Subject to the terms of Section 9(C), Tenant shall
and does hereby indemnify, hold harmless, and
defend Landlord (except for Landlord's gross
negligence or willful misconduct) against all
costs, damages, injury, claims, liabilities or
expenses (including, but not limited to,
reasonable attorneys' fees), losses and court
costs with respect to injury or death to any
person or for damage to or loss of use of any
property arising out of any occurrence in, on or
about the Property or on account of the use,
condition, occupational safety or occupancy of the
Property, to the extent caused or contributed to
by Tenant or Tenant's Agents, or arising out of
any occurrence in, upon or at the Premises, or on
account of the use, condition, occupational safety
or occupancy of the Premises. To the fullest
extent permitted by applicable law, it is the
intent of the parties hereto that the indemnity
contained in this Section shall not be limited or
barred by reason of any ordinary negligence on the
part of Landlord or Landlord's agents, but nothing
herein contained shall be deemed to require Tenant
to indemnify Landlord against the negligence of
Landlord or Landlord's agents except to the extent
Tenant is insured against liability arising
therefrom. Such indemnification shall include and
apply to (but shall not be limited to) reasonable
attorneys' fees, investigation costs, and other
costs actually and reasonably incurred by
Landlord. Subject to the terms of Section 9(C),
Tenant shall and does hereby further indemnify,
defend and hold harmless Landlord from and against
any and all costs, damages, injury, claims,
liabilities or expenses arising from any breach or
default in the performance of any obligation on
Tenant's part to be performed under the terms of
this Lease. The provisions of this Section shall
survive the expiration or termination of this
Lease with respect to any damage, injury, death,
breach or default occurring prior to such
expiration or termination. This Lease is made on
the express conditions that, except as expressly
set forth in this Lease, Landlord shall not be
liable for, or suffer loss by reason of, injury to
person or property, from whatever cause, in any
way connected with the condition, use,
occupational safety or occupancy of the Premises
specifically including, without limitation, any
liability for injury to the person or property of
Tenant or Tenant's Agents.

(B) Subject to the terms hereof (including, but not
limited to, Section 9(C) hereof), Landlord shall
and does hereby indemnify and hold harmless Tenant
from and against all costs, damages, injury,
claims, liabilities, expenses (including, but not
limited to, reasonable attorneys' fees), losses
and court costs to the extent caused by or
contributed to by any gross negligence or willful
misconduct of Landlord or its agents or employees
acting within the scope of their employment. Such
indemnification shall include and apply to (but
shall not be limited to) reasonable attorneys'
fees, investigation costs, and other costs
actually and reasonably incurred by Tenant.
Subject to the terms of Section 9(C), Landlord
shall further and does hereby indemnify, defend
and hold harmless Tenant from and against any and
all costs, damages, injury, claims, liabilities or
expenses arising from any breach or default in the
performance of any obligation on Landlord's part
to be performed under the terms of this Lease. To
the fullest extent permitted by applicable law, it
is the intent of the parties hereto that the
indemnity contained in this paragraph shall not be
limited or barred by reason of any ordinary
negligence on the part of Tenant or Tenant's
Agents, but nothing herein contained shall be
deemed to require Landlord to indemnify Tenant
against the negligence of Tenant or Tenant Agents
except to the extent Landlord is insured against
liability arising therefrom. The provisions of
this Section shall survive the expiration or
termination of this Lease with respect to any
damage, injury, death, breach or default occurring
prior to such expiration or termination. This
Lease is made on the express conditions that,
except as expressly set forth in this Lease,
Tenant shall not be liable for, or suffer loss by
reason of, injury to person or property, from
whatever cause, in any way connected with the
condition, use, occupational safety or occupancy
of the common areas of Avion (R) Business Park
specifically including, without limitation, any
liability for injury to the person or property of
Landlord or Landlord's agents or employees.

12. ASSIGNMENT AND SUBLETTING.

(A) Tenant shall not assign, encumber, mortgage,
pledge, license, hypothecate or otherwise transfer
the Premises or this Lease, in whole or in part,
or sublease all or any part of the Premises, or
permit the use or occupancy of any part of the
Premises by any person or entity other than Tenant
and its employees, without the prior written
consent of Landlord, which may be granted or
withheld in Landlord's sole discretion; provided
that, subject to Landlord's termination right as
set forth below, Landlord agrees not to
unreasonably withhold, delay or condition its
consent to any sublease or assignment (each a
"Transfer"). Notwithstanding anything herein
contained to the contrary, it shall be deemed
reasonable for Landlord to withhold its consent to
a proposed Transfer if Landlord reasonably
determines that: (1) the proposed Transferee or
its business is not of a type and quality suitable
for a building of comparable quality and type, (2)
the proposed Transferee is a governmental or
quasi-governmental authority, a foreign government
or international agency or other organization
entitled to sovereign or other immunity, (3) the
proposed operations of the proposed assignee or
subtenant would materially and adversely interfere
with the ability of other tenants of the Building
to utilize their premises for the uses
("Comparable Uses") that are consistent with the
type of uses found in buildings that are of
similar quality and type as the Building, (4) the
proposed assignee has not been demonstrated to
Landlord's satisfaction to have sufficient
financial capability and stability to perform its
obligations under such proposed assignment, or (5)
the proposed Transferee is proposing to engage in
a use which (i) is not a Permitted Use, (ii) is
not permitted pursuant to applicable law to be
conducted by the proposed Transferee or within the
Premises (or such lesser portion as is being
sublet) or both, (iii) will violate any covenant,
condition, restriction or other matter of record
affecting title to the Property, or (iv) will
violate any "exclusive use" or other restrictive
covenant of any other lease of any portion of the
Property (so long as such exclusive use or
restrictive covenant does not restrict the ability
of Tenant to engage in the Permitted Use).

(B) (1) Tenant must request Landlord's consent to an
assignment or sublease in writing at least
thirty (30) days prior to the commencement
date of the proposed sublease or assignment,
which request must include (a) the name and
address of the proposed assignee or
subtenant, (b) the nature and character of
the business of the proposed assignee or
subtenant, (c) financial information
(including financial statements) of the
proposed assignee or subtenant, and (d) a
copy of the proposed sublet or assignment
agreement, which must be in substance and
form reasonably acceptable to Landlord.
Tenant shall also provide any additional
information Landlord reasonably requests
regarding such proposed assignment or
subletting.

(2) Within twenty-one (21) days after Landlord
receives Tenant's request for consent to a
proposed assignment or subletting (with all
required information included), Landlord
shall have the option: (i) to grant its
consent to such proposed assignment or
subletting, or (ii) to deny or condition its
consent to such proposed assignment or
subletting (it being understood that such
consent will not, subject to Landlord's right
of termination, be unreasonably withheld,
conditioned or delayed), or (iii) at
Landlord's sole discretion, to terminate this
Lease effective as of the commencement date
of such proposed assignment, or, if a
sublease, to sublease the portion of the
Premises proposed to be subleased, on the
same terms and conditions set forth in the
proposed sublease for which Landlord's
consent is sought. If Landlord fails to
respond to Tenant within such period of time,
Tenant may deliver to Landlord a second (2nd)
request for such consent, which notice shall
specifically state that the failure by
Landlord to respond within five (5) business
days shall be deemed Landlord's election to
grant its consent thereto, and in the absence
of a response to such second (2nd) notice,
Landlord shall be deemed to have granted its
consent thereto. Landlord acknowledges that
as of the date of this Lease, Tenant has
delivered to Landlord a list containing the
names of the entities identified by Tenant as
Tenant's current direct competitors. At
least seven (7) days prior to the date that
Landlord enters into a lease or grants any
party (other than Tenant) the right to use
any portion of the Premises, Landlord shall
deliver a written notice (the "Competitor
Request Notice") to Tenant which requests
that Tenant provide Landlord with a written
list of Tenant's then direct competitors. If
within seven (7) days after the date that
Tenant receives a Competitor Request Notice,
Tenant delivers to Landlord a list of direct
competitors, then such list shall be deemed
the then-current "Competitor List", provided
that if Tenant fails to deliver to Landlord
such list within seven (7) days after the
date Tenant receives a Competitor Request
Notice, then the then current Competitor List
shall be deemed to be the most recent list of
direct competitors that has been delivered to
Landlord by Tenant. Landlord acknowledges
and agrees that, so long as (x) GTSI is the
Tenant hereunder, and (y) GTSI utilizes the
Premises for sales, marketing or training
purposes or for its executive offices,
Landlord may not (i) lease space recaptured
pursuant to the foregoing clause
12(B)(2)(iii) or the following Section
12(B)(3) to any direct competitor of GTSI on
the then current Competitor List or (ii)
permit any direct competitor of GTSI on the
then current Competitor List to use any
portion of the Premises. For purposes of
this Section 12(B)(2) and Section 12(E), (i)
the term "GTSI" shall include Government
Technology Services, Inc. and any
organization successor thereto by means of
merger, consolidation or reorganization, and
(ii) the terms "direct competitor" and
"direct competitors" shall mean business
operations that have been identified by
Tenant in writing on the most recent
Competitor List as direct competitors in
accordance with the foregoing provisions,
which operations engage in the resale of
computers to the United States government (it
being understood that computer manufacturers,
and any division of any company which
otherwise qualifies as a direct competitor of
GTSI but the division of which is to be
located within the recaptured space does not
engage in the resale of computers to the
United States government, shall not be
prohibited by the preceding provisions of
this Section 12 (B)(2)).

(3) Tenant shall additionally have the right to
deliver to Landlord advance written notice
(each an "Intent Notice") of Tenant's intent
to assign or sublease before Tenant
identifies the proposed assignee or
sublessee. Each Intent Notice shall include
the terms and conditions upon which Tenant
proposes to assign or sublease. Landlord may
exercise its recapture right pursuant to the
foregoing Section 12(B)(2)(iii), with respect
to the space Tenant intends to sublet or
assign as identified in Tenant's Intent
Notice, within twenty-one (21) days after
delivery of Tenant's Intent Notice, but if
Landlord fails to exercise such right within
such 21-day period, Landlord shall have no
right to exercise such recapture right, with
respect to any proposed assignment or sublet
of the space identified in Tenant's Intent
Notice on the terms and conditions described
in such Intent Notice, during the sixty (60)
day period following the expiration of such
21-day recapture period (or any earlier date
on which Landlord notifies Tenant that it
will not exercise its recapture right at that
time).

(1) Tenant shall pay to Landlord as Additional
Rent fifty percent (50%) of the amount (the
"sublet profit"), if any, by which the rent
(net of any rent abatements), any additional
rent and any other sums paid by the assignee
or subtenant to Tenant under such assignment
or sublease (after deducting therefrom the
reasonable out-of-pocket costs incurred by
Tenant in the subject transaction, including,
but not limited to, brokerage commissions,
hard and soft construction expenses, tenant
concessions (exclusive of non-cash
concessions, such as free rent), and
reasonable legal fees) exceeds the total of
(i) the Rent plus (ii) any Additional Rent
payable by Tenant hereunder, which is
allocable to the portion of the Premises
and/or the Lease Term which is the subject of
such assignment or sublease. The foregoing
payments shall be made on a monthly basis by
Tenant in each month in which a sublet profit
is received. In the event that Tenant
receives any consideration in connection with
a merger, consolidation, reorganization of
Tenant, or in connection with a sale of all
or substantially all of Tenant's assets or
stock, then the provisions of this Section
12(c)(1) shall not be applicable to such
consideration.

(2) No consent to any assignment or sublease
shall constitute a further waiver of the
provisions of this Section, and all
subsequent assignments or subleases may be
made only upon the terms and conditions of
this Section 12 and, where required, with the
prior written consent of Landlord in
accordance herewith. In no event shall any
consent by Landlord be construed to permit
reassignment or resubletting by a permitted
assignee or sublessee.

(3) No sublease or assignment by Tenant shall
relieve Tenant of any liability hereunder.

(4) Any assignment or sublease made without
Landlord's prior written consent (if such
consent is required) shall be void, and
shall, at the option of the Landlord,
constitute an Event of Default under this
Lease.

(5) No assignment or sublease shall be granted
for any term which extends beyond the Lease
Term.

(6) Tenant shall reimburse Landlord upon demand
for all reasonable costs, expenses and fees
incurred by or on behalf of Landlord in
connection with any proposed assignment or
sublease by Tenant (including, but not
limited to, Landlord's reasonable attorneys
fees and out-of-pocket expenses, if any), up
to a maximum of One Thousand Five Hundred
Dollars ($1,500.00) per proposed Transfer.

(D) The following events also constitute an
"Assignment" which is subject to the terms of this
Section and for which Landlord's prior written
consent is required: (i) if Tenant is a
corporation and any part or all of Tenant's shares
of stock, or the shares of stock or other
ownership interests of any corporation or other
entity owning shares of Tenant's stock, shall in
any one or more instances be issued, or
transferred by sale, assignment, conveyance,
operation of law (including, but not limited to,
transfer as a result of or in conjunction with any
merger, reorganization or recapitalization) or
other disposition, or otherwise changed, so as to
result in less than fifty-one (51%) of such
shares, or other ownership interests, or less than
fifty-one percent (51%) of any class of such
shares or other ownership interests, being owned
by the present (i.e., as of the date hereof)
owners thereof; (ii) if Tenant is a partnership
and any general partnership interest(s), or the
stock or other ownership interests of any
corporation or other entity owning any such
general partnership interests(s), in the
partnership shall in any one or more instances be
issued, or transferred by sale, assignment,
conveyance, operation of law (including, but not
limited to, transfer as a result of or in
conjunction with any merger, reorganization or
recapitalization) or other disposition, or
otherwise changed, so as to result in less than
fifty-one percent (51%) of such general
partnership interests(s), stock (or any class of
such stock) or other ownership interests being
owned by the present (i.e., as of the date hereof)
owners thereof; (iii) if Tenant is a limited
liability company or any other type of entity, and
any interest(s) of any member or other equity
owner, or the ownership interests of any entity
owning any membership interest(s) or other equity
interest in the Tenant, shall in any one or more
instances be issued, or transferred by sale,
assignment, conveyance, operation of law
(including, but not limited to, transfer as a
result of or in conjunction with any merger,
reorganization or recapitalization) or other
disposition, or otherwise changed, so as to result
in less than fifty-one percent (51%) of such
membership interests or other such equity and/or
ownership interests being owned by the present
(i.e., as of the date hereof) owners thereof; or
(iv) if effective control of the corporation,
partnership, limited liability company or other
form of Tenant shall be taken from those
exercising such control as of the date hereof.
Notwithstanding anything herein contained to the
contrary, this Section 12(D) shall not be deemed
to apply to Tenant if Tenant is a corporation the
shares of which are traded on a
nationally-recognized exchange and which is
required to make public disclosures regarding
ownership and financial condition.

(E) Notwithstanding any other provision of this Lease
to the contrary, GTSI (as defined in Section
12(B)(2)), while it is the Tenant and no Event of
Default is in existence hereunder, shall have the
right to (1) assign this Lease or to sublet all or
any portion of the Premises, in either case
without the consent of Landlord, to any successor
to GTSI by merger, consolidation or
reorganization, and to any affiliate that is
wholly-owned by or under common ownership with
GTSI (as part of a single group of interlocking
companies), or to any wholly-owned and controlled
division or sub-entity of GTSI, or (2) sublet up
to twenty percent (20%) of the Premises in the
aggregate (collectively, the "Permitted
Sublettings") without the consent of Landlord,
subject to the satisfaction of the following
conditions: (a) the proposed assignee or sublessee
(the "Transferee") and its business shall be of a
type and quality suitable for a building of
comparable quality and type, (b) the proposed
Transferee shall not be a governmental or
quasi-governmental authority, a foreign government
or international agency or other organization
entitled to sovereign or other immunity, (c) the
proposed operations of the proposed assignee or
subtenant will not materially and adversely
interfere with the ability of other tenants of the
Building to utilize their premises for the
Comparable Uses, (d) GTSI shall notify Landlord
not less than ten (10) days in advance of the
effective date of such assignment or sublease of
GTSI's intent to enter into such assignment or
sublease (failing which, Landlord shall be
entitled, and GTSI shall pay to Landlord as
liquidated damages, the sum of Five Hundred
Dollars ($500.00) for each failure to so notify
Landlord), (e) occupancy of the Premises by such
Transferee will not violate existing law, (f)
there will be no use of the Premises in violation
of the terms hereof, (g) with respect to an
assignment, such Transferee shall expressly assume
all of the obligations of the Tenant hereunder on
a form reasonably acceptable to Landlord, and (h)
no such assignment or subletting shall relieve
GTSI of any agreement, covenant, duty, liability
or obligation hereunder. Landlord acknowledges
and agrees that Landlord's right to recapture
pursuant to this Section 12 shall not apply to any
assignment or sublease to any successor to GTSI by
merger, consolidation or reorganization, or to
affiliate that is wholly-owned by or under common
ownership with GTSI (as part of a single group of
interlocking companies), or to any wholly-owned
and controlled division or sub-entity of GTSI,
which may be made without Landlord's consent under
the terms hereof, nor to the Permitted
Sublettings.

(F) Tenant hereby assigns to the Landlord absolutely
the rent due from each assignee and subtenant and
Tenant hereby authorizes each such assignee and
subtenant to pay said rent directly to Landlord
for credit, as and when collected by the Landlord
(and net of the Landlord's reasonable collection
costs), against the Rent and Additional Rent
payable hereunder; provided that, for all periods
in which no Event of Default shall be in existence
hereunder, Landlord shall permit Tenant to
continue to collect the rent from such assignees
and subtenants.

13. CARE OF PREMISES.

Except to the extent the obligation of Landlord
pursuant to the express terms hereof, Tenant covenants
and agrees that during the Lease Term it will keep the
Premises and every part thereof in good order,
condition and repair (subject to reasonable wear and
tear, and damage by fire or other casualty which is not
Tenant's obligation to repair),and that it will in all
respects and at all times duly comply with all
applicable laws, and all covenants, conditions and
restrictions applicable to the Property.

14. ALTERATION BY TENANT.

(A) Tenant is hereby given the right, at its sole cost
and expense, at any time during the Lease Term, to
make non-structural alterations or improvements to
the interior of the Improvements which Tenant
deems necessary or desirable for its purposes;
provided, however, that no alterations or
improvements shall be made without the prior
written approval of Landlord, which written
approval shall not be unreasonably withheld,
conditioned or delayed so long as the proposed
alterations do not affect the structure of the
Property or the systems serving the same, do not
require any alterations to be made to portions of
the Property outside the Premises, and will not
materially and adversely interfere with the
ability of other tenants of the Building to
utilize their premises for the Comparable Uses.
Landlord's approval of any plans, specifications
or work drawings shall create no responsibility or
liability on the part of the Landlord for their
completeness, design sufficiency or compliance
with any laws, rules and regulations of
governmental agencies or authorities.
Notwithstanding the foregoing, Landlord's consent
shall not be required for purely cosmetic
decorations nor for non-structural alterations
costing less than Twenty-Five Thousand Dollars
($25,000.00) in the aggregate, so long as (1)
Tenant notifies Landlord of its intent to carry
out such alterations at least ten (10) days in
advance, (2) the proposed alterations do not
affect the structure of the Property or the
systems serving the same, do not require any
alterations to be made to portions of the Property
outside the Premises, do not require the issuance
of a building permit, and will not adversely
affect any other tenant or occupant of the
Property, and (3) Tenant provides Landlord with
reasonable assurances against the attachment of
any mechanics' or materialmen's liens to the
Property. Landlord agrees to respond to any
request for consent to any alteration costing less
than Fifty Thousand Dollars ($50,000) within five
(5) business days after delivery to Landlord of
Tenant's request for consent accompanied by
detailed plans and specifications for the proposed
alteration.

(B) All work herein permitted shall be done and
completed by the Tenant in a good and workmanlike
manner and in compliance with all requirements of
law and of governmental rules and regulations.
Tenant agrees to and does hereby indemnify the
Landlord against all mechanics' or other liens
arising out of any of such work, and also against
any and all costs, damages, injury, claims,
liabilities or expenses which arise out of any
such work. The Landlord agrees to join with the
Tenant in applying for all permits necessary to be
secured from governmental authorities and to
promptly execute such consents as such authorities
may reasonably require in connection with any of
the foregoing work.

(C) Upon written notice to Tenant within ninety (90)
days after expiration of the Lease Term, Landlord
may require that Tenant remove, at Tenant's sole
cost and expense, any or all alterations,
improvements or additions to the Improvements, and
restore the Improvements to their prior condition.
Notwithstanding the foregoing, Landlord shall have
no right to require removal of the Tenant Work, or
any subsequent alteration, addition, improvement
or modification in or to the Premises for which
Landlord's consent is required, unless Landlord
expressly reserves (in writing) the right to
require such removal at the time Landlord's
consent to the plans and specifications therefor
is given. Unless Landlord requires their removal
in accordance with the foregoing, all alterations,
additions and improvements which may be made on
the Improvements (other than video/surveillance
equipment installed by or on behalf of Tenant at
Tenant's expense, exclusive of the Tenant's
Allowance) shall become the property of Landlord
and remain upon and be surrendered with the
Improvements. Tenant shall also repair any damage
to the Improvements or Tenant Work caused by the
installation or removal of Tenant's trade
fixtures, furnishings and equipment, or any
alterations or other improvements made to the
Improvements or Tenant Work by or on behalf of
Tenant.

15. CONDEMNATION.

(A) If the Premises shall be wholly taken by exercise
of right of eminent domain, then this Lease shall
terminate from the day the possession of the whole
of the Premises shall be required under the
exercise of such power of eminent domain. Any
award for the taking of all or part of the
Premises under the power of eminent domain or any
payment made under threat of the exercise of such
power shall be the property of the Landlord.
Tenant reserves such separate rights as it may
have against the condemning authority to claim
damages for loss of its trade fixtures and the
cost of removal and relocation expense, provided
such Tenant rights do not, in any way, diminish
the award to which Landlord would otherwise be
entitled or reduce the amounts payable to Landlord
pursuant to this subsection.

(B) If such part of the Improvements shall be
condemned so as to substantially and materially
hamper the operation of Tenant's business, then
the Rent and Additional Rent payable hereunder
shall be reduced in the proportion that the
remaining area of the Improvements bears to the
original area of the Improvements.

16. SUBORDINATION.

(A) Provided that (i) Landlord enters into a mortgage
which encumbers all or any portion of the
Property, and (ii) Landlord's mortgagee shall have
executed and delivered to Tenant a written
subordination, attornment and non-disturbance
agreement meeting the criteria set forth in
Section 16(B)(the "Approved Agreement"), (x) this
Lease shall be subject and subordinate to the lien
of such mortgage (and to any and all advances made
thereunder); however, Landlord's mortgagee shall
have the right, without Tenant's consent, to
require this Lease be superior to any such
mortgage, and (y) Tenant agrees to execute such
Approved Agreement. Notwithstanding anything
herein to the contrary, if Principal Mutual Life
Insurance Company ("PMLIC") or any party that is
related to or affiliated with PMLIC is the
mortgagee, the form of the subordination and
non-disturbance agreement that will be entered
into shall be the form that is attached hereto as
Exhibit G.

(B) (1) The subordination of this Lease to any
mortgage shall be conditioned upon Landlord
obtaining from the holder of such mortgage a
commercially reasonable form of written
non-disturbance agreement which provides (A)
in the event of a foreclosure or other action
taken under the mortgage by the holder
thereof, this Lease and the rights of Tenant
hereunder shall not be disturbed but shall
continue in full force and effect so long as
Tenant shall not be in default hereunder
beyond the applicable notice and cure period
(if any), and (B) such holder will agree that
in the event it shall be in possession of the
Premises, that so long as Tenant shall
observe and perform all of the obligations of
Tenant to be performed pursuant to this Lease
(subject to applicable notice and cure
rights), such Mortgagee will perform all
obligations of Landlord required to be
performed under this Lease.

(2) Tenant hereby acknowledges that it has been
informed that Principal Mutual Life Insurance
Company currently is the beneficiary of a
deed of trust which encumbers the Land.
Tenant further acknowledges and agrees that
the form of subordination, non-disturbance
and attornment agreement attached hereto as
Exhibit G (the "Approved SNDA") constitutes a
commercially reasonable form of
non-disturbance agreement. Landlord hereby
agrees that, if Principal Mutual Life
Insurance Company fails to execute and
deliver the Approved SNDA to Tenant within
five (5) days after Landlord and Tenant
execute and deliver this Lease, Tenant may
deliver to Landlord a five (5) day written
notice of termination (the "SNDA Termination
Notice") within ten (10) days after the
expiration of the first 5-day period.
Provided the Tenant's SNDA Termination Notice
is timely delivered, and further provided
that such SNDA Termination Notice shall
state, inter alia, that the failure by
Principal Mutual Life Insurance Company to
execute and deliver the Approved SNDA within
five (5) days after delivery of the SNDA
Termination Notice will result in a
termination of this Lease, if Principal
Mutual Life Insurance Company fails to
execute and deliver the Approved SNDA to
Tenant within five (5) days after delivery of
the SNDA Termination Notice this Lease shall
cease and terminate without payment of
penalty or compensation as if the fifth (5th)
day after the date on which Tenant's SNDA
Termination Notice is delivered to Landlord
was the Expiration Date, and Landlord shall
return to Tenant any Security Deposit and any
prepaid Rent.

(3) Tenant hereby acknowledges that it has been
informed that Landlord intends to obtain a
construction loan to finance the construction
of the Improvements and/or the Tenant Work
from a third-party construction lender (the
"Construction Lender"). Landlord hereby
agrees that, if the Construction Lender fails
to execute and deliver to Tenant a
commercially reasonable form of
non-disturbance agreement (a "Construction
SNDA", which form shall provide, inter alia,
that if the Construction Lender forecloses
upon the Property or accepts a deed to the
Property in lieu of foreclosure, the
Construction Lender will, subject to the
provisions of Section 38 below, diligently
pursue completion of the construction of the
Improvements and the Tenant Work beginning
upon the Construction Lender's obtaining
possession of the Property, provided that (i)
Tenant attorns to the Construction Lender as
substitute landlord, (ii) Tenant agrees not
to terminate this Lease, provided that,
subject to the provisions of Section 38
below, the Construction Lender is diligently
pursuing completion of the work to be
performed by Landlord under Exhibit B, and
(iii) Tenant is not in default beyond the
expiration of any applicable cure period, on
or before August 1, 1998, Tenant may deliver
to Landlord a five (5) day written notice of
termination (the "Construction SNDA
Termination Notice") on or before August 11,
1998. Provided the Tenant's Construction
SNDA Termination Notice is timely delivered,
and further provided that such Construction
SNDA Termination Notice shall state, inter
alia, that the failure by the Construction
Lender to execute and deliver the
Construction SNDA within five (5) days after
delivery of the Construction SNDA Termination
Notice will result in a termination of this
Lease, if the Construction Lender fails to
execute and deliver the Construction SNDA to
Tenant within five (5) days after delivery of
the Construction SNDA Termination Notice this
Lease shall cease and terminate without
payment of penalty or compensation as if the
fifth (5th) day after the date on which
Tenant's Construction SNDA Termination Notice
is delivered to Landlord was the Expiration
Date, and Landlord shall return to Tenant any
Security Deposit and any prepaid Rent.

(C) In the event any proceedings are brought for
foreclosure, or in the event of the exercise of
the power of sale under any mortgage made by the
Landlord covering the Premises, Tenant shall
attorn to the purchaser at any such foreclosure,
or to the grantee of a deed in lieu of
foreclosure, and recognize such purchaser or
grantee as the Landlord under this Lease.

(D) Tenant hereby agrees that no mortgagee or its
successor shall be (i) bound by any payment of
Rent or Additional Rent for more than one (1)
month in advance, (ii) bound by any amendment or
modification of this Lease made without the
consent of Landlord's mortgagee or its successor
(which consent, if PMLIC is the mortgagee, shall
not be unreasonably withheld, conditioned or
delayed), (iii) liable for damages for any breach,
act or omission of any prior landlord, (iv) bound
to effect or pay for any construction for Tenant's
occupancy (it being understood and agreed that
such mortgagee or its successor shall be obligated
to perform the initial construction of the
Improvements in accordance with the provisions of
Exhibit B to the extent not previously completed),
or (v) subject to any claim of offset or defenses
that Tenant may have against any prior landlord.
Notwithstanding anything herein contained to the
contrary, (x) the foregoing clause (iv) shall not
apply to Principal Mutual Life Insurance Company
or its wholly-owned subsidiaries or to any
Construction Lender, and (y) with respect to any
mortgage, secured in whole or part by the
Property, under which PMLIC or any of its
wholly-owned subsidiaries is the mortgagee or
beneficiary, the disposition of any casualty
proceeds and condemnation awards shall, in the
first instance, be controlled by the terms of this
Lease and not such lender's loan documents, and
such lender will be obligated to return the
Security Deposit, whether or not received by such
lender. Upon Tenant's written request, Landlord
agrees to exercise reasonable efforts (the same
not to include refinancing, payment of money or
posting of security by Landlord) to obtain the
agreement of any future mortgagee (other than
Principal Mutual Life Insurance Company or its
wholly-owned subsidiaries or any Construction
Lender) to include in its non-disturbance
agreement such mortgagee's agreement that (a)
clause (iv) of this Section 16(D) will be
inapplicable, (b) the disposition of any casualty
proceeds and condemnation awards shall, in the
first instance, be controlled by the terms of this
Lease and not such lender's loan documents, and
(c) the lender will be obligated to return the
Security Deposit, whether or not received by such
lender, but the refusal of any such future
mortgagee to agree to such provisions shall not
entitle Tenant to refuse to execute a commercially
reasonable form of written non-disturbance
agreement which complies with Section 16(B).

(E) The word "mortgage" as used herein includes
mortgages, deeds of trust and any sale-leaseback
transactions, or other similar instruments, and
modifications, extensions, renewals, and
replacements thereof, and any and all advances
thereunder.

17. ACCESS TO PREMISES.

Landlord and its authorized agents shall have access to
the Premises, upon forty-eight (48) hours' notice (but
without notice in the event of an emergency) at any and
all reasonable times to inspect the same, to make any
repair or alteration to the Premises, to exhibit and
show the Premises to prospective tenants during the
last three hundred fifteen (315) days of the Lease
Term, and for other purposes pertaining to the rights
of the Landlord. Tenant may require an authorized
representative of Tenant accompany any entry into the
Premises, provided Tenant makes such representative
available upon reasonable prior notice. Tenant shall
also have the right to restrict access to secure areas,
so long as (i) Tenant accepts all responsibility and
liability arising from Landlord's inability to access
such areas, and (ii) a senior employee of Landlord or
Landlord's managing agent is provided access to such
secure area upon 48-hours' notice for purposes of
verifying the condition and use thereof. In exercising
Landlord's rights under this Section 17, Landlord
agrees to exercise commercially reasonable efforts to
avoid any unreasonable interference with the operation
of Tenant's business in the Premises.

18. RULES AND REGULATIONS.

Tenant agrees to comply with the current rules and
regulations set forth in the attached Exhibit D and
made a part hereof by reference. Tenant further agrees
to comply with future rules and regulations promulgated
by Landlord concerning the Premises, to the extent (i)
such future rules and regulations do not increase
Tenant's obligations or decrease Tenant's rights
hereunder, (ii) such future rules and regulations are
not in conflict with the express terms of this Lease,
and (iii) such future rules and regulations are imposed
on all comparable tenants in Avion (R) Business Park.

19. COVENANTS OF RIGHT TO LEASE.

Landlord covenants that it owns the fee interest in the
Land subject to existing covenants, conditions and
restrictions of record, that it has good and sufficient
right to enter into this Lease, subject to approval
from Landlord's mortgagee, and that Landlord alone has
the right to lease the Premises for the Lease Term.
Tenant acknowledges that Landlord has provided to
Tenant a current title report for the Land (the "Title
Report") prior to the date hereof, and Landlord
represents that, to the best of Landlord's actual
knowledge as of the date hereof, Landlord has not
entered into any proffers with respect to the Land that
are binding upon the Land or the occupants thereof
which either are not disclosed on the Title Report or
have not been disclosed in writing to Tenant prior to
the date hereof. Landlord further covenants that upon
Tenant performing the terms and obligations of Tenant
under this Lease, Tenant shall be entitled to have
quiet enjoyment of the Premises and the Property
throughout the Lease Term and any renewal or extension
thereof, without hindrance or molestation by Landlord
or anyone lawfully claiming by, through or under
Landlord, subject to the terms of this Lease; provided
that, nothing herein contained shall be deemed to
constitute a guaranty that neighboring tenants will not
utilize portions of Tenant's parking, but, subject to
the provisions of Section 36 below, Landlord agrees to
consult with Tenant on measures to assure Tenant of the
parking it requires. Subject to the terms hereof,
Tenant shall be entitled to use, and will have access
to, the Premises three hundred sixty-five (365) days
per year, twenty-four (24) hours per day.

20. MECHANICS LIENS.

Neither Tenant nor anyone claiming by, through, or
under Tenant or this Lease, shall have the right to
file or place any mechanics lien or other lien of any
kind or character whatsoever upon the Premises or upon
any improvement thereon, or upon the leasehold interest
of Tenant therein. Notice is hereby given that no
contractor, subcontractor, or anyone else who may
furnish any material, service or labor for any Property
improvements, alteration, repairs or any part thereof,
shall at any time be or become entitled to any lien
thereon. For the further security of Landlord, Tenant
covenants and agrees to give actual notice thereof in
advance to any and all contractors and subcontractors
who may furnish or agree to furnish any such material,
service or labor. Tenant shall cause any such lien
imposed to be released of record by payment or posting
of the proper bond reasonably acceptable to Landlord
within ten (10) days after the earlier of imposition of
the lien or written request by Landlord. If Tenant
fails to remove any lien within the ten (10) day
period, then Landlord, upon ten (10) days prior notice
to Tenant, may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amount, including,
but not limited to, reasonable attorneys fees and
costs, shall be deemed Additional Rent.

21. EXPIRATION OF LEASE AND SURRENDER OF POSSESSION.

(A) Holding Over. Tenant will, at the expiration or
termination of this Lease by lapse of time or
otherwise, yield up immediate possession of the
Premises to Landlord in the condition required
under this Lease. If Tenant retains possession of
the Premises or any part thereof after such
expiration or termination, then Landlord may, at
its option, serve written notice upon Tenant that
such holding over constitutes (i) creation of a
month-to-month tenancy, upon the terms and
conditions set forth in this Lease, or (ii)
creation of a tenancy at sufferance, upon the
terms and conditions set forth in this Lease;
provided, however, that the monthly Rent (or daily
Rent under (ii)) shall, in addition to all other
sums which are to be paid by Tenant hereunder, be
equal to one hundred ten percent (110%) of the sum
of Rent plus Additional Rent owed monthly to
Landlord under this Lease immediately prior to
such expiration or termination (prorated in the
case of (ii) on the basis of a 365 day year for
each day Tenant remains in possession); provided
further that, if Landlord shall institute any
action, case or suit to recover possession of the
Premises (whether styled as an unlawful detainer
action or otherwise), the monthly Rent (or daily
Rent under (ii)) payable pursuant to the preceding
sentence shall increase, effective as of the date
on which such action, case or suit is filed with
the court, to one hundred fifty percent (150%) of
the sum of Rent plus Additional Rent owed monthly
to Landlord under this Lease immediately prior to
such expiration or termination (prorated in the
case of (ii) on the basis of a 365 day year for
each day Tenant remains in possession). If no
such notice is served, then a tenancy at
sufferance shall be deemed to be created at the
Rent in the preceding sentence. Tenant shall also
pay to Landlord as Additional Rent all damages
sustained by Landlord resulting from retention of
possession by Tenant, including the loss of any
proposed subsequent tenant for any portion of the
Premises. The provisions of this Section shall
not constitute a waiver by Landlord of any right
of re-entry as herein set forth; nor shall receipt
of any Rent or any other act in apparent
affirmance of the tenancy operate as a waiver of
Landlord's right to terminate this Lease for a
breach of any of the terms, covenants, or
obligations herein on Tenant's part to be
performed.

(B) Subject to Section 14(C) and the following Section
21(C), upon the expiration of this Lease, by lapse
of time or otherwise, any and all buildings,
improvements or additions erected on the Premises
by Tenant shall, at the option of Landlord, be and
become the property of the Landlord without any
payment therefor and Tenant shall, at the option
of Landlord, surrender said Premises, together
with all buildings, improvements or additions
thereon, whether erected by Tenant or Landlord,
ordinary wear and tear excepted.

(C) Tenant may install in the Premises adequate
furnishings, furniture, equipment (including, but
not limited to, security cameras on the exterior
of the Building), fixtures, machinery and other
personal property for the operation of its
business (collectively, "Tenant's Property"), and
upon the expiration or termination of this Lease
by lapse of time or otherwise, Tenant shall remove
Tenant's Property at Tenant's sole cost. Upon
removal of Tenant's Property, Tenant shall repair
any damage to the Premises caused by the
installation or removal thereof at Tenant's sole
cost.

22. DEFAULT-REMEDIES.

(A) The occurrence of one or more of the following
events shall constitute a material default and
breach of this Lease by Tenant ("Event of
Default"):

(1) Failure by Tenant to make payment of any
Rent, Additional Rent, or any other payment
required to be made by Tenant hereunder, as
and when due, and such a failure shall
continue for a period of five (5) business
days after written notice of such failure
from Landlord; provided that, if two (2) such
notices have been delivered within the twelve
(12) months immediately preceding any failure
to make any payment when and as due, such
failure shall, without notice or demand, be
deemed an Event of Default;

(2) The making by Tenant (or any guarantor) of
any assignment or arrangement for the benefit
of creditors;

(3) The levying of an attachment, execution of
other judicial seizure upon the Tenant's
property in or interest under this Lease,
which is not satisfied or released or the
enforcement thereof superseded by an
appropriate proceeding within sixty (60) days
thereafter;

(4) The appointment of a receiver or trustee to
take possession of the property of Tenant (or
any guarantor) or of Tenant's (or any
guarantor's) business or assets and the order
or decree appointing such receiver or trustee
shall have remained in force undischarged for
sixty (60) days after the entry of such order
or decree;

(5) The vacating or abandonment of the Premises,
unless (i) Tenant notifies Landlord of its
intent to vacate or abandon not less than ten
(10) days in advance thereof, (ii) Tenant
obtains and maintains all necessary
endorsements to ensure that Tenant's
insurance shall remain in effect with regard
to the Premises, notwithstanding such
vacating or abandonment of the Premises, and
(iii) Tenant takes all necessary steps to
ensure there will be no unauthorized access
to the Premises during the period of any such
vacancy or abandonment;

(6) The failure by Tenant to maintain any
insurance required herein, which failure
continues for more than two (2) business days
after written notice from Landlord advising
Tenant of such failure;

(7) An assignment, subletting, pledge, mortgage,
or other transfer of this Lease or the
Premises by Tenant, or any transfer of any
interest in the Tenant, in violation of
Section 12 of this Lease; and/or

(8) The failure by Tenant to perform or observe
any other term, covenant, agreement or
condition to be performed or kept by the
Tenant under the terms, conditions, or
provisions of this Lease, which failure is
not cured within ten (10) days after written
notice thereof from Landlord (or such longer
time as may be reasonably required to cure
such failure through the exercise of due
diligence, unless (i) such failure is a
willful repudiation of the Lease authorized
by Tenant's Board of Directors, (ii) such
failure cannot, based on objective evidence,
be cured, (iii) such failure relates to the
existence of a generally-recognized, imminent
danger to the health or safety of occupants
of the Premises due to a hazardous condition
on the Premises, or (iv) such failure
subjects Landlord to criminal prosecution).

(B) If an Event of Default shall have occurred,
Landlord shall have (in addition to all other
rights and remedies provided by law or otherwise
provided by this Lease) the right, at the option
of the Landlord, then or at any time thereafter
while such Event of Default shall continue, to
elect any one or more of the following:

(1) To continue this Lease in full force and
effect (so long as Landlord does not
terminate this Lease), and Landlord shall
have the right to collect Rent, Additional
Rent and other charges when due for the
remainder of the Lease Term; and/or

(2) To cure such default or defaults at its own
expense and without prejudice to any other
remedies which it might otherwise have; and
any reasonable payment made or reasonable
expenses incurred by Landlord in curing such
default, with interest thereon at the Default
Rate (as hereafter defined), to be and become
Additional Rent to be paid by Tenant with the
next installment of Rent falling due
thereafter (but in no event earlier than
fifteen (15) days, nor later than thirty (30)
days, after the date on which Landlord
invoices Tenant for the same); and/or

(3) To re-enter the Premises in accordance with
applicable law, and dispossess Tenant and
anyone claiming through or under Tenant by
summary proceedings or otherwise, and remove
their effects, and take complete possession
of the Premises and either (a) declare this
Lease terminated and the Lease Term ended, or
(b) elect to continue this Lease in full
force and effect, but with the right at any
time thereafter that such Event of Default
remains uncured to declare this Lease
terminated and the Lease Term ended. In such
re-entry, Landlord may, as permitted by
applicable law, remove all persons from the
Premises, and Tenant hereby covenants in such
event, for itself and all others occupying
the Premises under Tenant, to peacefully
yield up and surrender the Premises to
Landlord. If Landlord elects to terminate
this Lease and/or elects to terminate
Tenant's right of possession, every
obligation of Landlord contained in this
Lease shall, upon entry of a final,
non-appealable judgment terminating this
Lease or Landlord's reentry onto the Premises
in accordance with applicable law, cease
without prejudice to Tenant's liability for
all Rent, Additional Rent, and other sums
owed by Tenant herein.

Should Landlord declare this Lease terminated and
the Lease Term ended (pursuant to Section
22(B)(3)(a) above), the Landlord shall be entitled
to recover from Tenant the Rent, Additional Rent,
and all other sums due and owing by Tenant to the
date of termination, plus the reasonable costs of
curing all Tenant's defaults existing at or prior
to the date of termination, plus the reasonable
costs of recovering possession of the Premises,
plus the reasonable costs of reletting the
Premises including, but not limited to repairs to
the Premises, costs to prepare and refinish the
Premises for reletting, leasing commissions,
rental concessions, and legal fees and costs, plus
other actual damages suffered or incurred by
Landlord due to all Events of Default and any late
fees or other charges incurred by Landlord under
any mortgage, plus the deficiency, if any, between
Tenant's Rent and Additional Rent for the balance
of the Lease Term and the rent obtained by
Landlord under another lease for the Premises, for
the balance of the Lease Term remaining under this
Lease on the date of termination.

Should Landlord elect to continue this Lease
(pursuant to Section 22(B)(3)(b) above), Landlord
shall be entitled to recover from Tenant the Rent,
Additional Rent and all other sums due and owing
by Tenant up to the date of dispossession, plus
the reasonable costs of curing all Events of
Default existing at or prior to the date of
dispossession, plus the Rent, Additional Rent and
all other sums owed by Tenant on a continuing
basis as said amounts accrue to the end of the
Lease Term, less the rental which Landlord
receives during such period, if any, from others
to whom the Premises may be relet, plus the
reasonable cost of recovering possession of the
Premises, plus the reasonable costs of reletting
including, but not limited to repairs to the
Premises, costs to prepare and refinish the
Premises for reletting, leasing commissions,
rental concessions, and legal fees and costs. Any
suit brought by Landlord to enforce collection of
such deficiency for any one month shall not
prejudice Landlord's right to enforce the
collection of any deficiency for any subsequent
month in subsequent separate actions, or Landlord
may defer initiating any such suit until after the
expiration of the Lease Term (in which event such
deferral shall not be construed as a waiver of
Landlord's rights as set forth herein and
Landlord's cause of action shall be deemed not to
have accrued until the expiration of the Lease
Term), and it being further understood that if
Landlord elects to bring suits from time to time
prior to reletting the Premises, Landlord shall be
entitled to its full damages through the date of
the award of damages without regard to any rent,
additional rent or other sums that are or may be
projected to be received by Landlord upon a
subsequent reletting of the Premises. In the
event that Landlord relets the Premises together
with other premises or for a term extending beyond
the scheduled expiration of the Lease Term, it is
understood that Tenant will not be entitled to
apply against Landlord's damages any rent,
additional rent or other sums generated or
projected to be generated by either such other
premises or the period extending beyond the
scheduled expiration of the Lease Term. Landlord
shall use commercially reasonable efforts to relet
and rent the Premises with or without advertising
for the remainder of the Lease Term, or for such
longer or shorter period as Landlord shall deem
advisable.

In lieu of the amounts recoverable by Landlord
pursuant to the two immediately preceding
paragraphs, but in addition to other remedies and
amounts otherwise recoverable by Landlord in this
Lease, Landlord may, at its sole election, (i)
terminate this Lease, (ii) collect all Rent,
Additional Rent, and other sums due and owing by
Tenant up to the date of termination, and (iii)
provided Landlord terminates Tenant's right to
possession of the Premises, accelerate and collect
the present value of the positive difference (if
any) between (x) the sum of all Rent, Additional
Rent and all other sums required to be paid by
Tenant through the remainder of the Lease Term,
and (y) the fair market rental value of the
Premises for the remainder of the Lease Term, net
of a reasonable vacancy and concession allowance
determined by Landlord in its reasonable
discretion (the present value of such difference
being herein referred to as the "Accelerated
Rent"), which Accelerated Rent shall be discounted
to present value using an interest rate equal to
six and one-half percent (6.5%) per annum
("Present Value Accelerated Rent"). In the event
Landlord is successful in reletting the Premises
for any part of the remainder of the Lease Term
prior to payment of the Present Value Accelerated
Rent, the fair market rental value shall be deemed
to equal the rents reserved under such reletting,
and Landlord shall not be obligated to pay over
the proceeds of such reletting in whole or part.
In no event shall Landlord be liable for, nor
shall Tenant's obligations hereunder be diminished
by reason of, any failure by Landlord to relet all
or any portion of the Premises or to collect any
rent due upon such reletting.

(C) Tenant, on its own behalf and on behalf of all
persons claiming through or under Tenant,
including all creditors, does hereby specifically
waive and surrender any and all rights and
privileges, so far as is permitted by law, which
Tenant and all such persons might otherwise have
under any present or future law (1) to the service
of any notice to quit or of Landlord's intention
to re-enter or to institute legal proceedings,
which notice may otherwise be required to be
given, (2) to redeem the Premises, (3) to re-enter
or repossess the Premises, (4) to restore the
operation of this Lease, with respect to any
dispossession of Tenant by judgment or warrant of
any court or judge, or any re-entry by Landlord,
or any expiration or termination of this Lease,
whether such dispossession, re-entry, expiration
or termination shall be by operation of law or
pursuant to the provisions of this Lease, or (5)
which exempts property from liability for debt or
for distress for rent. Landlord and Tenant each
hereby consents to the exercise of personal
jurisdiction over it by any federal or local court
in the jurisdiction in which the Premises is
located.

(D) If Tenant fails to take possession of the Premises
upon the commencement of the Lease Term, Landlord
and Tenant acknowledge that this Lease Agreement
may be construed as a contract to or for lease,
as opposed to a contract of lease. Accordingly,
Landlord and Tenant agree that, if Tenant defaults
under this Lease (beyond the applicable notice and
cure period, if any) prior to the Lease
Commencement Date, or if Tenant fails to accept
possession of the Premises when tendered by
Landlord (it being acknowledged and agreed that
any such failure by Tenant to accept possession of
the Premises when tendered by Landlord shall be an
Event of Default hereunder, but that Tenant shall
not be required to actually occupy the Premises in
order for Tenant to accept possession thereof),
Landlord shall be entitled to terminate Tenant's
right to possession of the Premises pursuant to
the Lease Agreement and to recover from Tenant,
subject to the conditions and limitations set
forth in Section 22(B), contract damages resulting
from Tenant's default and/or failure to accept
possession of the Premises in an amount equal to
all of the rents and other sums required to be
paid under the Lease (as if Tenant had taken
possession of the Premises when tendered by
Landlord) from the date on which Landlord tenders
possession of the Premises to Tenant until the
date on which the Premises are relet (if ever) or
any earlier date on which the Lease would have
expired by its terms, plus (but without
duplication) all of the damages reserved to
Landlord in Section 22(B) of this Lease
(including, but not limited to, any rent
deficiency upon any reletting, costs of reletting,
and court costs and attorneys' fees incurred to
relet the Premises and/or to enforce Landlord's
rights under the terms of this Lease).

(E) Landlord Default.

(1) Subject to the terms hereof, if (i) Landlord
shall default in the performance of any
covenant or provision of this Lease
pertaining to the provision of services by
Landlord or performance of repairs or
maintenance on Landlord's part to be
performed (which default shall not be
occasioned by (a) the acts or omissions of
Tenant or Tenant's agents, assignees,
contractors, employees, invitees, licensees,
sublessees or others for whose actions Tenant
is responsible or over whose actions Tenant
can reasonably be expected to exercise
control, or (b) circumstances, events or
facts beyond Landlord's reasonable control),
(ii) Landlord shall fail to remedy such
default within ten (10) days after Tenant
shall have given Landlord written notice of
such default specifying the same in detail
and specifying that the failure to cure the
same within ten (10) days shall be deemed a
Landlord Default hereunder, and (iii) such
default shall substantially impair Tenant's
use and enjoyment of the Premises, then upon
the expiration of such 10-day cure period the
Tenant shall (as Tenant's sole and exclusive
remedies) be entitled to exercise the
remedies set forth in this Section 22(E).
Notwithstanding the foregoing, in the event
that any such default is not reasonably
susceptible of cure within such ten (10) day
cure period, such cure period shall
automatically be deemed to be extended for
such additional period as shall be reasonably
required to cure such default, provided that
Landlord commences such cure within such
10-day period and diligently pursues such
cure thereafter. Any such default on the
part of Landlord which is not cured within
such 10-day cure period (as the same may be
extended pursuant to the preceding sentence)
shall be deemed a "Landlord Default".

(2) Subject to the terms hereof, in the event of
a Landlord Default, Tenant shall, provided
that no Event of Default by Tenant is in
existence hereunder, have the right (but not
the obligation) to remedy such Landlord
Default and charge Landlord for the
reasonable cost of such remedy, which charges
shall be payable by Landlord within thirty
(30) days of Tenant's demand therefor;
provided that, (i) Tenant's actions to cure
any Landlord Default shall conform and comply
in all respects with the terms of this Lease
(including, but not limited to, the
applicable provisions of Section 14), (ii)
the charges payable by Landlord pursuant to
this Section 22(E) shall constitute Operating
Expenses to the extent the same would
constitute Operating Expenses under Section 5
hereof if incurred directly by Landlord (it
being agreed, however, that any additional
incremental increase in such costs which is
reasonably attributable solely to the
Landlord Default (i.e., if Landlord had
performed directly it would have been able to
render performance at a lower cost) shall be
excluded from Operating Expenses), and (iii)
Tenant shall have no right to remedy any
Landlord Default if (a) such remedy will or
may materially and adversely interfere with
the ability of other tenants of the Building
to utilize their premises for the Comparable
Uses or invalidate or impair any warranty
applicable to any portion of the Building,
the Building structure or any system serving
any of the same, or (b) such Landlord Default
arises from or out of, or in connection with,
any fire or other casualty damage to, or
condemnation of, the Building.

(3) In the event Tenant engages in self-help as
provided in subparagraph 22(E)(2) above and
Landlord disagrees with the propriety of
Tenant's actions and/or the level of expenses
incurred by Tenant, and refuses to reimburse
Tenant for its costs, the parties agree to
submit such dispute to arbitration; provided
that, this subparagraph 22(E)(3) shall not be
deemed to require that Tenant refrain from
curing a Landlord Default in compliance with
this Section 22(E) until such dispute is
submitted to arbitration, nor shall this
subparagraph 22(E)(3) be deemed to preclude
Landlord from submitting to arbitration,
after the exercise of such remedy by Tenant,
any dispute regarding the existence of a
Landlord Default or arising from the exercise
of (or the costs of exercising) such remedy
by Tenant.

(4) Notwithstanding anything herein contained to
the contrary, in the event the Building, or
any part thereof, or the land on which the
Building is constructed, or the Landlord's
estate in the Building, is at any time
subject to a mortgage or deed of trust (each
a "Mortgage"), and/or (ii) this Lease, or the
Rent payable under this Lease, is assigned to
a mortgagee or the trustee(s) under a deed of
trust (each a "Mortgagee"), then Tenant shall
have no right to exercise any remedy under
this Section 22(E) unless and until Tenant
shall first deliver written notice, in the
manner provided elsewhere in this Lease for
the delivery of notices, to such Mortgagee,
specifying the Landlord Default in reasonable
detail, and affording such Mortgagee the same
notice and cure period set forth above for
the cure of a Landlord Default (it being
understood and agreed that no such Mortgagee
shall be obligated to cure any Landlord
Default). Tenant further agrees to deliver
to each such mortgagee or trustee a copy of
any notice delivered to Landlord pursuant to
the provisions of this Section 22(E).

23. RE-ENTRY BY LANDLORD.

No re-entry by Landlord or any action brought by
Landlord to remove Tenant from the Premises shall
operate to terminate this Lease unless Landlord shall
have given written notice of termination to Tenant, in
which event Tenant's liability shall be as above
provided. Subject to the express limitations and
conditions set forth herein, no right or remedy herein
granted to Landlord or Tenant is intended to be
exclusive of any other right or remedy, and each and
every right and remedy herein provided shall be
cumulative and in addition to any other right or remedy
hereunder or now or hereafter existing in law or equity
or by statute. In the event of termination of this
Lease, Tenant waives any and all rights to redeem the
Premises either given by any statute now or herein
enacted.

24. ADDITIONAL RIGHTS TO LANDLORD.

(A) In addition to any and all other remedies,
Landlord or Tenant may restrain any threatened
breach of any covenant, condition or agreement
herein contained, but except as otherwise
expressly set forth herein the mention herein of
any particular remedy or right shall not preclude
the Landlord or Tenant from any other remedy or
right it may have either at law or equity, or by
virtue of some other provision of this Lease; nor
shall the consent to one act, which would
otherwise be a violation or waiver of or redress
for one violation either of covenant, promise,
agreement, undertaking or condition, prevent a
subsequent act which would originally have
constituted a violation from having all the force
and effect of any original violation.

(B) Receipt by Landlord of Rent or other payments from
the Tenant shall not be deemed to operate as a
waiver of any rights of the Landlord to enforce
payment of any Rent, Additional Rent, or other
payments previously due or which may thereafter
become due, or of any rights of the Landlord to
terminate this Lease or to exercise any remedy or
right which otherwise might be available to the
Landlord, the right of Landlord to declare a
forfeiture for each and every breach of this Lease
is a continuing one for the life of this Lease.

(D) Intentionally Deleted.

25. SUCCESSORS, ASSIGNS AND LIABILITY.

The terms, covenants, conditions and agreements herein
contained and as the same may from time to time
hereafter be supplemented, modified or amended, shall
apply to, bind, and inure to the benefit of the parties
hereto and their legal representatives, successors and
assigns, respectively, subject to Section 12 hereof.
In the event either party now or hereafter shall
consist of more than one person, firm or corporation,
then and in such event all such person, firms and/or
corporations shall be jointly and severally liable as
parties hereunder.

26. NOTICES.

All notices and demands required to be given to either
party hereunder shall be in writing and shall be deemed
to have been given upon the earlier to occur of
delivery or refusal of delivery (or inability to
deliver at the last address provided by the recipient
to the sender), provided that such notice or demand is
sent by certified United States mail, postage prepaid,
return receipt requested, or by personal delivery, or
by a nationally recognized overnight delivery service
which provides evidence of delivery, delivery prepaid,
addressed to the party to whom directed at the address
set forth below or at such other address as may be from
time to time designated in writing by the party
changing such address.

Landlord Tenant

Petula Associates, Ltd. If Prior to the
Commencement
711 High Street Date:
Des Moines, Iowa 50392-1370 Government
Technology
Attn: CRE Equities/Mid-Atlantic 4100 Lafayette
Center Drive
Team Chantilly, VA 20151-1200

With a copy to: With a copy to:

Trammell Crow Real Estate Government
Technology
Services, Inc. Services, Inc.
1115 30th Street, N.W. 4100 Lafayette
Center Drive
Washington, D.C. 20007 Chantilly, Virginia
20151-1200
Attn: Property Manager/Avion Attn: General
Counsel

If after the Commencement
Date:

Tenant at the Premises
Attn: Director of
Facilities

With a copy to:

Tenant at the Premises
Attn: General Counsel

Notwithstanding the foregoing, Tenant acknowledges and
agrees that any motion, pleading or other filing
(including, but not limited to, any motion to compel
performance pursuant to 11 U.S.C. 365(d)(3), or any
proof of claim) by Landlord in any bankruptcy case in
which Tenant is the debtor shall constitute notice to
Tenant for purposes of this Lease.

27. MORTGAGEE'S APPROVAL.

Tenant hereby agrees that, if Landlord's mortgagee
shall require modifications of the terms and provisions
of this Lease, Tenant shall not unreasonably withhold,
condition or delay its execution and delivery of the
agreements required to effect such Lease modification
(it being understood that any such reasonable
modification(s) shall be executed and delivered within
thirty (30) days after Landlord's request therefor).
In no event, however, shall Tenant be required to agree
to modify any provision of this Lease relating to the
amount of Rent, Additional Rent or other charges
reserved herein, the size and/or location of the
Premises, the Improvements or the Lease Term, or to any
modification which would conflict with the express
terms hereof, nor shall any such modification diminish
Landlord's obligations or Tenant's rights hereunder or
increase Tenant's obligations hereunder.
<PAGE>
28. ESTOPPEL CERTIFICATES.

Within fifteen (15) days after delivery of a written
request from the other party hereto (the "Requesting
Party"), the party receiving such request (the
"Receiving Party") agrees to execute, acknowledge and
deliver to the Requesting Party (or, if Landlord is the
Requesting Party, any proposed mortgagee or purchaser)
a statement in writing, in form reasonably satisfactory
to the Requesting Party, certifying whether this Lease
is in full force and effect and, if it is in full force
and effect, what modifications (if any) have been made
to this Lease to the date of the certification, whether
or not any defaults or offsets exist with respect to
this Lease and, if there are, what they are claimed to
be, and setting forth the date(s) to which Rent or
other charges have been paid in advance, if any. The
failure of Tenant to execute, acknowledge, and deliver
to Landlord a statement requested pursuant to this
Section 28, which failure shall continue for more than
five (5) days after a second (2nd) written notice from
Landlord (delivered not earlier than the expiration of
the initial 15-day period) demanding such statement,
shall constitute an acknowledgment by Tenant that this
Lease is unmodified and in full force and effect and
that the Rent and other charges have been duly and
fully paid to and including the respective due dates
immediately preceding the date of Landlord's notice to
Tenant and shall constitute as to any person, a waiver
of any defaults which may exist prior to such notice.

29. DEFAULT RATE OF INTEREST.

All amounts owed by one party to the other pursuant to
any provision of this Lease shall bear interest from
the date due until paid at five percent (5%) per annum
above the generally prevailing "prime rate" as
published in the "Money Rates" section of the Wall
Street Journal (Eastern Edition) on the due date of
such sum (or, if not a business day, the next business
day), unless a lesser rate shall then be the maximum
rate permissible by law, in which event said lesser
rate shall be charged ("Default Rate"); provided that,
interest shall not accrue on any payment which is paid
within five (5) business days after written notice that
such payment is due and payable, unless two (2) or more
such notices have been delivered to the party from whom
payment is due within the twelve (12) months
immediately preceding the due date of the current
payment.

30. EXCULPATORY PROVISIONS.

It is expressly understood and agreed by and between
the parties hereto, anything herein to the contrary
notwithstanding, that each and all of the
representations, warranties, covenants, undertakings,
indemnities and agreements herein made on the part of
Landlord while in form purporting to be the
representations, warranties, covenants, undertakings,
indemnities and agreements of Landlord are nevertheless
each and every one of them made and intended, not as
personal representations, warranties, covenants,
undertakings, indemnities and agreements by Landlord or
for the purpose or with the intention of binding
Landlord personally, but are made and intended for the
purpose only of subjecting Landlord's interest in the
Premises to the terms of this Lease and for no other
purpose whatsoever, and in case of default hereunder by
Landlord, Tenant shall look solely to the interests of
Landlord in the Property. Landlord shall not have any
personal liability to pay any indebtedness accruing
hereunder or to perform any covenant, either express or
implied, herein contained. All such personal liability
of Landlord, if any, is expressly waived and released
by Tenant and by all persons claiming by, through or
under Tenant. Notwithstanding the foregoing, this
Section 30 shall be inapplicable to any judgment for
monetary damages entered against Landlord and in favor
of Tenant, to the extent Tenant's damages were found to
have been proximately caused by Landlord's fraud or
Landlord's misapplication of insurance proceeds or a
condemnation award.

31. MORTGAGEE PROTECTION.

Tenant agrees to give any holder of any first mortgage
or first trust deed in the nature of a mortgage (both
hereinafter referred to as a "First Mortgage") against
the Premises, or any interest therein, by registered or
certified mail, a copy of any notice or claim of
default served upon Landlord by Tenant, provided that
prior to such notice, Tenant has been notified in
writing of the address of such First Mortgage holder.
Tenant further agrees that if Landlord shall have
failed to cure any such default within twenty (20) days
after such notice to Landlord (or if such default
cannot be cured or corrected within that time, then
such additional time as may be necessary if Landlord
has commenced within such twenty (20) days and is
diligently pursuing the remedies or steps necessary to
cure or correct such default), then the holder of the
First Mortgage shall have an additional thirty (30)
days within which to cure or correct such default (or
if such default cannot be cured or corrected within
that time, then such additional time as may be
necessary if such holder of the First Mortgage has
commenced with such thirty (30) days and is diligently
pursuing the remedies or steps necessary to cure or
correct such default, including the time necessary to
obtain possession if possession is necessary to cure or
correct such default).

32. RECIPROCAL COVENANT ON NOTIFICATION OF ADA VIOLATIONS.

Within ten (10) days after receipt, Landlord and Tenant
shall advise the other party in writing, and provide
the other with copies of (as applicable), any notices
alleging violation of the Americans with Disabilities
Act of 1990 ("ADA") relating to any portion of the
Premises or the Improvements; any claims made or
threatened in writing regarding noncompliance with the
ADA and relating to any portion of the Premises or the
Improvements; or any governmental or regulatory actions
or investigations instituted or threatened regarding
noncompliance with the ADA and relating to any portion
of the Premises or the Improvements.

33. LAWS THAT GOVERN.

The terms and conditions of this Lease shall be
governed by the laws of the jurisdiction in which the
Premises is located.

34. FINANCIAL STATEMENTS.

Within ten (10) business days of Landlord's request,
Tenant shall deliver to Landlord the current financial
statements of Tenant, and financial statements for the
two (2) years prior to the current year. The financial
statements shall include a balance sheet, profit and
loss statement, and statement of cash flows for each
year, accompanied by an opinion from a certified public
accountant certifying that the financial statements are
prepared in accordance with generally accepted
accounting principles consistently applied. If Tenant
fails to deliver such financial statements within two
(2) business days after Landlord's second (2nd) request
for such financial statements, an amount equal to $250
per day shall be charged as Additional Rent for each
day thereafter on which Tenant fails to deliver to
Landlord the financial statements required herein.
Notwithstanding the foregoing, this Section 34 shall
not be deemed to apply to GTSI or to any other publicly
traded corporation so long as GTSI or such publicly
traded corporation, as applicable, publicly discloses
its financial condition.

35. PARKING.

In connection with construction of the Improvements,
Landlord shall construct on the Premises in accordance
with the Work Agreement attached hereto as Exhibit B,
surface parking at a ratio equal to not less than 4
spaces per 1,000 square feet of net rentable area in
the Improvements. Tenant shall have the right to park
in the parking facilities free of charge (other than
payment of Tenant's Pro Rata Share of Operating
Expenses). If, after Landlord completes construction
of the second building (the "Second Building")
contemplated by the Current Site Plan (as defined
herein) and executes a lease therefor, Tenant
determines that use of parking on the Property by third
parties is leaving Tenant with insufficient parking
spaces for its employees and visitors, Tenant shall
have the right to install professional signs and
stencils on Tenant's parking spaces, identifying such
spaces as reserved for the exclusive use of Tenant and
its employees and invitees. Tenant shall have the
right, at any time, to install professional signs and
stencils identifying Tenant's executive and visitor
parking spaces. Tenant shall have the right to tow any
vehicle parked in Tenant's parking spaces in violation
of Tenant's posted signs, provided that such signs warn
that violators will be towed and provide such other
information as is required by law to allow such towing.
Landlord and Tenant acknowledge that Tenant's parking
area will be as shown cross-hatched on the Current Site
Plan (subject to modification in accordance with
Exhibit B). Tenant shall, at all times and at Tenant's
sole expense, maintain its parking signs and stencils
in a first-class condition.

36. SIGNAGE.

(A) Landlord shall permit Tenant to place two (2)
signs containing Tenant's logo upon the
Improvements subject to Landlord's approval as to
design, method of attachment, placement, size,
color and style (such approval not to be
unreasonably withheld, conditioned or delayed), it
being further agreed that Landlord shall not
withhold its approval as to the design, color,
size, or style of such signs to the extent that
such signs comply with the signage requirements of
Exhibit E hereto. So long as Tenant shall occupy
at least fifty percent (50%) of the Building, no
other tenant shall be permitted to place signage
on the Building.

(B) So long as Tenant occupies at least seventy-five
percent (75%) of the Building, Tenant shall also
have the exclusive right, subject to approval by
Fairfax County and receipt of all necessary
approvals, easements, licenses and permits (which
the parties agree to cooperate to obtain), to
install and maintain one (1) monument sign
containing Tenant's name and/or logo on the Land
adjacent to Stonecroft Boulevard (in a location
mutually-agreed by Landlord and Tenant [and to be
tentatively agreed by the parties not later than
when Landlord's proposed site plan is submitted
for Fairfax County approval], each hereby agreeing
to negotiate the same in good faith and further
agreeing not to unreasonably withhold, condition
or delay their agreement to the same). If Tenant
occupies less than seventy-five percent (75%) of
the Building, Landlord shall have the right to
install and maintain its own monument sign on the
Land adjacent to Stonecroft Boulevard (in a
location mutually-agreed by Landlord and Tenant,
each hereby agreeing to negotiate the same in good
faith and further agreeing not to unreasonably
withhold, condition or delay their agreement to
the same). If Tenant occupies less than
seventy-five percent (75%) of the Building, and
Fairfax County does not permit installation of a
second monument sign on the Land adjacent to
Stonecroft Boulevard, Tenant agrees to provide
Landlord with fifty percent (50%) of the signage
space on its monument sign and Landlord agrees to
reimburse Tenant for (i) any modifications to such
monument sign reasonably required in connection
therewith and (ii) fifty percent (50%) of the
original cost of constructing and installing the
monument sign.

(C) In the event Landlord, in Landlord's sole
discretion, installs a monument or directional
signage at the entrance to the parking areas from
Avion Parkway, Tenant shall be entitled to have
sign space on such directional sign equal to that
of the other tenants occupying improvements on
Parcel D-1, Avion Development, as shown on plat
attached to Deed of Division recorded in Deed Book
7375 at page 562, among the land records of
Fairfax County, Virginia ("Parcel D-1"); provided
that, Tenant's signage thereon shall be uppermost
in location on such directional sign. Tenant
shall reimburse Landlord for its proportionate
share (based on the proportion of signage space
allowed thereon) of all costs, expenses and fees
attributable to such directional sign.

(D) Tenant shall obtain and pay for all governmental
approvals, permits and/or licenses required in
connection with any signage installed by or on
behalf of Tenant. In addition, all such signage
shall be subject to Landlord's prior approval (not
to be unreasonably withheld, conditioned or
delayed), and must comply with the established
signage program at Avion Business Park (a copy of
which is attached hereto as Exhibit E) and with
all covenants, conditions and restrictions of
record. The cost of Tenant's signage shall be
borne by Tenant (it being understood, however,
that Tenant may elect to be reimbursed from the
Allowance (as defined in Exhibit B) for the cost
of Tenant's permitted signage.

(E) If any signage (other than signage on the interior
of the Premises which is not visible from outside
the Premises) is exhibited without Tenant first
obtaining the Landlord's written consent thereto,
Landlord shall have the right, upon ten (10) days
written notice to Tenant, to remove the same and
Tenant shall be liable for any and all expenses
incurred by Landlord in connection with such
removal. Tenant shall maintain all of its signage
in a good state of repair and save the Landlord
harmless from any loss, cost or damage as a result
of the construction, installation, maintenance,
existence or removal of the same, and Tenant shall
repair any damage which may have been caused by
the construction, installation, operation,
existence, maintenance or removal of such signage.
Upon vacating the Premises, Tenant shall remove
all of its signage and repair all damage caused by
the installation, operation and/or removal
thereof, at the Tenant's sole expense.

37. RECORDATION.

Except to the extent required by law, Tenant shall not
record this Lease among or in any public records.

38. FORCE MAJEURE.

This Lease and the obligations of the parties hereunder
shall not be affected or impaired because the Landlord
or Tenant (as applicable) is unable to fulfill any of
its obligations hereunder or is delayed in doing so, to
the extent such inability or delay is caused by reason
of war, civil unrest, strike, labor troubles, unusually
inclement weather, governmental delays, inability to
procure services or materials despite reasonable
efforts, third party delays, acts of God, or any other
cause(s) beyond the reasonable control of the Landlord
or Tenant (as applicable) (which causes are referred to
collectively herein as "Force Majeure"). The time
specified for the performance of an obligation of
Landlord or Tenant (as applicable) in this Lease shall
be extended one day for each day of delay suffered by
Landlord or Tenant (as applicable) in the performance
of such obligation as a result of any Force Majeure
cause, provided that the party from whom performance is
due exercises commercially reasonable efforts to
mitigate the effects of such Force Majeure cause.
Notwithstanding the foregoing, but subject to the terms
of the sentence which immediately follows this
sentence, (i) this Section 38 shall have no application
to, nor shall the time for the performance of
Landlord's or Tenant's obligations hereunder be
extended with respect to, any obligation for the
payment of money or the surrender of the Premises upon
the expiration of the Lease Term, and (ii) this Section
38 shall be disregarded for purposes of determining
Tenant's termination rights pursuant to Section 2(A)(4)
and for determining the liquidated damages, if any, to
which Tenant may be entitled pursuant to Section 10(c)
of Exhibit B (it being understood that Force Majeure
shall have no application to Section 2(A)(4), and is
independently treated in Section 10(c) of Exhibit B).
Notwithstanding anything herein to the contrary, (x) if
the Construction Lender has foreclosed upon the
Property or has accepted a deed in lieu of foreclosure,
and (y) such Construction Lender is diligently pursuing
completion of the work to be performed by Landlord
under Exhibit B hereto, this Section shall apply to
Tenant's right to terminate pursuant to Section
2(A)(4).

39. LANDLORD'S LIEN.

As security for the performance of Tenant's
obligations, Tenant grants to Landlord a lien upon and
a security interest in Tenant's existing or hereafter
acquired personal property, inventory, furniture,
furnishings, fixtures, equipment, licenses, permits,
and all other tangible and intangible property, assets
and accounts, and all additions, modifications,
products and proceeds thereof, including, without
limitation, such tangible property which has been used
at the Premises, purchased for use at the Premises,
located at any time in the Premises or used or to be
used in connection with the business conducted or to be
conducted in the Premises, whether or not the same may
thereafter be removed from the Premises. Such lien
shall be in addition to all rights of distraint
available under applicable law. Within five (5) days
after request from time to time, Tenant shall execute,
acknowledge and deliver to Landlord a financing
statement and any other document evidencing or
establishing such lien and security interest which may
be requested by Landlord. During the Lease Term,
Tenant shall not sell, transfer or remove from the
Premises any of the aforementioned tangible property
without Landlord's prior written consent, unless the
same shall be promptly replaced with similar items of
comparable value. In order to further assure Tenant's
performance of its obligations under this Lease, Tenant
covenants that during the Lease Term, it will not
convey or otherwise transfer its assets or permit its
assets to be encumbered to the extent that any such
conveyance, transfer or encumbrance is not done in the
ordinary course of Tenant's business or would
materially and adversely affect the net worth of
Tenant. Notwithstanding anything herein to the
contrary, said lien shall be subordinated to the rights
of any lessor of any equipment or personal property
under any equipment lease, the rights of the seller
under any conditional sales contract, and to the
properly perfected lien of any bona fide third party
lender providing financing to Tenant in the ordinary
course of Tenant's business. Landlord also shall, to
the extent permitted by law, have (in addition to all
other rights) a right of distress for rent as security
for all Rent, Additional Rent and any other sums
payable under this Lease.

40. BROKERS.

Tenant represents and warrants to Landlord, and
Landlord represents and warrants to Tenant, that
neither it nor its officers or agents nor anyone acting
on its behalf has dealt with any real estate broker
other than Trammell Crow Real Estate Services, Inc. and
Cambridge Property Group Limited Partnership in the
negotiating or making of this Lease, and each agrees to
indemnify and hold the other party, and its respective
agents, employees, partners, directors, shareholders
and independent contractors harmless from all
liabilities, costs, demands, judgments, settlements,
claims and losses, including reasonable attorneys fees
and costs, incurred in conjunction with any such claim
or claims of any other broker or brokers claiming to
have interested Tenant in the Property or Premises or
claiming to have caused Landlord or Tenant to enter
into this Lease. Landlord acknowledges that it has
agreed to pay Trammell Crow Real Estate Services, Inc.
and Cambridge Property Group Limited Partnership a
commission with respect to this Lease, pursuant to a
separate agreement.

41. CONFIDENTIALITY.

Tenant agrees that this Lease is confidential and,
agrees to exercise reasonable, good faith efforts not
to disclose the contents of this Lease to any third
party, except Tenant's brokers, lawyers, architects,
engineers, and other consultants engaged in connection
with this Lease transaction; provided that, this
Section 41 shall not prohibit the disclosure of the
terms of this Lease to the U.S. Government or Tenant's
lenders, to the extent required by law or contract
between Tenant and such party.
<PAGE>
42. LEASE/DEED OF LEASE.

To the extent required under applicable law to make
this Lease legally effective, this Lease shall
constitute a deed of lease executed under seal.

43. RIGHT OF FIRST OFFER.

(A) Subject to the terms hereof and provided no Event
of Default then remains uncured under the Lease,
Landlord agrees that it will not sell the Premises
(or, if the Premises is Landlord's sole asset,
transfer all of Landlord's capital stock) during
the Lease Term unless it first extends a bona fide
offer to sell the Premises to Tenant at a price
and on such terms and conditions as Landlord may
describe in a written "offer to sell" given to
Tenant in the same fashion as notices given
pursuant to the provisions of Section 26 of this
Lease. Landlord shall, not less than fifteen (15)
days prior to Landlord's general circulation of
offering materials for the Premises, deliver to
Tenant the offer to sell ("Sale Offer Notice").
Tenant shall have fifteen days after receipt of
the Sale Offer Notice to (i) exercise its right of
first offer by agreeing to the economic terms of
the purchase and sale and giving Landlord written
notice of Tenant's election to acquire the
Premises ("Sale Election Notice") or (ii) not to
exercise its right of first offer for the
acquisition of the premises, it being understood
and agreed that if no notice is received from
Tenant during said fifteen day period, Tenant
shall be deemed not to have elected to purchase
the Premises. Within 30 days after receipt of
Tenant's Sale Election Notice, Landlord will
provide Tenant with an agreement of purchase and
sale, which Landlord and Tenant will negotiate and
execute within thirty (30) days of Tenant's
delivery of the Sale Election Notice. In the
event Tenant fails to execute the agreement of
purchase and sale within said thirty (30) day
period after giving its Sale Election Notice or in
the event Tenant does not deliver the Sale
Election Notice, then Landlord shall have the
right thereafter to sell the Premises to any third
party purchaser free and clear of any rights by
Tenant under this Section 43; provided that,
before entering into a contract to sell the
Premises at a price which is less than ninety-five
percent (95%) of the price at which the Premises
was offered to Tenant in Landlord's Sale Offer
Notice, Landlord shall again offer to sell the
Premises to Tenant in accordance with this Section
43 (in which event Tenant shall exercise its
rights under this Section 43 by delivery of the
Sale Election Notice within three (3) business
days after delivery of the Sale Offer Notice).

(B) Subject to the terms hereof and provided no Event
of Default has occurred under the Lease, Landlord
agrees that, during the first (1st) six and
one-half (6-1/2) years of the Lease Term, before
executing any lease for space in any other
building constructed on Parcel D-1 (an "Adjacent
Building"), Landlord will provide Tenant with a
bona fide offer to lease such Adjacent Building at
a rental rate and on such other terms and
conditions as Landlord describes in a written
"offer to lease" (the "Lease Offer Notice")
delivered to Tenant in the same fashion as notices
given pursuant to the provisions of Section 26 of
this Lease. Tenant shall have fifteen days after
receipt of the Lease Offer Notice to (i) exercise
its right of first offer by agreeing to the
economic terms of the lease and giving Landlord
written notice of Tenant's election to lease such
Adjacent Building ("Lease Election Notice") or
(ii) not to exercise its right of first offer for
the lease of the Adjacent Building, it being
understood and agreed that if no notice is
received from Tenant during said fifteen day
period, Tenant shall be deemed not to have elected
to lease the Adjacent Building. Within 30 days
after receipt of Tenant's Lease Election Notice,
Landlord will provide Tenant with a lease
agreement, which Landlord and Tenant will
negotiate and execute within thirty (30) days of
Tenant's delivery of the Lease Election Notice.
In the event Tenant fails to execute the lease
agreement within said thirty (30) day period after
giving its Lease Election Notice or in the event
Tenant does not deliver the Lease Election Notice,
then Landlord shall have the right thereafter to
lease all or any part of the Adjacent Building to
any third party free and clear of any rights by
Tenant under this Section 43. Notwithstanding
anything herein contained to the contrary, Tenant
acknowledges that (i) its rights under this
Section 43(B) are subject and subordinate to any
now-existing expansion rights in or to such
Adjacent Building, and to any expansion or renewal
rights granted to future tenants of such Adjacent
Building, and (ii) this Section 43(B) shall be
inapplicable to the initial "lease-up" of any
"pre-leased" or "build-to-suit" Adjacent Building.

44. MISCELLANEOUS.

(A) In the event that Tenant desires to store or
maintain the type or character of goods or
materials in the Premises which cause an increase
in insurance premiums, Tenant shall first obtain
the written consent of Landlord and Tenant shall
reimburse Landlord for any increase in premiums
caused thereby.

(B) Unless the context clearly denotes the contrary,
the words "Rent" and "Additional Rent" as used in
this Lease not only includes cash rental for the
Premises, but also all other payments and
obligations to pay assumed by the Tenant, whether
such obligations to pay run to the Landlord or to
other parties.

(C) In any litigation between the parties arising out
of this Lease, or in connection with any
consultations with counsel and other actions taken
or notices delivered in relation to a default by
any party to this Lease, the non-prevailing party
shall pay to the prevailing party all reasonable
expenses and costs including reasonable attorneys'
fees incurred by the prevailing party in
connection with the default and/or litigation, as
the case may be (including fees and costs in
preparation for and at trial, and on appeal, if
applicable) ("Legal Costs"). The Legal Costs
shall be payable on demand, and, if the prevailing
party is Landlord, the Legal Costs shall be deemed
Additional Rent, subject to all of Landlord's
rights and remedies provided herein.

(D) It is mutually agreed by and between Landlord and
Tenant that the respective parties hereto shall,
and they hereby do, waive trial by jury in any
action, proceeding or counterclaim brought by
either of the parties hereto against the other on
any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use of or occupancy
of the Premises or any claim of injury or damage
and any emergency statutory or any other statutory
remedy. If Landlord commences any summary
proceeding for nonpayment of Rent or Additional
Rent, Tenant will not interpose any counterclaim
of whatever nature or description in any such
proceeding, unless such counterclaim is a
mandatory counterclaim which would be waived if
not interposed in such proceeding.

(E) If any term or provision of this Lease is declared
invalid or unenforceable, the remainder of this
Lease shall not be affected by such determination
and shall continue to be valid and enforceable.

(F) Landlord and Tenant warrant that this agreement is
being executed with full corporate authority and
that the officers whose signatures appear hereon
are duly authorized and empowered to make and
execute this Lease in the name of the corporation
by appropriate and legal resolution of its Board
of Directors.

(G) This Lease contains the entire agreement between
the parties hereto. No representations,
inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein
shall be of any force or effect, and all reliance
by Tenant with respect to any representations,
inducements, promises or agreements is based
solely on those contained in this Lease. Any
modification to this Lease must be in writing and
duly executed by the parties hereto.

45. ROOF-TOP EQUIPMENT.

Tenant shall have the right to utilize a portion of the
roof of the Building for purposes of installing and
operating one or more satellite dishes or antennas,
subject to the terms of the attached Exhibit F.
Landlord and Tenant shall each complete, execute and
deliver to other the attached Exhibit F prior to Tenant
making any installation upon the Building roof.
Nothing herein contained shall be deemed to grant
Tenant the exclusive right to utilize the roof of the
Building.

IN WITNESS WHEREOF, Landlord and Tenant have executed
this Lease under seal on this 10th day of December, 1997.

WITNESS/ATTEST: LANDLORD:

PETULA ASSOCIATES, LTD., an
Iowa corporation
______________________________
By: /s/ Michael D. Ripson
(Seal)

Title: Vice President

By: /s/ R. L. Minear
(Seal)

Title: Vice President

WITNESS/ATTEST: TENANT:

GOVERNMENT TECHNOLOGY
SERVICES, INC.,
_____________________________ a Delaware corporation

By: /s/ M. Dendy Young
(Seal)

Title: CEO

<PAGE>
EXECUTION COPY

SECOND AMENDED AND RESTATED
BUSINESS CREDIT AND SECURITY AGREEMENT

Dated as of July 28, 1997

AMONG

GOVERNMENT TECHNOLOGY SERVICES, INC.

CERTAIN LENDERS NAMED HEREIN

AND

DEUTSCHE FINANCIAL SERVICES CORPORATION,
AS A LENDER AND AS AGENT

<PAGE>
SECOND AMENDED AND RESTATED
BUSINESS CREDIT AND SECURITY AGREEMENT

THIS SECOND AMENDED AND RESTATED BUSINESS CREDIT AND SECURITY
AGREEMENT ("Agreement") entered into among GOVERNMENT TECHNOLOGY SERVICES,
INC., a Delaware corporation, with its principal place of business at 4100
Lafayette Center Drive, Chantilly, Virginia 22021-0808 ("Borrower"), the
lenders (individually "Lender" and/or collectively "Lenders") listed on the
signature pages hereof, and DEUTSCHE FINANCIAL SERVICES CORPORATION, a
Nevada corporation ("DFS") as a Lender, and also as agent (in such agent
capacity, the "Agent").

EFFECTIVE DATE: As of July 28, 1997.

1. RECITALS

A. Borrower has requested that the Lenders provide Borrower with a
credit facility for working capital, capital expenditure and general
financing purposes.

B. Borrower, Lenders and Agent entered into that certain First
Amended and Restated Business Credit and Security Agreement dated as of May
2, 1996 (as amended from time to time, the "1996 Credit Agreement").

C. Borrower, Agent and the Lenders now desire to amend and restate
the 1996 Credit Agreement in its entirety on and pursuant to the terms of
this Agreement.

2. DEFINITIONS

Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this Section 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not
otherwise defined, shall be defined in accordance with GAAP.

"AAA" shall have the meaning set forth in Section 15.2.

"Account Debtor" shall mean any Person who is or who may become
obligated to Borrower under, with respect to, or on account of, an Account,
general intangible or other Collateral.

"Accounts" shall have the meaning given to that term in the UCC and, to
the extent not included therein, shall also mean all accounts, leases,
contract rights, chattel paper, general intangibles, choses in action and
instruments, including any Lien or other security interest that secures or
may secure any of the foregoing, plus all books, invoices, documents and
other records in any form evidencing or relating to any of the foregoing,
now owned or hereafter acquired by Borrower.

"Administration Fee" shall have the meaning set forth in Section 3.4.

"Affiliates" shall mean: (i) any individual who is an officer or
director of a Person (collectively, the "Affiliated Individuals"); and (ii)
any Person who directly or indirectly controls, is controlled by, or is
under common control or ownership with, a Person. For the purposes of this
definition, the term "control" shall mean the ownership of or the ability
to direct or control 10% or more of the beneficial interest in the
applicable entity.

"Agent" shall mean Deutsche Financial Services Corporation, a Nevada
corporation, acting in its capacity as agent for the Lenders, and each
successor Agent, appointed pursuant to Section 13.8.

"Agent Advances" shall have the meaning set forth in Section 5.2(b).

"Agreement" shall mean this Second Amended and Restated Business Credit
and Security Agreement, and any amendments hereto.

"Borrowing Base" shall have the meaning set forth in Section 3.2.

"Borrowing Base Certificate" shall have the meaning set forth in
Section 3.2(a).

"Business" shall mean the sale, marketing, distribution and servicing
of computers and related products, office automation and related products
and other miscellaneous products.

"Business Day" shall mean any day on which banks are open for business
in Washington, D.C. and New York, New York, and on which dealings in
currencies and exchange may be carried on in the interbank eurodollar
market.

"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the consolidated balance sheet of Borrower and the Subsidiaries
in respect of (a) the acquisition (including, without limitation,
acquisition by entry into a capitalized lease), construction, improvement,
replacement or betterment of land, buildings, machinery, equipment or of
any other fixed assets or leaseholds, and (b) to the extent related to and
not included in clause (a), materials, contract labor and direct labor
(excluding expenditures properly chargeable to repairs or maintenance in
accordance with GAAP).

"Collateral" shall mean all items described in Section 6.1.

"Commitment" shall have the meaning specified in Section 3.1.

"Credit Facility" shall have the meaning set forth in Section 3.

"Daily Contract Balance" shall have the meaning set forth in Section
3.3.

"Daily Rate" shall have the meaning set forth in Section 3.3.

"Debt" shall have the meaning set forth in Section 9.3.

"Default" shall have the meaning set forth in Section 10.

"Default Interest Rate" shall have the meaning set forth in Section
3.8.

"Disputes" shall have the meaning set forth in Section 15.1.

"Effective Date" shall mean the date set forth in the heading on page 1
of this Agreement.

"Eligible Accounts" shall mean all Accounts that are not Ineligible
Accounts.

"Environmental Laws" shall mean the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Solid Waste Disposal Act, as amended, the Water Pollution
Control Act, as amended, the Clean Air Act, as amended, the Clean Water
Act, as amended, and any successor or comparable federal or state statutes,
now existing or later enacted, or any regulation promulgated under any of
such federal or state statutes relating to the protection of the
environment.

"Environmental Lien" shall mean a Lien in favor of any governmental
entity for (a) any liability under any Environmental Law, or (b) damages
arising from or costs incurred by such governmental entity in response to a
spillage, disposal, or release into the environment of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance.

"Equipment" shall have the meaning as given to that term in the UCC,
and, to the extent not included therein, shall also mean all equipment,
machinery, trade fixtures, furnishings, furniture, supplies, materials,
tools, machine tools, office equipment, appliances, apparatus, parts and
all attachments, replacements, substitutions, accessions, additions and
improvements to any of the foregoing.

"Eurocurrency Liabilities" has the meaning specified in Regulation D of
the Board of Governors of the Federal Reserve System, as in effect from
time to time.

"Eurocurrency Reserve Percentage" for any Loan comprising part of the
same borrowing, means the reserve percentage, if any, applicable two
Business Days before the date the LIBOR Rate is determined under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation any emergency,
supplemental or other marginal reserve requirement for a member bank of the
Federal Reserve System in New York City with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities (or with respect
to any other category of liabilities that includes deposits by reference to
which the interest rate on Loans is determined) having a one-month term.

"Excess Advances" shall have the meaning set forth in Section 5.2.

"FAA" shall have the meaning set forth in Section 15.5.

"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate per annum equal, for each day during such period, to the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or if such
rate is not so published for any day that is a Business Day, the average of
the quotations for such day on such transactions received by Agent from
three Federal Funds brokers of recognized standing selected by it.

"GAAP" shall mean generally accepted accounting principles applicable
as of a particular date, consistently applied.

"Guarantor" shall mean a guarantor of any of the Obligations.

"Hazardous Material" shall mean any and all hazardous or toxic
substances, materials or wastes as defined or listed under the
Environmental Laws.

"Indebtedness" shall mean any sum for borrowed money owed by Borrower
or any Subsidiary to a Person and shall include any debt guaranteed by
Borrower or any Subsidiary, any debt as to which the Borrower has granted
or permitted to exist a Lien on any asset even if non-recourse, letter of
credit reimbursement obligations and capitalized lease obligations.

"Indemnified Liabilities" shall have the meaning set forth in Section
12.2.

"Indemnitees" shall have the meaning set forth in Section 12.2.

"Ineligible Accounts" shall mean: (a) Accounts created from the sale
of goods and services on non-standard terms and/or that allow for payment
to be made more than forty-five (45) days from date of sale; (b) Accounts
unpaid: (i) more than one-hundred twenty (120) days from date of invoice if
the Account Debtor is the United States of America, any state, or any local
government, or any department, agency, instrumentality or subdivision
thereof or a prime contractor thereto listed on Exhibit A, attached hereto,
as such exhibit is supplemented or modified by each monthly report thereof
(herein, a "Governmental Account Debtor"), or (ii) more than ninety (90)
days from date of invoice if the Account Debtor is not a Governmental
Account Debtor; (c) all Accounts of any Account Debtor if fifty percent
(50%) or more of the outstanding balance of such Accounts are unpaid: (i)
more than one hundred twenty (120) days from the date of invoice if such
Account Debtor is a Governmental Account Debtor, or (ii) more than ninety
(90) days from the date of invoice if such Account Debtor is not a
Governmental Account Debtor; (d) Accounts for which the Account Debtor is
an officer, director, shareholder, partner, member, owner, employee, agent,
parent, Subsidiary, or Affiliate of, or is related to, Borrower or has
common shareholders, officers, directors, owners, partners or members with
Borrower; (e) consignment sales; (f) Accounts for which the payment is or
may be conditional; (g) Accounts for which the obligor is not a commercial
or institutional entity or is not a resident of the United States or
Canada, provided, however, that solely for purposes of the determination
made under this item (g), Accounts arising from the sale of goods to the
entities listed on Exhibit 2A shall not be deemed Ineligible Accounts; (h)
Accounts with respect to which any warranty or representation provided in
Section 8.19 is not true and correct; (i) Accounts which represent goods or
services purchased for a personal, family or household purpose; (j)
Accounts which represent goods used for demonstration purposes or loaned by
Borrower to another party; (k) Accounts which are progress payment, barter,
or contra accounts; (l) any and all other Accounts which Agent deems to be
ineligible; and (m) solely with respect to Accounts in excess of $5,000,000
created from sales to Governmental Account Debtors after the Effective
Date on "indefinite delivery, indefinite quantity" terms, and which
otherwise would not be Ineligible Accounts in accordance with the terms
hereof, will be Ineligible Accounts unless Borrower assigns its right to
payment of such Account to Agent, in form and substance satisfactory to
Agent, so as to comply with the Assignment of Claims Act, as amended (31
USC Sec. 3727 et seq.), or any comparable state or local statute, as the
case may be.

"Intangibles" shall have the meaning set forth in Section 9.3.

"Inventory" shall have the meaning given to that term in the UCC and,
to the extent not included therein, shall also mean all of Borrower's
merchandise, materials, finished goods, work-in-process, component
materials, packaging, shipping materials, parts and other tangible personal
property, now owned or hereafter acquired and held for sale or which
contribute to the finished products or the sale, promotion, storage and
shipment thereof, whether located at facilities owned or leased by
Borrower, or in the course of transport to or from facilities owned or
leased by Borrower.

"LC Guarantying Lender" shall have the meaning set forth in Section
3.17.

"LIBOR Rate" shall mean for any calendar week commencing on Tuesday of
such week, the London Interbank Offered Rate (LIBOR) for one-month deposits
in U.S. Dollars as published in The Wall Street Journal on (a) the Monday
immediately preceding, or (b) if any such Monday is not a Business Day,
then on the Business Day immediately preceding such Monday.

"LIBOR Rate (Reserve Adjusted)" shall mean, for any Loan, the rate per
annum obtained by dividing the LIBOR Rate by a percentage equal to 100%
minus the Eurocurrency Reserve Percentage.

"Lien" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including,
without limitation, the interest of lessors under Capitalized Leases and
the interest of a vendor under any conditional sale or other title
retention agreement), reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting any of Borrower's property.

"Loan" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement.

"Loan Documents" shall mean all documents executed by Borrower pursuant
to any financial accommodation between Borrower and Agent and/or Lenders
entered into in connection with the transactions herein contemplated. The
term "Loan Documents" includes, but is not limited to, this Agreement, all
financing statements, all pledges, mortgages, deeds of trust, leasehold
mortgages, security agreements, guaranties, assignments, subordination
agreements, and any future or additional documents or writings executed
under the terms of this Agreement or any amendments or modifications
hereto.

"Majority Lenders" shall mean at any time Lenders whose share of the
aggregate Loans outstanding constitutes (or, if no Loans are outstanding,
those whose interest in the Credit Facility constitutes) in excess of fifty
percent (50%).

"Monthly Reports" shall have the meaning given in Section 3.11(b).

"Notice of Borrowing" shall have the meaning set forth in Section 5.1.

"Obligations" shall mean all liabilities and Indebtedness of any kind
and nature whatsoever now or hereafter arising, owing, due or payable from
Borrower (and/or any of its Subsidiaries and Affiliates) to the Lenders,
whether primary or secondary, joint or several, direct, contingent, fixed
or otherwise, secured or unsecured, or whether arising under this Agreement
or any other Loan Document now or hereafter executed by Borrower (or any of
its Subsidiaries or Affiliates). Obligations will include, without
limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates) satisfied or acquired by the Agent or a Lender.
Obligations will also include all obligations of Borrower to pay: (a) any
and all sums reasonably advanced by the Agent or a Lender to preserve or
protect the Collateral or the value of the Collateral or to preserve,
protect, or perfect Agent's security interests in the Collateral; (b) in
the event of any proceeding to enforce the collection of the Obligations
after a Default, the reasonable expenses of retaking, holding, preparing
for sale, selling or otherwise disposing of or realizing on the Collateral,
or expenses of any exercise by Agent or the Lenders of their rights,
together with reasonable attorneys' fees, expenses of collection and court
costs, as provided in the Loan Documents; and (c) any other indebtedness or
liability of Borrower to the Agent or a Lender, whether direct or indirect,
absolute or contingent, now or hereafter arising.

"OSHA Law" shall mean the Occupational Safety and Health Act of 1970,
any successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to
or imposing liability or standards of conduct concerning employee health
and/or safety.

"Other Reports" shall have the meaning set forth in Section 3.11(c).

"Permitted Liens" shall mean: (a) Liens for taxes, assessments or
other governmental charges or levies not yet delinquent or which are being
contested in good faith by appropriate action and as to which adequate
reserves shall have been set aside in conformity with GAAP and which are,
in addition, satisfactory to Agent in its reasonable discretion; (b) Liens
of mechanics, materialmen, landlords, warehousemen, carriers and similar
Liens arising in the future in the ordinary course of business for sums not
yet delinquent, or being contested in good faith if a reserve or other
appropriate provision in accordance with GAAP shall have been made therefor
and which are, in addition, satisfactory to Agent in its reasonable
discretion; (c) statutory Liens incurred in the ordinary course of business
in connection with workers' compensation, unemployment insurance, social
security, and similar items for sums not yet delinquent or being contested
in good faith, if a reserve or other appropriate provision in accordance
with GAAP shall have been made therefor and which are, in addition,
satisfactory to Agent in its reasonable discretion; (d) lessor's Liens
arising from operating leases entered into in the ordinary course of
business; (e) Liens arising from legal proceedings, so long as such
proceedings are being contested in good faith by appropriate proceedings,
appropriate reserves have been established therefor in accordance with GAAP
and which are, in addition, satisfactory to Agent in its reasonable
discretion, and so long as execution is stayed and bonded on appeal on all
judgments resulting from any such proceedings; (f) Purchase Money Liens
secured by Purchase Money Indebtedness which is not incurred in violation
of Section 9.2.9; and (g) Liens in favor of the Agent, on behalf of the
Lenders, granted hereunder.

"Permitted Purchase Money Indebtedness" shall mean Purchase Money
Indebtedness of Borrower incurred after the date hereof, and to the extent
applicable, in compliance with Section 9.2.9 which is either unsecured or
secured by a Purchase Money Lien and which, when aggregated with the
principal amount of all other such Indebtedness and the capitalized lease
Obligations of Borrower at the time outstanding, does not exceed
$15,000,000. For the purposes of this definition, the principal amount of
any Purchase Money Indebtedness consisting of capitalized leases shall be
computed as a capitalized lease obligation.

"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.

"Prime Rate" shall mean the prime rate as published in The Wall Street
Journal. Each change in the Prime Rate shall become effective on the day
of any change in the prime rate published in The Wall Street Journal.

"Pro Rata Share" of any amount means, with respect to any Lender at any
time, an amount equal to:

(i) a fraction the numerator of which is the amount of such
Lender's Commitment at such time and the denominator of which is the Total
Credit at such time, multiplied by

(ii) such amount.
<PAGE>
"Purchase Money Indebtedness" shall mean and include:

(i) Indebtedness for the payment of all or any part of the
purchase price of any assets,

(ii) any Indebtedness incurred at the time of or within ten (10)
days prior to or after the acquisition of any assets for the purpose of
financing all or any part of the purchase price thereof, and

(iii) any renewals, extensions or refinancings thereof, but not
any increases in the principal amounts thereof outstanding at the time.

"Purchase Money Lien" shall mean a Lien upon assets which secures
Purchase Money Indebtedness, but only if such Lien shall at all times be
confined solely to the assets the purchase price of which was financed
through the incurrence of such Purchase Money Indebtedness.

"Rentals" shall have the meaning set forth in Section 9.2.19.

"Seasonal Reduction Period" shall mean the six-month period from
February 1 through July 31 in any calendar year.

"Subordinated Debt" shall have the meaning set forth in Section 9.3.

"Subsidiaries" shall mean any corporation in which Borrower owns or
controls greater than 50% of the voting securities, or any partnership or
joint venture in which Borrower owns or controls greater than 50% of the
aggregate equitable interest. The term "Subsidiary" means any one of the
Subsidiaries.

"Tangible Net Worth" shall have the meaning set forth in Section 9.3.

"Total Credit" shall have the meaning set forth in Section 3.

"Total Credit Limit" shall have the meaning set forth in Section 3.1.

"UCC" shall mean the Uniform Commercial Code as in effect in the
Commonwealth of Virginia and any successor statute, together with any
regulations thereunder, in each case as in effect from time to time.
References to sections of the UCC shall be construed to also refer to any
successor sections.

"Weekly Report" shall have the meaning set forth in Section 3.11(a).

3. CREDIT FACILITY. In consideration of Borrower's payment and
performance of its Obligations and subject to the terms and conditions
contained in this Agreement, the Lenders agree to provide, and Borrower
agrees to accept, an aggregate credit facility of up to (i) SIXTY MILLION
DOLLARS ($60,000,000.00) during any time other than the Seasonal Reduction
Period, and (ii) THIRTY MILLION DOLLARS ($30,000,000.00) during the
Seasonal Reduction Period (the "Total Credit"), on and subject to the terms
hereof (the "Credit Facility"):

3.1 Loans. Subject to the terms and conditions of this Agreement,
each Lender, severally but not jointly, agrees to make Loans to the
Borrower from time to time on any Business Day during the period from the
date hereof until termination hereof, in an aggregate amount not to exceed
at any time outstanding the amount set opposite such Lender's name on the
signature pages hereof (such Lender's "Commitment"), provided, however,
that in no event shall any Loan be made hereunder if, before or after
giving effect thereto, the aggregate principal balance of all Loans
outstanding hereunder would exceed the lesser of: (a) the Borrowing Base,
or (b) the Total Credit (the "Total Credit Limit"). Each Loan shall be in
an aggregate amount of not less than $100,000 and shall consist of each
Lender's Pro Rata Share of such Loan made on the same day by the Lenders.
Within the limits of each Lender's Commitment, the Borrower may borrow,
repay pursuant to Section 5.4 or prepay and reborrow pursuant to this
Section 3.1. No Loans need be made by Lenders if Borrower is in Default or
if there exists any other event or occurrence which, with the passage of
time, or notice, or both, would be a Default. This is an agreement
regarding the extension of credit, and not the provision of goods or
services.

3.2 Borrowing Base. On receipt of each Borrowing Base Certificate
in form and substance acceptable to Agent, which shall be delivered with
each Notice of Borrowing and at least weekly (the "Borrowing Base
Certificate"), Agent will credit Borrower with eighty percent (80%) of the
net amount of the Eligible Accounts which are, absent error or other
discrepancy, listed in such Borrowing Base Certificate minus the face
amount of all letters of credit issued or guaranteed by an LC Guarantying
Lender (the "Borrowing Base"). For purposes hereof, the net amount of
Eligible Accounts at any time shall be the face amount of such Eligible
Accounts less any and all returns, discounts (which may, at Agent's option,
be calculated on shortest terms), credits, rebates, allowances, or excise
taxes of any nature at any time issued, owing claimed by Account Debtors,
granted, outstanding, or payable in connection with such Accounts at such
time.

3.3 Interest Calculation; Method of Transfer.

(a) Interest Calculation. Borrower will pay interest on the Daily
Contract Balance (as defined below) at a rate equal to the LIBOR Rate
(Reserve Adjusted) plus two and ninety-five one-hundredths percent (2.95%)
per annum. If Borrower's financial statements for the fiscal year ending
December 31, 1997 delivered to Agent pursuant to Section 3.11(e)(i) hereof
indicate Borrower's achievement of all of its financial covenants as set
forth in Section 9.3 hereof for such year, then from and after delivery of
such financial statements showing achievement of such amounts and provided
Borrower is not in Default hereunder, the rate of interest described above
will be reduced to the LIBOR Rate (Reserve Adjusted) plus two and
forty-five one-hundredths percent (2.45%) per annum. Such interest will:
(i) be computed based on a 360 day year; (ii) be calculated with respect to
each day by multiplying the Daily Rate (as defined below) by the Daily
Contract Balance; and (iii) accrue from the date Agent authorizes any
Electronic Transfer (as defined in Section 3.3(b) below) or otherwise
advances a Loan to or for the benefit of Borrower, until Agent receives
full payment of the Obligations Borrower owes the Lenders in good funds and
Agent applies such payment to Borrower's principal debt in accordance with
the terms of this Agreement. The "Daily Rate" is the quotient of the
applicable annual rate provided herein divided by 360. The "Daily Contract
Balance" is the amount of outstanding principal debt which Borrower owes
Lenders on the Loans at the end of each day (including the amount of all
Electronic Transfers authorized) after Agent has credited payments which it
has received on the Loans.

(b) Method of Transfer. Loans will be made by Agent, at
Borrower's direction, by paper check, electronic transfer by Automated
Clearing House ("ACH"), Federal Wire Funds Transfer ("Fed Wire") or such
other electronic means as Agent may announce from time to time (ACH, Fed
Wire and such other electronic transfer are collectively referred to as
"Electronic Transfers"). If Borrower does not request a Loan be made in a
specific method of transfer, Agent shall, in the first instance, utilize
ACH as the method of transfer, and in lieu thereof, it shall determine
what method of transfer to use.

3.4 Fees.

(a) Certain Charges. Borrower will (i) reimburse Agent for all
charges made by banks, including charges for collection of checks and other
items of payment and (ii) pay Agent all fees and charges in effect from
time to time for transfers of funds to or from the Borrower. Agent may,
from time to time, announce its fees and charges for transfers of funds to
or from the Borrower, including the issuance of Electronic Transfers;
provided, however, Agent hereby agrees that there is no fee for ACH
transfers, that there is a $25.00 fee for each Fed Wire transfer and that
such fees shall not be increased without Borrower's consent.

(b) Administration Fee. Borrower agrees to pay DFS, for DFS' own
account, for its services in acting as Agent hereunder, a monthly
administration fee (the "Administration Fee) in an amount equal to one half
of one PERCENT (.5%) per annum of the "Average Contract Balance" (as
defined below). The Administration Fee shall be payable monthly in arrears
and due pursuant to the monthly billing statement. Absent manifest error,
once received by DFS, no Administration Fee shall be refundable by DFS for
any reason, including early termination of this Agreement. For purposes
hereof, the term "Average Contract Balance" shall mean the sum of the Daily
Contract Balances for such month, divided by the number of days in such
month.

(c) Closing Fee. Borrower shall pay to Agent for the account of
all Lenders, a closing fee equal to Fifty Thousand Dollars ($50,000), which
shall be nonrefundable and payable the closing of the transactions
contemplated hereby (the "Closing Fee). Agent hereby acknowledges receipt
of Borrower's payment of $25,000 of such Closing Fee such that on the
closing hereof, only the remaining portion of the Closing Fee shall be due
and payable.

(d) Credit Facility Fee. Borrower agrees to pay Agent for the
account of all Lenders an annual credit facility fee of One Hundred Fifty
Thousand Dollars ($150,000) (the "Credit Facility Fee). The Credit
Facility Fee shall be payable quarterly, in arrears, in equal installments
of Thirty-Seven Thousand Five Hundred Dollars ($37,500). Once received by
DFS, no Credit Facility Fee shall be refundable by DFS for any reason.

(e) Unused Line Fee. Borrower agrees to pay Agent for the account
of all Lenders an unused line fee of three-eighths of one percent (.375%)
on the daily average of the unused amount of the Total Credit during the
term of this Agreement and any renewal term. Such unused line fee shall be
payable monthly in arrears and due pursuant to the applicable billing
statement. Such unused amount of the Credit Facility in any month shall
mean the difference between the Total Credit and the average Daily Contract
Balance during such month.

(f) Collateral/Inspection Fees. Borrower will pay a fee to DFS,
for its own account (even if other Lenders accompany the Agent on such
review), in the amount of $7,500 per review for Collateral reviews and any
other reviews performed under the Loan Documents as frequently as Agent
shall reasonably determine, but at least quarterly. Borrower agrees that
such fees are not interest but are rather reimbursements for out-of-pocket
and allocated overhead expenses incurred in conducting such audits,
reviews, examinations and inspections.

3.5 Mandatory Prepayment. If at any time and for any reason the
aggregate amount of outstanding Loans exceeds the Borrowing Base, Borrower
will, immediately upon demand, repay an amount of the Loans made to it by
the Lenders hereunder equal to such excess. In addition, Borrower shall
immediately pay Lenders whatever sums may be necessary from time to time to
remain in compliance with the Total Credit Limit, as such limits may change
from time to time, including, without limitation, as a result of any
Collateral no longer being deemed an Eligible Account, or as a result of
any change in the amount of any Eligible Account.

3.6 Billing Statement. Agent will send Borrower a monthly billing
statement identifying all charges due on Borrower's account. The charges
specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, absent manifest error.

3.7 Loan Proceeds. The parties intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this
Agreement and the other Loan Documents, and shall not be evidenced by notes
or other evidences of indebtedness. Any fees, charges or expenses charged
to Agent or any Lender by any bank for payments made by Agent or such
Lender at Borrower's request shall be immediately payable by Borrower. All
advances and other obligations of Borrower made hereunder will constitute a
single obligation.

3.8 Default Interest Rate. If a Default occurs, and unless and
until cured, the Agent may, and shall at the request of the Majority
Lenders, without prior demand, raise the rate of interest accruing on the
unpaid principal balance of any Loan by three percentage points (3%) above
the rate of interest otherwise applicable (the "Default Interest Rate),
whether or not the Majority Lenders elect to accelerate the unpaid
principal balance as a result of a Default. Agent will use reasonable
efforts to attempt to notify Borrower before imposing the Default Interest
Rate permitted by this Section.

3.9 Interest Rate After Certain Events. If a judgment is entered
against Borrower for sums due under any of the Obligations, as applicable,
the amount of the judgment entered (which may include principal, interest,
reasonable attorneys' fees and costs) shall bear interest at the Default
Interest Rate as of the date of entry of the judgment. All Obligations of
Borrower described in clauses (a) and (b) of the definition thereof shall
bear interest at the Default Interest Rate.

3.10 Verification Rights. The Lenders may directly or by the
Agent without notice to Borrower and at any time or times hereafter, verify
the validity, amount or any other matter relating to any Account by mail,
telephone or other means, in the name of Borrower, Lender or Agent, as
applicable.

3.11 Reports.

(a) Weekly Reports. In addition to Borrower's obligations set
forth in this Agreement, Borrower agrees to provide Agent with a weekly
report in such form as is satisfactory to Agent, including supporting
information regarding, but not limited to a Borrowing Base Certificate (the
"Weekly Report). The Weekly Report will be received by Agent each Thursday
at its address listed on the signature pages hereof after the date of the
Agreement by noon local time (in the event that Agent is not open for
business on a Thursday then the Weekly Report will be due by noon, Eastern
Standard Time, of the next Business Day that Agent is open for business).

(b) Monthly Reports. In addition to Borrower's other
obligations set forth in this Agreement, Borrower agrees to provide to
Agent: (I) by the 10th Business Day of each month, in each case as of the
last day of the immediately prior month, each of the following: (i)
Inventory aging report; (ii) aging of Accounts; (iii) a cash posting
journal; (iv) an updated Exhibit A, concerning prime contractors
constituting Governmental Account Debtors; and (v) aging of Borrower's
accounts payable: and (II) on the 1st and 20th calendar day of each month,
a sales journal (collectively, the "Monthly Reports).

(c) Other Reports. In addition to Borrower's other obligations
set forth in the Agreement, Borrower agrees to provide Agent within ten
(10) Business Days after each request by Agent any other report or
information reasonably requested by Agent (the "Other Reports").

(d) Accuracy of Reports. To the best of Borrower's knowledge,
after reasonable inquiry, The Weekly Report, the Monthly Reports and the
Other Reports will be true and correct in all respects. Borrower
acknowledges Agent's and each Lender's reliance on the truthfulness and
accuracy of each Weekly Report, Monthly Report and the Other Reports.

Agent shall provide the Lenders with a weekly summary of such
reports.

(e) Financial Statements; Reporting Requirements; Certification as
to Defaults. During the term of this Agreement, Borrower will furnish two
copies of the following to Agent, copies of which shall be provided by
Agent to the Lenders:

(i) within 100 days after the end of each fiscal year, annual
financial statements for Borrower and its consolidated and
consolidating Subsidiaries as of the end of such fiscal year,
consisting of a consolidated and consolidating balance sheet,
consolidated and consolidating statement of operations,
consolidated and consolidating statements of cash flows and
consolidated and consolidating statement of stockholder's
equity, in comparative form, together with a narrative
description of the financial condition and results of
operations and the liquidity and capital resources of Borrower
and setting forth in comparative form the corresponding figures
for the corresponding period of the prior fiscal year. In
addition, Agent shall use such audited financial statements as
a basis to explain any material variance from the corresponding
figures contained in the most recent financial projections of
Borrower. The statements will be audited by an independent
firm of certified public accountants selected by Borrower and
acceptable to the Majority Lenders, and certified by that firm
of certified public accountants to have been prepared in
accordance with GAAP. The certified public accountants will
render an opinion as to such statements which shall not be
qualified by reference to (I) limits on the scope of the audit
imposed by Borrower or (II) the viability of Borrower as a
going concern. The Lenders through the Agent will have the
absolute and irrevocable right, from time to time, to discuss
the affairs of Borrower directly with the independent certified
public accountant after prior notice to Borrower and the
reasonable opportunity of Borrower to be present at any such
discussions;

(ii) by the 20th calendar day of each month (or the next
succeeding day if such day is not a Business Day), financial
statements for Borrower and its consolidated and consolidating
Subsidiaries as of the end of the immediately preceding month,
consisting of consolidated and consolidating balance sheet and
statement of operations prepared by Borrower;

(iii) within 45 days after the end of each fiscal quarter, a
certificate of the President, or Chief Financial Officer, in
the form of Exhibit 3.11(e)(iii) attached hereto, of Borrower
stating that such person has reviewed the provisions of the
Loan Documents and that a review of the activities of Borrower
during such quarter has been made by or under such person's
supervision with a view to determining whether Borrower has
materially observed and performed all of Borrower's
obligations under the Loan Documents, and that, to the best of
such person's knowledge, information and belief, Borrower has
materially observed and performed each and every undertaking
contained in the Loan Documents and is not at the time in
Default in the observance or performance of any of the terms
and conditions thereof or, if Borrower will be so in default,
specifying all of such defaults and events of which such person
may have knowledge;

(iv) by the end of each fiscal year, an annual budget and
income statement with cash flow projections for the following
fiscal year;

(v) promptly upon receipt thereof, copies of all final reports
and final management letters submitted to Borrower or any of
the Borrower's Subsidiaries by independent accountants in
connection with any annual or interim audit of the books of
Borrower or such Subsidiaries made by such accountants;

(vi) copies of any and all reports, filings and other
documentation delivered to the Securities and Exchange
Commission by or on behalf of Borrower promptly after the
delivery thereof, if applicable;

(vii) The President or Chief Financial Officer of Borrower
will certify to Agent by the 20th calendar day of each month
(or the next succeeding day if such day is not a Business Day),
or more often if reasonably requested by Agent, that to the
best of his knowledge, after reasonable inquiry, Borrower is in
compliance with the Financial Covenants as set forth in Section
9.3 hereof, in a form acceptable to Agent in its sole
discretion; and

(viii) any other statements, reports and other information as
any Lender through the Agent may reasonably request concerning
the financial condition or operations of Borrower and its
properties.

3.12 Establishment of Reserves. Notwithstanding the foregoing
provisions of Section 3.2, Agent shall have the right to establish reserves
in such amounts, and with respect to such matters, as Agent shall deem
reasonably necessary or appropriate, against the amount of Loans which
Borrower may otherwise request under Section 3.2, including, without
limitation, with respect to (a) price adjustments, damages, unearned
discounts, returned products or other matters for which credit memoranda
are issued in the ordinary course of Borrower's business; (b) shrinkage,
spoilage and obsolescence of Inventory; (c) slow moving Inventory; (d)
other sums chargeable against Borrower as Loans under any section of this
Agreement; and (e) such other matters, events, conditions or contingencies
as to which Agent, in its sole credit judgment reasonably determines
reserves should be established from time to time hereunder.

3.13.

(a) Increased Costs. If, as a result of any law, regulation,
treaty or directive, or any change therein, or in the interpretation or
application thereof or compliance by Agent or any Lender with any request
or directive (whether or not having the force of law) from any court or
governmental authority, agency or instrumentality:

(i) the basis of taxation of payments to Agent or any Lender
(including, for purposes of this Section 3.13(a), any affiliates of
such party engaged in the funding of the lending obligations hereunder)
of the principal of or interest on any Loan (other than taxes imposed
on the overall net income or other business operations of Agent or any
Lender by the jurisdiction in which such party has its principal
office) is changed;

(ii) any reserve, special deposit or similar requirements against
assets of, deposits with or for the account of, or credit extended by,
Agent or any Lender are imposed, modified or deemed applicable; or

(iii) any other condition affecting this Agreement or the Loans is
imposed on Agent or any Lender or the interbank eurodollar market;

and such party determines that, by reason thereof, the cost to such party
of making or maintaining any of the Loans is increased, or the amount of
any sum receivable by such party hereunder in respect of any of the Loans
is reduced;

then, the Borrower shall pay to Agent and/or such Lender, as applicable,
upon demand (which demand shall be accompanied by a statement setting forth
the basis for the calculation thereof but only to the extent not
theretofore provided to the Borrower) such additional amount or amounts as
will compensate such party for such additional cost or reduction (provided
such amount has not been compensated for in the calculation of the
Eurocurrency Reserve Percentage). Determinations by Agent or any Lender
for purposes of this Section of the additional amounts required to
compensate such party in respect of the foregoing shall be conclusive,
absent manifest error.

(b) Eurodollar Deposits Unavailable or Interest Rate
Unascertainable. If Borrower has any Loan outstanding, or has notified
Agent of the intention to borrow a Loan as provided herein, then in the
event that prior to the date the LIBOR Rate is determined, Agent or any
Lender shall have determined (which determination shall be conclusive and
binding on the parties hereto) that one-month deposits of the necessary
amount are not available to such party in the interbank eurodollar market
or that, by reason of circumstances affecting such market, adequate and
reasonable means do not exist for ascertaining the LIBOR Rate applicable to
such period or term, as the case may be, Agent and or such Lender, as
applicable, shall promptly give notice of such determination to Borrower,
and any notice of new Loans previously given by Borrower and not yet
borrowed shall be deemed a notice to make a Loan bearing interest at the
Prime Rate plus one percent (1%) per annum to the extent of the affected
party's proposed Loan.

(c) Changes in Law Rendering Loans Unlawful. If at any time due to
any new law, treaty or regulation, or any change of any existing law,
treaty or regulation, or any interpretation thereof by any governmental or
other regulatory authority charged with the administration thereof, or for
any other reason arising subsequent to the date hereof, it shall become
unlawful for Agent or any Lender to fund any Loan which it is committed to
make hereunder, the obligation of such party to provide Loans shall, upon
the happening of such event, forthwith be suspended for the duration of
such illegality. If any such change shall make it unlawful to continue
Loans previously made by it hereunder, Agent or a Lender, as applicable
shall, upon the happening of such event, notify Borrower thereof in writing
stating the reasons therefor, and Borrower shall, if required by such law,
regulation or interpretation, on such date as shall be specified in such
notice, prepay all such Loans, without any penalty or premium whatsoever to
such party in full. Any prepayment made pursuant to this Section 3.13(c)
shall be deemed to reduce the Total Credit available hereunder by the
principal amount so prepaid.

(d) Capital Adequacy In the event that any Lender shall have
determined that the adoption of any law, rule or regulation regarding
capital adequacy, or any change therein or in the interpretation or
application thereof or compliance by such Lender with any request or
directive regarding capital adequacy (whether or not having the force of
law) from any central bank or governmental authority, does or shall have
the effect of reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's policies with respect to capital
adequacy) by an amount deemed by such Lender, in its sole discretion, to be
material, then from time to time, after submission by such Lender to
Borrower of a written demand therefor, Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for such
reduction. A certificate of such Lender claiming entitlement to payment as
set forth above shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to
such payment, the additional amount or amounts to be paid to such Lender,
and the method by which such amounts were determined. In determining such
amount, such Lender may use any reasonable averaging and attribution
method.

3.14 Collections. Borrower will direct all Account Debtors to
make all remittances to, and Borrower will deposit all collections on
Accounts received directly by Borrower into, an account or accounts
designated by Agent, for the account of Lenders. All funds in such
accounts immediately shall become the property of the Lenders and Borrower
shall obtain the agreement of such banks to waive any offset rights against
the funds so deposited. Until delivery to such account(s), Borrower will
keep such remittances separate and apart from Borrower's own funds so that
they are capable of identification as the property of the Lenders and will
be held in trust for the Lenders. Upon Default Agent may, and shall at the
request of the Majority Lenders, notify any Account Debtor of the
assignment of Accounts and collect the same. Prior to the occurrence of a
Default, all proceeds received or collected by Agent with respect to
Accounts, and reserves and other property of Borrower in possession of
Agent at any time or times hereafter, shall be applied by Agent on account
of the Obligations. After the occurrence of a Default, all proceeds
received or collected by Agent with respect to Accounts, and reserves and
other property of Borrower in possession of Agent at any time or times
hereafter, may be held by Agent without interest to Borrower until all
Obligations are paid in full or applied by Agent on account of the
Obligations. Agent may release to Borrower such portions of such reserves
and proceeds as Agent may determine. Notwithstanding anything herein to
the contrary, if as a result of collections of Accounts as authorized by
this Section 3.14, a credit balance exists in the account established for
the Borrower, such credit balance shall be available for Borrower at any
time or times for so long no Default exists hereunder; provided, however,
that Agent may offset such credit balances against the Obligations upon or
after the occurrence of a Default.

3.15 Advancements. If Borrower fails to (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the
Collateral or (c) protect or preserve the status and priority of the Liens
and security interest of Agent in the Collateral, Agent may make advances
to perform those obligations. Agent will use reasonable efforts to attempt
to give Borrower notice prior to making such advancement. All sums so
advanced will be due and payable on demand, and will immediately upon
advancement become secured by the security interests created by this
Agreement and will be subject to the terms and provisions of this Agreement
and all of the Loan Documents. Agent may add all sums so advanced, plus
any expenses or costs incurred by Agent, including reasonable attorney's
fees, as outstanding Loans as Agent may designate in its sole discretion.
The provisions of this Section will not be construed to prevent the
institution of rights and remedies of Agent or any Lender upon the
occurrence of a Default. Any provisions in this Agreement to the contrary
notwithstanding, the authorizations contained in this Section will impose
no duty or obligation on any Lender or Agent to perform any action or make
any advancement on behalf of Borrower and are for the sole benefit and
protection of Lenders and Agent.

3.16 Continuing Requirements - Accounts. Borrower will: (a) if
from time to time required by Agent, immediately upon their creation, make
available to Agent copies of all invoices, delivery evidences and other
such documents relating to each Account; (b) not permit or agree to any
extension, compromise or settlement or make any change to any Account
except for those as are immaterial and which arise in the ordinary course
of Business; (c) affix appropriate endorsements or assignments upon all
such items of payment and proceeds so that the same may be properly
deposited by Agent for the account of Lenders; (d) immediately notify Agent
in writing which Accounts may be deemed Ineligible Accounts; and (e) mark
all chattel paper and instruments now owned or hereafter acquired by it to
show that the same are subject to Agent's security interest and immediately
thereafter deliver such chattel paper and instruments to Agent with
appropriate endorsements and assignments to Agent.

3.17 Letter of Credit Guarantees.

(a) If requested to do so by Borrower, any Lender may, in its sole
discretion, for its own account, upon prior written notice to Agent,
execute a guaranty by which such Lender shall guaranty the payment or
performance by Borrower of its reimbursement obligation with respect to
letters of credit issued for Borrower's account by another Person (such
Lender being referred to as an "LC Guarantying Lender"); provided, however,
that in no event shall any Lender be obligated to guarantee any such letter
of credit if: (i) Borrower's obligations in respect of all such letters of
credit then outstanding in the aggregate exceed $1,000,000, or (ii) if the
expiry date of any such letter of credit shall or may under any
circumstances occur on or after the last day of the then-current term of
this Agreement. Borrower shall be absolutely and unconditionally liable to
reimburse such LC Guarantying Lender on demand for any liability such LC
Guarantying Lender may incur in connection with the issuance of any such
letters of credit or guarantees, and Borrower assumes all risks in
connection therewith. Borrower's obligation to reimburse any LC
Guarantying Lender hereunder may, at such LC Guarantying Lender's option
upon prior written notice to Agent, be funded by the making of a Loan with
the proceeds disbursed solely to such LC Guarantying Lender, and in any
case shall remain an Obligation of Borrower, secured by the Collateral.
All documentation pursuant to which such transactions are consummated shall
be delivered to Agent and shall be deemed Loan Documents hereunder.

(b) As additional consideration for an LC Guarantying Lender
guaranteeing payment or performance of letters of credit for Borrower's
account and any drafts or acceptances thereunder, Borrower agrees to pay
such LC Guarantying Lender, for its own account, a fee equal to
three-quarters of one percent (.75%) of the face amount of each letter of
credit supported by such guarantee, which fees shall be deemed fully earned
upon execution of each guaranty, shall be due and payable pursuant to the
monthly billing statement and shall not be subject to rebate or proration
upon the termination this Agreement for any reason. The fee described
above shall be in addition to any issuance or other fees charged by the
Person issuing such letter of credit.

4. TERM OF AGREEMENT.

4.1 Termination. This Agreement will continue in full force and
effect and be non-cancellable for one (1) year from the Effective Date,
(except that it may be terminated by Agent in the exercise of Agent's and
Lender's rights and remedies upon Default by Borrower) and after the
expiration of such one-year period, shall be subject to one (1) automatic
one-year renewal periods thereafter unless at least (x) 120 days, or (y) 90
days (if Borrower has failed to deliver its audited annual financial
statements to Agent under Section 3.11(e)(i) hereof on or before March 15
in any calendar year), prior to the expiration of such initial period or
any renewal period, any party shall have addressed all other parties in
writing of its intention not to renew this Agreement. Notwithstanding the
foregoing, Borrower may terminate this Agreement prior to such date upon
(a) at least 120 days written notice to Agent; (b) payment to Agent and
Lenders of all Obligations; and (c) payment to Agent for the account of
Lenders of an amount as follows:

Date ofPercent of
TerminationTotal Credit

Prior to the first 2.00%
anniversary of the
Effective Date

On and after the first anniversary 1.00%
of the Effective Date

Termination on any date other than the anniversary date will not entitle
Borrower to a refund of any fee. Agent, Lender and/or DFS, as applicable,
shall be entitled to payment of all fees upon Default by Borrower which
would have been payable during the original term of this Agreement (or any
extension thereof) but for such early termination. These accelerated fees
represent liquidated damages and are not a penalty. Any such written
notice of termination delivered by Borrower to Agent shall be irrevocable.
It is understood that Borrower may elect to terminate this Agreement in its
entirety only; no section or lending facility may be terminated singly.

Notwithstanding anything in this Section 4.1 to the contrary, (a)
if Borrower is charged any additional amounts pursuant to Section 3.13 of
this Agreement, and the imposition of such charge (which solely for
purposes of the computation in this sentence shall be treated as additional
interest) would have the effect in the aggregate with all other such
additional charges of increasing the effective interest rate payable
pursuant to Section 3.3 of this Agreement by an amount greater than
one-half of one percent (0.50%) per annum, and (b) if Borrower delivers a
copy of an executed commitment from a third party to provide financing to
Borrower at a rate that is one-half of one percent (.5%) per annum less
than the proposed rate payable hereunder after giving effect to such
Section 3.13 increases, then Borrower may terminate this Agreement, in
accordance with the terms of this Agreement, and shall not be liable to
Agent for payment of any of the termination charges referred to in this
Section 4.1.

4.2 Effect of Termination.

(a) Borrower will not be relieved from any Obligations to Agent or
Lenders arising out of Lenders' advances or commitments made before the
effective termination date of this Agreement. Agent and Lenders will
retain all of their respective rights, interests and remedies hereunder
until Borrower has paid all of Borrower's Obligations to Lenders and Agent.
Agent shall have no obligation to satisfy any of Borrower's Obligations to
the Lenders. All waivers set forth within this Agreement will survive any
termination of this Agreement.

(b) Notwithstanding anything in Section 4 to the contrary, if upon
the expiration of the original term hereof or any renewal term, there
exists a Default or an event which but for the passage of time or notice or
both, would be a Default, any payments to be made to a Lender desiring to
terminate its Commitment in accordance with the provisions of Section 4.1
hereof (a "Terminating Lender") in satisfaction of such Terminating
Lender's Commitment, shall be shared Pro Rata among all Lenders. In
addition, if the payment to be made to a Terminating Lender would cause a
Default or an event which but for the passage of time or notice or both,
would be a Default, then any such payment shall also be shared Pro Rata
among all Lenders.

5. BORROWING AND REPAYMENT PROCEDURES

5.1. Borrowing Procedures.

(a) Each Loan shall be made on notice, given not later than 10:00
a.m. (Eastern Standard Time) on the day of a proposed Loan requesting such
Loan to the Agent which shall give to each Lender prompt notice thereof by
telecopier. Each such notice of a Loan (a "Notice of Borrowing") shall be
by telex, telecopier or cable, confirmed immediately in writing, in
substantially the form of Exhibit 5.1 hereto, specifying therein the
borrowing date and the requested aggregate principal amount of such Loan.
Upon fulfillment of the applicable conditions set forth in Section 7, Agent
will fund such Loan. Each Notice of Borrowing shall be irrevocable and
binding on the Borrower. Agent shall settle with the Lenders in accordance
with Section 5.6.

(b) The failure of any Lender to make the advance to be made by it
as part of any Loan shall not relieve any other Lender of its obligation,
if any, hereunder to make its advance on the date of such Loan, but no
Lender shall be responsible for the failure of any other Lender to make the
advance to be made by such other Lender on the date of any Loan.

(c) Notwithstanding anything herein to the contrary (i) the
becoming due of any amount required to be paid under this Agreement as
interest shall be deemed irrevocably to be a request for a Loan on the due
date in the amount required to pay such interest; and (ii) the becoming due
of any other Obligations shall be deemed irrevocably to be a request for a
Loan on the due date in the amount then so due.

5.2 Excess Advances; Agent Advances.

(a) Excess Advances. All Lenders, each in their sole and absolute
discretion, may elect to permit the total unpaid balance of Loans to exceed
the Total Credit ("Excess Advances"), and no such event or occurrence shall
cause or constitute a waiver by such Lenders of their right to demand
payment of all or any part of the Loans at any time within the terms of
this Agreement or to refuse, in their sole and absolute discretion, to make
such further Loans. Any such Excess Advances shall be payable immediately
upon demand therefor, unless otherwise specifically agreed to by the
Lenders, and shall bear interest at the Default Interest Rate.

(b) Agent Advances. Notwithstanding the provisions of Section 3.1
hereof, the Agent is authorized by the Lenders, but is not obligated to
make Loans up to the amount that would otherwise be available for borrowing
under Section 3.1 hereof after computation of the Borrowing Base, up to
$5,000,000 (herein, "Agent Advances"). Agent Advances, if made, would be
made solely by Agent and would continue for up to thirty (30) days from the
date Agent first receives a Notice of Borrowing. All Agent Advances made
pursuant to this Section 5.2(b) shall be due and payable within one (1)
Business Day of demand. All collections of Collateral shall first be
applied to reduce the Agent Advances before reduction of any other
Obligations of Borrower. No Agent Advance shall be made within 30 days of
Borrower's satisfaction of a previous Agent Advance. Agent Advances will
be considered Loans hereunder and subject to the settlement provisions of
Section 5.6 hereof. Agent shall give prompt notice to the Lenders of each
Agent Advance that is made, setting forth the amount and the reason that
such Agent Advance was required. The status of the Agent Advances will be
included in the weekly summary of the Loans provided to the Lenders by the
Agent.

5.3 All Loans One Obligation. All Obligations of Borrower to
Lenders under this Agreement and all other agreements between Borrower and
Lenders shall constitute one obligation to Lenders secured by the security
interest granted in this Agreement, and by all other Liens heretofore, now,
or at any time or times hereafter granted by Borrower. All of the rights
of Agent and Lenders set forth in this Agreement shall apply to any
modification of or supplement to this Agreement, or Exhibits hereto, unless
otherwise agreed in writing.

5.4 Payments of Principal and Interest.

(a) All payments and amounts due hereunder by Borrower shall be
made or be payable without set-off or counterclaim and shall be made to
Agent prior to 12:00 noon (Eastern Standard Time) on the date due at its
office(s) responsible for Borrower's account, or at such other place which
Agent may designate to Borrower in writing. Any payments received after
such time shall be deemed received on the next Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a date other than
a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall be included in the computation of
payment of interest or any fees.

(b) The Agent will promptly thereafter remit in immediately
available funds to each Lender its Pro Rata Share of all such payments
received by the Agent for the account of such Lender.

(c) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to any Lender
hereunder that the Borrower will not make such payment in full, the Agent
may assume that the Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each such Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrower shall not
have so made such payment in full to the Agent and the Agent makes
available to a Lender on such date a corresponding amount, such Lender
shall repay to the Agent forthwith on demand such amount distributed to
such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate.

5.5 Collection Days. Notwithstanding anything herein to the
contrary: (a) all cash, checks, instruments and other items of payment,
solely for purposes of determining the occurrence of a Default or whether
there is availability for any Loans, shall be applied against the
Obligations on the Business Day of receipt thereof by Agent (if prior to
12:00 noon Eastern Standard Time); and (b) solely for purposes of interest
calculation hereunder, all amounts received by Agent prior to 12:00 noon
Eastern Standard Time will be credited by Agent to Borrower's account two
(2) Business Days after good funds have been deposited into Agent's general
operating account.

5.6 Sharing of Payments, Etc; Settlement.

(a) Sharing of Payments. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Loans made by it in excess of
its Pro Rata Share of payments on account of the Loans obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Loans made by them as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of
them, provided, however, that if all or any portion of such excess payment
is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to
the proportion of (i) the amount of such Lender's required repayment to
(ii) the total amount so recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 5.6(a) may, to the fullest extent permitted by law, exercise all of
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

(b) Settlement. Amounts payable by Lenders to Agent in respect
of Loans advanced by Agent, reimbursable expenses and liabilities and other
obligations of Lenders to Agent, and amounts payable by Agent to Lenders in
respect of collections and certain fees as provided herein, shall, subject
to the terms of the sentence immediately following, be settled weekly, on
Tuesday of each week hereunder in accordance with the following procedures:
(i) on each Tuesday, Agent shall provide Lenders with a written accounting
of the Loans made, reimbursable expenses and liabilities incurred by Agent,
collections and fees received during such week, and the net amount payable
by Agent or Lender, and (ii) the parties owing payment shall pay such
amount by electronic funds transfer in immediately available funds by the
close of business on the next Business Day. Notwithstanding the foregoing,
Agent shall not be obligated to fund a Loan in excess of DFS' Commitment,
and therefore, upon Agent's written notification as provided in item (i)
immediately preceding, Agent and Lenders shall settle more frequently than
weekly.

6. SECURITY FOR THE OBLIGATIONS

6.1 Grant of Security Interest. To secure payment of all of
Borrower's current and future Obligations and to secure Borrower's
performance of all of the provisions under this Agreement and the other
Loan Documents and to secure all of Guarantor's current and future
obligations to Agent and the Lenders, Borrower grants Agent, for the
benefit of the Lenders, a security interest in all of Borrower's inventory,
equipment, fixtures, accounts, contract rights, chattel paper, security
agreements, instruments, deposit accounts, reserves, documents and general
intangibles; and all judgments, claims, insurance policies, and payments
owed or made to Borrower thereon; all whether now owned or hereafter
acquired, all attachments, accessories, accessions, returns, repossessions,
exchanges, substitutions and replacements thereto, and all proceeds
thereof. All such assets are collectively referred to herein as the
"Collateral." All such terms for which meanings are provided in the UCC
are used herein with such meanings. All Collateral financed by Lenders,
and all proceeds thereof, will be held in trust by Borrower for Lenders,
with such proceeds being payable in accordance with the terms of this
Agreement. Borrower covenants with Agent and the Lenders that Agent, for
the benefit of the Lenders, may realize upon all or part of any Collateral
in any order it desires and any realization by any means upon any
Collateral will not bar realization upon any other Collateral. Borrower's
liability under this Agreement is direct and unconditional and will not be
affected by the release or nonperfection of any security interest granted
hereunder.

6.2 Future Advances. Agent's security interests shall secure all
current and all future advances to Borrower made by Lenders under the Loan
Documents.

6.3 Financing Statements. Borrower shall execute and deliver to
Agent for the benefit of Lenders such financing statements, certificates of
title and original documents as may be required by Agent with respect to
Agent's security interests.

6.4 Guaranties. Borrower shall cause any and all Subsidiaries,
whether now existing or hereafter acquired, to execute and deliver
collateralized guaranties of the Obligations secured by a first priority,
perfected security interest in the same type of assets of such Subsidiaries
as are described in Section 6.1.

6.5 Further Assurances. Borrower will execute and deliver to
Agent, at such time or times as Agent may request, all financing
statements, security agreements, assignments, certificates, affidavits,
reports, schedules, and other documents and instruments (a) that Agent may
deem necessary to perfect and maintain Agent's perfected security interests
in the Collateral and (b) as reasonably requested by Lenders through Agent,
to fully consummate the transactions contemplated under all Loan Documents.
All filing, recording or negotiation fees shall be payable by Borrower,
which such fees Agent hereby acknowledges are satisfied by payment in full
of the Closing Fee.

7. CONDITIONS PRECEDENT

All duties and obligations of Lenders under the Loan Documents on the
Effective Date, and at all times during the term of this Agreement, are
specifically subject to the full and continued satisfaction by Borrower of
the conditions precedent set forth below.

7.1 Conditions Precedent to Closing. The following conditions must
be satisfied as of the Effective Date:

(a) Lender's Counsel. Each Lender's counsel must approve of all
matters pertaining to (i) title to the Collateral; (ii) the form,
substance and due execution of all Loan Documents; (iii) Borrower's
organizational documents; and (iv) all other legal matters, including
the application of any laws relating to usury.

(b) Material Change. There must not have been any material adverse
change, between May 31, 1997, and the Effective Date, in the condition
of Borrower, the condition of the Business, the value and condition of
the Collateral, the structure of Borrower other than as contemplated
herein, or in the financial information, audits and the like obtained
by Agent.

(c) Perfected Liens. Agent shall have a perfected first priority
Lien and security interest in the Collateral, subject only to the
Permitted Liens.

(d) Insurance. Borrower shall provide Agent with certificates of
insurance evidencing that Borrower has obtained the insurance as
required in Section 9.1.2.

(e) Laws. Borrower and its Subsidiaries shall be in compliance with
all applicable laws and governmental regulations, including, but not
limited to, all Environmental Laws, the failure to comply with which
would have a material adverse effect on Borrower, its Subsidiaries or
the Business.

(f) Certificate of Good Standing. A certificate of good standing
for Borrower (or other similar certificate) must be delivered to the
Agent, from the appropriate governmental authority of Borrower's state
of incorporation and other jurisdictions in which Borrower does
business, dated not earlier than 30 days prior to the Effective Date.

(g) Opinion of Borrower's Counsel. Agent must receive a written
opinion from counsel for Borrower, dated the Effective Date, and
addressed to and for the benefit of Agent and the Lenders, in form and
substance satisfactory to Lenders.

(h) UCC Searches. Agent must receive a certificate from a provider
of financing statement searches acceptable to Agent which identifies
all financing statements of public record not more than 5 days before
the Effective Date, that pertain to the Collateral.

(i) Other Documents. Such other documents, submissions, insurance
policies and other matters as reasonably requested by any Lender
through the Agent relating to the results of any due diligence or
Borrower's representations made hereunder.

(j) President's Certificate. The delivery to Agent of a President's
Certificate in the form attached hereto as Exhibit 7.1(j).

(k) Articles of Incorporation. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement shall be
delivered to Agent.

(l) Secretary's Certificate of Resolution and Incumbency. Such
certificate, in the form attached hereto as Exhibit 7.1(l), shall be
delivered to Agent.

(m) Pre-closing Expenses. Borrower shall pay to the Lenders all
fees and expenses required under this Agreement that are due on or
before the Effective Date, which such fees and expenses Agent hereby
acknowledges are satisfied by payment in full of the Closing Fee.

(n) Pre-closing Reviews. Lenders must complete reviews with
satisfactory results of Borrower's Inventory and Accounts. All costs
and expenses for such pre-closing reviews will be included within the
pre-closing expenses.

(o) Payoff Letter. A lien release and payoff letter executed by
Borrower's existing working capital lender(s).

(p) Intercreditor Agreements. Intercreditor Subordination Agreements
with IBM Credit Corporation with respect to conflicting interests in
certain assets of Borrower, in form and substance acceptable to Agent.

7.2 Conditions Precedent For All Loans. The following conditions
must be satisfied as of each Loan, including the initial Loan:

(a) Each of Borrower's representations and warranties provided
herein shall be true and correct in all material respects, as of the date
of each such Loan (or, if any such representation or warranty is limited to
a specific date, as of such specific date) except that the foregoing shall
not apply to the representations and warranties set forth in Section 8.3 to
the extent (but only to the extent) that the facts causing such
representations and warranties not to be true and correct, would not
reasonably be expected, either individually or in the aggregate, to have a
material adverse effect on the Business, properties or financial condition
of Borrower. In connection therewith, Borrower agrees that both Borrower's
Notice of Borrowing for a Loan, and acceptance of any Loan hereunder shall
be deemed to constitute Borrower's representation and warranty that the
representations and warranties set forth in this Agreement are true,
correct, and restated as of the dates of such request, and such acceptance
(or, if any such representation or warranty is limited to a specific date,
as of such specific date).

(b) There shall not have occurred and be continuing any
Default, or any other event or occurrence which, with the passage of time,
or notice, or both, would be a Default, and Borrower's Notice of Borrowing
for a Loan, and acceptance of any Loan hereunder shall be deemed to
constitute Borrower's representation and warranty to such effect.

(c) With respect to any Notice of Borrowing, the amount
requested for such Loan, if any, together with the then current total
unpaid outstanding balance of all Loans hereunder shall not exceed the then
existing Total Credit Limit.

7.3 Determinations Under Section 7.1. For purposes of determining
compliance with the conditions specified in Section 7.1, each Lender shall
be deemed to have consented to, approved or accepted or to be satisfied
with each document or other matter required thereunder to be consented to
or approved by or acceptable or satisfactory to the Lenders unless an
officer of the Agent responsible for the transactions contemplated by the
Loan Documents shall have received notice from such Lender prior to the
initial Loan specifying its objection thereto and such Lender shall not
have made available to the Agent such Lender's Pro Rata Share of such Loan.

8. REPRESENTATIONS AND WARRANTIES

To induce Lenders to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain
true in all material respects during the term of this Agreement. Borrower
acknowledges each Lender's justifiable right to rely upon the
representations and warranties set forth below.

8.1 Financial Statements. Borrower's audited consolidated
financial statements as of December 31, 1996 have been prepared in
accordance with GAAP and Borrower's unaudited consolidated financial
statement as of May 31, 1997 copies of which have been previously submitted
to Agent, each present fairly the financial condition of Borrower and its
consolidated Subsidiaries as at such dates and the results of their
operations for the periods then ended. Borrower warrants and represents to
Lenders that all financial statements and information relating to Borrower
or any Guarantor which have been or may hereafter be delivered by Borrower
or any Guarantor are true and correct and have been and will be prepared in
accordance with GAAP and, with respect to such previously delivered
statements or information, there has been no material adverse change in the
financial or business condition of Borrower or any Guarantor since the
submission to Agent, either as of the date of delivery, or, if different,
the date specified therein, and Borrower acknowledges Lenders' reliance
thereon.

8.2 Non-Existence of Defaults. Neither Borrower nor any of its
Subsidiaries is in default with respect to any material amount of its
existing Indebtedness. The making and performance of this Agreement and
all other Loan Documents, will not immediately, or with the passage of
time, the giving of notice, or both: (a) violate the provisions of the
bylaws or any other corporate document of Borrower; (b) violate any laws to
the best of Borrower's knowledge after reasonable inquiry; (c) result in a
material default under any contract, agreement, or instrument to which
Borrower is a party or by which Borrower or its properties are bound; or
(d) result in the creation or imposition of any security interest in, or
Lien or encumbrance upon, any of the Collateral except the Permitted Liens.

8.3 Litigation. Set forth on Exhibit 8.3 is a list of all actions,
suits, investigations or proceedings pending or, in the knowledge of
Borrower, threatened against Borrower or any of its Subsidiaries, as of the
date hereof in which there is a reasonable probability of an adverse
decision which would materially and adversely affect Borrower, the
Business, or the Collateral.

8.4 Material Adverse Changes. Except as set forth on Exhibit 8.4,
Borrower does not know of or expect any material adverse change in the
Business, or in Borrower's or any of the Subsidiaries' assets, liabilities,
properties, or condition, financial or otherwise, including changes in
Borrower's financial condition from May 31, 1997 through the Effective
Date.

8.5 Title to Collateral. Except as set forth on Exhibit 8.5,
Borrower has good and marketable title to all of the Collateral, free and
clear of any and all Liens, claims and encumbrances, other than the
Permitted Liens.

8.6 Corporate Status. Borrower and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective
jurisdictions of formation. Borrower and its Subsidiaries have the
corporate power and authority to own their properties and to transact the
Business in which they are engaged and presently propose to engage.
Borrower and each Subsidiary is duly qualified as a foreign corporation and
in good standing in all states where the nature of their Business or the
ownership or use of their property requires such qualification, and where
failure to so qualify would have a material adverse effect on its Business,
operations or financial condition.

8.7 Subsidiaries. Exhibit 8.7 hereto lists the Subsidiaries as of
the Effective Date.

8.8 Power and Authority. Borrower has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of
the Loan Documents. Borrower has taken or caused to be taken all necessary
corporate action to authorize the execution, delivery and performance of
this Agreement and all other Loan Documents and the borrowing hereunder.

8.9 Place of Business. Borrower's chief executive office and the
principal place of business is located at 4100 Lafayette Center Drive,
Chantilly, Virginia 22021-0808. Borrower's records concerning the
Collateral are kept at such chief executive office, or will be kept at such
other place that Borrower informs Agent of not less than 30 days in advance
of relocation.

8.10 Enforceability of the Loan Documents. The Loan Documents
executed by Borrower are the valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their terms, except as
limited by bankruptcy, insolvency, or other laws of general application
relating to the enforcement of creditors' rights.

8.11 Taxes. Borrower's federal tax identification number is
54-1248422. Except as described on Exhibit 8.11, Borrower has to the best
of its knowledge, after reasonable inquiry (a) filed all federal, state and
local tax returns and other reports that it is required by law to file, (b)
paid or caused to be paid all taxes, assessments and other governmental
charges that are due and payable, the failure of which to pay would have a
material adverse effect on the Business, except those contested in good
faith and in accordance with accepted procedures, and for which adequate
reserves have been established in accordance with GAAP, and (c) made
adequate provision for the payment of such taxes, assessments or other
charges accruing but not yet payable. Borrower has no knowledge of any
deficiency or additional assessment in a material amount in connection with
any taxes, assessments or charges.

8.12 Compliance with Laws. Borrower, to the best of its knowledge
after reasonable inquiry, has complied, and shall cause each Subsidiary to
comply, in all material respects with all applicable laws, including any
Environmental Laws and any zoning laws, the failure to comply with which
would have a material adverse effect on Borrower individually, or Borrower
and its Subsidiaries on a consolidated basis.

8.13 Consents. Borrower and the Subsidiaries have obtained all
material consents, permits, licenses, approvals or authorization of, or
effected the filing, registration or qualification with, any governmental
entity which is required to be obtained or effected by Borrower and the
Subsidiaries in connection with the Business or the execution and delivery
of this Agreement and the other Loan Documents the failure of which to
obtain or effect would have a material adverse effect on Borrower
individually, or on Borrower and its Subsidiaries on a consolidated basis.

8.14 Purpose. Borrower will use the advances which the Lenders
make under the Credit Facility solely for lawful purposes and as described
in Section 3 hereof.

8.15 Condition of the Business. Except as set forth on Exhibit
8.15, all material assets used in the conduct of the Business are in good
operating condition and repair and are fully usable in the ordinary course
thereof, reasonable wear and tear excepted.

8.16 Capital. All issued shares and all outstanding shares in the
Subsidiaries as reflected in Borrower's financial statements are validly
issued pursuant to proper authorization of the board of directors of such
Subsidiary, and are fully paid, and non-assessable. Except as described on
Exhibit 8.16, there are no outstanding subscriptions, warrants, options,
calls or commitments, obligations or securities convertible or exchangeable
for shares of any stock of Borrower or the Subsidiaries. Borrower and the
Subsidiaries shall give Agent thirty (30) days prior written notice before
entering any agreement to register any new issues of its equity or debt
securities under the Securities Act of 1933, as amended, or any state
securities law, which are not so registered on the date hereof. All
Borrower's issued shares and outstanding capital stock are fully paid and
non-assessable, and its capital structure is as set forth on Exhibit 8.16.

8.17 Location of Collateral. Exhibit 8.17 describes the locations
where any of the Collateral is located or stored as of the date hereof.

8.18 Real Property. Neither Borrower nor any Subsidiary own or
lease any real property, except as set forth on Exhibit 8.18 attached
hereto.

8.19 Warranties and Representations-Accounts. For each Account
listed by Borrower on any Borrowing Base Certificate, Borrower warrants and
represents to Lenders that at all times: (a) such Account is genuine; (b)
such Account is not evidenced by a judgment or promissory note or similar
instrument or agreement; (c) it represents an undisputed bona fide
transaction completed in accordance with the terms of the invoices and
purchase orders relating thereto; (d) the goods sold or services rendered
which resulted in the creation of such Account have been delivered or
rendered to and accepted by the Account Debtor; (e) the amounts shown on
the Borrowing Base Certificate, Borrower's books and records and all
invoices and statements delivered to Agent with respect thereto are owing
to Borrower and are not contingent; (f) no payments have been or will be
made thereon except payments turned over to Lenders; (g) there are no
material offsets, counterclaims or disputes existing or asserted with
respect thereto and Borrower has not made any agreement with the Account
Debtor for any deduction or discount of the sum payable thereunder except
regular discounts allowed by Borrower in the ordinary course of its
business for prompt payment; (h) there are no facts or events which in any
way impair the validity or enforceability thereof or reduce the amount
payable thereunder from the amount shown on the Borrowing Base Certificate,
Borrower's books and records and the invoices and statements delivered to
Agent with respect thereto; (i) all persons acting on behalf of the Account
Debtor thereon have the authority to bind the Account Debtor; (j) the goods
sold or transferred giving rise thereto are not subject to any Lien, claim,
encumbrance or security interest which is superior to that of Agent's; (k)
such Account is subject to Agent's perfected, first priority security
interest and no other Lien other than a Permitted Lien; and (l) there are
no proceedings or actions known to Borrower which are threatened or pending
against the Account Debtor thereon which might result in any material
adverse change in such Account Debtor's financial condition.

8.20 Environmental, Health and Safety Matters. Except as
disclosed on Exhibit 8.20: (a) the operations of Borrower and each of the
Subsidiaries complies in all respects with (i) all applicable Environmental
Laws, and (ii)
all applicable OSHA Laws; (b) none of the operations of Borrower or any
Subsidiary are subject to any judicial or administrative proceeding
alleging the violation of any Environmental Law or OSHA Law; (c) none of
the operations of Borrower or any Subsidiary is the subject of federal or
state investigation evaluating whether any remedial action is needed to
respond to (i) a spillage, disposal or release into the environment of any
Hazardous Material or other hazardous, toxic or dangerous waste, substance
or constituent, or other substance, or (ii) any unsafe or unhealthful
condition at any premises of Borrower or any Subsidiary; (d) neither
Borrower nor any Subsidiary has filed any notice under any Environmental
Law or OSHA Law indicating or reporting (i) any past or present spillage,
disposal or release into the environment of, or treatment, storage or
disposal of, any Hazardous Material or other hazardous, toxic or dangerous
waste, substance or constituent, or other substance or (ii) any unsafe or
unhealthful condition at any premises of Borrower or any Subsidiary; and
(e) neither Borrower nor any Subsidiary has any known contingent liability
in connection with (i) any spillage, disposal or release into the
environment of, or otherwise with respect to, any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or
other substance or (ii) any unsafe or unhealthful condition at any premises
of Borrower or any Subsidiary.

8.21 Patents, Copyrights, Trademarks, Etc. The Borrower and each
of the Subsidiaries possesses or has the right to use all of the patents,
trademarks, trade names, service marks and copyrights, and applications
therefor, and all technology, know-how, processes, methods and designs used
in or necessary for the conduct of its business, without known conflict
with the rights of others. All such licenses, patents, trademarks, trade
names, service marks and copyrights, and applications therefor existing on
the date hereof are listed on Exhibit 8.21.

8.22 Solvency. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and
all business and transactions in which it is about to engage and is now
solvent and able to pay its respective debts as they mature, and Borrower
and each of the Subsidiaries now owns property having a value, greater than
the amount required to pay Borrower's or such Subsidiary's debts.

8.23 Leases. Exhibit 8.23(a) attached hereto is a complete
listing of all capitalized leases of Borrower and Exhibit 8.23(b) attached
hereto is a complete listing of all material operating leases of Borrower.

8.24 Labor Relations. Except as described on Exhibit 8.24
attached hereto and made a part hereof, neither Borrower nor any of its
Subsidiaries is a party to any collective bargaining agreement, and there
are no material grievances, disputes or controversies with any union or any
other organization of Borrower's employees, or threats of strikes, work
stoppages or any asserted pending demands for collective bargaining by any
union or organization.

8.25 Business Locations; Agent for Process. During the preceding
seven (7) year period, Borrower has had no office, place of business or
agent for service of process located in any state or county other than as
shown Exhibit 8.17.

8.26 Reaffirmation. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall
constitute (a) an automatic representation and warranty by Borrower to
Lenders that there does not then exist any Default or any other event or
occurrence which, with the passage of time, or notice, or both, would be a
Default, and (b) a reaffirmation as of the date of said request of all of
the representations and warranties of Borrower contained in this Agreement
and the other Loan Documents except that the foregoing shall not apply to
the representations and warranties set forth in Section 8.3 to the extent
(but only to the extent) that the facts causing such representations and
warranties not to be true and correct, would not reasonably be expected,
either individually or in the aggregate, to have a material adverse effect
on the Business, properties or financial condition of Borrower.

8.27 Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Lenders that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this
Agreement and the other Loan Documents, and shall survive the execution,
delivery and acceptance thereof by Agent and Lenders and the parties
thereto and the closing of the transactions described therein or related
thereto.

9. BORROWER'S COVENANTS

9.1 Affirmative Covenants. During the term of this Agreement and
thereafter for so long as any Obligations are outstanding and unpaid,
Borrower Covenants that unless otherwise consented to by the Majority
Lenders in writing, it shall perform all the acts and promises required by
this Agreement and all the acts and promises set forth below.

9.1.1 Payment and Performance. Borrower will (a) pay all
Obligations in full when and as due hereunder and (b) perform all other
Obligations in full when and as due hereunder.

9.1.2 Insurance.

(a) Type of Insurance. Borrower will at all times cause
the Business and the Collateral to be insured by insurers
of reasonable financial soundness and having an A. M. Best
rating of A or better, with such policies, against such
risks and in such amounts as are appropriate for reasonably
prudent businesses in Borrower's industry and of Borrower's
size and financial strength.

(b) Requirements as to Insurance Policies. The policies
of insurance which Borrower is required to carry shall
comply with the requirements listed below:

(i) Each such policy shall provide that it may not be
canceled or allowed to lapse at the end of a policy period
without at least 30 days' prior written notice to Agent;

(ii) Each liability and hazard insurance policy shall name
Agent as an additional insured, for the benefit of the
Lenders; and

(iii) Each property insurance policy required hereunder
shall contain a standard lender's loss payable clause in
favor of Agent. Such insurance policies shall also contain
lender's loss payable endorsements satisfactory to Agent
providing, among other things, that any loss shall be
payable in accordance with the terms of such policy
notwithstanding any act of Borrower which might otherwise
result in forfeiture of such insurance.

(c) Collection of Claims. Borrower will promptly advise
Agent of any insured casualty in excess of $100,000 and
Borrower agrees that Agent may direct all insurance
proceeds therefrom to be paid directly to Agent to the
extent that such loss is not adequately insured under an
insurance policy which names Agent as a loss payee, and
hereby appoints Agent its attorney-in-fact for such
purpose.

(d) Blanket Policies. Any insurance required hereunder
may be supplied by means of a blanket or umbrella insurance
policy.

(e) Delivery of Policies or Certificates of Insurance.
Borrower shall deliver to Agent certificates of insurance
issued by insurers to evidence that the insurance
maintained by Borrower complies with the requirements
hereunder.

9.1.3 Collection of Receivables; Sale of Inventory. Borrower
will collect its Accounts and sell its Inventory only in the ordinary
course of business.

9.1.4 Notice of Litigation and Proceedings. Borrower will
give prompt notice to Agent of: (a) any litigation or proceeding (including
fines and penalties of any public authority) in which it, or any of the
Subsidiaries is a party in which there is a reasonable probability of an
adverse decision which would require it or any of the Subsidiaries to pay
money or deliver assets, whether or not the claim is considered to be
covered by insurance and that might adversely affect Borrower or any of its
Subsidiary's operations, financial condition, property or business ; (b)
any class action litigation against it, regardless of size; and (c) the
institution of any other suit or proceeding that might materially and
adversely affect its or any of its Borrower Subsidiary's operations,
financial condition, property or the Business.

9.1.5 Payment of Indebtedness to Third Persons. Borrower
will, and will cause each Subsidiary to, pay, when due, all Indebtedness
and any other liability due third persons, except when the amount thereof
is being contested in good faith by appropriate proceedings and with
adequate reserves therefor satisfactory to Agent in accordance with GAAP
being set aside by Borrower or such Subsidiary. Agent will use reasonable
efforts to attempt to give Borrower notice before Agent requires Borrower
to set aside additional reserves which additional reserves shall not be in
excess of those required under GAAP.

9.1.6 Notice of Change of Business Location. Borrower will
notify Agent 30 days in advance of: (a) any change in or discontinuation
of the location of the Collateral, Borrower's principal place of business,
or any of the Subsidiaries' existing offices or places of business, (b) the
establishment of any new places of business relating to the Business, and
(c) any material change in or addition to the locations where Borrower's
Inventory or records are kept.

9.1.7 Payment of Taxes. Borrower will, and will cause each
Subsidiary to, pay or cause to be paid, when and as due, all taxes,
assessments and charges or levies imposed upon it or on any of its property
or that it is required to withhold and pay over to the taxing authority or
that it must pay on its income, the failure of which to pay would have a
material adverse effect on Borrower individually, or on Borrower and the
Subsidiaries on a consolidated basis, except where contested in good faith
by appropriate proceedings with adequate reserves therefor satisfactory to
Agent, in accordance with GAAP, having been set aside by Borrower or such
Subsidiary. Agent will use reasonable efforts to attempt to give Borrower
notice before Agent requires additional reserves, which additional reserves
shall not be in excess of those required under GAAP. However, Borrower
will, and will cause each Subsidiary to, pay or cause to be paid all such
taxes, assessments, charges or levies immediately whenever foreclosure of
any Lien that attaches on the Collateral appears imminent.

9.1.8 Further Assurances. Borrower agrees to, and will cause
each Subsidiary to, execute such other and further documents, including,
without limitation, deeds of trust, promissory notes, security agreements,
financing statements, continuation statements, certificates of title, and
the like as may from time to time in the reasonable opinion of Agent be
necessary to perfect, confirm, establish, re-establish, continue, or
complete the security interests, collateral assignments and Liens in the
Collateral, and the purposes and intentions of this Agreement.

9.1.9 Maintenance of Status. Borrower will take all necessary
steps to (a) preserve its, and each Subsidiary's, existence as a
corporation, (b) preserve Borrower's and the Subsidiaries' franchises and
permits, and (c) comply with all present and future material agreements to
which Borrower, or any of the Subsidiaries, is subject, and (d) maintain,
and cause each Subsidiary to maintain, its qualification and good standing
in all states in which such qualification is necessary or in which the
failure to be so qualified might have a material adverse effect on the
financial condition or properties of Borrower or the Business. Borrower
will not materially change the nature of the Business during the term of
this Agreement.

9.1.10 [RESERVED]

9.1.11 Notice of Existence of Default. Borrower will, and
will cause its Subsidiaries to, promptly notify Agent of: (a) the
existence of any known condition or event, which constitutes or which will
constitute with notice or the passage of time or both, a Default and (b)
the actual or threatened termination, suspension, lapse or relinquishment
of any material license, authorization, permit or other right granted
Borrower or for Borrower's benefit and used in the Business, or granted to
any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.

9.1.12 Compliance with Laws. Borrower will, and will cause
its Subsidiaries to, comply in all material respects with all applicable
laws, rules, regulations and orders.

9.1.13 Maintenance of Collateral. Borrower will maintain all
material Collateral in good condition and repair. Borrower will not permit
the value of the Collateral to be materially impaired. Borrower will
defend the Collateral against all claims and legal proceedings by persons
other than the Lenders. Borrower will not transfer the Collateral from the
premises where now located (other than Inventory sold in the ordinary
course of business and other Collateral transferred in the ordinary course
of business), or permit the Collateral to become a fixture or accession
(unless so affixed on the Effective Date) to any goods which are not items
of Collateral, without the prior written approval of Agent. Borrower will
not permit the Collateral to be used in violation of any applicable law,
regulations, or any policy of insurance. As to Collateral consisting of
instruments and chattel paper, Borrower will preserve rights in it against
prior parties.

9.1.14 Collateral Records and Statements. Borrower will keep
such accurate and complete books and records pertaining to the Collateral
in such detail and form as Agent reasonably requires, including, but not
limited to: schedules of inventory; original orders; invoices; shipping
documents; billing settlements and receivables; sold receivables; Inventory
listing containing model, serial number (if available) and location.
Weekly, or at such other times as Agent may reasonably require, Borrower
will furnish to Agent a statement, certified by Borrower showing the aging
of Accounts. Monthly, or at such other times as Agent may reasonably
require, Borrower will furnish to Agent a statement, certified by Borrower
showing the current Inventory status, showing the lower of cost (determined
on an "average cost" basis) or market value thereof. Other reporting will
be available upon request by Lenders through Agent, including, but not be
limited to, accounts payable agings in such form as the Agent and/or a
Lender reasonably requires. The statements will be in the form and will
contain the information as is prescribed by Agent.

9.1.15 Inspection of Collateral. Agent and the Lenders may
examine the Collateral at any time, and from time to time during normal
business hours. Agent and the Lenders will have full access to, and the
right to review, inspect and make abstracts and copies from Borrower's
books and records pertaining to the Collateral, wherever located, at any
time during reasonable business hours, and from time to time. Borrower
will assist Agent and the Lenders in so doing.

9.1.16 Landlord's Agreements. Borrower will provide or cause
to be provided, on the Effective Date, landlord waivers and agreements in a
form acceptable to Agent with respect to leased real property and with
respect to any future leases, prior to entering into them.

9.1.17 Reimbursement for Bank Charges. Borrower will
reimburse Lenders for all charges made by banks for collection of checks
and other items of payment and for transfer of funds to or from Borrower.

9.2 Negative Covenants. During the term of this Agreement and
thereafter, for so long as any Obligations are outstanding and unpaid,
Borrower covenants that unless otherwise consented to in writing by the
Majority Lenders, Borrower shall not perform or cause or permit to be
performed the following acts:

9.2.1 Change of Name, Etc. Borrower and the Subsidiaries will
not change their name, or begin to trade under any assumed names or trade
names without thirty (30) days prior written notice to Agent. Borrower
will not, and will not permit any Subsidiary to, change its manner of
organization, enter into any mergers, consolidations, reorganizations or
recapitalizations without the Majority Lenders' prior written consent other
than as contemplated herein.

9.2.2 Sale or Transfer of Assets. Except in the ordinary
course of business, Borrower and the Subsidiaries will not sell, transfer,
lease (including sale-leaseback) or otherwise dispose of all or any
substantial part of their assets. This provision will not apply to any
sale if the proceeds of such sale pay the Obligations in full.

9.2.3 Encumbrance of Assets. Borrower will not, and will not
permit a Subsidiary to, mortgage, pledge, grant or permit to exist a
security interest in or Lien upon any of the Collateral, now owned or
hereafter acquired except for the Permitted Liens.

9.2.4 Acquisition of Stock or Assets. Borrower and the
Subsidiaries will not, acquire, or enter into any agreement, commitment
letter or letter of intent to acquire, all or substantially all the assets
of, equity interest or stock in, another business.

9.2.5 False Certificates or Documents. Borrower has not and
will not, and will not permit any Subsidiary to, furnish Agent or any
Lender with any certificate or other document that contains any untrue
statement of material fact or that omits to state a material fact necessary
to make it not misleading in light of the circumstances under which it was
furnished.

9.2.6 Assignment. Borrower will not assign or attempt to
assign the Loan Documents or any of its interests under the Loan Documents.

9.2.7 Transactions with Affiliates. Borrower will not enter
into any contracts, leases, sales or other transactions with any Affiliate
on terms less favorable than could be obtained generally by Borrower from a
non-Affiliate.

9.2.8 Dividends. Borrower will not, and will not permit any
Subsidiary to, declare or pay any dividends upon its capital stock.

9.2.9 Capital Expenditures. Borrower will not make, or commit
to make, any expenditure for capital improvements (including, without
limitation, capitalized leases) or the acquisition of capital goods in
excess of: (a) for the calendar year ending December 31, 1997, (i) Two
Million Dollars ($2,000,000) of such capital expenditures as are directly
related to bringing Borrower's new warehouse located in Chantilly, Virginia
and Borrower's new accounting system, up to their respective operational
capacities, and (ii) One Million Seven Hundred Thousand Dollars
($1,700,000) for other such capital expenditures; and (b) for each calendar
year thereafter, One Million Seven Hundred Thousand Dollars ($1,700,000).

9.2.10 Loans by Borrower. Borrower will not, and will not
permit any Subsidiary to, make any loan to any Person, except for loans in
anticipation of reasonable and normally reimbursable business expenses and
trade credit extended in the ordinary course of Business.

9.2.11 Fiscal Year. Borrower will not, and will not permit
any Subsidiary to, change its fiscal year-end without sixty (60) days prior
written notice to Agent.

9.2.12 Total Indebtedness. Borrower shall not create, incur,
assume, or suffer to exist, or permit any Subsidiary to create, incur or
suffer to exist, any Indebtedness, except:

(i) the Obligations;
(ii) Subordinated Debt;
(iii) Indebtedness of any Subsidiary to Borrower not to exceed
$250,000 at any time;
(iv) Accounts payable to trade creditors and current operating
expenses (other than for money borrowed) incurred in the
ordinary course of business which are aged not more than thirty
(30) days past due, unless actively contested in good faith and
by appropriate and lawful proceedings, and for which adequate
reserves have been established in accordance with GAAP;
(v) Obligations to pay Rentals permitted by Section 9.2.19;
(vi) Indebtedness not included in paragraphs (i) through (v)
above which does not exceed at any time, in the aggregate, the
sum of $2,000,000; or
(vii) Permitted Purchase Money Indebtedness.

9.2.13 Adverse Transactions. Borrower will not enter into
any transaction, or permit any Subsidiary to enter into any transaction,
which materially and adversely affects or may materially and adversely
affect the Collateral or Borrower's ability to repay the Obligations or
permit or agree to any material extension, compromise or settlement or make
any change or modification of any kind or nature with respect to any
Account, including any of the terms relating thereto, other than discounts
and allowances in the ordinary course of business, all of which shall be
reflected in the Borrowing Base Certificate submitted to Agent pursuant to
Section 3.2 of this Agreement.

9.2.14 Guaranties. Borrower will not guarantee, assume,
endorse or otherwise, in any way, become directly or contingently liable
with respect to the Indebtedness of any Person, except by endorsement of
instruments or items of payment for deposit or collection.

9.2.15 Bill-and-Hold Sales, Etc. (a) Borrower will not make a
sale to any customer on a guaranteed sale or consignment basis, and (b)
except for general and customary rights of return of Borrower's customers,
consistent with Borrower's existing return and related policies and staging
requirements, as the case may be, Borrower will not make a sale to any
customer on a bill-and-hold, sale and return, sale on approval, or any sale
on a repurchase or return basis.

9.2.16 Stock Redemption. Borrower will not redeem or purchase
any of its outstanding capital stock, warrants, or stock options or convert
or permit such stock, warrants or options to be converted into cash, nor
has or shall Borrower guaranty to any of its shareholders any minimum stock
price or valuation..

9.2.17 Use of Names. Borrower will not without the prior
written consent of the applicable party, use the name of Agent or any
Lender or the name of any Affiliates of such party in connection with any
of Borrower's business or activities, except in connection with internal
business matters, as required in the investment community in dealings with
governmental agencies and financial institutions and to trade creditors of
Borrower solely for credit reference purposes.

9.2.18 Margin Securities. Borrower will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or enter,
or permit any Subsidiary to enter, into any contract to purchase or
acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect
unless, prior to any such purchase or acquisition or entering into any such
contract, Lenders shall have received an opinion of counsel satisfactory to
Lenders to the effect that such purchase or acquisition will not cause this
Agreement to violate Regulations G or U or any other regulation of the
Federal Reserve Board then in effect.

9.2.19 Leases. Borrower will not become a lessee under any
operating lease of property if the aggregate Rentals (defined below)
payable during any current or future period of twelve (12) consecutive
months under the lease in question and all other leases under which
Borrower is then lessee would exceed $5,000,000. The term "Rentals" means,
as of the date of determination, all payments which the lessee is required
to make by the terms of any lease.

9.2.20 Tax Consolidation. Borrower will not file or consent
to the filing of any consolidated income tax return with any Person other
than a Subsidiary.<PAGE>
9.3 FINANCIAL COVENANTS.

9.3.1 Amounts. Borrower agrees that it will at all times
maintain the following:

(a) a Tangible Net Worth plus Subordinated Debt in the combined
amount of not less than the amount shown below for the period
corresponding thereto:

Period Amount

Calendar quarter ending 6/30/97 $30,000,000

Calendar quarter ending 9/30/97 $32,000,000

Calendar quarter ending 12/31/97 $38,000,000

Calendar quarter ending 3/31/98 $38,000,000;

(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than the amount shown below for
the period corresponding thereto:

Period Ratio

Calendar quarter ending 6/30/97 4.0 to 1.0

Calendar quarter ending 9/30/97 5.0 to 1.0

Calendar quarter ending 12/31/97 4.0 to 1.0

Calendar quarter ending 3/31/98 4.0 to 1.0

(c) a ratio of Current Assets to current liabilities of not less
than the amount shown below for the period corresponding thereto:

Period Ratio

Calendar quarter ending 6/30/97 1.20 to 1.0

Calendar quarter ending 9/30/97 1.10 to 1.0

Calendar quarter ending 12/31/97 1.20 to 1.0

Calendar quarter ending 3/31/98 1.2 to 1.0

Prior to March 31, 1998, Agent and Borrower shall renegotiate the
above financial covenants for application to any subsequent periods
of this Agreement. If on or prior to March 31, 1998, the parties
fail to execute a written amendment to this Agreement providing for
such revised financial covenants for any subsequent periods of this
Agreement, then the above financial covenants in effect for the
first quarter of 1998 shall be and remain in effect, until such
amendment is executed and in full force and effect.

(d) For the fiscal year of Borrower ending December 31, 1997, and
each and every fiscal year thereafter, Borrower shall achieve net
income, both before and after giving effect to provisions for
income taxes, of at least One Dollar ($1.00).

For purposes of this paragraph: (i) "Tangible Net Worth" means the
book value of Borrower's assets less liabilities (including as
liabilities all recorded reserves for contingencies and other
potential liabilities), excluding from such assets all Intangibles;
(ii) "Intangibles" means and includes general intangibles (as that
term is defined in the UCC); accounts receivable and advances due
from officers, directors, member, owner, employees, stockholders
and affiliates; leasehold improvements net of depreciation;
licenses; good will; prepaid expenses (except for those determined
by Agent, in its sole discretion, not to be Intangible); escrow
deposits (except for those determined by Agent, in its sole
discretion, not to be Intangible); covenants not to compete; the
excess of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse
obligations; capitalized research and development costs; and such
other similar items as DFS may from time to time determine in DFS'
sole discretion; (iii) "Debt" means all of Borrower's liabilities
and indebtedness for borrowed money of any kind and nature
whatsoever, whether direct or indirect, absolute or contingent, and
including obligations under capitalized leases, guaranties or with
respect to which Borrower has pledged assets to secure performance,
whether or not direct recourse liability has been assumed by
Borrower; (iv) "Subordinated Debt" means all of Borrower's Debt
which is subordinated to the payment of Borrower's liabilities to
the Lenders by an agreement in form and substance satisfactory to
Agent; and (v) "Current Assets" means Borrower's current assets.
The foregoing terms will be determined in accordance with GAAP
consistently applied, and, if applicable, on a consolidated basis
("Financial Covenants").

10. DEFAULT/REMEDIES

Borrower will be in default (each a "Default") under this Agreement
if:

(a) Borrower shall fail or neglect to perform, keep, observe or
otherwise breach (i) any covenant contained in Sections 3.5, 6.1, 9.1.1(a),
9.1.3, 9.1.6, 9.1.7, 9.1.9, 9.1.11, 9.1.13, 9.1.14, 9.1.15(a), 9.2.1
through 9.2.10, 9.2.12, 9.2.13, 9.2.14, 9.2.16, 9.2.18 through 9.2.20, or
9.3, or (ii) any other covenant contained herein or in any other Loan
Document and the breach of such other covenant is not cured to Agent's
satisfaction within fifteen (15) days after the sooner to occur of
Borrower's receipt of notice of such breach from Agent or the date on which
such failure or neglect becomes known to any officer of Borrower;

(b) any Guarantor breaches any material terms, covenants,
warranties or representations contained in any guaranty or other agreement
between the Guarantor and Agent or any Lender;

(c) any representation, warranty, statement, report or certificate
made or delivered by Borrower or any Guarantor to Agent or any Lender
proves to have been false or misleading in any material respect when made
or delivered;

(d) Borrower fails to pay any portion of Borrower's debts to any
Lender or Agent when due and payable hereunder or under any other agreement
between any Lender and Borrower and/or Agent and Borrower;

(e) Borrower abandons any Collateral;

(f) Borrower or any Guarantor is or becomes in default in the
payment of any debt owed to any third party which is not cured within 30
days after any applicable due date therefor;

(g) One or more judgments for the payment of money shall have been
entered against the Borrower or any of the Subsidiaries of Borrower, which
judgment or judgments, exceed $1,000,000 in the aggregate, and such
judgment or judgments shall have remained undischarged and unstayed for a
period of thirty consecutive days;

(h) an attachment, sale or seizure issues or is executed against
any assets of Borrower or against any assets of any Guarantor;

(i) any individual Guarantor dies;

(j) Borrower ceases existence as a corporation, partnership, trust
or limited liability company;

(k) Borrower ceases or suspends business; or if Borrower is
debarred or suspended from doing business with any Governmental Account
Debtor;

(l) Borrower or any Guarantor makes a general assignment for the
benefit of creditors;

(m) Borrower or any Guarantor becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law;

(n) any receiver is appointed for any of Borrower's or any
Guarantor's assets;

(o) any guaranty of Borrower's debts to Agent or any Lender is
terminated;

(p) Borrower loses any material franchise, permission, license or
right to sell or deal in any Collateral;

(q) Borrower or any Guarantor materially misrepresents Borrower's
or such Guarantor's financial condition or organizational structure;

(r) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien;

(s) Borrower shall be enjoined, restrained or in any way prevented
by court, governmental or administrative order from conducting all or any
material part of its Business; or any material lease or agreement pursuant
to which Borrower leases, uses or occupies any property shall be canceled
or terminated prior to the expiration of its stated term, or any part of
the Collateral shall be taken through condemnation or the value thereof
shall be impaired through condemnation;

(t) there shall occur a material adverse change in the financial or
other condition of Borrower or any Guarantor; or

(u) Agent determines in good faith that it is insecure with respect
to any of the Collateral or the payment of any part of Borrower's
Obligations.

In the event of a Default:

(i)Agent may at any time at its election, and shall at the request
of the Majority Lenders, without notice or demand to Borrower, do
any one or more of the following: cease making further Loans and
declare all or any of the Obligations immediately due and payable,
together with all costs and expenses of Agent's and Lender's
collection activity, including, without limitation, all reasonable
attorneys' fees; exercise any or all rights under applicable law
(including, without limitation, the right to possess, transfer and
dispose of the Collateral); and/or cease extending any additional
credit to Borrower.

(ii) Borrower will segregate and keep the Collateral in trust
for Agent, and in good order and repair, and will not sell, rent,
lease, consign, otherwise dispose of or use any Collateral, nor
further encumber any Collateral.

(iii) Upon Agent's oral or written demand, Borrower will
immediately deliver and/or make available the Collateral to Agent,
in good order and repair, at a place specified by Agent, together
with all related documents; or Agent may, and shall at the request
of the Majority Lenders and without notice or demand to Borrower,
take immediate possession of the Collateral together with all
related documents.
(iv)Agent may, and shall at the request of the Majority Lenders,
without notice, apply the Default Interest Rate.
(v)Agent may, and shall at the request of the Majority Lenders,
without notice to Borrower and at any time or times hereafter
enforce payment and collect, by legal proceedings or otherwise,
Accounts in the name of Borrower or Agent; and take control of any
cash or non-cash items of payment or proceeds of Accounts and of
any rejected, returned, repossessed or stopped in transit goods
relating to Accounts. Agent may, and shall at the request of the
Majority Lenders and without demand enter, with or without process
of law, any premises where Collateral might be and, without charge
or liability to Agent or any Lender therefor do one or more of the
following: (i) take possession of the Collateral and use or store
it in said premises or remove it to such other place or places as
Agent may deem convenient; (ii) take possession of all or part of
such premises and the Collateral and place a custodian in the
exclusive control thereof until completion of enforcement of
Agent's security interest in the Collateral or until Agent's
removal of the Collateral and, (iii) remain on such premises and
use the same, together with Borrower's materials, supplies, books
and records, for the purpose of liquidating or collecting such
Collateral and conducting and preparing for disposition of such
Collateral.
(vi)Upon the occurrence of a Default described in Sections 10(l),
(m) or (n), all Obligations shall automatically be accelerated and
due and payable and the Default Interest Rate shall automatically
apply as of the date of the first occurrence of such Default,
without any prior notice, demand or action of any type on the part
of Agent or any Lender.

All of Agent's and each Lender's rights and remedies are cumulative.
Agent's or any Lender's failure to exercise any of its rights or
remedies hereunder will not waive any of such party's rights or
remedies as to any past, current or future Default.

11. SALE OF COLLATERAL

Borrower agrees that if Agent conducts a private sale of any
Collateral by requesting bids from 10 or more dealers or distributors in
that type of Collateral, any sale by Agent of such Collateral in bulk or in
parcels within 120 days of: (a) Agent's taking possession and control of
such Collateral; or (b) when Agent is otherwise authorized to sell such
Collateral; whichever occurs last, to the bidder submitting the highest
cash bid therefor, is a commercially reasonable sale of such Collateral
under the UCC. Borrower agrees that the purchase of any Collateral by a
vendor, as provided in an agreement between DFS and the vendor, if any, is
a commercially reasonable disposition and private sale of such Collateral
under the UCC, and no request for bids shall be required. Borrower further
agrees that 10 or more days prior written notice will be commercially
reasonable notice of any public or private sale (including any sale to a
vendor). Borrower irrevocably waives any requirement that Agent retain
possession and not dispose of any Collateral until after an arbitration
hearing, arbitration award, confirmation, trial or final judgment. If
Agent disposes of any such Collateral other than as herein contemplated,
the commercial reasonableness of such disposition will be determined in
accordance with the laws of the state governing this Agreement.

12. INDEMNIFICATIONS

12.1 Environmental and Safety and Health Indemnity. Borrower
hereby indemnifies Agent and each Lender and agrees to hold Agent and each
Lender harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs and attorneys' fees) which at
any time or from time to time may be paid, incurred or suffered by, or
asserted against, Agent or any Lender for, with respect to, or as a direct
or indirect result of the violation by Borrower or any Subsidiary, of any
Environmental Law or OSHA Law; or with respect to, or as a direct or
indirect result of (a) the presence on or under, or the escape, seepage,
leakage, spillage, disposal, discharge, emission or release from,
properties utilized by Borrower and/or any Subsidiary in the conduct of its
business into or upon any land, the atmosphere, or any watercourse, body of
water or wetland, of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance (including,
without limitation, any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under the Environmental Laws) or (b)
the existence of any unsafe or unhealthful condition on or at any premises
utilized by Borrower and/or any Subsidiary in the conduct of its business.
The provision of and undertakings and indemnification set out in this
Section 12.1 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.

12.2 General Indemnity. In addition to the payment of expenses
and attorneys' fees, if applicable, whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to indemnify, pay
and hold Agent and each Lender and the officers, directors, employees,
agents, and affiliates of Agent and each Lender (collectively called the
"Indemnitees") harmless from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel for any of such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or
not any of such Indemnitees shall be designated a party thereto), that may
be imposed on, incurred by, or asserted against the Indemnitees, in any
manner relating to or arising out of the Loan Documents, the statements
contained in any commitment letters delivered by Agent or any Lender, each
Lender's agreement to make the Loans or any other payment hereunder, or the
use or intended use of the proceeds of any of the Loans hereunder (the
"Indemnified Liabilities"); provided, however, that Borrower shall have no
obligation to an Indemnitee hereunder with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of an
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, Borrower shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable
law, to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them. The provisions of the
undertakings and indemnification set out in this Section 12.2 shall survive
satisfaction and payment of the Obligations and termination of this
Agreement.

13. RELATIONSHIP AMONG LENDERS.

13.1 Appointment and Grant of Authority. Each Lender hereby
appoints the Agent, and the Agent hereby agrees to act, as agent under this
Agreement. The Agent shall have and may exercise such powers under this
Agreement as are specifically delegated to the Agent by the terms hereof,
together with such other powers as are reasonably incidental thereto. Each
Lender hereby authorizes, consents to, and directs the Borrower to deal
with the Agent as the true and lawful agent of such Lender to the extent
set forth herein.

13.2 Non-Reliance on Agent. Each Lender agrees that it has,
independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and the decision to enter into this
Agreement and that it will, independently and without reliance upon the
Agent, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Agent shall not be
required to keep informed as to the performance or observance by the
Borrower of this Agreement or any other document referred to or provided
for herein or to inspect the properties or books of the Borrower. Except
for notices, reports and other documents and information expressly required
to be furnished to the Lenders by the Agent hereunder, the Agent shall not
have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business
of the Borrower (or any of its related companies) which may come into the
Agent's possession; provided, however, that to the extent Agent has not
received any such notice, report or other documents and information, Agent
shall have no such obligation to provide such information to the Lenders.

13.3 Responsibility of the Agent and Other Matters.

(a) The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and those duties and
liabilities shall be subject to the limitations and qualifications set
forth in this Section. The duties of the Agent shall be mechanical and
administrative in nature.

(b) Neither the Agent nor any of its directors, officers or
employees shall be liable for any action taken or omitted (whether or not
such action taken or omitted is within or without the Agent's
responsibilities and duties expressly set forth in this Agreement) under or
in connection with this Agreement or any other instrument or document in
connection herewith, including review and approval of any of the conditions
precedent set forth in Section 7 hereof, except for gross negligence or
willful misconduct. Without limiting the foregoing, neither the Agent nor
any of its directors, officers or employees shall be responsible for, or
have any duty to inquire into (i) the genuineness, execution, validity,
effectiveness, enforceability, value or sufficiency of (a) this Agreement
or any other Loan Document, or (b) any document or instrument furnished
pursuant to or in connection with this Agreement or any other Loan
Document, (ii) the collectibility of any amounts owed by the Borrower,
(iii) any recitals or statements or representations or warranties in
connection with this Agreement or any other Loan Document, (iv) any failure
of any party to this Agreement to receive any communication sent, or (v)
the assets, liabilities, financial condition, results of operations,
business or creditworthiness of the Borrower.

(c) The Agent shall be entitled to act, and shall be fully
protected in acting upon, any communication in whatever form believed by
the Agent in good faith to be genuine and correct and to have been signed
or sent or made by a proper person or persons or entity. The Agent may
consult counsel and shall be entitled to act, and shall be fully protected
in any action taken in good faith, in accordance with advice given by
counsel. The Agent may employ agents and attorneys-in-fact and shall not
be liable for the default or misconduct of any such agents or
attorneys-in-fact selected by the Agent with reasonable care. The Agent
shall not be bound to ascertain or inquire as to the performance or
observance of any of the terms, provision or conditions of this Agreement
or any other Loan Document on the Borrower's part. The Agent shall, upon
receipt of any written notice from the Borrower specifically advising the
Agent that a Default has occurred and is continuing, notify each of the
Lenders of the occurrence of such Default.

13.4 Action on Instructions. The Agent shall be entitled to act
or refrain from acting, and in all cases shall be fully protected in acting
or refraining from acting, under this Agreement or any other Loan Document
or any other instrument or document in connection herewith or therewith in
accordance with instructions in writing from the Majority Lenders, as
applicable.

13.5 Indemnification. To the extent the Borrower does not
reimburse and save the Agent harmless according to the terms hereof for and
from all reasonable costs, expenses and disbursements in connection
herewith, such costs, expenses and disbursements shall be borne by the
Lenders in accordance with their respective Pro Rata Shares and the Lenders
hereby agree on such basis (i) to reimburse the Agent for all such costs,
expenses and disbursements on request and (ii) to indemnify and save
harmless the Agent against and from any and all losses, expenses,
obligations, penalties, actions, judgments and suits and other costs,
expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent, other than as a
consequence of actual gross negligence or willful misconduct on the part of
the Agent, arising out of or in connection with this Agreement or any other
Loan Document or any instrument or document in connection herewith or
therewith, or any request of the Lenders, including without limitation the
costs, expenses and disbursements in connection with preserving or
protecting the Collateral or establishing or maintaining any security
interest therein, enforcing any rights of the Agent or the Lenders
hereunder, or defending itself against any claim or liability, or answering
any subpoena, related to the exercise or performance of any of its powers
or duties under this Agreement or taking of any action under or in
connection with this Agreement or any other Loan Document.

13.6 DFS and Affiliates. With respect to DFS' commitment and any
Loans by DFS under this Agreement, and any interest of DFS in any Loan, DFS
shall have the same rights and powers under this Agreement and such Loans
as any other Lender and may exercise the same as though it were not the
Agent. DFS and its affiliates may accept deposits from, lend money to, and
generally engage, and continue to engage, in any kind of business with the
Borrower as if DFS were not the Agent.

13.7 Notice to Holder of Notes. The Agent may deem and treat the
payee of any promissory notes evidencing all or part of the Obligations as
the owners thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof has been filed with the Agent. Any
request, authority or consent of any holder of any such note shall be
conclusive and binding on any subsequent holder, transferee or assignee of
such note.

13.8 Successor Agent. The Agent may resign at any time by giving
30 days' written notice thereof to the Lenders. Upon any such resignation,
the Majority Lenders shall have the right to appoint a successor Agent. If
no successor Agent shall have been appointed by the Majority Lenders and
accepted such appointment in connection herewith or therewith within 30
days after the retiring Agent's giving notice of resignation, then the
retiring Agent may, but shall not be required to, on behalf of the Lenders,
appoint a successor Agent. The Majority Lenders (calculated as though that
portion of the Credit Facility held by Deutsche Financial Services
Corporation in its individual capacity had been paid in full) may, upon the
request of Borrower, elect to remove Deutsche Financial Services
Corporation as Agent hereunder, provided, however, that simultaneously with
any such removal, all outstanding Loans and other indebtedness hereunder or
under any other agreement executed in connection herewith, owing to
Deutsche Financial Services Corporation shall have been paid or prepaid in
full by the Borrower (including any amounts payable pursuant to Sections
3.4(b) and (f) hereof) or purchased by the remaining Lenders.

14. OTHER TERMS

14.1 Amendment, Changes and Modification. No amendment or waiver
of any provision of this Agreement or any other Loan Document, nor consent
to any departure therefrom by the Borrower shall be effective unless the
same shall be in writing and signed by the Borrower and the Majority
Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given, provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (a) waive any of the
conditions specified in Section 7, (b) increase the amounts or extend the
terms of the Commitments, (c) reduce the principal of, or interest on, the
Loans or any fees hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Loans or any fees hereunder, (e) change
the percentage of the Commitments or of the aggregate unpaid principal
amount of the Loans, or the number of Lenders which shall be required to
take action hereunder, (f) change any provisions of this Section 14.1, (g)
subject to the provisions of Section 5.2(b), modify any advance rate
comprising the Borrowing Base; (h) modify the definition of "Majority
Lenders" so as to reduce the percentage set forth therein; or (i) except as
otherwise permitted under the terms of this Agreement, release a material
portion of Collateral; provided, further, that no amendment, waiver or
consent to Section 13 shall be effective unless signed by the Agent.

Notwithstanding the foregoing, no amendment, waiver or consent
shall, unless in writing and signed by the Agent, in addition to the
Lenders required above to take such action, affect the rights or duties of
Agent under this Agreement or any other Loan Document.

Anything in this Agreement to the contrary notwithstanding, if
any Lender shall fail to fulfill its obligations to make a Loan hereunder
then, for so long as such failure shall continue, such Lender shall (unless
Borrower and the Majority Lenders determined as if such Lender were not a
"Lender" hereunder, shall otherwise consent in writing) be deemed for all
purposes relating to amendments, modifications, waivers or consents under
this Agreement or the other Loan Documents (including without limitation
under this Section 14.1) to have no Loans or Commitments, shall not be
treated as a "Lender" hereunder when performing the computation of Majority
Lenders, and shall have no rights under this Section 14.1; provided that
any action taken by the other Lenders with respect to the matters referred
to in subsection (a), (b), (c), (d), (e) or (f) of the first paragraph of
this Section shall not be effective as against such Lender.

14.2 Binding Effect. The Loan Documents will be binding upon the
parties, their successors and assigns.

14.3 Broker Fee. Neither party is obligated to pay any premium
or other charge, brokerage fee or commission in connection with the
agreements set forth herein. Each party will indemnify the other and hold
it harmless from any such claim arising out of such party's acts or those
of its representatives.

14.4 Entire Agreement. The Loan Documents embody the entire
agreement of the parties relating to the Credit Facility. There are no
promises, terms, conditions, obligations or warranties other than those
contained in the Loan Documents. The Loan Documents supersede all prior
communications, representations or agreements, verbal or written, between
the parties relating to the Credit Facility.

14.5 Headings. The Table of Contents and the Headings to the
sections of this Agreement are included only for the convenience of the
parties and will not have the effect of defining, diminishing or enlarging
the rights of the parties or affecting the construction or interpretation
of any portion of this Agreement.

14.6 Incorporation by Reference. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement
as if fully set forth herein. This Agreement, prior to such incorporation,
controls in the event of any conflict with the terms of any other Loan
Documents.

14.7 Interpretation. For the purpose of construing this
Agreement, unless the context otherwise requires, words in the singular
will be deemed to include words in the plural, and vice versa.

14.8 Notices. Any notice under the Loan Documents, will be in
writing. Any notice to be given or document to be delivered under the Loan
Documents will be deemed to have been duly given upon delivery, if
delivered in person or by any expedited delivery service which provides
proof of delivery, upon tested telex or facsimile transmission, or on the
fifth Business Day after mailing, if mailed by certified mail, return
receipt requested, postage prepaid mail, addressed to Lender, Agent or
Borrower at the appropriate addresses. Agent and each Lender will use
reasonable efforts to deliver any notice such party is required to give to
Borrower; provided, however, that failure by such party to actually give
any such notice will not be deemed to be a waiver of any rights or remedies
of such party and will not give rise to any claims, defenses or damages by
Borrower. The addresses for notices are those set forth below or such
other addresses as may be hereafter specified by written notice by the
parties:

to Agent: Deutsche Financial Services Corporation
10000 Midlantic Drive, Suite 401 East
Mt. Laurel, NJ 08054
Attention: Regional Vice President
Facsimile No.: (609) 234-2530

with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.: (314) 523-3228

to Borrower: Government Technology Services, Inc.
4100 Lafayette Center Drive
Chantilly, Virginia 22021-0808
Attention: Chief Financial Officer
Facsimile No.: (703) 222-5217

with a copy to: Government Technology Services, Inc.
4100 Lafayette Center Drive
Chantilly, Virginia 22021-0808
Attention: General Counsel
Facsimile No.: (703) 222-5217

to any Lender: At the address indicated on the signature
page hereto.

14.9 No Third Party Beneficiary Rights and Reliance. No Person
not a party to this Agreement will have any benefit under this Agreement
nor have third-party beneficiary rights as a result of any of the Loan
Documents, nor will any party be entitled to rely on any actions or
inactions of Agent, any Lender or their respective agents, all of which are
done for the sole benefit and protection of Agent and the Lenders.

14.10 Protection or Preservation of Collateral. Neither Agent nor
any Lender will have any contractual duty to protect, insure, collect or
realize upon the Collateral or preserve rights in it against prior parties.
Neither Agent nor any Lender will be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the
Collateral regardless of the cause, except those directly related to the
gross negligence or willful misconduct of Agent or any Lender.

14.11 Relationship of the Parties. Neither Agent nor any Lender
on the one hand nor Borrower on the other hand will be deemed a partner,
joint venturer or related entity of the other by reason of the Loan
Documents.

14.12 Reversal of Payments. To the extent that Borrower makes a
payment or payments to Agent or any Lender, which payment or payments or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law, or equitable cause, then to the extent of such
payment or proceeds received, the Credit Facility will be revived and
continue in full force and effect, as if such payment or proceeds had not
been received by such party.

14.13 Severability. If any provision of this Agreement (either
generally, or as to a specific application to a set of facts) will be held
to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement
(either in its entirety, or as to or the application of such provision to
any other set of facts), but this Agreement will be construed as if such
invalid, illegal or unenforceable provision never had been included in this
Agreement.

14.14 Maximum Interest. Borrower acknowledges that Agent and
each Lender intends to strictly conform to the applicable usury laws
governing this Agreement. Regardless of any provision contained herein or
in any other document executed or delivered in connection herewith or
therewith, Agent and each Lender shall never be deemed to have contracted
for, charged or be entitled to receive, collect or apply as interest on
this Agreement (whether termed interest herein or deemed to be interest by
judicial determination or operation of law), any amount in excess of the
maximum amount allowed by applicable law, and, if Agent or any Lender ever
receives, collects or applies as interest any such excess, such amount
which would be excessive interest will be applied first to the reduction of
the unpaid principal balances of advances under this Agreement, and,
second, any remaining excess will be paid to Borrower. In determining
whether or not the interest paid or payable under any specific contingency
exceeds the highest lawful rate, Borrower, Agent and each Lender shall, to
the maximum extent permitted under applicable law: (a) characterize any
non-principal payment (other than payments which are expressly designated
as interest payments hereunder) as an expense or fee rather than as
interest; (b) exclude voluntary pre-payments and the effect thereof; and
(c) spread the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such term.

14.15 Waivers by Agent/Lenders. Agent and/or any Lender may at
any time or from time to time waive all or any rights under any of the Loan
Documents, but any waiver or indulgence at any time or from time to time
will not constitute, unless specifically so expressed by Agent or such
Lender, as applicable, in writing, a future waiver by such party of
performance by Borrower.

14.16 Survival. The grant of security interest herein to secure
all Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect
until all Obligations have been paid in full and this Agreement has been
terminated. The Agreement to arbitrate all Disputes will survive
termination of this Agreement.

14.17 Assignments and Participations; Information.

(a) Assignments. Each Lender shall have the right, subject to
the further provisions of this Section 14.17, to sell, assign, or negotiate
all or any part of its interest in the Credit Facility, Loans, and other
rights and obligations under this Agreement and related documents (such
transfer, an "Assignment") to any commercial lender, other financial
institution or other entity acceptable to Borrower (an "Assignee"). Upon
such Assignment becoming effective as provided in Section 14.17(b), the
assigning Lender shall be relieved from the portion of the Credit Facility,
obligations to indemnify the Agent and other obligations hereunder to the
extent assumed and undertaken by the Assignee, and to such extent the
Assignee shall have the rights and obligations of a "Lender" hereunder.
Notwithstanding the foregoing, unless otherwise consented to by the
Borrower and the Agent, (i) each Assignment shall be of a constant, and not
a varying, percentage of the assigning Lender's interest in the Credit
Facility, (ii) each Assignment shall be in a principal amount of not less
than $10,000,000 in the aggregate for all Loans and interest in the Credit
Facility assigned unless the Assignee shall, prior to such Assignment,
already be a Lender or an Assignee having an original interest in the
Credit Facility in excess of $10,000,000, (iii) such Assignee shall pay to
DFS, for DFS' own account, an administration and processing fee of $10,000,
and (iv) each Assignment shall be documented by an agreement between the
assigning Lender and the Assignee in a form acceptable to Agent and
Borrower (an "Assignment and Assumption Agreement").

(b) Effectiveness of Assignments. An Assignment shall become
effective hereunder when all of the following shall have occurred: (i) the
Agent and the Borrower shall have given prior written consent to such
Assignment unless the Assignee is already a Lender under this Agreement,
which consent shall not be unreasonably withheld, (ii) the Assignee shall
have submitted the relevant Assignment and Assumption Agreement, or other
document in which the Assignee shall have agreed in writing to have
irrevocably assumed and undertaken the transferred portion of the assigning
Lender's obligations hereunder (including without limitation the
obligations to indemnify the Agent hereunder and to comply with Section
14.29), to the Agent with a copy for the Borrower, and shall have provided
to the Agent information the Agent shall have reasonably requested to make
payments to the Assignee, and (iii) the assigning Lender, the Borrower and
the Agent shall have agreed upon a date upon which the Assignment shall
become effective. Upon the Assignment becoming effective, the Agent shall
forward all payments of interest, principal, fees and other amounts that
would have been made to the assigning Lender, in proportion to the
percentage of the assigning Lender's rights transferred, to the Assignee.

(c) Participations. Each Lender shall have the right, subject to
the further provisions of this Section 14.17, to grant or sell a
participation in all or any part of its Loans and Commitments (a
"Participation") to any commercial lender, other financial institution or
other entity (a "Participant") without the consent of the Borrower, the
Agent or any other party hereto, provided, however, that (i) notice thereof
shall be given to the Borrower and the Agent by each selling Lender
promptly after any Participation, (ii) such Participant shall pay to DFS,
for DFS' own account, an administration and processing fee of $10,000, and
(iii) any such Participant shall expressly agree to the provisions of
Section 14.29 and Section 5.6 as though it were a Lender hereunder.

(d) Limitation of Rights of any Assignee or Participant.
Notwithstanding anything in the foregoing to the contrary, except in the
instance of an Assignment that has become effective as provided in Section
14.17(b), (i) no Assignee or Participant shall have any direct rights
hereunder, (ii) the Borrower, the Agent and the Lender's other than the
assigning or selling Lender shall deal solely with the assigning or selling
Lender and shall not be obligated to extend any rights or make any payment
to, or seek any consent of, the Assignee or Participant, (iii) no
Assignment or Participation shall relieve the assigning or selling Lender
from its commitment to make Loans hereunder or any of its other obligations
hereunder and such Lender shall remain solely responsible for the
performance thereof, and (iv) no Assignee or Participant, other than an
affiliate of the assigning or selling Lender, shall be entitled to require
such Lender to take or omit to take any action hereunder, including release
of any Collateral and waivers or amendments of, or consents to, any Default
hereunder, except that such Lender may agree with such Assignee or
Participant that such Lender will not, without such Assignee's or
Participant's consent, take any action which would, in the case of any
principal, interest or fee in which the Assignee or Participant has an
ownership or beneficial interest: (i) extend the maturity of any Loans or
extend the termination of the Credit Facility, (ii) reduce the interest
rate on the Loans or the rate of fees paid on the Credit Facility, or (iii)
forgive any principal of, or interest on, the Loans or any fees. The
Borrower further agrees that Section 14.28 of this Agreement shall apply to
each Assignee and Participant with respect to its interest in the Loans and
Commitments as fully as if such Participant or Assignee were a Lender
hereunder.

(e) Information. Each Lender may furnish any public or
non-public information concerning the Borrower, including notices,
certificates and documents delivered hereunder, which are in the possession
of such Lender from time to time to Assignees and Participants and
potential Assignees and Participants, provided that no such non-public
information, certificates, notices or documents shall be furnished without
the written undertaking of the recipient, a copy of which shall be
furnished to the Borrower promptly upon receipt thereof, to keep all such
non-public information confidential, except as may be required by law.

14.18 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same instrument, and either of the parties hereto may execute this
Agreement by signing any such counterpart.

14.19 Release of Information. Each Lender and Agent may provide
credit references to any third party from time to time in response to
credit reference requests.

14.20 Release. Borrower releases Agent and each Lender from all
claims and causes of action which Borrower may now or hereafter have for
any loss or damage to it claimed to be caused by or arising from: (a) any
failure of Agent or any Lender to protect, enforce or collect, in whole or
in part, any Account; (b) Agent's notification to any Account Debtors
thereon of Agent's security interest in any of the Accounts; (c) Agent's
directing any Account Debtor to pay any sum owing to Borrower directly to
Agent; and (d) any other act or omission to act on the part of Agent, any
Lender, or their respective officers, agents or employees, except for
willful misconduct or gross negligence. Neither Agent nor any Lender will
have any obligation to preserve rights to Accounts against prior parties.

14.21 Miscellaneous. Time is of the essence regarding
Borrower's performance of its obligations to Agent and Lenders
notwithstanding any course of dealing or custom on Agent's or any Lender's
part to grant extensions of time. Borrower's liability under this
Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder. Agent
and the Lenders will have the right to refrain from or postpone enforcement
of this Agreement or any other Loan Documents without prejudice and the
failure to strictly enforce the Loan Documents will not be construed as
having created a course of dealing between such parties and Borrower
contrary to the specific terms of the Loan Documents or as having modified,
released or waived the same. The express terms of this Agreement and the
other Loan Documents will not be modified by any course of dealing, usage
of trade, or custom of trade which may deviate from the terms hereof. If
Borrower fails to pay any taxes, fees or other obligations which may impair
Agent's interest in the Collateral, or fails to keep the Collateral
insured, Agent may, but shall not be required to, pay such taxes, fees or
obligations and pay the cost to insure the Collateral, and the amounts paid
will be: (a) an additional debt owed by Borrower to the Lenders, which
shall be subject to finance charges as provided herein; and (b) due and
payable immediately in full. Borrower agrees to pay all of Agent's and
each Lender's reasonable attorneys' fees and expenses incurred by such
party in enforcing its rights hereunder.

14.22 Waivers by Borrower. Borrower irrevocably waives notice
of: Agent's and each Lender's acceptance of this Agreement, presentment,
demand, protest, nonpayment, nonperformance, and dishonor. Borrower, Agent
and each Lender irrevocably waive all rights to claim any punitive and/or
exemplary damages. Borrower waives all rights of offset and counter claims
Borrower may have against Agent or any Lender. Borrower waives all notices
of default and non-payment at maturity of any or all of the Accounts.

14.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO
LEND MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO
PROTECT YOU, (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED
IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. Agent may, from time
to time, announce in writing to Borrower its policies and procedures
regarding its administration of this facility including, without limit,
Agent's fees and/or charges for transfers of funds to or from Borrower,
including Electronic Transfers; any subsequent use by Borrower of this
facility following any such announcement shall constitute Borrower's
acceptance of such revised policies and procedures.

14.24 Supplement. If Borrower and Agent or any Lender have
heretofore executed other agreements in connection with all or any part of
the Collateral, this Agreement shall supplement each and every other
agreement previously executed by and between Borrower and Agent or any
Lender, and in that event, this Agreement shall neither be deemed a
novation nor a termination of such previously executed agreement nor shall
execution of this Agreement be deemed a satisfaction of any obligation
secured by such previously executed agreement. Notwithstanding the
foregoing, this Agreement shall be deemed a termination of the 1996 Credit
Agreement.

14.25 Use of Counsel and Receipt of Agreement. Borrower
acknowledges that it has received a true and complete copy of this
Agreement. Borrower acknowledges that it has (a) had representation of
counsel during negotiation of this Agreement, and (b) read and understood
this Agreement.

14.26 Facsimiles, Etc. Notwithstanding anything herein to the
contrary: (a) Agent and each Lender may rely on any facsimile copy,
electronic data transmission or electronic data storage of any statement,
financial statements or other reports, and (b) such facsimile copy,
electronic data transmission or electronic data storage will be deemed an
original, and the best evidence thereof for all purposes, including,
without limitation, under this Agreement or any other Loan Document, and
for all evidentiary purposes before any arbitrator, court or other
adjudicatory authority.

14.27 Power of Attorney. Borrower irrevocably appoints Agent
(and any person designated by it) as Borrower's true and lawful Attorney
with full power to at any time, in the discretion of Agent (whether or not
Default has occurred) to: (a) endorse the name of Borrower upon any of the
items of payment of proceeds of the Collateral and deposit the same in the
account of Agent for application to the Obligations; (b) sign the name of
Borrower to verify the accuracy of the Accounts; (c) sign the name of
Borrower on any document or instrument that Agent shall deem necessary or
appropriate to perfect and maintain perfected the security interests in the
Collateral under this Agreement and other Loan Documents; (d) initiate and
settle any insurance claim and endorse Borrower's name on any check,
instrument or other item of payment; (e) endorse the name of Borrower upon
financing statements, instruments, Certificates of Title and Statements of
Origin pertaining to the Collateral; (f) supply omitted information and
correct errors in any documents between Agent or a Lender and Borrower; and
(g) take any reasonable act to preserve and protect the Collateral and
Agent's rights and interest therein. In the event of a Default, Borrower
irrevocably appoints Agent (and any person designated by it) as Borrower's
true and lawful Attorney with full power to at any time, in the discretion
of Agent to: (i) demand payment, enforce payment and otherwise exercise all
of Borrower's rights, and remedies with respect to the collection of any
Accounts; (ii) settle, adjust, compromise, extend or renew any Accounts;
(iii) settle, adjust or compromise any legal proceedings brought to collect
any Accounts; (iv) sell or assign any Accounts upon such terms, for such
amounts and at such time or times as Agent may deem advisable; (v)
discharge and release any Accounts; (vi) prepare, file and sign Borrower's
name on any Proof of Claim in Bankruptcy or similar document against any
Account Debtor; (vii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to any Account or goods pertaining thereto;
(viii) take control in any manner of any item of payments or proceeds and
for such purpose to notify the Postal Authorities to change the address for
delivery of mail addressed to Borrower to such address as Agent may
designate. This power of attorney is for value and coupled with an
interest and is irrevocable so long as any Obligations remain outstanding
and by Agent exercising such right, Agent shall not waive any right against
Borrower until the Obligations are paid in full.

14.28 Right of Set-off. Upon (a) the occurrence and during the
continuance of any Default and (b) the making of the request or the
granting of the consent specified by Section 10 to authorize the Agent to
declare the Obligations due and payable pursuant to the provisions of
Section 10, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply an and
all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any and all of the
Obligations of the Borrower now or hereafter existing under this Agreement,
irrespective of whether or not such Lender shall have made any demand under
this Agreement and although such Obligations may be unmatured. Each Lender
agrees promptly to notify the Borrower after any such set-off and
application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which
such Lender may have.

14.29 Expenses. Borrower agrees, whether or not any Loan is made
hereunder, to pay the Agent and/or the Lenders upon demand for all
reasonable expenses, including reasonable fees of attorneys for the Agent
or any Lender (who may be employees of the Agent or any Lender), incurred
by (a) the Agent in connection with the preparation, negotiation, and
execution of this Agreement and any other Loan Document, which such fees
and expenses Agent hereby acknowledges are satisfied by payment in full of
the Closing Fee, (b) the Agent in connection with the preparation of any
and all amendments to this Agreement and any other Loan Document, and all
search, recording, filing, and registration expenses, which such fees and
expenses Agent hereby acknowledges are satisfied by payment in full of the
Closing Fee, and (c) the Agent and the Lenders in connection with the
enforcement of the Borrower's obligations hereunder or under any other Loan
Document. Borrower also agrees to (i) indemnify and hold the Agent
harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans, except for
any loss or expense arising from the Agent's gross negligence or willful
misconduct (provided, however, that reliance alone upon telephonic or other
instructions shall not itself be deemed to constitute gross negligence or
willful misconduct), and (ii) to pay and save Agent and the Lenders
harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Agreement or any
of the other Loan Documents. Borrower's obligations under this Section
14.29 shall survive any termination of this Agreement.

15. BINDING ARBITRATION.

15.1 Arbitrable Claims. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law, statutory law
or in equity of any type or nature whatsoever (including, without
limitation, all torts, whether regarding negligence, breach of fiduciary
duty, restraint of trade, fraud, conversion, duress, interference, wrongful
replevin, wrongful sequestration, fraud in the inducement, usury or any
other tort, all contract actions, whether regarding express or implied
terms, such as implied covenants of good faith, fair dealing, and the
commercial reasonableness of any Collateral disposition, or any other
contract claim, all claims of deceptive trade practices or lender
liability, and all claims questioning the reasonableness or lawfulness of
any act), whether arising before or after the date of this Agreement, and
whether directly or indirectly relating to: (a) this Agreement and/or any
amendments and addenda hereto, or the breach, invalidity or termination
hereof; (b) any previous or subsequent agreement between Lenders and
Borrower; (c) any act committed by Agent or Lender or by any parent
company, subsidiary or affiliated company thereof (the "Companies"), or by
any employee, agent, officer or director of a Company whether or not
arising within the scope and course of employment or other contractual
representation of the Companies provided that such act arises under a
relationship, transaction or dealing between the Agent and/or any Lender
and Borrower; and/or (d) any other relationship, transaction or dealing
between the Lenders and Borrower or among the Lenders relating to this
transaction (collectively the "Disputes"), will be subject to and resolved
by binding arbitration.

15.2 Administrative Body. All arbitration hereunder will be conducted
by the American Arbitration Association ("AAA"). If the AAA is dissolved,
disbanded or becomes subject to any state or federal bankruptcy or
insolvency proceeding, the parties will remain subject to binding
arbitration which will be conducted by a mutually agreeable arbitral forum.
The parties agree that all arbitrator(s) selected will be attorneys with at
least five (5) years secured transactions experience. The arbitrator(s)
will decide if any inconsistency exists between the rules of any applicable
arbitral forum and the arbitration provisions contained herein. If such
inconsistency exists, the arbitration provisions contained herein will
control and supersede such rules. The site of all arbitration proceedings
will be in Washington D.C.

15.3 Discovery. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than thirty (30) days
after the filing of a claim for arbitration, the parties will exchange
detailed statements setting forth the facts supporting the claim(s) and all
defenses to be raised during the arbitration, and a list of all exhibits
and witnesses. No later than twenty-one (21) days prior to the arbitration
hearing, the parties will exchange a final list of all exhibits and all
witnesses, including any designation of any expert witness(es) together
with a summary of their testimony; a copy of all documents and a detailed
description of any property to be introduced at the hearing. Under no
circumstances will the use of interrogatories, requests for admission,
requests for the production of documents or the taking of depositions be
permitted. However, in the event of the designation of any expert
witness(es), the following will occur: (a) all information and documents
relied upon by the expert witness(es) will be delivered to the opposing
party, (b) the opposing party will be permitted to depose the expert
witness(es), (c) the opposing party will be permitted to designate rebuttal
expert witness(es), and (d) the arbitration hearing will be continued to
the earliest possible date that enables the foregoing limited discovery to
be accomplished.

15.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have
the authority to award exemplary or punitive damages.

15.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although any
award or order rendered by the arbitrator(s) pursuant to the terms of this
Agreement may be entered as a judgment or order in any state or federal
court and may be confirmed within the federal judicial district which
includes the residence of the party against whom such award or order was
entered. This Agreement concerns transactions involving commerce among the
several states. The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et
seq., as amended ("FAA") will govern all arbitration(s) and confirmation
proceedings hereunder.

15.6 Prejudgment and Provisional Remedies. Nothing herein will be
construed to prevent Agent's, any Lender's or Borrower's use of bankruptcy,
receivership, injunction, repossession, replevin, claim and delivery,
sequestration, seizure, attachment, foreclosure, dation and/or any other
prejudgment or provisional action or remedy relating to any Collateral for
any current or future debt owed by either party to the other. Any such
action or remedy will not waive Agent's, and Lender's or Borrower's right
to compel arbitration of any Dispute.

15.7 Attorneys' Fees. If either Borrower, Agent or a Lender brings any
other action for judicial relief with respect to any Dispute the party
bringing such action will be liable for and immediately pay all of the
other party's costs and expenses (including attorneys' fees) incurred to
stay or dismiss such action and remove or refer such Dispute to
arbitration. If either Borrower, Agent or a Lender brings or appeals an
action to vacate or modify an arbitration award and such party does not
prevail, such party will pay all costs and expenses, including attorneys'
fees, incurred by the other party in defending such action. Additionally,
if Borrower sues Agent and/or one or all of the Lenders or institutes any
arbitration claim or counterclaim against Agent and/or one or all of the
Lenders in which Agent and/or one or all of the Lenders, as applicable, is
the prevailing party, Borrower will pay all costs and expenses (including
attorneys' fees) incurred by Agent and/or one or all of the Lenders in the
course of defending such action or proceeding. Additionally, if Agent
and/or one or all of the Lenders sues Borrower or institutes any
arbitration claim or counterclaim against Borrower in which Borrower is the
prevailing party, Agent and/or one or all of the Lenders, as applicable,
will pay all costs and expenses (including attorneys' fees) incurred by
Borrower in the course of defending such action or proceeding.

15.8 Limitations. Any arbitration proceeding must be instituted: (a)
with respect to any Dispute for the collection of any debt owed by either
party to the other, within two (2) years after the date the last payment
was received by the instituting party; and (b) with respect to any other
Dispute, within two (2) years after the date the incident giving rise
thereto occurred, whether or not any damage was sustained or capable of
ascertainment or either party knew of such incident. Failure to institute
an arbitration proceeding within such period will constitute an absolute
bar and waiver to the institution of any proceeding, whether arbitration or
a court proceeding, with respect to such Dispute.

15.9 Survival After Termination. The agreement to arbitrate will
survive the termination of this Agreement.

16. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS
AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING
WITH RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE WITHOUT A JURY. BORROWER, AGENT AND EACH LENDER
WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.

17. GOVERNING LAW. Borrower acknowledges and agrees that this and all
other agreements between Borrower, Agent and Lenders have been
substantially negotiated, and will be substantially performed, in the
Commonwealth of Virginia. Accordingly, Borrower agrees that all Disputes
will be governed by, and construed in accordance with, the laws of such
state, except to the extent inconsistent with the provisions of the FAA
which shall control and govern all arbitration proceedings hereunder.

IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.

THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE
DAMAGES WAIVER PROVISIONS

ATTEST:GOVERNMENT TECHNOLOGY SERVICES, INC.

By: By:
SecretaryPrint Name:
Title:

LENDERS:
Commitments:

$25,000,000 DEUTSCHE FINANCIAL SERVICES CORPORATION
($12,500,000 during the
Seasonal Reduction Period) By: ________________________________
Print Name: Keith E. Boudreau
Title: Senior Vice President - Area
General Manager

$9,500,000 SIGNET BANK
($4,750,000 during the
Seasonal Reduction Period)
By: ________________________________
Print Name: ________________________
Title: _____________________________
Address: 7799 Leesburg Pike
Falls Church, VA 22043
Facsimile No.: (703) 506-9551

$9,500,000 CRESTAR BANK
($4,750,000 during the
Seasonal Reduction Period) By: ________________________________
Print Name:_________________________
Title:
Address: 8245 Boone Blvd., Ste. 300
Vienna, VA 22182
Facsimile No.: (703) 902-9075

$9,500,000 CONGRESS FINANCIAL CORPORATION
($4,750,00 during the
Seasonal Reduction Period)
By: ________________________________
Print Name: ______________________
Title: ___________________________
Address: 1133 Avenue of the Americas
New York, New York 10036
Facsimile No.: (212) 545-4283

$6,500,000 NATIONAL BANK OF CANADA
($3,250,000 during the
Seasonal Reduction Period)

By: ________________________________
Print Name:_________________________
Title:
Address: 401 East Pratt Street, St. 631
Baltimore, Maryland 21202
Facsimile No.: (410) 837-8359

By: ________________________________
Print Name:_________________________
Title:

Total of Commitments:

$60,000,000.00, at all times other than the Seasonal Reduction Period

$30,000,000.00, during the Seasonal Reduction Period

AGENT:
DEUTSCHE FINANCIAL SERVICES
CORPORATION, as Agent

By: _______________________________
Print Name: Keith E. Boudreau
Title: Senior Vice President -
Area General Manager
Address: 10000 Midlantic Drive
Suite 401 East
Mt. Laurel, NJ 08054
Facsimile No.: (609) 234-2530

<PAGE>
Exhibit 11.1

GOVERNMENT TECHNOLOGY SERVICES, INC.

COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Years Ended
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>

Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (5,104) $(17,838) $ (7,177)
======== ======== ========

Weighted average shares of common stock outstanding . . . 6,733 6,690 6,604

Weighted average effect of common share equivalents . . . - - -
-------- -------- --------

Weighted average shares outstanding . . . . . . . . . . . 6,733 6,690 6,604
======== ======== ========

Net income (loss) per common share and common share
equivalent. . . . . . . . . . . . . . . . . . . . . . . $(0.76) $(2.67) $(1.09)
======== ======== ========

</TABLE>

<PAGE>
Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File Nos. 33-44363,
33-55090 and 333-29439).

/s/ Arthur Andersen LLP
-----------------------------
ARTHUR ANDERSEN LLP

Washington, D.C.
February 27, 1998
<PAGE>
<PAGE>
Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration
Statements on Form S-8 of Government Technology Services, Inc. (File Nos.
33-44363, 33-55090 and 333-29439) of our report dated March 1, 1996, except
Note 5, as to which the date was March 26, 1996, on our audit of the
consolidated statements of operations, cash flows, and changes in
stockholders' equity and related financial statement schedule of Government
Technology Services, Inc. and Subsidiary for the year ended December 31,
1995, which report is included in this Annual Report on Form 10-K.

/s/ Coopers & Lybrand, L.L.P.
-----------------------------
COOPERS & LYBRAND, L.L.P.

McLean, Virginia
March 27, 1998

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 856
<SECURITIES> 0
<RECEIVABLES> 94,998
<ALLOWANCES> 4,093
<INVENTORY> 33,000
<CURRENT-ASSETS> 128,184
<PP&E> 17,282
<DEPRECIATION> 9,065
<TOTAL-ASSETS> 137,464
<CURRENT-LIABILITIES> 97,324
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 39,840
<TOTAL-LIABILITY-AND-EQUITY> 137,464
<SALES> 486,377
<TOTAL-REVENUES> 486,377
<CGS> 449,454
<TOTAL-COSTS> 449,454
<OTHER-EXPENSES> 38,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,100
<INCOME-PRETAX> (5,104)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,104)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)

</TABLE>