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Business Address300 D STREET S WSTE 814WASHINGTON DC 200247038213000

Mailing Address1595 SPRING HILL ROADSUITE 360VIENNA VA 22182

SECURITIES AND EXCHANGE COMMISSION

FORM 10-KAnnual report pursuant to section 13 and 15(d)

Filing Date: 2000-09-12 | Period of Report: 2000-06-30SEC Accession No. 0000928385-00-002522

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FILERSPACEHAB INC \WA\CIK:1001907| IRS No.: 911273737 | State of Incorp.:WA | Fiscal Year End: 0630Type: 10-K | Act: 34 | File No.: 000-27206 | Film No.: 721550SIC: 3760 Guided missiles & space vehicles & parts

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SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-K

(Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 [No Fee Required]For the Fiscal Year Ended June 30, 2000.

[_] Transition Report Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934 [No Fee Required]For the transition period from __________ to ________

Commission File No. 0-27206SPACEHAB, Incorporated

300 D Street, SWSuite 814

Washington, D.C. 20024(202) 488-3500

Incorporated in the State of Washington IRS Employer IdentificationNumber 91-1273737

Securities Registered pursuant to Section 12(b) of the Act: NoneSecurities Registered pursuant to Section 12(g) of the Act:

Title of Each Class Name of Each ExchangeCommon Stock on which Registered(no par value) NASDAQ National Market

Number of shares of Common Stock (no par value) outstanding as of August18,2000: 11,345,032.

Aggregate market value of Common Stock (no par value) held by non-affiliates ofthe registrant on August 19, 2000, based upon the closing price of the CommonStock on the Nasdaq National Market of $5.8125 was approximately $65,942,999.

Indicate by check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.YES X NO ___.

---

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

Documents Incorporated by Reference:

Proxy Statement for the Annual Meeting of Parts I, II and III of Form 10-KStockholders to be held October 12, 2000.

PART I

This document may contain "forward-looking statements" within the meaningof Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934, including (without limitation) under "Products andServices," "Company Strategy," "Dependence on a Single Customer," "Research andDevelopment," "Competition" and "Backlog" of Item 1 and "Management's Discussionand Analysis of Financial Condition and Results of Operations --General" and "--Liquidity and Capital Resources" of Item 7. Such statements are subject to risksand uncertainties that could cause actual results to differ materially fromthose projected in the statements. In addition to those risks and uncertaintiesdiscussed herein, such risks and uncertainties include, but are not limited to,whether the Company will fully realize the economic benefits under its U.S.National Aeronautics and Space Administration ("NASA") and other customercontracts, the successful development and commercialization of the Research



Double Module and related new commercial space assets, deployment of theInternational Space Station ("ISS"), technological difficulties, product demandand market acceptance risks, the effect of economic conditions, uncertainty ingovernment funding and the impact of competition.

Item 1. Business

Company Background and History------------------------------

SPACEHAB, Incorporated ("SPACEHAB" or the "Company") was incorporated in1984 and is the first company to commercially develop, own and operate bothpressurized habitable modules that provide space-based laboratory researchfacilities and cargo services aboard the U.S. Space Shuttle system (the "SpaceShuttle" or "STS") and an unpressurized cargo carrier system. A SPACEHAB SingleModule, when installed in the payload bay of a Space Shuttle, more than doublesthe working and living space available to astronauts for research,experimentation, habitation and storage. The Company presently offers itsSPACEHAB Modules in a single modular version (the "Single Module") and a doublemodular version (the "Double Module"). The Company also offers an unpressurizedcargo carrier system, the "ICC" or "Integrated Cargo Carrier", and is currentlycompleting the construction of a research double module (the "Research DoubleModule" or "RDM"). During the second half of the year ended June 30, 1998, theCompany initiated development activities for a new asset, a docking doublemodule (the "Docking Double Module" or "DDM"), that could be used by NASA toprovide more flexible re-supply services to the ISS. The DDM name was changed toAdaptable Double Module ("ADM") during the year ended June 30, 2000. The ADMwill provide the following services to the Company's customers: serve as adocking module, serve as a crew return vehicle vestibule, serve as a large hatchair lock and be deployable to attach to the ISS. All versions of the SPACEHABModules can accommodate a combination of lockers, racks and soft stowagearrangements, which are provided as a service primarily to NASA. SPACEHABModules, which have been outfitted with systems to facilitate laboratoryresearch experiments in the near-weightless ("microgravity") environment ofspace, are also capable of transporting food, clothing, equipment and othervital supplies (collectively, "logistics") to the ISS. SPACEHAB also provides afull range of pre- and post-flight experiment and payload processing services,and in-flight operations support to assist astronauts and researchers, in spaceand on the ground, in connection with the performance of experiments aboardSPACEHAB Modules. From June 1993 through June 2000, SPACEHAB Modules have flownfourteen successful missions on the Space Shuttle.

The Company is committed to expanding its business with NASA while alsodiversifying its revenue and customer base by targeting new and related spaceservices markets. On February 12, 1997, the operating assets and business ofAstrotech Space Operations, L.P. ("Astrotech") were acquired from NorthropGrumman Corporation. Astrotech is one of the premier commercial providers ofsatellite payload processing services in the United States providing launch sitepreparation of flight-ready satellites to major U.S. space launch companies andsatellite manufacturers, including Lockheed Martin Corporation ("LockheedMartin"), The Boeing Company ("Boeing") and Orbital Sciences Corporation("Orbital Sciences"). The Astrotech acquisition diversified SPACEHAB's customerbase to include commercial customers of space satellite payload processingservices and broadened the Company's business base to include services insupport of manned as well as unmanned space activities.

SPACEHAB expanded its core business by acquiring Johnson EngineeringCorporation ("JE"), now designated as Engineering Services or "ES" for companymanagement reporting, on July 1, 1998. With over 687 employees, ES performsseveral critical services for NASA including flight crew support services,operations, training and fabrication of mockups at NASA's Neutral BuoyancyLaboratory ("NBL") and at NASA's Space Vehicle Mockup Facility ("SVMF"), whereastronauts train for both Space Shuttle and ISS missions. ES also designs andfabricates flight hardware, such as flight crew equipment

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and crew quarters habitability outfitting, as well as providing stowageintegration services. ES is also responsible for configuration managementsupport to the ISS program office.

On April 11, 2000, the Company announced the formation of Space Media, Inc.("SMI"), a majority-owned subsidiary and media corporation that will createproprietary space-themed content for television and Internet broadcasting fromthe ISS. SMI anticipates commencing operations in the year ending June 30 2001,broadcasting from the Russian-built Zvezda service module, which was launched



and attached to the ISS in July 2000. SMI is also managing the Company'sS*T*A*R*S(TM) (Space Technology And Research Students) global space educationprogram. The S*T*A*R*S program currently is planning to launch student-designedexperiments on a Space Shuttle mission next year for schools in Australia,Canada, China, Israel, Japan, Singapore, Thailand, and the United States.

In the year ended June 30, 2000, the Company also began development, inpartnership with RSC Energia of Korolev, Russia, of a commercial space stationhabitat module. Named Enterprise(TM), this multipurpose module will be attachedto the ISS. The Company anticipates that Enterprise will be the world's firstcommercial real estate in space and the first commercial module attached to theISS. The Company anticipates launching Enterprise in the year ending June 30,2003. Enterprise is designed to offer space station users stowage space, powerand other utilities, and laboratory facilities for long-duration research. Italso will house the world's first commercial television and Internetbroadcasting studio in space. The Enterprise and SMI initiatives are in linewith the Company's long-term strategy of making space accessible to global massmarkets. SMI plans to draw on RSC Energia's extensive archives of the Russianspace program for content. The archives are being provided to SMI underagreement with RSC Energia. The Company anticipates financing SMI operationsduring the start up phase through funds raised from third party strategicinvestors. Financing for the Enterprise module is anticipated to be obtainedfrom both working capital and external sources of capital.

During the year ended June 30, 2000, SMI acquired The Space Store, anonline retail operation, anticipating that e-commerce may be an integral part ofits Internet business. The Space Store currently offers an assortment of space-related products.

Company Strategy----------------

SPACEHAB's goal is to become a global market leader providing products andservices supporting the human space flight, logistics and satellite launchindustries. The Company seeks to achieve this goal through implementation of thefollowing strategy:

1. Expanding Scope of Business. SPACEHAB continuously evaluatesopportunities to offer new products and services to its customer base and todevelop assets and acquire complementary, attractively valued businesses. Forexample, the Company is completing construction of the Research Double Module,developing the ADM and has developed and flown the Integrated Cargo Carrier.Based on SPACEHAB's continuing involvement in microgravity research andlogistics Space Shuttle missions, and its close interaction with NASA and otherusers of its SPACEHAB Module services, the Company is well positioned toanticipate emerging requirements for new services in the human space flightindustry. With the acquisition of Astrotech on February 12, 1997, the Companydiversified its revenue and customer base targeting new and related spaceservices markets. Astrotech is one of the premier commercial providers ofsatellite payload processing facilities in the United States providing launchsite preparation of flight-ready satellites to major U.S. space launch companiesand satellite manufacturers. The acquisition of ES on July 1, 1998 complementsSPACEHAB's traditional strengths in conceptual design and program managementwhile adding skills in engineering, design and training critical to NASA as wellas to the successful completion of the ISS. The formation of SMI and theconstruction of the Enterprise module will enable the Company to furtherdiversify its customer base into global mass markets.

2. Focusing on Quality of Service. SPACEHAB has completed fourteenShuttle Missions to date, all of which have been completed successfully. TheCompany intends to maintain and enhance its reputation for product reliability,process innovation and performance excellence.

3. Maintaining Position as Low-Price Provider. The Company continues tooffer its payload processing and logistics support services to NASA and othercustomers using SPACEHAB-owned assets, on a fixed-price basis that the Companybelieves is significantly lower than the cost-plus basis used by traditionalaerospace contractors. Through the focus and rigorous application of commercialbest

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practices in the development and operation of its hardware and facilities,SPACEHAB substantially reduces the cost, time and complexity that burdenconventional government contractors providing services under cost-plus



contracts.

ES performs services under a cost-plus award and incentive fee contract forgovernment services that is requested by and directed by NASA. This contractform provides for the lowest cost to the government by requiring a separatenegotiation of the price for each task order, thereby allowing ES to implementcommercial best practices to reduce cost. ES's capabilities also provide a basewith which to pursue commercial opportunities.

4. Continuing Entrepreneurial Initiative. The Company continues todevelop and offer innovative business arrangements to meet NASA and othercustomer requirements. The Company has repeatedly taken the initiative toimprove its modules and payload processing services and to deploy new assets inanticipation of customer needs. By focusing on the quality, cost andresponsiveness of its services, and by attracting and recruiting highly talentedand experienced personnel into its distinctly entrepreneurial organization,SPACEHAB seeks to distinguish itself as an innovative and effective provider ofcommercial space services while achieving higher contract profit margins formodule contracts than are customary in traditional government aerospacecontracts.

5. Leveraging International Strategic Alliances. The Company seeks tocreate and maintain strategic alliances with key international players in thespace industry. Such relationships include Mitsubishi Corporation in Japan;Astrium, GmbH (formerly known as DaimlerChrysler Aerospace AG ("Astrium")),Alenia Spazio S.p.A. ("Alenia"), and Intospace GmbH in Europe; and RSC Energiain Russia. On August 2, 1999, Astrium strengthened its strategic relationshipwith the Company by purchasing a $12.0 million equity stake in SPACEHAB. Thistransaction was completed in two stages, on August 5, 1999 and on October 14,1999. The Company believes these alliances have produced and will continue toproduce business opportunities with these partners, the governments of theirrespective countries and other industries within those countries.

Through the Company's contracts, it continues to implement its businessstrategy by identifying customer requirements, creating innovative technicalsolutions, raising private capital to develop assets and providing servicespursuant to those contracts.

Products and Services---------------------

SPACEHAB Single Modules are aluminum cylinders, measuring 10 feet in lengthby 13.5 feet in diameter, that incorporate a patented design including atruncated top and flat-end caps. These fully instrumented modules provideexperiment resources such as power, data management, thermal control and vacuumventing. SPACEHAB Single Modules are employed primarily for research missionssuch as the STS-95 flight that carried Senator John Glenn back into space inOctober 1998. In the nine months ended June 30 1996, the Company completed adevelopment program and introduced the Logistics Double Module. This module wasoptimized to carry logistics and was used by NASA to carry vital supplies to theastronauts and cosmonauts who resided on the Russian space station Mir. SPACEHABinvested $12.5 million in the design, development, and production of theLogistics Double Module. During the year ended June 30, 1997, in an effort toanticipate the need of customers, the Company began the full-scale developmentand construction of its Research Module with double module hardware, which whencombined with a Single Module becomes the RDM. The RDM is fully dedicated tomicrogravity research and is under contract for the STS-107 mission which isscheduled to fly in June 2001. Expenditures for the RDM through the year endedJune 30, 2000 were $45.4 million. The Company anticipates expenditures ofapproximately $3.0 million to complete this asset and place it into service.

The Company expects that the RDM will meet or exceed all of NASA'sprojected requirements for dedicated microgravity and life sciences researchthat had been performed by Spacelab, the U.S. government-owned habitable module,which was retired after its final mission in April 1998. As a result of theretirement of NASA's Spacelab, the Company believes that its flight-provenmodules position SPACEHAB to become the sole provider of crew-tendedmicrogravity research capabilities for the Space Shuttles. In the year endedJune 30, 1998, the Company initiated preliminary development of the ADM. The ADMwill provide the following services to the Company's customers: serve as adocking module with the ISS, a crew return vehicle vestibule and a large hatchair lock.

SPACEHAB has addressed the need to carry unpressurized cargo to the ISS bydesigning and developing the ICC. The ICC can be used singularly or incombination with SPACEHAB Single or Double Modules to provide the optimum mix ofpressurized and unpressurized cargo on a single mission to the ISS. The ICC was



first flown on the first supply mission to the

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ISS, STS-96, in May 1999. In order to more fully meet NASA's requirements forattached cargo, the Company has initiated preliminary design efforts of avertical carrier and other derivatives with characteristics similar to the ICC.

SPACEHAB's Astrotech payload processing business serves the commercialsatellite manufacturing and launch services industries in Florida and at theVandenberg Air Force Base in California. Although payload processing isgenerally associated with the final preparation of a satellite or other spacepayload for launch, it is also the first step in the launch process and requiresspecialized facilities and support located at the launch site. Astrotech'spayload processing activities provide the necessary resources for mechanicalassembly or reassembly, electrical systems testing, calibration, liquidpropellant loading and numerous other related activities. Additionally,Astrotech's specialized facilities include, but are not limited to,environmentally-controlled rooms, airlock systems, overhead crane systems, andhazard-proof work areas. In the year ended June 30, 1999, Astrotech acquired anadditional 23.5 acres of land adjoining its existing Florida site for theconstruction of additional payload processing facilities required to support theincreased projected launch rate and larger sized payloads associated with thenew Evolved Expendable Launch Vehicles ("EELV") being developed by Boeing andLockeed Martin under Air Force contracts. In support of the new Boeing andLockheed Martin contracts, Astrotech completed the design and began constructionof a major facility expansion at its Florida site estimated to costapproximately $30.5 million. When completed in the summer of 2001, this newfacility will support all planned configurations of the new Boeing Delta IV andLockheed Martin Atlas V launch vehicles. Expenditures for this expansion wereapproximately $5.7 million and $1.1 million in the year ended June 30, 2000 and1999, respectively. Astrotech is in the process of obtaining financing for thisproject from a financial institution and anticipates completion of the financingin the first quarter of the year ended June 30, 2001.

Astrotech operates its payload processing services under multi-yearagreements with Lockheed Martin to support the processing of commercial Atlaspayloads with, Boeing to support the processing of all Delta payloads, and withOrbital Sciences to support the processing of Taurus and Pegasus payloads.Astrotech also has a similar arrangement with Boeing to support the processingof all Sea Launch payloads at Sea Launch's facility in Long Beach, California.

Astrotech continues its pursuit of a second major business area, providingsounding rocket flight hardware and launch services. In December 1998, Astrotechentered into a relationship with ATK (formerly Alliant Tech Services, Inc) todevelop a new sounding rocket system called the "Oriole". Development of theOriole suborbital launch vehicle continued in the year ended June 30, 2000culminating in the successful static test firing in April 2000 of the solidrocket motor. Astrotech plans to market the Oriole to NASA in support of itssuborbital microgravity and scientific research programs, and to the Departmentof Defense ("DoD") in support of its Theater High Altitude Air Defense ("THAAD")target missile programs. The successful test launch of the Oriole was completedon July 7, 2000 from NASA Wallops Flight Facility in Virginia.

Astrotech also plans to pursue additional opportunities, including: (i)providing payload processing facilities and services to new U.S. Governmentcustomers in the defense and intelligence communities; (ii) supporting new spacelaunch facilities and related payload processing functions internationally; and(iii) expanding its sounding rocket services to include the provision ofmicrogravity research by developing research facilities and flight hardware.

ES performs several critical services for NASA, including flight crewsupport services, operations, training and fabrication of mockups at NASA'sNeutral Buoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, whereastronauts train for both Space Shuttle and ISS missions. ES also designs andfabricates flight hardware, such as flight crew equipment and crew quartershabitability outfitting, as well as providing stowage integration services. ESis also responsible for configuration management support to the ISS programmanagement office. ES's ability to perform detailed design, fabrication, andoperations complements the Company's traditional strengths in conceptual designand program management. The acquisition of ES provides many of the criticalskills and capabilities used to perform SPACEHAB services that currently areacquired through subcontracting relationships.

ES primarily operates under the Flight Crew Systems Development contract("FCSD Contract") which is currently a $332.5 million multitask cost-plus-award



and incentive-fee contract. The contract commenced in May 1993 and was scheduledto conclude in April 2001. NASA has notified the Company that it plans toexercise it's option to extend certain tasks for an additional year throughApril 2002. The additional contract value of these tasks is estimated to be$54.5 million.

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SMI will create proprietary content from the ISS for broadcast and Internetdistribution. Also in the year ended June 30, 2000, the Company begandevelopment, in partnership with RSC Energia, of the Enterprise(TM) spacestation habitat module - the world's first commercial real estate in space. WithEnterprise, the Company can offer stowage space, power and other utilities, andresearch facilities for long-duration experiments. The Company is also offeringsomething new on Enterprise; the world's first commercial television andInternet broadcasting studio in space. These initiatives are in line with ourlong-term strategy of reaching global mass markets, through television andInternet broadcasting from Enterprise. Space Media is also managing theCompany's S*T*A*R*S (Space Technology And Research Students) global spaceeducation program, and Enterprise will accommodate an expansion of thissuccessful and rapidly growing initiative. SPACEHAB is estimating a launch forEnterprise in early 2003.

In 1998 the Company entered into a joint venture agreement with GuigneTechnologies Ltd. to build the SpaceDRUMS(TM), a facility that uses acousticenergy to position samples inside an experiment device for "containerlessprocessing", which is scheduled to be the first commercial research facility onthe ISS.

The Company continues to pursue new business opportunities by identifyingcustomer requirements and creating and implementing innovative technicalsolutions. The Company believes that the demand for microgravity and lifesciences research conducted on SPACEHAB modules and demand for the use of itsmodules for logistics support and other infrastructure services includingcommunications, power supply and refueling and reboosting services will increaseboth during the assembly phase of the ISS and after the ISS becomes fullyoperational. The ISS is the largest engineering and scientific project everundertaken. More than a dozen nations, led by the United States, Russia, Japanand the European Community, will develop, build, launch and operate the ISS. Inaddition, the Company also believes that the increasing demand for satellitesand the improvements in satellite technology will continue to provideopportunities in the satellite launch services field.

Industry Overview-----------------

The U.S. space program encompasses four broad objectives: to advancescientific research, to establish a permanent human presence in space, todevelop new technologies that contribute to U.S. economic growth and securityand to foster improved international relations through peaceful cooperation inspace with Europe, Japan, Russia and other nations. SPACEHAB is focused on threemarkets: (i) microgravity and life sciences space research, (ii) space supportservices such as space station logistics and resupply, ground operations andpayload processing and training and (iii) creation of high value audiencesthrough production and distribution of multimedia space focused content.

Microgravity and Life Sciences Space Research

In orbit, the forces of inertia and gravity counterbalance each other,thereby creating a condition of near weightlessness known as "microgravity." Ina microgravity environment, materials and living matter behave in fundamentallydifferent ways than they do on Earth. This phenomenon has stimulated worldwideinterest from scientists and commercial researchers who are seeking improvedways to manipulate and process materials and to study biological processes thatcannot otherwise be achieved in ground-based laboratories.

The demand for access to a microgravity environment can be divided into twobroad categories: scientific research and commercial applications. NASA andother U.S. and international government research organizations provide supportfor both basic scientific research and its commercial applications to determinethe fundamental effects that gravity has on physical processes.

Space Support Services and Training

Space support services include providing logistics and payload processingsupport to NASA, other governments and commercial customers of the Space Shuttle



and the ISS. Permanently orbiting facilities such as the ISS require reliablesources of logistics: food, clothing, equipment and supplies that sustain theastronauts and enable them to conduct research. NASA's current plans call forthe Space Shuttle to be launched at least seven times per year for theforeseeable future. As currently planned, the ISS will require approximatelyfive Space Shuttle logistics missions per year.

To support the Space Shuttle and ISS operations, NASA requires groundoperations and payload support services before and after each mission. Payloadprocessing operations entail payload scheduling,

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mission planning, safety/certification analysis, physical integration of thepayload into its carrier (such as SPACEHAB modules), the integration of thecarriers into the Space Shuttle's cargo bay, flight operations, technical datagathering and synthesis, and launch and landing site activities. Space supportservices also involve the provision of specialized services and support nearlaunch sites for commercial satellite manufacturers and launch services. Theseactivities include mechanical assembly or re-assembly, electrical check,calibration, liquid propellant loading and related activities.

A significant component of space support services includes managing alltraining operations and facility engineering at the NBL. NASA also requiresdesign and fabrication of full-scale mockups of the ISS elements used in NBL andSVMF training and the development of hardware for the ISS crew living quartersthat is scheduled for launch in 2003.

Competition-----------

Currently, there are no other companies that compete directly with SPACEHABin providing pressurized module services that are carried aboard the SpaceShuttles. NASA had a government-owned and operated system, Spacelab, whichprovided services similar to those provided by SPACEHAB modules. However, NASAterminated the Spacelab program with its final mission flown in April 1998. TheCompany has commenced the design and construction of the Research Double Moduleunder a contract with Boeing (formerly McDonnell Douglas Aerospace). TheResearch Double Module represents a commercial replacement for NASA's Spacelab.The Company believes that this module will significantly outperform Spacelab interms of technology, capacity, functionality and cost-effectiveness.

The Company's long-term strategy for growth is to provide research,logistics, infrastructure and payload processing services to NASA and othersduring the ISS era. This strategy could require the Company to compete withcommercial companies such as Lockheed Martin, Boeing and others who haveexisting NASA support contracts, greater financial resources and manufacturingcapabilities, and larger marketing, sales and technical organizations than theCompany. The Company has maintained strong strategic relationships with UnitedSpace Alliance and Boeing, In the international market, SPACEHAB formed astrategic alliance with DaimlerChrysler Aerospace AG, now part of the largestEuropean aerospace corporation, Astrium. As part of the agreement with Astrium,they have taken a position as the largest single shareholder in the Company andare actively pursuing joint programs with the Company. SPACEHAB's existingstrategic relationships with Mitsubishi Corporation and Alenia may provideadditional opportunities for teaming and partnerships that management believeswill enable the Company to compete for market share.

The Italian Space Agency has contracted with the International SpaceStation to build three Multi-Purpose Logistics Modules ("MPLM") intended for usein connection with the ISS. Although the MPLM provides similar services toSPACEHAB's modules for ISS logistics missions, SPACEHAB believes that itsmodules are complementary to the MPLM. Each module is for use in specialsituations, e.g.- the MPLM is expected to be used when a requirement exists forlarge construction elements such as rack-based systems and payloads. When therequirement exists for crew rotation, and resupply of food, supplies andequipment, the Company believes that SPACEHAB modules would be more appropriatedue in part to the flexibility and late access capabilities of the SPACEHAB'smodules. Of the five planned or possible logistics missions per year to the ISS,the Company expects that two or three will be SPACEHAB missions with theremainder being MPLM missions.

Astrotech's company-owned payload processing facilities are located inFlorida and California. At present, management believes that Astrotech's U.S.competition is limited to the California Vandenberg Air Force Base launch sitewhere a competitor, Spaceport Systems International ("SSI") is located. SSI was



established by obtaining surplus U.S. Air Force facilities at the VAFB launchcomplex before Astrotech established its facilities there and when no commercialalternative was available. To the Company's knowledge, SSI has won severalcontracts to process NASA spacecraft for launch from VAFB. SSI does not havepayload processing facilities in Florida, where the majority of U.S. commercialsatellite launches occur.

ES's competitors are those aerospace companies that provide engineering andfabrication services. ES's competitors include Boeing, Lockheed Martin, UnitedSpace Alliance, Barrios Technologies, Inc., Hernandez Engineering, Inc.,Cimarron and Oceaneering International, Inc.

SMI has one potential competitor, Dreamtime.

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Dependence on a Single Customer-------------------------------

Approximately $91 million (or 86 percent) of the Company's the year endedJune 30, 2000 revenue was generated from two NASA contracts - the Research andLogistics Mission Support Contract ("REALMS") and the FCSD Contract. WhileAstrotech, and the STS-95 and STS-107 commercial customer contracts representedadditional revenue sources, the Company anticipates that revenue from NASA willcontinue to account for a significant amount of the Company's revenue over thenext several years. There are no assurances, however, that NASA will require theCompany's services in the future. Therefore, the Company's failure to executenew contracts with NASA would have a material adverse effect on the Company'sfinancial condition and results of operations. Additionally, a significantportion of the revenue for ES is derived under contracts with NASA. Accordingly,the Company continues to focus its efforts on diversifying its customer base toinclude commercial companies, as evidenced by the Astrotech acquisition in 1997and the formation of SMI.

Backlog-------

A significant portion of the Company's revenue is currently generated fromits contracts with NASA that, similar to contracts with other agencies of theU.S. government, contain provisions pursuant to which NASA may terminate thecontract "for convenience." The Company's contracts with NASA are conditioned byits terms upon NASA receiving an adequate annual appropriation of funds from theU.S. Congress. Failure to receive funds from Congress or a withdrawal byCongress of prior appropriations would permit NASA to terminate its contractswith SPACEHAB "for convenience." For the government's fiscal year endedSeptember 30, 2000, both the U.S. Senate and House of Representatives haveauthorized and approved an annual appropriation of $13.6 billion for NASA,including $2.3 billion for the ISS, indicating a commitment by the government tothe space industry. However, there can be no assurance that the level ofapproved funding will be adequate for NASA to complete all of its initiativesincluding those relating to the contracts with the Company.

SPACEHAB anticipates that a portion of future revenue will be derived fromcontracts with entities other than agencies of the U.S. government that will notbe subject to federal contract regulations such as termination "for convenienceof the government" or federal government funding restrictions. However, to theextent that such contracts require the use of the Space Shuttle fortransportation, these systems must be available and will have to be obtained ata reasonable cost to SPACEHAB.

As of June 30, 2000 and 1999, the Company's contract backlog wasapproximately $218 million and $167.3 million, respectively, of which $129million and $149.5 million, respectively, represented U.S. government backlogand $89 million and $17.8 million, respectively, represented non-U.S governmentcontracts.

Contract History----------------

SPACEHAB's fundamental business strategy is based on carefully anticipatingcustomer requirements and, investing capital to develop space-flight assets,contracting with established aerospace companies for engineering and assetproduction while retaining ownership of these assets and providing innovative,cost-effective solutions that meet customer requirements using fixed-priceservice contracts. This strategy has been successful for the Company inobtaining three significant contracts with NASA: a $184.2 million Commercial



Middeck Augmentation Module contract (the "CMAM Contract") for five missions, a$91.5 million contract for four missions and three option missions (all of whichwere exercised) to the Mir Space Station (the "Mir Contract") and a $100.8million REALMS contract for four missions and defining the pricing for sixmission configurations. The REALMS Contract provides an opportunity for theCompany to provide similar services to commercial customers. Contracts withcommercial customers on STS-95, STS-101, STS-105 and STS-107 are approximately$33.2 million.

The CMAM Contract, signed in November 1990, required SPACEHAB to furnishNASA with SPACEHAB module accommodations for experiments developed by theCenters for the Commercial Development of Space ("CCDS") on five Space Shuttlemissions. The fifth and final CMAM mission was completed successfully duringSeptember 1996.

The basic Mir Contract, signed in July 1995, required the Company toprovide Single and Double Module accommodations for the provision of logisticsre-supply to the Mir Space Station on four Space

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Shuttle missions. The fourth mission, STS-84, was completed successfully in May1997. In addition, in September 1996, the Company entered into agreements withthe Japanese Space Agency ("NASDA") and the European Space Agency ("ESA")(collectively, the "NASDA/ESA Contract"). Pursuant to the NASDA/ESA Contract,SPACEHAB provided hardware and integration and operations for scientificmicrogravity experiments to NASDA and ESA aboard the Logistics Double Module onSTS-84.

In June 1997, NASA exercised all three options for additional missions for$39.0 million under the Mir Contract. The Mir Contract options called for twoLogistics Double Module missions and one Single Module mission that weresuccessfully completed in September 1997, January 1998 and June 1998,respectively.

The REALMS Contract, signed in December 1997 and amended in October 1999,requires that the Company provide a single and a double research module tosupport microgravity research payloads and two double logistics module flightsto the ISS to support outfitting of the ISS. STS-95, a research mission, flew inOctober 1998; STS-96, a logistics mission, flew in May 1999; STS-101, alogistics mission, flew in May 2000; STS-106, a logistics mission, is scheduledto fly in September 2000; and STS-107 a research mission, is scheduled to fly inJune, 2001. The REALMS Contract provides an opportunity for the Company toprovide similar services to commercial customers on STS-95 and STS-107. Duringthe year ended June 30 1998, the Company entered into agreements with NASDA,ESA, the Canadian Space Agency ("CSA") and the Japanese Broadcasting Agency("NHK") (collectively, the "STS-95 Commercial Customers"). Pursuant to theagreements, SPACEHAB provided hardware and integration and operations forscientific microgravity experiments to the STS-95 Commercial Customers aboardthe Single Research Module on STS-95. The Company completed integration andoperations efforts for the STS-95 and STS-96 missions and began integration andoperations efforts for STS-101 and STS-107 during the year ended June 30, 1999reporting $39.1 million in revenue for these missions under the percentage-of-completion revenue recognition policy. In the year ended June 30, 2000, theCompany completed integration and operations efforts for STS-101, beganintegration and operation efforts for STS-102, STS-105 and STS-106 and continuedintegration and operation efforts for STS-107. In the year ended June 30, 2000,the Company recognized $39.6 million in revenue for these missions.

During the year ended June 30, 2000, Astrotech completed negotiations oflong-term extensions to their payload processing contracts with their twolargest customers, Boeing and Lockheed Martin. Astrotech has successfullysupported the processing of over 150 satellites since the beginning ofoperations in 1985 and continues to be recognized as the industry leader incommercial satellite processing.

ES operates under the FCSD Contract with NASA, a $332.5 million multitaskcontract which commenced in May 1993, and is scheduled to conclude in April,2001. NASA has notified the Company that it plans to exercise it's option toextend certain tasks for an additional year through April 2002. The additionalcontract value of tasks is approximately $54.5 million which has not beenofficially added to the FCSD Contract at this time. ES performs several criticalservices for NASA including flight crew support services, operations, trainingand fabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA'sSpace Vehicle Mockup Facility, where astronauts train for both Space Shuttle andISS missions. ES also designs and fabricates flight hardware, such as flight



crew equipment and crew quarters habitability outfitting as well as providingstowage integration services. ES is also responsible for configurationmanagement support to the ISS program management office.

Research and Development------------------------

The Company believes that the timely development of new products andenhancements to existing hardware are essential to maintaining its competitiveposition. The Company incurred $2.4 million, $3.6 million and $4.3 million inresearch and development expenditures during the years ended June 30, 2000, 1999and 1998, respectively.

$1.1 million of the Company's research and development expenditures for theyear ended June 30, 2000 were spent completing the development of the Astrotechsounding rocket program. In addition, $0.5 million was spent on the developmentof the Enterprise module and $0.8 million was spent on various studies conductedby third parties. Approximately $1.0 million of the Company's research anddevelopment expenditures for the year ended June 30, 1999 were spent on thedevelopment of the sounding rockets. In addition, $2.6 million was spent onvarious studies conducted by third parties. In 1998 approximately $1.9 millionwas spent on the design, development and qualification of the new SPACEHABUniversal Communications System ("SHUCS"). Beginning in the nine months endedJune 30, 1996 and continuing throughout the year ended June 30, 1998, theCompany worked on the development of this new proprietary module communicationssystem that will be independent of the Space

8

Shuttle's existing data downlink. SPACEHAB began capital asset construction ofSHUCS in the fourth quarter of the year ended June 30, 1998. In addition, in1998, the Company spent approximately $0.6 million for research and developmentof the ICC. SPACEHAB completed the construction of the ICC in the year endedJune 30, 2000. Completion of this asset expands the Company's product andservice lines to meet market requirements for low-cost unpressurized carriersfor research experiments and cargo. SPACEHAB developed the ICC to carryunpressurized cargo to the ISS, based on a patented pallet technology (the"Unpressurized Cargo Pallet" or "UCP"), which can be used independently or intandem with the SPACEHAB Single or Double Modules. The ICC's design is such thatit is located in what is ordinarily unused volume in the front of the SpaceShuttle's cargo bay. In addition, $1.8 million was spent in the year ended June30, 1998 on various studies conducted by third parties. By expanding thecapabilities of the Space Shuttle and by offering flexibility in the mix ofpressurized and unpressurized cargo carried on each mission, the Companybelieves that the ICC could become the preferred method for providing logisticsand utilization resupply to the ISS.

Certain Regulatory Matters--------------------------

The Company is subject to federal, state and local laws and regulationsdesigned to protect the environment and to regulate the discharge of materialsinto the environment. The Company believes that its policies, practices andprocedures are properly designed to prevent unreasonable risk of environmentaldamage and consequential financial liability to the Company. Compliance withenvironmental laws and regulations and technology export requirements has nothad in the past, and, the Company believes, will not have in the future,material effects on the capital expenditures, earnings or competitive positionof the Company.

Employees---------

As of June 30, 2000, the Company and its wholly and majority-ownedsubsidaries employed 776 regular employees, 28 of whom are employed by theAstrotech subsidiary, 7 are employed by the SMI subsidiary and 687 are employedby ES. Of these employees, approximately 15 percent hold advanced degrees,including 11 individuals who hold doctorate degrees. Additionally, a significantnumber of the Company's employees have experience in both the space industryand/or governmental space agencies, with a special expertise in commercial spaceand human space flight. None of the Company's employees are covered bycollective bargaining agreements. Underlying all of SPACEHAB's efforts has beenthe dedication and skill of its personnel. The Company believes that thededication of its employees is critical to its success and that its relationswith its employees are excellent.



Item 2. Properties

The Company and its wholly and majority-owned subsidiaries, Astrotech andES, currently occupy ten locations, with the corporate headquarters located at300 D Street SW, Suite 814, Washington, DC 20024. The corporate headquartersoccupy 15,499 square-feet of office space and house 30 employees includingSPACEHAB's 23 person executive management, finance and marketing team,Astrotech's 5 person management and administrative team and SMI's 2 personexecutive management team. The term of the present lease expires on December 16,2007.

SPACEHAB has 25 employees encompassing sales and marketing, flight servicesand health and sciences located at 1331 Gemini Avenue, Suites 300 & 310,Houston, Texas 77058. The Houston offices consist of approximately 23,000 squarefeet of non-contiguous office space located near the Johnson Space Center. Thelease has a five-year term commencing March 1, 1998, and expiring February 28,2003. In addition, ES occupies a portion of these premises and approximately5,000 square feet houses 75 employees supporting marketing, finance andcorporate services on a month-to-month basis.

The Company's payload processing facility, housing a 3-person operationsteam, is located near the Kennedy Space Center in Cape Canaveral, Florida. Thefacility is contained in an approximately 58,000 square-foot plant. The Companyowns the building that houses the payload processing facility but leases theland upon which it is constructed. The payload processing facility has a cleanroom work area of approximately 24,000 square-feet. This work area is designedto accommodate the SPACEHAB Single and Double Modules, as well as the ICC. Thisarea includes 11 secure experiment/payload integration and work areas ranging insize from 300 square-feet to 1,000 square-feet each. In addition, the facilityprovides office space, stock rooms, storage areas, a machine shop, an electricalshop, conference rooms, and other

9

miscellaneous accommodations. In July 1997, the Company negotiated a newagreement with the Canaveral Port Authority for the lease of the land. The termof the new lease is for a forty-three year period commencing August 28, 1997.Upon expiration of the land lease, all improvements on the property revert at nocost to the lessor.

Astrotech occupies three additional locations. The 7 person managementand technical sounding rocket team, 2 full time employees and 5 contractemployees, are located at 6305 Ivy Lane, Suite 520, Greenbelt, MD 20770. Thisfacility is approximately 6,000 square-feet of leased office space. The term ofthe present lease is a five-year period expiring on May 31, 2003.

Astrotech's 12-person engineering and support team is located in aneight-building, owned facility at 1515 Chaffee Drive, Titusville, Florida 32780.This 88,000 square-foot facility supports non-hazardous and hazardous materialprocessing, payload storage and customer offices. The construction of a new50,000 square foot processing facility was started in the year ended June 30,2000 and is scheduled for completion in May 2001. These buildings presentlyoccupy one-fourth of the 62-acre property owned by Astrotech, with the remainingtwo-thirds available for expansion.

Astrotech has a 3-person technical staff located on Vandenberg AirForce Base in Santa Barbara County, California. Astrotech presently rents a 60-acre site on the Air Force Base and owns four buildings comprising 16,500square-feet, which are dedicated to the same functions provided at the Floridafacility. The term of the present land lease expires on July 13, 2013. Uponexpiration of the land lease, all improvements on the property revert at no costto the lessor.

ES occupies five locations. Its headquarters are located at 555 ForgeRiver Road, Suite 150, Webster, Texas 77058. The headquarters house ES's 257-person engineering team within a 69,000 square-foot facility. This office leasewill expire on June 30, 2003.

ES has a 26-person fabrication shop located at 920 Gemini Avenue,Houston, Texas, 77058. This facility is approximately 18,000 square-feet and isbeing leased for a three-year term that will expire on January 31, 2001.

ES also occupies two facilities used for storage, shipping andreceiving at 926 and 928 Gemini Ave, Houston, Texas 77058. These facilities areapproximately 4,000 square feet and 9,000 square feet respectively. The lease



will expire on April 30, 2002.

ES also occupies approximately 9,000 square feet of space at 18100Upper Bay Road, Houston, Texas 77058 that houses a 21-person engineering andlaboratory team. The lease will expire on April 30, 2001.

ES also occupies approximately 13,000 square feet of space at 16850Titan, Houston, Texas 77058 that houses a sewing lab, offices and storage place.The lease will expire on July 31,2001.

Additionally, ES has more than 300 additional employees who are housedat various government facilities within the Houston area.

On July 24, 2000 SPACEHAB entered into a lease for 125,000 square feetof space at 13130 State Highway 3, Houston, Texas. The lease will expire inMarch 2003.

The Company believes that its current facilities and equipment aregenerally well maintained and in good condition and are adequate for its presentand foreseeable needs.

Item 3. Litigation

The Company is not currently involved in any material legalproceedings.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of stockholders during the fourthquarter of the year ended June 30, 2000.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

10

The Company's common stock (the "Common Stock") trades on the NASDAQNational Market System under the symbol "SPAB." The Common Stock has beenpublicly traded since December 22, 1995, the date of the closing of theCompany's initial public offering. The quarterly high and low closing stockprices for fiscal years 2000 and 1999 are as follows:

Fiscal 2000: High Low------------ ---- ---

First Quarter $ 6 1/8 $ 4 5/8Second Quarter $ 6 3/4 $ 3 15/16Third Quarter $ 6 1/16 $ 4 1/2Fourth Quarter $ 5 1/2 $ 4 1/4

Fiscal 1999: High Low------------ ---- ---

First Quarter $11 3/4 $ 8 1/4Second Quarter $10 3/4 $ 7Third Quarter $10 13/16 $ 6Fourth Quarter $ 6 1/8 $ 5

The Company has never paid cash dividends. It is the present policy ofthe Company to retain earnings to finance the growth and development of itsbusiness and, therefore, the Company does not anticipate paying cash dividendson its Common Stock in the foreseeable future.

The Company has authorized 30,000,000 shares of Common Stock. At August18, 2000, 11,345,032 shares of Common Stock were outstanding. The Company hadapproximately 3,522 shareholders of record and beneficial holders of its CommonStock on June 30, 2000.

On August 2, 1999, Astrium, a shareholder, purchased an additional$12.0 million equity stake in SPACEHAB representing 1,333,334 shares of Series BSenior Convertible Preferred Stock. Under the agreement, Astrium purchased allof SPACEHAB's 975,000 authorized and unissued shares of preferred stock. At theannual stockholders meeting held on October 14, 1999, the shareholders approvedthe proposal to increase the number of authorized shares of preferred stock to2,500,000, in order to complete the transaction with Astrium, allowing them topurchase the additional 358,334 preferred shares. The preferred stock purchaseincreased Astrium's investment interest in SPACEHAB to approximately 11.5



percent. The Series B Senior Convertible Preferred Stock is: convertible at theholders' option on the basis of one share of preferred stock for one share ofcommon stock, entitled to vote on an "as converted" basis the equivalent numberof shares of common stock and has preference in liquidation, dissolution orwinding up of $9.00 per preferred share. No dividends are payable on theconvertible preferred shares.

Sales of Unregistered Securities--------------------------------

On August 5, 1999, the Company issued 975,000 shares of a new Series BSenior Convertible Preferred Stock (the "Series B Preferred Stock") and issuedan additional 358,334 shares of the Series B Preferred Stock following anamendment to the Company's Articles of Incorporation to permit an increase inthe number of authorized shares of preferred stock. This amendment was approvedby stockholders at their Annual Meeting on October 14, 1999.

The purchaser of the Series B Preferred Stock was DaimlerChryslerAerospace AG (now Astrium) and the total consideration paid was $12 million.The Preferred Stock is convertible into shares of the Company's Common Stock ona one for one basis, subject to anti-dilution provisions.

The Preferred Stock was issued in reliance on an exemption fromregistration provided by Section 4(2) of the Securities Act of 1933 as amendedfor transactions by an issuer not involving any public offering. Appropriatelegends regarding restrictions on the resale of the securities were affixed tothe certificates representing these securities.

For additional information about this transaction , please see theCompany's report on Form 8K (File No. 0-27206) filed with the SEC on August 19,1999.

Item 6. Selected Financial Data

The selected financial data presented below are derived from theaudited consolidated financial statements of SPACEHAB. This selected financialinformation should be read in conjunction with the Consolidated FinancialStatements of the Company and the notes thereto included elsewhere in thisreport.

<TABLE><CAPTION>

Nine/1/ Months Year Year Year YearEnded Ended Ended Ended Ended

June 30 June 30 June 30 June 30 June 30-----------------------------------------------------------------

1996 1997 1998 1999 2000-----------------------------------------------------------------

<S> <C> <C> <C> <C> <C>(in thousands, except per share data)

Statement of Operations Data:Revenue/2/ $56,397 $ 56,601/3/ $64,087 $107,720/8/ $105,708Costs of revenue 20,985 35,046 36,321 89,283 87,931

-----------------------------------------------------------------Gross profit 35,412 21,555 27,766 18,437 17,777Selling, general and

administrative expenses 4,056 8,567 13,712 14,599 17,832/9/Research and development expenses 100 1,252 2,620 3,636 2,440/10/

-----------------------------------------------------------------</TABLE>

11

<TABLE><S> <C> <C>

Operating income (loss) 31,256 12,662 12,697 202 (2,495)Interest expense, net of 699 955 4,480 4,905 3,773capitalized amounts

Net income (loss) 28,829 13,832/4/ 12,131 (2,589) (3,844)Net income (loss) per common $3.19 $1.24 $0.84 ($0.23) ($0.34)share - Diluted/5/

Shares used in computing netincome (loss) Per common share -diluted/5/ 9,343 11,160 14,571 11,185 11,273



Other Data:Cash provided by (used for) $13,151 ($5,995) $31,604 ($6,331) $1,424operations

Total investing activities 6,266 29,308/6/ 23,113 58,619/7/ 29,794Balance Sheet Data (at period end):Working capital (deficiency) $45,942 $3,159 $62,660 $12,374 ($1,601)Total assets 129,709 114,450 220,604 204,346 225,109Long-term debt, excluding 17,318 12,725 85,322 78,810 75,901current portion

Stockholders' equity 71,596 86,622 96,408 94,165 102,703</TABLE>

------------------------------/1/ Effective October 1, 1995, the Company changed its fiscal year-end to June30./2/ The Company recognized revenue upon the completion of each flight under theMir and CMAM Contracts. For new contract awards for which the capability tosuccessfully complete the contract can be demonstrated at contract inception,revenue recognition under the percentage-of-completion method is being reportedbased on costs incurred over the period of the contract./3/ Includes revenues of $2,860 generated by Astrotech subsequent to itsacquisition on February 12, 1997./4/ Includes an extraordinary gain of $3,274, net of taxes and legal fees,relating to the amendment and restatement of a credit agreement./5/ In December 1997, the Company adopted the provisions of Statement ofFinancial Accounting No. 128, Earnings Per Share, which establishes newguidelines for the calculations of earnings per share. Earnings per share for FY1994 through FY 1997 have been restated to reflect the provisions of this newstandard./6/ Includes $20,134 of consideration for the purchase of Astrotech./7/ Includes $24,745 of consideration for the purchase of ES and a $1,400investment in a joint venture./8/ Includes revenues of $58.4 million generated by Johnson Engineeringsubsequent to its acquisition on July 1, 1998./9/ Includes approximately $1.8 million of expenses associated with the startupof SMI./10/ Includes approximately $0.5 million of expenses associated the constructionof the Enterprise module.

Item 7. Management's Discussion and Analysis of Financial Condition and Resultsof Operations.

SPACEHAB was incorporated in 1984 to commercially develop space habitatmodules to operate in the cargo bay of the Space Shuttles. SPACEHAB, along withthe Astrotech Space Operations, L.P. ("Astrotech"), Johnson EngineeringCorporation ("JE"), now designated Engineering Services ("ES") for companymanagement reporting, and Space Media, Inc. ("SMI") subsidiaries define theCompany.

During the year ended June 30, 1998, the Company operated under twocontracts with NASA. First, the Mir Contract, with a total contract value of$91.5 million, including $39.0 million for three Mir option missions that wereflown in the year ended June 30, 1998. Second, the Research and LogisticsMission Support contract ("REALMS"), with a total current contract value of$100.8 million originally consisting of four missions, but increased to sixmissions currently, three of which were flown in October of 1998, May of 1999and May of 2000. This contract also provides SPACEHAB an opportunity to havedirect commercial relationships with other space agencies by providing themresearch space in the modules. In fact, on the October 1998 flight, most of therevenue recognized came from customers other than NASA.

The Company's revenues for the year ended June 30, 2000 were primarilygenerated from the REALMS contract and contracts with related commercialcustomers, with one mission flown in May 2000 and the Flight Crew SystemDevelopment contract ("FCSD") with ES. The Company's revenues for the year endedJune 30, 1999 were generated primarily from the REALMS Contract and contractswith related

12

commercial customers, with two missions flown during the fiscal year, and theFCSD Contract. The Company's revenues for the year ended June 30, 1998 weregenerated primarily from the Mir Contract, with three missions flown during thefiscal year and the REALMS Contract and contracts with related commercialcustomers.



SPACEHAB generates revenue by providing a turnkey service that includesaccess to the modules and provides integration and operations support servicesto scientists and researchers responsible for the experiments and/or logisticssupplies for module missions aboard the Space Shuttle System and under the FCSDContract. Under the Commercial Middeck Augmentation Module ("CMAM") contract andMir Contracts, the Company recognized revenue only at the completion of eachSpace Shuttle mission using Company assets. Accordingly, the Company's quarterlyrevenue and profits fluctuated dramatically based on NASA's launch schedule andwill continue to do so for any contract for which revenue is recognized onlyupon completion of a mission. For the REALMS Contract and for new contractawards for which the capability to successfully complete the contract can bedemonstrated at contract inception, revenue recognition under the percentage-of-completion method is being reported based on costs incurred over the period ofthe contract. The percentage-of-completion method results in the recognition ofrevenue over the period of contract performance, thereby decreasing the quarter-by-quarter fluctuations of reported revenue. With respect to the FCSD cost-plusaward and incentive fee contract, revenue is recognized based on costs incurredplus a proportionate amount of estimated fee earned. Revenue provided byAstrotech's payload processing services is recognized ratably over the occupancyperiod of the satellite while in the Astrotech facilities.

The expenses associated with the operations of SPACEHAB are recordeddifferently based on the type of expense. Costs of revenue include integrationand operations expenses associated with the performance of two types of efforts:(i) sustaining engineering in support of all missions under a contract and (ii)mission specific support. Expenses associated with sustaining engineering areexpensed as incurred. Mission specific expenses relating to the CMAM Contractand the Mir Contract were deferred as assets and not expensed until the specificSpace Shuttle mission was flown and the related revenue was recognized. Costsassociated with the performance of the contracts using the percentage-of-completion method of revenue recognition are expensed as incurred. Costsassociated with the cost-plus-award and incentive fee contracts are expensed asincurred by ES. Other costs of revenue include depreciation expense and costsassociated with the Astrotech payload processing facilities. Flight relatedinsurance covering transportation of the SPACEHAB Modules from SPACEHAB'spayload processing facility to the Space Shuttle, in-flight insurance and third-party liability insurance are also included in costs of revenue and are recordedas incurred. Selling, general and administrative and interest and other expensesare recognized when incurred.

Astrotech revenue is derived from various multi-year fixed-pricecontracts with satellite and launch vehicle manufacturers. The services andfacilities Astrotech provides to its customers support the final assembly,checkout and countdown functions associated with preparing a satellite forlaunch. This preparation includes: the final assembly and checkout of thesatellite, installation of the solid rocket motors, loading of the liquidpropellant, encapsulation of the satellite in the launch vehicle, transportationto the launch pad and command and control of the satellite during pre-launchcountdown. Revenue provided by the Astrotech payload processing facilities isrecognized ratably over the occupancy period of the satellites in the Astrotechfacilities. Costs incurred by Astrotech are recognized as incurred.

ES's revenue is derived primarily from the FCSD Contract which is a$332.5 million multitask contract which was scheduled to conclude in April 2001.NASA has notified the Company that it plans to exercise it's option to extendcertain tasks for an additional year through April 2002. The additional contractvalue of tasks is approximately $54.5 million which has not been officiallyadded to the FCSD contract at this time. ES performs services under a cost-plusaward and incentive fee contract for government services that is requested anddirected by NASA.

On April 11, 2000, the Company announced the formation of Space Media,Inc. ("SMI"), a majority-owned subsidiary and media corporation that expects tocreate proprietary space-themed content for television and Internet broadcastingfrom the International Space Station ("ISS"). SMI anticipates commencingoperations in the year ended June 30, 2001, broadcasting from the Russian-builtZvezda service module, which was launched and attached to the ISS in July 2000.SMI is also managing the Company's S*T*A*R*S(TM) (Space Technology And ResearchStudents) global space education program. The S*T*A*R*S program currently isplanning to launch student-designed experiments on a Space Shuttle mission in2001 for schools in Australia, Canada, China, Israel, Japan, Singapore,Thailand, and the United States.

13

During the year ended June 30, 2000, SMI acquired The Space Store, an



online retail operation, anticipating that e-commerce may be an integral part ofits Internet business. The Space Store currently offers an assortment of space-related products. SMI had no revenue for the year ended June 30, 2000.

Results of Operations---------------------

Fiscal Year Ended June 30, 2000 as Compared to the Fiscal Year Ended June 30,1999

Revenue. The Company's revenue decreased approximately 2% to $105.7 millionfor the year ended June 30, 2000, as compared to $107.7 million for the yearended June 30, 1999. For the year ended June 30, 2000, $39.6 million wasrecognized from the REALMS contract and related commercial customers, $7.6million from Astrotech, $58.2 million from ES and $0.3 of miscellaneous revenue.Conversely, for the year ended June 30, 1999 revenue of $39.1 million wasrecognized from the REALMS Contract and related commercial customers, $9.8million from Astrotech, $58.4 million from ES and $0.4 million of miscellaneousrevenue. Astrotech's revenue declined from the year ended June 30, 1999 due to areduced number of launches, a result of customer launch vehicle failures whichhave been subsequently corrected, and the bankruptcies of Iridium and ICOSatellite Systems. The revenues recognized under REALMS and for ES remainedessentially the same.

Costs of Revenue. Costs of revenue for the year ended June 30, 2000,declined 2% to $87.9 million, as compared to $89.3 million for the year endedJune 30, 1999. For the year ended June 30, 2000, $24.7 million of costs were forintegration and operation costs under the REALMS Contract and related commercialcustomers, $4.7 million were for integration and operations at Astrotech, $53.1million for cost of revenue at ES, and depreciation of $5.4 million. Incontrast, the primary costs of revenue for the year ended June 30, 1999, were$25.9 million for integration and operation costs under the REALMS Contract andrelated commercial customers, $4.6 million for integration and operations atAstrotech, $53.8 million for cost of revenue at ES, and depreciation of $5.0million. Cost of revenue for ES include approximately $1.2 million of non-reimbursable cost overruns related to the delivery of the robotic training armfor NASA under a fixed-price contract. ES completed this delivery during theyear ended June 30, 2000 and there are no expected future costs.

Operating Expenses. Operating expenses increased by 11% to approximately$20.3 million for the year ended June 30, 2000, as compared to approximately$18.2 million for the year ended June 30, 1999. Selling, general andadministrative costs increased due primarily to the start up costs associatedwith Space Media and expenses associated with ES's efforts to expand itscustomer base into commercial markets. This increase was offset by a decrease inresearch and development costs of $1.2 million. Research and development costsfor the year ended June 30, 2000 were $2.4 million, as compared to $3.6 millionfor the year ended June 30, 1999. This decrease is due primarily to a shift inemphasis to the completion of the current assets under construction as opposedto the development of new assets. In addition, approximately $1.1 million wasspent by Astrotech for the completion of the development of the sounding rocketprogram this year as compared to $1.0 million in the year ended June 30, 1999and $0.5 million was spent on research and development on theEnterprise(TM) module during the year ended June 30, 2000. There were noexpenditures for Enterprise in the year ended June 30, 1999.

Interest Expense. Interest expense was approximately $7.4 million for theyears ended June 30, 2000 and June 30, 1999. $3.7 million of interest expensewas capitalized in 2000 as compared to $2.5 million in 1999. Interest iscapitalized on the in progress construction of the Company's modules and payloadprocessing facilities.

Interest Income. Interest and other income was approximately $0.7 millionand $1.6 million for the years ended June 30, 2000 and 1999, respectively. Thisdecrease is due primarily to the Company's use of cash for start up expenses ofSpace Media, expenditures for property, plant and equipment and debt payments.Interest income is earned by the Company through the short-term investment ofavailable funds.

Net Income (Loss). The net loss for the year ended June 30, 2000 wasapproximately ($3.8) million, or ($0.34) per share (basic and fully dilutedEPS), on 11,272,767 shares as compared to ($2.6) million, or ($0.23) per share(basic and fully diluted EPS), for the year ended June 30, 1999 on 11,184,742shares. Income tax benefit for these periods was ($1.8) million and ($0.5)million for the years ended June 30, 2000 and 1999, respectively. As of June 30,2000, the Company had approximately $26.2 million of available net operatingloss carry-forwards expiring between 2007 and 2020 to offset future regular



taxable income.

14

The effects of inflation and changing prices have not significantlyimpacted the Company's revenue or income from continuing operations during theyears ended June 30, 2000 and 1999.

Fiscal Year Ended June 30, 1999 as Compared to the Fiscal Year Ended June 30,1998

Revenue. The Company's revenue increased approximately 68% to $107.7million for the year ended June 30, 1999, as compared to $64.1 million for theyear ended June 30, 1998. For the year ended June 30, 1999, $39.1 million wasrecognized from the REALMS contract and related commercial customers, $9.8million from Astrotech, $58.4 million from ES, which was acquired on July 1,1998, and $0.4 million of miscellaneous revenue. Conversely, for the year endedJune 30, 1998 revenue of $39.0 million was recognized from the Mir Contract,$14.3 million from the REALMS Contract and related commercial customers and$10.8 million from Astrotech. The decrease in module revenue from the year endedJune 30, 1998 is attributable to the delay in the deployment and assembly of theISS. When deployed and assembled, the Company believes that the ISS will provideadditional opportunities for SPACEHAB module missions, although there can be noassurance that additional missions will be contracted for or occur. Astrotech'srevenue declined from the year ended June 30, 1998 due to launch vehiclefailures which have been subsequently corrected.

Costs of Revenue. Costs of revenue for the year ended June 30, 1999increased 146% to $89.3 million, as compared to $36.3 million for the year endedJune 30, 1998. For the year ended June 30, 1999 $25.9 million of costs were forintegration and operation costs under the REALMS Contract and related commercialcustomers, $4.6 million were for integration and operations at Astrotech, $53.8million for cost of revenue at ES, and depreciation of $5.0 million. Incontrast, the primary costs of revenue for the year ended June 30, 1998, are$19.2 million for integration and operation costs under the Mir Contract, $7.8million under the REALMS Contract and related commercial customers, $4.4 millionfor integration and operations at Astrotech, and depreciation of $4.9 million.

Operating Expenses. Operating expenses increased by 21.0% to approximately$18.2 million for the year ended June 30, 1999, as compared to approximately$15.1 million for the year ended June 30, 1998. This increase is due primarilyto the inclusion of ES's operating expenses of approximately $2.5 million, staffadditions and related expenses during the first half of the year and increasedconsulting expenses partially offset by the decrease in research and developmentcosts of $0.7 million. Research and development costs for the year ended June30, 1999 were $3.6 million, as compared to $4.3 million for the year ended June30, 1998. This decrease is due primarily to the completion of the IntegratedCargo Carrier ("ICC") and the Spacehab Universal Communications System ("SHUCS")research and development efforts, partially offset by research and developmentexpenses associated with Astrotech's sounding rocket program.

Interest Expense. Interest expense was approximately $7.4 million for theyear ended June 30, 1999, as compared with approximately $6.4 million for theyear ended June 30, 1998. The increased interest expense is due primarily to afull year of interest expense on the $63.3 million of convertible notes ascompared to a partial year in 1998. $2.5 million of interest expense wascapitalized in 1999 as compared to $2.0 million in 1998. Interest is capitalizedon the in progress construction of the Company's modules and payload processingfacilities.

Interest Income. Interest and other income was approximately $1.6 millionand $3.9 million for the years ended June 30, 1999 and 1998, respectively. Thisdecrease is due primarily to the Company's use of cash for the purchase of JEand expenditures for property, plant and equipment and debt payments. Interestincome is earned by the Company through the short-term investment of funds.

Net Income (Loss). Net loss for the year ended June 30, 1999, wasapproximately ($2.6) million, or ($0.23) per share (basic and fully dilutedEPS), on 11,184,742 shares as compared to $9.6 million, or $0.86 per share(basic EPS), for the year ended June 30, 1998, on 11,154,271 shares and $0.84per share, fully diluted, on 14,571,278 shares. Income tax expense (benefit) forthese periods was ($0.5) million and $2.5 million for the years ended June 30,1999 and 1998, respectively.

The effects of inflation and changing prices have not significantlyimpacted the Company's revenue or income from continuing operations during years



ended June 30, 1999 and 1998.

Liquidity and Capital Resources-------------------------------

The Company has incurred net losses in the years ended June 30, 2000 and1999. The Company has historically financed its capital expenditures, researchand development and working capital

15

requirements with progress payments under its various contracts, as well as withproceeds received from private debt and equity offerings and borrowings undercredit facilities. During December 1995, SPACEHAB completed an initial publicoffering of Common Stock (the "Offering"), which provided the Company with netproceeds of approximately $43.5 million.

In June 1997, the Company signed an agreement with a financial institutionsecuring a $10.0 million revolving line of credit (the "Revolving Line ofCredit") that the Company may use for working capital purposes. As of June 30,2000, $4.5 million was drawn on the line of credit which expired on August 31,2000. On August 9, 2000, the Company entered into a $15 million revolving creditfacility with a different financial institution, which provides a workingcapital line of credit with a letter of credit sub-limit of $10.0 million (the"New Credit Facility"). This New Credit Facility replaced the current $10million Revolving Line of Credit. Certain assets of the Company collateralizethe new credit facility. The term of the new agreement is through August 2003.

In July 1997, Astrotech obtained a five-year term loan (the "Term LoanAgreement"), which is guaranteed by SPACEHAB, and provides for loans of up to$15.0 million for general corporate purposes. As of June 30, 2000, the Companyhad loans payable of $7.6 million. On October 21, 1997, the Company completed aprivate placement offering of convertible subordinated notes payable (the "NotesOffering"), which provided the Company with net proceeds of approximately $59.9million which has been used, in part, for capital expenditures associated withthe development and construction of space related assets, the purchase of JE onJuly 1, 1998, and for general corporate purposes. In December 1998, the Companyamended its agreement with Alenia Spazio S.p.A ("Alenia") relative to thesubordinated convertible notes payable to shareholder with an outstandingbalance of $11.9 million. In consideration for a payment of $4.0 million, Aleniaagreed to reduce the annual interest rate from 12 percent to 10 percent on theoutstanding balance as of January 1, 1999, and the interest payment due for thequarter ended December 31, 1998, was waived resulting in an effective interestrate of 8.75 percent. As of June 30, 2000, the Company had loans payable of $7.9million. An amended agreement with the senior debt holders requires that aninterest rate of 8.25 percent be applied to the senior debt with an outstandingbalance of $0.7 million as of June 30, 2000.

On August 2, 1999, Astrium GmbH ("Astrium"), a shareholder, purchased anadditional $12.0 million equity stake in SPACEHAB representing 1,333,334 sharesof Series B Senior Convertible Preferred Stock. Under the agreement, Astriumpurchased all of SPACEHAB's 975,000 authorized and unissued shares of preferredstock. At the annual stockholders meeting held on October 14, 1999, theshareholders approved the proposal to increase the number of authorized sharesof preferred stock to 2,500,000, in order to complete the transaction withAstrium, allowing them to purchase the additional 358,334 preferred shares. Thepreferred stock purchase increased Astrium's investment voting interest inSPACEHAB to approximately 11.5 percent. The Series B Senior ConvertiblePreferred Stock is: convertible at the holders' option on the basis of one shareof preferred stock for one share of common stock, entitled to vote on an "asconverted" basis the equivalent number of shares of common stock and haspreference in liquidation, dissolution or winding up of $9.00 per preferredshare. No dividends are payable on the convertible preferred shares.

For the years ended June 30, 2000 and 1999, the Company was in breach ofcertain loan covenants of the Term Loan and Revolving Line of Credit facility.The covenant for the Revolving Line of Credit was waived through its term andthe covenant on the Term Loan agreement was waived for the year ended June 30,2000 and amended on a going forward basis. The New Credit Facility also containscertain financial covenants. Although there can be no assurances, the Companybelieves it will be in compliance with the amended covenants of the Term Loanand New Credit Facility during the year ended June 30, 2001.

Cash Flows From Operating Activities. Cash provided by (used for)operations for the years ended June 30, 2000, 1999, and 1998 was $1.4 million,($6.3) million and $31.6 million, respectively. The significant change in cash



provided by operations between the years ended June 30, 2000 and 1999 isattributable to the increase in deferred flight revenue primarily from customerpayments for STS-106 and for a future science mission. In addition, the amountof goodwill recorded relative to the purchase of JE was reduced by $1.2 millionas certain escrow funds were returned to the Company. The significant changesbetween 1999 and 1998 were; the ($2.6) million loss due primarily to the delayin the ISS deployment and assembly, which delayed Space Shuttle missions to theISS, and a ($7.8) million change in deferred flight revenue due to the decreasein progress payments for the missions under the REALMS Contract and relatedcommercial customers. Progress payments of $11.8 million were recorded at theend of 1998 for missions STS-95 and STS-96. Those missions flew in 1999. Thereduction of those progress

16

payments was partially offset by progress payments for STS-107, which isscheduled for flight in June 2001.

Cash Flows Used in Investing Activities. For the years ended June 30, 2000,1999, and 1998, cash flows used in investing activities were $29.8 million,$58.6 million and $23.1 million, respectively. Expenditures for the year endedJune 30, 2000 were primarily for the continued construction of the Company'sflight assets including, among others, the Research Double Module ("RDM"),Adaptable Double Module ("ADM"), Enterprise module and completion of the ICC. Asignificant portion of the cash used for buildings under construction relate tothe expansion of Astrotech's payload processing facilities. Expenditures forthis expansion in the year ended June 30, 2000 were approximately $4.0 millionand $1.1 million in the year ended June 30,1999. In addition, $1.2 million wasreturned to the Company as certain escrow funds relative to the purchase of JEwere received. An additional $0.6 million was invested in Guigne, completing theCompany's contractual obligation for the financing of the SpaceDRUMS(TM)joint venture. Expenditures during the year ended June 30, 1999 were $24.7million for the purchase of ES, $27.3 million of expenditures for the variousflight assets including the RDM and ICC system, $4.2 million for the expansionof both SPACEHAB's payload processing facilities and Astrotech's payloadprocessing facilities and a $1.4 million investment in Guigne and the SpaceDRUMSjoint venture. For the year ended June 30, 1998, the major portion of theinvesting expenditures was for the construction of the RDM which began in theyear ended June 30, 1997.

Cash Flows From Financing Activities. For the years ended June 30, 2000,1999, and 1998, cash flows provided by (used for) financing activities were$14.0 million, ($6.0) million and $70.9 million, respectively. During the yearended June 30, 2000 the Company received $11.9 million from the issuance ofconvertible preferred shares to Astrium and borrowed $4.5 million on theRevolving Line of Credit. In addition, the Company paid approximately $2.9million on other notes payable. During the year ended June 30, 1999, the Companymade a principal payment of $4.0 million to Alenia, paid $2.8 million andborrowed an additional $1.0 million under the Term Loan Agreement. During theyear ended June 30, 1998, the Company received net proceeds of approximately$14.1 million and made payments of $2.1 million under the Term Loan Agreement.In October 1997, the Company received net proceeds after commissions and otherexpenses of approximately $59.9 million by completing an offering of $63.3million of its 8 percent Convertible Subordinated Notes due 2007.

Capital Commitments/Financing Developments

As described above, the Company has several on-going asset constructionefforts underway, all of which will require substantial amounts of additionalcapital. The Company's current available cash and cash equivalents, and amountsavailable under the New Credit Facility are not adequate to fully meet thesefinancing requirements through the completion of construction of these assets.Astrotech is in the process of obtaining financing for the payload processingfacility expansion from a financial institution and anticipates completion ofthe financing in the first quarter of the year ended June 30, 2001. The Companyanticipates financing the Enterprise module from working capital and third partyfinancing during the year ended June 30, 2001. The Company anticipates theability to finance SMI by investments from strategic investors during the yearended June 30, 2001. However, the Company has no commitments from any thirdparty financing or strategic investor sources for the Enterprise module or SMIoperations.

There can be no assurance that the Company will be successful in obtainingthe financings as described above. In the event that the Company is notsuccessful in obtaining such financings, the Company would be forced to delay,suspend or abandon certain of the asset construction plans described above and



may be forced to reduce its operating expenditures. The Company believes thatthe cash flows from operations, borrowings under the New Credit Facility andspending reductions related to discretionary capital expenditures and otherexpenses would be sufficient to enable the Company to meet its cash requirementsfor the next twelve months.

Recent Accounting Pronouncements--------------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFASNo. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.133 is effective for all fiscal quarters of all fiscal years beginning afterJune 15, 2000. SFAS No. 133 requires that all derivative instruments be recordedon the balance sheet at their fair value. Changes in the fair value ofderivatives are recorded each period in current earnings or other comprehensiveincome, depending on whether a derivative is designated as part of a hedgetransaction and if it is, the type of hedge transaction. Management of theCompany anticipates that, due to its limited use of derivative instruments,adoption of

17

SFAS No. 133 will not have a significant effect on the results of operations orfinancial position of the Company.

In December 1999, the SEC issued Staff Accounting Bulletin No. ("SAB") 101,Revenue Recognition in Financial Statements, which provided additional guidancein applying generally accepted accounting principles for revenue recognition.The Company believes that its revenue recognition policy is in compliance withSAB 101.

In March 2000, the Financial Accounting Standards Board issued FASBInterpretation No. 44, Accounting for Certain Transactions Involving stockCompensation ("FIN 44"). FIN 44 further defines accounting consequences ofvarious modifications to the terms of a previously fixed stock option or awardunder APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44becomes effective on July 1, 2000, but certain conclusions in FIN 44 coverspecific events that occur after either December 15, 1998 or January 12, 2000.The Company is currently evaluating the effect of FIN 44 on the Company'sfinancial results, but the Company does not anticipate any material effects fromimplementing FIN 44.

In May 2000, the Emerging Issues Task Force ("EITF") released Issue No. 00-2, Accounting for Web Site Development Costs. EITF 00-2 establishes standardsfor determining the capitalization or expensing of incurred costs relating tothe development of Internet web sites based on the respective stage ofdevelopment. The Issue is effective for fiscal quarters beginning after June 30,2000 (including costs incurred for projects in process at the beginning of thequarter of adoption). The Company is currently evaluating the effect of EITF 00-2 on the Company's financial results.

Year 2000 Readiness Disclosure Statement----------------------------------------

The Year 2000 ("Y2K") issue is the result of computer programs that were writtenusing two digits rather than four to define the applicable year. Any computerprogram that has date-sensitive software may recognize the date using "00" asthe year 1900 rather than the year 2000. This error could result in systemsfailures and computational errors causing disruptions of operations, including,among other things, the temporary inability to process transactions, sendinvoices or engage in similar normal business activities.

SPACEHAB had established a Y2K program to address both information-technology("IT") and non-IT problems that may exist within the SPACEHAB system, includingits vendors and customers, e.g. NASA and the Space Shuttle. As a result ofSPACEHAB's Y2K program, the company transitioned to the new millennium withoutany identified system or system related problems. The Central Processing Unit("CPU") on the ground support electrical equipment at SPACEHAB's payloadprocessing facility is not Y2K compliant. SPACEHAB implemented its contingencyplan, as previously disclosed, and changed the year on the CPU to 1972. The CPUwill report the correct day and month but the year will currently be reported as1973. This change only affects the date printed on reports. The current groundsupport equipment is expected to be replaced by the end of calendar year 2000.

This document may contain "forward-looking statements" within the meaningof Section 27A of the Securities Act of 1933 and Section 21E of the Securities



Exchange Act of 1934. Such statements are subject to risks and uncertaintiesthat could cause actual results to differ materially from those projected in thestatements. In addition to those risks and uncertainties discussed herein, suchrisks and uncertainties include, but are not limited to, whether the Companywill fully realize the economic benefits under its NASA and other customercontracts, the successful development and commercialization of the ResearchDouble Module and related new commercial space assets, deployment of theInternational Space Station, technological difficulties, product demand andmarket acceptance risks, the effect of economic conditions, uncertainty ingovernment funding and the impact of competition.

18

Item 8. Financial Statements and Supplementary Data.

Independent Auditors' Report

The Board of DirectorsSPACEHAB, Incorporated and Subsidiaries:

We have audited the accompanying consolidated balance sheets of SPACEHAB,Incorporated and subsidiaries (the Company) as of June 30, 2000 and 1999, andthe related consolidated statements of operations, stockholders' equity, andcash flows for each of the years in the three-year period ended June 30, 2000.These consolidated financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of SPACEHAB,Incorporated and subsidiaries as of June 30, 2000 and 1999, and the results oftheir operations and their cash flows for each of the years in the three-yearperiod ended June 30, 2000, in conformity with accounting principles generallyaccepted in the United States of America.

/s/ KPMG LLP------------KPMG LLP

McLean, VirginiaAugust 31, 2000

19

SPACEHAB, INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets(In thousands, except share data)

<TABLE><CAPTION>

June 30,------------------------

Assets 2000 1999------------------------------------------------------------------------------------------------------------------------<S> <C> <C>Current assets:

Cash and cash equivalents $ 6,949 $ 21,346Accounts receivable, net (note 4) 25,798 17,471Prepaid expenses and other current assets 2,328 1,146

------------------------------------------------------------------------------------------------------------------------

Total current assets 35,075 39,963------------------------------------------------------------------------------------------------------------------------Property and equipment:



Flight assets 106,950 98,594Module improvements in progress 66,066 49,553Payload processing facilities 29,398 23,348Furniture, fixtures equipment and leasehold improvements 12,650 9,936

------------------------------------------------------------------------------------------------------------------------

215,064 181,431

Less accumulated depreciation and amortization (56,380) (49,247)------------------------------------------------------------------------------------------------------------------------Property and equipment, net 158,684 132,184

Goodwill, net of accumulated amortization of $2,428 and $1,339, respectively 23,301 25,498

Investment in Guigne, net (note 19) 1,800 1,400Other assets, net 6,249 5,301------------------------------------------------------------------------------------------------------------------------

Total assets $ 225,109 $ 204,346========================================================================================================================Liabilities and Stockholders' Equity------------------------------------------------------------------------------------------------------------------------

Current liabilities:Loans payable under credit agreement, current portion (note 6) $ 333 $ 333Loans payable, current portion (note 8) 3,126 3,126Revolving loan payable (note 8) 4,500 -Accounts payable 11,347 3,772Accrued expenses 6,986 9,409Accrued subcontracting services 1,999 6,787Deferred revenue 8,385 4,162

------------------------------------------------------------------------------------------------------------------------

Total current liabilities 36,676 27,589------------------------------------------------------------------------------------------------------------------------

Loans payable under credit agreement, net of current portion (note 6) 333 667Loans payable, net of current portion (note 8) 4,458 7,033Convertible notes payable to shareholder (note 7) 7,860 7,860Accrued contract costs 880 940Deferred revenue 6,870 -Deferred income taxes (note 13) 2,080 2,842Convertible subordinated notes payable (note 8) 63,250 63,250------------------------------------------------------------------------------------------------------------------------

Total liabilities 122,407 110,181------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies (notes 1, 11 and 16)

Stockholders' equity (notes 7, 8, 11 and 12):Preferred stock, no par value, convertible, authorized 2,500,000 shares, issued andoutstanding 1,333,334 shares, (liquidation preference of $12,000) 11,892 -

</TABLE>

20

<TABLE><S> <C> <C>

Common stock, no par value, authorized 30,000,000 shares, issuedand outstanding 11,345,032 and 11,229,646 shares, respectively 82,074 81,585

Additional paid-in capital 16 16Retained earnings 8,720 12,564

------------------------------------------------------------------------------------------------------------------------Total stockholders' equity 102,702 94,165------------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity $ 225,109 $ 204,346========================================================================================================================</TABLE>

See accompanying notes to consolidated financial statements.


Consolidated Statements of Operations



(In thousands, except share data)

<TABLE><CAPTION>-----------------------------------------------------------------------------------------------------------------------

Year ended Year ended Year endedJune 30, June 30, June 30,

2000 1999 1998-----------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C>Revenue $ 105,708 $ 107,720 $ 64,087-----------------------------------------------------------------------------------------------------------------------

Costs of revenue 87,931 89,283 36,321-----------------------------------------------------------------------------------------------------------------------

Gross profit 17,777 18,437 27,766-----------------------------------------------------------------------------------------------------------------------

Operating expenses:Selling, general and administrative 17,832 14,599 10,731Research and development 2,440 3,636 4,338

-----------------------------------------------------------------------------------------------------------------------

Total operating expenses 20,272 18,235 15,069-----------------------------------------------------------------------------------------------------------------------

Income (loss) from operations (2,495) 202 12,697

Interest expense, net of capitalized interest (note 3) (3,773) (4,905) (4,480)Interest and other income, net 662 1,615 3,914-----------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes (5,606) (3,088) 12,131

Income tax expense (benefit) (note 13) (1,762) (499) 2,527-----------------------------------------------------------------------------------------------------------------------

Net income (loss) $ (3,844) $ (2,589) $ 9,604=======================================================================================================================

Basic earnings (loss) per share:Net income (loss) per share - basic $ (0.34) $ (0.23) $ 0.86=======================================================================================================================

Shares used in computing net income (loss) per share - basic 11,272,767 $11,184,742 11,154,271=======================================================================================================================

Diluted earnings (loss) per share:Net income (loss) per share - diluted $ (0.34) $ (0.23) $ 0.84=======================================================================================================================

Shares used in computing net income (loss) per share - diluted 11,272,767 11,184,742 $14,571,278=======================================================================================================================</TABLE>

See accompanying notes to consolidated financial statements.

21


Consolidated Statements of Stockholders' Equity(In thousands, except share data)

<TABLE><CAPTION>======================================================================================================================

Convertible PreferredStock Common Stock

-------------------------- ------------------------Shares Amount Shares Amount

----------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C>



Balance at June 30, 1997 - $ - 11,146,237 $ 81,057

Common stock issued upon stock option exercises - - 8,725 60Common stock issued under employee stock purchase plan - - 13,199 122Net income - - - -----------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1998 - $ - 11,168,161 $ 81,239======================================================================================================================

Common stock issued upon stock option exercises - - 1,070 8Common stock issued under employee stock purchase plan - - 60,415 338Net loss - - - -======================================================================================================================

Balance at June 30, 1999 - $ - 11,229,646 $ 81,585======================================================================================================================

Preferred stock issued 1,333,334 11,892 - -Common stock issued under employee stock purchase plan - - 115,386 489Net loss - - - -----------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000 1,333,334 $ 11,892 11,345,032 $ 82,074======================================================================================================================

<CAPTION>Additional Total

Paid-In Retained Stockholders'Capital Earnings Equity

------------------------------------------------------------------------------------------------------------<S> <C> <C> <C>Balance at June 30, 1997 $ 16 $ 5,549 $ 86,622

Common stock issued upon stock option exercises - - 60Common stock issued under employee stock purchase plan - - 122Net income - 9,604 9,604------------------------------------------------------------------------------------------------------------

Balance at June 30, 1998 $ 16 $ 15,153 $ 96,408============================================================================================================

Common stock issued upon stock option exercises - - 8Common stock issued under employee stock purchase plan - - 338Net loss - (2,589) (2,589)------------------------------------------------------------------------------------------------------------

Balance at June 30, 1999 $ 16 $ 12,564 $ 94,165============================================================================================================

Preferred stock issued - - 11,892Common stock issued under employee stock purchase plan - - 489Net loss - (3,844) (3,844)------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000 $ 16 $ 8,720 $ 102,702============================================================================================================</TABLE>

See accompanying notes to consolidated financial statements

22


Consolidated Statements of Cash Flows(In thousands)

<TABLE><CAPTION>

Year ended Year ended Year endedJune 30, 2000 June 30, 1999 June 30, 1998

----------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C>Cash flows from operating activities:

Net income (loss) $ (3,844) $ (2,589) $ 9,604



Adjustments to reconcile net income (loss) to net cash providedby (used for) operating activities:

Depreciation and amortization 8,222 7,017 5,587Amortization of debt placement costs 528 538 226Valuation allowance of investment in Guigne (200) - -Interest converted to notes payable - - 670Changes in assets and liabilities:

Increase in accounts receivable (8,327) (3,126) (803)Increase in prepaid expenses and other current assets (1,182) (290) (351)Decrease (increase) in deferred mission costs (1,031) - 1,439Increase in other assets (240) (14) (1,980)Increase (decrease) in deferred flight revenue 11,093 (7,762) 9,628Increase in accounts payable and accrued expenses 1,955 345 3,633Increase (decrease) in advance billings - (1,567) 720Increase (decrease) in accrued subcontracting services (4,788) 97 553Increase (decrease) in deferred taxes (762) 1,020 2,678

----------------------------------------------------------------------------------------------------------------------Net cash provided by (used for) operating activities 1,424 (6,331) 31,604----------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:Payments for flight assets under construction (23,009) (27,381) (17,245)Payments for building under construction (4,868) (871) (3,988)Purchases of property, equipment and leasehold improvements (2,361) (4,222) (1,880)Purchase of Engineering Services, net of cash acquired 1,200 (24,745) -Purchase of The Space Store (156) - -Investment in Guigne (600) (1,400) -

----------------------------------------------------------------------------------------------------------------------Net cash used for investing activities (29,794) (58,619) (23,113)-----------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:Payments of note payable to insurers (333) (500) (500)Payment of debt placement costs - - (3,984)Proceeds from issuance of convertible preferred stock 11,892 - -Proceeds from issuance of convertible subordinated notes payable - - 63,250Proceeds from note payable - 1,000 14,119Proceeds from revolving line of credit 4,500 - -Payments of note payable (2,575) (2,842) (2,118)Payments of note payable to shareholder - (4,035) -Proceeds from exercise of stock options - 8 60Proceeds from issuance of common stock, net of expenses 489 338 122

----------------------------------------------------------------------------------------------------------------------Net cash provided by (used for) financing activities 13,973 (6,031) 70,949----------------------------------------------------------------------------------------------------------------------Net increase (decrease) in cash and cash equivalents (14,397) (70,981) 79,440Cash and cash equivalents at beginning of year 21,346 92,327 12,887----------------------------------------------------------------------------------------------------------------------Cash and cash equivalents at end of year $ 6,949 $ 21,346 $ 92,327----------------------------------------------------------------------------------------------------------------------</TABLE>

See accompanying notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of the Company and Operating Environment

23

SPACEHAB, Incorporated (the "Company") is the first company tocommercially develop, own and operate habitable modules that provide space-based laboratory research facilities and cargo services aboard the U.S.Space Shuttle system. The Company currently owns and operates threepressurized laboratory and logistics supply modules, which significantlyenhance the capabilities of the Space Shuttle fleet. The Company iscurrently constructing a research module with associated double modulehardware and the adaptable double module. The Company is also currentlyconstructing a module that will be primarily used as a broadcast andmultimedia production facility attached to the International Space Station("ISS"). The Company's modules are unique to the Space Shuttle fleet orISS.

To date, the Company has successfully completed fourteen missionsaboard the Space Shuttle and substantially all of the Company's revenue has



been generated under contracts with National Aeronautics and SpaceAdministration ("NASA"). The Company's contracts are subject to periodicfunding allocations by NASA. NASA's funding is dependent on receivingannual appropriations from the United States government. During the yearsended June 30, 2000, 1999, and 1998 approximately 86%, 80% and 68% of theCompany's revenues were generated under U.S. Government contracts.

On February 12, 1997, the Company acquired the assets and certain ofthe liabilities of Astrotech Space Operations, L.P. ("Astrotech"), asubsidiary of Northrop Grumman, a provider of commercial satellite launchprocessing services and payload processing facilities in the United States.These services are provided at the Astrotech facilities in Cape Canaveral,Florida and Vandenberg Air Force Base in California, and are provided tolaunch service providers on a fixed-price basis. Additionally, Astrotechprovides management and consulting services to the Boeing Company for itsSea Launch program at the Sea Launch facility in Long Beach, California.

On July 1, 1998, the Company acquired all of the outstanding shares ofcapital stock of Johnson Engineering Corporation, now designated "ES" forcompany management reporting. ES performs several critical services forNASA including flight crew support services, operations, training andfabrication of mockups at NASA's Neutral Buoyancy Laboratory and at NASA'sSpace Vehicle Mockup Facility, where astronauts train for both SpaceShuttle and ISS missions. ES also designs and fabricates flight hardware,such as flight crew equipment and crew quarters' habitability outfitting aswell as providing stowage integration services. ES is also responsible forconfiguration management of the ISS.

On April 11, 2000, the Company announced the formation of Space Media,Inc. ("SMI"), a majority-owned subsidiary and media corporation thatexpects to create proprietary space-themed content for television andInternet broadcasting from the ISS. SMI anticipates commencing operationsduring the year ended June 30, 2001, broadcasting from the Russian-builtZvezda service module, which was launched and attached to the ISS in July2000. SMI is also managing the Company's S*T*A*R*S(TM) (Space TechnologyAnd Research Students) global space education program. The S*T*A*R*Sprogram currently is planning to launch student-designed experiments on aSpace Shuttle mission in 2001 for schools in Australia, Canada, China,Israel, Japan, Singapore, Thailand, and the United States.

During the year ended June 30, 2000, the Company also begandevelopment, in partnership with RSC Energia of Korolev, Russia, of acommercial space station habitat module. Named Enterprise, thismultipurpose module will be attached to the ISS. The Company anticipateslaunching Enterprise in the year ended June 30, 2003.

The Company has incurred net losses in the years ended June 30, 2000and 1999. Historically, the Company has financed its capital expenditures,research and development and working capital requirements with progresspayments under its various contracts, as well as with proceeds receivedfrom both public and private debt and equity offerings and borrowings undercredit facilities.

The Company has several on-going asset construction efforts underway,all of which require substantial amounts of additional capital. TheCompany's current available cash and cash equivalents and amounts under itsnew credit facility are not adequate to fully meet these

24

financing requirements through the completion of construction of theseassets. Astrotech is in the process of obtaining financing for the payloadprocessing facility expansion from a financial institution and anticipatescompletion of the financing in the Company's first quarter of 2001. TheCompany anticipates financing the Enterprise module from working capitaland third party financing during the year ended June 30, 2001. The Companyanticipates financing SMI by investments from strategic investors duringthe year ended 2001. However, the Company has no commitments from any thirdparty financing or strategic investor sources for the Enterprise module orSMI operations.

There can be no assurance that the Company will be successful inobtaining the financings as described above. In the event that the Companyis not successful in obtaining such financings, the Company would be forcedto delay, suspend or abandon certain of the asset construction plansdescribed above and may be required to reduce its operating expenditures.



The Company believes that the cash flows from operations, borrowings underits new credit facility and spending reductions related to discretionarycapital expenditures and other expenses would be sufficient to enable theCompany to meet its cash requirements for the next twelve months.

(2) Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts ofSPACEHAB, Incorporated and its wholly-owned and majority-owned subsidiariesAstrotech, ES and SMI. All significant intercompany transactions have beeneliminated in consolidation.

Cash and Cash Equivalents

For purposes of its consolidated statements of cash flows, the Companyconsiders short-term investments with original maturities of three monthsor less to be cash equivalents. Cash equivalents are primarily made up ofmoney market investments and overnight repurchase agreements recorded atcost, which approximates market value.

Property and Equipment

Property and equipment are stated at cost. All furniture, fixtures andequipment are depreciated using the straight-line method over the estimateduseful lives of the respective assets, which is generally five years. TheCompany's payload processing facilities are depreciated using the straight-line method over their estimated useful lives ranging from sixteen toforty-three years.

Through June 30, 1997, the Company's flight modules were depreciatedover a ten-year period using the straight-line method. Effective July 1,1997, the Company extended the estimated useful lives of its space modulesthrough 2012. This change in accounting estimate is treated prospectivelyand was based on then currently available information from NASA, whichestimated the duration of the Space Shuttle program through at least 2012.As a result of this change in estimate, the Company's net income increasedby $6.2 million for the year ended June 30, 1998.

Goodwill

The excess of the cost over the fair value of net tangible andidentifiable intangible assets acquired in business combinations accountedfor as a purchase has been assigned to goodwill. Goodwill is beingamortized on a straight-line basis over five to twenty-five years.

Investments in Affiliates

The Company generally uses the equity method of accounting for itsinvestments in, and earnings of, investees. In accordance with the equitymethod of accounting, the carrying amount

25

of such an investment is initially recorded at cost and is increased toreflect the Company's share of the investee's income and is reduced toreflect the Company's share of the investee's losses. For those investmentsfor which the Company has provided substantially all of the investee'sfunding, the Company uses the modified equity method of accounting whereby100% of the investee's current period earnings or losses are recognized.Investments in which the Company has less than 20% ownership and nosignificant influence are accounted for under the cost method and arecarried at cost.

Impairment of Long- Lived Assets

The Company accounts for long-lived assets in accordance with theprovisions of Statements of Financial Accounting Standards ("SFAS") SFASNo. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long-livedassets and certain identifiable intangibles be reviewed for impairmentwhenever events or changes in circumstances indicate that the carryingamount of an asset may not be recoverable. Recoverability of assets to beheld and used is measured by a comparison of the carrying amount of an



asset to future net cash flows expected to be generated by the asset. Ifsuch assets are considered to be impaired, the impairment to be recognizedis measured by the amount by which the carrying amount of the assetsexceeds the fair value of the assets. Assets to be disposed of are reportedat the lower of the carrying amount or fair value less costs to sell.

Stock-Based Compensation

The Company accounts for stock-based employee compensationarrangements using the intrinsic value method as prescribed in AccountingPrinciples Board Opinion No. 25, Accounting for Stock Issued to Employees("APB Opinion 25"), and related interpretations. Accordingly, compensationcost for options to purchase common stock granted to employees is measuredas the excess, if any, of the fair value of common stock at the date of thegrant over the exercise price an employee must pay to acquire the commonstock. The Company has adopted the disclosure requirements of SFAS No. 123,Accounting for Stock-based Compensation ("SFAS 123").

Warrants to purchase common stock granted to other than employees asconsideration for goods or services rendered are recognized at fair value.

Revenue Recognition

Prior to the Research and Logistics Mission Support ("REALMS")contract (note 10), the Company recognized revenue upon completion of eachmodule flight. Total contract price was allocated to each flight based onthe amount of services the Company provided on the flight relative to thetotal services provided for all flights under contract. Obligationsassociated with a specific mission, e.g. integration services, were alsorecognized upon completion of the mission. Costs directly related tospecific missions were deferred until the respective missions werecompleted.

For all other contract awards for which the capability to successfullycomplete the contract can be reasonably assured and costs at completion canbe reliably estimated at contract inception, revenue recognition under thepercentage-of-completion method is being used based on costs incurred overthe period of the contract. Revenue provided by Astrotech's payloadprocessing services is recognized ratably over the occupancy period of thesatellite while in the Astrotech facilities. Revenue provided by ES isprimarily derived from cost-plus award fee contracts, whereby revenue isrecognized to the extent of costs incurred plus estimates of award feerevenues using the percentage-of-completion method. Award fees, whichprovide earnings based on the Company's contract performance as determinedby NASA evaluations, are recorded when the amounts can be reasonablyestimated, or are awarded. Changes in estimated costs to complete,provisions for contract losses and estimated amounts recognized as awardfees are recognized in the period they become known.

Research and Development

Research and development costs are expensed as incurred.

26

Income Taxes

The Company recognizes income taxes under the asset and liabilitymethod. Deferred tax assets and liabilities are recognized for the futuretax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases and operating loss and tax credit carryforward.Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferredtax assets and liabilities of a change in tax rates is recognized in incomein the period that includes the enactment date.

Net Income (Loss) Per Share

Net income (loss) per share is presented on both a basic and dilutedbasis in accordance with the provisions of SFAS No. 128, Earnings perShare.

Basic earnings (loss) per share is calculated by dividing net income(loss) by the weighted average number of common shares outstanding during



the period. Diluted earnings (loss) per share includes all common stockoptions and warrants and other common stock, to the extent dilutive, thatpotentially may be issued as a result of conversion privileges, includingthe convertible subordinated notes payable (note 8).

Accounting Estimates

The preparation of consolidated financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amounts ofrevenue and expenses during the reporting periods. Actual results coulddiffer from these estimates.

Reclassifications

Certain 1999 and 1998 amounts have been reclassified to conform withthe 2000 consolidated financial statement presentation.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issuedSFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.SFAS No. 133 is effective for all fiscal quarters of all fiscal yearsbeginning after June 15, 2000. SFAS No. 133 requires that all derivativeinstruments be recorded on the balance sheet at their fair value. Changesin the fair value of derivatives are recorded each period in currentearnings or other comprehensive income, depending on whether a derivativeis designated as part of a hedge transaction and if it is, the type ofhedge transaction. Management of the Company anticipates that, due to itslimited use of derivative instruments, adoption of SFAS No. 133 will nothave a significant effect on the results of operations or financialposition of the Company.

In December 1999, the Securities and Exchange Commission ("SEC") staffreleased Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition inFinancial Statements, which provides guidance on the recognition,presentation and disclosure of revenue in financial statements. In June2000, the SEC staff extended the effective date of SAB No. 101 until thefourth quarter of fiscal 2001. Management does not expect SAB No. 101 tohave a material effect on the Company's financial position or results ofoperations.

In March 2000, the Financial Accounting Standards Board issued FASBInterpretation No. 44, Accounting for Certain Transactions Involving stockCompensation ("FIN"). FIN 44 further defines accounting consequences ofvarious modifications to the terms of a previously fixed stock option oraward under APB Opinion No. 25, Accounting for Stock Issued to Employees.FIN 44 becomes effective on July 1, 2000, but certain conclusions in FIN 44cover specific events that

27

occur after either December 15, 1998 or January 12, 2000. The Company iscurrently evaluating the effect of FIN 44 on the Company's financialresults, but the Company does not anticipate any material effects fromimplementing FIN 44.

In May 2000, the Emerging Issues Task Force ("EITF") released IssueNo. 00-2, Accounting for Web Site Development Costs. EITF 00-2 establishesstandards for determining the capitalization or expensing of incurred costsrelating to the development of Internet web sites based on the respectivestage of development. The Issue is effective for fiscal quarters beginningafter June 30, 2000 (including costs incurred for projects in process atthe beginning of the quarter of adoption). The Company is currentlyevaluation the effect of EITF 00-2 on the Company's financial results.

(3) Statements of Cash Flows - Supplemental Information

Cash paid for interest costs was approximately $6.9 million, $5.4million and $3.4 million million for the years ended June 30, 2000, 1999and 1998, respectively. The Company capitalized interest of approximately$3.7 million, $2.5 million and $2.0 million during the years ended June 30,2000, 1999 and 1998, respectively, related to the module improvements and



building in progress.

The Company paid income taxes of approximately $0.0 million, $0.4million and $19,000 for the years ended June 30, 2000, 1999 and 1998,respectively.

(4) Accounts Receivable

At June 30, 2000 and 1999, accounts receivable consisted of (in thousands):

2000 1999-------------------------------------------------------------------

U.S. government contracts:Billed $ 18,506 $ 10,523Unbilled 3,400 2,661

-------------------------------------------------------------------

Total U.S. government contracts 21,906 13,184-------------------------------------------------------------------

Commercial contracts:Billed 1,612 3,481Unbilled 2,280 806

-------------------------------------------------------------------

Total commercial contracts 3,892 4,287-------------------------------------------------------------------

Total accounts receivable $ 25,798 $ 17,471-------------------------------------------------------------------

The Company anticipates collecting substantially all receivableswithin one year.

The accuracy and appropriateness of the Company's direct and indirectcosts and expenses under its government contracts, and therefore itsaccounts receivable recorded pursuant to such contracts, are subject toextensive regulation and audit, including by the U.S. Defense ContractAudit Agency or by other appropriate agencies of the U.S. government. Suchagencies have the right to challenge the Company's cost estimates orallocations with respect to any government contract. Additionally, asubstantial portion of the payments to the Company under governmentcontracts are provisional payments that are subject to potential adjustmentupon audit by such agencies. In the opinion of management, any adjustmentslikely to result from inquiries or audits of its contracts would not have amaterial adverse impact on the Company's financial condition or results ofoperations.

(5) Acquisitions

28

Johnson Engineering

On July 1, 1998, the Company paid approximately $24.7 million,including transaction costs, to acquire all of the capital stock of JohnsonEngineering Corporation ("JE"). The business combination has been accountedfor using the purchase method under Accounting Principles Board Opinion No.16, Business Combinations, (APB Opinion 16). The purchase price has beenallocated to the assets and liabilities acquired based on estimates of fairvalue as of the date of acquisition. Based on the allocation of the netassets acquired, goodwill of approximately $23.4 million was recorded. Suchgoodwill is being amortized on a straight-line basis over 25 years. Thepurchase price has been allocated as follows (in thousands):

Cash $ 0Prepaid and other current assets 306Accounts receivable, net 8,366Inventory 5Property, plant and equipment, net 446Other assets 622Goodwill 23,362



Current liabilities (7,434)Accrued contract costs (928)

---------------Total purchase price $ 24,745

===============

The following represents unaudited pro forma combined results ofoperations as if the acquisition of JE had occurred as of July 1, 1997, (inthousands, except per share data):

Year endedJune 30, 1998(unaudited)

---------------------------------------------------------------------------Revenue $ 116,266Gross profit 34,280Net income 9,251---------------------------------------------------------------------------

Net income per common share - basic $ 0.83Net income per common share - diluted $ 0.82---------------------------------------------------------------------------

During the year ended June 30, 2000, the amount of goodwill ascribedto the acquisition was reduced by $1.2 million as certain escrow funds werereturned to the Company.

The Space Store

On June 28, 2000, the Company paid approximately $0.2 million,including transaction costs, to acquire all of the capital stock of TheSpace Store. The business combination has been accounted for using thepurchase method under APB Opinion 16. The purchase price has been allocatedto the assets and liabilities acquired based on estimates of fair value asof the date of acquisition. Based on the allocation of the net assetsacquired, goodwill of approximately $0.2 million was recorded. Suchgoodwill is being amortized on a straight-line basis over 5 years.Historical results of operations of The Space Store are insignificant. TheSpace Store is a wholly owned subsidary of SMI. The Space Store is involvedin e-commerce and sells space related items.

(6) Loans Payable Under Credit Agreement

Prior to an August 1996 amendment, the Company's credit agreementconsisted of a $6.5 million term loan bearing interest at 1 percent permonth and a $5.5 million non-interest-bearing term loan with severalinsurance companies. In addition, a revolving credit commitment with asubcontractor and former shareholder provided a maximum outstanding balanceof $6.0 million and bore interest at a rate of 1 percent per month.

29

In August 1996, the Company's credit agreement was amended. Inexchange for the full satisfaction of the Company's term loans with thevarious insurance companies, the Company paid the insurance companies $2.5million and agreed to pay an additional $2.0 million under a new non-interest-bearing term loan. As of June 30, 2000, the remaining balance dueunder the term loan is due in installments of $0.33 million on each ofAugust 1, 2000 and 2001.

In conjunction with a payment in December 1998 of certain principal ofnotes payable due to Alenia Spazio S.p.A., (note 7), the annual interestrate on the outstanding balances under the credit agreement was amended tobe 8.25 percent per year. Aggregate interest cost incurred on the debts dueunder the credit agreement was approximately $57,000 and $40,000 for theyears ended June 30, 2000 and 1999, respectively.

(7) Convertible Notes Payable to Shareholder

The Company issued subordinated notes for a portion of the amount dueto Alenia Spazio S.p.A. (Alenia), a shareholder, under a previouslycompleted construction contract for the Company's flight modules. InDecember 1998, the Company amended its agreement with Alenia Spazio S.p.A.relative to the subordinated notes payable with a then outstandingprincipal balance of $11.9 million due in August 2001. In exchange for



payment of $4.0 million, Alenia agreed to waive the interest payment duefor the quarter ended December 31, 1998 and to reduce the annual interestrate on the subordinated notes from 12 to 10 percent on the outstandingbalance as of January 1, 1999. In addition, Alenia may elect to convert, inwhole or part, the remaining principal amount into equity, on terms andconditions to be agreed with the Company.

The subordinated notes had aggregate outstanding balances of $7.9million at June 30, 2000. The notes bear interest at an annual rate of 10percent. No amount of principal or accrued interest on the notes is dueuntil all amounts under the amended and restated credit agreement due tothe various insurance companies (note 6) are repaid. As such, all principalpayments are due under these notes on August 1, 2001. However, during theyear ended June 30, 1998, the Company began paying interest quarterly. TheCompany paid $0.8 million and $0.4 million of interest during the yearended June 30, 2000 and 1999, respectively.

(8) Other Debt

Revolving Loan Payable

On June 16, 1997, the Company entered into a $10.0 million revolvingloan payable line of credit agreement with a financial institution.Outstanding balances on the line of credit accrue interest at either thelender's prime rate or a LIBOR-based rate. Certain assets of the Companycollateralize this loan. The agreement expired on August 31, 2000. ThroughJune 30, 2000, the Company has drawn $4.5 million against the line ofcredit.

On August 9, 2000, the Company entered into a $15 million revolvingcredit facility with a financial institution that provides a workingcapital line of credit with a letter of credit sub-limit of $10.0 million.This new credit facility replaced the current $10 million revolving line ofcredit. Certain assets of the Company collateralize the new creditfacility. The term of the agreement is through August 2003.

Loans Payable

On July 14, 1997, the Company's subsidiary, Astrotech, entered into acredit facility for loans of up to $15.0 million with a financialinstitution. The term of the agreement is through July 13, 2002. This loanis collateralized by the assets of Astrotech and certain other assets ofthe Company, and is guaranteed by the Company. Interest accrues at LIBORplus three percent. Principal and interest are payable on a quarterlybasis. In April 1999, the Company borrowed an additional $1.0 million underthis credit facility with the same terms, conditions and expiration

30

date of the original loan. Principal payments of $3.1 million are duein the year ended 2001, 2002, and principal payments of $1.4 millionare due in FY 2003. At June 30, 2000, the Company had an outstandingbalance of $7.6 million under this credit facility and accrued interestof $0.3 million.

For the years ended June 30, 2000 and 1999, the Company was inbreach of certain loan covenants of the loan payable and the revolvingloan. The covenant for the revolving loan was waived through its termand the covenant on the loan payable was waived for the year ended June30, 2000 and amended on a going forward basis. The New Credit Facilityalso contains certain financial covenants. Although there can be noassurances, the Company believes it will be in compliance with theamended covenants of the term loan and new credit facility during theyear ended June 30, 2001.

Convertible Subordinated Notes

In October 1997, the Company completed a private placementoffering for $63.25 million of aggregate principal of unsecured 8percent Convertible Subordinated Notes due 2007. Interest is payablesemi-annually. The notes are convertible into the common stock of theCompany at a rate of $13.625 per share. This offering provided theCompany with net proceeds of approximately $59.9 million to be used forcapital expenditures associated with the development and constructionof space related assets and for other general corporate purposes.



(9) Fair Value of Financial Instruments

The following table presents the carrying amounts and estimatedfair values of the Company's financial instruments as of June 30, 2000and 1999 in accordance with SFAS No. 107, Disclosures about Fair Valueof Financial Instruments (in thousands):

<TABLE><CAPTION>

June 30, 2000 June 30, 1999------------------------ ---------------------------

Carrying Fair Carrying FairAmount Value Amount Value

---------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C>Financial liabilities:

Loans payable undercredit agreement $ 667 579 $ 1,000 920

Notes payable to shareholder 7,860 7,860 7,860 7,860Loans payable under credit facility 7,583 7,583 10,159 10,159Convertible notes payable 63,250 44,908 63,250 50,600

---------------------------------------------------------------------------------------------------</TABLE>

The fair value of the Company's long-term debt is based on quotedmarket price or is estimated based on the current rates offered to theCompany for debt of similar remaining maturities and other terms. Thecarrying amounts of cash and cash equivalents, accounts receivable, andaccounts payable and accrued expenses approximate their fair marketvalue because of the relatively short duration of these instruments.

(10) NASA Contracts

Mir Space Station Contract

On July 14, 1995, NASA and the Company completed finalnegotiations to provide the Company's flight modules and relatedintegration services over four missions to the Russian Space StationMir. The contract was subsequently amended which resulted in a totalcontract value of $91.5 million and the addition of three missions.

31

During the year ended June 30, 1998, the Company recognized $39.0million of revenue under the Mir contract. Work under the Mir contract,as amended, was completed with its final mission in June 1998.

Research and Logistics Module Services Contract

On December 21, 1997, the Company entered into the REALMSContract to provide to NASA its flight modules and related integrationservices over three missions at an aggregate fixed price of $44.9million. This contract provides for NASA to use the flight modules forboth science and logistics missions. During the period from December21, 1997 to June 30, 2000 , this contract was amended whereby theREALMS contract value was increased to $100.8 million and the number ofmissions were increased to six.

During the years ended June 30, 2000, 1999 and 1998, the Companyrecognized $33.3 million, $28.2 million and $14.3 million of revenue,respectively, under this contract.

Flight Crew Systems Development Contract ("FCSD")

ES primarily operates under NASA's FCSD Contract which iscurrently a $332.5 million multi-task cost plus-award and incentive feecontract. The contract commenced in May 1993 and is scheduled toconclude in April 2001. NASA has notified the Company that it plans toexercise it's option to extend certain tasks for an additional yearthrough April 2002. The additional contract value of the tasks isestimated to be approximately $54.5 million. ES performs severalcritical services for NASA including flight crew support services,operations, training and fabrication of mockups at NASA's NeutralBuoyancy Laboratory and at NASA's Space Vehicle Mockup Facility, whereastronauts train for both Space Shuttle and ISS missions. ES alsodesigns and fabricates flight hardware, such as flight crew equipment



and crew quarters habitability outfitting as well as providing stowageintegration services. ES is also responsible for configurationmanagement of the ISS.

During the years ended June 30, 2000 and 1999 the Companyrecognized $57.9 million and $57.7 million of revenue, respectively,under this contract.

(11) Stockholder Rights Plan

On March 26, 1999, the Board of Directors adopted a StockholderRights Plan designed to deter coercive takeover tactics and to preventa potential acquirer from gaining control of the Company withoutoffering a fair price to all of the Company's stockholders. A dividendof one preferred share purchase right (a "Right") was declared on everyshare of Common Stock outstanding on April 9, 1999. Each Right underthe Plan entitles the holder to buy one one-thousandth of a share of anew series of junior participating preferred stock for $35. If anyperson or group becomes the beneficial owner of 15 percent or more ofcommon stock (with certain limited exceptions), then each Right (notowned by the 15 percent stockholder) will then entitle its holder topurchase, at the Right's then current exercise price, common shareshaving a market value of twice the exercise price. In addition, ifafter any person has become a 15 percent stockholder, and is involvedin a merger or other business combination transaction with anotherperson, each Right will entitle its holder (other than the 15 percentstockholder) to purchase, at the Right's then current exercise price,common shares of the acquiring company having a value of twice theRight's then current exercise price. The rights were granted to eachshareholder of record on April 9, 1999. At any time before a person orgroup acquires a 15% position, the Company generally will be entitledto redeem the Rights at a redemption price of $0.01 per Right. TheRights will expire on April 9, 2009.

(12) Common Stock Option and Stock Purchase Plans

As of June 30, 2000, approximately 1,579,592 shares of commonstock were reserved for future grants of stock options under theCompany's three stock option plans.

Non-qualified Options

32

Non-qualified options are granted at the sole discretion of theBoard of Directors. Prior to the adoption of the 1994 Stock IncentivePlan (the "1994 Plan"), stock options granted to the Company's officersand employees were part of their employment contract or offer. Thenumber and price of the options granted was defined in the employmentagreements and such options vest incrementally over a period of fouryears and generally expire within ten years of the date of grant.

The 1994 Plan

Under the terms of the 1994 Plan, the number and price of theoptions granted to employees is determined by the Board of Directorsand such options vest, in most cases, incrementally over a period offour years and expire no more than ten years after the date of grant.

The Directors' Stock Option Plan

Prior to an amendment on October 21, 1997, each non-employeemember of the Board of Directors was annually granted options topurchase 5,000 shares of common stock at exercise prices equal to thefair market value on the date of grant. Subsequent to the amendment,each non-employee member of the Board of Directors received a one-timegrant of an option to purchase 10,000 shares of common stock. Further,each new non-employee director after the amendment date receives a one-time grant of an option to purchase 10,000 shares. In addition,effective as of the date of each annual meeting of the Company'sstockholders on or after the effective date, each non-employee directorwho is elected or continues as a member of the Board of Directors ofthe Company shall be awarded an option to purchase 5,000 shares ofcommon stock. Options under the Director's Plan vest after one year andexpire seven years from the date of grant.



1997 Employee Stock Purchase Plan

During the year ended June 30, 1998, the Company adopted anemployee stock purchase plan that permits eligible employees topurchase shares of common stock of the Company at prices no less than85 percent of the current market price. Eligible employees may elect toparticipate in the plan by authorizing payroll deductions from onepercent to ten percent of gross compensation for each payroll period.On the last day of each quarter, each participant's contributionaccount is used to purchase the maximum number of whole and fractionalshares of common stock determined by dividing the contributionaccount's balance by the lesser of 85 percent of the price of a shareof common stock on the first day of the quarter or the last day of aquarter. The number of shares of common stock that may be purchasedunder the plan is 1,500,000. Through June 30, 2000, employees havepurchased 189,000 shares under the plan.

Space Media, Inc. Stock Option Plan

During the year ended June 30, 2000, Space Media, Inc., amajority owned subsidiary of the Company, adopted an option plan ("SMIPlan") for employees, officers, directors and consultants of SpaceMedia, Inc. Under the terms of the SMI Plan, 1,500,000 shares have beenreserved for future grants for which the number and price of theoptions granted is determined by the Board of Directors and suchoptions vest, in most cases, incrementally over a period of four yearsand expire no more than ten years after the date of grant. At June 30,2000, there were 1,000,000 options issued and outstanding under the SMIPlan at a weighted average exercise price of $1.00. The options vestequally over a four year period and have a life of 10 years. There wereno shares exercisable as of June 30, 2000.

33

Stock Option Activity Summary

The following table summarizes the Company's stock option plans,excluding the SMI plan:

<TABLE><CAPTION>

Non-qualified Options 1994 Plan Directors' Plan--------------------------- ------------------------- -------------------------

Weighted Weighted WeightedAverage Average Average

Shares Exercise Shares Exercise Shares Exerciseoutstanding Price Outstanding Price Outstanding price

-------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C> <C> <C>Outstanding at June 30, 1997 439,986 $ 12.01 1,233,223 $ 8.20 50,000 $ 7.00

Granted 10,000 10.13 257,338 11.00 145,000 10.92Exercised - - 3,725 10.02 5,000 10.13Forfeited 149,941 12.16 8,583 11.96 - -

-------------------------------------------------------------------------------------------------------------------

Outstanding at June 30, 1998 300,045 $ 12.33 1,478,253 $ 8.62 190,000 $ 9.99Granted 300,000 14.00 572,713 11.69 50,000 7.00Exercised - - 1,070 9.69 - -Forfeited 106,241 12.00 140,670 9.16 - -

-------------------------------------------------------------------------------------------------------------------

Outstanding at June 30, 1999 493,804 $ 13.42 1,909,226 $ 9.50 240,000 $ 9.37Granted - - 1,034,674 5.10 35,000 4.13Exercised - - - - - -Forfeited 95,831 12.39 360,287 7.06 - -

-------------------------------------------------------------------------------------------------------------------

Outstanding at June 30, 2000 397,973 $ 13.66 2,583,613 $ 8.05 275,000 $ 8.70-------------------------------------------------------------------------------------------------------------------

Options exercisable at:

June 30, 1998 295,978 $ 12.17 983,620 $ 8.55 45,000 $ 7.00June 30, 1999 191,770 12.39 1,072,121 8.56 190,000 9.99June 30, 2000 397,973 13.66 1,423,660 8.58 240,000 9.37



Weighted-average fair value atdate of grant during the fiscalperiod ended

June 30, 1998 10,000 $ 4.25 257,338 $ 3.83 145,000 $ 3.43June 30, 1999 300,000 3.12 572,713 4.50 50,000 2.21June 30, 2000 - - 1,034,674 3.02 35,000 1.87

-------------------------------------------------------------------------------------------------------------------</TABLE>

34

The following table summarizes information about the Company'sstock options outstanding at June 30, 2000:

<TABLE><CAPTION>

Options outstanding Options exercisable---------------------------- -----------------------

Weighted-Average Weighted- Weighted-

Remaining Average AverageNumber Contractual Exercise Number Exercise

Range of exercise prices Outstanding life (years) price exercisable Price---------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C> <C>$ 24.00 6,100 2.25 $ 24.00 6,100 $ 24.00$ 10.625 - $ 14.50 1,389,149 4.74 12.37 1,004,202 12.67$ 4.75 - $10.125 1,826,337 5.57 6.70 1,051,331 6.11$ 4.125 35,000 9.29 4.13 - 4.13---------------------------------------------------------------------------------------------------

$ 4.125 -$24.00 3,256,586 5.25 $ 9.67 2,061,633 $ 8.79===================================================================================================

</TABLE>

The Company applies APB Opinion 25 and related interpretations inaccounting for its plans. Accordingly, as all options have been grantedat exercise prices equal to the fair market value as of the date ofgrant, no compensation cost has been recognized under these plans inthe accompanying consolidated financial statements. Had compensationcost been determined consistent with SFAS 123, the Company's net income(loss) and earnings (loss) per common share would have been reduced(increased) to the pro forma amounts indicated below (in thousands,except per share data):

<TABLE><CAPTION>

Year Ended Year Ended Year EndedJune 30, 2000 June 30, 1999 June 30, 1998

------------------------------------------------------------------------------------------------<S> <C> <C> <C>Net income (loss):

As reported $ (3,844) $ (2,589) $ 9,604Pro forma (4,996) (4,424) 8,772

================================================================================================

Net income (loss) per share - basic:As reported $ (0.34) $ (0.23) $ 0.86Pro forma (0.44) (0.40) 0.79

================================================================================================</TABLE>

The fair value of each option granted and each employee stockpurchase right is estimated using the Black-Scholes option-pricingmodel with the following weighted average assumptions used for grantsin fiscal years 2000, 1999 and 1998, respectively: 0.0 percent dividendgrowth; expected volatility ranging from 35 percent to 50 percent;risk-free interest rates ranging from 5.68 percent to 7.875 percent;and expected lives ranging from three months to seven years.

The effects of compensation cost as determined under SFAS 123 onpro forma net income (loss) in years ended June 30, 2000, 1999 and 1998may not be representative of the effects on pro forma net income (loss)



in future periods.

Warrants

The Company also has 53,000 currently exercisable warrantsoutstanding to purchase the Company's common stock at $9.00 per share,with an expiration date of June 2002. The fair market value of thesewarrants was recognized at issuance. All such warrants were issued atexercise prices equivalent to, or in excess of, the determined fairmarket value of the Company's common stock at the date of issuance.

(13) Income Taxes

The components of income tax expense (benefit) are as follows (inthousands):

35

<TABLE><CAPTION>

Years ended June 30,---------------------------------------------------

2000 1999 1998--------------------------------------------------------------------------------------------------<S> <C> <C> <C>Current:

Federal $ - $ (1,447) $ -State and local - 15 -

--------------------------------------------------------------------------------------------------

- (1,432) ---------------------------------------------------------------------------------------------------

Deferred:Federal (1,477) 847 2,148State and local (285) 86 379

--------------------------------------------------------------------------------------------------

(1,762) 933 2,527--------------------------------------------------------------------------------------------------

Income tax expense (benefit) $ (1,762) $ (499) $ 2,527==================================================================================================

</TABLE>

A reconciliation of the expected amount of income tax expense(benefit), calculated by applying the statutory federal income tax rateof 34 percent to income (loss) before income taxes, to the actualamount of income tax expense (benefit) recognized follows (inthousands):

<TABLE><CAPTION>

Years ended June 30,-------------------------------------------------------

2000 1999 1998--------------------------------------------------------------------------------------------------<S> <C> <C> <C>Expected expense (benefit) $ (1,906) $ (1,050) $ 4,241Change in valuation allowance 43 169 (2,058)State income tax (188) (15) 299Other non-deductibles, primarily goodwill

amortization 289 397 45--------------------------------------------------------------------------------------------------Income tax expense (benefit) $ (1,762) $ (499) $ 2,527==================================================================================================

</TABLE>

The tax effects of temporary differences that give rise tosignificant portions of the deferred tax assets and deferred taxliabilities as of June 30, 2000 and 1999 are presented below (inthousands):

<TABLE><CAPTION>

2000 1999



--------------------------------------------------------------------------------------------------<S> <C> <C>Deferred tax assets:

Net operating loss carryforwards $ 10,472 $ 7,863General business credit carryforwards 2,170 2,189Alternative minimum tax credit carryforwards 3,292 3,292Capitalized research and development costs 110 270Capitalized start-up and organization costs 751 -Other 999 900

--------------------------------------------------------------------------------------------------

Total gross deferred tax assets 17,794 14,514

Less - valuation allowance (212) (169)--------------------------------------------------------------------------------------------------

Net deferred tax assets 17,582 14,345--------------------------------------------------------------------------------------------------

Deferred tax liabilities:Property and equipment, principally due to

differences in depreciation 18,550 16,700Other 115 487

--------------------------------------------------------------------------------------------------

Total gross deferred tax liabilities 18,665 17,187--------------------------------------------------------------------------------------------------

Net deferred tax liabilities $ (1,083) $ (2,842)==================================================================================================

</TABLE>

As of June 30, 2000, current deferred tax assets of $997,000 areincluded in prepaid expenses and other current assets in theaccompanying balance sheet.

The net changes in the total valuation allowance for the yearsended June 30, 2000, 1999 and 1998 were an increase of $43,000, $0.2million and a decrease of $2.1 million, respectively.

36

At June 30, 2000, the Company had accumulated net operatinglosses of approximately $26.2 million for Federal income tax purposeswhich are available to offset future regular taxable income. Theseoperating loss carryforwards expire between the years 2007 and 2020.Utilization of these net operating losses may be subject to limitationsin the event of significant changes in stock ownership of the Company.

Additionally, the Company has approximately $2.2 million and $3.3million of research and experimentation and alternative minimum taxcredit carryforwards, respectively, available to offset future regulartax liabilities. The research and experimentation credits expirebetween the years 2001 and 2008; the alternative minimum tax creditscarryforward indefinitely.

In assessing the realizability of deferred tax assets, managementconsiders whether it is more likely than not that some portion or allof the deferred tax assets are realizable. Management considers thescheduled reversal of deferred tax liabilities, projected futuretaxable income, and tax planning strategies in making this assessment.Based upon the level of projected future regular taxable income overthe periods, which the deferred tax assets are deductible, managementbelieves that the Company will realize the benefits of thesedeductions. As of June 30, 2000, the Company provided a valuationallowance of $212 thousand against deferred tax assets. The amount ofthe deferred tax assets considered realizable, however, could bereduced if estimates of future regular taxable income during thecarryforward period are reduced.

(14) Net Income (Loss) Per Share

The following are reconciliations of the numerators anddenominators of the basic and diluted earnings (loss) per sharecomputations for the years ended June 30, 2000, 1999 and 1998 (inthousands, except share data):



<TABLE><CAPTION>

Per common Assumingshare Dilution

----------------------------------------------------------------------------------------------<S> <C> <C>Year Ended June 30, 2000Net loss $ (3,844) $ (3,844)Net loss, as adjusted $ (3,844) $ (3,844)----------------------------------------------------------------------------------------------Weighted average outstanding common shares 11,272,767 11,272,767Adjusted shares 11,272,767 11,272,767----------------------------------------------------------------------------------------------Year Ended June 30, 1999Net loss $ (2,589) $ (2,589)Net loss, as adjusted $ (2,589) $ (2,589)----------------------------------------------------------------------------------------------Weighted average outstanding common shares 11,184,742 11,184,742Adjusted shares 11,184,742 11,184,742----------------------------------------------------------------------------------------------Year Ended June 30, 1998Net income $ 9,604 $ 9,604Assuming conversion of convertible subordinated notes $ - $ 2,625----------------------------------------------------------------------------------------------Net income, as adjusted $ 9,604 $ 12,229----------------------------------------------------------------------------------------------Weighted average outstanding common shares 11,154,271 11,154,271Outstanding stock options - 269,898Assuming conversion of convertible subordinated notes - 3,147,109----------------------------------------------------------------------------------------------Adjusted shares 11,154,271 14,571,278----------------------------------------------------------------------------------------------

</TABLE>

Options and warrants to purchase 899,131 shares of common stock,at prices ranging from $7.50 to $24.00 per share were outstanding forthe year ended June 30, 1998. These were not included in thecomputations of diluted earnings per share because the options' andwarrants' exercise prices were greater than the average market price ofthe common shares during the years ended June 30, 1998.

37

All options and warrants to purchase shares of common stock wereexcluded from the computations of diluted earnings (loss) per share forthe years ended June 30, 2000 and 1999, because the impact of suchoptions and warrants is anti-dilutive.

(15) Employee Benefit Plan

The Company has a defined contribution retirement plan, whichcovers all employees and officers. For the years ended June 30, 2000,1999 and 1998, the Company contributed $1.5 million, $0.8 million and$0.1 million, respectively, to the plan. The Company has the right, butnot the obligation, to make contributions to the plan in future yearsat the discretion of the Company's Board of Directors.

(16) Commitments

Integration and Operations Contracts

On August 13, 1997, the Company initiated a letter agreement withThe Boeing Company ("Boeing"), a major subcontractor and shareholder,for standard integration and operation services to the Company forfuture missions that were not already provided for under its contractfor missions to the Mir Space Station. In August 1998, this letteragreement became a cost plus incentive fee contract whereby Boeing willprovide integration and operations services required to successfullycomplete four research missions (one single module mission and threedouble module missions) and five logistics double module missions.Additionally, there are several tasks that are separately priced toyield a contract value of up to $129.2 million. As of June 30, 2000,$27.6 million has been incurred under this commitment.

Module Construction Contracts



During the year ended June 30, 1997, the Company entered into a$36.8 million cost-plus-fee contract with Boeing to construct a newresearch module with associated double module hardware. The Company hastaken initial delivery of the module and is in the process ofcompleting its construction which is expected to be completed inSeptember of fiscal year 2001. The Company has incurred approximately$43.0 million in construction costs through June 30, 2000. The Companyis in the process of negotiating a revised contract with Boeingrelative to the research double module.

During the year ended June 30, 1999, the Company entered into a$4.6 million letter agreement with Boeing to initiate activities tosupport the fabrication of an adaptable double module. The lettercontract period of performance is through August 2000. The Companyplans to extend the letter agreement. The Company has incurred $3.9million in costs through June 30, 2000.

Leases

The Company is obligated under capital leases for equipment andnoncancelable operating leases for equipment, office space, storagespace, and the land for a payload processing facility. Future minimumpayments under these capital leases and noncancelable operating leasesare as follows (in thousands):

38

<TABLE><CAPTION>

Capital OperatingYear ending June 30, Leases Leases---------------------------------------------------------------------------------------------------<S> <C> <C>2001 $ 58 $ 2,4972002 28 2,4652003 18 2,0542004 17 8662005 and thereafter - 5,481--------------------------------------------------------------------------------------------------

121 $ 13,363=========

Less: amount representing interest between 9% and 12% (20)------------------------------------------------------------------------------------

Present value of net minimum capital lease payments $ 101====================================================================================

</TABLE>

Rent expense for the years ended June 30, 2000, 1999 and 1998 wasapproximately $2.1 million, $2.2 million and $0.5 million,respectively.

(17) Segment information

Based on its organization, the Company operates in four businesssegments; Astrotech, ES, SMI and SPACEHAB. Astrotech, acquired inFebruary 1997, provides payload processing facilities to serve thesatellite manufacturing and launch services industry. Astrotechcurrently provides launch site preparation of flight ready satellitesto major U.S. space launch companies and satellite manufacturers. ES isprimarily engaged in providing engineering services and products to theFederal Government and NASA, primarily under the FCSD Contract. SMI wasestablished in April 2000, to provide proprietary content from the ISSfor broadcast and Internet distribution. SPACEHAB was founded tocommercially develop space habitat modules to operate in the cargo bayof the Space Shuttles. SPACEHAB provides access to the modules andintegration and operations support services for both NASA andcommercial customers.

The Company's chief operating decision maker utilizes bothrevenue and income before taxes, including allocated interest based onthe investment in the segment, in assessing performance and makingoverall operating decisions and resource allocations. As such, otherincome/expense items including taxes and corporate overhead have not



been allocated to the various segments.

The accounting policies of the segments are the same as thosedescribed in the summary of significant accounting policies, seenote 2. Information about the Company's segments is as follows:

39

<TABLE><CAPTION>

(in thousands)Year Ended June 30, 2000: Net Depreciation

Pre-Tax Fixed AndRevenue Income (loss) Assets Amortization

--------------------------------------------------------------------<S> <C> <C> <C> <C>SPACEHAB $ 39,871 $ (928) $129,709 $5,702Astrotech 7,583 (2,944) 25,975 983ES 58,254 108 3,000 1,537SMI - (1,842) - -

--------------------------------------------------------------------$105,708 $(5,606) $158,684 $8,222

====================================================================

<CAPTION>Year Ended June 30, 1999: Net Depreciation

Pre-Tax Fixed AndRevenue Income (loss) Assets Amortization

--------------------------------------------------------------------<S> <C> <C> <C> <C>SPACEHAB $ 39,477 $(2,925) $109,912 $4,689Astrotech 9,845 (505) 20,625 1,164ES 58,398 342 1,647 1,164SMI - - - -

--------------------------------------------------------------------$107,720 $(3,088) $132,184 $7,017

====================================================================

<CAPTION>Year ended June 30, 1998: Net Depreciation

Pre-Tax Fixed AndRevenue Income Assets Amortization

--------------------------------------------------------------------<S> <C> <C> <C> <C>SPACEHAB $ 53,262 $10,308 $ 92,815 $4,413Astrotech 10,825 1,823 19,773 1,174ES - - - -SMI - - - -

--------------------------------------------------------------------$ 64,087 $12,131 $112,588 $5,587

====================================================================</TABLE>

(18) Convertible Preferred Stock

On August 2, 1999, Astrium, a shareholder, purchased anadditional $12.0 million equity stake in SPACEHAB representing1,333,334 shares of Series B Senior Convertible Preferred Stock. Underthe agreement, Astrium purchased all of SPACEHAB's 975,000 authorizedand unissued shares of preferred stock. At the annual stockholdersmeeting held on October 14, 1999, the shareholders approved theproposal to increase the number of authorized shares of preferred stockto 2,500,000, in order to complete the transaction with Astrium,allowing them to purchase the additional 358,334 preferred shares. Thepreferred stock purchase increased Astrium's voting interest inSPACEHAB to approximately 11.5 percent. The Series B Senior ConvertiblePreferred Stock is: convertible at the holders' option on the basis ofone share of preferred stock for one share of common stock, entitled tovote on an "as converted" basis the equivalent number of shares ofcommon stock and has preference in liquidation, dissolution or windingup of $9.00 per preferred share. No dividends are payable on theconvertible preferred shares.

(19) Investment in Guigne

During June 1998, the Company entered into a joint venture



agreement with Guigne Technologies Limited ("GTL"), a Canadian company,for the purpose of developing, fabricating, marketing and selling ofSpaceDRUMS services, a containerless processing facility intended to bedeployed on the ISS. In accordance with the joint venture agreement,the Company had contributed, in exchange for a 50 percent interest inthe joint venture, an aggregate of $2.0 million of working capital tothe joint venture through December 1999. The Company's contributionswere made in the form of an unsecured non-interest bearing note. Thejoint venture has entered into contracts with an aggregate value of$6.9 million for the lease of the SpaceDRUMS facility with an unrelatedparty.

40

The joint venture agreement contained an option whereby theCompany could exchange its interest in the joint venture and the $2.0million note for a common equity interest in Guigne Inc. ("GI"), theultimate parent of GTL. In accordance with the terms of the jointventure agreement, in December 1999 the Company notified GI of itsintention to exercise its option. Under the option, the equity interestobtained in GI was determined by dividing the $2.0 million contributedby the Company by the fair market value of GI, as determined byindependent appraisal, at the date of exchange. However, such equityinterest could not exceed 19% of the outstanding equity of GI. Theindependent appraisal and conversion were finalized subsequent to June30, 2000, with an effective date of January 1, 2000, and resulted inthe Company obtaining a 15% common equity interest in GI. In addition,the Company is entitled to one seat on GI's seven-member board ofdirectors, but does not have significant influence over the operationaland financial policies of GI. Accordingly, the Company will account forits investment in GI on the cost method. Upon the exchange, the jointventure was dissolved and all property, rights, assets and liabilitiesof the joint venture became the property, rights, assets andliabilities of GI.

The Company did not have the ability to exclusively control theoperational and financial policies of the joint venture, although theCompany did exert significant influence and as such recognized itsinvestment in the joint venture prior to the exchange using themodified equity method of accounting. During the year ended December31, 1999, no revenues and no expenses were recognized by the jointventure. During the quarter ended December 31, 1999, at the time of theCompany's exercise of its option, the Company recognized a $0.2 millionvaluation allowance against its investment in GI based on the Company'sestimate of the fair value of GI.

(20) Summary of Selected Quarterly Financial Data (Unaudited)

The following is a summary of selected quarterly financial datafor the previous three fiscal years (in thousands, except per sharedata):

<TABLE><CAPTION>

Three months ended------------------------------------------------------------------

September 30 December 31 March 31 June 30------------------------------------------------------------------------------------------------------ -------------<S> <C> <C> <C> <C>Year ended June 30, 2000Revenue $25,978 $ 26,011 $25,057 $28,662Income (loss) from operations (2,087) (1,239) 111 720Net income (loss) (1,959) (1,272) (635) 22

Net income (loss) per share - basic (0.17) (0.11) (0.06) 0.00Net income (loss) per share - diluted (0.17) (0.11) (0.06) 0.00-------------------------------------------------------------------------------------- ----------------------------Year ended June 30, 1999Revenue $28,273 $ 23,634 $26,693 $29,120Income (loss) from operations 2,151 (2,007) 338 (280)Net income (loss) 413 (1,851) (541) (610)

Net income (loss) per share - basic 0.04 (0.17) (0.05) (0.05)Net income (loss) per share - diluted 0.04 (0.17) (0.05) (0.05)----------------------------------------------------------------------------------------------------------------------Year ended June 30, 1998



Revenue $ 2,537 $ 17,756 $18,997 $24,797Income (loss) from operations (5,685) 5,833 5,214 7,335Net income (loss) (5,654) 5,727 4,891 4,640

Net income (loss) per share - basic (0.51) 0.51 0.44 0.42Net income (loss) per share - diluted (0.51) 0.43 0.37 0.35----------------------------------------------------------------------------------------------------------------------</TABLE>

Item 9. Changes in and Disagreements With Accountants on Accounting andFinancial Disclosure.

(A)(I) Previous Independent Accountants

(i) On September 7, 2000, SPACEHAB, Incorporated (the "Company")dismissed KPMG LLP as the independent public accountants of the Company.

(ii) The reports of KPMG LLP on the financial statements of the Companyfor each of the past two fiscal years ended June 30, 2000 and 1999, contained noadverse opinion or disclaimer of opinion and were not qualified or modified asto uncertainty, audit scope, or accounting principles.

(iii) The decision to change accountants was recommended by the AuditCommittee and approved by the Company's Board of Directors acting through itsExecutive Committee.

(iv) During the Company's two most recent fiscal years and throughSeptember 7, 2000, the Company has had no disagreements with KPMG LLP on anymatter of accounting principles or practices, financial statement disclosure, orauditing scope or procedure, which disagreements if not resolved to thesatisfaction of KPMG LLP would have caused it to make reference to the subjectmatter of the disagreements in its report on the financial statements of theCompany for such years.

(v) During the Company's two most recent fiscal years and throughSeptember 7, 2000, the Company has had no reportable events (as defined in Item304(a)(I)(v) of Regulation S-K).

(A)(2) The Board of Director of the Company has approved the appointment ofErnst & Young LLP as its new independent accountants for the fiscal year endedJune 30, 2001, subject to stockholder ratification.

(i) and (ii) Prior to the engagement of Ernst & Young, LLP, the Company hadnot consulted with Ernst & Young LLP during its two most recent fiscal years andthrough the date of this report in any matter regarding: (i) either theapplication of accounting principles to a specified transaction, eithercompleted or proposed, or the type of audit opinion that might be rendered onthe Company's financial statements, and any written report provided to theCompany nor was oral advice provided that Ernst & Young LLP concluded was animportant factor considered by the Company in reaching a decision as to theaccounting, auditing or financial reporting issue, or (ii) any matter that wasthe subject of either a disagreement or a reportable event described inParagraph (a)(v) above.

(A)(3) The Company has requested that KPMG LLP furnish it with a letteraddressed to the Securities and Exchange Commission stating whether or not itagrees with the statements made above. A copy of such letter will be filed asExhibit 16.1 to Form 8-K.

41

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information required by this item will be contained in theCompany's definitive Proxy Statement for its 2000 Annual Meeting of Stockholdersand is hereby incorporated by reference thereto.

Item 11. Executive Compensation.


Item 12. Security Ownership of Certain Beneficial Owners and Management.




Item 13. Certain Relationships and Related Transactions.


PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) The following documents are filed as part of the report:

1. Financial Statements.

The following consolidated financial statements of SPACEHAB,Incorporated and subsidiary and related notes, together with thereport thereon of KPMG LLP, the Company's independent auditors, areset forth herein as indicated below.

<TABLE><CAPTION>

Page<S> <C>Report of KPMG LLP, Independent Public Accountants............................... 19Consolidated Balance Sheets ..................................................... 20Consolidated Statements of Operations ........................................... 21Consolidated Statements of Stockholders' Equity ................................. 22Consolidated Statements of Cash Flows............................................ 23Notes to Consolidated Financial Statements....................................... 24

</TABLE>

2. Financial Statement Schedules.

All financial statement schedules required to be filed in Part IV,Item 14 (a) have been omitted because they are not applicable, notrequired, or because the required information is included in thefinancial statements or notes thereto.

3. Exhibits.

Exhibit No. Description of Exhibit

3.1* Amended and Restated Articles of Incorporation of the Company.

3.2 Designation of Rights, Terms and Preferences of Series A JuniorPreferred Stock (see Exhibit 4.4 of this Report on Form 10-K).

42

3.3++ Designation of Rights, Terms and Preferences of Series B SeniorConvertible Preferred Stock of SPACEHAB, Incorporated.

3.4 Articles of Amendment of SPACEHAB, Incorporated, including theDesignation of Rights, Terms and Preferences of Additional Sharesof Series B Senior Convertible Preferred Stock of SPACEHAB,Incorporated.

3.5* Amended and Restated By-Laws of the Company.

4.1++ Designation of Rights, Terms and Preferences of Series B SeniorConvertible Preferred Stock of the Registrant.

4.2++ Preferred Stock Purchase Agreement between the Registrant andDaimlerChrysler Aerospace AG dated as of August 2, 1999.

4.3++ Registration Rights Agreement between the Registrant andDaimlerChrysler Aerospace AG dated as of August 5, 1999.

4.4+ Rights Agreement, dated as of March 26, 1999, between theRegistrant and American Stock Transfer & Trust Company. TheRights Agreement includes the Designation of Rights, Terms and



Preferences of Series A Junior Preferred Stock as Exhibit A, theform of Rights Certificate as Exhibit B and the Summary of Rightsas Exhibit C.

10.3* Cost Plus Incentive Fee Contract (Number SHB 1009), datedNovember 23, 1994, between the Registrant and McDonnell Douglas(including the amendments thereto) (the "Mir Contract").

10.6* Amended and Restated Representation Agreement, dated August 15,1995, by and between the Registrant and Mitsubishi Corporation.

10.7* Letter Agreement dated August 15, 1995, by and between theRegistrant and Mitsubishi Corporation.

10.12*** Amended and Restated Credit Agreement, dated August 20, 1996among the Registrant, the Insurers listed therein and the ChaseManhattan Bank (National Association), as agent.

10.13*////// SPACEHAB, Incorporated 1995 Directors' Stock Option Plan (asamended and restated effective October 21, 1997).

10.16* Agreement of Sublease, dated April 9, 1991, by and betweenEastern American Teak Corporation and the Registrant (land leasefor Cape Canaveral, Florida facility).

10.27** Indemnification Agreement, dated December 27, 1995, between theCompany and Dr. Shelley A. Harrison.

10.28** Indemnification Agreement, dated December 27, 1995, between theCompany and Dr. Edward E. David, Jr.

10.32** Indemnification Agreement, dated December 27, 1995, between theCompany and James R. Thompson.

10.36** Indemnification Agreement, dated December 27, 1995, between theCompany and David A. Rossi.

10.37** Indemnification Agreement, dated December 27, 1995, between theCompany and Dr. Shi H. Huang.

10.38** Indemnification Agreement, dated December 27, 1995, between theCompany and Nelda J. Wilbanks.

43

10.39** Indemnification Agreement, dated December 27, 1995, between theCompany and M. Dale Steffey.

10.43** Indemnification Agreement, dated December 27, 1995, between theCompany and Hironori Aihara.

10.49*// Cost Plus Fee Contract (Number SHB 1013), dated July 31, 1997,between the Registrant and McDonnell Douglas Corporation,McDonnell Douglas Aerospace Huntsville Division (the "ResearchDouble Module Contract").

10.52*// Office Building Lease Agreement, dated October 6, 1993, betweenAstrotech and the Secretary of the Air Force (Lease numberSPCVAN -2-94-001).

10.54*// Loan and Security Agreement, dated June 16, 1997, between theRegistrant, Astrotech and First Union National Bank (formerlyknown as Signet Bank) (the "Revolving Credit Agreement").

10.55*// Loan and Security Agreement, dated July 14, 1997, betweenAstrotech and the CIT Group/Equipment Financing, Inc. (the "TermLoan Agreement").

10.57*// Employment and Non-Interference Agreement, dated April 10, 1997,between the Company and John M. Lounge.

10.58*// Indemnification Agreement, dated October 22, 1996, between theCompany and John M. Lounge.

10.69*/// ESA Contract, Dated October 10, 1997, between the Registrant andIntospace GmbH (the "ESA Contract").



10.70*//// NAS 9-97199, dated December 21, 1997, between the Registrant andNASA (the "REALMS Contract").

10.73*//// Employment Agreement and Non-Interference Agreement dated January15, 1998, between the Company and David A. Rossi.

10.74*//// Amendment number 1 to Loan and Security Agreement dated December31, 1997, between the Company and First Union National Bank.

10.80*///// CSA Contract, dated May 21, 1998, between the Registrant and theCanadian Space Agency.

10.81*///// Gemini Office Building Lease Agreement, dated January 14, 1998,between the Registrant and Puget of Texas

10.82*///// SHB98006, dated July 8, 1998, between the Registrant and Daimler-Benz Aerospace AG, Raumfahrt-Infrastuktur

10.84*///// Capital Office Park Lease as amended, dated April 23, 1998,between Astrotech and Eleventh Springhill Lake Associates L.L.P.

10.85+++ Letter Agreement between the Company and Alenia Aerospazio.

10.86+++ Employment and Non-Interference Agreement dated July 1, 1998between the Company and William A. Jackson

10.87+++ Employment and Non-Interference Agreement dated July 1, 1998between the Company and Eugene A. Cernan

10.88+++ Employment and Non-Interference Agreement dated July 1, 1998between the Company and W.T. Short

44

10.89+++ Modification S/A 14 to NAS9-97199 dated November 25, 1998,between the Company and NASA.

10.90++++ SPACEHAB, Incorporated 1994 Stock Incentive Plan (as amended andrestated effective October 14, 1999).

10.92++++ Employment and Non-Interference Agreement, dated March 1, 1999,between the Company and Michael Kearney.

10.93++++ Contract No. NAS 9-18800 between NASA and Johnson Engineeringdated April 28, 1993.

10.94++++ Cost Plus Incentive Fee Contract No. SHB 1014 dated August 14,1997 between the Boeing Company and the Registrant.

10.95++++ Amended and Restated Employment and Non-Interference Agreement,dated April 1, 1997, between the Company and Dr. Shelly A.Harrison, amended and restated as of January 15, 1999.

10.96++++ European Marketing Agreement between Intospace GmbH and theRegistrant dated June 12, 1998.

10.97++++ Lease for property at 555 Forge River Dr. Suite #150, Webster, TXbetween Johnson Engineering and CD UP LP a wholly-ownedsubsidiary of Carey Diversified LLC, successor in interest toJ.A. Billip Development Corporation dated April 30, 1993, asamended.

10.98++++ Lease for property at 18100 Upper Bay Road, Suite #208, Houston,TX between Johnson Engineering Corporation and Nassau DevelopmentCompany, dated February 19, 1998.

10.99++++ Lease for property at 920, 926 and 928 Gemini Ave., Houston, TXunder Standard Commercial Lease between Johnson EngineeringCorporation and Lakeland Development dated February 1, 1998.

10.100++++ Lease for property at 300 D Street, SW, Suite #814, Washington,DC, between the Registrant and The Washington Design Center, LLCdated December 16, 1998.

10.101++++ Lease for property at 16850 Titan, Houston, TX between Johnson



Engineering Corporation and Computer Extension Systems, Inc.dated August 1, 1999.

10.102++++ Agreement of Sale and Purchase of Leasehold Interest betweenEastern American Technologies Corporation and Spacehab,Incorporated dated August 1997.

10.103*////// SPACEHAB, Incorporated 1997 Employee Stock Purchase Plan.

10.104 Secured Promissory Note, dated March 30, 1999, between theCompany and The CIT Group/Equipment Financing, Inc.

10.105 Amendment No 2 to Loan and Security Agreement, dated October 15,1999 between the Company, First Union National Bank and certainother parties.

10.106+++++ Agreement between Astrotech Space Operations, Inc. and McDonnellDouglas Corporation, dated January 7, 2000.

10.107+++++ Agreement between Astrotech Space Operations, Inc. and LockheedMartin Commercial Launch Services, Inc. dated January 24, 2000.

10.108 Amendment No. 3 to Loan and Security Agreement, dated January 31,2000 between the Company, First Union National Bank and certainother parties.

10.109 Employment and Non-Interference Agreement, dated February 14,2000, between the Company and Julia A. Pulzone.

45

10.110 Amendment No. 4 to Loan and Security Agreement, dated May 18,2000 between the Company, First Union National Bank and certainother parties.

10.111 Third Amendment and Assignment of Industrial Real Estate Lease,and Consent to Assignment of Industrial Real Estate Lease, datedJuly 24, 2000, between the Company, American National InsuranceCompany and Pall Corporation.

10.112 Financing and Security Agreement, dated August 9, 2000, by andamong Bank of America, N.A. and the Company, Johnson EngineeringCorporation, Astrotech Space Operations, Inc. and Space Media,Inc.

21.*// Subsidiary of the Registrant.

23. Consent of KPMG LLP.

27. Financial Data Schedule.

* Incorporated by reference to the Registrant's RegistrationStatement on Form S-1 (File No. 33-97812) and all amendmentsthereto, originally filed with the Securities and ExchangeCommission on October 5, 1995.

** Incorporated by reference to the Registrant's Report on Form 10-Qfor the quarter ended December 31, 1995, filed February 14, 1996.

*** Incorporated by reference to the Registrant's Report on Form 10-Kfor the fiscal year ended June 30, 1996, filed with theSecurities and Exchange Commission on September 17, 1996.

**** Incorporated by reference to the Registrant's Annual Report onForm 10-K/A for the year ended June 30, 1996, filed with theSecurities and Exchange Commission on December 20, 1996.

***** Incorporated by reference to the Registrant's Report on Form10-Q/A for the quarter ended September 30, 1996, filed with theSecurities and Exchange Commission on December 20, 1996.

*/ Incorporated by reference to the Registrant's Report on Form 8-Kfiled with the Securities and Exchange Commission on February 27,1997.



*// Incorporated by reference to the Registrant's Report on Form 10-Kfor the fiscal year ended June 30, 1997, filed with theSecurities and Exchange Commission on September 12, 1997.

*/// Incorporated by reference to the Registrant's Report on Form 10-Qfor the quarter ended September 30, 1997, filed November 6, 1997.

*//// Incorporated by reference to the Registrant's Report on Form 10-Qfor the quarter ended December 31, 1997, filed February 5, 1998.

*///// Incorporated by reference to the Registrant's Report on Form 10-Kfor the fiscal year ended June 30, 1998, filed with theSecurities and Exchange Commission on September 17, 1998.

*////// Incorporated by reference to the Registrant's Definitive ProxyStatement, filed with the Securities and Exchange Commission onSeptember 12, 1997.

+ Incorporated by reference to the Registrant's Report on Form 8-Kfiled with the Securities and Exchange Commission on April 1,1999.

46

++ Incorporated by reference to the Registrant's Report on Form 8-Kfiled with the Securities and Exchange Commission on August 19,1999.

+++ Incorporated by reference to the Registrant's Report on Form 10-Qfor the quarter ended December 31, 1998.

++++ Incorporated by reference to the Registrant's Report on Form 10-Kfor the fiscal year ended June 30, 1999, filed with theSecurities and Exchange Commission on September 17, 1999.

+++++ Incorporated by reference to the Registrant's Report on Form 10-Qfor the quarter ended March 31, 2000, filed with the Securitiesand Exchange Commission on May 12, 2000.

The following Reports on Form 8-K were filed by the Registrant during theperiod covered by this report.

None.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities andExchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, hereunto duly authorized.

SPACEHAB, Incorporated

By: /s/ Dr. Shelley A. Harrison-----------------------------Dr. Shelley A. HarrisonChairman of the Board andChief Executive Officer

Date: September 12, 2000By: /s/ Julia A. Pulzone

-----------------------------Julia A. PulzoneVice President of Finance andChief Financial Officer

Date: September 12, 2000

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

/s/ Hironori Aihara Director September 12, 2000----------------------------------



Hironori Aihara

/s/ Melvin D. Booth Director September 12, 2000----------------------------------Melvin D. Booth

/s/ Dr. Edward E. David, Jr. Director September 12, 2000-------------------------------Dr. Edward E. David, Jr.

/s/ Richard Fairbanks Director September 12, 2000-------------------------------Richard Fairbanks

/s/ Josef Kind Director September 12, 2000-------------------------------Josef Kind

/s/ Gordon S. Macklin Director September 12, 2000-------------------------------Gordon S. Macklin

/s/ David A. Rossi Director September 12, 2000-------------------------------David A. Rossi

/s/ James R. Thompson Director September 12, 2000-------------------------------James R. Thompson

Guiseppe Viriglio Director September 12, 2000-------------------------------Guiseppe Viriglio

48



ARTICLES OF AMENDMENT

of

SPACEHAB, INCORPORATED______________________________

pursuant to Chapter 10 of the

Washington Business Corporation Act______________________________

SPACEHAB, Incorporated, (the "Corporation"), a corporation organized andexisting under and by virtue of the Washington Business Corporation Act, asamended, (the "WBCA"), hereby certifies that:

1. The name of the corporation is SPACEHAB, Incorporated.

2. ARTICLE FOURTH of the Articles of Incorporation of the Corporation areamended to read as follows:

FOURTH: The total number of shares of capital stock which the------

Corporation shall have authority to issue is 32,500,000 shares, consisting of30,000,000 shares of common stock, no par value per share (the "Common Stock")and 2,500,000 shares of preferred stock, no par value per share (the "PreferredStock").

3. These Articles of Amendment were duly approved by the shareholders ofthe Corporation on October 14, 1999 in accordance with the provisions of WBCA23B.10.030 and 23B.10.040.

4. The manner in which the amendment to ARTICLE FOURTH effects a changein authorized capital stock is to increase the number of shares of authorizedPreferred Stock.

These Articles of Amendment are executed by the Corporation by itsduly authorized officer.

DATED: October 14, 1999

SPACEHAB, INCORPORATED

By: /s/ Shelley A. Harrison---------------------------------Shelley A. Harrison



Chairman of the Board andChief Executive Officer

DESIGNATION OF RIGHTS, TERMS AND PREFERENCESOF

ADDITIONAL SHARES OFSERIES B SENIOR CONVERTIBLE PREFERRED STOCK

OFSPACEHAB, INCORPORATED

(Pursuant to Chapter 6 of theWashington Business Corporation Act)

Spacehab, Incorporated, a corporation organized and existing under theBusiness Corporation Act of the State of Washington (hereinafter called the"Corporation"), hereby certifies that the following resolution was adopted bythe Board of Directors of the Corporation as required by Chapter 6 of theBusiness Corporation Act at a meeting duly called and held on August 26, 1999:

RESOLVED, that pursuant to the authority granted to and vested in theBoard of Directors of this Corporation (hereinafter called the "Board ofDirectors" or the "Board") in accordance with the provisions of theArticles of Incorporation, the Board of Directors hereby designatesadditional shares of Series B Preferred Stock of the Corporation, no parvalue per share (the "Preferred Stock"), as follows:

Series B Senior Convertible Preferred Stock:

Section 1. Designation and Amount. The shares of such series shall be----------------------

designated as "Series B Senior Convertible Preferred Stock" (the "Series BPreferred Stock"). The number of existing and outstanding shares of Series BPreferred Stock is Nine Hundred Seventy-Five Thousand (975,000) and the numberof additional shares of Series B Preferred Stock shall be Three Hundred Fifty-Eight Thousand Three Hundred Thirty-Four (358,334). As a result, the totalnumber of shares of Series B Preferred Stock shall be One Million Three HundredThirty-Three Thousand Three Hundred Thirty-Four (1,333,334). Such number ofshares may be decreased by resolution of the Board of Directors; provided thatno decrease shall reduce the number of shares of Series B Preferred Stock to anumber less than the number of shares then outstanding.

Section 2. Dividends. The holders of the Series B Preferred Stock shall---------

been titled to receive, out of funds legally available therefor, such dividendswith respect to the shares of Series B Preferred Stock as may be declared by theBoard of Directors. In addition, when and if the Board of Directors shalldeclare a dividend payable with respect to the then outstanding shares of CommonStock, no par value per share ("Common Stock") of the Corporation, each holder



of Series B Preferred Stock shall be entitled to the amount of dividends aswould be payable on the largest number of whole shares of

Common Stock into which shares of Series B Preferred Stock held by such holdercould then be converted pursuant to Section 5 hereof (such number to bedetermined as of the record date for the determination of holders of CommonStock entitled to receive such dividend). Dividends shall not be declared orpaid to holders of Common Stock unless and until the Corporation shallsimultaneously declare and pay to holders of Series B Preferred Stock thedividend referred to in the preceding sentence.

Section 3. Liquidation, Dissolution or Winding Up; Certain Mergers,--------------------------------------------------------

Consolidations and Asset Sales.------------------------------

a. In the event of any voluntary or involuntary liquidation,dissolution or winding up of the Corporation, the holders of shares of Series BPreferred Stock then outstanding shall be entitled to be paid out of the assetsof the Corporation available for distribution to its stockholders, before anypayment shall be made to the holders of Common Stock or any other class orseries of stock ranking on liquidation junior to the Series B Preferred Stock(the Common Stock and any other class or series of stock ranking on liquidationjunior to the Series B Preferred Stock, including without limitation, the SeriesA Junior Participating Preferred Stock of the Corporation, being collectivelyreferred to as "Junior Stock") by reason of their ownership thereof, an amountequal to Nine Dollars ($9.00) for each outstanding share of Series B PreferredStock (the "Series B Original Issue Price")(subject to appropriate adjustment inthe event of any stock dividend, stock split, combination or other similarrecapitalization affecting such shares) plus (ii) any dividends declared oraccrued but unpaid thereon. If upon any such liquidation, dissolution or windingup of the Corporation, the remaining assets of the Corporation available fordistribution to its stockholders shall be insufficient to pay the holders ofshares of Series B Preferred Stock the full amount to which they shall beentitled, the holders of shares of Series B Preferred Stock and any class orseries of stock ranking on liquidation on a parity with the Series B PreferredStock shall share ratably (based upon the sum of each series respective OriginalIssue Price plus accrued but unpaid dividends) in any distribution of theremaining assets and funds of the Corporation in proportion to the respectiveamounts which would otherwise be payable in respect of the shares held by themupon such distribution if all amounts payable on or with respect to such shareswere paid in full.

b. After the payment of all preferential amounts required to bepaid to the holders of Series B Preferred Stock and any other class or series ofstock of the Corporation ranking on liquidation on a parity with the Series BPreferred Stock upon the dissolution, liquidation or winding up of theCorporation, the holders of shares of Junior Stock then outstanding shall beentitled to receive the remaining assets and funds of the Corporation availablefor distribution to its stockholders.



c. The consolidation or merger of the Corporation into or with anyother entity or entities which results in the exchange of outstanding shares ofthe Corporation for securities or other consideration issued or paid or causedto be issued or paid by any such entity or affiliate thereof, and the sale ortransfer by the Corporation of all or substantially all its assets, shall bedeemed to be a liquidation, dissolution or winding up of the Corporation withinthe meaning of the provisions of this Section 3, but

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only for the purposes of the redemption of such Series B Preferred Stock, andonly if so elected by the holders of a majority of the outstanding shares ofSeries B Preferred Stock, in their sole discretion.

Section 4. Voting.------

a. Each holder of outstanding shares of Series B Preferred Stockshall be entitled to the number of votes equal to the number of whole shares ofCommon Stock into which the shares of Series B Preferred Stock held by suchholder are then convertible (as adjusted from time to time pursuant to Section 5hereof), at each meeting of stockholders of the Corporation (and written actionsof stockholders in lieu of meetings) with respect to any and all matterspresented to the stockholders of the Corporation for their action orconsideration. Except as provided by law, or by the provisions of Subsections4(b), 4(c) and 4(d) below, holders of Series B Preferred Stock shall votetogether with the holders of Common Stock, as a single class.

b. For so long as (i) any shares of Series B Preferred Stockremain outstanding and (ii) any holder thereof is a Qualified Holder (as definedin the Preferred Stock Purchase Agreement (the "Purchase Agreement") dated as ofAugust 2, 1999 between the Corporation and Daimler Chrysler Aerospace AG("DASA")), the Series B Preferred Stock (voting as a class) will elect one ofthe Directors (the "Preferred Director") and the Common Stock (voting as aclass) will elect the remaining Directors. The Preferred Director shall beincluded as a member of the Executive Committee of the Board. If at any timeSeries B Preferred Stock issued remains outstanding but there is no QualifiedHolder, all of the Directors will be elected by the Series B Preferred Stock andCommon Stock voting together as one class. This Section 4(b) shall not affect orlimit provisions of Section 8.1 of the Purchase Agreement as to the right of aQualified Holder to designate a nominee for election to the Board (and for suchdesignee, if elected by the shareholders, to serve on the Executive Committee ofthe Board), which provisions may remain applicable notwithstanding there notbeing any shares of Series B Preferred Stock outstanding.

c. Any Preferred Director may be removed at any time, by thevote of the holders of more than fifty percent (50%) of all of the thenoutstanding shares of Series B Preferred Stock, voting as a separate class inperson or by proxy at a special meeting of stockholders called for such purpose



(or at any adjournment thereof) by holders of at least twenty percent (20%) ofthe outstanding shares of Series B Preferred Stock or at any annual meeting ofstockholders, or by written consent delivered to the Secretary of theCorporation, and no Preferred Director may be removed at any time without theaffirmative vote or consent of the holders of more than fifty percent (50%) ofall of the outstanding shares of Series B Preferred Stock. Any vacancy createdby the removal, death or resignation of a Preferred Director may be filled bythe holders of more than fifty percent (50%) of all of the outstanding shares ofSeries B Preferred Stock by vote in person or by proxy at a special meeting ofstockholders of the Corporation called for such purpose by holders of at leasttwenty percent (20%) of the outstanding shares of Series B Preferred Stock, orat any annual meeting, or by written consent delivered to the Secretary of theCorporation.

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d. So long as any shares of the Series B Preferred Stock remainoutstanding, unless the vote or consent of the holders of a greater number ofshares shall then be required by law, the affirmative vote or consent of theholders of more than fifty percent (50%) of all of the shares of Series BPreferred Stock at the time outstanding, voting separately as a class, given inperson or by proxy either in writing (as may be permitted by law and theArticles of Incorporation and By-laws of the Corporation) or at any special orannual meeting, shall be necessary to permit, effect or validate the taking ofany of the following actions by the Corporation:

(i) create, authorize, issue or sell (i) any class orseries of capital stock ranking prior to or on parity with the Series BPreferred Stock as to dividends or upon liquidation, dissolution or windingup; provided, however, that holders of Common Stock may receive dividendsto the extent provided by Section 2 above and, provided further, that theconsent to issuance of any class or series of capital stock ranking onparity with the Series B Preferred Stock shall not be unreasonablywithheld; or (ii) any rights, options or other securities convertible,exercisable or exchangeable for or into, or having rights to purchase, anyshares of capital stock described in clause (i) hereof; or

(ii) amend the Articles of Incorporation or By-laws of theCorporation, or in any other manner alter or change the powers, rights,privileges or preferences of the Series B Preferred Stock, if suchamendment or action would alter, change or affect adversely the powers,rights, privileges or preferences of the holders of the Series B PreferredStock; or

(iii) increase the number of shares of Series B PreferredStock authorized for issuance above 1,333,334 shares; or

(iv) at any time after the initial issuance date of theSeries B Preferred Stock, issue any shares of Series B Preferred Stock,except (i) issuances pursuant to the Purchase Agreement, or (ii) issuances



of share certificates upon transfers or exchanges of shares by holders(other than the Corporation) or in replacement of lost, stolen, damaged ormutilated share certificates;

Section 5. Optional Conversion. The holders of the Series B Preferred-------------------

Stock shall each have conversion rights as follows (the "Conversion Rights"):

a. Right to Convert. Shares of Series B Preferred Stock shall be----------------

convertible, at the option of the holder thereof, at any time and from time totime, and without the payment of additional consideration by the holder thereof,into such number of fully paid and nonassessable shares of Common Stock as isdetermined by dividing the aggregate Series B Original Issue Price of the Sharesof Series B Preferred Stock being converted by the Series B Conversion Price ineffect at the time of conversion or such share. The initial "Series B ConversionPrice" shall be Nine Dollars ($9.00), subject to adjustment as provided below.For purposes of this Section 5, "Original Issue Date" shall mean, for the SeriesB Preferred Stock, the date on which the first share of Series B Preferred Stockwas issued.

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In the event of a liquidation of the Corporation, theConversion Rights shall terminate at the close of business on the first full daypreceding the date fixed for the payment of any amounts distributable onliquidation to the holders of Series B Preferred Stock.

b. Fractional Shares. No fractional shares of Common Stock-----------------

shall be issued upon conversion of the Series B Preferred Stock, and the numberof shares of Common Stock to be issued shall be rounded to the nearest wholeshare. The shares issuable upon such conversion shall be determined on the basisof the total number of shares of Series B Preferred Stock which the holder is atthe time converting into Common Stock and the number of shares of Common Stockissuable upon such aggregate conversion.

c. Mechanics of Conversion.-----------------------

(i) In order for a holder of Series B Preferred Stock toconvert shares of Series B Preferred Stock into shares of Common Stock, suchholder shall surrender the certificate or certificates for such shares of SeriesB Preferred Stock, at the office of the transfer agent for the Corporation (orat the principal office of the Corporation if the Corporation serves as its owntransfer agent), together with written notice that such holder elects to convertall or any number of the shares of the Series B Preferred Stock represented bysuch certificate or certificates. Such notice shall state such holder's name orthe names of the nominees in which such holder wishes the certificate orcertificates for shares of Common Stock to be issued. If required by the



Corporation, certificates surrendered for conversion shall be endorsed oraccompanied by a written instrument or instruments of transfer, in formsatisfactory to the Corporation, duly executed by the registered holder or his,her or its attorney duly authorized in writing. The date of receipt of suchcertificates and notice by the transfer agent (or by the Corporation if theCorporation serves as its own transfer agent) shall be the conversion date("Conversion Date"). The Corporation shall, as soon as practicable after theConversion Date, issue and deliver at such office to such holder of Series BPreferred Stock, or to his, her or its nominees, a certificate or certificatesfor the number of shares of Common Stock to which such holder shall be entitled,together with cash in lieu of any fraction of a share. In case less than all theshares of Series B Preferred Stock represented by any certificate are beingconverted, a new certificate representing the unconverted shares of Series BPreferred Stock shall be issued to the holder thereof without cost to suchholder.

(ii) The Corporation shall at all times when the Series BPreferred Stock shall be outstanding, reserve and keep available out of itsauthorized but unissued stock, for the purpose of effecting the conversion ofthe Series B Preferred Stock, such number of its duly authorized shares ofCommon Stock as shall from time to time be sufficient to effect the conversionof all outstanding Series B Preferred Stock.

(iii) Upon any such conversion, no adjustment to the SeriesB Conversion Price shall be made for any declared or accrued but unpaiddividends on the Series B Preferred Stock surrendered for conversion or on theCommon Stock delivered

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upon conversion, but, as provided in clause (iv) below, such dividends shallremain payable to the holder thereof.

(iv) All shares of Series B Preferred Stock which shallhave been surrendered for conversion as herein provided shall no longer bedeemed to be outstanding and all rights with respect to such shares, includingthe rights, if any, to receive notices and to vote, shall immediately cease andterminate on the Conversion Date, except only the right of the holders thereofto receive shares of Common Stock in exchange therefor and payment of anydividends declared or accrued but unpaid thereon. Any shares of Series BPreferred Stock so converted shall be retired and cancelled and shall not bereissued, and the Corporation (without the need for stockholder action) may fromtime to time take such appropriate action as may be necessary to reduce theauthorized Series B Preferred Stock accordingly.

(v) The Corporation shall pay any and all issue and othertaxes that may be payable in respect of any issuance or delivery of shares ofCommon Stock upon conversion of shares of Series B Preferred Stock pursuant tothis Section 5. The Corporation shall not, however, be required to pay any taxwhich may be payable in respect of any transfer involved in the issuance and



delivery of shares of Common Stock in a name other than that in which the sharesof Series B Preferred Stock so converted were registered, and no such issuanceor delivery shall be made unless and until the person or entity requesting suchissuance has paid to the Corporation the amount of any such tax or hasestablished, to the satisfaction of the Corporation, that such tax has beenpaid.

d. Adjustment for Stock Splits and Combinations. If the--------------------------------------------

Corporation shall at any time or from time to time after the Original Issue Dateof the Series B Preferred Stock effect a subdivision of the outstanding CommonStock, the Series B Conversion Price then in effect with respect to the Series BPreferred Stock immediately before that subdivision shall be proportionatelydecreased. If the Corporation shall at any time or from time to time after theOriginal Issue Date of the Series B Preferred Stock combine the outstandingshares of Common Stock, the Series B Conversion Price then in effect immediatelybefore the combination with respect to the Series B Preferred Stock shall beproportionately increased. Any adjustment under this paragraph shall becomeeffective at the close of business on the date the subdivision or combinationbecomes effective.

e. Adjustment for Certain Dividends and Distributions. In--------------------------------------------------

the event the Corporation at any time, or from time to time after the OriginalIssue Date of the Series B Preferred Stock shall make or issue, or fix a recorddate for the determination of holders of Common Stock entitled to receive, adividend or other distribution payable in additional shares of Common Stock,then and in each such event the Series B Conversion Price with respect to theSeries B Preferred Stock then in effect shall be decreased as of the time ofsuch issuance or, in the event such a record date shall have been fixed, as ofthe close of business on such record date, by multiplying the Series BConversion Price for the Series B Preferred Stock then in effect by a fraction:

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(1) the numerator of which shall be the total number of shares ofCommon Stock issued and outstanding immediately prior to the time of suchissuance or the close of business on such record date, and

(2) the denominator of which shall be the total number of shares ofCommon Stock issued and outstanding immediately prior to the time of suchissuance or the close of business on such record date plus the number ofshares of Common Stock issuable in payment of such dividend ordistribution;

provided, however, that if such record date shall have been fixed and suchdividend is not fully paid or if such distribution is not fully made on the datefixed therefor, the Series B Conversion Price for the Series B Preferred Stockshall be recomputed accordingly as of the close of business on such record dateand thereafter the Series B Conversion Price for the Series B Preferred Stock



shall be adjusted pursuant to this paragraph as of the time of actual payment ofsuch dividends or distributions.

f. Adjustments for Other Dividends and Distributions. In the event-------------------------------------------------

the Corporation at any time or from time to time after the Original Issue Dateof the Series B Preferred Stock shall make or issue, or fix a record date forthe determination of holders of Common Stock entitled to receive, a dividend orother distribution payable in securities of the Corporation other than shares ofCommon Stock, then and in each such event provision shall be made so that theholders of Series B Preferred Stock shall receive upon conversion thereof inaddition to the number of shares of Common Stock receivable thereupon, theamount of securities of the Corporation that they would have received had theSeries B Preferred Stock been converted into Common Stock on the date of suchevent and had thereafter, during the period from the date of such event to andincluding the conversion date, retained such securities receivable by them asaforesaid during such period, giving application to all adjustments called forduring such period under this paragraph with respect to the rights of theholders of the Series B Preferred Stock.

g. Adjustment for Reclassification, Exchange or Substitution. If---------------------------------------------------------

the Common Stock issuable upon the conversion of the Series B Preferred Stockshall be changed into the same or a different number of shares of any class orclasses of stock, whether by capital reorganization, reclassification, orotherwise (other than a subdivision or combination of shares or stock dividendprovided for above, or a reorganization, merger, consolidation, or sale ofassets provided for below), then and in each such event the holders of theSeries B Preferred Stock shall have the right thereafter to convert such shareinto the kind and amount of shares of stock and other securities and propertyreceivable upon such reorganization, reclassification, or other change, byholders of the number of shares of Common Stock into which such shares of SeriesB Preferred Stock might have been converted immediately prior to suchreorganization, reclassification, or change, all subject to further adjustmentas provided herein.

h. Adjustment for Merger or Reorganization, etc. In case of any--------------------------------------------

consolidation or merger of the Corporation with or into another corporation orthe sale of all or substantially all of the assets of the Corporation to anothercorporation (other than a consolidation, merger or sale which is covered bySubsection 3(c)), each share of Series

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B Preferred Stock shall thereafter be convertible (or shall be converted into asecurity which shall be convertible) into the kind and amount of shares of stockor other securities or property to which a holder of the number of shares ofCommon Stock of the Corporation deliverable upon conversion of such Series BPreferred Stock would have been entitled upon such consolidation, merger or



sale; and, in such case, appropriate adjustment (as determined in good faith bythe Board of Directors) shall be made in the application of the provisions inthis Section 5 set forth with respect to the rights and interest thereafter ofthe holders of the Series B Preferred Stock, to the end that the provisions setforth in this Section 5 (including provisions with respect to changes in andother adjustments of the Series B Conversion Price) shall thereafter beapplicable, as nearly as reasonably may be, in relation to any shares of stockor other property thereafter deliverable upon the conversion of the Series BPreferred Stock.

i. No Impairment. The Corporation will not, by amendment of its-------------

Articles of Incorporation, or through any reorganization, transfer of assets,consolidation, merger, dissolution, issue or sale of securities or any othervoluntary action, avoid or seek to avoid the observance or performance of any ofthe terms to be observed or performed hereunder by the Corporation, but will atall times in good faith assist in the carrying out of all the provisions of thisSection 5 and in the taking of all such action as may be necessary orappropriate in order to protect the respective Conversion Rights of the holdersof the Series B Preferred Stock against impairment.

j. Certificate as to Adjustments. Upon the occurrence of each-----------------------------

or readjustment of the Series B Conversion Price pursuant to this Section 5, theCorporation at its expense shall promptly compute such adjustment orreadjustment in accordance with the terms hereof and furnish to each holder ofSeries B Preferred Stock a certificate setting forth such adjustment orreadjustment and showing in detail the facts upon which such adjustment orreadjustment is based. The Corporation shall, upon the written request at anytime of any holder of Series B Preferred Stock, furnish or cause to be furnishedto such holder a similar certificate setting forth (i) such adjustments andreadjustments, (ii) the Series C Conversion Price then in effect, and (iii) thenumber of shares of Common Stock and the amount, if any, of other property whichthen would be received upon the conversion of such Series B Preferred Stock.

k. Notice of Record Date. In the event:---------------------

(a) that the Corporation declares a dividend (or any otherdistribution) on its Common Stock payable in Common Stock orother securities of the corporation;

(b) that the Corporation subdivides or combines its outstandingshares of Common Stock;

(c) of any reclassification of the Common Stock of theCorporation (other than a subdivision or combination of itsoutstanding shares of Common Stock or a stock dividend orstock distribution thereon), or of any consolidation or

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merger of the Corporation into or with another corporation,or of the sale of all or substantially all of the assets ofthe Corporation; or

(d) of the involuntary or voluntary dissolution, liquidation orwinding up of the Corporation;

then the Corporation shall cause to be filed at its principal office, and shallcause to be mailed to the holders of the Series B Preferred Stock at their lastaddresses as shown on the records of the Corporation or its transfer agent, atleast ten (10) days prior to the date specified in (i) below or twenty (20) daysbefore the date specified in (ii) below, a notice stating

(i) the record date of such dividend, distribution, subdivision orcombination, or, if a record is not to be taken, the date as ofwhich the holders of Common Stock of record to be entitled tosuch dividend, distribution, subdivision or combination are to bedetermined, or

(ii) the date on which such reclassification, consolidation, merger,sale, dissolution, liquidation or winding up is expected tobecome effective, and the date as of which it is expected thatholders of Common Stock of record shall be entitled to exchangetheir shares of Common Stock for securities or other propertydeliverable upon such reclassification, consolidation, merger,sale, dissolution or winding up.

[the remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, this Designation of Rights, Terms and Preferencesis executed on behalf of the Corporation by its President and attested by itsAssistant Secretary this 14th day of October, 1999.


By: /s/ Shelley A. Harrison-----------------------------Name: Shelley A. HarrisonTitle Chairman and CEO

Attest: /s/ Mark A. Kissman-------------------------



Name: Mark A. KissmanTitle: Secretary

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EXHIBIT 10.104SECURED PROMISSORY NOTE-----------------------

(NOTE NO. 2)

$745,000.00 March 30, 1999

FOR VALUE RECEIVED, the undersigned ASTROTECH SPACE OPERATIONS, INC.(hereinafter "Borrower"), a Delaware corporation, hereby promises to pay to theorder of THE CIT GROUP/EQUIPMENT FINANCING, INC., a New York corporation(hereinafter "Lender"), in such coin or currency of the United States whichshall be legal tender in payment of all debts and dues, public and private, atthe time of payment, the principal sum of SEVEN HUNDRED FORTY FIVE THOUSAND ANDNO/100THS DOLLARS ($745,000.00), together with interest from and after the datehereof on so much of the principal balance hereof as may be outstanding andunpaid from time to time at the rate of interest in effect from time to timepursuant to Section 3.1 of the Loan Agreement (as hereinafter defined).

This Secured Promissory Note (this "Note") is the Note No. 2 and is issuedpursuant to, that certain Loan and Security Agreement (as at any time amended,the "Loan Agreement"), dated July 14, 1997, between Borrower and Lender, theprovisions of which are by this reference incorporated herein, and is entitledto all of the benefits and security of the Loan Agreement and the other LoanDocuments. All capitalized terms used herein, unless otherwise specificallydefined in this Note, shall have the meanings ascribed to them in the LoanAgreement.

Interest hereunder shall be computed on the basis of actual days elapsedover a period of a 360-day year unless reference to a 365 or a 366-day year isnecessary in order not to exceed the highest rate of interest that may becharged or collected under Applicable Law. Upon and after the occurrence of anEvent of Default, the outstanding principal balance of this Note shall bearinterest at a rate per annum equal to the Default Rate. In no contingency orevent whatsoever, whether by reason of advancement of the proceeds hereof orotherwise, shall the amount paid or agreed to be paid to Lender for the use,forbearance or detention of money advanced hereunder exceed the highest lawfulrate permissible under Applicable Law. It is the intent hereof that Borrowernot pay or contract to pay, and that Lender not receive or contract to receive,directly or indirectly in any manner whatsoever, interest in excess of thatwhich may be paid by Borrower under Applicable Law. Any acceleration ofindebtedness, if elected by Lender, shall be subject to all Applicable Law,including laws relating to rebate and refund of unearned charges.

The principal amount and accrued interest of this Note shall be due andpayable on the dates and in the manner hereinafter set forth:

(a) Interest shall be due and payable quarterly, in arrears, on thefirst day of each calendar quarter, commencing on April 1, 1999, and



continuing until such time as the full principal balance hereof, togetherwith all other amounts owing hereunder, shall have been paid in full;

(b) Principal shall be due and payable commencing on July 1, 1999,and continuing on the first day of each calendar quarter thereafter to andincluding the first day of April 2002, in installments of $74,500 each; and

(c) The entire remaining principal amount then outstanding, togetherwith any and all amounts due hereunder shall be due and payable on July 1,2002.

If any payment is due on a day that is not a Business Day, such paymentshall be due on the next succeeding Business Day, and interest shall continue toaccrue on the principal amount of such payment until paid. The acceptance ofpayment of any installment hereof by Lender after the date on which suchinstallment becomes due as set forth herein shall not be held to establish acustom or to constitute a waiver of any rights of Lender to enforce promptpayment of any further installment.

Borrower shall prepay this Note as provided in Section 2.3 of the LoanAgreement. Borrower may not voluntarily prepay this Note except to the extentpermitted by Section 2.4 of the Loan Agreement.

The occurrence of an Event of Default, including, without limitation,Borrower's failure to pay any installment of principal or interest on this Notein full on the due date thereof, shall constitute an event of default under thisNote and shall entitle Lender, at its option, upon or at any time after theoccurrence and during the continuance of any such event of default, to declarethe then outstanding principal balance and accrued interest hereof to be, andthe same shall thereupon become, immediately due and payable without notice toor demand upon Borrower, all of which Borrower hereby expressly waives. If thisNote is collected by or through an attorney at law, then Borrower shall beobligated to pay, in addition to the principal balance and accrued interesthereof, reasonable attorney's fees, not to exceed fifteen percent (15%) of suchprincipal and interest, and court costs.

Time is of the essence of this Note. To the fullest extent permitted byApplicable Law, Borrower, for itself and its legal representatives, successorsand assigns, expressly waives presentment, demand, protest, notice of dishonor,notice of non-payment, notice of maturity, notice of protest, presentment forthe purpose of accelerating maturity, diligence in collection, and the benefitof any exemption or insolvency laws.

Wherever possible each provision of this Note shall be interpreted in sucha manner as to be effective and valid under Applicable Law, but if any provisionof this Note shall be prohibited or invalid under Applicable Law, such provisionshall be ineffective to the extent of such prohibition or invalidity withoutinvalidating the remainder of such provision or remaining provisions of thisNote. No delay or failure on the part of Lender in the exercise of any right orremedy hereunder shall operate as a waiver thereof, nor as an acquiescence in



any default, nor shall any single or partial exercise by Lender of any right orremedy preclude any other right or remedy. Lender, at its option, may enforceits rights against any collateral securing this Note without enforcing itsrights against Borrower, any guarantor of the indebtedness evidenced hereby orany other property or indebtedness due or to become due to Borrower. Borrower

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agrees that, without releasing or impairing Borrower's liability hereunder,Lender may at any time release, surrender, substitute or exchange any collateralsecuring this Note and may at any time release any party secondarily liable forthe indebtedness evidenced by this Note.

This Note shall be governed by, and construed and enforced in accordancewith, the laws of the State of New York, and is intended to take effect as aninstrument under seal.

BORROWER WAIVES TRIAL BY JURY AND THE RIGHT TO INTERPOSE ANY COUNTERCLAIMOR SET-OFF OF ANY KIND IN ANY ACTION, SUIT OR PROCEEDING RELATING TO THIS NOTE.

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed,sealed and delivered as of the date first above written.

ATTEST. ASTROTECH SPACE OPERATIONS, INC.("Borrower")

_________________________________ By: ______________________________________William Dawson, Secretary Name: Mark A. Kissman

Title: Vice President

[CORPORATE SEAL]

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EXHIBIT 10.105

AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT

THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (this"Amendment"), dated as of the 15th day of October, 1999, is made by and betweenSPACEHAB, INCORPORATED, a Washington corporation ("SPACEHAB"), ASTROTECH SPACEOPERATIONS, INC., a Delaware corporation ("Astrotech"; together with SPACEHAB,the "Original Borrowers"), and JOHNSON ENGINEERING CORPORATION, a Coloradocorporation ("Johnson"; Johnson, Astrotech and SPACEHAB are also referred toindividually as a "Borrower" and collectively as the "Borrowers") and FIRSTUNION NATIONAL BANK, a national banking association, successor by merger toSignet Bank, a Virginia banking corporation (the "Lender").

RECITALS

A. The Lender and the Original Borrowers, entered into a Loan and SecurityAgreement dated as of the 16th day of June, 1997 (as amended through the datehereof, the "Agreement") pursuant to which the Lender has agreed to extendcredit to the Original Borrowers, and the Original Borrowers have agreed toobtain credit from the Lender, on the terms and conditions set forth in suchAgreement.

B. SPACEHAB has acquired all the outstanding stock of Johnson and the OriginalBorrowers have requested that the Lender modify the Agreement to include Johnsonas an additional borrower and make certain other modifications to the Agreement.Johnson desires to become a party to the Loan Documents and assume theobligations of a Borrower. The Lender has consented to the Borrowers' requests,subject to the execution of this Amendment and the satisfaction of theconditions specified herein.

C. The Borrowers and the Lender now desire to execute this Amendment to setforth their agreements with respect to the modifications to the Agreement.

Accordingly, for good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the Lender and the Borrowers agreeas follows:

SECTION 1. Definitions. Capitalized terms used in this Amendment-----------

and not defined herein are defined in the Agreement.

SECTION 2. Amendments to Agreement. The Agreement is hereby amended-----------------------

as follows:

2.1 Amendments to Section 1. Section 1 of the Agreement is amended-----------------------



as follows:

2.0(1) Borrowing Base. The following definition of the--------------

term Borrowing Base is hereby inserted in the proper alphabetical location inSection 1:

"Borrowing Base" means, at the time in question, the sum of (a) 75% ofEligible Billed Government Receivables and (b) 75% of Eligible BilledCommercial Receivables as depicted in the Borrowing Base Certificate theLender has most recently received pursuant to Section 2.1(d) or Section5.8(j) provided, however, that (i) the Borrowing Base shall be reduced bythe Letter of Credit

Exposure at such time and (ii) at all times the Borrowing Base shall remainsubject to verification by the Lender.

2.0(2) Borrowing Base Certificate. The following--------------------------

definition of the term Borrowing Base Certificate is hereby inserted in theproper alphabetical location in Section 1:

"Borrowing Base Certificate" means a certificate of the Borrowerssubstantially in the form attached hereto as Exhibit A-1 (or suchsubsequent form as the Lender shall require) containing a computation ofthe Borrowing Base as of the date depicted therein and a certification thatno Default or Event of Default has occurred and is continuing.

2.0(3) Commercial Customer. The following definition of-------------------

the term Commercial Customer is hereby inserted in the proper alphabeticallocation in Section 1:

"Commercial Customer" means any Customer other than the Government.

2.0(4) Eligible Billed Commercial Receivable. The following-------------------------------------

definition of the term Eligible Billed Commercial Receivable is hereby insertedin the proper alphabetical location in Section 1:

"Eligible Billed Commercial Receivable" means any Eligible BilledReceivable which does not arise out of a prime contract between a Borrowerand the Government; provided that, for so long as (i) more than 50% of theEligible Receivables due from any individual Commercial Customer or groupof Commercial Customers which are Affiliates of each other remains unpaidfor more than 90 days following the date of initial invoice to suchCommercial Customer(s) for such Eligible Receivables or (ii) any CommercialCustomer or an Affiliate of a Commercial Customer is obligated to aBorrower pursuant to a promissory note or other agreement entered into bysuch Commercial Customer or Affiliate in lieu of payment of an Account



Receivable, then no Accounts Receivable of such Commercial Customer(s) maybe included as Eligible Billed Commercial Receivables.

2.0(5) Eligible Billed Government Receivable. The following-------------------------------------

definition of the term Eligible Billed Government Receivable is hereby insertedin the proper alphabetical location in Section 1:

"Eligible Billed Government Receivable" means any Eligible BilledReceivable which arises out of a prime contract between a Borrower and theGovernment.

2.0(6) Eligible Billed Receivable. The following definition--------------------------

of the term Eligible Billed Receivable is hereby inserted in the properalphabetical location in Section 1:

"Eligible Billed Receivable" means any Eligible Receivable that hasbeen billed to the appropriate Customer and is aged less than 90 days fromthe date of the initial invoice.

2

2.0(7) Eligible Receivable. The following definition of the-------------------

term Eligible Receivable is hereby inserted in the proper alphabetical locationin Section 1:

"Eligible Receivable" means any Account Receivable of a Borrower (a)that represents valid obligations of a Customer to make payment to suchBorrower for goods shipped or delivered or services completed under valid,written contracts of sale or service entered into by such Borrower in theordinary course of its business; (b) on which the Customer is not anAffiliate, shareholder, employee, director, or officer of a Borrower or afamily member of any such Person; (c) with respect to which the Borrowershave no knowledge or notice of any inability of the Customer to make fullpayment; (d) from the face amount of which has been deducted all payments,set-offs, contras, amounts subject to adverse claims made in writing to aBorrower, contractual allowances, bad debt reserves, prompt paymentdiscounts and other credits applicable thereto; (e) that is subject to noLiens other than those permitted by this Agreement; (f) that continues tobe in full conformity with the representations and warranties made by theBorrowers to the Lender in this Agreement with respect thereto; (g) withrespect to which the Lender is and continues to be satisfied with thecredit standing of the Customer; (h) on which the Customer is not a foreigngovernment or an entity organized and existing under the laws of a countryother than the United States; (i) which is not an Excluded Government FinalInvoice Receivable; (j) which is not an Account Receivable the payment forwhich flows through an escrow account from which any Person other than suchBorrower is entitled to payment; (k) which does not arise from a contract



on which such Borrowers' performance is assured by a performance,completion or other bond; (1) which is payable in U.S. Dollars (or if notis backed by a letter of credit acceptable to the Lender); (m) which is notsubject to repurchase or return such as bill and hold, sale or return, saleon approval, consignment, guaranteed sale, etc.; (n) which is not evidencedby chattel paper or an instrument; and (o) which is not subject to anyfunding contingency or could otherwise be classified as "at-risk" work;provided, however, and without limiting any other provisions of thisAgreement with respect to the exclusion of Accounts Receivable from thecategory of Eligible Receivables and the Borrowing Base, that if the Lenderreasonably determines that the collectability of any Account Receivablemakes it unacceptable for inclusion in the Borrowing Base and gives writtennotice to the Borrowers indicating the reasons for such determination, thensuch Account Receivable shall thereafter be excluded from the category ofEligible Receivables. The following are examples of Accounts Receivable (orportions thereof) that the Lender does not normally find acceptable forinclusion in the Borrowing Base, and no such Account Receivable (or thespecified portion thereof) shall be includable in the Borrowing Basewithout the advance written approval of the Lender: (i) Accounts Receivablethat the Lender does not consider to be trade Accounts Receivable (such aslease payments or notes receivable from account debtors given insatisfaction of prior Account Receivable obligations); (ii) AccountsReceivable which, in the Lender's judgment, a Borrower should notreasonably expect to collect within 90 days from the date of originalinvoice; (iii) that portion of any Account Receivable constitutingretainage that has been withheld by the account debtor pending completionof the contract; and (iv) that portion of any Account Receivable

3

constituting a service charge or similar charge imposed by a Borrower forthe extension of credit to the account debtor.

2.0(8) Financial Reporting Month. The following definition-------------------------

of the term Financial Reporting Month is hereby inserted in the properalphabetical location in Section 1:

"Financial Reporting Month" means a calendar month or such othersubstantially equivalent financial reporting period adopted by a Borrowerand approved by the Lender.

2.0(9) Maximum Amount. The definition of the term Maximum--------------

Amount is hereby amended and restated in its entirety as follows:

"Maximum Amount" means, at any time, the lesser of (a) the differencebetween $10,000,000 and the Letter of Credit Exposure as of such time and(b) the then applicable Borrowing Base.



2.0(10) Termination Date. The definition of the term----------------

Termination Date is hereby amended and restated in its entirety as follows:

"Termination Date" means January 31, 2000, and any extension orextensions thereof granted by the Lender in its sole discretion.

2.2 Amendments to Section 2.-----------------------

2.0(1) Section 2.1(a). Section 2.1(a) is hereby amended--------------

and restated in its entirety as follows:

(a) Subject to the terms and conditions of this Agreement, includingthe receipt of an Advance Request therefor, the Lender agrees to make Loansto the Borrowers (through SPACEHAB as their agent) from time to time untilthe Termination Date unless, after giving effect to any such Loan (i) thePrincipal Amount would exceed the Maximum Amount, (ii) the Borrowers thenhave, or as a result of such Loan would have, an obligation to prepay anyLoan, or (iii) the Borrowers then have, or as a result of such Loan wouldhave, an obligation to provide additional collateral to the Lender pursuantto Section 2.1(b) hereof; provided, however that, for the purposes of allsuch calculations, Loans to be repaid by Loans to be advanced on such dateshall be excluded from the Principal Amount. Subject to the foregoinglimitations, the Borrowers (acting through SPACEHAB as their agent) mayborrow, repay without penalty and re-borrow hereunder from the date hereofuntil the Termination Date.

2.0(2) Section 2.1(b). Section 2.1(b) is hereby amended--------------


(b) If the Principal Amount exceeds the Maximum Amount, the Borrowersshall immediately prepay the Loans to the extent necessary to reduce suchexcess. If after such prepayment the Letter of Credit Exposure exceeds thesum of (a) 75%

4

of Eligible Billed Government Receivables and (b) 75% of Eligible BilledCommercial Receivables as depicted in the Borrowing Base Certificate theLender has most recently received pursuant to Section 2.1(d) or Section5.8(j), the Borrowers shall immediately deliver to the Lender suchadditional collateral as the Lender shall deem necessary to adequatelysecure the Borrowers' obligations with respect to such Letter of CreditExposure.

2.0(3) Section 2.1(d). Section 2.1(d) is hereby amended--------------




(d) The Borrowers may request that a Loan be made by submitting anAdvance Request which, at the option of the Lender, shall be accompanied bya current Borrowing Base Certificate. Each Advance Request (and BorrowingBase Certificate, if applicable) must be received by the Lender not laterthan 1:00 p.m. (Washington, D.C. time) on the date on which the Loanrequested thereby is to be made. Advance Requests (and Borrowing BaseCertificates, if applicable) may be transmitted by telecopy to the Lenderat (703) 760-5450 or such other number as the Lender may designate inwritten notice to the Borrowers. If an Advance Request (and Borrowing BaseCertificate, if applicable) is transmitted by telecopy, the Borrowers shallmaintain the original of such Advance Request (and Borrowing BaseCertificate, if applicable) as a permanent record for so long as any of theObligations remain outstanding and shall allow the Lender to inspect suchAdvance Request (and Borrowing Base Certificate, if applicable) and shallprovide copies of such original to the Lender upon its request therefor.The proceeds of a Loan will be credited to the Operating Account. Loans maybe requested by those individuals designated by SPACEHAB from time to timein written instruments delivered to the Lender; provided, however, that theBorrowers shall remain liable with respect to any Loan disbursed by theLender in good faith hereunder, even if such a Loan is requested by anindividual who has not been so designated. The Borrowers agree to confirmin writing from time to time, when and as requested by the Lender, thepurpose for which the proceeds of each Loan were used.


1.2(1) Section 4.17. The following is hereby inserted as------------

a new Section 4.17.

4.17. Integrated Business. The Borrowers will be engaged as an-------------------

integrated group in providing services and goods to their respective Customers.The integrated operation will require financing on a basis such that credit besupplied to the Borrowers based on the consolidated assets of the Borrowers, asrequired for the successful operation of the Borrowers separately, and theintegrated operation as a whole. In that connection, the Borrowers will requestthat the Lenders provide the Loans to, and issue the Letters of Credit for theaccount of, SPACEHAB, as agent for the Borrowers, to finance such operation.Each Borrower will derive benefit, directly and indirectly, from the credit soextended to the Borrowers, both in its, separate capacity and as a member of theintegrated group.

5




1.3(1) Section 5.8(j). The following is hereby inserted--------------

as a new Section 5.80):

(j) Borrowing Base Certificate and Accounts Receivable Detail. On or---------------------------------------------------------

before the tenth (10th) day of each Financial Reporting Month, a Borrowing BaseCertificate appropriately completed and executed by the chief financial officerof each Borrower, the Treasurer of each Borrower or such other financial officerof each Borrower as is acceptable to the Lender and including a computation ofthe Borrowing Base as of the last day of the previous Financial Reporting Month,accompanied by (i) schedules of all outstanding Accounts Receivable as of thelast day of the previous Financial Reporting Month showing the age of suchAccounts Receivable from the date of original invoice in intervals of not morethan thirty (30) days, (ii) such other supporting documents to the schedules asLender may from time to time reasonably request, and (iii) such invoices,instruments, chattel paper and other evidences of indebtedness representing anyAccounts Receivable, duly endorsed in blank or to the Lender, as the Lender mayrequest; and

2.1(4) Section 5.8(k). The following is hereby inserted--------------

as a new Section 5.8(k):

(k) Contract Backlog Report. If requested by the Lender, reports-----------------------

relating to the Accounts Receivable included in any Borrowing Base Certificatesetting forth a description of contracts giving rise to such AccountsReceivable, the percentage of completion of the work to be performed withrespect to such contracts, the amounts billed under such contracts and theamounts remaining to be billed, in form and detail satisfactory to the Lender.

2.1(5) Section 5.12. Section 5.12 is hereby amended and------------

restated in its entirety as follows:

(a) Minimum Tangible Net Worth. Cause Tangible Net Worth to be at--------------------------

least $60,000,000.00. The Lender shall calculate Tangible Net Worth for thepurpose of measuring the Borrowers' compliance with foregoing covenant usinginformation contained in the consolidated balance sheet of SPACEHAB included ineach Form 10-Q or Form 10-K that the Borrowers are required to deliver to theLender under this Agreement.

(b) Current Ratio. Cause the Current Ratio to be at least 1.2 to 1.-------------

The Lender shall calculate the Current Ratio for the purpose of measuring theBorrowers' compliance with foregoing covenant using information contained in theconsolidated financial statements of SPACEHAB included in each Form 10-Q or Form10-K that the Borrowers are required to deliver to the Lender under this



Agreement.

6

2.5 Amendments to Exhibits.----------------------

1.4(1) Exhibit A-1. Exhibit A-1 attached hereto is hereby-----------

inserted as Exhibit A-1 to the Agreement.

SECTION 3. Representations and Warranties of the Borrowers.-----------------------------------------------

Each Borrower represents and warrants to the Lender that:

(a) It has the power and authority to enter into and toperform this Amendment, to execute and deliver all documents relating tothis Amendment, and to incur the obligations provided for in thisAmendment, all of which have been duly authorized and approved inaccordance with such Borrower's corporate documents;

(b) This Amendment, together with all documents executedpursuant hereto, shall constitute when executed the valid and legallybinding obligations of the Borrowers in accordance with their respectiveterms;

(c) Except with respect to events or circumstancesoccurring subsequent to the date thereof and known to the Lender, allrepresentations and warranties made in the Agreement are true and correctas of the date hereof, with the same force and effect as if allrepresentations and warranties were fully set forth herein;

(d) Each Borrower's obligations under the Loan Documentsremain valid and enforceable obligations, and the execution and delivery ofthis Amendment and the other documents executed in connection herewithshall not be construed as a novation of the Agreement or any of the otherLoan Documents; and

(e) As of the date hereof, no Borrower has any offsets ordefenses against the payment of any of the Obligations.

SECTION 4. Waiver of Claims. As a specific inducement to----------------

the Lender without which the Borrowers acknowledge the Lender would notenter into this Amendment and the other documents executed in connectionherewith, the Borrowers hereby waive any and all claims that they may haveagainst the Lender, as of the date hereof, arising out of or relating tothe Agreement or any other Loan Document whether sounding in contract, tortor any other basis.



SECTION 3. Conditions of Effectiveness. This Amendment shall become---------------------------

effective when, and only when, the Borrowers have executed and completed thisAmendment, have delivered this Amendment to the Lender and have reimbursed theLender for the Lender's costs and expenses incurred in connection with theAmendment, but upon the occurrence of such conditions, this Amendment shall bedeemed to be effective as of October 15, 1999.

SECTION 4. Provisions Regarding Joinder of Johnson.---------------------------------------

(a) Johnson hereby acknowledges, agrees and confirms that, by itsexecution of this Amendment, it will be deemed to be a party to the Agreementand the other Loan Documents and a "Borrower" for all purposes thereof, andshall have all of the obligations of a Borrower

7

thereunder as if it had executed the such documents. Johnson hereby ratifies, asof the date hereof, and agrees to be bound by, all of the terms, provisions andconditions contained in the Agreement and the other Loan Documents, includingwithout limitation all of the undertakings and waivers set forth therein.

(b) Each Borrower hereby agrees, as between it and any otherBorrower, that if any other Borrower shall become an Excess ContributingBorrower (as defined below) by reason of the payment by such Borrower of anyObligations, the Borrower shall, on demand of such Excess Contributing Borrower(but subject to the next sentence), pay to each Excess Contributing Borrower anamount equal to such Borrower's Pro Rata Share (as defined below and determined,for this purpose, without reference to the assets, debts and liabilities of suchExcess Contributing Borrower) of the Excess Payment (as defined below) inrespect of such Obligations. The payment obligation of the Borrower to anyExcess Contributing Borrower hereunder shall be subordinate and subject in rightof payment to the prior payment in full of the Obligations, and no ExcessContributing Borrower shall exercise any right or remedy with respect to suchexcess until payment and satisfaction in full of all of Obligations. Forpurposes hereof, (1) "Excess Contributing Borrower" shall mean, in respect ofany Obligations, a Borrower that has paid an amount in excess of its Pro RataShare of such Obligations; (2) "Excess Payment" shall mean, in respect of anyObligations, the amount paid by an Excess Contributing Borrower in excess of itsPro Rata Share of such Obligations; and (3) "Pro Rata Share" shall mean, for anyBorrower, the ratio (expressed as a percentage) of (i) the amount by which theaggregate present fair saleable value of all assets of such Borrower (excludingany shares of stock of any other Borrower) exceeds the amount of all the debtsand liabilities of such Borrower (including contingent, subordinated, unmaturedand unliquidated liabilities, but excluding the obligations of the Borrower withrespect to the Obligations and any obligations of any other Borrower that havebeen guaranteed by the Borrower) to (ii) the amount by which the aggregate fairsaleable value of all assets of the Borrowers exceeds the amount of all thedebts and liabilities (including contingent, subordinated, unmatured and



unliquidated liabilities, but excluding the Obligations) of the Borrowers, allas of the date hereof. If any other Person becomes a Borrower subsequent to thedate hereof, then for purposes of this Section, such Person shall be deemed tohave been a Borrower as of the date hereof, and the aggregate present fairsaleable value of the assets, and the amount of the debts and liabilities, ofsuch Person as of the date hereof shall be deemed to be equal to such value andamount on the date such Person becomes a Borrower.

(c) In any action or proceeding involving any state corporate law, orany state or Federal bankruptcy, insolvency, reorganization or other lawaffecting the rights of creditors generally, if the obligations of a Borrowerwith respect to the Obligations would otherwise, taking into account theprovisions of this Section, be held or determined to be void, invalid orunenforceable, or subordinated to the claims of any other creditors, on accountof the amount of its liability with respect to the Obligations, then,notwithstanding any other provision of the Loan Documents to the contrary, theamount of such liability shall, without any further action by the Borrower, theLender, or any other Person, be automatically limited and reduced to the highestamount that is valid and enforceable and not subordinated to the claims of othercreditors as determined in such action or proceeding.

8

SECTION 5. Miscellaneous.-------------

5.1 Reference To Agreement. Upon the effectiveness of this Amendment,----------------------

each reference in the Agreement to "this Agreement" and each reference in theother Loan Documents to the Agreement, shall mean and be a reference to theAgreement as amended hereby.

4.1 Effect on Loan Documents and Accrued and Unpaid Interest,---------------------------------------------------------

Fees and Other Charges. Except as specifically amended above, the----------------------Agreement and all other Loan Documents shall remain in full force andeffect and are hereby ratified and confirmed. Without limiting thegenerality of the foregoing, all Collateral given to secure the Obligationsof the Borrowers under the Agreement and the other Loan Documents prior tothe date hereof does and shall continue to secure all Obligations of theBorrowers under the Agreement, as amended hereby and the other LoanDocuments, and, except as provided in the Agreement and the other LoanDocuments, no such Collateral shall be released until all conditions tosuch release contained in the Loan Documents are satisfied. Any interest,fees and other charges due under the Agreement which have accrued andremain unpaid as of the effective date of this Amendment shall be paid onthe next succeeding date that any such charge which has accrued on or afterthe effective date of this Amendment is due under the Agreement, as amendedhereby, unless any such charge is discontinued by this Amendment, in which



event the Borrowers shall pay the accrued and unpaid portion thereof uponexecution of this Amendment.

5.2 No Waiver. The execution, delivery and effectiveness of this---------

Amendment shall not operate as a waiver of any right, power or remedy of theLender under any of the Loan Documents, nor constitute a waiver of any provisionof any of the Loan Documents.

5.3 Costs, Expenses and Taxes. The Borrowers agree to pay on demand-------------------------

all costs and expenses of the Lender in connection with the preparation,reproduction, execution and delivery of this Amendment and the other instrumentsand documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto.

4.2 Governing Law. This Amendment shall be governed by and-------------

construed in accordance with the laws of the Commonwealth of Virginia,without giving effect to conflict of law provisions.

9

IN WITNESS WHEREOF, the Borrowers and the Lender have caused thisAmendment to be signed by their duly authorized representatives under seal allas of the day and year first above written.

SPACEHAB, INCORPORATED, a WashingtonCorporation

By: ________________________________

ATTEST: Name: ________________________________

___________________ Title: ________________________________(Asst.) Secretary[corporate seal]

ASTROTECH SPACE OPERATIONS, INC., aDelaware Corporation

By: ________________________________

ATTEST: Name: ________________________________


JOHNSON ENGINEERING, INCORPORATED, aColorado Corporation



By: ________________________________

ATTEST: Name: ________________________________


FIRST UNION NATIONAL BANK, successor bymerger to Signet Bank, a Virginia bankingcorporation

ATTEST: By: _____________________________________________________ Michael J. Landini, Vice President(Asst.) Secretary[corporate seal]

10

EXHIBIT A-1

FORM OF BORROWING BASE CERTIFICATE



EXHIBIT 10.108


THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT (this "Amendment"),dated as of the 31st day of January, 2000, is made by and between SPACEHAB,INCORPORATED, a Washington corporation ("SPACEHAB"), ASTROTECH SPACE OPERATIONS,INC., a Delaware corporation ("Astrotech"; together with SPACEHAB, the "OriginalBorrowers"), and JOHNSON ENGINEERING CORPORATION, a Colorado corporation("Johnson"; Johnson, Astrotech and SPACEHAB are also referred to individually asa "Borrower" and collectively as the "Borrowers") and FIRST UNION NATIONAL BANK,a national banking association, successor by merger to Signet Bank, a Virginiabanking corporation ("the "Lender").

RECITALS


B. Johnson is a wholly-owned Subsidiary of SPACEHAB, and, at the request ofthe Original Borrowers, Johnson became a Borrower pursuant to Amendment No. 2 toLoan and Security Agreement, dated as of October 15, 1999, executed by theLender and the Borrowers.

C. The Borrowers have requested that the Lender modify the Agreement to extendthe Termination Date, and the Lender has consented to the Borrowers' request,subject to the execution of this Amendment and the satisfaction of theconditions specified herein.

D. The Borrowers and the Lender now desire to execute this Amendment to setforth their agreements with respect to the modifications to the Agreement.


Section 1. Definitions. Capitalized terms used in this Amendment and not-----------

defined herein as defined in the Agreement.

Section 2. Amendments to Agreement. The Agreement is hereby amended as-----------------------

follows:



2.1 Amendments to Section 1. Section 1 of the Agreement is amended-----------------------

as follows:

2.1(a) Termination Date. The definition of the term----------------

Termination Date is hereby amended and restated in its entirety as follows:

"Termination Date" means May 19, 2000, and any extension orextensions thereof granted by the Lender in its sole discretion.

Section 3. Representations and Warranties of the Borrowers. Each Borrower-----------------------------------------------

represents and warrants to the Lender that:

(a) It has the power and authority to enter into and toperform this Amendment, to execute and deliver all documents relating to thisAmendment, and to incur the obligations provided for in this Amendment, all ofwhich have been duly authorized and approved in accordance with such Borrower'scorporate documents;

(b) This Amendment, together with all documents executedpursuant hereto, shall constitute when executed the valid and legally bindingobligations of the Borrowers in accordance with their respective terms;

(c) Except with respect to events or circumstances occurringsubsequent to the date thereof and known to the Lender, all representations andwarranties made in the Agreement are true and correct as of the date hereof,with the same force and effect as if all representations and warranties werefully set forth herein;

(d) Each Borrower's obligations under the Loan Documentsremain valid and enforceable obligations, and the execution and delivery of thisAmendment and the other documents executed in connection herewith shall not beconstrued as a novation of the Agreement or any of the other Loan Documents; and

(e) As of the date hereof, no Borrower has any offsets ordefenses against the payment of any of the Obligations.

Section 4. Waiver of Claims. As a specific inducement to the Lender----------------

without which the Borrowers acknowledge the Lender would not enter into thisAmendment and the other documents executed in connection herewith, the Borrowershereby waive any and all claims that they may have against the Lender, as of thedate hereof, arising out of or relating to the Agreement or any other LoanDocument whether sounding in contract, tort or any other basis.

Section 5. Conditions of Effectiveness. This Amendment shall become---------------------------

effective when, and only when, the Borrowers have executed and completed this



Amendment, have delivered this Amendment to the Lender and have reimbursed theLender for the Lender's costs and expenses incurred in connection with theAmendment, but upon the occurrence of such conditions, this Amendment shall bedeemed to be effective as of January 31, 2000.

Section 6. Miscellaneous.

6.1 Reference To Agreement. Upon the effectiveness of this----------------------

Amendment, each reference in the Agreement to "this Agreement" and eachreference in

2

the other Loan Documents to the Agreement, shall mean and be a reference to theAgreement as amended hereby.

6.2 Effect on Loan Documents and Accrued and Unpaid Interest,---------------------------------------------------------

Fees an Other Charges. Except as specifically amended above, the Agreement and---------------------all other Loan Documents shall remain in full force and effect and are herebyratified and confirmed. Without limiting the generality of the foregoing, allCollateral given to secure the Obligations of the Borrowers under the Agreementand the other Loan Documents prior to the date hereof does and shall continue tosecure all Obligations of the Borrowers under the Agreement, as amended herebyand the other Loan Documents, and, except as provided in the Agreement and theother Loan Documents, no such Collateral shall be released until all conditionsto such release contained in the Loan Documents are satisfied. Any interest,fees and other charges due under the Agreement which have accrued and remainunpaid as of the effective date of this Amendment shall be paid on the nextsucceeding date that any such charge which has accrued on or after the effectivedate of this Amendment is due under the Agreement, as amended hereby, unless anysuch charge is discontinued by this Amendment, in which event the Borrowersshall pay the accrued and unpaid portion thereof upon execution of thisAmendment.

6.3 No Waiver. The execution, delivery and effectiveness of---------

this Amendment shall not operate as a waiver of any right, power or remedy ofthe Lender under any of the Loan Documents, nor constitute a waiver of anyprovision of any of the Loan Documents.

6.4 Costs, Expenses and Taxes. The Borrowers agree to pay on-------------------------

demand all costs and expenses of the Lender in connection with the preparation,reproduction, execution and delivery of this Amendment and the other instrumentsand documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto.



6.5 Governing Law. This Amendment shall be governed by and-------------

construed in accordance with the laws of the Commonwealth of Virginia, withoutgiving effect to conflict of law provisions.

[remainder of page left blank intentionally]

3

IN WITNESS WHEREOF, the Borrowers and the Lender have caused this Amendmentto be signed by their duly authorized representatives under seal all as of theday and year first above written.

SPACEHAB, INCORPORATED,a Washington corporation

ATTEST: By: __________________________________

________________________ Name: ________________________________(Asst.) Secretary[corporate seal] Title: _______________________________

ASTROTECH SPACE OPERATIONS, INC.,a Delaware corporation

ATTEST: By: __________________________________


JOHNSON ENGINEERING, INCORPORATED,A Colorado corporation

ATTEST: By: __________________________________


FIRST UNION NATIONAL BANK,a national banking association, successorby merger to Signet Bank, a Virginiabanking corporation



By: __________________________________

4



Exhibit 10.109

EMPLOYMENT AND NON-INTERFERENCE AGREEMENT-----------------------------------------

This Employment and Non-Interference Agreement (this "Agreement"), is---------

dated as of February 14, 2000, by and between Julia A. Pulzone (the "Executive")---------

and SPACEHAB, Incorporated, a Washington corporation (the "Company").-------

WHEREAS, the Company wishes to retain the future services of Executivefor the Company;

WHEREAS, Executive is willing, upon the terms and conditions set forthin this Agreement, to provide services hereunder; and

WHEREAS, the Company wishes to secure Executive's non-interference,upon the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenantscontained herein, and intending to be legally bound hereby, the parties heretoagree as follows:

1. Nature of Employment--------------------

Subject to Section 3, the Company hereby employs Executive, and---------

Executive agrees to accept such employment, during the Term of Employment (asdefined in Section 3(a)), as Vice President, Finance and Chief Financial Officer

------------and to undertake such duties and responsibilities as may be reasonably assignedto Executive from time to time by the Chief Executive Officer, Board ofDirectors of the Company, or such other appropriately authorized or designatedexecutive officer of the Company.

2. Extent of Employment--------------------

(a) During the Term of Employment, Executive shall perform herobligations hereunder faithfully and to the best of her ability under thedirection of the Chief Executive Officer, Chief Operating Officer, Board ofDirectors of the Company, or such other appropriately authorized or designatedexecutive officer of the Company, and shall abide by the rules, customs andusages from time to time established by the Company.



(b) During the Term of Employment, Executive shall devote all of herbusiness time, energy and skill as may be reasonably necessary for theperformance of her duties, responsibilities and obligations under this Agreement(except for vacation periods and reasonable periods of illness or otherincapacity), consistent with past practices and norms with respect to similarpositions.

(c) Nothing contained herein shall require Executive to follow anydirective or to perform any act which would violate any laws, ordinances,regulations or rules of any governmental, regulatory or administrative body,agent or authority, any court or judicial authority, or any public, private orindustry regulatory authority. Executive shall act in accordance with the laws,ordinances, regulations or rules of any

governmental, regulatory or administrative body, agent or authority, any courtor judicial authority, or any public, private or industry regulatory authority.

3. Term of Employment; Termination-------------------------------

(a) The "Term of Employment" shall commence on February 14, 2000 and------------------

shall continue through July 1/st/, 2001 (the "Initial Term"), subject to------------

automatic annual renewal for one-year terms thereafter (the "Additional Term"),---------------

unless either the Company or Executive notifies the other party of its intentnot to renew at least ninety (90) days prior to the end of the Initial Term orAdditional Term as the case may be. Should Executive's employment by theCompany be earlier terminated pursuant to Section 3(b), the Term of Employment

------------shall end on the date of such earlier termination.

(b) Subject to the payments contemplated by Section 3(d), the Term of------------

Employment may be terminated at any time by the Company:

(i) upon the death of Executive;

(ii) in the event that because of physical or mental disability,Executive is unable to perform and does not perform her dutieshereunder, for a continuous period of 90 days, and an experienced,recognized physician specializing in such disabilities certifies as tothe foregoing in writing;

(iii) for Cause or Material Breach (each as defined in Section-------

3(d));----



(iv) upon the continuous poor or unacceptable performance ofExecutive's duties to the Company, in the sole judgment of the Boardof Directors of the Company, which has remained uncured for a periodof 90 days after the delivery of notice by the Company to theExecutive of such dissatisfaction with Executive's performance; or

(v) for any other reason not referred to in clauses (i) through(iv), or for no reason, such that this Agreement shall be construed asterminable at will by the Company.

Executive acknowledges that no representations or promises have been madeconcerning the grounds for termination or the future operation of the Company'sbusiness, and that nothing contained herein or otherwise stated by or on behalfof the Company modifies or amends the right of the Company to terminateExecutive at any time, with or without Material Breach or Cause. Terminationshall become effective upon the delivery by the Company to Executive of noticespecifying such termination and the reasons therefor, subject to therequirements for advance notice and an opportunity to cure provided in thisAgreement, if and to the extent applicable.

2

(c) Subject to the payments contemplated by Section 3(d), the Term of------------

Employment may be terminated at any time by Executive:

(i) upon the death of Executive;

(ii) in the event that because of physical or mental disability,Executive is unable to perform and does not perform her dutieshereunder, for a continuous period of 90 days, and an experienced,recognized physician specializing in such disabilities certifies as tothe foregoing in writing;

(iii) as a result of the Company's material reduction inExecutive's authority, perquisites, position, title orresponsibilities (other than such a reduction by the Company becauseof a temporary illness or disability or such a reduction which affectsall of the Company's senior executives on a substantially equal orproportionate basis as a result of financial results, conditions,prospects, reorganization, workout or distressed condition of theCompany), or the Company's willful, material violation of itsobligations under this Agreement, in each case, after 30 days' priorwritten notice by Executive to the Company and its Board of Directorsand the Company's failure thereafter to cure such reduction orviolation within such 30 days; or

(iv) voluntarily or for any reason not referred to in clauses(i) through (iii), or for no reason, in each case, after 90 days'prior written notice to the Company and its Board of Directors.



(d) For the purposes of this Section 3:---------

"Cause" shall mean any of the following: (i) Executive's conviction-----

of any crime or criminal offense involving the unlawful theft or conversion ofsubstantial monies or other property or any other felony (other than a criminaloffense arising solely under a statutory provision imposing criminal liabilityon the Executive on a per se basis due to the offices held by the Executive); or

--- --(ii) Executive's conviction of fraud or embezzlement.

"Material Breach" shall mean any of the following: (i) Executive's---------------

breach of any of his fiduciary duties to the Company or its stockholders ormaking of a willful misrepresentation or omission which breach,misrepresentation or omission would reasonably be expected to materiallyadversely affect the business, properties, assets, condition (financial orother) or prospects of the Company; (ii) Executive's willful, continual andmaterial neglect or failure to discharge his duties, responsibilities orobligations prescribed by Sections 1 and 2 (other than arising solely due to

---------- -physical or mental disability); (iii) Executive's habitual drunkenness orsubstance abuse which materially interferes with Executive's ability todischarge her duties, responsibilities or obligations prescribed by Sections 1

----------and 2; (iv) Executive's willful, continual and material breach of any

-noncompetition or confidentiality agreement with the Company,

3

including without limitation, those set forth in Sections 7 and 8 of this---------- -

Agreement; and (v) Executive's gross neglect of her duties and responsibilities,as determined by the Company's Board of Directors; in each case, for purposes ofclauses (i) through (v), after the Company or the Board of Directors hasprovided Executive with 30 days' written notice of such circumstances and thepossibility of a Material Breach, and Executive fails to cure such circumstancesand Material Breach within those 30 days.

(i) In the event Executive's employment is terminated pursuant

to Section 3(b)(i) [death], 3(b)(ii) [disability] or 3(b)(v) [any--------------- -------- -------

other reason or no reason] or 3(c)(i) [death], 3(c)(ii) [disability]------- --------

or 3(c)(iii) [material reduction], the Company will: (A) pay to---------



Executive (or her estate or representative) the full amounts to whichthe Executive would be entitled to under Section 4(a) for the period

------------from effectiveness of termination through the sixth month anniversaryof termination; and (B) pay to Executive (or his estate orrepresentative) the benefits described in Section 6 through the sixth

---------month anniversary of termination.

Payment of the amounts and provision of the benefits describedabove will be made in accordance with the timetable and schedule forsuch payments contemplated therefor as if such termination did notoccur, and will be subject to the other provisions of this Agreement,including Section 3(g) and Sections 7 and 8. If the Company makes the

------------ ---------- -payments required by this Section 3(d)(i), such payments will

---------------constitute severance and liquidated damages, and the Company will notbe obligated to pay any further amounts to Executive under thisAgreement or otherwise be liable to Executive in connection with anytermination.

(ii) In the event Executive's employment is terminated pursuantto Section 3(b)(iii) [Cause or Material Breach], 3(b)(iv) [poor

----------------- --------performance], or 3(c)(iv) [voluntary], the Company will not be

--------obligated to pay any further amounts to Executive under thisAgreement.

(e) In the event the Term of Employment is terminated and the Companyis obligated to make payments to Executive pursuant to Section 3(d)(i),

---------------Executive shall have a duty to seek to obtain alternative employment; and ifExecutive thereafter obtains alternative employment, the Company's paymentobligations under Section 3(d)(i), including its obligation to provide insurance

---------------coverage, if any, will be mitigated and reduced by and to the extent ofExecutive's compensation under such alternative employment during the period forwhich payments are owed by the Company pursuant to Section 3(d)(i). Moreover,

---------------in the event that Executive is employed by or engaged in a Competitive Businessas contemplated by Section 8(a)(i), then the Company will thereupon no longer be

---------------obligated to make payments under Section 3(d)(i).

---------------

(f) In the event the Term of Employment is terminated and the Companyis obligated to make payments pursuant to Section 3(d)(i), Executive hereby

---------------waives any and all claims against the Company and its respective officers,



directors,

4

employees, agents, or representatives, stockholders and affiliates relating toher employment during the term hereof and this Agreement.

(g) Termination of the Term of Employment will not terminate Sections--------

3(d), 3(f), and 7 through 21.---- ---- - --

4. Compensation------------

During the Term of Employment, the Company shall pay to Executive:

(a) As base compensation for her services hereunder, in semi-monthlyinstallments, a base salary at a rate of not less than $185,000 per annum. Suchamounts may be increased (but not decreased) annually at the discretion of theCompensation Committee of the Board of Directors based upon an annual review bythe Compensation Committee of the Board of Directors of Executive's performance.

(b) An annual incentive bonus, if any, based on Executive's and/orCompany's performance as determined and approved by the Compensation Committeeof the Board of Directors.

(c) An annual stock option grant, if any, based on Executive's,Company's and/or Company Stock performance as determined and approved by theCompensation Committee of the Board of Directors.

5. Reimbursement of Expenses-------------------------

During the Term of Employment, the Company shall pay all expenses,including without limitation, transportation, lodging and food for Executive toattend conventions, conferences and meetings that the Company determines arenecessary or in the best interest of the Company, and for any ordinary andreasonable expenses incurred by Executive in the conduct of the Business of theCompany. Travel outside the United States shall be subject to the priorapproval of an executive officer of the Company.

6. Benefits--------

During the Term of Employment, Executive shall be entitled to benefits(including health, disability, pension and life insurance benefits consistentwith Company policy, or as increased from time to time), in each case, inaccordance with guidelines or established from time to time, by the Board ofDirectors for senior executives of the Company.



7. Confidential Information------------------------

(a) Executive acknowledges that her employment hereunder gives heraccess to Confidential Information relating to the Company's Business and itscustomers which must remain confidential. Executive acknowledges that thisinformation is valuable, special, and a unique asset of the Company's Business,and that it has been and will be developed by the Company at considerable effortand expense, and if it were to be

5

known and used by others engaged in a Competitive Business, it would be harmfuland detrimental to the interests of the Company. In consideration of theforegoing, Executive hereby agrees and covenants that, during and after the Termof Employment, Executive will not, directly or indirectly in one or a series oftransactions, disclose to any person, or use or otherwise exploit forExecutive's own benefit or for the benefit of anyone other than the Companies,Confidential Information (as defined in Section 10), whether prepared by

----------Executive or not; provided, however, that any Confidential Information may be

-------- -------disclosed to officers, representatives, employees and agents of the Companieswho need to know such Confidential Information in order to perform the servicesor conduct the operations required or expected of them in the Business (asdefined in Section 10). Executive shall his best efforts to prevent the removal

----------of any Confidential Information from the premises of the Companies, except asrequired in her normal course of employment by the Company. Executive shall useher best efforts to cause all persons or entities to whom any ConfidentialInformation shall be disclosed by him hereunder to observe the terms andconditions set forth herein as though each such person or entity was boundhereby. Executive shall have no obligation hereunder to keep confidential anyConfidential Information if and to the extent disclosure of any thereof isspecifically required by law; provided, however, in the event disclosure is

-------- -------required by applicable law, Executive shall provide the Company with promptnotice of such requirement, prior to making any disclosure, so that the Companymay seek an appropriate protective order. At the request of the Company,Executive agrees to deliver to the Company, at any time during the Term ofEmployment, or thereafter, all Confidential Information which he may possess orcontrol. Executive agrees that all Confidential Information of the Companies(whether now or hereafter existing) conceived, discovered or made by him duringthe Term of Employment exclusively belongs to the Companies (and not toExecutive). Executive will promptly disclose such Confidential Information tothe Company and perform all actions reasonably requested by the Company toestablish and confirm such exclusive ownership.

(b) In the event that Executive breaches her obligations in any



material respect under this Section 7, the Company, in addition to pursuing all---------

available remedies under this Agreement, at law or otherwise, and withoutlimiting its right to pursue the same shall cease all payments to Executiveunder this Agreement.

(c) The terms of this Section 7 shall survive the termination of this---------

Agreement regardless of who terminates this Agreement, or the reasons therefor.

8. Non-Interference----------------

(a) Executive acknowledges that the services to be provided give himthe opportunity to have special knowledge of the Company and its ConfidentialInformation and the capabilities of individuals employed by or affiliated withthe Company, and that interference in these relationships would causeirreparable injury to the Company. In consideration of this Agreement,Executive covenants and agrees that:

(i) During the Restricted Period (which shall not include anyperiod of violation of this Agreement by the Executive), Executivewill

6

not, without the express written approval of the Board of Directors ofthe Company, anywhere in the Market, directly or indirectly, in one ora series of transactions, own, manage, operate, control, invest oracquire an interest in, or otherwise engage or participate in, whetheras a proprietor, partner, stockholder, lender, director, officer,employee, joint venturer, investor, lessor, supplier, customer, agent,representative or other participant, in any Competitive Businesswithout regard to (A) whether the Competitive Business has its office,manufacturing or other business facilities within or without theMarket, (B) whether any of the activities of Executive referred toabove occur or are performed within or without the Market or (C)whether Executive resides, or reports to an office, within or withoutthe Market; provided, however, that (x) Executive may, anywhere in the

-------- -------Market, directly or indirectly, in one or a series of transactions,own, invest or acquire an interest in up to five percent (5%) of thecapital stock of a corporation whose capital stock is traded publicly,or that (y) Executive may accept employment with a successor companyto the Company.

(ii) During the Restricted Period (which shall not include anyperiod of violation of this Agreement by Executive), Executive willnot without the express prior written approval of the Board ofDirectors of the Company (A) directly or indirectly, in one or a



series of transactions, recruit, solicit or otherwise induce orinfluence any proprietor, partner, stockholder, lender, director,officer, employee, sales agent, joint venturer, investor, lessor,supplier, customer, agent, representative or any other person whichhas a business relationship with the Company or had a businessrelationship with the Company within the twenty-four (24) month periodpreceding the date of the incident in question, to discontinue, reduceor modify such employment, agency or business relationship with theCompany, or (B) employ or seek to employ or cause any CompetitiveBusiness to employ or seek to employ any person or agent who is then(or was at any time within six months prior to the date Executive orthe Competitive Business employs or seeks to employ such person)employed or retained by the Company. Notwithstanding the foregoing,nothing herein shall prevent Executive from providing a letter ofrecommendation to an employee with respect to a future employmentopportunity.

(iii) The scope and term of this Section 8 would not preclude---------

him from earning a living with an entity that is not a CompetitiveBusiness.

(b) The terms of this Section 8 shall survive termination of this---------

Agreement regardless of who terminates this Agreement, or the reasons therefor.

7

9. Inventions----------

(a) Each invention, improvement or discovery made or conceived byExecutive, either individually or with others, during the term of his employmentwith the Company, which invention, improvement or discovery is related to any ofthe lines of business or work of the Companies, any projected or potentialactivities which the Companies have investigated or hereinafter investigates, orwhich result from or are suggested by any service performed by Executive for theCompany, whether patentable or not, shall be promptly and fully disclosed byExecutive to the Company. Executive assigns each such invention, improvement ordiscovery, and the patents thereof, or related thereto, to the Company.Executive shall, during the term of her employment with the Company andthereafter without charge to the Company, but at the request and expense of theCompany, assist the Company in obtaining or vesting in itself patents upon suchimprovements and inventions. All such inventions, improvements or discoveriesshall at all times become and remain the exclusive property of the Company.Executive represents that he does not claim ownership of any inventions,improvements, formulae or discoveries which are excluded from this Agreement.

(b) In the event that Executive breaches her obligations in anymaterial respect under Sections 7, 8 or this Section 9, the Company, in addition



---------- - ---------to pursuing all available remedies under this Agreement, at law or otherwise,and without limiting its right to pursue the same shall cease all payments toExecutive under this Agreement.

10. Definitions-----------

"Business" means (a) the design, manufacture, lease and operation of--------

pressurized and unpressurized space modules, flight hardware and subsystems, andthose other businesses and activities that are described in the Company's Form10-K for the fiscal year ended June 30, 1999, and Form 10-Q for the quarterending September 30, 1999, or (b) any similar, incidental or related businessconducted or pursued by, or engaged in, or proposed to be conducted or pursuedby or engaged in, by the Companies prior to the date hereof or at any timeduring the Term of Employment.

"Cause" is defined in Section 3(d).----- ------------

"Companies" means the Company and any of its direct or indirect---------

subsidiaries, now existing or hereafter existing.

"Company" is defined in the introduction.-------

"Competitive Business" means any business which competes, directly or--------------------

indirectly, with the Business in the Market.

"Confidential Information" means any trade secret, confidential study,------------------------

data, calculations, software storage media or other compilation of information,patent, patent application, copyright, trademark, trade name, service mark,service name, "know-how", trade secrets, customer lists, details of client orconsultant contracts, pricing

8

policies, sales techniques, confidential information relating to suppliers,information relating to the special and particular needs of the Companies'customers operational methods, marketing plans or strategies, products andformulae, product development techniques or plans, business acquisition plans orany portion or phase of any scientific or technical information, ideas,discoveries, designs, computer programs (including source of object codes),processes, procedures, research or technical data, improvements or otherproprietary or intellectual property of the Companies, whether or not in writtenor tangible form, and whether or not registered, and including all files,



records, manuals, books, catalogues, memoranda, notes, summaries, plans,reports, records, documents and other evidence thereof. The term "Confidential

------------Information" does not include, and there shall be no obligation hereunder with-----------respect to, information that is or becomes generally available to the publicother than as a result of a disclosure by Executive not permissible hereunder.

"Executive" means the individual identified in the first paragraph of---------

this Agreement, or his or her estate, if deceased.

"Market" means any county in the United States of America and each------

similar jurisdiction in any other country in which the Business was conducted orpursued by, engaged in by the Companies prior to the date hereof or is conductedor engaged in or pursued, or is proposed to be conducted or engaged in orpursued, by the Companies at any time during the Term of Employment.

"Material Breach" is defined in Section 3(d).--------------- ------------

"Prior Employment Agreement" is defined in Section 12(a).-------------------------- -------------

"Restricted Period" means the period commencing on the date of this-----------------

Agreement and continuing through the sixth month anniversary of the terminationof the Term of Employment.

"Subsidiary" means any corporation, limited liability company, joint----------

venture, limited and general partnership, joint stock company, association orany other type of business entity of which the Company owns, directly orindirectly through one or more intermediaries, more than fifty percent (50%) ofthe voting securities at the time of determination.

"Term of Employment" is defined in Section 3(a).------------------ ------------

11. Notice------

Any notice, request, demand or other communication required orpermitted to be given under this Agreement shall be given in writing and ifdelivered personally, or sent by certified or registered mail, return receiptrequested, as follows (or to such other addressee or address as shall be setforth in a notice given in the same manner):

9



If to Executive: Julia A. Pulzone610 McNeill RoadSilver Spring, MD 20910

If to Company: SPACEHAB, Incorporated300 D Street, S.W.Washington, D.C. 20024

Any such notices shall be deemed to be given on the date personally delivered orsuch return receipt is issued.

12. Previous Agreements; Executive's Representation-----------------------------------------------

(a) Attached hereto as Annex A are all previous employment or-------

severance agreements, if any, by and between Executive and the Company(collectively, the "Prior Employment Agreements"). Executive and the Company

---------------------------hereby cancel, void and render without force and effect all Prior EmploymentAgreements, and the Executive releases and discharges the Company from anyfurther obligations or liabilities thereunder. Notwithstanding the foregoing,the terms and provisions in any Prior Employment Agreement relating to anygrants of stock options or other derivative securities for the purchase of theCompany's common stock, no par value per share, shall remain in full force andeffect and shall not be amended in any manner as a result of the execution ofthis Agreement.

(b) Executive hereby warrants and represents to the Company thatExecutive has carefully reviewed this Agreement and has consulted with suchadvisors as Executive considers appropriate in connection with this Agreement,is not subject to any covenants, agreements or restrictions, including withoutlimitation any covenants, agreements or restrictions arising out of Executive'sprior employment, which would be breached or violated by Executive's executionof this Agreement or by Executive's performance of her duties hereunder.

13. Other Matters-------------

Executive agrees and acknowledges that the obligations owed toExecutive under this Agreement are solely the obligations of the Company, andthat none of the Companies' stockholders, directors, officers, affiliates,representatives, agents or lenders will have any obligations or liabilities inrespect of this Agreement and the subject matter hereof.

14. Validity--------

If, for any reason, any provision hereof shall be determined to beinvalid or unenforceable, the validity and effect of the other provisions hereof



shall not be affected thereby.

10

15. Severability------------

Whenever possible, each provision of this Agreement will beinterpreted in such manner as to be effective and valid under applicable law,but if any provision of this Agreement is held to be invalid, illegal orunenforceable in any respect under any applicable law or rule in anyjurisdiction, such invalidity, illegality or unenforceability will not affectany other provision or any other jurisdiction, but this Agreement will bereformed, construed and enforced in such jurisdiction as if such invalid,illegal or unenforceable provision had never been contained herein. If anycourt determines that any provision of Section 8 or any other provision hereof

---------is unenforceable because of the power to reduce the scope or duration of suchprovision, as the case may be and, in its reduced form, such provision shallthen be enforceable.

16. Waiver of Breach; Specific Performance--------------------------------------

The waiver by the Company or Executive of a breach of any provision ofthis Agreement by the other party shall not operate or be construed as a waiverof any other breach of such other party. Each of the parties (and third partybeneficiaries) to this Agreement will be entitled to enforce its rights underthis breach of any provision of this Agreement and to exercise all other rightsexisting in its favor. The parties hereto agree and acknowledge that moneydamages may not be an adequate remedy for any breach of the provisions ofSections 7, 8 and 9 of this Agreement and that any party (and third party------------- -beneficiaries) may in its sole discretion apply to any court of law or equity ofcompetent jurisdiction for specific performance and/or injunctive relief,including temporary restraining orders, preliminary injunctions and permanentinjunctions in order to enforce or prevent any violations of the provisions ofthis Agreement. In the event either party takes legal action to enforce any ofthe terms or provisions of this Agreement against the other party, the partyagainst whom judgment is rendered in such action shall pay the prevailingparty's costs and expenses, including but not limited to, attorneys' fees,incurred in such action.

17. Assignment; Third Parties-------------------------

Neither Executive nor the Company may assign, transfer, pledge,hypothecate, encumber or otherwise dispose of this Agreement or any of her orits respective rights or obligations hereunder, without the prior writtenconsent of the other. The parties agree and acknowledge that each of the



Companies and the stockholders and investors therein are intended to be thirdparty beneficiaries of, and have rights and interests in respect of, Executive'sagreements set forth in Sections 7, 8 and 9.

------------- -

18. Amendment; Entire Agreement---------------------------

This Agreement may not be changed orally but only by an agreement inwriting agreed to by the party against whom enforcement of any waiver, change,modification, extension or discharge is sought. This Agreement embodies theentire agreement and understanding of the parties hereto in respect of thesubject matter of this

11

Agreement, and supersedes and replaces all prior Agreements, understandings andcommitments with respect to such subject matter.

19. Litigation----------

THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCEDIN ACCORDANCE WITH THE LAWS OF THE DISTRICT OF COLUMBIA, EXCEPT THAT NO DOCTRINEOF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF THE DISTRICTOF COLUMBIA, AND NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWEDBY THE LAWS OF ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT,MODIFICATION OR REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANYFOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION

-------20, EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR--ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE COURTS OF THE WASHINGTON,D.C. OR THE UNITED STATES DISTRICT COURTS IN DISTRICT OF COLUMBIA. EXECUTIVEAND THE COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER INSUCH COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE

--------------------CHOICE OF FORUM SET FORTH IN THIS SECTION 19 SHALL NOT BE DEEMED TO PRECLUDE THE

----------ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTIONUNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION.

20. Arbitration-----------

EXECUTIVE AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN OR AMONG THEPARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITSNEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT ORDEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL BE SUBMITTED TO,AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE



COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCHARBITRATION SHALL TAKE PLACE IN WASHINGTON, D.C., AND SHALL BE SUBJECT TO THESUBSTANTIVE LAW OF THE DISTRICT OF COLUMBIA. DECISIONS PURSUANT TO SUCHARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THECONCLUSION OF ARBITRATION, EXECUTIVE OR THE COMPANY MAY APPLY TO ANY COURT OFTHE TYPE DESCRIBED IN SECTION 19 TO ENFORCE THE DECISION PURSUANT TO SUCH

----------ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANYRIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THISAGREEMENT OR ITS SUBJECT MATTER.

12

21. Further Action--------------

Executive and the Company agree to perform any further acts and toexecute and deliver any documents which may be reasonable to carry out theprovisions hereof.

22. Counterparts------------

This Agreement may be executed in counterparts, each of which shall bedeemed an original, but all of which together shall constitute one and the sameinstrument.

13

IN WITNESS WHEREOF, the parties hereto have set their hands as of theday and year first written above.

EXECUTIVE:

_____________________________________________Julia A. Pulzone


_____________________________________________David A. Rossi, President



EXHIBIT 10.110


THIS AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT (this"Amendment"), dated as of the 18th day of May, 2000, is made by and betweenSPACEHAB, INCORPORATED, a Washington corporation ("SPACEHAB"), ASTROTECH SPACEOPERATIONS, INC., a Delaware corporation ("Astrotech"; together with SPACEHAB,the "Original Borrowers"), and JOHNSON ENGINEERING CORPORATION, a Coloradocorporation ("Johnson"; Johnson, Astrotech and SPACEHAB are also referred toindividually as a "Borrower" and collectively as the "Borrowers") and FIRSTUNION NATIONAL BANK, a national banking association, successor by merger toSignet Bank, a Virginia banking corporation (the "Lender").

RECITALS


B. Johnson is a wholly-owned Subsidiary of SPACEHAB, and, at the request ofthe Original Borrowers, Johnson became a Borrower pursuant to Amendment No. 2 toLoan and Security Agreement, dated as of October 15, 1999, executed by theLender and the Borrowers.

C. The Borrowers have requested that the Lender modify the Agreement to extendthe Termination Date, and the Lender has consented to the Borrowers' request,subject to the execution of this Amendment and the satisfaction of theconditions specified herein.

D. The Borrowers and the Lender now desire to execute this Amendment to setforth their agreements with respect to the modifications to the Agreement.


SECTION 1. Definitions. Capitalized terms used in this Amendment and-----------

not defined herein are defined in the Agreement.

SECTION 2. Amendments to Agreement. The Agreement is hereby amended as-----------------------

follows:



2.1 Amendments to Section 1. Section 1 of the Agreement is amended as-----------------------

follows:

2.1(a) LIBO-Based Rate. The definition of the term LIBO-Based---------------

Rate is hereby amended and restated in its entirety as follows:

"LIBO-Based Rate" means the rate per annum (expressedas a percentage) determined by the Lender to be equal to thesum of (a) the LIBO Rate for the Euro Dollar Amount and theEuro-Dollar Interest Period in question plus (b) .0300.

2.1(b) Termination Date. The definition of the term Termination----------------

Date is hereby amended and restated in its entirety as follows:

"Termination Date" means July 18, 2000, and any extension orextensions thereof granted by the Lender in its sole discretion.

SECTION 3. Representations and Warranties of the Borrowers. Each-----------------------------------------------

Borrower represents and warrants to the Lender that:

(a) It has the power and authority to enter into and to perform thisAmendment, to execute and deliver all documents relating to this Amendment, andto incur the obligations provided for in this Amendment, all of which have beenduly authorized and approved in accordance with such Borrower's corporatedocuments;

(b) This Amendment, together with all documents executed pursuanthereto, shall constitute when executed the valid and legally binding obligationsof the Borrowers in accordance with their respective terms;

(c) Except with respect to events or circumstances occurringsubsequent to the date thereof and known to the Lender, all representations andwarranties made in the Agreement are true and correct as of the date hereof,with the same force and effect as if all representations and warranties werefully set forth herein;

(d) Each Borrower's obligations under the Loan Documents remain validand enforceable obligations, and the execution and delivery of this Amendmentand the other documents executed in connection herewith shall not be construedas a novation of the Agreement or any of the other Loan Documents; and

(e) As of the date hereof, no Borrower has any offsets or defensesagainst the payment of any of the Obligations.

SECTION 4. Waiver of Claims. As a specific inducement to the Lender



----------------without which the Borrowers acknowledge the Lender would not enter into thisAmendment and the other documents executed in connection herewith, the Borrowershereby waive any and all claims that they may have against the Lender, as of thedate hereof, arising out of or relating to the Agreement or any other LoanDocument whether sounding in contract, tort or any other basis.

SECTION 5. Conditions of Effectiveness. This Amendment shall become---------------------------

effective when, and only when, the Borrowers have executed and completed thisAmendment, Johnson has executed and completed UCC financing statements namingthe Lender as secured party and otherwise acceptable to the Lender, suchexecuted documents have been delivered to the Lender, the Lender has receivedevidence satisfactory to the Lender that there are no Liens against property ofJohnson except Liens permitted by the Agreement, and the Borrowers have paid tothe Lender the modification fee described in Section 6 and have reimbursed theLender for the Lender's costs and expenses incurred in connection with thisAmendment, but upon the occurrence of such conditions, this Amendment shall bedeemed to be effective as of May 18, 2000.

2

SECTION 6. Modification Fee. In consideration of the additional risk----------------

and effort undertaken by the Lender in entering into this Amendment and theother Loan Documents executed in connection herewith, the Borrowers shall pay tothe Lender a modification fee of $20,000 upon the execution of this Amendment.

SECTION 7. Miscellaneous.-------------

7.1 Reference To Agreement. Upon the effectiveness of this Amendment,----------------------

each reference in the Agreement to "this Agreement" and each reference in theother Loan Documents to the Agreement, shall mean and be a reference to theAgreement as amended hereby.

7.2 Effect on Loan Documents and Accrued and Unpaid Interest, Fees---------------------------------------------------------------

and Other Charges. Except as specifically amended above, the Agreement and all-----------------other Loan Documents shall remain in full force and effect and are herebyratified and confirmed. Without limiting the generality of the foregoing, allCollateral given to secure the Obligations of the Borrowers under the Agreementand the other Loan Documents prior to the date hereof does and shall continue tosecure all Obligations of the Borrowers under the Agreement, as amended herebyand the other Loan Documents, and, except as provided in the Agreement and theother Loan Documents, no such Collateral shall be released until all conditionsto such release contained in the Loan Documents are satisfied. Any interest,fees and other charges due under the Agreement which have accrued and remain



unpaid as of the effective date of this Amendment shall be paid on the nextsucceeding date that any such charge which has accrued on or after the effectivedate of this Amendment is due under the Agreement, as amended hereby, unless anysuch charge is discontinued by this Amendment, in which event the Borrowersshall pay the accrued and unpaid portion thereof upon execution of thisAmendment.

7.3 No Waiver. The execution, delivery and effectiveness of this---------

Amendment shall not operate as a waiver of any right, power or remedy of theLender under any of the Loan Documents, nor constitute a waiver of any provisionof any of the Loan Documents.

7.4 Costs, Expenses and Taxes. The Borrowers agree to pay on demand-------------------------

all costs and expenses of the Lender in connection with the preparation,reproduction, execution and delivery of this Amendment and the other instrumentsand documents to be delivered hereunder, including the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto.

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7.5 Governing Law. This Amendment shall be governed by and construed-------------

in accordance with the laws of the Commonwealth of Virginia, without givingeffect to conflict of law provisions.

IN WITNESS WHEREOF, the Borrowers and the Lender have caused thisAmendment to be signed by their duly authorized representatives under seal allas of the day and year first above written.

SPACEHAB, INCORPORATED, a Washingtoncorporation

By: ________________________________

ATTEST: Name: ________________________________

___________________ Title:________________________________(Asst.) Secretary[corporate seal]

ASTROTECH SPACE OPERATIONS, INC., aDelaware corporation

By: ________________________________

ATTEST: Name: ________________________________

___________________ Title:________________________________(Asst.) Secretary



[corporate seal]

JOHNSON ENGINEERING, INCORPORATED, aColorado corporation

By: ________________________________

ATTEST: Name: ________________________________

___________________ Title:________________________________(Asst.) Secretary[corporate seal]

FIRST UNION NATIONAL BANK, successor bymerger to Signet Bank, a Virginiabanking corporation

ATTEST: By: ________________________________

___________________ Name: ________________________________(Asst.) Secretary[corporate seal] Title:________________________________

4



Exhibit 10.111

THIRD AMENDMENT AND ASSIGNMENT OF INDUSTRIAL--------------------------------------------

REAL ESTATE LEASE, AND CONSENT TO---------------------------------

ASSIGNMENT OF INDUSTRIAL REAL ESTATE LEASE------------------------------------------

This Third Amendment and Assignment of Industrial Real Estate Lease,and Consent to Assignment of Industrial Real Estate Lease (this "Agreement") ismade effective as of the the earlier of execution of the Agreement by allparties or July 24, 2000 by and between AMERICAN NATIONAL INSURANCE COMPANY, aTexas insurance corporation ("Landlord"), PALL CORPORATION, a New Yorkcorporation ("Assignor") and SPACEHAB, INC., a Washington corporation("Assignee").

WHEREAS, Landlord, as Landlord, and Assignor, as Tenant, entered intothat certain Industrial Real Estate Lease dated March 15, 1998, which wasamended pursuant to that First Amendment to Industrial Real Estate Lease datedAugust 31, 1998 and which was further amended pursuant to that Second Amendmentto Industrial Real Estate Lease and Consent to Sublease dated December 14, 1999(collectively, the "Lease") with respect to the property located at 12130 StateHighway 3, Houston, Harris County, Texas as described in Exhibits "A" and "B" ofthe Lease (the "Property");

WHEREAS, Assignor hereby assigns all of its interest and rights asTenant pursuant to the Lease to Assignee (all rights of Assignor as Tenantthereby inuring to Assignee's benefit) and Assignee hereby assumes and agrees toperform all of the covenants and obligations of Assignor described in the Leaseas same may be modified as provided herein;

WHEREAS, such assignment requires the consent of Landlord pursuant tothe Lease;

WHEREAS, Landlord hereby approves the assignment of Assignor'sinterest in the Lease to Assignee with a sublease back to Assignor of a portionof Assignee's interest in the Lease;

WHEREAS, the parties agree that all provisions of Section 9 of theLease are hereby consented to or waived;

WHEREAS, Landlord and Assignee desire to amend the Lease as providedherein; and

WHEREAS, Assignor hereby approves the amendment of the Lease byLandlord and Assignee to the Lease; provided, however, that it is agreed by theparties hereto that Assignor's obligations pursuant to the Lease shall be



limited to those obligations contained within the Lease immediately prior tothis Agreement.

NOW, THEREFORE, in consideration of $10.00 paid to Landlord, and thefollowing mutual covenants and agreements, the parties hereto agree as follows:

(1) The terms and conditions of this Agreement shall be effective theearlier of execution of the Agreement by all parties or July 24, 2000.

(2) Terms defined in the Lease and delineated herein by initialcapital letters shall have the same meaning ascribed thereto in the Lease,except to the extent that the meaning of such term is specifically modified bythe provisions hereof. In addition, other terms not defined in the Lease butdefined herein will, when delineated with initial capital letters, have themeanings ascribed thereto in this Agreement. Terms and phrases, which are notdelineated by initial capital letters, shall have the meanings commonly ascribedthereto.

(3) Assignor and Assignee agree to the following:

(a) Commencing the earlier of execution of the Agreement by allparties or July 24, 2000 ("Assignment Commencement Date")Assignee shall lease" approximately 14,000 square feet out ofBuilding 2 as indicated on Exhibit "A-1" attached hereto andapproximately 3,600 square feet out of Building 1 as indicated onExhibit "A-2" attached hereto ("Phase I Property").

(b) Commencing October 1, 2000, Assignee shall lease the totalProperty.

(c) Assignor shall provide Assignee with three (3) keys to thePhase I Property and total Property on the dates indicated insubparagraphs (3)(a) and 3(b) above. Assignee shall have accessto the Phase I Property and the Property twenty-four (24) hoursper day, seven (7) days per week.

(d) Assignor shall remove its personal property and equipmentnot purchased by Assignee from the Phase I Property and Propertyand deliver same to Assignee on the above dates in "AS-IS",broom-clean condition, and Assignee shall accept the PartialProperty and Property in "AS-IS", broom-clean condition. Afterdelivery to Assignee, Assignor shall not be responsible for theremoval upon expiration of the Lease, of any alterations,additions or improvements installed by Assignor or on Assignor'sbehalf at the Commencement of the Lease. Assignee acknowledgesthat neither Assignor nor any agent of Assignor has made anyrepresentation as to the condition of the Property or thesuitability of the property for Assignee's intended use. Assigneehas made its own inspection of and inquiry regarding thecondition of the Property and is not relying on any



representations of Assignor or any broker with respect thereto.

(e) Notwithstanding the above, it is understood and agreed thatAssignor will provide Assignee with immediate access forestimating and planning purposes to that portion of Building I asdescribed in Exhibit A-3 ("Build-out Space"). Assignee may beginconstruction of Assignee's improvements to the Build-out Space no

2

later than September 1, 2000 or earlier by arrangement withAssignor. Should the Assignor fail to provide Assignee withaccess to the Build-out Space for construction purposes bySeptember 1, 2000 or the Phase I Property described in Exhibits"A-1" and "A-2" by the earlier of execution of the Agreement byall parties or July 24, 2000 or should Assignor fail to vacatethe total Property by September 30, 2000, Assignee's obligationfor Base Rent and Other Charges Payable by Tenant shall bedelayed one (1) day for every day of delay for that portion ofthe Property that was not delivered to Assignee within theoutlined time periods. If Assignor fails to vacate the totalProperty by November 30, 2000, Assignee shall have the right toterminate this Agreement.

(f) For the period beginning on the Assignment Commencement Dateand continuing through September 31, 2000, Assignee shall pay toAssignor the Base Rent as calculated as follows and a pro rataportion of Other Charges Payable by Tenant for the Phase IProperty as provided in the Lease:

Building 1 - 3,600 s.f. x $0.39/s.f./mo = $1,404.00/moBuilding 2 - 14,000 s.f. x $0.30/s.f/mo = 4,200.00/mo

------------$5,604.00/mo

On the first day of each month, Assignee shall pay to Assignorthe Base Rent, in advance, without offset or deduction or priordemand, except as otherwise set forth herein. The Base Rentshall be payable at Assignor's address or at such other place asAssignor may designate in writing.

(g) Beginning October 1, 2000 and continuing through theExpiration Date, Assignee shall pay directly to Landlord the Rentand Other Charges as provided in the Lease.

(h) Commencing October 1, 2000 through January 31, 2001 Assignorshall sublease from Assignee approximately 4,000 square feet outof Building 1 as indicated on Exhibit "A-4" attached hereto.Assignor shall pay to Assignee Rent as follows together with apro rata portion of Other Charges Payable by Tenant and execute



the Sublease attached as Exhibit B-1:

Building 1 - 4,000 s.f. x $0.39/s.f./mo = $1,560.00/mo

(i) Except as set forth herein, Assignee agrees to (i) lease theProperty beginning on the Assignment Commencement Date and endingon the Expiration Date; (ii) pay the Rent and a pro rata portionof Other Charges Payable by Tenant as provided in (3)(d)

3

and (3)(e) above; (iii) obey all laws, rules and regulations, andterms of the Lease; (iv) indemnify, defend, and hold Assignorharmless from any loss, attorney's fees, court and other costs,or claims arising out of the use of the Property or resultingfrom Assignee's failure to comply with the Lease; (v) maintainLiability Insurance in the types and amounts stated in the Leasewith Assignor named as an additional insured; and (vi) delivercertificates of insurance to Assignor and Landlord before theAssignment Commencement Date and thereafter when requested.

(j) Assignee agrees not to (i) use the Property for any purposeother than the Permitted Assignment Use defined in subparagraph(3)(k) of this Agreement; (ii) create a nuisance; (iii) permitany waste; (iv) use the Property in any way that is hazardous,would increase insurance premiums, or would void insurance on theProperty; (v) alter the Property in any way without Landlord'sand Assignor's prior written consent, which consent shall not beunreasonably withheld, delayed or conditioned; (vi) allow a liento be placed on the Property; or (vii) assign or sublease exceptas set forth herein any portion of the Property withoutLandlord's and Assignor's prior written consent, which consentshall not be unreasonably withheld, delayed or conditioned.

(k) The Property shall be occupied by SPACEHAB, INC. or itsaffiliates and shall be used for office, engineering, analysis,fabrication and/or manufacturing ("Permitted Assignment Use").

(l) Notwithstanding anything to the contrary contained herein,Assignor shall not (i) take any action inconsistent with theterms of the Lease; (ii) do or permit to be done by its agents,contractors, employees, invitees, visitors or licensees, anythingprohibited by Assignor as Tenant under the Lease, or which wouldconstitute, with or without the giving of notice or the passageof time or both, a default under the Lease or would cause theLease to be amended in a manner that would materially andadversely affect any of Assignee's rights or obligationshereunder, or which would cause the Lease to be cancelled,terminated or forfeited. Assignor shall indemnify, defend andhold harmless Assignee from and against all claims, liabilities,



losses and damages of any kind that Assignee may incur by reasonof, resulting from or arising out of, any breach of the foregoingcovenant.

(m) Assignee shall not be required to pay a security deposit.

(n) Assignee shall indemnify, protect, defend and hold Assignor,its agents and employees, if any, and the Property, harmless fromand against any and all loss of rents and/or

4

damages, liabilities, judgments, costs, claims, liens, expenses,penalties, permits and attorney's and consultants fees("Environmental Damages") arising out of or involving anyHazardous Substance or underground storage tank introduced ontothe Property after the Assignment Commencement Date, other thanby Assignor or its agents pursuant to Section 5.03 of the Leaseor by Landlord or its agents pursuant to Sections 5.02 and 6.02of the Lease, and prior to the Expiration Date. Assignee'sobligations under this paragraph shall include, but not belimited to, the effects of any contamination or injury to person,property or the environment created by Assignee and the cost ofthe investigation (including consultant's and attorney's fees andtesting), removal, remediation, restoration and/or abatementthereof, or of any contamination therein involved, and shallsurvive the Expiration Date of the Lease. No termination,cancellation or release agreement entered into by Assignee andAssignor and/or Landlord shall release Assignee from itsobligations under this Agreement with respect to HazardousSubstances unless specifically agreed to by Assignor in writingat the time of such agreement.

(o) Assignor shall indemnify, protect, defend and hold Assignee,its agents and employees, if any, and the Property, harmless fromand against any and all loss of rents and/or damages,liabilities, judgments, costs, claims, liens, expenses,penalties, permits and attorney's and consultants fees("Environmental Damages") arising out of or involving anyHazardous Substance or underground storage tank introduced ontothe Property by Assignor after March 15, 1998 and until theAssignment Commencement Date, other than by Landlord or itsagents pursuant to Sections 5.02 and 6.02 of the Lease.Assignor's obligations under this paragraph shall include, butnot be limited to, the effects of any contamination or injury toperson, property or the environment created by Assignor and thecost of the investigation (including consultant's and attorney'sfees and testing), removal, remediation, restoration and/orabatement thereof, or of any contamination therein involved, andshall survive the Expiration Date of the Lease. No termination,



cancellation or release agreement entered into by Assignee andAssignor and/or Landlord shall release Assignor from itsobligations under this Agreement with respect to HazardousSubstances unless specifically agreed to by Assignee in writingat the time of such agreement.

(p) In addition to Paragraph (3)(n) above, Assignee shallINDEMNIFY, DEFEND and HOLD HARMLESS Assignor from and against allclaims caused by any of the following ("Assignee Liability"): (i)Assignee's use or occupancy of the Property; (ii)

5

the conduct of Assignee's business or anything else done orpermitted by Assignee to be done in or about the Property; (iii)any breach or default in the performance of Assignee'sobligations under this Agreement; (iv) any misrepresentation orbreach of warranty by Assignee under this Agreement; or (v) otheracts, omissions or strict liability of Assignee. Assignee shallreimburse Assignor for any attorney's fees or costs incurred byAssignor in connection with any such Assignee Liability. As amaterial part of the consideration to Assignor, Assignee assumesall risk of damage to the Property or injury to persons(including death) in or about the Property at the instance of orrequest of or attendant to the business or pleasure of Assignee,and Assignee hereby WAIVES all such claims in respect thereofagainst the Assignor.

(q) In addition to Paragraph (3)(o) above, Assignor shallINDEMNIFY, DEFEND and HOLD HARMLESS Assignee from and against allclaims caused by any of the following ("Assignor Liability"): (i)Assignor's use or occupancy of the Property; (ii) the conduct ofAssignor's business or anything else done or permitted byAssignor to be done in or about the Property; (iii) any breach ordefault in the performance of Assignor's obligations under thisAgreement; (iv) any misrepresentation or breach of warranty byAssignor under this Agreement; or (v) other acts, omissions orstrict liability of Assignor. Assignor shall reimburse Assigneefor any attorney's fees or costs incurred by Assignee inconnection with any such Assignor Liability. As a material partof the consideration to Assignee, Assignor assumes all risk ofdamage to the Property or injury to persons (including death) inor about the Property at the instance of or request of orattendant to the business or pleasure of Assignor, and Assignorhereby WAIVES all such claims in respect thereof against theAssignee.

(r) As between Assignor and Assignee, ASSIGNOR SHALL NOT BELIABLE FOR ANY DAMAGE OR INJURY TO THE PERSON, BUSINESS (OR ANYLOSS OF INCOME THEREFROM), GOODS, WARES, MERCHANDISE OR OTHER



PROPERTY OF ASSIGNEE, ASSIGNEE'S EMPLOYEES, INVITEES, CUSTOMERS,OR ANY OTHER PERSON IN OR ABOUT THE PROPERTY, INCLUDING, WITHOUTLIMITATION, SUCH DAMAGE OR INJURY CAUSED BY OR RESULTING FROM:(I) FIRE, STEAM, ELECTRICITY, WATER, GAS OR RAIN; (II) THEBREAKAGE, LEAKAGE, OBSTRUCTION OR OTHER DEFECTS OF PIPES,SPRINKLERS, WIRES, APPLIANCES, PLUMBING, AIR CONDITIONING ORLIGHTING FIXTURES OR ANY OTHER CAUSE; (III) CONDITIONS ARISING INOR ABOUT THE PROPERTY OR FROM OTHER SOURCES OR

6

PLACES; OR (IV) ANY ACT OR OMISSION OF ANY THIRD PARTY,INCLUDING, WITHOUT LIMITATION, CRIMINAL ACTS.

(s) As between Assignor and Assignee, DURING ANY PERIOD OF TIMEIN WHICH ASSIGNOR IS OCCUPYING ANY PART OF THE PROPERTY, ASSIGNEESHALL NOT BE LIABLE FOR ANY DAMAGE OR INJURY TO THE PERSON,BUSINESS (OR ANY LOSS OF INCOME THEREFROM), GOODS, WARES,MERCHANDISE OR OTHER PROPERTY OF ASSIGNOR, ASSIGNOR'S EMPLOYEES,INVITEES, CUSTOMERS, OR ANY OTHER PERSON IN OR ABOUT THEPROPERTY, INCLUDING, WITHOUT LIMITATION, SUCH DAMAGE OR INJURYCAUSED BY OR RESULTING FROM: (I) FIRE, STEAM, ELECTRICITY, WATER,GAS OR RAIN; (II) THE BREAKAGE, LEAKAGE, OBSTRUCTION OR OTHERDEFECTS OF PIPES, SPRINKLERS, WIRES, APPLIANCES, PLUMBING, AIRCONDITIONING OR LIGHTING FIXTURES OR ANY OTHER CAUSE; (III)CONDITIONS ARISING IN OR ABOUT THE PROPERTY OR FROM OTHER SOURCESOR PLACES; OR (IV) ANY ACT OR OMISSION OF ANY THIRD PARTY,INCLUDING, WITHOUT LIMITATION, CRIMINAL ACTS.

(t) Simultaneously with the execution of this Agreement,Assignor and Assignee have executed the Mutual Non-DisclosureAgreement attached hereto as Exhibit "C". Assignee agrees thatduring any period in which Assignor and Assignee are jointlyoccupying the Property, a condition to any individual enteringthe Property shall be that individual's signing, before entry, aconfidentiality and nondisclosure agreement in the form attachedas Exhibit "D" to the Lease.

(u) Assignee leases the Property subject to a Sublease datedNovember 5, 1999 by and between Assignor and Performance Diesel,Inc. This sublease may not be amended or modified withoutAssignor's prior written consent, which consent shall not beunreasonably withheld, delayed or conditioned.

(v) Defaults by Assignee and Remedies by Assignor are the sameas those described for Tenant and Landlord in Article Ten of theLease.

(w) Upon default by Assignee, Assignor has all the rights ofLandlord under the Lease as to Assignee.



7

(x) If either Assignor or Assignee retains an attorney toenforce the provisions of this Agreement, the party prevailing inlitigation is entitled to recover reasonable attorney's fees,court and other costs.

(4) By the execution of this Agreement, Landlord hereby approves andconsents to the assignment of the Lease by Assignor to Assignee. Landlord agreesto notify Assignor in the event of any monetary or non-monetary event of defaultby Assignee and to give Assignor a reasonable amount of time to cure saiddefault. It is recognized and agreed by all parties hereto that Paragraph (10)of this Agreement is an amendment to the Lease and failure to pay the full,increased amount of Base Rent described therein shall be an event of defaultpursuant to the Lease. Accordingly, in the event Assignee fails to pay suchfull, increased amount, Assignor would be required to timely pay such full,increased amount in order to cure such default; however, anything to thecontrary in this Agreement and the Lease notwithstanding, it is agreed by theparties that in the event of a monetary default by Assignee, as long as the BaseRent and Other Charges Payable by Tenant ("Assignor's Rent") prior to theincrease described in Paragraph (10) of this Agreement are current, Assignor,for a period of no more than six (6) months from the date of such default shallbe permitted to utilize the provisions described in the three ensuing sentenceshereto and Landlord may pursue its remedies against Assignee. Landlord shall notunreasonably interfere with Assignor's attempts to mitigate Assignor'sobligations provided in Paragraph (11) of this Agreement. In the event of amonetary default by Assignee, Landlord shall not unreasonably deny Assignor'srequests to permit Assignor and Assignor's agents and representatives to haveaccess to the Property in order to market the Property for lease to areplacement assignee or sublessee ("Transferee") for the Property. ShouldAssignor identify a Transferee pursuant to Article Nine of the Lease, Landlordshall not require payment of the increase in the Base Rent provided in Paragraph(10) of this Agreement for the period of time (to be agreed to by Landlord andAssignor but in no event more than six [6] months) from Assignee's monetarydefault until the commencement of payment of Base Rent by Transferee, as acondition for Landlord's approval of the Transferee; provided, however, thatnothing in the preceding language shall preclude Landlord from pursuing andobtaining such amounts from Assignee. Notwithstanding any other provision ofthis Agreement, the Lease or otherwise, in no event shall Assignor be personallyliable with respect to that portion of the Base Rent and Other Charges Payablewhich exceed the amount of Assignor's Rent prior to the increase thereofdescribed in Paragraph (10) of this Agreement.

(5) By the execution of this Agreement, Assignee assumes and agreesto pay all sums required to be paid by Tenant pursuant to the Lease from andafter the date hereof, and to perform all of the covenants and obligations ofAssignor as Tenant pursuant to the Lease from and after the date hereof.

(6) Landlord and Assignee agree to amend the Lease as follows:



(a) Landlord's Access. Section 5.06 as it relates to Assignee-----------------

is hereby amended as follows:

8

"Any tour or showing of the Property by Landlord or its agentsmust be accompanied by Assignee's escort. Any tours of theProperty by prospective tenants shall be only during the last six(6) months of the Term. Landlord may show the Property topotential purchasers thereof at any time with prior notice andaccompanied by Assignee's escort."

(b) Alterations, Additions and Improvements. Section 6.05 as it---------------------------------------

relates to Assignee is hereby amended as follows:

"Landlord shall advise Assignee, at the time of Landlord'sapproval of Assignee's alterations, additions or improvements, ofany requirement by Landlord as to the removal of any suchalteration, addition or improvement upon termination of theLease."

(c) Condition Upon Termination. Section 6.06 is hereby amended--------------------------

as follows:

"Assignor shall not be responsible for the removal of anyalterations, additions and improvements installed by Assignor oron Assignor's behalf upon expiration of the Lease."

(d) Right of First Refusal to Purchase the Property. Exhibit-----------------------------------------------

"C" to the Lease is hereby amended to include a bona fide writtenoffer to purchase the Optional Land A and/or B only. It is agreedthat the definition of "Optional Expansion Land" means theOptional Land A & B as shown on Exhibit "B-2" of this Agreement.Assignor agrees that so long as Assignee is not in default underthe terms of the Lease, Assignor has no rights with respect tosuch Right of First Refusal which shall hereafter run in favor ofAssignee. However, should Assignee be in default which defaultremains uncured and Assignor exercises any of its rights orremedies, Assignor shall notify Landlord of such exercise and theRight of First Refusal shall cease to run in favor of Assigneeand after said notice shall run in favor of Assignor.

(e) Notices. Section 13.06 is hereby deleted in its entirety-------

and replaced with the following:



"All notices required or permitted under this Lease shall be inwriting and shall be personally delivered or sent by certifiedmail, return receipt requested, postage prepaid. Notices toTenant/Assignor shall be delivered to the address specified inSection 1.03 above, with copies to:

9

Mary Ann Bartlett, SecretaryPall Corporation2200 Northern BoulevardEast Hills, New York 11548

Notices to Landlord shall be delivered to the address specifiedin Section 1.02 above, with copies of such notices to:

James M. ItinGreer, Herz, & AdamsOne Moody Plaza, 18th FloorGalveston, Texas 77550

Notices to Assignee shall be delivered to the following address:

SPACEHAB, INC.555 Forge River Road, Suite 150Webster, TX 77598Attn: Scott Hanson, Vice President of Finance and

Administration

Upon the Assignment Commencement Date, the Property shall beAssignee's address for notice purposes.

All notices shall be effective upon delivery. Either party maychange its notice address upon written notice to the otherparties."

(7) Landlord hereby authorizes Assignee and its contractors toperform the work (plans to be approved by Landlord and Assignor in theirreasonable judgment) to widen the overhead door on the south side of Building 2to 20 feet. It is understood and agreed that the work will be performed bymutually acceptable contractors. The work will be done in such a manner as tomaintain the integrity of the structure. In addition, Assignee shall have theright to construct additional parking in the location described on Exhibit B-3.

(8) Landlord and Assignor represent to Assignee that as of theeffective date or this Agreement, Landlord and Assignor are not aware of anyevent which, but for the passage of time or the giving of notice, or both, wouldconstitute a default under the Lease by Landlord or Assignor as Tenant.



(9) Landlord hereby confirms the following to Assignee:

(a) There are no documents pertaining to the Property other thanthe March 15, 1998 Industrial Real Estate Lease, the August 31,1998 First Amendment to Industrial Real Estate Lease and theDecember 14, 1999 Second Amendment to Industrial Real EstateLease (collectively, the "Lease"). The Lease represents theentire

10

agreement with respect to the Property between Landlord andAssignor as Tenant.

(b) Landlord has not assigned its interest in the Lease.

(c) Base Rent and Other Charges Payable by Tenant are current.

(10) Subject to the conditions described below, Landlord shall provideAssignee with an amount up to $380,000 to be utilized by Assignee forimprovements to the Property ("Improvement Allowance"). The ImprovementAllowance shall be funded by Landlord to Assignee, from time to time, only inthe event that each and every of the following conditions are met:

(a) Assignee must submit the plans and details as well as abudget (collectively, the "Budget") with respect to suchexpenditures to Landlord and obtain Landlord's written consentfor such Budget, such consent not to be unreasonably withheld,conditioned or delayed.

(b) Assignee must have funded expenditures for work included inthe approved Budget in an amount equal to the total amountdescribed in the Budget less $380,000.00, and providesatisfactory evidence of such expenditures to Landlord. (In theevent the total expenditures in the Budget are equal to or lessthan $380,000, Assignee shall not be required to make any non-reimbursable payments for work described in the Budget, and thisSection 10(b) shall be of no force or effect whatsoever.)

(c) Assignee must present Landlord with a copy of a paid receiptshowing such expenditure has been made.

(d) The expenditures may include the work described in Section 7above.

(e) The expenditure must be for work made on or to the Propertyto either improve the Property or to customize the Property forAssignee's use thereof, including, but not limited to, telephoneand data cabling equipment.



(f) Landlord shall not be obligated to reimburse Assignee formore than $380,000.00 cumulatively. And

(g) Assignee is not then in default pursuant to any other termsof the Lease.

Beginning December 1, 2000, the Base Rent shall be increased by anamount equal to $380,000.00 amortized over the remaining term of the Lease at arate of

11

ten percent (10%) per annum, regardless of whether Landlord has then funded thefull amount of the Improvement Allowance (i.e. $380,000.00).

Notwithstanding any provision in this Agreement, in the event thepayment of the Improvement Allowance by Landlord and the payment of theincreased Base Rent by Assignee is deemed to be a loan, it is expressly providedthat in no case or event should the aggregate amounts, which by applicable laware deemed to be interest with respect to such arrangement ever exceed the"Maximum Nonusurious Rate" (as defined below). In this connection, it isexpressly stipulated and agreed that it is the intention of the parties heretoto contract in strict compliance with applicable usury laws of the State ofTexas and/or the United States from time to time in effect. Nothing in theabove-described arrangement shall ever be construed to create a contract to pay,as consideration for the use, forbearance or detention of money, interest at arate in excess of the Maximum Nonusurious Rate. If under any circumstances theaggregate amounts which are deemed to be interest hereunder, would produce aninterest rate greater than the Maximum Nonusurious Rate, the Assignee andAssignor stipulate that the amounts will be deemed to have been paid, charged orcontracted for as a result of an error on the part of the party obligated forthe payment the deemed interest and the Landlord and upon discovery of the erroror upon notice thereof from the party making such payment, Landlord shall, atits option, refund the amount of such excess payment or credit the excesspayment against any other amount due under the Lease. In addition, all sumspaid or agreed to be paid to the Landlord for the use, forbearance or detentionof monies shall be, to the extent permitted by applicable law, amortized,prorated, allocated and spread through the full stated term to the Lease so thatthe amount of interest on account of the indebtedness evidenced hereby does notexceed the maximum permitted by law. At all times, if any, as Title Four of theTexas Finance Code shall establish the maximum nonusurious rate, the "MaximumNonusurious Rate" shall be the highest permitted rate based upon the "weeklyceiling" (as defined in Title Four of the Texas Finance Code) from time to timein effect.

(11) By the execution of this Agreement, Assignor hereby approves andconsents to the amendment of the Lease by Landlord and Assignee, providedhowever that it is agreed by the parties hereto that except as they arespecifically amended by this Agreement, Assignor's obligations as Tenantpursuant to the Lease shall be limited to those obligations (including future



obligations) of Assignor as Tenant contained within the Lease immediately priorto this Agreement and Landlord agrees to look solely to Assignee for theperformance of any obligations stated herein that expand Tenant's obligationsbeyond that of Tenant contained within the Lease immediately prior to thisAgreement.

(12) This Agreement shall not affect the continuing obligations ofthe Assignor in connection with the Lease, and the parties agree that executionof this Agreement shall not release Assignor from any of its obligationsthereunder.

(13) The parties hereto agree that Landlord's approval of theassignment to Assignor does not and shall not be a waiver of Landlord's rightsto consent to any future transfer and enforce any provisions of the Leaseprohibiting the sublease or

12

assignment thereof, and that said provisions remain in full force and effect.With Landlord's and Assignor's prior written consent, which consent shall not beunreasonably withheld, delayed or conditioned, Assignee shall have the right tomake any modifications to the Building and/or Land that are necessary to conductits business.

(14) Nothing herein contained shall in any way impair the Lease, nor,except as specifically stated herein and agreed to by all parties hereto, alter,waive, annul, vary, nor affect any provision, condition or covenant therein, itbeing the intent of the parties that the Lease shall continue in full force andeffect.

(15) The parties hereby agree that any subsequent amendment,modification or variance to the Lease between Landlord and Assignee that affectsAssignor must be approved by Assignor, which approval shall not be unreasonablywithheld, delayed or conditioned.

(16) It is agreed by the parties that Assignee's occupation of theProperty as amended by this Agreement will occur in phases and that Assignorwill continue to occupy some or all portions of the Property from and after thedate hereof. Assignor's and Assignee's occupation of the Property as agreed toherein, has been agreed to by and between Assignor and Assignee, withoutLandlord's intervention. Assignor's and/or Assignee's inability to occupy theProperty due to either party's failure to vacate the Property in accordance withAssignor's and Assignee's agreement relating to same or due to Assignor's orAssignee's breach of any of the obligations described in Section 3 herein to theother party, shall not relieve Assignor and Assignee from their obligations withrespect to Landlord and both Assignor (subject to Paragraph 6 hereof) andAssignee shall remain fully obligated for all terms, obligations and conditionsof Tenant pursuant to the Lease, including, without limitation, timely paymentof the Rent stated in the Lease.



(17) Except as expressly amended by the provisions hereof, the termsand provisions contained in the Lease shall continue to govern the rights andobligations of the parties, and all provisions and covenants in the Lease shallremain in full force and effect as stated therein, except to the extentspecifically modified by the provisions of this Agreement.

(18) This Agreement may be simultaneously executed in severalcounterparts, each of which so executed shall be deemed to be an original, andsuch counterparts together shall constitute one and the same instrument, whichshall be sufficiently evidenced by any such counterpart.

13

IN WITNESS WHEREOF, Landlord, Assignor and Assignee have executed thisAgreement in multiple counterparts to be effective on the date first writtenabove.

LANDLORD: AMERICAN NATIONAL INSURANCE COMPANY,a Texas insurance corporation

By:__________________________________Name:________________________________Its:_________________________________

ASSIGNOR: PALL CORPORATION,a New York corporation

By:__________________________________Name:________________________________Its:_________________________________

ASSIGNEE: SPACEHAB, INC,a Washington corporation

By:__________________________________Name:________________________________Its:_________________________________

14



Exhibit 10.112

FINANCING AND SECURITY AGREEMENT

Dated

August 9, 2000

By and Among


and its Subsidiaries

And

BANK OF AMERICA, N. A.

TABLE OF CONTENTS-----------------

<TABLE><S> <C>ARTICLE I DEFINITIONS 1Section 1.1 Certain Defined Terms. 1Section 1.2 Accounting Terms and Other Definitional Provisions. 20

ARTICLE II THE CREDIT FACILITIES 21Section 2.1 The Revolving Credit Facility. 21

2.1.1 Revolving Credit Facility. 212.1.2 Procedure for Making Advances Under the Revolving Credit; Lender Protection Loans. 212.1.3 Borrowing Base. 222.1.4 Borrowing Base Report. 222.1.5 Revolving Credit Note. 232.1.6 Mandatory Prepayments of Revolving Credit. 232.1.7 Optional Prepayments of Revolving Credit. 242.1.8 The Collateral Account. 242.1.9 Revolving Loan Account. 252.1.10 Revolving Credit Unused Line Fee. 252.1.11 Early Termination Fee. 25

Section 2.2 The Letter of Credit Facility. 262.2.1 Letters of Credit. 262.2.2 Letter of Credit Fees. 262.2.3 Terms of Letters of Credit. 262.2.4 Procedure for Letters of Credit. 272.2.5 Change in Law; Increased Cost. 27

Section 2.3 General Financing Provisions. 282.3.1 Borrowers' Representatives. 282.3.2 Use of Proceeds of the Revolving Credit. 292.3.3 Origination Fee. 302.3.4 Administration and Audit Fees. 302.3.5 Computation of Interest and Fees. 302.3.6 Maximum Interest Rate. 302.3.7 Payments. 312.3.8 Liens; Setoff. 312.3.9 Requirements of Law. 312.3.10 Funds Transfer Services. 322.3.11 ACH Transactions. 332.3.12 Guaranty. 33

Section 2.4 Interest 362.4.1 Applicable Interest Rates. 362.4.2 Selection of Interest Rates. 362.4.3 Inability to Determine Eurodollar Base Rate. 382.4.4 Indemnity. 392.4.5 Payment of Interest. 40



ARTICLE III THE COLLATERAL 40Section 3.1 Debt and Obligations Secured. 40Section 3.2 Grant of Liens. 41Section 3.3 Collateral Disclosure List. 41Section 3.4 Personal Property. 41</TABLE>

i

<TABLE><S> <C>Section 3.5 Record Searches. 41Section 3.6 Costs. 41Section 3.7 Release. 42Section 3.8 Inconsistent Provisions. 42

ARTICLE IV REPRESENTATIONS AND WARRANTIES 42Section 4.1 Representations and Warranties. 42

4.1.1 Subsidiaries. 424.1.2 Good Standing. 424.1.3 Power and Authority. 424.1.4 Binding Agreements. 434.1.5 No Conflicts. 434.1.6 No Defaults, Violations. 434.1.7 Compliance with Laws. 434.1.8 Margin Stock. 434.1.9 Investment Company Act; Margin Securities. 444.1.10 Litigation. 444.1.11 Financial Condition. 444.1.12 Full Disclosure. 444.1.13 Indebtedness for Borrowed Money. 454.1.14 Convertible Debt. 454.1.15 Taxes. 454.1.16 ERISA. 454.1.17 Title to Properties. 464.1.18 Patents, Trademarks, Etc. 464.1.19 Employee Relations. 464.1.20 Presence of Hazardous Materials or Hazardous Materials Contamination. 474.1.21 Perfection and Priority of Collateral. 474.1.22 Places of Business and Location of Collateral. 474.1.23 Business Names and Addresses. 474.1.24 No Suspension or Debarment. 474.1.25 Equipment. 484.1.26 Accounts. 484.1.27 Compliance with Eligibility Standards. 48

Section 4.2 Survival; Updates of Representations and Warranties. 48

ARTICLE V CONDITIONS PRECEDENT 49Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit. 49

5.1.1 Organizational Documents - Borrowers. 495.1.2 Opinion of Borrowers' Counsel. 505.1.3 Consents, Licenses, Approvals, Etc. 505.1.4 Note. 505.1.5 Financing Documents and Collateral. 505.1.6 Other Financing Documents. 505.1.7 Other Documents, Etc. 505.1.8 Payment of Fees. 505.1.9 Collateral Disclosure List. 505.1.10 Recordings and Filings. 505.1.11 Insurance Certificate. 515.1.12 Field Examination. 51

Section 5.2 Conditions to all Extensions of Credit and Issuance of Letters of Credit. 515.2.1 Compliance. 515.2.2 Borrowing Base. 515.2.3 Default. 51

</TABLE>

ii

<TABLE><S> <C>



5.2.4 Representations and Warranties. 515.2.5 Adverse Change. 525.2.6 Legal Matters. 52

ARTICLE VI COVENANTS OF THE BORROWERS 52Section 6.1 Affirmative Covenants. 52

6.1.1 Financial Statements. 526.1.2 Reports to SEC and to Stockholders. 546.1.3 Recordkeeping, Rights of Inspection, Administration and Audit, Etc. 546.1.4 Corporate Existence. 556.1.5 Compliance with Laws. 556.1.6 Preservation of Properties. 556.1.7 Line of Business. 556.1.8 Insurance. 556.1.9 Taxes. 566.1.10 ERISA. 566.1.11 Government Contracts. 566.1.12 Notification of Events of Default and Adverse Developments. 576.1.13 Hazardous Materials; Contamination. 576.1.14 Disclosure of Significant Transactions. 586.1.15 Financial Covenants. 596.1.16 Collection of Receivables. 606.1.17 Assignments of Receivables. 606.1.18 Notice of Returned Goods, etc. 616.1.19 Insurance With Respect to Equipment and Inventory. 616.1.20 Maintenance of the Collateral. 616.1.21 Equipment. 616.1.22 Defense of Title and Further Assurances. 626.1.23 Business Names; Locations. 626.1.24 Subsequent Opinion of Counsel as to Recording Requirements. 626.1.25 Use of Premises and Equipment. 636.1.26 Protection of Collateral. 636.1.27 Appraisals. 63

Section 6.2 Negative Covenants. 636.2.1 Capital Structure, Merger, Acquisition or Sale of Assets. 636.2.2 Subsidiaries. 646.2.3 Issuance of Stock. 646.2.4 Purchase or Redemption of Securities, Dividend Restrictions. 646.2.5 Indebtedness. 656.2.6 Investments, Loans and Other Transactions. 666.2.7 Stock of Subsidiaries. 676.2.8 Subordinated Indebtedness. 676.2.9 Liens. 686.2.10 Transactions with Affiliates. 686.2.11 Debenture. 686.2.12 ERISA Compliance. 696.2.13 Prohibition on Hazardous Materials. 696.2.14 Method of Accounting; Fiscal Year. 696.2.15 Compensation. 696.2.16 Transfer of Collateral. 696.2.17 Disposition of Collateral. 70

ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES 70Section 7.1 Events of Default. 70

7.1.1 Failure to Pay. 70</TABLE>

iii

<TABLE><S> <C>

7.1.2 Breach of Representations and Warranties. 707.1.3 Failure to Comply with Covenants. 701.1.4 Other Covenants 707.1.5 Default Under Other Financing Documents or Obligations. 717.1.6 Receiver; Bankruptcy. 717.1.7 Involuntary Bankruptcy, etc. 717.1.8 Judgment. 717.1.9 Execution; Attachment. 727.1.10 Default Under Other Borrowings. 727.1.11 Challenge to Agreements. 727.1.12 Material Adverse Effect. 727.1.13 Change in Ownership. 72



7.1.14 Liquidation, Termination, Dissolution, Change in Management, etc. 727.1.15 Contract Default, Debarment or Suspension. 72

Section 7.2 Remedies. 737.2.1 Acceleration. 737.2.2 Further Advances. 737.2.3 Uniform Commercial Code. 737.2.4 Specific Rights With Regard to Collateral. 747.2.5 Application of Proceeds. 757.2.6 Performance by Lender. 757.2.7 Other Remedies. 76

ARTICLE VIII MISCELLANEOUS 76Section 8.1 Notices. 76Section 8.2 Amendments; Waivers. 76

8.2.1 In General. 76Section 8.3 Cumulative Remedies. 77Section 8.4 Severability. 77Section 8.5 Assignments by Lender. 77Section 8.6 Participations by Lender. 78Section 8.7 Disclosure of Information by Lender. 78Section 8.8 Successors and Assigns. 78Section 8.9 Continuing Agreements. 78Section 8.10 Enforcement Costs. 79Section 8.11 Applicable Law; Jurisdiction. 79

8.11.1 Applicable Law. 798.11.2 Submission to Jurisdiction. 798.11.3 Appointment of Agent for Service of Process. 798.11.4 Service of Process. 80

Section 8.12 Duplicate Originals and Counterparts. 80Section 8.13 Headings. 80Section 8.14 No Agency. 80Section 8.15 Date of Payment. 80Section 8.16 Entire Agreement. 80Section 8.17 Waiver of Trial by Jury. 81Section 8.18 Liability of the Lender. 81Section 8.19 Indemnification. 81

LIST OF SCHEDULES 86</TABLE>

iv

FINANCING AND SECURITY AGREEMENT--------------------------------

THIS FINANCING AND SECURITY AGREEMENT (this "Agreement") is made this 9/th/day of August, 2000, by and among SPACEHAB, INCORPORATED, a corporationorganized under the laws of the State of Washington (the "Company"), JOHNSONENGINEERING CORPORATION, a corporation organized under the laws of the State ofColorado ("Johnson Engineering"), ASTROTECH SPACE OPERATIONS, INC., acorporation organized under the laws of the State of Delaware ("Astrotech"); andSPACE MEDIA, INC., a corporation organized under the laws of the State ofDelaware ("Space Media") jointly and severally (each of Company, JohnsonEngineering, Astrotech and Space Media, a "Borrower"; Company, JohnsonEngineering, Astrotech and Space Media, collectively, the "Borrowers"); and BANKOF AMERICA, N. A., a national banking association, its successors and assigns("Lender").

RECITALS--------

A. The Borrowers have applied to the Lender for a revolving creditfacility in the maximum principal amount of Fifteen Million Dollars($15,000,000), a letter of credit facility in the maximum principal amount ofTen Million Dollars ($10,000,000), as part of the revolving credit facility tobe used by the Borrowers for the Permitted Uses described in this Agreement.

B. The Lender is willing to make these credit facilities availablejointly and severally to the Borrowers upon the terms and subject to theconditions set forth in this Agreement.

AGREEMENTS----------



NOW, THEREFORE, in consideration of the premises and for other good andvaluable consideration, the receipt of which is hereby acknowledged, the partieshereby agree as follows:

ARTICLE IDEFINITIONS-----------

Section 1.1 Certain Defined Terms.----------------------

As used in this Agreement, the terms defined in the Preamble and Recitalshereto shall have the respective meanings specified therein, and the followingterms shall have the following meanings:

"Account" individually and "Accounts" collectively mean all presentlyexisting or hereafter acquired or created accounts, accounts receivable,contract rights (other than accounts, accounts receivable and contract rightsarising under the Astrotech Excluded Contracts), notes, drafts, instruments,acceptances, chattel paper, leases and writings evidencing a monetary

obligation or a security interest in, or a lease of, goods, all rights toreceive the payment of money or other consideration under present or futurecontracts (including, without limitation, all rights to receive payments underpresently existing or hereafter acquired or created letters of credit), or byvirtue of merchandise sold or leased, services rendered, loans and advances madeor other considerations given, by or set forth in or arising out of any presentor future chattel paper, note, draft, lease, acceptance, writing, bond,insurance policy (including, without limitation, the right to receive refunds ofunearned insurance premiums), instrument, document or general intangible, andall extensions and renewals of any thereof, all rights under or arising out ofpresent or future contracts, agreements or general interest in merchandise whichgave rise to any or all of the foregoing, including all goods, all claims orcauses of action now existing or hereafter arising in connection with or underany agreement or document or by operation of law or otherwise, all collateralsecurity of any kind (including, without limitation, real property mortgages anddeeds of trust) and letters of credit given by any Person with respect to any ofthe foregoing, all books and records in whatever media (paper, electronic orotherwise) recorded or stored, with respect to any or all of the foregoing andall equipment and general intangibles necessary or beneficial to retain, accessand/or process the information contained in those books and records, and allproceeds (cash and non-cash) of the foregoing.

"Account Debtor" means any Person who is obligated on a Receivable and"Account Debtors" mean all Persons who are obligated on the Receivables.

"ACH Transactions" means any cash management or related services includingthe automatic clearing house transfer of funds by the Lender for the account ofthe Borrowers pursuant to agreement or overdrafts.

"Additional Borrower" means each Person that has executed and delivered anAdditional Borrower Joinder Supplement that has been accepted and approved bythe Lender.

"Additional Borrower Joinder Supplement" means an Additional BorrowerJoinder Supplement in substantially the form attached hereto as EXHIBIT A, with

---------the blanks appropriately completed and executed and delivered by the AdditionalBorrower and accepted by the Company on behalf of the Borrowers.

"Administration and Audit Fee" and "Administration and Audit Fees" have themeanings described in Section 2.3.4 (Administration and Audit Fees).

"Affiliate" means, with respect to any designated Person (other than anatural person), any other Person, (a) directly or indirectly controlling,directly or indirectly controlled by, or under direct or indirect common controlwith the Person designated, (b) directly or indirectly owning or holding fivepercent (5%) or more of any equity interest in such designated Person, or (c)five percent (5%) or more of whose stock or other equity interest is directly orindirectly owned or held by such designated Person. For purposes of thisdefinition, the term "control" (including with correlative meanings, the terms"controlling", "controlled by" and "under common control with") means thepossession, directly or indirectly, of the power to direct or cause the



direction of the management and policies of a Person, whether through ownershipof voting securities or other equity interests or by contract or otherwise.

2

"Agreement" means this Financing and Security Agreement, as amended,restated, supplemented or otherwise modified in writing in accordance with theprovisions of Section 8.2 (Amendments; Waivers).

"Applicable Interest Rate" means (a) the Eurodollar Rate or (b) the BaseRate.

"Applicable Margin" means the applicable rate per annum added, as set forthin Section 2.4.1 (Applicable Interest Rates), to the Eurodollar Base Rate or thePrime Rate.

"Assets" means at any date all assets that, in accordance with GAAPconsistently applied, should be classified as assets on a consolidated balancesheet of the Borrowers and their respective Subsidiaries.

"Assignee" means any Person to which the Lender assigns all of itsinterests under this Agreement, any Revolving Credit Commitment, and anyRevolving Credit, in accordance with the provisions of Section 8.5 (Assignmentsby Lender), together with any and all successors and assigns of such Person.

"Astrotech Excluded Contracts" means (i) subcontract 99797075 betweenAstrotech and McDonnell Douglas Corporation, and (ii) that certain agreementnumber 48801 between Astrotech and Lockheed Martin Commercial Launch Services,Inc., each as the same may be amended from time to time.

"Astrotech Loan" means that certain construction loan being made toAstrotech or a special purpose entity to be created by Astrotech, in theprincipal amount of approximately Twenty Five Million Dollars ($25,000,000), asthe same may be amended, extended, modified or renewed from time to time.

"Astrotech Loan Collateral" means (i) the real property which is thesubject of the Astrotech Loan, located in Titusville, Florida, having an addressof 1515 Chaffee Drive, Titusville, Florida 32780 and (ii) all monies due underthe Astrotech Excluded Contracts.

"Bankruptcy Code" means Title 11 of the United States Code, as amended fromtime to time, and any successor Laws.

"Base Rate" means the sum of (a) the Applicable Margin, plus (b) the Prime----

Rate.

"Base Rate Loan" means any advance under the Revolving Credit for whichinterest is to be computed with reference to the Base Rate.

"Borrower" means each Person defined as a "Borrower" in the preamble ofthis Agreement and each Additional Borrower; "Borrowers" means the collectivereference to all Persons defined as "Borrowers" in the preamble to thisAgreement and all Additional Borrowers.

"Borrowing Base" has the meaning described in Section 2.1.3 (BorrowingBase).

"Borrowing Base Deficiency" has the meaning described in Section 2.1.3(Borrowing Base).

3

"Borrowing Base Report" has the meaning described in Section 2.1.4(Borrowing Base Report).

"Business Day" means any day other than a Saturday, Sunday or other day onwhich commercial banks in the State are authorized or required to close.

"Capital Adequacy Regulation" means any guideline, request or directive ofany central bank or other Governmental Authority, or any other law, rule orregulation, whether or not having the force of law, in each case, regardingcapital adequacy of any bank or of any corporation controlling a bank.



"Capital Expenditure" means an expenditure (whether payable in cash orother property or accrued as a liability) for Fixed or Capital Assets,including, without limitation, the entering into of a Capital Lease.

"Capital Lease" means with respect to any Person any lease of real orpersonal property, for which the related Lease Obligations have been or shouldbe, in accordance with GAAP consistently applied, capitalized on the balancesheet of that Person.

"Cash Equivalents" means (a) securities with maturities of one year or lessfrom the date of acquisition issued or fully guaranteed or insured by the UnitedStates Government or any agency thereof, (b) certificates of deposit withmaturities of one (1) year or less from the date of acquisition of, or moneymarket accounts maintained with, the Lender, any Affiliate of the Lender, or anyother domestic commercial bank having capital and surplus in excess of OneHundred Million Dollars ($100,000,000.00) or such other domestic financialinstitutions or domestic brokerage houses to the extent disclosed to, andapproved by, the Lender and (c) commercial paper of a domestic issuer rated atleast either A-1 by Standard & Poor's Corporation (or its successor) or P-1 byMoody's Investors Service, Inc. (or its successor) with maturities of six (6)months or less from the date of acquisition.

"Chattel Paper" means a writing or writings which evidence both a monetaryobligation and a security interest in or lease of specific goods; any returned,rejected or repossessed goods covered by any such writing or writings and allproceeds (in any form including, without limitation, accounts, contract rights,documents, chattel paper, instruments and general intangibles) of such returned,rejected or repossessed goods; and all proceeds (cash and non-cash) of theforegoing.

"CIT Collateral" means all equipment and inventory and other tangiblepersonal property of the Company, Astrotech and Johnson Engineering (other thanFlight Assets) presently existing or hereafter acquired or created and whereverlocated, together with all accessions thereto, substitutions and replacementstherefor, and cash and non-cash proceeds thereof, including all accounts,chattel paper, instruments and general intangibles constituting proceeds of suchequipment, together with all insurance proceeds of the foregoing, and all booksand records of the foregoing, which secure the CIT Loan Obligations.

"CIT Loan Obligations" means the loans and other obligations described inthat certain Loan and Security Agreement dated July 14, 1997 by and betweenAstrotech, as Borrower, and

4

CIT Group/Equipment Financing, Inc., as Lender, as the same has been amendedprior to the Closing Date, to among other things, add Johnson Engineering as aparty thereto, and as the same may be amended from time to time in accordancewith this Agreement and all obligations of the Company described in that certainContinuing Guaranty Agreement and that certain Security Agreement, each datedJuly 14, 1997 from the Company in favor of CIT Group/Equipment Financing, Inc.,in each case as the same has been amended prior to the date of this Agreement,and as the same may be amended from time to time in accordance with thisAgreement.

"Closing Date" means the Business Day, in any event not later than August9, 2000 on which the Lender shall be satisfied that the conditions precedent setforth in Section 5.1 (Conditions to Initial Advance) have been fulfilled orotherwise waived by the Lender.

"Collateral" means all property of each and every Borrower subject fromtime to time to the Liens of this Agreement, any of the Security Documentsand/or any of the other Financing Documents, together with any and all cash andnon-cash proceeds and products thereof.

"Collateral Account" has the meaning described in Section 2.1.8 (TheCollateral Account).

"Collateral Disclosure List" has the meaning described in Section 3.3(Collateral Disclosure List).

"Collection" means each check, draft, cash, money, instrument, item, andother remittance in payment or on account of payment of the Accounts or



otherwise with respect to any Collateral, including, without limitation, cashproceeds of any returned, rejected or repossessed goods, the sale or lease ofwhich gave rise to an Account, and other proceeds of Collateral; and"Collections" means the collective reference to all of the foregoing.

"Compliance Certificate" means a periodic Compliance Certificate describedin Section 6.1.1 (Financial Statements).

"Commonly Controlled Entity" means an entity, whether or not incorporated,which is under common control with any Borrower within the meaning of Section414(b) or (c) of the Internal Revenue Code.

"Convertible Debt Loan Documents" means any of the documents now orhereafter evidencing or securing the Debentures.

"Credit Facility" means the Revolving Credit Facility or the Letter ofCredit Facility, as the case may be, and "Credit Facilities" means collectivelythe Revolving Credit Facility, the Letter of Credit Facility and any and allother credit facilities now or hereafter extended under or secured by thisAgreement.

"Debentures" means the Company's 8% Convertible Subordinated Notes due 2007in the aggregate principal amount of $63,250,000 issued pursuant to the PurchaseAgreement dated as of October 15, 1997, by and among the Company, and CreditSuisse First Boston Corporation, CIBC Wood Gundy Securities Corp. andOppenheimer & Co., Inc.

5

"Debt Service" means as to each Borrower and its Subsidiaries for anyperiod of determination thereof an amount equal to the total of the aggregateamount of all payments of principal and interest with respect to Indebtednessfor Borrowed Money of each Borrower and its Subsidiaries scheduled to be due andpayable during such period, minus non-cash amortized interest costs for suchperiod, provided however, for purposes of the calculation of Debt Service fromthe Closing Date through December 31, 2000, the payments of interest on theDebentures shall be annualized and applied only based on the portion of thefiscal year then being measured.

"Debt Service Coverage Ratio" means as to each Borrower and itsSubsidiaries for the period of any determination the ratio of (a) EBITDA to (b)Debt Service.

"Debt to Worth Ratio" means as to each Borrower and its Subsidiaries forthe date of any determination thereof the ratio of (a) Liabilities to (b) theTangible Net Worth.

"Default" means an event which, with the giving of notice or lapse of time,or both, could or would constitute an Event of Default under the provisions ofthis Agreement.

"Documents" means all documents of title, whether now existing or hereafteracquired or created, and all proceeds (cash and non-cash) of the foregoing.

"Early Termination Fee" has the meaning described in Section 2.1.11 (EarlyTermination Fee).

"EBITDA" means as to each Borrower and its Subsidiaries for any period ofdetermination thereof, the sum of (a) the net profit (or loss) determined inaccordance with GAAP consistently applied, plus (b) interest expense and incometax provisions for such period, plus (c) depreciation and amortization of assetsfor such period, plus (d) non-cash amortized interest costs for such period and,minus (e) cash taxes paid for such period. All net profits and losses fromSpace Media shall be excluded from the calculation of EBITDA.

"Eligible Receivable" and "Eligible Receivables" mean, at any time ofdetermination thereof, the unpaid portion of each Account (excluding any and allAccounts that are Excluded Assets) (net of any returns, discounts, claims,credits, charges, accrued rebates or other allowances, offsets, deductions,counterclaims, disputes or other defenses and reduced by the aggregate amount ofall reserves, limits and deductions provided for in this definition andelsewhere in this Agreement) in United States Dollars of a Borrower, providedsuch Account conforms and continues to conform to the following criteria to thesatisfaction of the Lender:



(a) the Account arose in the ordinary course of a Borrower'sbusiness from services performed or products delivered by such Borrower;

(b) the Account is a valid, legally enforceable obligation ofthe Account Debtor and requires no further act on the part of any Personunder any circumstances to make the account payable by the Account Debtor;

(c) the Account is based upon an enforceable order or contract,written or oral, for services performed or products delivered, and the samewere performed in accordance with such order or contract;

6

(d) if the Account arises from the performance of services, suchservices have been fully rendered and do not relate to any warranty claimor obligation;

(e) the Account is evidenced by an invoice or otherdocumentation in form acceptable to the Lender, dated no later than thedate of shipment or performance;

(f) the amount shown on the books of a Borrower and on anyinvoice, certificate, schedule or statement delivered to the Lender isowing to such Borrower and no partial payment has been received unlessreflected with that delivery;

(g) the Account is not outstanding more than ninety (90) daysfrom the date of the invoice therefor or past due more than sixty (60) daysafter its due date, which shall not be later than thirty (30) days afterthe invoice date;

(h) the Account is not owing by any Account Debtor for which theLender has deemed fifty percent (50%) or more of such Account Debtor'sother accounts (or any portion thereof) due to a Borrower, individually, orall of the Borrowers collectively to be non-Eligible Receivables;

(i) the Account is not owing by an Account Debtor (other thanwhere a Governmental Authority is the Account Debtor) or a group ofaffiliated Account Debtors (other than Governmental Authorities) whose thenexisting accounts owing to any Borrower exceed in aggregate face amountfifteen percent (15%) of that Borrower's total Eligible Receivables;

(j) the Account Debtor has not returned, rejected or refused toretain, or otherwise notified the Borrower of any dispute concerning, orclaimed nonconformity of, any goods or services from the furnishing ordelivery of which the Account arose;

(k) other than customary offsets and claims which may ariseunder Government Contracts, the Account is not subject to any present orcontingent (and no facts exist which are known to the Borrower to be thebasis for any future) offset, claim, deduction or counterclaim, dispute ordefense in law or equity on the part of such Account Debtor, or any claimfor credits, allowances, or adjustments by the Account Debtor because ofunsatisfactory services, or for any other reason including, withoutlimitation, those arising on Account of a breach of any express or impliedrepresentation or warranty;

(l) the Account Debtor is not a Subsidiary or Affiliate of anyBorrower or an employee, officer, director or shareholder of any Borroweror any Subsidiary or Affiliate of any Borrower;

(m) the Account Debtor is not incorporated or primarilyconducting business or otherwise located in any jurisdiction outside of theUnited States of America, unless the Account Debtor's obligations withrespect to such Account are secured by a letter of credit, guaranty orbanker's acceptance having terms and from such issuers and

7

confirmation banks as are acceptable to the Lender in its sole and absolutediscretion (which letter of credit, guaranty or banker's acceptance issubject to the perfected Lien of the Lender);



(n) as to which none of the following events has occurred and iscontinuing with respect to the Account Debtor on such Account: death orjudicial declaration of incompetency of an Account Debtor who is anindividual; the filing by or against the Account Debtor of a request orpetition for liquidation, reorganization, arrangement, adjustment of debts,adjudication as a bankrupt, winding-up, or other relief under thebankruptcy, insolvency, or similar laws of the United States, any state orterritory thereof, or any foreign jurisdiction, now or hereafter in effect;the making of any general assignment by the Account Debtor for the benefitof creditors; the appointment of a receiver or trustee for the AccountDebtor or for any of the assets of the Account Debtor, including, withoutlimitation, the appointment of or taking possession by a "custodian," asdefined in the Bankruptcy Code; the institution by or against the AccountDebtor of any other type of insolvency proceeding (under the bankruptcylaws of the United States or otherwise) or of any formal or informalproceeding for the dissolution or liquidation of, settlement of claimsagainst, or winding up of affairs of, the Account Debtor; the sale,assignment, or transfer of all or any material part of the assets of theAccount Debtor; the nonpayment generally by the Account Debtor of its debtsas they become due; or the cessation of the business of the Account Debtoras a going concern;

(o) no Borrower is indebted in any manner to the Account Debtor(as creditor, lessor, supplier or otherwise), with the exception ofcustomary offsets and claims which may arise under Government Contracts andcustomary credits, adjustments and/or discounts given to an Account Debtorby a Borrower in the ordinary course of its business;

(p) the Account does not arise from services under or related toany warranty obligation of a Borrower or out of service charges, financecharges or other fees for the time value of money;

(q) the Account is not evidenced by chattel paper or aninstrument of any kind and is not secured by any letter of credit;

(r) the Account does not arise from an Excluded Asset;

(s) the title of the respective Borrower to the Account isabsolute and is not subject to any prior assignment, claim, Lien, orsecurity interest, except Permitted Liens;

(t) no bond or other undertaking by a guarantor or surety hasbeen or is required to be obtained, supporting the performance of anyBorrower or any other obligor in respect of any of such Borrower'sagreements with the Account Debtor;

8

(u) the Borrower to which the Account is owed has the full andunqualified right and power to assign and grant a security interest in, andLien on, the Account to the Lender as security and collateral for thepayment of the Obligations;

(v) the Account does not arise out of a contract with, or orderfrom, an Account Debtor that, by its terms, forbids or makes void orunenforceable the assignment or grant of a security interest by theBorrowers to the Lender of the account arising from such contract or order;

(w) the Account is subject to a Lien in favor of the Lender,which Lien is perfected as to the account by the filing of financingstatements and which Lien upon such filing constitutes a first prioritysecurity interest and Lien;

(x) no part of the Account represents a retainage;

(y) the Lender in the good faith exercise of its sole andabsolute discretion has not deemed the Account ineligible because ofuncertainty as to the creditworthiness of the Account Debtor or because theLender otherwise considers the collateral value of such Account to theLender to be impaired or its ability to realize such value to be insecure;

(z) the Account does not constitute a final billing or close outbilling relating to a completed contract; and



(aa) if the Account Debtor is located in a state requiring thefiling of a Notice of Business Activities Report or similar report in orderto permit a Borrower to seek judicial enforcement in such state of paymentof such Account, such Borrower has qualified to do business in such stateor has filed a Notice of Business Activities Report or equivalent reportfor the then current year.

In the event of any dispute, under the foregoing criteria, as to whether anAccount is, or has ceased to be, an Eligible Receivable, the decision of theLender (as communicated by the Lender to the Company orally or in writing) inthe good faith exercise of its sole and absolute discretion shall control.

"Enforcement Costs" means all expenses, charges, costs and fees whatsoever(including, without limitation, reasonable outside and allocated in-housecounsel attorney's fees and expenses) of any nature whatsoever paid or incurredby or on behalf of the Lender in connection with (a) any or all of theObligations, this Agreement and/or any of the other Financing Documents, (b) thecreation, perfection, collection, maintenance, preservation, defense,protection, realization upon, disposition, sale or enforcement of all or anypart of the Collateral, this Agreement or any of the other Financing Documents,including, without limitation, those costs and expenses more specificallyenumerated in Section 3.6 (Costs) and/or Section 8.10 (Enforcement Costs), andfurther including, without limitation, amounts paid to lessors, processors,bailees, warehousemen, sureties, judgment creditors and others in possession ofor with a Lien against or claimed against the Collateral, and (c) themonitoring, administration, processing and/or servicing of any or all of theObligations, the Financing Documents, and/or the

9

Collateral, other than the Administration and Audit Fees described in Section2.3.4 of this Agreement.

"Equipment" means all equipment, machinery, computers, chattels, tools,parts, machine tools, furniture, furnishings, fixtures and supplies of everynature (other than Excluded Assets), presently existing or hereafter acquired orcreated and wherever located, whether or not the same shall be deemed to beaffixed to real property and all of such types of property leased by any of theBorrowers and all of the Borrowers' rights and interests with respect theretounder such leases (including, without limitation, options to purchase), togetherwith all accessions, additions, fittings, accessories, special tools, andimprovements thereto and substitutions therefor and all parts and equipmentwhich may be attached to or which are necessary or beneficial for the operation,use and/or disposition of such personal property, all licenses, warranties,franchises and general intangibles related thereto or necessary or beneficialfor the operation, use and/or disposition of the same, together with allAccounts, Chattel Paper, Instruments and other consideration received by anyBorrower on account of the sale, lease or other disposition of all or any partof the foregoing, and together with all rights under or arising out of presentor future Documents and contracts relating to the foregoing and all proceeds(cash and non-cash) of the foregoing.

"ERISA" means the Employee Retirement Income Security Act of 1974, asamended from time to time.

"Eurodollar Base Rate" means for any Interest Period with respect to anyEurodollar Loan, the per annum interest rate rounded upward, if necessary, tothe nearest 1/100 of 1%, appearing on Telerate Page 3750 (or any successor page)as the London interbank offered rate for deposits in dollars at or about 11:00a.m. (London time) on the date that is two (2) Eurodollar Business Days prior tothe first day of such Interest Period for a term comparable to such InterestPeriod. If for any reason such rate is not available, the term "Eurodollar BaseRate" shall mean, for any Eurodollar Loan for any Interest Period therefore, therate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)appearing on Reuters Screen LIBO Page as the London interbank offered rate fordeposits in Dollars at approximately 11:00 a.m. (London time) two (2) EurodollarBusiness Days prior to the first day of such Interest Period for a termcomparable to such Interest Period; provided, however, if more than one rate is

-------- -------specified on Reuters Screen LIBO Page, the applicable rate shall be thearithmetic mean of all such rates (rounded upwards, if necessary, to the nearest1/100 of 1%).



"Eurodollar Business Day" means any Business Day on which dealings inUnited States Dollar deposits are carried out on the London interbank market andon which commercial banks are open for domestic and international business(including dealings in Dollar deposits) in London, England.

"Eurodollar Loan" means any Revolving Credit for which interest is to becomputed with reference to the Eurodollar Rate.

"Eurodollar Rate" means for any Interest Period with respect to anyEurodollar Loan, (a) the Applicable Margin, plus (b) the per annum rate of

----interest calculated pursuant to the following formula:

10

Eurodollar Base Rate--------------------1.00 - Reserve Percentage

"Event of Default" has the meaning described in ARTICLE VII (Default andRights and Remedies).

"Excluded Assets" means (i) all Flight Assets, (ii) all patents, trademarkscopyrights, rights in intellectual property, service names, service marks, logosand trade secrets of each Borrower, (iii) the CIT Collateral, and (iv) theAstrotech Loan Collateral.

"Facilities" means the collective reference to the Revolving CreditFacility, Letter of Credit Facility and cash management facilities now orhereafter provided to any one or more of the Borrowers by the Lender.

"Fees" means the collective reference to each fee payable to the Lenderunder the terms of this Agreement or under the terms of any of the otherFinancing Documents, including, without limitation, the Revolving Credit UnusedLine Fees, Letter of Credit Fees, the Early Termination Fee, the OriginationFee, and the Administration and Audit Fees.

"Financing Documents" means at any time collectively this Agreement, theNotes, the Security Documents, the Letter of Credit Documents, and any otherinstrument, agreement or document previously, simultaneously or hereafterexecuted and delivered by any Borrower and/or any other Person, singly orjointly with another Person or Persons, evidencing, securing, guarantying or inconnection with this Agreement, any Note, any of the Security Documents, any ofthe Facilities, and/or any of the Obligations.

"Fixed or Capital Assets" of a Person at any date means all assets whichwould, in accordance with GAAP consistently applied, be classified on thebalance sheet of such Person as property, plant or equipment at such date.

"Flight Assets" shall mean all hardware and subsystems owned or leased bythe Company which are designed or acquired for space flight (including, but notlimited, to flight modules, adapter rings, tunnel segments, multi-layerinsulation blankets, cargo pallets and associated piece parts) and non-flightequipment supporting such hardware and subsystems (including, but not limitedto, mechanical and electrical ground support, and flight training modules andequipment), together with all computer hardware and software and copyrights,patents, trademarks and other intellectual property directly arising or createdwith respect to such assets.

"GAAP" means generally accepted accounting principles in the United Statesof America in effect from time to time.

"General Intangibles" means all general intangibles of every nature,whether presently existing or hereafter acquired or created, and withoutimplying any limitation of the foregoing, further means all books and records,claims (including without limitation all claims for income tax and otherrefunds), choses in action, causes of action in tort or equity, contract rights,judgments, customer lists, licensing agreements, goodwill (including goodwill ofany Borrower's business symbolized by and associated with any and alltrademarks, trademark licenses,

11



copyrights and/or service marks), royalty payments, licenses, rights as lesseeunder any lease of real or personal property, literary rights, amounts receivedas an award in or settlement of a suit in damages, deposit accounts, interestsin joint ventures, general or limited partnerships, or limited liabilitycompanies or partnerships, rights in applications for any of the foregoing,books and records in whatever media (paper, electronic or otherwise) recorded orstored, with respect to any or all of the foregoing and all Equipment andgeneral intangibles necessary or beneficial to retain, access and/or process theinformation contained in those books and records, and all proceeds (cash andnon-cash) of the foregoing.

"Governmental Authority" means any nation or government, any state or otherpolitical subdivision thereof and any entity exercising executive, legislative,judicial, regulatory or administrative functions of or pertaining to governmentand any department, agency or instrumentality thereof.

"Government Contracts" means any contract with the United States or withany state or political subdivision thereof or any department, agency orinstrumentality of the United States, or any state or political subdivisionthereof.

"Hazardous Materials" means (a) any "hazardous waste" as defined by theResource Conservation and Recovery Act of 1976, as amended from time to time,and regulations promulgated thereunder; (b) any "hazardous substance" as definedby the Comprehensive Environmental Response, Compensation and Liability Act of1980, as amended from time to time, and regulations promulgated thereunder; (c)any substance the presence of which on any property now or hereafter owned,acquired or operated by any of the Borrowers is prohibited by any Law similar tothose set forth in this definition; and (d) any other substance which by Lawrequires special handling in its collection, storage, treatment or disposal.

"Hazardous Materials Contamination" means the contamination (whetherpresently existing or occurring after the date of this Agreement) by HazardousMaterials of any property owned, operated or controlled by any of the Borrowersor for which any of the Borrowers has responsibility, including, withoutlimitation, improvements, facilities, soil, ground water, air or other elementson, or of, any property now or hereafter owned, acquired or operated by any ofthe Borrowers, and any other contamination by Hazardous Materials for which anyof the Borrowers is, or is claimed to be, responsible.

"Indebtedness" of a Person means at any date the total liabilities of suchPerson at such time determined in accordance with GAAP consistently applied.

"Indebtedness for Borrowed Money" of a Person means at any time the sum atsuch time of (a) Indebtedness of such Person for borrowed money or for thedeferred purchase price of property or services, (b) any obligations of suchPerson in respect of letters of credit, banker's or other acceptances or similarobligations issued or created for the account of such Person, (c) LeaseObligations of such Person with respect to Capital Leases, (d) all liabilitiessecured by any Lien on any property owned by such Person, to the extent attachedto such Person's interest in such property, even though such Person has notassumed or become personally liable for the payment thereof, (e) obligations ofthird parties which are being guarantied or indemnified against by such Personor which are secured by the property of such Person; (f) any obligation of

12

such Person under an employee stock ownership plan or other similar employeebenefit plan which is in excess of amounts incurred by such Person in theordinary course of business; and (g) any obligation of such Person or a CommonlyControlled Entity to a Multi-employer Plan, which is in excess of amountsincurred by such Person in the ordinary course of business; but excluding tradeand other accounts payable in the ordinary course of business in accordance withcustomary trade terms and which are not overdue (as determined in accordancewith customary trade practices) or which are being disputed in good faith bysuch Person and for which adequate reserves are being provided on the books ofsuch Person in accordance with GAAP.

"Indemnified Parties" has the meaning set forth in Section 8.19(Indemnification).

"Instrument" means a negotiable instrument (as defined under Article 3 ofthe Uniform Commercial Code), a "certificated security" (as defined under



Article 8 of the Uniform Commercial Code), or any other writing which evidencesa right to payment of money and is not itself a security agreement or lease andis of a type which is in the ordinary course of business transferred by deliverywith any necessary endorsement.

"Interest Period" means as to any Eurodollar Loan, the period commencing onand including the date such Eurodollar Loan is made (or on the effective date ofthe Borrowers' election to convert any Base Rate Loan to a Eurodollar Loan inaccordance with the provisions of this Agreement) and ending on and includingthe day which is one month, two months or three months thereafter, as selectedby the Borrowers in accordance with the provisions of this Agreement, andthereafter, each period commencing on the last day of the then precedingInterest Period for such Eurodollar Loan and ending on and including the daywhich is one month, two months or three months thereafter, as selected by theBorrowers in accordance with the provisions of this Agreement; provided, howeverthat:

(a) the first day of any Interest Period shall be a EurodollarBusiness Day;

(b) if any Interest Period would end on a day that shall not be aEurodollar Business Day, such Interest Period shall be extended to the nextsucceeding Eurodollar Business Day unless such next succeeding EurodollarBusiness Day would fall in the next calendar month, in which case, suchInterest Period shall end on the next preceding Eurodollar Business Day;and

(c) no Interest Period shall extend beyond the Revolving CreditExpiration Date.

"Interest Rate Election Notice" has the meaning described in Section2.4.2(e) (Selection of Interest Rates).

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amendedfrom time to time, and the Income Tax Regulations issued and proposed to beissued thereunder.

"Inventory" means all inventory of each Borrower (other than ExcludedAssets) and all right, title and interest of each Borrower in and to all of itsnow owned and hereafter acquired

13

goods, merchandise and other personal property furnished under any contract ofservice or intended for sale or lease, including, without limitation, all rawmaterials, work-in-process, finished goods and materials and supplies of anykind, nature or description which are used or consumed in the any Borrower'sbusiness or are or could be expected to be used in connection with themanufacture, packing, shipping, advertising, selling or finishing of such goods,merchandise and other licenses, warranties, franchises, general intangibles,personal property and all documents of title or documents relating to the sameand all proceeds (cash and non-cash) of the foregoing.

"Item of Payment" means each check, draft, cash, money, instrument, item,and other remittance in payment or on account of payment of the Receivables orotherwise with respect to any Collateral (other than remittances on the ExcludedAssets), including, without limitation, cash proceeds of any returned, rejectedor repossessed goods, the sale or lease of which gave rise to a Receivable, andother proceeds of Collateral; and "Items of Payment" means the collectivereference to all of the foregoing.

"Laws" means all ordinances, statutes, rules, regulations, orders,injunctions, writs, or decrees of any Governmental Authority.

"Lease Obligations" of a Person means for any period the rental commitmentsof such Person for such period under leases for real and/or personal property(net of rent from subleases thereof, but including taxes, insurance, maintenanceand similar expenses which such Person, as the lessee, is obligated to pay underthe terms of said leases, except to the extent that such taxes, insurance,maintenance and similar expenses are payable by sublessees), including rentalcommitments under Capital Leases.

"Letter of Credit" and "Letters of Credit" shall have the meaningsdescribed in Section 2.2.1 (Letters of Credit).



"Letter of Credit Agreement" means the collective reference to each letterof credit application and agreement substantially in the form of the Lender'sthen standard form of application for letter of credit or such other form as maybe approved by the Lender, executed and delivered by the Borrower in connectionwith the issuance of a Letter of Credit, as the same may from time to time beamended, restated, supplemented or modified and "Letter of Credit Agreements"means all of the foregoing in effect at any time and from time to time.

"Letter of Credit Documents" means any and all drafts under or purportingto be under a Letter of Credit, any Letter of Credit Agreement, and any otherinstrument, document or agreement executed and/or delivered by the Borrower orany other Person under, pursuant to or in connection with a Letter of Credit orany Letter of Credit Agreement.

"Letter of Credit Facility" means the facility established by the Lenderpursuant to Section 2.2 (Letter of Credit Facility).

"Letter of Credit Fee" and "Letter of Credit Fees" have the meaningsdescribed in Section 2.2.2 (Letter of Credit Fees).

14

"Letter of Credit Obligations" means all Obligations of the Borrower withrespect to the Letters of Credit and the Letter of Credit Agreements.

"Liabilities" means at any date all liabilities that in accordance withGAAP consistently applied should be classified as liabilities on a consolidatedbalance sheet of the Borrowers and their respective Subsidiaries.

"Lien" means any mortgage, deed of trust, deed to secure debt, grant,pledge, security interest, assignment, encumbrance, judgment, lien, financingstatement, hypothecation, provision in any instrument or other document forconfession of judgment, cognovit or other similar right or other remedy, claim,charge, control over or interest of any kind in real or personal propertysecuring any indebtedness, duties, obligations, and liabilities owed to, or aclaimed to be owed to, a Person, all whether perfected or unperfected, avoidableor unavoidable, based on the common law, statute or contract or otherwise,including, without limitation, any conditional sale or other title retentionagreement, any lease in the nature thereof, and the filing of or agreement togive any financing statement under the Uniform Commercial Code of anyjurisdiction, excluding the precautionary filing of any financing statement byany lessor in a true lease transaction, by any bailor in a true bailmenttransaction or by any consignor in a true consignment transaction under theUniform Commercial Code of any jurisdiction or the agreement to give anyfinancing statement by any lessee in a true lease transaction, by any bailee ina true bailment transaction or by any consignee in a true consignmenttransaction.

"Loan Notice" has the meaning described in Section 2.1.2 (Procedure forMaking Advances).

"Lockbox" has the meaning described in Section 2.1.8 (The CollateralAccount).

"Material Adverse Effect" means the occurrence of any event which in theLender's sole, but reasonable discretion (i) could be expected to be materiallyadverse to the business, operations, property or financial condition of theBorrowers taken as a whole, (ii) could be expected to materially and adverselyaffect the ability of the Borrowers taken as a whole to perform theirobligations under this Agreement or the other Financing Documents, to which anyBorrower is a party, (iii) could be expected to materially and adversely affectthe ability of the Borrowers taken as a whole to perform the Obligations, (iv)could be expected to materially and adversely affect the value of, or theability of the Lender to realize upon, the Collateral.

"Maximum Rate" has the meaning described in Section 2.3.6 (Maximum InterestRate).

"Multi-employer Plan" means a Plan that is a Multi-employer plan as definedin Section 4001(a)(3) of ERISA.

"Net Worth" means the consolidated shareholders' equity, defined inaccordance with GAAP, of the Borrower and its Subsidiaries.



"Note" means any Revolving Credit Note, and "Notes" means collectively theRevolving Credit Note and any other promissory note which may from time to timeevidence all or any portion of the Obligations.

15

"Obligations" means all present and future indebtedness, duties,obligations, and liabilities, whether now existing or contemplated or hereafterarising, of any one or more of the Borrowers to the Lender under, arisingpursuant to, in connection with and/or on account of the provisions of thisAgreement, each Note, each Security Document, and/or any of the other FinancingDocuments, the Loans, and/or any of the Facilities including, withoutlimitation, the principal of, and interest on, each Note, late charges, theFees, Enforcement Costs, and prepayment fees (if any), Outstanding Letter ofCredit Obligations, Letter of Credit Fees or fees charged with respect to anyguaranty of any Letter of Credit; also means all other present and futureindebtedness, duties, obligations, and liabilities, whether now existing orcontemplated or hereafter arising, of any one or more of the Borrowers to theLender or its Affiliates of any nature whatsoever including, without limitation,any indebtedness, duties, obligations, and liabilities under or in connectionwith, any cash management agreements, regardless of whether such indebtedness,duties, obligations, and liabilities be direct, indirect, primary, secondary,joint, several, joint and several, fixed or contingent; and also means any andall renewals, extensions, substitutions, amendments, restatements andrearrangements of any such indebtedness, duties, obligations, and liabilities.

"Origination Fee" has the meaning described in Section 2.3.3 (OriginationFee).

"Outstanding Letter of Credit Obligations" has the meaning described inSection 2.2.3 (Terms of Letters of Credit).

"PBGC" means the Pension Benefit Guaranty Corporation.

"Permitted Liens" means: (a) Liens for Taxes which are not delinquent orwhich the Lender has determined in the good faith exercise of its sole andabsolute discretion (i) are being diligently contested in good faith and byappropriate proceedings, and such contest operates to suspend collection of thecontested Taxes and enforcement of a Lien, (ii) the respective Borrower orSubsidiary has the financial ability to pay, with all penalties and interest, atall times without a Material Adverse Effect, and (iii) are not, and will not bewith appropriate filing, the giving of notice and/or the passage of time,entitled to priority over any Lien of the Lender; (b) deposits or pledges tosecure obligations under workers' compensation, social security or similar laws,or under unemployment insurance in the ordinary course of business; (c) Lienssecuring the Obligations; (d) judgment Liens to the extent the entry of suchjudgment does not constitute a Default or an Event of Default under the terms ofthis Agreement or result in the sale or levy of, or execution on, any of theCollateral; (e) Liens on the Excluded Assets; (f) Purchase Money Liens in anaggregate amount at any time, not exceeding Two Hundred Fifty Thousand Dollars($250,000); (g) materialmen and landlord Liens incurred in the ordinary courseof the business of a Borrower, provided such claims are not and will not be withappropriate filings, the giving of notice and/or the passage of time, entitledto priority over any Lien of the Lender; (h) Liens incurred or deposits made inthe ordinary course of business to secure the performance of tenders, bids,leases, contracts (other than the repayment of Indebtedness for Borrowed Money),provided that, to the extent any such Liens attach to any of the Collateral,such Liens are at all times subordinated and junior to the Liens in suchCollateral in favor of the Lender; and (i) such other Liens, if any, as are setforth on Schedule 4.1.21 attached hereto and made a part hereof.

---------------

16

"Permitted Uses" means (a) the repayment of certain indebtedness of theCompany existing as of the Closing Date; and (b) the payment of expensesincurred in the ordinary course of any Borrower's business, including, thepayment of costs, fees and other expenses in connection with this Agreement.

"Person" means and includes an individual, a corporation, a partnership, ajoint venture, a limited liability company or partnership, a trust, anunincorporated association, a Governmental Authority, or any other organization



or entity.

"Plan" means any pension plan that is covered by Title IV of ERISA and inrespect of which any Borrower or a Commonly Controlled Entity is an "employer"as defined in Section 3 of ERISA.

"Prime Rate" means the floating and fluctuating per annum prime commerciallending rate of interest of the Lender, as established and declared by theLender at any time or from time to time. The Prime Rate shall be adjustedautomatically, without notice, as of the effective date of any change in suchprime commercial lending rate. The Prime Rate does not necessarily represent thelowest rate of interest charged by the Lender to borrowers.

"Post-Default Rate" means the Prime Rate in effect from time to time, plusfour percent (4.0%) per annum.

"Prepayment" means a Revolving Credit Mandatory Prepayment or a RevolvingCredit Optional Prepayment, as the case may be, and "Prepayments" meancollectively all Revolving Credit Mandatory Prepayments and all Revolving CreditOptional Prepayments.

"Purchase Money Lien" means Liens (i) on equipment acquired or held by aBorrower incurred for financing the acquisition of the specific equipment, or(ii) existing on equipment when acquired, provided that in all cases such Lienis confined to the property and improvements and the proceeds of such equipment.

"Receivable" means one of each Borrower's now owned and hereafter owned,acquired or created Accounts, Chattel Paper, General Intangibles andInstruments, other than Receivables arising from the sale of the CIT Collateral;and "Receivables" means all of each Borrower's now or hereafter owned, acquiredor created Accounts, Chattel Paper, General Intangibles and Instruments, otherthan Receivables arising from the sale of the CIT Collateral; together with allcash and non-cash proceeds and products thereof.

"Reportable Event" means any of the events set forth in Section 4043(c) ofERISA or the regulations thereunder.

"Reserve Percentage" means, at any time, the then current maximum rate forwhich reserves (including any basic, special, supplemental, marginal andemergency reserves) are required to be maintained by member banks of the FederalReserve System under Regulation D of the Board of Governors of the FederalReserve System against "Eurocurrency liabilities", as that term is defined inRegulation D. Without limiting the effect of the foregoing, the ReservePercentage shall reflect any other reserves required to be maintained by suchmember banks with

17

respect to (a) any category of liabilities which includes deposits by referenceto which the Eurodollar Rate is to be determined, or (b) any category ofextensions of credit or other assets which include Eurodollar Loans. TheEurodollar Rate shall be adjusted automatically on and as of the effective dateof any change in the Reserve Percentage.

"Responsible Officer" means for each Borrower, its chief executive officeror president or, with respect to financial matters, its chief financial officer.

"Revolving Credit" has the meaning described in Section 2.1.1. (RevolvingCredit Facility).

"Revolving Credit Commitment" means the agreement of the Lender relating tomaking the Revolving Credit and advances thereunder subject to and in accordancewith the provisions of this Agreement.

"Revolving Credit Commitment Period" means the period of time from theClosing Date to the Business Day preceding the Revolving Credit TerminationDate.

"Revolving Credit Committed Amount" has the meaning described in Section2.1.1 (Revolving Credit Facility).

"Revolving Credit Expiration Date" means August 8, 2003.

"Revolving Credit Facility" means the facility established by the Lender



pursuant to Section 2.1 (Revolving Credit Facility).

"Revolving Credit Mandatory Prepayment" and "Revolving Credit MandatoryPrepayments" have the meanings described in Section 2.1.6 (Mandatory Prepaymentsof Revolving Credit).

"Revolving Credit Note" has the meaning described in Section 2.1.5(Revolving Credit Note).

"Revolving Credit Optional Prepayment" and "Revolving Credit OptionalPrepayments" have the meanings described in Section 2.1.7 (Optional Prepaymentof Revolving Credit).

"Revolving Credit Termination Date" means the earlier of (a) the RevolvingCredit Expiration Date, or (b) the date on which the Revolving Credit Commitmentis terminated pursuant to Section 7.2 (Remedies) or otherwise.

"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line Fees"have the meanings described in Section 2.1.10 (Revolving Credit Unused LineFee).

"Revolving Credit" has the meaning described in Section 2.1.1 (RevolvingCredit Facility).

"Revolving Loan Account" has the meaning described in Section 2.1.9(Revolving Loan Account).

18

"RSC Energia/Space Media" means RSC Energia/Space Media, LLC, a limitedliability company organized under the laws of the State of Delaware.

"Security Documents" means collectively any assignment, pledge agreement,security agreement, mortgage, deed of trust, deed to secure debt, financingstatement and any similar instrument, document or agreement under or pursuant towhich a Lien is now or hereafter granted to, or for the benefit of, the Lenderon any real or personal property of any Person to secure all or any portion ofthe Obligations, all as the same may from time to time be amended, restated,supplemented or otherwise modified, including, without limitation, thisAgreement and the Stock Pledge Agreement.

"Security Procedures" means the rules, policies and procedures adopted andimplemented by the Lender and its Affiliates at any time and from time to timewith respect to security procedures and measures relating to electronic fundstransfers, all as the same may be amended, restated, supplemented, terminated,or otherwise modified at any time and from time to time by the Lender in itssole and absolute discretion.

"Space Station Enterprise" means Space Station Enterprise LLC, a limitedliability company organized under the laws of the State of Delaware.

"State" means the Commonwealth of Virginia.

"Stock Pledge Agreement" means that certain pledge, assignment and securityagreement dated the date hereof from the Company to the Lender, as the same mayfrom time to time be amended, restated, supplemented or otherwise modified.

"Subordinated Indebtedness" means all Indebtedness incurred at any time byany one or more of the Borrowers, which is in amounts, subject to repaymentterms, and subordinated to the Obligations, as set forth in one or more writtenagreements, all in form and substance satisfactory to the Lender in its sole andabsolute discretion.

"Subsidiary" means any operating corporation with principal offices in theUnited States where fifty one percent (51%) or more of the voting shares ofwhich at the time are owned directly by any Borrower and/or by one or moreSubsidiaries of any Borrower.

"Tangible Net Worth" means as to each Borrower and its Subsidiaries at anydate of determination thereof, the sum at such time of: the Net Worth, plus theamount of all amounts due to the Company from Space Media, less the total of (a)all Assets which would be classified as intangible assets under GAAPconsistently applied, (b) applicable reserves, allowances and other similarproperly deductible items to the extent such reserves, allowances and other



similar properly deductible items have not been previously deducted by theLender in the calculation of Net Worth, and (c) any revaluation or other write-up in book value of assets subsequent to the date of the most recent financialstatements delivered to the Lender.

"Taxes" means all taxes and assessments whether general or special,ordinary or extraordinary, or foreseen or unforeseen, of every character(including all penalties or interest thereon), which at any time may beassessed, levied, confirmed or imposed by any Governmental

19

Authority on any or all of the Borrowers or any of its or their properties orassets or any part thereof or in respect of any of its or their franchises,businesses, income or profits.

"Uniform Commercial Code" means, unless otherwise provided in thisAgreement, the Uniform Commercial Code as adopted by and in effect from time totime in the State or in any other jurisdiction, as applicable.

"United States" means the United States of America and any territory orinsular possession of the United Sates of America.

"Wholly Owned Subsidiary" means any domestic United States corporation allthe shares of stock of all classes of which (other than directors' qualifyingshares) at the time are owned directly or indirectly by a Borrower and/or by oneor more Wholly Owned Subsidiaries of a Borrower.

"Wire Transfer Procedures" means the rules, policies and procedures setforth in EXHIBIT C attached hereto, including, without limitation, the Security

---------Procedures, all as the same may be amended, restated, supplemented, terminatedor otherwise modified at any time and from time to time by the Lender in itssole and absolute discretion.

Section 1.2 Accounting Terms and Other Definitional Provisions.---------------------------------------------------

Unless otherwise defined herein, as used in this Agreement and in anycertificate, report or other document made or delivered pursuant hereto,accounting terms not otherwise defined herein, and accounting terms only partlydefined herein, to the extent not defined, shall have the respective meaningsgiven to them under GAAP, as consistently applied to the applicable Person on abasis consistent with that used in preparing such Person's audited financialstatements for prior years. All terms used herein which are defined by theUniform Commercial Code shall have the same meanings as assigned to them by theUniform Commercial Code unless and to the extent varied by this Agreement. Thewords "hereof", "herein" and "hereunder" and words of similar import when usedin this Agreement shall refer to this Agreement as a whole and not to anyparticular provision of this Agreement, and article, section, subsection,schedule and exhibit references are references to articles, sections orsubsections of, or schedules or exhibits to, as the case may be, this Agreementunless otherwise specified. As used herein, the singular number shall includethe plural, the plural the singular and the use of the masculine, feminine orneuter gender shall include all genders, as the context may require. Referenceto any one or more of the Financing Documents shall mean the same as theforegoing may from time to time be amended, restated, substituted, extended,renewed, supplemented or otherwise modified. Reference in this Agreement andthe other Financing Documents to the "Borrower", the "Borrowers", "eachBorrower" or otherwise with respect to any one or more of the Borrowers shallmean each and every Borrower and any one or more of the Borrowers, jointly andseverally, unless a specific Borrower is expressly identified.

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ARTICLE IITHE CREDIT FACILITIES---------------------

Section 2.1 The Revolving Credit Facility.------------------------------

2.1.1 Revolving Credit Facility.



--------------------------

Subject to and upon the provisions of this Agreement, theLender agrees to establish a revolving credit facility in favor of theBorrowers. The aggregate of all advances under the Revolving Credit Facility issometimes referred to in this Agreement collectively as the "Revolving Credit".

The principal amount of Fifteen Million Dollars ($15,000,000)is the "Revolving Credit Committed Amount".

During the Revolving Credit Commitment Period, the Lenderagrees to make advances under the Revolving Credit requested by the Borrowerfrom time to time provided that after giving effect to the Borrower's request,the sum of (a) the outstanding principal balance of the Revolving Credit and (b)the Letter of Credit Obligations, would not exceed the lesser of (y) theRevolving Credit Committed Amount, or (z) the then most current Borrowing Base.

2.1.2 Procedure for Making Advances Under the Revolving-------------------------------------------------Credit; LenderProtection Loans.-------------------------------

The Borrowers may borrow under the Revolving Credit Facilityon any Business Day. Advances under the Revolving Credit shall be deposited to ademand deposit account of the Company with the Lender or shall be otherwiseapplied as directed by the Company, which direction the Lender may require to bein writing, provided, however, the Lender may make the advances referred to inSection 2.2.3, without the direction of the Company. Except for advances madeunder the Revolving Credit by the Lender which the Lender is authorized to makeunder this Agreement, not later than 11:00 a.m. (Eastern Standard Time) on thedate of the requested borrowing, the Company shall give the Lender oral orwritten notice (a "Loan Notice") of the amount and (if requested by the Lender)the purpose of the requested borrowing. Any oral Loan Notice shall be confirmedin writing by the Company within three (3) Business Days after the making of therequested advance under the Revolving Credit. Each Loan Notice shall beirrevocable.

In addition, each of the Borrowers hereby irrevocablyauthorizes the Lender at any time and from time to time, without further requestfrom or notice to the Borrowers, to make advances under the Revolving Credit,and to establish, without duplication, reserves against the Borrowing Base,which the Lender, in its sole and absolute discretion, deems necessary orappropriate to protect the interests of the Lender, including, withoutlimitation, advances and reserves under the Revolving Credit made to cover debitbalances in the Revolving Loan Account, principal of, and/or interest on, anyRevolving Credit, the Obligations (including, without limitation, any Letter ofCredit Obligations), and/or Enforcement Costs, prior to, on, or after thetermination of other advances under this Agreement, regardless of whether theoutstanding principal amount of the Revolving Credit that the Lender may advanceor reserve hereunder exceeds the Total Revolving Credit Committed Amount or theBorrowing Base,

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provided, however, that the Lender agrees to give the Company two (2) BusinessDays prior notice of any such advances, other than advances for the purposes ofcovering debit balances in the Revolving Loan Account, principal of, and/orinterest on, any Revolving Credit, and the payment of any Fees, unless theLender in its exercise of its reasonable discretion determines that the failureto provide such notice could result in a Material Adverse Effect.

2.1.3 Borrowing Base.---------------

As used in this Agreement, the term "Borrowing Base" means atany time, an amount equal to the aggregate of (a) ninety percent (90%) of theamount of Eligible Receivables derived from Government Contracts, plus (b)eighty five percent (85%) of Eligible Receivables derived from contracts otherthan Government Contracts.

The Borrowing Base shall be computed based on the BorrowingBase Report most recently delivered to and accepted by the Lender in its soleand absolute discretion. In the event the Borrowers fail to furnish a BorrowingBase Report required by Section 2.1.4 (Borrowing Base Report), or in the event



the Lender believes that a Borrowing Base Report is no longer accurate, theLender may, in its sole and absolute discretion exercised from time to time andwithout limiting other rights and remedies under this Agreement, suspend themaking of or limit advances under the Revolving Credit. The Borrowing Base shallbe subject to reduction by amounts credited to the Collateral Account since thedate of the most recent Borrowing Base Report and by the amount of anyReceivable which was included in the Borrowing Base but which the Lenderdetermines fails to meet the respective criteria applicable from time to timefor Eligible Receivables.

If at any time the total of the aggregate principal amount ofthe Revolving Credit and Outstanding Letter of Credit Obligations exceeds theBorrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shallexist. Each time a Borrowing Base Deficiency exists, the Borrower, at the soleand absolute discretion of the Lender exercised from time to time, shall pay theBorrowing Base Deficiency within two Business Days of DEMAND to the Lender.

Without implying any limitation on the Lender's discretionwith respect to the Borrowing Base, the criteria for Eligible Receivablescontained in the definition of Eligible Receivables are in part based upon thebusiness operations of the Borrowers existing on or about the Closing Date andupon information and records furnished to the Lender by the Borrowers. If at anytime or from time to time hereafter, the business operations of the Borrowerschange or such information and records furnished to the Lender is incorrect ormisleading, the Lender in its discretion, may at any time and from time to timeduring the duration of this Agreement change such criteria or add new criteria.The Lender may communicate such changed or additional criteria to the Borrowersfrom time to time either orally or in writing.

2.1.4 Borrowing Base Report.----------------------

(a) At all times as any Obligations are outstandingunder this Agreement or under any of the Financing Documents, the Borrowers willfurnish to the Lender no less frequently than the twenty fifth (25/th/) day ofeach month and at such other times as may be requested by the Lender, a reportof the Borrowing Base (each a "Borrowing Base Report";

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collectively, the "Borrowing Base Reports") in the form required from time totime by the Lender, appropriately completed and duly signed. Unless otherwiserequested by the Lender, the Borrowing Base Report shall be dated as of the lastBusiness Day of the immediately preceding month and shall contain a detailedaging schedule of all Receivables by Account Debtor as of the date of theBorrowing Base Report, the amount and payments on the Receivables, and thecalculations of the Borrowing Base, all in such detail, and accompanied by suchsupporting and other information, as the Lender may from time to time request,including, but not limited to, a report containing a detailed aging of allaccounts payable by supplier, in such detail, and accompanied by such supportinginformation, as the Lender may from time to time reasonably request. Upon theLender's request and upon the creation of any Receivables, or at such intervalsas the Lender may require, the Borrowers will provide the Lender with (a)confirmatory assignment schedules; (b) copies of Account Debtor invoices; (c)evidence of shipment or delivery; and (d) such further schedules, documentsand/or information regarding the Receivables as the Lender may reasonablyrequire. The items to be provided under this subsection shall be in formsatisfactory to the Lender, and certified as true and correct by a ResponsibleOfficer, and delivered to the Lender from time to time solely for the Lender'sconvenience in maintaining records of the Collateral. Any Borrower's failure todeliver any of such items to the Lender shall not affect, terminate, modify, orotherwise limit the Liens of the Lender in the Collateral.

2.1.5 Revolving Credit Note.----------------------

The obligation of the Borrowers to pay the Revolving Credit,with interest, shall be evidenced by a promissory note (as from time to timeextended, amended, restated, supplemented or otherwise modified, the "RevolvingCredit Note") substantially in the form of EXHIBIT B attached hereto and made a

---------part hereof, with appropriate insertions. The Revolving Credit Note shall bedated as of the Closing Date, shall be payable to the order of the Lender at thetimes provided in the Revolving Credit Note, and shall be in the principal



amount of the Revolving Credit Committed Amount. Each of the Borrowersacknowledges and agrees that, if the outstanding principal balance of theRevolving Credit outstanding from time to time exceeds the face amount of theRevolving Credit Note, the excess shall bear interest at the rates provided fromtime to time for advances under the Revolving Credit evidenced by the RevolvingCredit Note and shall be payable, with accrued interest, within two BusinessDays of DEMAND. The Revolving Credit Note shall not operate as a novation ofany of the Obligations or nullify, discharge, or release any such Obligations orthe continuing contractual relationship of the parties hereto in accordance withthe provisions of this Agreement.

2.1.6 Mandatory Prepayments of Revolving Credit.------------------------------------------

The Borrowers shall make the mandatory prepayments (each a"Revolving Credit Mandatory Prepayment" and collectively, the "Revolving CreditMandatory Prepayments") of the Revolving Credit at any time and from time totime in such amounts requested by the Lender pursuant to Section 2.1.3(Borrowing Base) in order to cover any Borrowing Base Deficiency.

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2.1.7 Optional Prepayments of Revolving Credit.-----------------------------------------

The Borrowers shall have the option at any time and from timeto time to prepay (each a "Revolving Credit Optional Prepayment" andcollectively the "Revolving Credit Optional Prepayments") advances under theRevolving Credit, in whole or in part without premium or penalty, other than anysums due under Section 2.4.4 with respect to such prepayment.

2.1.8 The Collateral Account.-----------------------

The Borrowers will deposit, or cause to be deposited, allItems of Payment to a bank account designated by the Lender and from which theLender alone has power of access and withdrawal (the "Collateral Account"). Eachdeposit shall be made not later than the next Business Day after the date ofreceipt of the Items of Payment. The Items of Payment shall be deposited inprecisely the form received, except for the endorsements of the Borrowers wherenecessary to permit the collection of any such Items of Payment, each Borrowerhereby agreeing to make such endorsement. In the event any Borrower shall failto do so, the Lender is hereby authorized by each Borrower to make theendorsement in the name of such Borrower. Prior to such a deposit, none of theBorrowers will not commingle any Items of Payment with any of the other funds orproperty of any other Borrower, but will hold them separate and apart in trustand for the account of the Lender.

In addition, if so directed by the Lender, the Borrowers shalldirect the mailing of all Items of Payment from its Account Debtors to a post-office box designated by the Lender, or to such other additional or replacementpost-office boxes pursuant to the request of the Lender from time to time(collectively, the "Lockbox"). The Lender shall have unrestricted and exclusiveaccess to the Lockbox.

Each Borrower hereby authorizes the Lender to inspect allItems of Payment, endorse all Items of Payment in the name of each Borrower, anddeposit Items of Payment in the Collateral Account. The Lender reserves theright, exercised in its sole and absolute discretion from time to time, toprovide to the Collateral Account credit prior to final collection of an Item ofPayment and to disallow credit for any Item of Payment which is unsatisfactoryto the Lender. However, if the Lender disallows credit for any Item of Payment,the Lender will give the Company notice to that effect and will, upon request,release such Item of Payment to the Company. In the event Items of Payment arereturned to the Lender for any reason whatsoever, the Lender may, in theexercise of its discretion from time to time, forward such Items of Payment asecond time. Any returned Items of Payment shall be charged back to theCollateral Account, the Revolving Loan Account, or other account, asappropriate.

The Lender will apply the whole or any part of the collectedfunds credited to the Collateral Account against the Revolving Credit (or withrespect to Items of Payment which are not proceeds of accounts or inventory orafter a Default or Event of Default, against any of the Obligations) or credit



such collected funds to the depository account of the Borrowers with the Lender(or an Affiliate of the Lender), the order and method of such application to bein the sole discretion of the Lender, provided, however, that if any collectedfunds are credited to the Collateral Account at a time when there are nooutstanding and unpaid Obligations, the Lender will, on the day the funds are socredited, credit them to the depository

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account of a Borrower with the Lender (or an Affiliate of the Lender) or to suchother account as the Company has specified for the purpose, and prior to theoccurrence and continuance of any Default or Event of Default, the Lender willapply collected funds, first toward the payment of amounts outstanding underBase Rate Loans, and then toward payment of amounts outstanding under EurodollarLoans, provided, however, that unless directed to by the Company in writing, theLender will not apply payments to the Eurodollar Loans prior to the last day ofany Interest Period.

2.1.9 Revolving Loan Account.------------------------

The Lender will establish and maintain a loan account on itsbooks (the "Revolving Loan Account") to which the Lender will (a) debit (i) the

-----principal amount of each advance under the Revolving Credit made by the Lenderhereunder as of the date made, (ii) the amount of any interest accrued on theRevolving Credit as and when due, and (iii) any other amounts due and payable bythe Borrowers to the Lender from time to time under the provisions of thisAgreement in connection with the Revolving Credit, including, withoutlimitation, Enforcement Costs, Fees, late charges, and service, collection andaudit fees, as and when due and payable, and (b) credit all payments made by the

------Borrowers to the Lender on account of the Revolving Credit as of the date madeincluding, without limitation, funds credited to the Revolving Loan Account fromthe Collateral Account. All credit entries to the Revolving Loan Account areconditional and shall be readjusted as of the date made if final andindefeasible payment is not received by the Lender in cash or solvent credits.The Borrowers hereby promise to pay to the order of the Lender, within two (2)Business Days after DEMAND, an amount equal to the excess, if any, of all debitentries over all credit entries recorded in the Revolving Loan Account under theprovisions of this Agreement. Any and all periodic or other statements orreconciliations, and the information contained in those statements orreconciliations, of the Revolving Loan Account shall be final, binding andconclusive upon the Borrowers in all respects, absent manifest error, unless theLender receives specific written objection thereto from the Borrowers withinthirty (30) Business Days after such statement or reconciliation shall have beensent by the Lender.

2.1.10 Revolving Credit Unused Line Fee.---------------------------------

The Borrowers shall pay to the Lender a monthly revolvingcredit facility fee (collectively, the "Revolving Credit Unused Line Fees" andindividually, a "Revolving Credit Unused Line Fee") in an amount equal to thirtybasis points (.30%) per annum on the average daily unused and undisbursedportion of the Revolving Credit Committed Amount in effect from time to timeaccruing during each calendar month. The accrued and unpaid portion of theRevolving Credit Unused Line Fee shall be paid by the Borrowers to the Lender onthe first day of each month, commencing on the first such date following thedate hereof, and on the Revolving Credit Termination Date.

2.1.11 Early Termination Fee.----------------------

In the event of the termination by, or on behalf of, theBorrowers, of the Revolving Credit Commitment, the Borrowers shall pay a fee(the "Early Termination Fee") equal to the following amounts at the followingtimes:

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Period Early Termination Fee------ ---------------------



Closing Date, through and including, 2% of the Revolving CreditAugust 8, 2001 Committed Amount

August 9, 2001 through and including, 1% of the Revolving CreditAugust 8, 2002 Committed Amount

August 9, 2002 through and including, 1/2% of the Revolving CreditAugust 8, 2003 Committed Amount

Payment of the Revolving Credit in whole or in part by or on behalf ofthe Borrowers, by court order or otherwise, following and as a result of theinstitution of any bankruptcy proceeding by or against the Borrowers, shall bedeemed to be a prepayment of the Revolving Credit subject to the EarlyTermination Fee provided in this subsection.

Section 2.2 The Letter of Credit Facility.------------------------------

2.2.1 Letters of Credit.------------------

Subject to and upon the provisions of this Agreement, and as apart of the Revolving Credit Commitment, the Borrower may, upon the priorapproval of the Lender, obtain standby letters of credit (as the same may fromtime to time be amended, supplemented or otherwise modified, each a "Letter ofCredit" and collectively the "Letters of Credit") from the Lender from time totime from the Closing Date until the Business Day preceding the Revolving CreditTermination Date. The Borrower will not be entitled to obtain a Letter of Credithereunder unless (a) after giving effect to the request, the outstandingprincipal balance of the Revolving Credit and of the Letter of CreditObligations would not exceed the lesser of (i) the Revolving Credit CommittedAmount, or (ii) the most current Borrowing Base and (b) the sum of the aggregateface amount of the then outstanding Letters of Credit (including the face amountof the requested Letter of Credit) does not exceed Ten Million Dollars($10,000,000).

2.2.2 Letter of Credit Fees.----------------------

The Borrowers shall pay to the Lender, a letter of credit fee(each a "Letter of Credit Fee" and collectively the "Letter of Credit Fees") inan amount equal to two percent (2%) per annum of the amount of the Letter ofCredit. Such Letter of Credit Fees shall be paid monthly in arrears on the firstday of the first month after the opening of the Letter of Credit and on thefirst day of each month thereafter. In addition, the Borrower shall pay to theLender any and all additional issuance, negotiation, processing, transfer orother fees to the extent and as and when required by the provisions of anyLetter of Credit Agreement; such additional fees are included in and a part ofthe "Fees" payable by the Borrower under the provisions of this Agreement.Subsequent to an Event of Default, the Letter of Credit Fee shall be increasedto the Post-Default Rate on the face amount of each Letter of Credit.

2.2.3 Terms of Letters of Credit.---------------------------

Each Letter of Credit shall (a) be opened pursuant to a Letterof Credit Agreement, and (b) expire on a date not later than the Business Daypreceding the Revolving Credit Expiration Date; provided, however, if any Letterof Credit does have an expiration date later than the Business Day preceding theRevolving Credit Termination Date, as of the Business Day preceding theRevolving Credit Termination Date an advance of the Revolving Credit

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Facility shall be made by the Lender in the face amount of such Letter of Credit(or Letters of Credit) and the proceeds thereof shall be deposited in an accounttitled in the name of the Lender as trustee for the Borrower, which account willbear interest in accordance with the Lender's standard procedures and practicesfor escrow accounts. The proceeds of the trustee account referred to in theimmediately preceding sentence shall be held as collateral for the Letter ofCredit (or Letters of Credit) and in the event of a draw under the Letter ofCredit (or Letters of Credit), used to pay any such draw. The balance remainingin such account after the expiration of such Letter of Credit (or Letters ofCredit) and the indefeasible repayment in full of the Obligations will bereleased to an account of the Company's with the Lender specified by theCompany.



The aggregate face amount of all Letters of Credit at any onetime outstanding and issued by the Lender pursuant to the provisions of thisAgreement, plus the amount of any unpaid Letter of Credit Fees accrued orscheduled to accrue thereon, and less the aggregate amount of all drafts issuedunder or purporting to have been issued under such Letters of Credit that havebeen paid by the Lender, is herein called the "Outstanding Letter of CreditObligations".

Except where an advance is made as provided above for a Letterof Credit having an expiration date beyond the Revolving Credit TerminationDate, if the Lender makes payment under a draft presented under a Letter ofCredit and not otherwise reimbursed by the Borrowers on the date suchreimbursement is due under this Agreement or the relevant Letter of CreditDocuments, provided no Default or Event of Default has occurred and is thencontinuing and further provided, that after making an advance in the amount ofsuch draft the outstanding Obligations will not exceed the Borrowing Base, thenthe amount of such draft shall automatically become an advance under theRevolving Credit Facility bearing interest at the Base Rate, and the Lender willapply the proceeds of such advance to the repayment on such date of the draftpresented for payment under such Letter of Credit.

2.2.4 Procedure for Letters of Credit.--------------------------------

The Borrower shall give the Lender written notice at leastthree (3) Business Days prior to the date on which a Letter of Credit isrequested to be opened of its request for a Letter of Credit. Such notice shallbe accompanied by a duly executed and delivered Letter of Credit Agreement. Uponreceipt of the Letter of Credit Agreement, the Lender shall process such Letterof Credit Agreement in accordance with its customary procedures and open suchLetter of Credit on the Business Day specified in such notice.

2.2.5 Change in Law; Increased Cost.------------------------------

If any change in any law or regulation or in theinterpretation thereof by any court or other Governmental Authority charged withthe administration thereof shall either (a) impose, modify or deem applicableany reserve, special deposit or similar requirement against Letters of Creditissued by the Lender, or (b) impose on the Lender any other condition regardingthis Agreement or any Letter of Credit, and the result of any event referred toin clauses (a) or (b) above shall be to increase the cost to the Lender ofissuing, maintaining or extending the Letter of Credit or the cost to the Lenderof funding any obligation under or in connection with the Letter of Credit,then, upon demand by the Lender, accompanied by a

27

statement in reasonable detail explaining the nature and calculation of theincreased cost, the Borrower shall immediately pay to the Lender from time totime as specified by the Lender, additional amounts which shall be sufficient tocompensate the Lender for such increased cost, together with interest on eachsuch amount from the date demanded until payment in full thereof at a rate perannum equal to the then highest current rate of interest on the RevolvingCredit. A certificate as to such increased cost incurred by the Lender,submitted by the Lender to the Borrower, shall be conclusive, absent manifesterror.

Section 2.3 General Financing Provisions.-----------------------------

2.3.1 Borrowers' Representatives.---------------------------

The Borrowers hereby represent and warrant to the Lender thateach of them will derive benefits, directly and indirectly, from each advanceunder the Revolving Credit Facility, both in their separate capacity and as amember of the integrated group to which each of the Borrowers belong, andbecause the successful operation of the integrated group is dependent upon thecontinued successful performance of the functions of the integrated group as awhole, because (a) the terms of the consolidated financing provided under thisAgreement are more favorable than otherwise would be obtainable by the Borrowersindividually, and (b) the Borrowers' additional administrative and other costs



and reduced flexibility associated with individual financing arrangements whichwould otherwise be required if obtainable would substantially reduce the valueto the Borrowers of the financing. The Borrowers in the discretion of theirrespective managements are to agree among themselves as to the allocation of theproceeds of each advance made under the Revolving Credit, provided, however,that the Borrowers shall be deemed to have represented and warranted to theLender at the time of allocation that each benefit and use of proceeds is aPermitted Use.

For administrative convenience, each Borrower herebyirrevocably appoints the Company as the Borrower's attorney-in-fact, with powerof substitution (with the prior written consent of the Lender in the exercise ofits sole and absolute discretion), in the name of the Company or in the name ofany Borrower or otherwise to take any and all actions with respect to the thisAgreement, the other Financing Documents, the Obligations and/or the Collateral(including, without limitation, the proceeds thereof) as the Company may soelect from time to time, including, without limitation, actions to (i) requestadvances under the Revolving Credit, and direct the Lender to disburse or creditthe proceeds of any advance made under the Revolving Credit directly to anaccount of the Company, any one or more of the Borrowers or otherwise, whichdirection shall evidence the making of such advance under the Revolving Creditand shall constitute the acknowledgment by each of the Borrowers of the receiptof the proceeds of such advance under the Revolving Credit, (ii) enter into,execute, deliver, amend, modify, restate, substitute, extend and/or renew thisAgreement, any Additional Borrower Joinder Supplement, any other FinancingDocuments, security agreements, mortgages, deposit account agreements,instruments, certificates, waivers, letter of credit applications, releases,documents and agreements from time to time, and (iii) endorse any check or otheritem of payment in the name of the Borrower or in the name of the Company. Theforegoing appointment is coupled with an interest, cannot be revoked without theprior written consent of the Lender, and may be exercised from time to timethrough the Company's duly authorized officer, officers or other Person orPersons designated by the Company to act from time to time on behalf of theCompany.

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Each of the Borrowers hereby irrevocably authorizes the Lender(in its sole discretion) to make advances under the Revolving Credit to theCompany pursuant to the provisions of this Agreement upon the written, oral ortelephone request of any one or more of the Persons who is from time to time aResponsible Officer of the Company under the provisions of the most recentcertificate of corporate resolutions and/or incumbency of the Company on filewith the Lender.

The Lender assumes no responsibility or liability for anyerrors, mistakes, and/or discrepancies (other than those due solely to theLender's gross negligence or willful misconduct) in the oral, telephonic,written or other transmissions of any instructions, orders, requests andconfirmations between the Lender and the Borrowers in connection with the CreditFacilities, any advance under the Revolving Credit or any other transaction inconnection with the provisions of this Agreement. Without implying anylimitation on the joint and several nature of the Obligations, the Lender agreesthat, notwithstanding any other provision of this Agreement, the Borrowers maycreate reasonable inter-company indebtedness between or among the Borrowers withrespect to the allocation of the benefits and proceeds of the advances andCredit Facilities under this Agreement. The Borrowers agree among themselves,and the Lender consents to that agreement, that each Borrower shall have rightsof contribution from all of the other Borrowers to the extent such Borrowerincurs Obligations in excess of the proceeds of the Revolving Credit receivedby, or allocated to purposes for the direct benefit of, such Borrower. All suchindebtedness and rights shall be, and are hereby agreed by the Borrowers to be,subordinate in priority and payment to the indefeasible repayment in full incash of the Obligations, and, unless the Lender agrees in writing otherwise,shall not be exercised or repaid in whole or in part until all of theObligations have been indefeasibly paid in full in cash. The Borrowers agreethat all of such inter-company indebtedness and rights of contribution are partof the Collateral and secure the Obligations. Each Borrower hereby waives allrights of counterclaim, recoupment and offset between or among the Borrowersarising on account of that indebtedness and otherwise. Each Borrower shall notevidence the inter-company indebtedness or rights of contribution by note orother instrument, and shall not secure such indebtedness or rights ofcontribution with any Lien or security. Notwithstanding anything contained inthis Agreement to the contrary, the amount covered by each Borrower under the



Obligations (including, without limitation, Section 2.3.12 (Guaranty)) shall belimited to an aggregate amount (after giving effect to any collections from,rights to receive contribution from or payments made by or on behalf of anyother Borrower in respect of the Obligations) which, together with other amountsowing by such Borrowers to the Lender under the Obligations, is equal to thelargest amount that would not be subject to avoidance under the Bankruptcy Codeor any applicable provisions of any applicable, comparable state or other Laws.

2.3.2 Use of Proceeds of the Revolving Credit.----------------------------------------

The proceeds of each advance under the Revolving Credit shallbe used by the Borrowers for Permitted Uses, and for no other purposes except asmay otherwise be agreed by the Lender in writing. The Borrowers shall use theproceeds of the Revolving Credit promptly.

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2.3.3 Origination Fee.----------------

The Borrower shall pay to the Lender on or before the ClosingDate a loan origination fee (the "Origination Fee") in the amount of Two HundredTwenty Five Thousand Dollars ($225,000), which fee has been fully earned and isnon-refundable, One Hundred Seventy Five Thousand Dollars ($175,000) of whichhas been paid prior to the Closing Date.

2.3.4 Administration and Audit Fees.------------------------------

The Borrower shall pay to the Lender an annual Administrationand Audit fee in the amount of Forty Thousand Dollars ($40,000) per annum, plusany and all reasonable out of pocket expenses and travel time incurred by theLender (collectively, the "Administration and Audit Fees" and individually a"Administration and Audit Fee"), which Administration and Audit Fees shall bepayable monthly in arrears on the first Business Day of each month commencing onthe first such date following the Closing Date, and continuing until the lastsuch date prior to which all Obligations arising out of, or under, the CreditFacilities then outstanding have been paid in full.

2.3.5 Computation of Interest and Fees.---------------------------------

All applicable Fees and interest shall be calculated on thebasis of a year of 360 days for the actual number of days elapsed. Any change inthe interest rate on any of the Obligations resulting from a change in the PrimeRate shall become effective as of the opening of business on the day on whichsuch change in the Prime Rate is announced.

2.3.6 Maximum Interest Rate.----------------------

In no event shall any interest rate provided for hereunderexceed the maximum rate permissible for corporate borrowers under applicable lawfor loans of the type provided for hereunder (the "Maximum Rate"). If, in anymonth, any interest rate, absent such limitation, would have exceeded theMaximum Rate, then the interest rate for that month shall be the Maximum Rate,and, if in future months, that interest rate would otherwise be less than theMaximum Rate, then that interest rate shall remain at the Maximum Rate untilsuch time as the amount of interest paid hereunder equals the amount of interestwhich would have been paid if the same had not been limited by the Maximum Rate.In the event that, upon payment in full of the Obligations, the total amount ofinterest paid or accrued under the terms of this Agreement is less than thetotal amount of interest which would, but for this Section, have been paid oraccrued if the interest rates otherwise set forth in this Agreement had at alltimes been in effect, then the Borrowers shall, to the extent permitted byapplicable law, pay the Lender, an amount equal to the excess of (a) the lesserof (i) the amount of interest which would have been charged if the Maximum Ratehad, at all times, been in effect or (ii) the amount of interest which wouldhave accrued had the interest rates otherwise set forth in this Agreement, atall times, been in effect over (b) the amount of interest actually paid oraccrued under this Agreement. In the event that a court determines that theLender has received interest and other charges hereunder in excess of theMaximum Rate, such excess shall be deemed received on account of, and shall



automatically be applied to reduce, the Obligations other than interest, in theinverse order of maturity, and if there are no Obligations outstanding, theLender shall refund to the Borrowers such excess.

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2.3.7 Payments.---------

All payments of the Obligations, including, withoutlimitation, principal, interest, Prepayments, and Fees, shall be paid by theBorrowers without setoff or counterclaim to the Lender (except as otherwiseprovided herein) at the Lender's office specified in Section 8.1 (Notices) inimmediately available funds not later than noon (Eastern Standard Time) on thedue date of such payment. All payments received by the Lender after such timeshall be deemed to have been received by the Lender for purposes of computinginterest and Fees and otherwise as of the next Business Day. Payments shall notbe considered received by the Lender until such payments are paid to the Lenderin immediately available funds.

2.3.8 Liens; Setoff.--------------

The Borrowers hereby grant to the Lender a continuing Lien forall of the Obligations upon any and all monies, securities, and other propertyof the Borrowers and the proceeds thereof, now or hereafter held or received byor in transit to, the Lender, and/or any Affiliate of the Lender, from or forthe Borrowers, and also upon any and all deposit accounts (general or special)and credits of the Borrowers, if any, with the Lender or any Affiliate of theLender, at any time existing, excluding any deposit accounts held by theBorrowers in their capacity as trustee for Persons who are not Borrowers orAffiliates of the Borrowers. Without implying any limitation on any other rightsthe Lender may have under the Financing Documents or applicable Laws, during thecontinuance of an Event of Default, the Lender is hereby authorized by theBorrowers at any time and from time to time, without notice to the Borrowers, toset off, appropriate and apply any or all items hereinabove referred to againstall Obligations then outstanding (whether or not then due), all in such orderand manner as shall be determined by the Lender in its sole and absolutediscretion.

2.3.9 Requirements of Law.--------------------

In the event that the Lender shall have determined in goodfaith that (a) the adoption of any Capital Adequacy Regulation, or (b) anychange in any Capital Adequacy Regulation or application thereof or (c)compliance by the Lender or any corporation controlling the Lender with anyrequest or directive regarding capital adequacy (whether or not having the forceof law) from any central bank or Governmental Authority, does or shall have theeffect of reducing the rate of return on the capital of the Lender or anycorporation controlling the Lender, as a consequence of the obligations of theLender hereunder to a level below that which the Lender or any corporationcontrolling the Lender would have achieved but for such adoption, change orcompliance (taking into consideration the policies of the Lender and thecorporation controlling the Lender, with respect to capital adequacy) by anamount deemed by the Lender to be material, then from time to time, aftersubmission by the Lender to the Borrowers of a written request therefor and astatement of the basis for such determination, the Borrowers shall pay to theLender such additional amount or amounts in order to compensate for suchreduction. However, no such amount shall be payable in respect of any suchadoption, change or compliance occurring more than ninety (90) days before therequest from the Lender and a similar request for similar payments shall havebeen made by the Lender to other borrowers having offices in the United States.

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2.3.10 Funds Transfer Services.------------------------

(a) The Borrowers have requested that the Lender andits Affiliates make available to the Borrowers electronic funds transferservices and related security measures in connection with the Obligations. Acopy of the Lender's current Wire Transfer Procedures, including the Security



Procedures, is attached to this Agreement as EXHIBIT C. Each Borrower---------

acknowledges and agrees that all electronic funds transfers made by the Lenderor any Affiliate of the Lender to, or for the account of, any Borrower shall begoverned by, and subject to, the Wire Transfer Procedures and the SecurityProcedures in effect from time to time. The Borrowers and the Lender agree thatthe current Wire Transfer Procedures and the Security Procedures arecommercially reasonable. Each Borrower further acknowledges and agrees, however,that the full scope of the Security Procedures which the Lender and itsAffiliates offer and strongly recommend for electronic funds transfers isavailable only if the Company communicates directly with the Lender or itsAffiliate, as applicable, in accordance with and as required by the WireTransfer Procedures and the Security Procedures. If the Company or any Borrowerattempts to communicate with the Lender or any Affiliate of the Lender by anyother method or otherwise does not communicate with the Lender and/or itsAffiliate, as appropriate, in accordance with the Wire Transfer Procedures andthe Security Procedures, the Lender and/or its Affiliate, as applicable, shallnot be required to execute the instructions of the Company or any such Borrower,but if the Lender or such Affiliate, as applicable, does so, the Borrowers willbe deemed to have refused and waived the Security Procedures that the Lender orits Affiliate, as applicable, offers and strongly recommends, and the Borrowerswill be bound by any funds transfer, whether or not authorized, which is issuedin any Borrower's name and accepted by the Lender or any Affiliate, asapplicable, in good faith. The Lender or its Affiliate, as applicable, maymodify the Wire Transfer Procedures including, without limitation, the SecurityProcedures at such time or times and in such manner as the Lender and/or anyAffiliate of the Lender, as applicable, in its or their sole and absolutediscretion, deems appropriate to meet then prevailing standards of good bankingpractice. The Lender shall notify the Company of any material change ormodification to the Wire Transfer Procedures and/or the Security Procedures. Bycontinuing to use the wire transfer services of the Lender and/or any Affiliateof the Lender following notice to the Company of any such change or modificationto the Wire Transfer Procedures and/or the Security Procedures, the Borrowersshall be deemed automatically to have agreed to the Wire Transfer Procedures andthe Security Procedures, as changed and/or modified and to have further agreedthat the Wire Transfer Procedures and the Security Procedures, as changed and/ormodified, are likewise commercially reasonable. The Borrowers further agree toestablish and maintain procedures to safeguard the Security Procedures and anyinformation related thereto. Neither the Lender nor any Affiliate of the Lenderis responsible for detecting any error in any payment order sent by the Companyto the Lender or any Affiliate of the Lender.

(b) The Lend and its Affiliates, as applicable, willgenerally use the Fedwire funds transfer system for domestic funds transfers,and the funds transfer system operated by the Society for WorldwideInternational Financial Telecommunication (SWIFT) for international fundstransfers. International funds transfers may also be initiated through theClearing House InterBank Payment System (CHIPs) or international cable. However,the Lender and/or its Affiliates, as applicable, may use any means and routesthat the Lender or any such Affiliate, as applicable, in its sole discretion,may consider suitable for the transmission of funds.

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Each payment order, or cancellation thereof, carried out through a fundstransfer system or a clearinghouse will be governed by all applicable fundstransfer system rules and clearing house rules and clearing arrangements,whether or not the Lender or any Affiliate, as applicable, is a member of thesystem, clearinghouse or arrangement and the Borrower acknowledges that theright of the Lender or any Affiliate, as applicable, to reverse, adjust, stoppayment or delay posting of an executed payment order is subject to the Laws,regulations, rules, circulars and arrangements described herein.

2.3.11 ACH Transactions.-----------------

The Company may request and the Lender or its Affiliates may,in their sole and absolute discretion, provide ACH Transactions although theCompany is not required to do so. In the event the Company requests Lender orits Affiliates to procure ACH Transactions, then the Borrowers agrees to jointlyand severally indemnify and hold the Lender or its Affiliates harmless from anyand all obligations now or hereafter owing to the Lender or its Affiliates inconnection with such ACH Transactions. The Borrowers agree to pay the Lender orits Affiliates all amounts owing to the Lender or its Affiliates pursuant to ACH



Transactions. In the event the Borrowers shall not have paid to the Lender orits Affiliates such amounts, the Lender may cover such amounts by an advanceunder the Revolving Credit, which advance shall be deemed to have been requestedby the Borrowers. The Borrowers acknowledge and agree that the obtaining of ACHTransactions from the Lender or its Affiliates (a) is in the sole and absolutediscretion of the Lender or its Affiliates and (b) is subject to all rules andregulations of the Lender or its Affiliates.

2.3.12 Guaranty.---------

(a) Each Borrower hereby unconditionally andirrevocably, guarantees to the Lender:

(i) the due and punctual payment in full (andnot merely the collectibility) by the other Borrowers of theObligations, including unpaid and accrued interest thereon, in eachcase when due and payable, all according to the terms of thisAgreement, the Notes and the other Financing Documents;

(ii) the due and punctual payment in full (andnot merely the collectibility) by the other Borrowers of all othersums and charges which may at any time be due and payable inaccordance with this Agreement, the Notes or any of the otherFinancing Documents;

(iii) the due and punctual performance by theother Borrowers of all of the other terms, covenants and conditionscontained in the Financing Documents; and

(iv) all the other Obligations of the otherBorrowers.

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(b) The obligations and liabilities of each Borrower as aguarantor under this Section 2.3.12 shall be absolute and unconditional andjoint and several, irrespective of the genuineness, validity, priority,regularity or enforceability of this Agreement, any of the Notes or any of theFinancing Documents or any other circumstance which might otherwise constitute alegal or equitable discharge of a surety or guarantor. Each Borrower in itscapacity as a guarantor expressly agrees that the Lender may, in its sole andabsolute discretion, without notice to or further assent of such Borrower andwithout in any way releasing, affecting or in any way impairing the joint andseveral obligations and liabilities of such Borrower as a guarantor hereunder:

(i) waive compliance with, or any defaults under, orgrant any other indulgences under or with respect to any of theFinancing Documents;

(ii) modify, amend, change or terminate anyprovisions of any of the Financing Documents;

(iii) grant extensions or renewals of or with respectto the Credit Facilities, the Notes or any of the other FinancingDocuments;

(iv) effect any release, subordination, compromise orsettlement in connection with this Agreement, any of the Notes or anyof the other Financing Documents;

(v) agree to the substitution, exchange, release orother disposition of the Collateral or any part thereof, or any othercollateral for the Revolving Credit or to the subordination of anylien or security interest therein;

(vi) make advances for the purpose of performing anyterm, provision or covenant contained in this Agreement, any of theNotes or any of the other Financing Documents with respect to whichthe Borrowers shall then be in default;

(vii) make future advances pursuant to the FinancingAgreement or any of the other Financing Documents;



(viii) assign, pledge, hypothecate or otherwisetransfer the Revolving Credit Commitment, the Obligations, the Notes,any of the other Financing Documents or any interest therein, all asand to the extent permitted by the provisions of this Agreement;

(ix) deal in all respects with the other Borrowers asif this Section 2.3.12 were not in effect;

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(x) effect any release, compromise or settlementwith any of the other Borrowers, whether in their capacity as aBorrower or as a guarantor under this Section 2.3.12, or any otherguarantor; and

(xi) provide debtor-in-possession financing or allowuse of cash collateral in proceedings under the Bankruptcy Code, itbeing expressly agreed by all Borrowers that any such financing and/oruse would be part of the Obligations.

(c) The obligations and liabilities of each Borrower, asguarantor under this Section 2.3.12, shall be primary, direct and immediate,shall not be subject to any counterclaim, recoupment, set off, reduction ordefense based upon any claim that a Borrower may have against any one or more ofthe other Borrowers, the Lender, and/or any other guarantor and shall not beconditional or contingent upon pursuit or enforcement by the Lender of anyremedies it may have against the Borrowers with respect to this Agreement, theNotes or any of the other Financing Documents, whether pursuant to the termsthereof or by operation of law. Without limiting the generality of theforegoing, the Lender shall not be required to make any demand upon any of theBorrowers, or to sell the Collateral or otherwise pursue, enforce or exhaust itsremedies against the Borrowers or the Collateral either before, concurrentlywith or after pursuing or enforcing its rights and remedies hereunder. Any oneor more successive or concurrent actions or proceedings may be brought againsteach Borrower under this Section 2.3.12, either in the same action, if any,brought against any one or more of the Borrowers or in separate actions orproceedings, as often as the Lender may deem expedient or advisable. Withoutlimiting the foregoing, it is specifically understood that any modification,limitation or discharge of any of the liabilities or obligations of any one ormore of the Borrowers, any other guarantor or any obligor under any of theFinancing Documents, arising out of, or by virtue of, any bankruptcy,arrangement, reorganization or similar proceeding for relief of debtors underfederal or state law initiated by or against any one or more of the Borrowers,in their respective capacities as borrowers and guarantors under this Section2.3.12, or under any of the Financing Documents shall not modify, limit, lessen,reduce, impair, discharge, or otherwise affect the liability of each Borrowerunder this Section 2.3.12 in any manner whatsoever, and this Section 2.3.12shall remain and continue in full force and effect. It is the intent and purposeof this Section 2.3.12 that each Borrower shall and does hereby waive all rightsand benefits which might accrue to any other guarantor by reason of any suchproceeding, and the Borrowers agree that they shall be liable for the fullamount of the obligations and liabilities under this Section 2.3.12, regardlessof, and irrespective to, any modification, limitation or discharge of theliability of any one or more of the Borrowers, any other guarantor or anyobligor under any of the Financing Documents, that may result from any suchproceedings.

(d) Each Borrower, as guarantor under this Section 2.3.12,hereby unconditionally, jointly and severally, irrevocably and expressly waives:

(i) presentment and demand for payment of theObligations and protest of non-payment;

(ii) notice of acceptance of this Section 2.3.12 andof presentment, demand and protest thereof;

35

(iii) notice of any default hereunder or underthe Notes or any of the other Financing Documents and notice of allindulgences;

(iv) notice of any increase in the amount of any



portion of or all of the indebtedness guaranteed by this Section2.3.12;

(v) demand for observance, performance orenforcement of any of the terms or provisions of this Section 2.3.12,the Notes or any of the other Financing Documents;

(vi) all errors and omissions in connection withthe Lender's administration of all indebtedness guaranteed by thisSection 2.3.12, except errors and omissions resulting from theLender's acts of willful misconduct or gross negligence;

(vii) any right or claim of right to cause amarshalling of the assets of any one or more of the other Borrowers;

(viii) any act or omission of the Lender whichchanges the scope of the risk as guarantor hereunder; and

(ix) all other notices and demands otherwiserequired by law which the Borrower may lawfully waive.

Section 2.4 Interest--------

2.4.1 Applicable Interest Rates.--------------------------

(a) Each advance under the Revolving Credit shall bearinterest until maturity (whether by acceleration, declaration, extension orotherwise) at either the Base Rate or the Eurodollar Rate, as selected andspecified by the Borrowers in an Interest Rate Election Notice furnished to theLender in accordance with the provisions of Section 2.4.2(e), or as otherwisedetermined in accordance with the provisions of this Section 2.4.

(b) Notwithstanding the foregoing, following theoccurrence and during the continuance of an Event of Default, at the option ofthe Lender, all advances under the Revolving Credit and all other Obligationsshall bear interest at the Post-Default Rate.

(c) The Applicable Margin for (i) Eurodollar Loansshall be 300 basis points per annum, and (ii) Base Rate Loans shall be zero (0)basis points per annum.

2.4.2 Selection of Interest Rates.----------------------------

(a) The Borrowers, through the Company, may select theinitial Applicable Interest Rate or Applicable Interest Rates to be charged onthe advances of the Revolving Credit.

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(b) From time to time after the date of this Agreementas provided in this Section, by a proper and timely Interest Rate ElectionNotice furnished to the Lender in accordance with the provisions of Section2.4.2(e), the Company may select an initial Applicable Interest Rate orApplicable Interest Rates for any advances on the Revolving Credit or mayconvert the Applicable Interest Rate and, when applicable, the Interest Period,for any existing advance on the Revolving Credit to any other ApplicableInterest Rate or, when applicable, any other Interest Period.

(c) The Company's selection of an Applicable InterestRate and/or an Interest Period, the Company's election to convert an ApplicableInterest Rate and/or an Interest Period to another Applicable Interest Rate orInterest Period, and any other adjustments in an interest rate are subject tothe following limitations:

(i) the Company shall not at any time select orchange to an Interest Period that extends beyond the Revolving CreditExpiration Date;

(ii) except as otherwise provided in Section2.4.4 (Indemnity), no change from the Eurodollar Rate to the Base Rateshall become effective on a day other than a Business Day and on a day



which is the last day of the then current Interest Period, no changeof an Interest Period shall become effective on a day other than thelast day of the then current Interest Period, and no change from theBase Rate to the Eurodollar Rate shall become effective on a day otherthan a day which is a Eurodollar Business Day;

(iii) any Applicable Interest Rate change for anyadvance under the Revolving Credit to be effective on a date on whichany principal payment on account of such advance is scheduled to bepaid shall be made only after such payment shall have been made;

(iv) no more than five (5) different EurodollarRates may be outstanding at any time and from time to time withrespect to the advance;

(v) the first day of each Interest Period shallbe a Eurodollar Business Day;

(vi) as of the effective date of a selection,there shall not exist an Event of Default; and

(vii) the minimum principal amount of aEurodollar Loan shall be One Million Dollars ($1,000,000).

(d) If a request for an advance under the RevolvingCredit is not accompanied by an Interest Rate Election Notice or does nototherwise include a selection of an Applicable Interest Rate and, if applicable,an Interest Period, or if, after having made a

37

selection of an Applicable Interest Rate and, if applicable, an Interest Period,the Borrowers fail or are not otherwise entitled under the provisions of thisAgreement to continue such Applicable Interest Rate or Interest Period, theBorrowers shall be deemed to have selected the Base Rate as the ApplicableInterest Rate until such time as the Company has selected a different ApplicableInterest Rate and specified an Interest Period in accordance with, and subjectto, the provisions of this Section.

(e) The Lender will not be obligated to make advanceson the Revolving Credit, to convert the Applicable Interest Rate on advances toanother Applicable Interest Rate, or to change Interest Periods, unless theLender shall have received an irrevocable written or telephonic notice (an"Interest Rate Election Notice") from the Company specifying the followinginformation:

(i) the amount to be borrowed or converted;

(ii) a selection of the Base Rate or theEurodollar Rate;

(iii) the length of the Interest Period if theApplicable Interest Rate selected is the Eurodollar Rate; and

(iv) the requested date on which such electionis to be effective.

Any telephonic notice must be confirmed in writing withinthree (3) Business Days. Each Interest Rate Election Notice must be received bythe Lender not later than 12:00 noon (Eastern Standard Time) on the Business Dayof any requested borrowing or conversion in the case of a selection of the BaseRate and not later than 12:00 noon (Eastern Standard Time) on the third BusinessDay before the effective date of any requested borrowing or conversion in thecase of a selection of the Eurodollar Rate.

2.4.3 Inability to Determine Eurodollar Base Rate.--------------------------------------------

In the event that (a) the Lender shall have determined that,by reason of circumstances affecting the London interbank eurodollar market,adequate and reasonable means do not exist for ascertaining the Eurodollar BaseRate for any requested Interest Period with respect to an advance the Borrowershave requested to be made as or to be converted to a Eurodollar Loan or (b) theLender shall determine that the Eurodollar Base Rate for any requested Interest



Period with respect to an advance the Company has requested to be made as or tobe converted to a Eurodollar Loan does not adequately and fairly reflect thecost to the Lender of funding or converting such Loan, the Lender shall givetelephonic or written notice of such determination to the Company at least one(1) day prior to the proposed date for funding or converting such advance. Ifsuch notice is given, any request for a Eurodollar Loan shall be made as orconverted to a Base Rate Loan. Until such notice has been withdrawn by theLender, the Company will not request that any advance under the Revolving Creditbe made as or converted to a Eurodollar Loan. Any such notice must be withdrawnpromptly following the cessation of the circumstances that caused such notice tobe given.

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2.4.4 Indemnity.----------

The Borrowers jointly and severally agree to indemnify andreimburse the Lender and to hold the Lender harmless from any loss, cost(including administrative costs) or expense which the Lender may sustain orincur as a consequence of (a) a default by the Borrowers in payment when due ofthe principal amount of or interest on any Eurodollar Loan, (b) the failure ofthe Borrowers to make, or convert the Applicable Interest Rate of, an advance toor at a Eurodollar Rate after the Borrowers have given a Loan Notice or anInterest Rate Election Notice as of the date specified in such Notice and/or (c)the making by the Borrowers of a prepayment of a Eurodollar Loan on a day whichis not the last day of the Interest Period for such Eurodollar Loan, calculatedas provided in the following section. This agreement and covenant of theBorrowers shall survive termination or expiration of this Agreement and paymentof the other Obligations.

Contemporaneously with any prepayment of principal of aEurodollar Loan on a day that is not the last day for the Interest Period forsuch Eurodollar Loan, a prepayment fee shall be due and payable to the Lender inan amount equal to the product of

-------

(A) the amount so prepaid

multiplied by-------------

(B) the difference (but not less than zero) of--------------

(i) the constant maturity 360-day interest yield (as of the first dayof the then effective Interest Period and expressed as a decimal) fora United States Treasury bill, note, or bond (a "Treasury obligation")selected by the Lender, in an aggregate amount comparable to theamount prepaid, and having, as of the first day of the then effectiveInterest Period, a remaining term approximately equal to the originalInterest Period,

minus-----

(ii) the 360-day interest yield (as of the Business Day immediatelypreceding the prepayment date and expressed as a decimal) on suchTreasury obligation and having, as of the Business Day immediatelypreceding the prepayment date, a remaining term until maturityapproximately equal to the unexpired portion of the Interest Period,

multiplied by-------------

(C) the quotient of------------

(i) the number of calendar days in the unexpired portion of theInterest Period,

divided by----------



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(ii) 360.

The applicable yields on the Treasury obligations described aboveshall be determined based upon the Federal Reserve statistical release H.15published for the applicable determination dates set forth above. Any Treasuryobligation selected when the related Interest Period is one year or less shallbe United States Treasury Bills. The Lender shall not be obligated or requiredto have actually reinvested the prepaid amount of the Eurodollar Loan in anysuch Treasury obligation as a condition precedent to the Borrowers beingobligated to pay a prepayment fee as outlined above. The Lender shall not beobligated to accept any prepayment of principal unless it is accompanied by theprepayment fee, if any, due in connection therewith as calculated pursuant tothe provisions of this paragraph. No prepayment fee payable in connectionherewith shall in any event or under any circumstances be deemed or construed asa penalty.

2.4.5 Payment of Interest.--------------------

(a) Unpaid and accrued interest on any portion of theRevolving Credit which consists of a Base Rate Loan shall be paid monthly, inarrears, on the first day of each calendar month, commencing on the first suchdate after the date of this Agreement, and on the first day of each calendarmonth thereafter, and at maturity (whether by acceleration, declaration,extension or otherwise).

(b) Notwithstanding the foregoing, any and all unpaid andaccrued interest on any Base Rate Loan converted to a Eurodollar Loan or prepaidshall be paid immediately upon such conversion and/or prepayment, asappropriate.

(c) Unpaid and accrued interest on any Eurodollar Loanshall be paid monthly and on the last Business Day of each Interest Period forsuch Eurodollar Loan and at maturity (whether by acceleration, declaration,extension or otherwise); provided, however that any and all unpaid and accruedinterest on any Eurodollar Loan prepaid prior to expiration of the then currentInterest Period for such Eurodollar Loan shall be paid immediately uponprepayment.

ARTICLE IIITHE COLLATERAL--------------

Section 3.1 Debt and Obligations Secured.----------------------------

All property and Liens assigned, pledged or otherwise granted under or inconnection with this Agreement (including, without limitation, those underSection 3.2 (Grant of Liens)) or any of the Financing Documents shall secure (a)the payment of all of the Obligations and (b) the performance, compliance withand observance by the Borrowers of the provisions of this Agreement and all ofthe other Financing Documents or otherwise under the Obligations.

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Section 3.2 Grant of Liens.---------------

Each of the Borrowers hereby assigns, pledges and grants to the Lender, andagrees that the Lender shall have a perfected and continuing security interestin, and Lien on, all of the Borrowers' Accounts, Inventory, Chattel Paper,Documents, Instruments, Equipment and General Intangibles, and all of theBorrowers' deposit accounts with any financial institution with which any of theBorrowers maintains deposits, whether now owned or existing or hereafteracquired or arising, all returned, rejected or repossessed goods, the sale orlease of which shall have given or shall give rise to an Account or ChattelPaper, all insurance policies relating to the foregoing, all books and recordsin whatever media (paper, electronic or otherwise) recorded or stored, withrespect to the foregoing and all equipment and general intangibles necessary orbeneficial to retain, access and/or process the information contained in those



books and records, and all cash and non-cash proceeds and products of theforegoing. Each of the Borrowers further agrees that the Lender shall have inrespect thereof all of the rights and remedies of a secured party under theUniform Commercial Code as well as those provided in this Agreement, under eachof the other Financing Documents and under applicable Laws.

Section 3.3 Collateral Disclosure List.---------------------------

On or prior to the Closing Date, the Borrowers shall deliver to the Lendera list (the "Collateral Disclosure List") which shall contain such informationwith respect to each Borrower's business and real and personal property as theLender may require and shall be certified by a Responsible Officer of each ofthe Borrowers, all in the form provided to the Borrowers by the Lender.Promptly after demand by the Lender, the Borrowers, as appropriate, shallfurnish to the Lender an update of the information contained in the CollateralDisclosure List at any time and from time to time as may be requested by theLender.

Section 3.4 Personal Property.------------------

The Borrowers acknowledge and agree that it is the intention of the partiesto this Agreement that the Lender shall have a first priority, perfected Lien,in form and substance satisfactory to the Lender and its counsel, on all of theBorrowers' personal property of any kind and nature whatsoever, whether nowowned or hereafter acquired, subject only to the Permitted Liens, if any, andexcluding the Excluded Assets.

Section 3.5 Record Searches.----------------

As of the Closing Date and thereafter at the time any Financing Document isexecuted and delivered by the Borrowers pursuant to this Section, the Lendershall have received, in form and substance satisfactory to the Lender, such Lienor record searches with respect to all of the Borrowers and/or any other Person,as appropriate, and the property covered by such Financing Document showing thatthe Lien of such Financing Document will be a perfected first priority Lien onthe property covered by such Financing Document subject only to Permitted Liensor to such other matters as the Lender may approve.

Section 3.6 Costs.------

The Borrowers agree to pay, as part of the Enforcement Costs and to thefullest extent permitted by applicable Laws, on demand all costs, fees andexpenses incurred by the Lender in

41

connection with the taking, perfection, preservation, protection and/or releaseof a Lien on the Collateral.

Section 3.7 Release.--------

Upon the indefeasible repayment in full in cash of the Obligations andperformance of all Obligations of the Borrowers and all obligations andliabilities of each other Person, other than the Lender, under this Agreementand all other Financing Documents, the termination and/or expiration of theRevolving Credit Commitment and Outstanding Letter of Credit Obligations, uponthe Borrowers' request and at the Borrowers' sole cost and expense, the Lendershall release and/or terminate any Financing Document but only if and providedthat there is no commitment or obligation (whether or not conditional) of theLender to re-advance amounts which would be secured thereby.

Section 3.8 Inconsistent Provisions.------------------------

In the event that the provisions of any Financing Document directlyconflict with any provision of this Agreement, the provisions of this Agreementgovern.

ARTICLE IV



REPRESENTATIONS AND WARRANTIES------------------------------

Section 4.1 Representations and Warranties.-------------------------------

The Borrowers, for themselves and for each other, represent and warrant tothe Lender, as follows:

4.1.1 Subsidiaries.-------------

The Borrowers have the Subsidiaries listed on the EXHIBIT D---------

attached hereto and made a part hereof and any Additional Borrowers who areparties to this Agreement, and no others, unless such Subsidiaries have beenreleased from liability under this Agreement pursuant to a written agreement byand between the Company and the Lender. Each of the Subsidiaries is a WhollyOwned Subsidiary except as shown on EXHIBIT D, which correctly indicates the

---------nature and amount of each Borrower's ownership interests therein.

4.1.2 Good Standing.--------------

Each Borrower and its Subsidiaries (a) is a corporation dulyorganized, existing and in good standing under the laws of the jurisdiction ofits incorporation, (b) has the corporate power to own its property and to carryon its business as now being conducted, and (c) is duly qualified to do businessand is in good standing in each jurisdiction in which the character of theproperties owned by it therein or in which the transaction of its business makessuch qualification necessary.

4.1.3 Power and Authority.--------------------

Each Borrower has full corporate power and authority toexecute and deliver this Agreement, and the other Financing Documents to whichit is a party, to make the borrowings under this Agreement and to incur andperform the Obligations whether under this

42

Agreement, the other Financing Documents, all of which have been duly authorizedby all proper and necessary corporate. No consent or approval of shareholders orany creditors of any Borrower, and no consent, approval, filing or registrationwith or notice to any Governmental Authority on the part of any Borrower, isrequired as a condition to the execution, delivery, validity or enforceabilityof this Agreement, or any of the other Financing Documents, or the performanceby any Borrower of the Obligations.

4.1.4 Binding Agreements.-------------------

This Agreement and the other Financing Documents executed anddelivered by the Borrowers have been properly executed and delivered andconstitute the valid and legally binding obligations of the Borrowers and arefully enforceable against each of the Borrowers in accordance with theirrespective terms, subject to bankruptcy, insolvency, reorganization, moratoriumand other laws of general application affecting the rights and remedies ofcreditors and secured parties, and general principles of equity regardless ofwhether applied in a proceeding in equity or at law.

4.1.5 No Conflicts.-------------

Neither the execution, delivery and performance of the termsof this Agreement or of any of the other Financing Documents executed anddelivered by any Borrower nor the consummation of the transactions contemplatedby this Agreement will conflict with, violate or be prevented by (a) anyBorrower's charter, bylaws, operating agreement or articles of organization, asthe case may be, (b) any existing mortgage, indenture, contract or agreementbinding on any Borrower or affecting its property, or (c) any Laws.



4.1.6 No Defaults, Violations.------------------------

(a) No Default or Event of Default has occurred and iscontinuing.

(b) None of the Borrowers nor any of their respectiveSubsidiaries is in default under or with respect to any obligation under anyexisting mortgage, indenture, contract or agreement binding on it or affectingits property in any respect which could result in a Material Adverse Effect.

4.1.7 Compliance with Laws.---------------------

None of the Borrowers nor any of their respective Subsidiariesis in violation of any applicable Laws (including, without limitation, any Lawsrelating to employment practices, to environmental, occupational and healthstandards and controls) or order, writ, injunction, decree or demand of anycourt, arbitrator, or any Governmental Authority affecting any Borrower or anyof its properties, the violation of which, considered in the aggregate, couldresult in a Material Adverse Effect.

4.1.8 Margin Stock.-------------

None of the proceeds of the Revolving Credit will be used,directly or indirectly, by any Borrower or any Subsidiary for the purpose ofpurchasing or carrying, or for the purpose of reducing or retiring anyindebtedness which was originally incurred to purchase or

43

carry, any "margin stock" within the meaning of Regulation U (12 CFR Part 221),of the Board of Governors of the Federal Reserve System or for any other purposewhich might make the transactions contemplated in this Agreement a "purposecredit" within the meaning of Regulation U, or cause this Agreement to violateany other regulation of the Board of Governors of the Federal Reserve System orthe Securities Exchange Act of 1934 or the Small Business Investment Act of1958, as amended, or any rules or regulations promulgated under any of suchstatutes.

4.1.9 Investment Company Act; Margin Securities.------------------------------------------

None of the Borrowers nor any of their respective Subsidiaries isan investment company within the meaning of the Investment Company Act of 1940,as amended, nor is it, directly or indirectly, controlled by or acting on behalfof any Person which is an investment company within the meaning of said Act.None of the Borrowers nor any of their respective Subsidiaries is engagedprincipally, or as one of its important activities, in the business of extendingcredit for the purpose of purchasing or carrying "margin stock" within themeaning of Regulation U (12 CFR Part 221), of the Board of Governors of theFederal Reserve System.

4.1.10 Litigation.-----------

Except as otherwise disclosed on Schedule 4.1.10 attached hereto---------------

and made a part hereof, there are no proceedings, actions or investigationspending or, so far as any Borrower knows, threatened before or by any court,arbitrator or any Governmental Authority which, in any one case or in theaggregate, if determined adversely to the interests of any Borrower or anySubsidiary, would have a Material Adverse Effect.

4.1.11 Financial Condition.--------------------

The consolidated financial statements of the Borrowers dated May31, 2000, are complete and correct and fairly present the financial position ofeach of the Borrowers and its Subsidiaries and the results of their operationsand transactions in their surplus accounts as of the date and for the periodreferred to therein and have been prepared in accordance with GAAP applied on aconsistent basis throughout the period involved. There are no liabilities,



direct or indirect, fixed or contingent, of any Borrower or any Subsidiary as ofthe date of such financial statements that are not reflected therein or in thenotes thereto. To the best of each Borrower's knowledge, there has been nomaterial adverse change in the financial condition or operations of any Borroweror any Subsidiary since the date of such financial statements and to the best ofsuch Borrowers' knowledge no such adverse change is pending. None of theBorrowers nor any Subsidiary has guaranteed the obligations of, or made anyinvestment in or advances to, any Person, except as permitted under thisAgreement or as disclosed in the most recent financial statements delivered bythe Company to the Lender.

4.1.12 Full Disclosure.----------------

The financial statements referred to in Section 4.1.11 (FinancialCondition) of this Agreement, the Financing Documents (including, withoutlimitation, this Agreement), and the statements, reports or certificatesfurnished by any Borrower in connection with the Financing Documents (a) do notcontain any untrue statement of a material fact and (b)

44

when taken in their entirety, do not omit any material fact necessary to makethe statements contained therein not misleading. There is no fact known to anyBorrower which such Borrower has not disclosed to the Lender in writing prior tothe date of this Agreement with respect to the transactions contemplated by theFinancing Documents which constitutes or could constitute a Material AdverseEffect.

4.1.13 Indebtedness for Borrowed Money.--------------------------------

Except for the Obligations and except as set forth in Schedule--------

4.1.13 attached hereto and made a part hereof, the Borrowers have no------Indebtedness for Borrowed Money. The Lender has received photocopies of allpromissory notes evidencing any Indebtedness for Borrowed Money set forth inSchedule 4.1.13, together with any and all subordination agreements, other---------------agreements, documents, or instruments securing, evidencing, guarantying orotherwise executed and delivered in connection therewith.

4.1.14 Convertible Debt.-----------------

None of the Convertible Debt Loan Documents has been amended,supplemented, restated or otherwise modified except as otherwise disclosed tothe Lender in writing on or before the effective date of any such amendment,supplement, restatement or other modification. In addition, there does notexist any default or any event which upon notice or lapse of time or both wouldconstitute a default under the terms of any of the Convertible Debt LoanDocuments.

4.1.15 Taxes.------

Each of the Borrowers and its Subsidiaries has filed all returns,reports and forms for Taxes which, to the knowledge of the Borrowers, arerequired to be filed, and has paid all Taxes as shown on such returns or on anyassessment received by it, to the extent that such Taxes have become due, unlessand to the extent only that such Taxes, assessments and governmental charges arecurrently contested in good faith and by appropriate proceedings by a Borrower,such Taxes are not the subject of any Liens other than Permitted Liens, andadequate reserves therefor have been established as required under GAAP. Alltax liabilities of the Borrowers were as of the date of audited financialstatements referred to in Section 4.1.11 (Financial Condition), and are now,adequately provided for on the books of the Borrowers and its Subsidiaries, asappropriate. To the best of each Borrower's knowledge, no tax liability hasbeen asserted by the Internal Revenue Service or any state or local authorityagainst any Borrower for Taxes in excess of those already paid.

4.1.16 ERISA.------



With respect to any Plan that is maintained or contributed to byany Borrower and/or by any Commonly Controlled Entity or as to which any of theBorrowers retains material liability: (a) no "accumulated funding deficiency" asdefined in Code (S)412 or ERISA (S)302 has occurred, whether or not thataccumulated funding deficiency has been waived; (b) no Reportable Event hasoccurred other than events for which reporting has been waived or that areunlikely to result in material liability for any of the Borrowers; (c) notermination of any plan subject to Title IV of ERISA has occurred; (d) neitherany Borrower nor any Commonly Controlled Entity has incurred a "completewithdrawal" within the meaning of ERISA (S)4203

45

from any Multi-employer Plan that is likely to result in material liability forone or more of the Borrowers; (e) neither any Borrower nor any CommonlyControlled Entity has incurred a "partial withdrawal" within the meaning ofERISA (S)4205 with respect to any Multi-employer Plan that is likely to resultin material liability for one or more of the Borrowers; (f) no Multi-employerPlan to which any Borrower or any Commonly Controlled Entity has an obligationto contribute is to the knowledge of the Borrowers, in "reorganization" withinthe meaning of ERISA (S)4241 nor has notice been received by any Borrower or anyCommonly Controlled Entity that such a Multi-employer Plan will be placed in"reorganization."

4.1.17 Title to Properties.--------------------

The Borrowers have good and marketable title to all of theirrespective properties, including, without limitation, the Collateral and theproperties and assets reflected in the balance sheets described in Section4.1.11 (Financial Condition). The Borrowers have legal, enforceable anduncontested rights to use freely such property and assets. All of suchproperties, including, without limitation, the Collateral which were purchased,were in each Borrower's good faith belief purchased for fair consideration andreasonably equivalent value in the ordinary course of business of both theseller and the Borrowers and not, by way of example only, as part of a bulksale.

4.1.18 Patents, Trademarks, Etc.-------------------------

Each of the Borrowers and its Subsidiaries owns, possesses, or has theright to use all patents, licenses, trademarks, copyrights, permits andfranchises necessary to conduct its business as now conducted, without knownconflict with the rights of any other Person. Any and all obligations to payroyalties or other charges with respect to such properties and assets areproperly reflected on the financial statements described in Section 4.1.11(Financial Condition).

4.1.19 Employee Relations.-------------------

Except as disclosed on Schedule 4.1.19 attached hereto and made a part---------------

hereof, (a) no Borrower nor any Subsidiary thereof nor any of the Borrower's orSubsidiary's employees is subject to any collective bargaining agreement, (b) nopetition for certification or union election is pending with respect to theemployees of any Borrower or any Subsidiary and no union or collectivebargaining unit has sought such certification or recognition with respect to theemployees of a Borrower, (c) there are no strikes, slowdowns, work stoppages orcontroversies pending or, to the best knowledge of the Borrowers after dueinquiry, threatened between any Borrower and its employees, and (d) no Borrowernor any Subsidiary is subject to an employment contract, severance agreement,commission contract or bonus agreement. Hours worked and payments made to theemployees of any one or more of the Borrowers have not been in violation of theFair Labor Standards Act or any other applicable law dealing with such matters.All payments due from any one or more of the Borrowers or for which any claimmay be made against a Borrower, on account of wages and employee and retireehealth and welfare insurance and other benefits have been paid or accrued as aliability on its books. The consummation of the transactions contemplated bythe Financing Agreement or any of the other Financing Documents, will not giverise to a right of termination or right of renegotiation on the



46

part of any union under any collective bargaining agreement to which anyBorrower is a party or by which it is bound.

4.1.20 Presence of Hazardous Materials or Hazardous Materials------------------------------------------------------Contamination.--------------

Except as described on Schedule 4.1.20 and to the best of eachBorrower's knowledge, (a) no Hazardous Materials are located on any realproperty owned, controlled or operated by any Borrower or for which any Borroweris, or is claimed to be, responsible, except for reasonable quantities ofHazardous Materials Used or generated by a Borrower in the ordinary course ofits business and stored, used and disposed in accordance with applicable Laws;and (b) no property owned, controlled or operated by any Borrower or for whichany Borrower has, or is claimed to have, responsibility has ever been used as amanufacturing, storage, disposal, or dump site for Hazardous Materials nor isaffected by Hazardous Materials Contamination at any other property.

4.1.21 Perfection and Priority of Collateral.--------------------------------------

The Lender has, or upon execution and recording of this Agreement andthe Security Documents will have, and will continue to have as security for theObligations, a valid and perfected Lien on and security interest in allCollateral, free of all other Liens, claims and rights of third partieswhatsoever except Permitted Liens, including, without limitation, thosedescribed on Schedule 4.1.21 attached hereto and made a part hereof.

---------------

4.1.22 Places of Business and Location of Collateral.----------------------------------------------

The information contained in the Collateral Disclosure List iscomplete and correct. The Collateral Disclosure List completely and accuratelyidentifies the address of (a) the chief executive office of each Borrower, (b)any and each other place of business of each Borrower, (c) the location of allbooks and records pertaining to the Collateral, and (d) each location, otherthan the foregoing, where any of the Collateral is located. The proper and onlyplaces to file financing statements with respect to the Collateral within themeaning of the Uniform Commercial Code are the filing offices for thosejurisdictions in which any one or more of the Borrowers maintain a place ofbusiness as identified on the Collateral Disclosure List.

4.1.23 Business Names and Addresses.-----------------------------

In the five (5) years preceding the date hereof, no Borrower haschanged its name, identity or corporate structure, has conducted business underany name other than its current name, and has conducted its business in anyjurisdiction other than those disclosed on the Collateral Disclosure List.

4.1.24 No Suspension or Debarment.---------------------------

Neither any Borrower nor any of their respective directors, officersor employees has received any notice of, or information concerning, anyproposed, contemplated or initiated suspension or debarment, be it temporary orpermanent, due to an administrative or a statutory basis, of any Borrower by anyGovernmental Authority. Each Borrower further warrants and represents that noBorrower has defaulted under any Government Contract which default would be abasis of terminating such Government Contract.

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4.1.25 Equipment.----------

All Equipment is personalty and is not and will not be affixed to realestate in such manner as to become a fixture or part of such real estate. No



equipment is held by any Borrower on a sale on approval basis.

4.1.26 Accounts.---------

With respect to all Accounts (other than Accounts which are consideredpart of the Excluded Assets) and to the best of each Borrower's knowledge (a)they are genuine, and in all respects what they purport to be, and are notevidenced by a judgment, an Instrument, or Chattel Paper (unless such judgmenthas been assigned and such Instrument or Chattel Paper has been endorsed anddelivered to the Lender); (b) they represent bona fide transactions completed inaccordance with the terms and provisions contained in the invoices, purchaseorders and other contracts relating thereto, and the underlying transactiontherefor is in accordance with all applicable Laws; (c) the amounts shown on therespective Borrower's books and records, with respect thereto are actually andabsolutely owing to that Borrower and are not contingent or subject to reductionfor any reason other than regular discounts, credits or adjustments allowed bythat Borrower in the ordinary course of its business; (d) no payments have beenor shall be made thereon except payments turned over to the Lender by theBorrowers; (e) all Account Debtors thereon have the capacity to contract; and(f) the goods sold, leased or transferred or the services furnished giving risethereto are not subject to any Liens except the security interest granted to theLender by this Agreement and Permitted Liens.

4.1.27 Compliance with Eligibility Standards.--------------------------------------

Each Account included in the calculation of the Borrowing Base as ofthe date of the applicable Borrowing Base Certificate meets and complies withall of the standards for Eligible Receivables. With respect to those Accountswhich the Lender has deemed Eligible Receivables (a) there are no facts, eventsor occurrences which in any way impair the validity, collectibility orenforceability thereof or tend to reduce the amount payable thereunder; and (b)there are no proceedings or actions known to any Borrower which are threatenedor pending against any Account Debtor which could be expected to result in anymaterial adverse change in the Borrowing Base.

Section 4.2 Survival; Updates of Representations and Warranties.----------------------------------------------------

All representations and warranties contained in or made under or inconnection with this Agreement and the other Financing Documents shall survivethe Closing Date, the making of any advance under the Revolving Credit andextension of credit made hereunder or the issuance of each Letter of Credit, andthe incurring of any other Obligations and shall be deemed to have been made atthe time of each request for, and again at the time of the making of, eachadvance under the Revolving Credit, except that the representations andwarranties which relate to the financial statements which are referred to inSection 4.1.11 (Financial Condition), shall also be deemed to cover financialstatements furnished from time to time to the Lender pursuant to Section 6.1.1(Financial Statements).

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ARTICLE VCONDITIONS PRECEDENT--------------------

Section 5.1 Conditions to the Initial Advance and Initial Letter of-------------------------------------------------------Credit.-------

The making of the initial advance under the Revolving Credit and theissuance of the initial Letter of Credit is subject to the fulfillment on orbefore the Closing Date of the following conditions precedent in a mannersatisfactory in form and substance to the Lender and its counsel:

5.1.1 Organizational Documents - Borrowers.-------------------------------------

The Lender shall have received for each Borrower:

(a) a certificate of good standing certified by the



Secretary of State, or other appropriate Governmental Authority, of thestate of incorporation of such Borrower;

(b) a certified copy from the appropriate GovernmentalAuthority under which such Borrower is organized, of such Borrower'srecorded limited partnership certificate and all recorded amendmentsthereto;

(c) a certificate of qualification to do business forsuch Borrower certified by the Secretary of State or other GovernmentalAuthority of each state in which such Borrower conducts business;

(d) a certificate dated as of the Closing Date by theSecretary or an Assistant Secretary of such Borrower covering:

(i) true and complete copies of that Borrower'scorporate charter, bylaws, and all amendments thereto;

(ii) true and complete copies of the resolutionsof its Board of Directors authorizing (A) the execution, delivery andperformance of the Financing Documents to which it is a party, (B) theborrowings hereunder, and (C) the granting of the Liens contemplated bythis Agreement and the Financing Documents to which that Borrower is aparty;

(iii) the incumbency, authority and signatures ofthe officers of such Borrower authorized to sign this Agreement and the otherFinancing Documents to which such Borrower is a party; and

(iv) the identity of such Borrower's currentdirectors, common stock holders and other equity holders, as well as theirrespective percentage ownership interests.

49

5.1.2 Opinion of Borrowers' Counsel.------------------------------

The Lender shall have received the favorable opinion of counsel forthe Borrowers addressed to the Lender in form satisfactory to the Lender.

5.1.3 Consents, Licenses, Approvals, Etc.-----------------------------------

The Lender shall have received copies of all consents, licenses andapprovals, required in connection with the execution, delivery, performance,validity and enforceability of the Financing Documents, and such consents,licenses and approvals shall be in full force and effect.

5.1.4 Note.-----

The Lender shall have received the Revolving Credit Note, conformingto the requirements hereof and executed by a Responsible Officer of eachBorrower and attested by a duly authorized representative of each Borrower.

5.1.5 Financing Documents and Collateral.-----------------------------------

Each Borrower shall have executed and delivered the FinancingDocuments to be executed by it, and shall have delivered original Chattel Paper,Instruments, Securities, and related Collateral and all opinions, titleinsurance, and other documents contemplated by Article III (The Collateral).

5.1.6 Other Financing Documents.--------------------------

In addition to the Financing Documents to be delivered by theBorrowers, the Lender shall have received the Financing Documents duly executedand delivered by Persons other than the Borrowers.

5.1.7 Other Documents, Etc.---------------------



The Lender shall have received such other certificates, opinions,documents and instruments confirmatory of or otherwise relating to thetransactions contemplated hereby as may have been reasonably requested by theLender.

5.1.8 Payment of Fees.----------------

The Lender shall have received payment of any Fees due on or beforethe Closing Date.

5.1.9 Collateral Disclosure List.---------------------------

The Company shall have delivered the Collateral Disclosure Listrequired under the provisions of Section 3.3 (Collateral Disclosure List) dulyexecuted by a Responsible Officer of the Company.

5.1.10 Recordings and Filings.-----------------------

Each Borrower shall have: (a) executed and delivered all FinancingDocuments (including, without limitation, UCC-1 and UCC-3 statements) requiredto be filed,

50

registered or recorded in order to create, in favor of the Lender, a perfectedLien in the Collateral (subject only to the Permitted Liens) in form and insufficient number for filing, registration, and recording in each office in eachjurisdiction in which such filings, registrations and recordations are required,and (b) delivered such evidence as the Lender may deem satisfactory that allnecessary filing fees and all recording and other similar fees, and all Taxesand other expenses related to such filings, registrations and recordings will beor have been paid in full.

5.1.11 Insurance Certificate.----------------------

The Lender shall have received an insurance certificate inaccordance with the provisions of Section 6.1.8 (Insurance) and Section 6.1.19(Insurance With Respect to Equipment and Inventory).

5.1.12 Field Examination.------------------

The Lender shall have completed a field examination of eachBorrower's business, operations and income, the results of which fieldexamination shall be in all respects acceptable to the Lender in its sole andabsolute discretion.

Section 5.2 Conditions to all Extensions of Credit and Issuance of Letters of-----------------------------------------------------------------

Credit.-------

The making of all advances under the Revolving Credit and issuance of allLetters of Credit is subject to the fulfillment of the following conditionsprecedent in a manner satisfactory in form and substance to the Lender and itscounsel:

5.2.1 Compliance.-----------

Each Borrower shall have complied and shall then be in compliancewith all terms, covenants, conditions and provisions of this Agreement and theother Financing Documents that are binding upon it.

5.2.2 Borrowing Base.---------------

The Borrowers shall have furnished all Borrowing Base Reportsrequired by Section 2.1.4 (Borrowing Base Report), there shall exist noBorrowing Base Deficiency, and as evidence thereof, the Borrowers shall have



furnished to the Lender such reports, schedules, certificates, records and otherpapers as may be requested by the Lender, and the Borrowers shall be incompliance with the provisions of this Agreement both immediately before andimmediately after the making of the advance requested.

5.2.3 Default.--------

There shall exist no Event of Default or Default hereunder.

5.2.4 Representations and Warranties.-------------------------------

The representations and warranties of each of the Borrowerscontained among the provisions of this Agreement shall be true and with the sameeffect as though such representations and warranties had been made at the timeof the making of, and of the request for, each advance under the RevolvingCredit or the issuance of each Letter of Credit, except that the representationsand warranties which relate to financial statements which are referred to in

51

Section 4.1.11 (Financial Condition), shall also be deemed to cover financialstatements furnished from time to time to the Lender pursuant to Section 6.1.1(Financial Statements).

5.2.5 Adverse Change.---------------

No adverse change shall have occurred in the condition (financialor otherwise), operations or business of any Borrower that would, in the goodfaith judgment of the Lender, result in a Material Adverse Effect.

5.2.6 Legal Matters.--------------

All legal documents incident to each advance under the RevolvingCredit shall be reasonably satisfactory to counsel for the Lender.

ARTICLE VICOVENANTS OF THE BORROWERS--------------------------

Section 6.1 Affirmative Covenants.----------------------

So long as any of the Obligations (or the Revolving CreditCommitment therefor) shall be outstanding hereunder, the Borrowers agree jointlyand severally with the Lender as follows:

6.1.1 Financial Statements.---------------------

The Borrowers shall furnish to the Lender:

(a) Annual Statements and Certificates. The Borrowers-----------------------------------

shall furnish to the Lender as soon as available, but in no event more than onehundred twenty (120) days after the close of the Borrowers' fiscal years, (i) acopy of the Company's 10-K filed with the Securities and Exchange Commission orif the 10-K is not filed, the Company's annual financial statement in reasonabledetail satisfactory to the Lender relating to the Borrowers and theirSubsidiaries, prepared in accordance with GAAP and examined and certified byindependent certified public accountants satisfactory to the Lender, whichfinancial statement shall include a consolidated and consolidating balance sheetof the Borrowers and their Subsidiaries as of the end of such fiscal year andconsolidated and consolidating statements of income, cash flows and changes inshareholders equity of the Borrowers and their Subsidiaries for such fiscalyear, and (ii) a Compliance Certificate, in substantially the form attached tothis Agreement as EXHIBIT E, containing a detailed computation of each financial

---------covenant in this Agreement which is applicable for the period reported, acertification that no change has occurred to the information contained in theCollateral Disclosure List (except as set forth in any schedule attached to the



certification), and a cash flow projection report, each prepared by aResponsible Officer of the Borrowers in a format acceptable to the Lender and(iii) a management letter in the form prepared by the Borrowers' independentcertified public accountants.

(b) Annual Opinion of Accountant. The Borrowers shall----------------------------

furnish to the Lender as soon as available, but in no event more than onehundred twenty (120) days after the close of the Borrowers' fiscal years, aletter or opinion of the accountant who examined and certified the annualfinancial statement relating to the Borrowers and their

52

Subsidiaries (i) stating whether anything in such accountant's examination hasrevealed the occurrence of a Default or an Event of Default hereunder due to thebreach of any of the financial covenants set forth in Section 6.1.16 of thisAgreement, and, if so, stating the facts with respect thereto and (ii)acknowledging that the Lender will rely on the statement and that the Borrowersknow of the intended reliance by the Lender.

(c) Quarterly Statements and Certificates. The Borrowers shall-------------------------------------

furnish to the Lender as soon as available, but in no event more than forty five(45) days after the close of the Borrowers' fiscal quarters, the Company's 10-Qas filed with the Securities and Exchange Commission or if such report is notfiled, the Borrowers' consolidated and consolidating balance sheets of theBorrowers and its Subsidiaries as of the close of such period, consolidated andconsolidating income, cash flows and changes in shareholders equity statementsfor such period, projected cash flow on a month to month basis and projectedincome statements, and a Compliance Certificate, in substantially the formattached to this Agreement as EXHIBIT E.

---------

(d) Contract Backlog Report. With the quarterly financial-----------------------

statements to be delivered hereunder, reports relating to the Receivablesincluded in any Borrowing Base Report submitted during such quarter settingforth a description of contracts giving rise to such Receivable, the percentageof completion of the work to be performed with respect to such contracts, theamounts billed under such contracts and the amounts remaining to be billed, inform and detail satisfactory to the Lender.

(e) Monthly Statements and Certificates. The Borrowers shall-----------------------------------

furnish to the Lender as soon as available, but in no event more than forty five(45) days after the close of the Borrowers' fiscal months, (i) consolidated andconsolidating balance sheets of the Borrowers and their Subsidiaries as of theclose of such period, consolidated and consolidating income, cash flows andchanges in shareholders equity statements for such period, all as prepared andcertified by a Responsible Officer of the Borrowers and (ii) a detailedcomputation of each financial covenant in this Agreement which is applicable forthe period reported, together with a certification that no change has occurredto the information contained on the Collateral Disclosure List (except as setforth on any schedule attached to the certification), each prepared by aResponsible Officer of or on behalf of each Borrower in a format acceptable tothe Lender, and accompanied by a certificate of that officer stating whether anyevent has occurred which constitutes a Default or an Event of Default hereunder,and, if so, stating the facts with respect thereto.

(f) Annual Budget and Projections. The Borrowers shall furnish-----------------------------

to the Lender as soon as available, but in no event later than June 30/th/ ofeach fiscal year a consolidated and consolidating budget and pro forma financialstatements on a month-to-month basis for the following fiscal year, whichfinancial statements shall include at a minimum, a balance sheet, incomestatements and statement of cash flows.

(g) Additional Reports and Information. The Borrowers shall----------------------------------

furnish to the Lender promptly, such additional information, reports orstatements as the Lender may from time to time reasonably request.

53



6.1.2 Reports to SEC and to Stockholders.-----------------------------------

The Borrowers will furnish to the Lender, promptly upon the filing ormaking thereof, at least one (l) copy of all financial statements, reports,notices and proxy statements sent by any Borrower to its stockholders, and ofall regular and other reports filed by any Borrower with any securities exchangeor with the Securities and Exchange Commission.

6.1.3 Recordkeeping, Rights of Inspection, Administration and Audit,--------------------------------------------------------------Etc.---

(a) Each of the Borrowers shall, and shall cause each of itsSubsidiaries to, maintain (i) a standard system of accounting in accordance withGAAP, and (ii) proper books of record and account in which full, true andcorrect entries are made of all dealings and transactions in relation to itsproperties, business and activities.

(b) Each of the Borrowers shall, and shall cause each of itsSubsidiaries to, permit authorized representatives of the Lender to visit andinspect the properties of the Borrowers and its Subsidiaries, to review, audit,check and inspect the Collateral at any time during normal business hours, withor after a Default without notice, to review, audit, check and inspect theBorrowers' other books of record at any time with or without notice and to makeabstracts and photocopies thereof, and to discuss the affairs, finances andaccounts of the Borrowers and their Subsidiaries, with the officers, directors,employees and other representatives of the Borrowers and their Subsidiaries andtheir respective accountants, all at such times during normal business hours andother reasonable times and as often as the Lender may reasonably request.

(c) Each of the Borrowers hereby irrevocably authorizes anddirects all accountants and auditors employed by any of the Borrowers and/or anyof their Subsidiaries at any time prior to the repayment in full of theObligations to exhibit and deliver to the Lender copies of any and all of thefinancial statements, trial balances, management letters, or other accountingrecords of any nature of any or all of the Borrowers and/or any or all of theirrespective Subsidiaries in the accountant's or auditor's possession, and todisclose to the Lender any information they may have concerning the financialstatus and business operations of any or all of the Borrowers and/or any or allof their respective Subsidiaries. Further, each of the Borrowers herebyauthorizes all Governmental Authorities to furnish to the Lender copies ofreports or examinations relating to any and all of the Borrowers and/or any orall Subsidiaries, whether made by the Borrowers or otherwise. The Lenderacknowledges and agrees to the extent certain information is "classified" or theBorrowers are otherwise prohibited by Law from disclosing such information tothe Lender, that the Borrowers shall not be obligated to release suchinformation to the Lender.

(d) Any and all reasonable costs and expenses incurred by, oron behalf of, the Lender in connection with the conduct of any of the foregoing,including, without limitation, travel (other than first class air travel),lodging, meals, and other reasonable expenses for each auditor employed by theLender for inspections of the Collateral and the Borrowers' operations, shall bepart of the Enforcement Costs and shall be payable to the Lender upon demand.The Borrowers acknowledge and agree that such expenses may include, but shall

54

not be limited to, any and all reasonable out-of-pocket costs and expenses ofthe Lender's employees and agents in, and when, traveling to any of theBorrowers' facilities.

6.1.4 Corporate Existence.--------------------

Each of the Borrowers shall maintain, and cause each of itsSubsidiaries to maintain, its corporate existence in good standing in thejurisdiction in which it is incorporated and in each other jurisdiction where itis required to register or qualify to do business if the failure to do so insuch other jurisdiction could have a Material Adverse Effect.



6.1.5 Compliance with Laws.---------------------

Each of the Borrowers shall comply, and cause each of its Subsidiariesto comply, with all applicable Laws and observe the valid requirements ofGovernmental Authorities, the noncompliance with or the nonobservance of whichcould be expected to have a Material Adverse Effect.

6.1.6 Preservation of Properties.---------------------------

Each of the Borrowers will, and will cause each of its Subsidiariesto, at all times (a) maintain, preserve, protect and keep its properties,whether owned or leased, in good operating condition, working order and repair(ordinary wear and tear excepted), and from time to time will make all properrepairs, maintenance, replacements, additions and improvements thereto needed tomaintain such properties in good operating condition, working order and repair,unless such properties are no longer necessary or useful in the conduct of suchBorrower's business as determined by its management, but provided, however thatsuch Borrower's failure to maintain such property could not give rise to anymaterial liability, and (b) do or cause to be done all things necessary topreserve and to keep in full force and effect its material franchises, leases ofreal and personal property, trade names, patents, trademarks and permits whichare necessary for the orderly continuance of its business.

6.1.7 Line of Business.-----------------

Each of the Borrowers will continue to engage substantially only inthe business of providing commercial space applications and other incidentalbusinesses.

6.1.8 Insurance.----------

Each of the Borrowers will, and will cause each of its Subsidiariesto, at all times maintain with "A" or better rated insurance companies suchinsurance as is required by applicable Laws and such other insurance, in suchamounts, of such types and against such risks, hazards, liabilities, casualtiesand contingencies as are usually insured against in the same geographic areas bybusiness entities engaged in the same or similar business. Without limiting thegenerality of the foregoing, each of the Borrowers will, and will cause each ofits Subsidiaries to, keep adequately insured all of its property against loss ordamage resulting from fire or other risks insured against by extended coverageand maintain public liability insurance against claims for personal injury,death or property damage occurring upon, in or about any properties occupied orcontrolled by it, or arising in any manner out of the businesses carried on byit, all in such amounts not less than the Lender shall reasonably determine fromtime to time. The Lender agrees that with respect to any assets of theBorrowers and each of their Subsidiaries

55

which are Excluded Assets that unless such assets become subject to Liens infavor of the Lender, the Lender will rely on the determination of any otherPerson having a Lien on such assets or if no such Person exists, the Lender willrely on the Company in the exercise of its reasonable discretion, to determinethe appropriate amount and types of insurance. Each of the Borrowers shalldeliver to the Lender on the Closing Date (and thereafter on each date there isa material change in the insurance coverage) a certificate of a ResponsibleOfficer of the Borrowers containing a detailed list of the insurance then ineffect and stating the names of the insurance companies, the types, the amountsand rates of the insurance, dates of the expiration thereof and the propertiesand risks covered thereby. Within thirty (30) days after notice in writing fromthe Lender, the Borrowers will obtain such additional insurance as the Lendermay reasonably request.

6.1.9 Taxes.------

Except to the extent that the validity or amount thereof is beingcontested in good faith and by appropriate proceedings, each of the Borrowerswill, and will cause each of its Subsidiaries, to pay and discharge all Taxesprior to the date when any interest or penalty would accrue for the nonpayment



thereof. Each of the Borrowers shall furnish to the Lender at such times as theLender may require proof satisfactory to the Lender of the making of payments ordeposits required by applicable Laws including, without limitation, payments ordeposits with respect to amounts withheld by any of the Borrowers from wages andsalaries of employees and amounts contributed by any of the Borrowers on accountof federal and other income or wage taxes and amounts due under the FederalInsurance Contributions Act, as amended.

6.1.10 ERISA.------

Each Borrower will, and will cause each of its Commonly ControlledEntities to, comply with the funding requirements of ERISA with respect to Plansfor its respective employees. No Borrower will permit with respect to any Plan(a) any prohibited transaction or transactions under ERISA or the InternalRevenue Code, which results, or may result, in any material liability of theBorrower, or (b) any Reportable Event if, upon termination of the plan or planswith respect to which one or more such Reportable Events shall have occurred,there is or would be any material liability of the Borrower to the PBGC. Uponthe Lender's request, each Borrower will deliver to the Lender a copy of themost recent actuarial report, financial statements and annual report completedwith respect to any Plan.

6.1.11 Government Contracts.---------------------

The Company shall promptly notify the Lender of the execution of anyGovernment Contract with a remaining value in excess of Two Million Dollars($2,000,000) and shall in accordance with Section 3.2 execute any instrumentsand take any steps necessary or prudent in order that all moneys due and tobecome due under any Government Contracts with a remaining value in excess ofTwo Million Dollars ($2,000,000) and a duration in excess of six months shall beassigned to the Lender and notice thereof given to the Government under theFederal Assignment of Claims Act of 1940 (31 U.S.C. (S)3727 and 41 U.S.C. (S)15)or any other similar applicable law (the "Act"). In addition, the Lender shallhave the right at any time to require that all monies due or to become due underany Government Contracts be assigned to the Lender pursuant to the Act.

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6.1.12 Notification of Events of Default and Adverse---------------------------------------------Developments.--------------

Each of the Borrowers shall promptly notify the Lender uponobtaining knowledge of the occurrence of:

(a) any Event of Default;

(b) any Default;

(c) any litigation instituted or threatened against any of theBorrowers or any of their Subsidiaries and of the entry of any judgment or Lien(other than any Permitted Liens) against any of the assets or properties of anyof the Borrowers or any Subsidiary where the claims against any Borrower or anySubsidiary exceed One Hundred Thousand Dollars ($100,000) and are not covered byinsurance;

(d) any event, development or circumstance whereby the financialstatements furnished hereunder fail in any material respect to present fairly,in accordance with GAAP, the financial condition and operational results of anyof the Borrowers or any of their respective Subsidiaries;

(e) any judicial, administrative or arbitral proceeding pendingagainst any of the Borrowers or any of their respective Subsidiaries and anyjudicial or administrative proceeding known by any of the Borrowers to bethreatened against any Borrower or any Subsidiary which, if adversely decided,could result in a Material Adverse Effect;

(f) the receipt by any of the Borrowers or any Subsidiary of anynotice, claim or demand from any Governmental Authority which alleges that anyof the Borrowers or any Subsidiary is in violation of any of the terms of, orhas failed to comply with any applicable Laws regulating its operation and



business, including, but not limited to, the Occupational Safety and Health Actand the Environmental Protection Act;

(g) any default under any Government Contract or any event whichif not corrected could give rise to a default under any Government Contract or atermination for convenience; and

(h) any other development in the business or affairs of any ofthe Borrowers or any of their respective Subsidiaries which could be expected tohave a Material Adverse Effect;

in each case describing in detail satisfactory to the Lender the nature thereofand the action the Borrowers propose to take with respect thereto.

6.1.13 Hazardous Materials; Contamination.-----------------------------------

Each of the Borrowers agrees to:

(a) give notice to the Lender immediately upon acquiringknowledge of the presence of any Hazardous Materials or any Hazardous MaterialsContamination on any property owned, operated or controlled by any Borrower orfor which any

57

Borrower is, or is claimed to be, responsible (provided that such notice shallnot be required for Hazardous Materials placed or stored on such property inaccordance with applicable Laws in the ordinary course (including, withoutlimitation, quantity) of a Borrower's line of business expressly described inthis Agreement or otherwise previously disclosed to the Lender in writing), witha full description thereof;

(b) promptly comply with any Laws requiring the removal,treatment or disposal of Hazardous Materials or Hazardous MaterialsContamination and provide the Lender with satisfactory evidence of suchcompliance, provided that the Borrowers may challenge the applicability of anysuch requirement or appeal the imposition of any such requirement, within thetime period allowed under such Laws, provided that during any such challenge orappeal, the existence of any such Hazardous Materials or Hazardous MaterialsContamination do not and will not with appropriate filings, the giving of noticeand/or the passage of time, result in any Lien against any of the Collateral orcould otherwise result in a Material Adverse Effect;

(c) provide the Lender, within thirty (30) days after a demandby the Lender, with a bond, letter of credit or similar financial assuranceevidencing to the Lender's satisfaction that the necessary funds are availableto pay the cost of removing, treating, and disposing of such Hazardous Materialsor Hazardous Materials Contamination and discharging any Lien which may beestablished as a result thereof on any property owned, operated or controlled byany Borrower or for which any Borrower is, or is claimed to be, responsible; and

(d) as part of the Obligations, defend, indemnify and holdharmless the Lender and its agents, employees, trustees, successors and assignsfrom any and all claims which may now or in the future (whether before or afterthe termination of this Agreement) be asserted as a result of the presence ofany Hazardous Materials or any Hazardous Materials Contamination on any propertyowned, operated or controlled by any Borrower for which any Borrower is, or isclaimed to be, responsible. Each Borrower acknowledges and agrees that thisindemnification shall survive the termination of this Agreement and theRevolving Credit Commitment and the payment and performance of all of the otherObligations.

(e) The Company has advised the Lender of certain polishing,photo processing and other related operations being performed at its location atof 12130 State Highway 3, Houston Harris County Texas as more fully described inSchedule 6.1.13 attached hereto, and the Lender agrees that based on suchinformation, it will not require a bond, letter of credit or similar financialassurance under section (c) above.

6.1.14 Disclosure of Significant Transactions.---------------------------------------

Each of the Borrowers shall deliver to the Lender a written



notice describing in detail each transaction by it involving the purchase, sale,lease, or other acquisition or loss or casualty to or disposition of an interestin Fixed or Capital Assets (other than Excluded Assets) which exceeds TwoHundred Fifty Thousand Dollars ($250,000.00), said notices to be delivered tothe Lender within thirty (30) days of the occurrence of each such transaction.

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6.1.15 Financial Covenants.--------------------

(a) Tangible Net Worth. The Company and its-------------------

Subsidiaries, on a consolidated basis, will at all times maintain a Tangible NetWorth of not less than the following:

Period Amount------ ------

June 30, 2000 through June 29, 2001 $70,000,000June 30, 2001 through September 29, 2001 $71,500,000September 30, 2001 and at all times thereafter $71,500,000,

plus commencing as of September 30, 2001, an amount equal to seventy fivepercent (75%) of the consolidated net income (without regard to any loss) of theCompany and its Subsidiaries from the most recently ended fiscal quarter,rounded down to the nearest $100,000.

(b) Debt to Worth Ratio. The Company and its-------------------

Subsidiaries, on a consolidated basis, will at all times maintain, tested as ofthe end of each calendar month, commencing with the month ending June 30, 2000,a Debt to Worth Ratio of not more than 2.50 to 1.0.

(c) Debt Service Coverage Ratio. The Company and its---------------------------

Subsidiaries will maintain, on a consolidated basis and tested as of the lastday of each of the Company's fiscal quarters, a ratio of EBITDA to Debt Serviceof not less than the following amounts at the following times:

Period Ratio------ -----

June 30, 2000 1.10 to 1.0September 30, 2000 through December 31, 2000 1.30 to 1.0March 31, 2001 1.60 to 1.0June 30, 2001 and at all times thereafter 1.75 to 1.0

The EBITDA to Debt Service Coverage Ratio shall be calculated as follows: (i)for the quarter ending June 30, 2000 based on the single fiscal quarter thenending, (ii) for the quarter ending September 30, 2000, for the period of two(2) fiscal quarters ending on that date, (iii) for the quarter ending December31, 2000, for the period of three (3) fiscal quarters ending on that date, and(iv) thereafter for each quarter, for the period of four (4) fiscal quartersending on the last day of the relevant quarter.

(d) Cash to Subsidiaries and Space Media. Neither the------------------------------------

Company nor any other Borrower shall make any cash advances to any Subsidiary orAffiliate, other than investments and loans permitted under Section 6.2.5 ofthis Agreement and cash advances to Space Media in amounts which may not exceedthe following amounts in the aggregate at the following times:


July 1, 2000 through September 30, 2000 $ 5,000,000July 1, 2000 through December 31, 2000 $10,000,000Thereafter, no further cash advances may be madeto Space Media or its Subsidiaries

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(e) Internally Funded Capital Expenditures. Capital



--------------------------------------Expenditures which are funded by the Company or any other Borrower (taken as awhole), plus all cash advances to Space Media will not exceed the followingamounts at the following times:


July 1, 2000 through September 30, 2000 $10,000,000July 1, 2000 through December 31, 2000 $16,000,000Each Fiscal Quarter thereafter $ 3,000,000

6.1.16 Collection of Receivables.--------------------------

Until such time as the Lender shall notify the Borrowers of therevocation of such privilege, the Borrowers shall at their own expense have theprivilege for the account of, and in trust for, the Lender of collecting theirReceivables and receiving in respect thereto all Items of Payment and shallotherwise completely service all of the Receivables including (a) the billing,posting and maintaining of complete records applicable thereto, (b) the takingof such action with respect to the Receivables as the Lender may request or inthe absence of such request, as each of the Borrowers may deem advisable; and(c) the granting, in the ordinary course of business, to any Account Debtor, ofany rebate, refund or adjustment to which the Account Debtor may be lawfullyentitled, and may accept, in connection therewith, the return of goods, the saleor lease of which shall have given rise to a Receivable and may take such otheractions relating to the settling of any Account Debtor's claim as may becommercially reasonable. The Lender may, at its option, at any time or fromtime to time after and during the continuance of an Event of Default hereunder,revoke the collection privilege given in this Agreement to any one or more ofthe Borrowers by either giving notice of its assignment of, and Lien on theCollateral to the Account Debtors or giving notice of such revocation to theBorrowers. The Lender shall not have any duty to, and the Borrowers herebyrelease the Lender from all claims of loss or damage caused by the delay orfailure to collect or enforce any of the Receivables or to preserve any rightsagainst any other party with an interest in the Collateral. The Lender shall beentitled at any time and from time to time to confirm and verify Receivables.

6.1.17 Assignments of Receivables.---------------------------

Each Borrower will promptly, upon request, execute and deliver to theLender written assignments, in form and content acceptable to the Lender, ofspecific Receivables or groups of Receivables; provided, however, the Lienand/or security interest granted to the Lender under this Agreement shall not belimited in any way to or by the inclusion or exclusion of Receivables withinsuch assignments. Receivables so assigned shall secure payment of theObligations and are not sold to the Lender whether or not any assignmentthereof, which is separate from this Agreement, is in form absolute. TheBorrowers agree that neither any assignment to the Lender nor any otherprovision contained in this Agreement or any of the other Financing Documentsshall impose on the Lender any obligation or liability of any of the Borrowerswith respect to that which is assigned and the Borrowers hereby agree jointlyand severally to indemnify the Lender and hold the Lender harmless from any andall claims, actions, suits, losses, damages, costs, expenses, fees, obligationsand liabilities brought by Persons other than the Borrowers or their Affiliatesor Subsidiaries which may be incurred by or imposed upon the Lender by virtue ofthe assignment of and Lien on any Borrower's rights, title and interest in, to,and under the Collateral.

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6.1.18 Notice of Returned Goods, etc.------------------------------

The Borrowers will promptly notify the Lender of the return,rejection or repossession of any goods sold or delivered in respect of anyReceivables, and of any claims made in regard thereto to the extent that theaggregate purchase price of any such goods in any given calendar month exceedsin the aggregate Two Hundred Fifty Thousand Dollars ($250,000.00) for suchmonth.

6.1.19 Insurance With Respect to Equipment and Inventory.



--------------------------------------------------

The Borrowers will (a) maintain hazard insurance with fire andextended coverage and naming the Lender as an additional insured with losspayable to the Lender as its respective interest may appear on the Equipment andInventory in an amount at least equal to the lesser amount of the outstandingprincipal amount of the Obligations or the fair market value of the Equipmentand Inventory (but in any event sufficient to avoid any co-insuranceobligations) and with a specific endorsement to each such insurance policypursuant to which the insurer agrees to give the Lender at least thirty (30)days written notice before any alteration or cancellation of such insurancepolicy and that no act or default of any of the Borrowers shall affect the rightof the Lender to recover under such policy in the event of loss or damage; (b)file with the Lender, upon its request, a detailed list of the insurance then ineffect and stating the names of the insurance companies, the amounts and ratesof the insurance, dates of the expiration thereof and the properties and riskscovered thereby; and (c) within thirty (30) days after notice in writing fromthe Lender, obtain such additional insurance as the Lender may reasonablyrequest.

6.1.20 Maintenance of the Collateral.------------------------------

The Borrowers will cause the Lender to have at all times avalid and perfected Lien on and security interest in all Collateral, free of allother Liens, claims and rights of third parties whatsoever except PermittedLiens, including, without limitation, those described on Schedule 4.1.21

---------------attached hereto and made a part hereof. In addition, the Borrowers will maintainthe Collateral in good working order, saving and excepting ordinary wear andtear, and will not permit anything to be done to the Collateral which maymaterially impair the value thereof. The Lender, or an agent designated by theLender, shall be permitted to enter the premises of each of the Borrowers andtheir Subsidiaries and examine, audit and inspect the Collateral at anyreasonable time and from time to time without notice. The Lender shall not haveany duty to, and the Borrowers hereby release the Lender from all claims of lossor damage caused by the delay or failure to collect or enforce any of theReceivables or to, preserve any rights against any other party with an interestin the Collateral.

6.1.21 Equipment.----------

The Borrowers shall (a) maintain all Equipment as personalty,(b) not affix any Equipment to any real estate in such manner as to become afixture or part of such real estate, and (c) shall hold no Equipment on a saleon approval basis. The Borrowers hereby declare their intent that,notwithstanding the means of attachment, no goods of the Borrowers hereafterattached to any realty shall be deemed a fixture, which declaration shall beirrevocable, without the Lender's consent, until all of the Obligations havebeen paid in full and the Revolving Credit Commitment has been terminated orhave expired.

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6.1.22 Defense of Title and Further Assurances.----------------------------------------

At their expense, the Borrowers will defend the title to theCollateral (and any part thereof), and will immediately execute, acknowledge anddeliver any financing statement, renewal, affidavit, deed, assignment,continuation statement, security agreement, certificate or other document whichthe Lender may require in order to perfect, preserve, maintain, continue,protect and/or extend the Lien or security interest granted to the Lender underthis Agreement, under any of the other Financing Documents and the firstpriority of that Lien, subject only to the Permitted Liens. The Borrowers willfrom time to time do whatever the Lender may require by way of obtaining,executing, delivering, and/or filing financing statements, landlords' ormortgagees' waivers, notices of assignment and other notices and amendments andrenewals thereof and the Borrowers will take any and all steps and observe suchformalities as the Lender may require, in order to create and maintain a validLien upon, pledge of, or paramount security interest in, the Collateral, subjectto the Permitted Liens. The Borrowers shall pay to the Lender on demand alltaxes, costs and expenses incurred by the Lender in connection with the



preparation, execution, recording and filing of any such document or instrument.To the extent that the proceeds of any of the Accounts or Receivables of theBorrowers are expected to become subject to the control of, or in the possessionof, a party other than the Borrowers or the Lender, the Borrowers shall causeall such parties to execute and deliver on the Closing Date security documents,financing statements or other documents as requested by the Lender and as may benecessary to evidence and/or perfect the security interest of the Lender inthose proceeds. The Borrowers agree that a copy of a fully executed securityagreement and/or financing statement shall be sufficient to satisfy for allpurposes the requirements of a financing statement as set forth in Article 9 ofthe applicable Uniform Commercial Code. Each Borrower hereby irrevocablyappoints the Lender as the Borrower's attorney-in-fact, with power ofsubstitution, in the name of the Lender or in the name of the Borrower orotherwise, for the use and benefit of the Lender, but at the cost and expense ofthe Borrowers and without notice to the Borrowers, to execute and deliver anyand all of the instruments and other documents and take any action which theLender may require pursuant the foregoing provisions of this Section 6.1.22.

6.1.23 Business Names; Locations.--------------------------

Each Borrower will notify and cause each of the Subsidiariesto notify the Lender not less than thirty (30) days prior to (a) any change inthe name under which the Borrower or the applicable Subsidiary conducts itsbusiness, (b) any change of the location of the chief executive office of theapplicable Borrower or Subsidiary, and (c) the opening of any new place ofbusiness or the closing of any existing place of business, and any change in thelocation of the places where the Collateral, or any part thereof, or the booksand records, or any part thereof, are kept (provided that, if any such change oropening is pending within thirty (30) days at the time an Additional Borrowerbecomes an Additional Borrower, such Additional Borrower will instead give suchnotice to the Lender at that time).

6.1.24 Subsequent Opinion of Counsel as to Recording---------------------------------------------Requirements.-------------

In the event that any Borrower or any Subsidiary shalltransfer its principal place of business or the office where it keeps itsrecords pertaining to the Collateral, upon the Lender's request the Borrowerswill provide to the Lender a subsequent opinion of counsel as to

62

the filing, recording and other requirements with which the Borrowers and theirSubsidiaries have complied to maintain the Lien and security interest granted bysuch Borrower in favor of the Lender in the Collateral.

6.1.25 Use of Premises and Equipment.------------------------------

The Borrowers agree that until the Obligations are fully paidand the Revolving Credit Commitment has been terminated or have expired, theLender (a) after and during the continuance of an Event of Default, may use anyof the Borrowers' owned or leased lifts, hoists, trucks and other facilities orequipment for handling or removing the Collateral; and (b) shall have, and ishereby granted, a right of ingress and egress to the places where the Collateralis located, and may proceed over and through any of the Borrowers' owned orleased property.

6.1.26 Protection of Collateral.-------------------------

The Borrowers agree that the Lender may at any time followingan Event of Default take such steps as the Lender deems reasonably necessary toprotect the interest of the Lender in, and to preserve the Collateral,including, the hiring of such security guards or the placing of other securityprotection measures as the Lender deems appropriate, may employ and maintain atany of the Borrowers' premises a custodian who shall have full authority to doall acts necessary to protect the interests of the Lender in the Collateral andmay lease warehouse facilities to which the Lender may move all or any part ofthe Collateral to the extent commercially reasonable. The Borrowers agree tocooperate fully with the Lender's efforts to preserve the Collateral and will



take such actions to preserve the Collateral as the Lender may reasonablydirect. All of the Lender's expenses of preserving the Collateral, including anyreasonable expenses relating to the compensation and bonding of a custodian,shall be part of the Enforcement Costs.

6.1.27 Appraisals.-----------

Whenever a Default or an Event of Default exists, if theLender requests, but not more frequently than once a year, the Borrowers shall,at their expense, provide the Lender with appraisals or updates thereof of anyor all of the Collateral from an appraiser and in form in all respectssatisfactory to the Lender.

Section 6.2 Negative Covenants.-------------------

So long as any of the Obligations or the Revolving Credit Commitmenttherefor shall be outstanding hereunder, the Borrowers agree with the Lenderthat without the prior written consent of the Lender:

6.2.1 Capital Structure, Merger, Acquisition or Sale of-------------------------------------------------Assets.-------

None of the Borrowers will alter or amend its capital structure,authorize any additional class of equity, issue any stock or equity of anyclass, except as permitted under Sections 6.2.2, 6.2.3 and 6.2.6 of thisAgreement, windup or dissolve itself (or suffer any liquidation or dissolution)or acquire all or substantially all the assets of any Person, or sell, lease orotherwise dispose of any of its assets (except Inventory disposed of in theordinary course of business prior to an Event of Default), except that theforegoing shall not prohibit or require the

63

Lender's consent for (i) any Subsidiary's merger into or transfer of assets to aBorrower, or consolidation with or transfer of assets to any other Subsidiary ofa Borrower; (ii) the disposition prior to a Default of tangible propertyincluded in the Collateral, which, in each case, a Borrower determines in goodfaith to be obsolete; (iii) the creation of any Subsidiaries to the extent thenew Subsidiary shall have joined this Agreement as a Additional Borrowerpursuant to Section 8.20 (Joinder of Additional Borrowers); (iv) the conversionof the Debentures into common stock in accordance with their terms; (v) anyWholly-Owned Subsidiary of any Additional Borrower may be merged into orconsolidated with such Additional Borrower in which such Subsidiary is not thesurviving corporation or entity; (vi) Space Media altering or amending itscapital structure, and Space Media and/or the Company issuing additional classesof equity, or issuing additional stock or equity, in connection with SpaceMedia's efforts to raise additional equity; (vii) Space Media's transferring toRSC Energia up to fifty percent (50%) of the membership interests in RSCEnergia/Space Media owned on the Closing Date by Space Media; or (viii) theCompany transferring to RSC Energia up to fifty percent (50%) of the membershipinterests in Space Station Enterprise owned on the Closing Date by the Company.None of the Borrowers will enter into any merger or consolidation oramalgamation without the Lender's prior consent, which consent will not beunreasonably withheld, but which consent will be based on such conditions as theLender deems appropriate in its sole but reasonable discretion. None of theBorrowers nor any of the Subsidiaries will directly or indirectly enter into anyarrangement to sell or transfer all or any substantial part of its fixed assets(other than the Flight Assets on terms and conditions acceptable to the Lender)and thereupon or within one year thereafter rent or lease the assets so sold ortransferred. Any consent of the Lender to the disposition of any assets may beconditioned on a specified use of the proceeds of disposition. Subsidiaries.None of the Borrowers will create or acquire any Subsidiaries other than theSubsidiaries identified on the Collateral Disclosure List or those which jointhis Agreement as an Additional Borrower pursuant to Section 8.20 (Joinder ofAdditional Borrowers), provided that such Subsidiary and the Borrowers, asapplicable, shall grant and cause to be perfected first priority Liens to theLender in the assets held by such Subsidiary, subject only to Permitted Liens.

6.2.2 Issuance of Stock.------------------



None of the Borrowers (other than Space Media) will issue, orgrant any option or right to purchase, any of its capital stock, except aspermitted in Section 6.2.1 and Section 6.2.6, and except that the foregoingshall not prohibit or require the Lender's consent for: (i) the issuance ofstock under any Borrower's employee stock purchase plan as approved by suchBorrower's board of directors; or (ii) the issuance of stock options toemployees, officers and directors of any Borrower as approved by such Borrower'sboard of directors.

6.2.3 Purchase or Redemption of Securities, Dividend----------------------------------------------Restrictions.-------------

None of the Borrowers will purchase, redeem or otherwiseacquire any shares of its capital stock or warrants now or hereafteroutstanding, declare or pay any dividends thereon, apply any of its property orassets to the purchase, redemption or other retirement of, set apart any sum forthe payment of any dividends on, or for the purchase, redemption, or otherretirement of, make any distribution by reduction of capital or otherwise inrespect of, any shares of any class of capital stock of any Borrower, or anywarrants, permit any Subsidiary to purchase

64

or acquire any shares of any class of capital stock of, or warrants issued by,any Borrower, make any distribution to stockholders or set aside any funds forany such purpose, prepay, purchase or redeem any Indebtedness for Borrowed Moneyother than the Obligations, provided, however, if at the time there is noDefault or Event of Default and, after giving effect to the proposed dividends,no Default or Event of Default will occur, (a) a Borrower may declare anddeliver dividends and make distributions payable solely in common stock of suchBorrower; (b) a Borrower may purchase or otherwise acquire shares of its capitalstock by exchange for or out of the proceeds received from a substantiallyconcurrent issue of new shares of its capital stock, and (c) a Borrower maydeclare and pay cash dividends; provided that no Borrower shall declare or payany dividends permitted under this Section 6.2.4 until the Lender has receivedwritten notice from such Borrower at least ten (10) Business Days in advance ofdeclaring or paying any such dividend and has also received such otherinformation as the Lender may have requested in order to verify the amount ofthe proposed dividends and to determine that all of the conditions precedent tothe making of the requested dividends have been satisfied.

6.2.4 Indebtedness.-------------

None of the Borrowers will create, incur, assume or suffer toexist any Indebtedness for Borrowed Money, except:

(a) the Obligations;

(b) current accounts payable arising in the ordinarycourse;

(c) Indebtedness secured by Permitted Liens;

(d) Subordinated Indebtedness;

(e) Indebtedness of the Borrowers and theirSubsidiaries existing on the date hereof and reflected on the financialstatements furnished pursuant to Section 4.1.11 (Financial Condition);

(f) the Debentures;

(g) Indebtedness arising through any extension,renewal or refinancing of any other Indebtedness listed in subsections (a) - (e)above, provided that no collateral of a class other than that which currentlysecures such Indebtedness may be pledged to secure any such Indebtedness andfurther provided that the principal amount thereof does not exceed suchIndebtedness being extended renewed or refinanced;

(h) Indebtedness of any Wholly Owned Subsidiary toanother Wholly Owned Subsidiary or to a Borrower or Indebtedness of any Borrower



to another Borrower;

(i) Indebtedness of Astrotech arising under theAstrotech Loan; and

65

(j) Other Indebtedness not otherwise permittedhereunder, not exceeding Five Hundred Thousand Dollars ($500,000) in theaggregate outstanding at any time, provided no Default or Event of Defaultsexists at the time or as a result of the incurrence of such Indebtedness.

6.2.5 Investments, Loans and Other Transactions.------------------------------------------

Except as otherwise provided in this Agreement, none of theBorrowers will (a) make, assume, acquire or continue to hold any investment inany real property (unless used in connection with its business and treated as aFixed or Capital Asset of any Borrower) or any Person, whether by stockpurchase, capital contribution, acquisition of indebtedness of such Person orotherwise (including, without limitation, investments in any joint venture orpartnership), (b) guaranty or otherwise become contingently liable for theIndebtedness or obligations of any Person, or (c) make any loans or advances, orotherwise extend credit to any Person, except for:

(i) any advance to an officer or employee ofany Borrower or any Subsidiary for travel or other business expensesin the ordinary course of business, provided that the aggregate amountof all such advances by all of the Borrowers and their Subsidiaries(taken as a whole) outstanding at any time shall not exceed TenThousand Dollars ($10,000);

(ii) the endorsement of negotiable instrumentsfor deposit or collection or similar transactions in the ordinarycourse of business;

(iii) any investment in Cash Equivalents, whichare pledged to the Lender as collateral and security for theObligations;

(iv) trade credit extended to customers in theordinary course of business;

(v) investments, guaranties and contingentliabilities existing on the date of this Agreement and set forth inSchedule 6.2.5 hereof;---------------------

(vi) as otherwise permitted in Section 6.2.4hereof;

(vii) investments in an aggregate amount not toexceed Ten Million Dollars ($10,000,000) through conversion of theadvances from the Company to Space Media permitted pursuant to Section6.1.16(d) of this Agreement into equity in Space Media;

(viii) loans to Space Station Enterprise that areapproved by the Lender;

66

(ix) investments in membership interests inSpace Station Enterprise through conversion to equity of all or anypart of the loans referred to in clause (viii) above in this Section6.2.5;

(x) transfer by Space Media to RSC Energia offifty percent (50%) of the membership interest in RSC Energia/SpaceMedia owned on the Closing Date by Space Media; and

(xi) transfer by the Company to RSC Energia offifty percent (50%) of the membership interest in Space StationEnterprise owned on the Closing Date by Space Media.



6.2.6 Stock of Subsidiaries.----------------------

None of the Borrowers will sell or otherwise dispose of anyshares of capital stock of any Subsidiary (except in connection with theproposed equity investment in Space Media as permitted in this Section 6.2.6 andthe transfers of membership interests contemplated in Section 6.2.5 (x) and(xi)), the merger or consolidation of a Wholly Owned Subsidiary into any of theBorrowers or another Wholly Owned Subsidiary of any of the Borrowers or with thedissolution of any Subsidiary) or permit any Subsidiary to issue any additionalshares of its capital stock except pro rata to its stockholders. The Lender and

--- ----the Borrowers agree that the Company may sell shares of capital stock of SpaceMedia in connection with the Company's efforts to raise additional equity forSpace Media. The Lender agrees that after Space Media raises such additionalequity, the Lender will, upon the Company's request and at the Company'sexpense, subject to the terms of this Agreement, release Space Media from allObligations under this Agreement and the Financing Documents to which it is aparty, upon Space Media's satisfaction of certain conditions to be set by theLender, including, without limitation, (a) evidence that Space Media has raisedadditional equity in an amount equal to not less than Ten Million Dollars($10,000,000), (b) confirmation that after such equity has been raised theCompany owns less than fifty percent (50%) of the issued and outstanding stockof Space Media, (c) Space Media shall have either converted all outstandingloans from the Company into equity in Space Media and pledged and delivered suchadditional equity to the Lender, free and clear of any Liens, or to the extentsuch loans are not converted into equity, the Company shall deliver to theLender notes evidencing such remaining indebtedness, free and clear of anyLiens; and (f) no Default or Event of Default shall have occurred and beencontinuing at such time. In addition, it is understood and agreed that therelease of Space Media described above shall not result in the release of any ofthe Stock Collateral.

6.2.7 Subordinated Indebtedness.--------------------------

None of the Borrowers will, or will permit any Subsidiary tomake:

(a) any payment of principal of, or interest on, any of theSubordinated Indebtedness, if a Default or an Event of Default then existshereunder or would result from such payment;

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(b) any payment of the principal or interest due on theSubordinated Indebtedness as a result of acceleration thereunder or a mandatoryprepayment thereunder;

(c) any amendment or modification of or supplement to thedocuments evidencing or securing the Subordinated Indebtedness, other thanamendments or modifications that change terms which are not material; and

(d) payment of principal or interest on the SubordinatedIndebtedness other than when due (without giving effect to any acceleration ofmaturity or mandatory prepayment).

6.2.8 Liens.------

Each Borrower agrees that it (a) will not create, incur,assume or suffer to exist any Lien upon any of its properties or assets,including the Flight Assets (other than Liens on any real property owned by anyBorrower), whether now owned or hereafter acquired, or permit any Subsidiary soto do, except for Liens securing the Obligations and Permitted Liens, (b) willnot agree to, assume or suffer to exist any provision in any instrument or otherdocument for confession of judgment, cognovit or other similar right or remedy(except as existing in any instrument or other document as of the Closing Dateor if existing in such instrument or other documents in any extension, renewalor refinancing of such instrument or other documents as permitted under Section6.2.4, (c) will not allow or suffer to exist any Permitted Liens to be superiorto Liens securing the Obligations, (d) will not enter into any contracts for theconsignment of goods, will not execute or suffer the filing of any financing



statements or the posting of any signs giving notice of consignments, and willnot, as a material part of its business, engage in the sale of goods belongingto others, and (e) will not allow or suffer to exist the failure of any Liendescribed in the Security Documents to attach to, and/or remain at all timesperfected on, any of the property described in the Security Documents.

6.2.9 Transactions with Affiliates.-----------------------------

None of the Borrowers or any of their Subsidiaries will enterinto or participate in any transaction with any Affiliate or, with the officers,directors, employees and other representatives of any Borrower and/or anySubsidiary, except in the ordinary course of business, transfers of membershipinterests to RSC Energia as contemplated in Sections 6.2.1, 6.2.5 and 6.2.6 ofthis Agreement, or as otherwise permitted in this Agreement.

6.2.10 Debenture.----------

None of the Borrowers will, or will permit any Subsidiary tomake:

(a) any amendment or modification of or supplement to theConvertible Debt Loan Documents, other than amendments or modifications thatchange terms which are not material; and

(b) payment of principal or interest on the Debenture otherthan when due (without giving effect to any acceleration of maturity ormandatory prepayment).

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6.2.11 ERISA Compliance.-----------------

None of the Borrowers or any Commonly Controlled Entity shall:(a) engage in or permit any "prohibited transaction" (as defined in ERISA); (b)cause any "accumulated funding deficiency" as defined in ERISA and/or theInternal Revenue Code; (c) terminate any pension plan in a manner which couldresult in the imposition of a lien on the property of any Borrower pursuant toERISA; or (d) incur a complete or partial withdrawal with respect to any Multi-employer Plan.

6.2.12 Prohibition on Hazardous Materials.-----------------------------------

None of the Borrowers shall place, manufacture or store orpermit to be placed, manufactured or stored any Hazardous Materials on anyproperty owned, operated or controlled by any Borrower or for which any Borroweris responsible other than Hazardous Materials placed or stored on such propertyin accordance with applicable Laws in the ordinary course of a Borrower'sbusiness expressly described in this Agreement.

6.2.13 Method of Accounting; Fiscal Year.----------------------------------

Each Borrower agrees that:

(a) it shall not change the method of accountingemployed in the preparation of any financial statements furnished to the Lenderunder the provisions of Section 6.1.1 (Financial Statements), unless required toconform to GAAP or on the advice of the Borrowers' accountants, and on thecondition that the Borrowers' accountants shall furnish such information as theLender may request to reconcile the changes with the Borrowers' prior financialstatements

(b) it will not change its fiscal year from a yearending on June 30/th/.

6.2.14 Compensation.-------------

None of the Borrowers or any Subsidiary will pay any bonuses,fees, compensation, commissions, salaries, drawing accounts, or other payments



(cash and non-cash), whether direct or indirect, to any stockholders of anyBorrower or any Subsidiary, or any Affiliate of any Borrower or any Subsidiary,other than (i) reasonable compensation for actual services rendered bystockholders in their capacity as officers or employees, (ii) dividendsotherwise permitted under this Agreement, (iii) severance arrangements asprovided for in employment contracts in existence as of the Closing Date orapproved in the future by the Lender, (iv) in connection with anyindemnifications provided for in any Borrower's charter documents, (v) anypayments required by law or by court order in settlement of benefits disputes,or (vi) in any contract permitted under this Agreement.

6.2.15 Transfer of Collateral.-----------------------

None of the Borrowers nor any of their Subsidiaries willtransfer, or permit the transfer, to another location of any of the Collateralor the books and records related to any of the Collateral, except in accordancewith Section 6.1.23 of this Agreement.

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6.2.16 Disposition of Collateral.--------------------------

None of the Borrowers will sell, discount, allow credits orallowances, transfer, assign, extend the time for payment on, convey, lease,assign, transfer or otherwise dispose of the Collateral, except, prior to anEvent of Default, dispositions expressly permitted elsewhere in this Agreement,the sale of Inventory in the ordinary course of business, and the sale ofunnecessary or obsolete Equipment, but only if the proceeds of the sale of suchEquipment are (a) used to purchase similar Equipment to replace the unnecessaryor obsolete Equipment or (b) immediately turned over to the Lender forapplication to the Obligations in accordance with the provisions of thisAgreement.

ARTICLE VIIDEFAULT AND RIGHTS AND REMEDIES-------------------------------

Section 7.1 Events of Default.------------------

The occurrence of any one or more of the following events shall constitutean "Event of Default" under the provisions of this Agreement:

7.1.1 Failure to Pay.---------------

The failure of the Borrowers to pay any of the Obligations asand when due and payable in accordance with the provisions of this Agreement,the Notes and/or any of the other Financing Documents and which failure remainsuncured for five (5) Business Days.

7.1.2 Breach of Representations and Warranties.-----------------------------------------

Any representation or warranty made in this Agreement or inany report, statement, schedule, certificate, opinion (including any opinion ofcounsel for the Borrowers), financial statement or other document furnished inconnection with this Agreement, any of the other Financing Documents, or theObligations, shall prove to have been false or misleading when made (or, ifapplicable, when reaffirmed) in any material respect.

7.1.3 Failure to Comply with Covenants.---------------------------------

The failure of the Borrowers to perform, observe or complywith any covenant, condition or agreement contained in Sections 6.1.1, 6.1.2,6.1.3(a), 6.13(b), 6.1.13, 6.1.16 hereof or in Section 6.2 of this Agreement.

7.1.4 Other Covenants----------------

The failure of the Borrowers to perform, observe or comply



with any covenant, condition or agreement contained in this Agreement, otherthan those set forth in Sections 7.1.1, 7.1.2 or 7.1.3 provided, that if suchfailure is capable of cure, then such failure shall constitute an Event ofDefault if such failure is not cured within ten (10) days after notice is givento the Company in accordance with Section 8.1 of this Agreement, providedhowever, that if the Borrowers have commenced and are at all times diligentlyseeking a cure of such Default, but is unable to complete such cure within suchten (10) day period, the Borrower shall have an

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additional twenty (20) days to complete such cure, provided the Borrowers are atall times diligently seeking a cure.

7.1.5 Default Under Other Financing Documents or Obligations.-------------------------------------------------------

A default shall occur under any of the Financing Documentsother than this Agreement or under any other Obligations, and such default isnot cured within any applicable grace period provided therein.

7.1.6 Receiver; Bankruptcy.---------------------

Any Borrower or any Subsidiary shall (a) apply for or consentto the appointment of a receiver, trustee or liquidator of itself or any of itsproperty, (b) admit in writing its inability to pay its debts as they mature,(c) make a general assignment for the benefit of creditors, (d) be adjudicated abankrupt or insolvent, (e) file a voluntary petition in bankruptcy or a petitionor an answer seeking or consenting to reorganization or an arrangement withcreditors or to take advantage of any bankruptcy, reorganization, insolvency,readjustment of debt, dissolution or liquidation law or statute, or an answeradmitting the material allegations of a petition filed against it in anyproceeding under any such law, or take corporate action for the purposes ofeffecting any of the foregoing, (f) by any act indicate its consent to, approvalof or acquiescence in any such proceeding or the appointment of any receiver ofor trustee for any of its property, or suffer any such receivership, trusteeshipor proceeding to continue undischarged for a period of sixty (60) days, or (g)by any act indicate its consent to, approval of or acquiescence in any order,judgment or decree by any court of competent jurisdiction or any GovernmentalAuthority enjoining or otherwise prohibiting the operation of a material portionof any Borrower's or any Subsidiary's business or the use or disposition of amaterial portion of any Borrower's or any Subsidiary's assets.

7.1.7 Involuntary Bankruptcy, etc.----------------------------

(a) An order for relief shall be entered in any involuntarycase brought against any Borrower or any Subsidiary under the Bankruptcy Code,or (b) any such case shall be commenced against any Borrower or any Subsidiaryand shall not be dismissed within sixty (60) days after the filing of thepetition, or (c) an order, judgment or decree under any other Law is entered byany court of competent jurisdiction or by any other Governmental Authority onthe application of a Governmental Authority or of a Person other than anyBorrower or any Subsidiary (i) adjudicating any Borrower, or any Subsidiarybankrupt or insolvent, or (ii) appointing a receiver, trustee or liquidator ofany Borrower or of any Subsidiary, or of a material portion of any Borrower's orany Subsidiary's assets, or (iii) enjoining, prohibiting or otherwise limitingthe operation of a material portion of any Borrower's or any Subsidiary'sbusiness or the use or disposition of a material portion of any Borrower's orany Subsidiary's assets, and such order, judgment or decree continues unstayedand in effect for a period of thirty (30) days from the date entered.

7.1.8 Judgment.---------

Unless adequately insured in the opinion of the Lender, theentry of a final judgment for the payment of money involving more than OneHundred Thousand Dollars ($100,000) against any Borrower or any Subsidiary, andthe failure by such Borrower or such

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Subsidiary to discharge the same, or cause it to be discharged, within thirty(30) days from the date of the order, decree or process under which or pursuantto which such judgment was entered, or to secure a stay of execution pendingappeal of such judgment.

7.1.9 Execution; Attachment.----------------------

Any execution or attachment shall be levied against theCollateral, or any part thereof, and such execution or attachment shall not beset aside, discharged or stayed within thirty (30) days after the same shallhave been levied.

7.1.10 Default Under Other Borrowings.-------------------------------

Default shall be made by any of the Borrowers with respect toany Indebtedness for Borrowed Money in connection with an Indebtedness in anamount in excess of Five Hundred Thousand Dollars ($500,000) (other than theRevolving Credit) if such Indebtedness for Borrowed Money is accelerated inconsequence of such event of default or if demand for payment of suchIndebtedness for Borrowed Money is made.

7.1.11 Challenge to Agreements.------------------------

Any Borrower shall challenge the validity and binding effectof any provision of any of the Financing Documents or shall state its intentionto make such a challenge of any of the Financing Documents or any of theFinancing Documents shall for any reason (except to the extent permitted by itsexpress terms) cease to be effective or to create a valid and perfected firstpriority Lien (except for Permitted Liens) on, or security interest in, any ofthe Collateral purported to be covered thereby.

7.1.12 Material Adverse Effect.------------------------

The Lender, in its sole discretion, determines in good faiththat an event has occurred or a condition has arisen that could result in aMaterial Adverse Effect and gives the Company notice to that effect.

7.1.13 Intentionally Omitted.----------------------

7.1.14 Liquidation, Termination, Dissolution, Change in------------------------------------------------Management, etc.----------------

Any Borrower shall liquidate, dissolve or terminate itsexistence or any change in the identity of the President, Chief FinancialOfficer or Chief Executive Officer of any Borrower or control of any Borrower(other than the Company) without the prior written consent of the Lender.

7.1.15 Contract Default, Debarment or Suspension.------------------------------------------

Default shall be made under any Government Contract, or anyGovernment Contract is terminated for default by any Governmental Authority forany reason whatsoever, or if the Borrower is debarred or suspended, whethertemporarily or permanently, by any Governmental Authority, unless within fifteen(15) days of when any Borrower's has knowledge or should have knowledge of suchdefault, debarment, or suspension, the Lender agrees in writing to extend, waiveor suspend the effects of this provision.

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Section 7.2 Remedies.---------

Upon the occurrence and during the continuance of any Event of Default, theLender may, in the exercise of its sole and absolute discretion from time totime, at any time thereafter exercise any one or more of the following rights,



powers or remedies.

7.2.1 Acceleration.-------------

The Lender may after oral notice to the Company, declare anyor all of the Obligations to be immediately due and payable, notwithstandinganything contained in this Agreement or in any of the other Financing Documentsto the contrary, without presentment, demand, protest, notice of protest or ofdishonor, or other notice of any kind, all of which the Borrowers hereby waive.

7.2.2 Further Advances.-----------------

The Lender may from time to time without notice to theBorrowers suspend, terminate or limit any further advances, loans or otherextensions of credit under the Revolving Credit Commitment, under this Agreementand/or under any of the other Financing Documents. Further, upon the occurrenceof an Event of Default or Default specified in Sections 7.1.6 (Receiver;Bankruptcy) or 7.1.7 (Involuntary Bankruptcy, etc.), the Revolving CreditCommitment and any agreement in any of the Financing Documents to provideadditional credit shall immediately and automatically terminate and the unpaidprincipal amount of the Notes (with accrued interest thereon) and all otherObligations then outstanding, shall immediately become due and payable withoutfurther action of any kind and without presentment, demand, protest or notice ofany kind, all of which are hereby expressly waived by the Borrowers.

7.2.3 Uniform Commercial Code.------------------------

The Lender shall have all of the rights and remedies of asecured party under the applicable Uniform Commercial Code and other applicableLaws. Upon demand by the Lender, the Borrowers shall assemble the Collateral andmake it available to the Lender, at a place designated by the Lender. The Lenderor its agents may without notice from time to time enter upon any Borrower'spremises to take possession of the Collateral, to remove it, to render itunusable, to process it or otherwise prepare it for sale, or to sell orotherwise dispose of it.

Any written notice of the sale, disposition or other intendedaction by the Lender with respect to the Collateral which is sent by regularmail, postage prepaid, to the Borrowers at the address set forth in Section 8.1(Notices), or such other address of the Borrowers which may from time to time beshown on the Lender's records, at least ten (10) days prior to such sale,disposition or other action, shall constitute commercially reasonable notice tothe Borrowers. The Lender may alternatively or additionally give such notice inany other commercially reasonable manner. Nothing in this Agreement shallrequire the Lender to give any notice not required by applicable Laws.

If any consent, approval, or authorization of any state,municipal or other Governmental Authority or of any other Person or of anyPerson having any interest therein, should be necessary to effectuate any saleor other disposition of the Collateral, the Borrowers

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agree to execute all such applications and other instruments, and to take allother action, as may be required in connection with securing any such consent,approval or authorization.

The Borrowers recognize that the Lender may be unable toeffect a public sale of all or a part of the Collateral consisting of Securitiesby reason of certain prohibitions contained in the Securities Act of 1933, asamended, and other applicable Federal and state Laws. The Lender may, therefore,in its discretion, take such steps as it may deem appropriate to comply withsuch Laws and may, for example, at any sale of the Collateral consisting ofsecurities restrict the prospective bidders or purchasers as to their number,nature of business and investment intention, including, without limitation, arequirement that the Persons making such purchases represent and agree to thesatisfaction of the Lender that they are purchasing such securities for theiraccount, for investment, and not with a view to the distribution or resale ofany thereof. The Borrowers covenant and agree to do or cause to be done promptlyall such acts and things as the Lender may request from time to time and as maybe necessary to offer and/or sell the securities or any part thereof in a manner



which is valid and binding and in conformance with all applicable Laws. Upon anysuch sale or disposition, the Lender shall have the right to deliver, assign andtransfer to the purchaser thereof the Collateral consisting of securities sosold.

7.2.4 Specific Rights With Regard to Collateral.------------------------------------------

In addition to all other rights and remedies providedhereunder or as shall exist at law or in equity from time to time, the Lendermay (but shall be under no obligation to), without notice to any of theBorrowers, and each Borrower hereby irrevocably appoints the Lender as itsattorney-in-fact, with power of substitution, in the name of the Lender and/orin the name of any or all of the Borrowers or otherwise, for the use and benefitof the Lender, but at the cost and expense of the Borrowers and without noticeto the Borrowers:

(a) request any Account Debtor obligated on any of theAccounts to make payments thereon directly to the Lender, with the Lender takingcontrol of the cash and non-cash proceeds thereof;

(b) compromise, extend or renew any of the Collateral ordeal with the same as it may deem advisable;

(c) make exchanges, substitutions or surrenders of all orany part of the Collateral;

(d) copy, transcribe, or remove from any place of businessof any Borrower or any Subsidiary all books, records, ledger sheets,correspondence, invoices and documents, relating to or evidencing any of theCollateral or without cost or expense to the Lender, make such use of anyBorrower's or any Subsidiary's place(s) of business as may be reasonablynecessary to administer, control and collect the Collateral;

(e) repair, alter or supply goods if necessary to fulfillin whole or in part the purchase order of any Account Debtor;

(f) demand, collect, receipt for and give renewals,extensions, discharges and releases of any of the Collateral;

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(g) institute and prosecute legal and equitable proceedingsto enforce collection of, or realize upon, any of the Collateral;

(h) settle, renew, extend, compromise, compound, exchangeor adjust claims in respect of any of the Collateral or any legal proceedingsbrought in respect thereof;

(i) endorse or sign the name of any Borrower upon any itemsof payment, certificates of title, instruments, securities, stock powers,documents, documents of title, financing statements, assignments, notices orother writing relating to or part of the Collateral and on any proof of claim inbankruptcy against an Account Debtor;

(j) notify the Post Office authorities to change theaddress for the delivery of mail to the Borrowers to such address or Post OfficeBox as the Lender may designate and receive and open all mail addressed to anyof the Borrowers; and

(k) take any other action necessary or beneficial torealize upon or dispose of the Collateral or to carry out the terms of thisAgreement.

7.2.5 Application of Proceeds.------------------------

Any proceeds of sale or other disposition of the Collateralwill be applied by the Lender to the payment of any and all Enforcement Costs,and any balance of such proceeds will be applied to the Obligations in suchorder and manner as the Lender may from time to time in its sole and absolutediscretion determine. If the sale or other disposition of the Collateral failsto fully satisfy the Obligations, the Borrowers shall remain liable to theLender for any deficiency.



7.2.6 Performance by Lender.----------------------

If the Borrowers shall fail to pay the Obligations orotherwise fail to perform, observe or comply with any of the conditions,covenants, terms, stipulations or agreements contained in this Agreement or anyof the other Financing Documents, the Lender without notice to or demand uponthe Borrowers and without waiving or releasing any of the Obligations or anyDefault or Event of Default, may (but shall be under no obligation to) at anytime thereafter make such payment or perform such act for the account and at theexpense of the Borrowers, and may enter upon the premises of the Borrowers forthat purpose and take all such action thereon as the Lender may considernecessary or appropriate for such purpose and each of the Borrowers herebyirrevocably appoints the Lender as its attorney-in-fact to do so, with power ofsubstitution, in the name of the Lender, in the name of any or all of theBorrowers or otherwise, for the use and benefit of the Lender, but at the costand expense of the Borrowers and without notice to the Borrowers. All sums sopaid or advanced by the Lender together with interest thereon from the date ofpayment, advance or incurring until paid in full at the Post-Default Rate andall costs and expenses, shall be deemed part of the Enforcement Costs, shall bepaid by the Borrowers to the Lender on demand, and shall constitute and become apart of the Obligations.

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7.2.7 Other Remedies.---------------

The Lender may from time to time proceed to protect or enforcethe rights of the Lender by an action or actions at law or in equity or by anyother appropriate proceeding, whether for the specific performance of any of thecovenants contained in this Agreement or in any of the other FinancingDocuments, or for an injunction against the violation of any of the terms ofthis Agreement or any of the other Financing Documents, or in aid of theexercise or execution of any right, remedy or power granted in this Agreement,the Financing Documents, and/or applicable Laws. The Lender is authorized tooffset and apply to all or any part of the Obligations all moneys, credits andother property of any nature whatsoever of any or all of the Borrowers now or atany time hereafter in the possession of, in transit to or from, under thecontrol or custody of, or on deposit with, the Lender or any Affiliate of theLender.

ARTICLE VIIIMISCELLANEOUS-------------

Section 8.1 Notices.--------

All notices, requests and demands to or upon the parties to this Agreementshall be in writing and shall be deemed to have been given or made whendelivered by hand on a Business Day, or two (2) days after the date whendeposited in the mail, postage prepaid by registered or certified mail, returnreceipt requested, or when sent by overnight courier, on the Business Day nextfollowing the day on which the notice is delivered to such overnight courier,addressed as follows:

Borrowers: c/o Spacehab, IncorporatedSpacehab, Inc.300 D Street, SW, Suite 814Washington, D. C. 20024Attention: Chief Financial Officer

Lender: Bank of America, N. A.8300 Greensboro Drive, Suite 550McLean, Virginia 22102Attn: Lawrence J. Shufelt, VP

By written notice, each party to this Agreement may change the address towhich notice is given to that party, provided that such changed notice shallinclude a street address to which notices may be delivered by overnight courierin the ordinary course on any Business Day.



Section 8.2 Amendments; Waivers.--------------------

8.2.1 In General.-----------

This Agreement and the other Financing Documents may not beamended, modified, or changed in any respect except by an agreement in writingsigned by the Lender and the Borrowers. No waiver of any provision of thisAgreement or of any of the other Financing Documents, nor consent to anydeparture by the Borrowers therefrom, shall in any event be effective unless thesame shall be in writing signed by the Lender. No course of dealing between theBorrowers and the Lender and no act or failure to act from time to time on thepart of the

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Lender shall constitute a waiver, amendment or modification of any provision ofthis Agreement or any of the other Financing Documents or any right or remedyunder this Agreement, under any of the other Financing Documents or underapplicable Laws.

Section 8.3 Cumulative Remedies.--------------------

The rights, powers and remedies provided in this Agreement and in the otherFinancing Documents are cumulative, may be exercised concurrently or separately,may be exercised from time to time and in such order as the Lender shalldetermine, subject to the provisions of this Agreement, and are in addition to,and not exclusive of, rights, powers and remedies provided by existing or futureapplicable Laws. In order to entitle the Lender to exercise any remedy reservedto it in this Agreement, it shall not be necessary to give any notice, otherthan such notice as may be expressly required in this Agreement.

Section 8.4 Severability.-------------

In case one or more provisions, or part thereof, contained in thisAgreement or in the other Financing Documents shall be invalid, illegal orunenforceable in any respect under any Law, then without need for any furtheragreement, notice or action:

(a) the validity, legality and enforceability of theremaining provisions shall remain effective and binding on the parties theretoand shall not be affected or impaired thereby;

(b) the obligation to be fulfilled shall be reduced to thelimit of such validity;

(c) if such provision or part thereof pertains to repaymentof the Obligations, then, at the sole and absolute discretion of the Lender, allof the Obligations of the Borrowers to the Lender shall become immediately dueand payable; and

(d) if the affected provision or part thereof does notpertain to repayment of the Obligations, but operates or would prospectivelyoperate to invalidate this Agreement in whole or in part, then such provision orpart thereof only shall be void, and the remainder of this Agreement shallremain operative and in full force and effect.

Section 8.5 Assignments by Lender.----------------------

The Lender may, without notice to or consent of the Borrowers, assign toany Person (an "Assignee") all of the Lender's Revolving Credit Commitment,provided that prior to any Default or Event of Default, such Assignee will be acommercial bank. The Lender and its Assignee shall notify the Borrowers inwriting of the date on which the assignment is to be effective (the "AdjustmentDate"). On or before the Adjustment Date, the assigning Lender, the Borrowersand the respective Assignee shall execute and deliver a written assignmentagreement in a form acceptable to the Lender, which shall constitute anamendment to this Agreement to the extent necessary to reflect such assignment.Upon the request of any assigning Lender following an assignment made inaccordance with this Section 8.5, the Borrowers shall issue new Notes to



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the Assignee reflecting such assignment, in exchange for the existing Notes heldby the assigning Lender.

In addition, the Lender may at any time pledge all or any portion of theLender's rights under this Agreement, the Revolving Credit Commitment or any ofthe Obligations to a Federal Reserve Bank.

Section 8.6 Participations by Lender.-------------------------

The Lender may at any time sell to one or more financial institutionsparticipating interests in any of the Lender's Obligations or Revolving CreditCommitment; provided, however, that (a) no such participation shall relieve theLender from its obligations under this Agreement or under any of the otherFinancing Documents to which it is a party, (b) the Lender shall remain solelyresponsible for the performance of its obligations under this Agreement andunder all of the other Financing Documents to which it is a party, and (c) theBorrowers shall continue to deal solely and directly with the Lender inconnection with the Lender's rights and obligations under this Agreement and theother Financing Documents.

Section 8.7 Disclosure of Information by Lender.------------------------------------

In connection with any sale, transfer, assignment or participation by theLender in accordance with Section 8.5 (Assignments by Lender) or Section 8.6(Participations by Lender), the Lender shall have the right to disclose to anyactual or potential purchaser, assignee, transferee or participant all financialrecords, information, reports, financial statements and documents obtained inconnection with this Agreement and/or any of the other Financing Documents orotherwise.

Section 8.8 Successors and Assigns.-----------------------

This Agreement and all other Financing Documents shall be binding upon andinure to the benefit of the Borrowers and the Lender and their respectivesuccessors and assigns, except that the Borrowers shall not have the right toassign their rights hereunder or any interest herein without the prior writtenconsent of the Lender.

Section 8.9 Continuing Agreements.----------------------

All covenants, agreements, representations and warranties made by theBorrowers in this Agreement, in any of the other Financing Documents, and in anycertificate delivered pursuant hereto or thereto shall survive the making by theLender of the Revolving Credit and the execution and delivery of the Notes,shall be binding upon the Borrowers regardless of how long before or after thedate hereof any of the Obligations were or are incurred, and shall continue infull force and effect so long as any of the Obligations are outstanding andunpaid. From time to time upon the Lender's request, and also as a condition ofthe release of any one or more of the Security Documents, the Borrowers andother Persons obligated with respect to the Obligations shall provide the Lenderwith such acknowledgments and agreements as the Lender may require, to theeffect that there exists no defenses, rights of setoff or recoupment, claims,counterclaims, actions or causes of action of any kind or nature whatsoeveragainst the Lender and/or any of its agents and others, or to the extent thereare, the same are waived and released, including, without

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limitation, acknowledgements as to all of the matters set forth in Section2.3.12 of this Agreement,.

Section 8.10 Enforcement Costs.------------------

The Borrowers agree to pay to the Lender on demand all Enforcement Costs,together with interest thereon from the date incurred or advanced until paid in



full at a per annum rate of interest equal at all times to the Post-DefaultRate. Enforcement Costs shall be due and payable on demand. The provisions ofthis Section shall survive the execution and delivery of this Agreement, therepayment of the other Obligations and shall survive the termination of thisAgreement.

Section 8.11 Applicable Law; Jurisdiction.-----------------------------

8.11.1 Applicable Law.---------------

Borrowers acknowledge and agree that the Financing Documents,including, this Agreement, shall be governed by the Laws of the State, as ifeach of the Financing Documents and this Agreement had each been executed,delivered, administered and performed solely within the State even though forthe convenience and at the request of the Borrowers, one or more of theFinancing Documents may be executed elsewhere. The Lender acknowledges,however, that remedies under certain of the Financing Documents that relate toproperty outside the State may be subject to the laws of the state in which theproperty is located.

8.11.2 Submission to Jurisdiction.---------------------------

The Borrowers irrevocably submit to the jurisdiction of anystate or federal court sitting in the State over any suit, action or proceedingarising out of or relating to this Agreement or any of the other FinancingDocuments. Each of the Borrowers irrevocably waives, to the fullest extentpermitted by law, any objection that it may now or hereafter have to the layingof the venue of any such suit, action or proceeding brought in any such courtand any claim that any such suit, action or proceeding brought in any such courthas been brought in an inconvenient forum. Final judgment in any such suit,action or proceeding brought in any such court shall be conclusive and bindingupon the Borrowers and may be enforced in any court in which the Borrowers aresubject to jurisdiction, by a suit upon such judgment, provided that service ofprocess is effected upon the Borrowers in one of the manners specified in thisSection or as otherwise permitted by applicable Laws.

8.11.3 Appointment of Agent for Service of Process.--------------------------------------------

The Borrowers hereby irrevocably designate and appoint JuliaA. Pulzone, c/o Spacehab, Incorporated, 300 D street, SW, Suite 814, Washington,DC 20014 as each Borrower's authorized agent to receive on each Borrower'sbehalf service of any and all process that may be served in any suit, action orproceeding of the nature referred to in this Section in any state or federalcourt sitting in the State. If such agent shall cease so to act, the Borrowersshall irrevocably designate and appoint without delay another such agent in theState satisfactory to the Lender and shall promptly deliver to the Lenderevidence in writing of such other agent's acceptance of such appointment and itsagreement that such appointment shall be irrevocable.

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8.11.4 Service of Process.-------------------

Each of the Borrowers hereby consents to process being servedin any suit, action or proceeding of the nature referred to in this Section by(a) the mailing of a copy thereof by registered or certified mail, postageprepaid, return receipt requested, to the Borrower at the Borrower's addressdesignated in or pursuant to Section 8.1 (Notices), and (b) serving a copythereof upon the agent, if any, designated and appointed by the Borrower as theBorrower's agent for service of process by or pursuant to this Section. TheBorrowers irrevocably agree that such service (y) shall be deemed in everyrespect effective service of process upon the Borrowers in any such suit, actionor proceeding, and (z) shall, to the fullest extent permitted by law, be takenand held to be valid personal service upon the Borrowers. Nothing in thisSection shall affect the right of the Lender to serve process in any mannerotherwise permitted by law or limit the right of the Lender otherwise to bringproceedings against the Borrowers in the courts of any jurisdiction orjurisdictions.



Section 8.12 Duplicate Originals and Counterparts.-------------------------------------

This Agreement may be executed in any number of duplicate originals orcounterparts, each of such duplicate originals or counterparts shall be deemedto be an original and all taken together shall constitute but one and the sameinstrument.

Section 8.13 Headings.---------

The headings in this Agreement are included herein for convenience only,shall not constitute a part of this Agreement for any other purpose, and shallnot be deemed to affect the meaning or construction of any of the provisionshereof.

Section 8.14 No Agency.----------

Nothing herein contained shall be construed to constitute the Borrowers asthe agent of the Lender for any purpose whatsoever or to permit the Borrowers topledge any of the credit of the Lender. The Lender shall not be responsible orliable for any shortage, discrepancy, damage, loss or destruction of any part ofthe Collateral wherever the same may be located and regardless of the causethereof. The Lender shall not, by anything herein or in any of the FinancingDocuments or otherwise, assume any of the Borrowers' obligations under anycontract or agreement assigned to the Lender, and the Lender shall not beresponsible in any way for the performance by the Borrowers of any of the termsand conditions thereof.

Section 8.15 Date of Payment.----------------

Should the principal of or interest on the Notes become due and payable onother than a Business Day, the maturity thereof shall be extended to the nextsucceeding Business Day and in the case of principal, interest shall be payablethereon at the rate per annum specified in the Notes during such extension.

Section 8.16 Entire Agreement.-----------------

This Agreement is intended by the Lender and the Borrowers to be acomplete, exclusive and final expression of the agreements contained herein.Neither the Lender nor the Borrowers shall hereafter have any rights under anyprior agreements pertaining to the matters addressed by

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this Agreement but shall look solely to this Agreement for definition anddetermination of all of their respective rights, liabilities andresponsibilities under this Agreement.

Section 8.17 Waiver of Trial by Jury.------------------------

EACH OF THE BORROWERS AND THE LENDER HEREBY WAIVES TRIAL BY JURY IN ANYACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES ARISINGOUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCINGDOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BYJURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDINGCLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT.

This waiver is knowingly, willingly and voluntarily made by the Borrowersand the Lender, and the Borrowers and the Lender hereby represent that norepresentations of fact or opinion have been made by any individual to inducethis waiver of trial by jury or to in any way modify or nullify its effect. TheBorrowers and the Lender further represent that they have been represented inthe signing of this Agreement and in the making of this waiver by independentlegal counsel, selected of their own free will, and that they have had theopportunity to discuss this waiver with counsel.

Section 8.18 Liability of the Lender.------------------------



The Borrowers hereby agree that the Lender shall not be chargeable for anynegligence, mistake, act or omission of any accountant, examiner, agency orattorney employed by the Lender in making examinations, investigations orcollections, or otherwise in perfecting, maintaining, protecting or realizingupon any lien or security interest or any other interest in the Collateral orother security for the Obligations.

By inspecting the Collateral or any other properties of the Borrowers or byaccepting or approving anything required to be observed, performed or fulfilledby the Borrowers or to be given to the Lender pursuant to this Agreement or anyof the other Financing Documents, the Lender shall not be deemed to havewarranted or represented the condition, sufficiency, legality, effectiveness orlegal effect of the same, and such acceptance or approval shall not constituteany warranty or representation with respect thereto by the Lender.

Section 8.19 Indemnification.---------------

The Borrowers agrees to indemnify and hold harmless, Lender, the respectiveparent and Affiliates of the Lender and the respective parent's and Affiliates'officers, directors, shareholders, employees and agents (each an "IndemnifiedParty," and collectively, the "Indemnified Parties"), from and against any andall claims, liabilities, losses, damages, costs and expenses (whether or notsuch Indemnified Party is a party to any litigation), including withoutlimitation, reasonable attorney's fees and costs and costs of investigation,document production, attendance at depositions or other discovery, incurred byany Indemnified Party with respect to, arising out of or as a consequence of (a)this Agreement or any of the other Financing Documents, including withoutlimitation, any failure of the Borrowers to pay when due (at maturity, byacceleration or otherwise) any principal, interest, fee or any other amount dueunder

81

this Agreement or the other Financing Documents, or any other Event of Default;(b) the use by the Borrowers of any proceeds advanced hereunder; (c) thetransactions contemplated hereunder; or (d) any claim, demand, action or causeof action being asserted against (i) the Borrowers or any of their Affiliates byany other Person, or (ii) any Indemnified Party by the Borrowers in connectionwith the transactions contemplated hereunder. Notwithstanding anything herein orelsewhere to the contrary, the Borrowers shall not be obligated to indemnify orhold harmless any Indemnified Party from any liability, loss or damage resultingfrom the gross negligence, willful misconduct or unlawful actions of suchIndemnified Party. Any amount payable to the Lender under this Section will bearinterest at the Post- Default Rate from the due date until paid.

Section 8.20 Joinder of Additional Borrowers.-------------------------------

Any Additional Borrower which is required to join this Agreement as anAdditional Borrower pursuant to Section 6.2.1 (Subsidiaries) shall execute anddeliver to the Lender (i) an Additional Borrower Joinder Supplement insubstantially the form attached hereto as EXHIBIT A pursuant to which it shall

---------join as a Borrower each of the documents to which the Borrowers are parties and(ii) all documents necessary to grant and perfect a first lien security interestto the Lender in all Collateral held by such Additional Borrower, subject onlyto Permitted Liens. The Company shall at its expense deliver such AdditionalBorrower Joinder Supplement, and related documents, including, withoutlimitation, Uniform Commercial Code financing statements, lien searches, andresolutions, to the Lender within fifteen (15) days after the date of the filingof such Additional Borrower's articles of incorporation if the AdditionalBorrower is a corporation, the date of the filing of its certificate of limitedpartnership if it is a limited partnership or the date of its organization if itis an entity other than a limited partnership or corporation.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, each of the parties hereto have executed and deliveredthis Agreement under their respective seals as of the day and year first writtenabove.



WITNESS/ATTEST: SPACEHAB, INCORPORATED

_________________________ By:____________________________(Seal)Julia A. PulzoneChief Financial Officer

WITNESS/ATTEST JOHNSON ENGINEERING CORPORATION


WITNESS/ATTEST: ASTROTECH SPACE OPERATIONS, INC.


WITNESS/ATTEST: SPACE MEDIA, INC.


83

WITNESS: BANK OF AMERICA, N. A.

_________________________ By:____________________________(Seal)Douglas T. BrownSenior Vice President

84

LIST OF EXHIBITS----------------

A. Additional Borrower Joinder Supplement

B. Revolving Credit Note

C. Wire Transfer Procedures

D. Subsidiaries

E. Form of Compliance Certificate

LIST OF SCHEDULES-----------------

Schedule 4.1.10 Litigation

Schedule 4.1.13 Indebtedness for Borrowed Money

Schedule 4.1.19 Employee Relations

Schedule 4.1.20 Hazardous Materials

Schedule 4.1.21 Perfection and Priority of Collateral



Schedule 6.1.13 Description of Operations Involving Hazardous Materials

Schedule 6.2.5 Investments and Loans as of Closing Date

EXHIBIT E---------

FINANCING AGREEMENT-------------------

COMPLIANCE CERTIFICATE----------------------

THIS CERTIFICATE is made as of __________________, 200_, by Spacehab,Incorporated, a corporation organized under the laws of the State of Washington(the "Company"), to Bank of America, N.A., a national banking association (the"Lender"), pursuant to Section _________of the Financing and Security Agreementdated August 9, 2000, (as amended, modified, restated, substituted, extended andrenewed at any time and from time to time, the "Financing Agreement") by andbetween the Company, the Borrowers named therein and the Lender.

I, ____________________, hereby certify that I am the ______________ of theCompany and am a Responsible Officer (as that term is defined in the FinancingAgreement) authorized to certify to the Lender on behalf the Borrowers asfollows:

(a) This Certificate is given to induce the Lender to makeadvances to the Borrowers under the Financing Agreement.

(b) This Certificate accompanies the consolidated financialstatements for the period ended ___________________, 200__ (the "CurrentFinancials") which the Company is furnishing to the Lender pursuant to Section6.1.1(__) of the Financing Agreement. The Current Financials have been preparedin accordance with GAAP (as that term is defined in the Financing Agreement).

(c) As required by Section 6.1.1(__) of the Financing Agreement,I have set forth on Schedule 1 a detailed computation of each financial covenant

----------in the Financing Agreement and a cash flow projection report.

(d) No change has occurred to the information contained in theCollateral Disclosure List except as set forth on Schedule 2 to this

----------Certificate. By way of example and not limitation, the Collateral DisclosureList, together with Schedule _, contains a listing of all of the locations

----------(owned, leased, warehouses or otherwise) where any Collateral (as that term isdefined in the Financing Agreement) is located, all Subsidiaries (as that termis defined in the Financing Agreement).

(e) As of the date hereof, there exists no Default or Event ofDefault, as defined in the Article 7 of the Financing Agreement.

(f) On the date hereof, the representations and warrantiescontained in Article 4 of the Financing Agreement are true with the same effectas though such representations and warranties had been made on the date hereof.

WITNESS my signature this _____ day of ____________, 200_.


BY: ______________________________Name:Title:

EXHIBIT C---------

BANK OF AMERICA BUSINESS CREDIT



WIRE TRANSFER PROCEDURES

The transfer of funds by means of wire may be made by Bank of America(lender) at the request of its customer (borrower). Such wire transfers arecategorized by lender as either repetitive or non-repetitive.

Repetitive:----------

Repetitive wire transfers may vary in amount, but are consistent in termsof the payee, the location to which funds are wired, the bank name, accountnumber and the routing transit number.

Either borrower or lender may initiate a repetitive wire transfer. Theborrower may identify the repetitive nature of transfers and request they beestablished as such via the "Repetitive Wire Transfer Authorization Form" (copyattached). Lender, after observing numerous transfers to the same recipient anddestination, may initiate the repetitive process by faxing or mailing the"Repetitive Wire Authorization Form" to the borrower for completion and return.

Although a first request for a repetitive wire transfer may be honored froma faxed copy of the "Repetitive Wire Transfer Authorization Form", a copy of theform containing an original signature must be received from the borrower. Alltransfer authorization forms must be approved by and contain the signature of aperson authorized by the borrower to advance funds from borrower's line ofcredit with the lender.

After receipt of the original "Repetitive Wire Transfer Authorization Form"by the lender, subsequent wire transfers to the recipient named thereon may beinitiated by telephone request, provided the requesting party is identified bythe lender as a person authorized by borrower to advance funds from theborrower's line of credit with lender.

Non-Repetitive:--------------

Non-Repetitive wire transfers are directed to recipients on a one-time orinfrequent basis or are directed to varied destinations. Non-repetitive wiretransfers require that written notification be provided to lender by borrower,showing payee, location, account number, routing transit number and name andlocation of bank into which funds are to be transferred. Such writtennotification may be provided by means of a "Non-Repetitive Wire TransferAuthorization Form" (copy attached).

Required information may be faxed to lender in order to expedite thetransfer; however, a copy of the transfer authorization form with an originalsignature(s) must be received by lender from borrower. The transferauthorization form must be approved by and contain the signature

of a person authorized by the borrower to advance funds from borrower's line ofcredit with the lender.

For any non-repetitive wire transfer, Lender may, at its discretion,perform a telephone verification with an authorized representative (the originalsigner or another authorized representative) of borrower prior to initiating thetransfer.


REPETITIVE WIRE TRANSFER AUTHORIZATION

CUSTOMER INFORMATION

Customer Name:______________________________ Date: _______________

Name of Person Authorizing Transfer for Customer: ____________________________

Note: Must be PersonAuthorized to Advance Funds

Signature of Person Authorizing Transfer for Customer: _________________________

PAYEE



Name of Recipient of Funds: ____________________________________________________

Location: ______________________________________________________________________

Account Number into Which Funds are to be Transferred: _________________________

DESTINATION OF FUNDS

Name and Location of Bank Receiving Funds:

Bank Name: _____________________________________________________________________

Routing Information (ABA Number): ______________________________________________

Bank Location: City: ____________________________________________

State: ____________________________________________

(for International Wires) Country: _____________________________________________

Special Instructions: __________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

BANK USE ONLY

Business Credit Department

Business Credit Authorization: _________________________________________________

Print name of person at Bank approved to authorize Wire Transfers

Business Credit Authorization: _____________________________________________

Signature of person at Bank approved to authorize Wire Transfers

WIRE TRANSFER DEPARTMENT

F.D. Number Assigned: _____________________________________________

Account Number to Debit: __________________________________________


NON-REPETITIVE WIRE TRANSFER AUTHORIZATION

CUSTOMER INFORMATION

Customer Name: ___________________________ Date: _______________________

Name of Person Authorizing Transfer for Customer: _______________________

Note: Must be Person Authorized toAdvance Funds

Signature of Person Authorizing Transfer for Customer: __________________

PAYEE

Name of Recipient of Funds: _____________________________________________

Location: _______________________________________________________________

Account Number into Which Funds are to be Transferred: __________________

DESTINATION OF FUNDS

Name and Location of Bank Receiving Funds:

Bank Name: ______________________________________________________________



Routing Information (ABA Number): _______________________________________

Bank Location: City: __________________________________

State: ___________________________________

(for International Wires) Country: ______________________________________

Special Instructions: ___________________________________________________

_________________________________________________________________________

_________________________________________________________________________



EXHIBIT 23

ACCOUNTANTS' CONSENT

The Board of DirectorsSPACEHAB, Incorporated and Subsidiaries:

We consent to incorporation by reference in the registration statements (Nos.333-3634, 333-3636, 333-3638, 333-36779, 333-43159, and 333-43181) on Form S-8and the registration statement (No. 333-43221) on Form S-3 of SPACEHAB,Incorporated and subsidiaries of our report dated August 31, 2000, relating tothe consolidated balance sheets of SPACEHAB, Incorporated and subsidiaries as ofJune 30, 2000 and 1999, and the related consolidated statements of operations,stockholders' equity, and cash flows for each of the years in the three-yearperiod ended June 30, 2000, which report appears in the June 30, 2000 annualreport on Form 10-K of SPACEHAB, Incorporated and subsidiaries.

/s/ KPMG LLP

McLean, VirginiaSeptember 11, 2000



<TABLE> <S> <C>

<ARTICLE> 5<CIK> 0001001907<NAME> SPACEHAB, INC.<MULTIPLIER> 1,000

<S> <C><PERIOD-TYPE> 12-MOS<FISCAL-YEAR-END> JUN-30-2000<PERIOD-START> JUL-01-1999<PERIOD-END> JUN-30-2000<CASH> 6,949<SECURITIES> 0<RECEIVABLES> 25,798<ALLOWANCES> 0<INVENTORY> 0<CURRENT-ASSETS> 35,075<PP&E> 215,064<DEPRECIATION> 56,380<TOTAL-ASSETS> 225,109<CURRENT-LIABILITIES> 36,676<BONDS> 0<PREFERRED-MANDATORY> 0<PREFERRED> 11,892<COMMON> 82,074<OTHER-SE> 16<TOTAL-LIABILITY-AND-EQUITY> 225,109<SALES> 105,708<TOTAL-REVENUES> 105,708<CGS> 87,931<TOTAL-COSTS> 87,931<OTHER-EXPENSES> 20,272<LOSS-PROVISION> 0<INTEREST-EXPENSE> 3,773<INCOME-PRETAX> (5,606)<INCOME-TAX> (1,762)<INCOME-CONTINUING> (3,844)<DISCONTINUED> 0<EXTRAORDINARY> 0<CHANGES> 0<NET-INCOME> (3,844)<EPS-BASIC> (0.34)<EPS-DILUTED> (0.34)

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