SECOND AMENDED AND RESTATED


LOAN AND SECURITY AGREEMENT


 


June 30, 2014


 


THIS SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (as amended, supplemented or modified from time to time, this "Agreement"), is between UNITED BANK,
a Virginia banking corporation; and VERSAR, INC. a Delaware corporation, GEOMET TECHNOLOGIES, LLC, a Maryland limited liability
company, VERSAR INTERNATIONAL, INC., a Delaware corporation, formerly known as VIAP, Inc., CHARRON CONSTRUCTION CONSULTING, INCORPORATED,
a Virginia corporation, GEO-MARINE, INC., a Texas corporation, and J.M. WALLER ASSOCIATES, INC., a Virginia corporation.


 


WHEREAS, the Bank is the owner and holder
of that certain Amended and Restated Revolving Commercial Note dated September 13, 2012, in the original principal amount of Fifteen
Million and No/100 Dollars ($15,000,000.00), made by the Borrower payable to the order of the Bank and bearing interest and being
payable in accordance with the terms and conditions therein set forth (as modified by a certain First Modification Agreement dated
as of December 12, 2013, the “Original Note”); and


 


WHEREAS, the Original Note is issued pursuant
to the terms of, and secured by, a certain Amended and Restated Loan and Security Agreement dated September 13, 2012, between Versar,
Inc., Versar International, Inc., GEOMET Technologies, LLC, and Charron Construction Consulting, Incorporated, as borrowers, and
the Bank (as modified by the modification referenced in the previous Recital, the “Original Loan Agreement”); and


 


WHEREAS, pursuant to a certain Joinder Agreement
dated as of December 12, 2013, Geo-Marine, Inc., a Texas corporation, was added as a “Borrower” under the Original
Note and the Original Loan Agreement; and


 


WHEREAS, Versar, Inc., a Delaware corporation
(“Versar”) has agreed to purchase all of the issued and outstanding stock of J.M. Waller Associates, Inc., a Virginia
corporation (“Waller”); and


 


WHEREAS, the Borrower and the Bank have
agreed to add Waller as a “Borrower” under this Agreement and the Notes, and to modify, amend and restate the terms
and conditions of the Original Note and the Original Loan Agreement, subject to the execution of this Agreement and the satisfaction
of the conditions specified herein; and


 


WHEREAS, contemporaneously with the execution
and delivery of this Agreement, the Borrower has executed and delivered to the Bank the Revolving Note (defined below), in order
to amend and restate the Original Note in its entirety, and the Term Note (defined below).


 


NOW, THEREFORE, for Ten and No/100 Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the terms of the Original Loan Agreement are hereby amended and restated in their entirety as follows:


 




    	 



    	 



    

 


I.           DEFINITIONS.


 


(A)         As
used herein, “Date of Maturity”, “Default”, “Principal Sum” and other terms defined in the
Revolving Note shall have their defined meanings herein as set forth in the Revolving Note, and the following terms shall have
the following meanings:


 


"Account Debtor" means, with respect
to any Receivable or Other Intangible, any Person obligated to make payment thereunder, including without limitation any account
debtor thereon.


 


"Advances" has the meaning set
forth in Section II(A).


 


"Affiliate" means (i) any person
that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person") or (ii)
any person (other than the Borrower) which is controlled by or is under common control with a Controlling Person. As used herein,
the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management
or policies of a person, whether through the ownership of voting securities, by contract, or otherwise.


 


“Anti-Terrorism Laws” shall
mean any statutes, rules, regulations, orders, injunctions, writs, or decrees of any Government relating to terrorism or money
laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act,
and the Laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing
may from time to time be amended, renewed, extended, or replaced).


 


“At-Risk Work” means work performed
under Government Contracts, or any other contract, (a) for which funds have not been appropriated and allocated, (b) that
have not been awarded or (c) for which all required contract documents, including any documents required to modify or renew
a contract previously awarded, have not been executed.


 


"Application" means any Standby
Letter of Credit Agreement, on the Bank’s form therefor and appropriately completed, between the Borrower and the Bank, requesting
the issuance by the Bank of a Letter of Credit, and all extensions, supplements and modifications thereto, and renewals and replacements
thereof, and “Applications” means all of said agreements.


 


"Available Credit" means that
amount (which must be a positive number) obtained by subtracting the Revolving Loan Balance from the Commitment.


 


“Bank” means United Bank, a
Virginia banking corporation, its successors and assigns.


 


"Billed Accounts" means Receivables
for which a bill has been rendered to the Account Debtor and which are unpaid for no more than ninety (90) days from the date of
the original bill.


 


“Borrower” means, individually
and collectively, Versar, GEOMET Technologies, LLC, a Maryland limited liability company, Versar International, Inc., a Delaware
corporation, formerly known as VIAP, Inc., Charron Construction Consulting, Incorporated, a Virginia corporation, Geo-Marine, Inc.,
a Texas corporation, Waller, each Person that becomes a Borrower pursuant to Section VI(C)(16), and their respective successors.


 




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"Borrowing Base" means, without
duplication, the sum of (i) 90% of the Net Unpaid Balance of Eligible Assigned Government Accounts, (ii) 80% of the Net Unpaid
Balance of Eligible Non-Assigned Government Accounts, and (iii) 75% of the Net Unpaid Balance of Eligible Commercial Accounts,
not to exceed $2,000,000.00. No item of Collateral will be included in the Borrowing Base unless the Bank has a valid and perfected
first priority Lien on it.


 


"Borrowing Base Certificate" has
the meaning set forth in Section II(D).


 


"Business Day" means a day other
than a Saturday, Sunday or other day on which commercial banks in Virginia are authorized to close.


 


"Collateral" has the meaning set
forth in Section III(A).


 


"Commitment" means the lesser
of (i) the Principal Sum, and (ii) the Borrowing Base.


 


"Commitment Period" means the
period from and including the Effective Date to but excluding the Date of Maturity.


 


"Consolidated Subsidiary" means
at any date any Subsidiary or other entity the accounts of which would be consolidated with those of Versar in its consolidated
financial statements as of such date.


 


"Debt" of any person means at
any date, without duplication, (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced
by bonds, debentures, notes or other similar instruments, (iii) all obligations of such person to pay the deferred purchase price
of property or services (other than trade accounts payable arising in the ordinary course of business), (iv) all obligations of
such person as lessee under capital leases, (v) all non-contingent obligations of such person to reimburse any bank or other person
in respect of amounts paid under a letter of credit or similar instrument, (vi) all obligations of others secured by a Lien on
any asset of such person, whether or not such obligation is assumed by such person and (vii) all obligations of others Guaranteed
by such person.


 


“Default Condition” means any
condition or event which constitutes a Default or which, with the giving of notice or lapse of time or both would, unless cured
or waived, become a Default.


 


"Effective Date" means the date
on which the Bank receives a fully completed and executed copy of this Agreement.


 


"Eligible Accounts" means such
Billed Accounts for goods delivered or services rendered owing to the Borrower as the Bank, in its reasonable discretion, shall
from time to time elect to consider Eligible Accounts for purposes of this Agreement. Without limiting the discretion of the Bank
to consider any such accounts not to be Eligible Accounts, and by way of example only of the types of accounts that the Bank may
consider not to be Eligible Accounts, the Bank may consider the following classes of accounts not to be Eligible Accounts:


 


(i)          accounts
arising out of sales that are not in the ordinary course of the business of the Borrower;


 




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(ii)         accounts
arising under At-Risk Work, or accounts otherwise on terms other than those normal or customary in the business of the Borrower;


 


(iii)        accounts
owing from any person that is an Affiliate of the Borrower unless arising in the ordinary course of business conducted on an arm's-length
basis;


 


(iv)        accounts,
the liability for which has been disputed by the Account Debtor;


 


(v)         accounts
owing from any person that shall file or have filed against it a petition or other pleading under any bankruptcy, reorganization,
arrangement, insolvency, liquidation or similar law for the relief of debtors;


 


(vi)        accounts
owing from any person that is also a supplier to or creditor of the Borrower;


 


(vii)       accounts
arising out of sales to an Account Debtor outside the United States, unless the account is (A) fully backed by an irrevocable letter
of credit containing terms acceptable to the Bank issued by a financial institution satisfactory to the Bank or (B) on terms acceptable
to the Bank;


 


(viii)      accounts
arising out of sales on a bill-and-hold guaranteed sale, sale-and-return, sale on approval or consignment basis or subject to any
right of return, set-off or charge-back;


 


(ix)         accounts,
the full and timely collection of which the Bank, in its sole judgment, believes to be doubtful;


 


(x)          accounts
arising under a Government Contract, unless the Borrower shall have satisfied the requirements of the Assignment of Claims Act
of 1940, as amended, and any similar state legislation in respect thereof and the Bank is satisfied as to the absence of set-offs,
counterclaims and other defenses to payment on the part of the United States or such state Government;


 


(xi)         accounts
in respect of which this Agreement does not or has ceased to create a valid and perfected first priority Lien in favor of the Bank;
and


 


(xii)        accounts
of any Account Debtor if 50% or more of such accounts are unpaid more than 90 days after the date of the original bill.


 


"Eligible Commercial Accounts"
means Eligible Accounts that are Billed Accounts, other than Eligible Government Accounts.


 


“Eligible Assigned Government Accounts”
means Eligible Government Accounts as to which the Borrower shall have satisfied the requirements of the Assignment of Claims Act
of 1940, as amended, in respect thereof, and as to which the Bank has filed its notice of assignment with the United States and
is satisfied as to the absence of set-offs, counterclaims and other defenses to payment on the part of the United States.


 




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"Eligible Government Accounts"
means Eligible Accounts that are Billed Accounts owing from the United States, or, with respect to certain Eligible Non-Assigned
Government Accounts, from a prime contractor with the United States, or from a state or political subdivision of the United States.


 


“Eligible Non-Assigned Government
Accounts” means Eligible Government Accounts owing from the United States (other than Eligible Assigned Government Accounts),
from any state or political subdivision thereof, or from any prime contractor with the United States.


 


"Equipment" means all goods (other
than inventory, consumer goods and farm products) now owned or hereafter acquired by the Borrower, including all items of machinery,
equipment, furnishings and fixtures of every kind, whether affixed to real property or not, as well as all automobiles, trucks
and vehicles of every description, trailers, handling and delivery equipment, all additions to, substitutions for, replacements
of or accessions to any of the foregoing, all attachments, components, parts (including spare parts) and accessories whether installed
thereon or affixed thereto and all fuel for any thereof.


 


“Executive Order No. 13224”
means the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter
be, renewed, extended, amended or replaced.


 


"GAAP" means generally accepted
accounting principles in the United States.


 


"Government" means any Federal,
state or local government, authority, agency, court or other body, officer or entity, and any arbitrator with authority to bind
a party at law.


 


“Government Contracts” means
any contract with the United States or with any state or political subdivision thereof or any department, agency or instrumentality
of the United States, or any state or political subdivision thereof.


 


"Guaranty" by any person means
any obligation, contingent or otherwise, of such person directly or indirectly guarantying any Debt or other obligation of any
other person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise,
of such person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term Guaranty shall not include indorsements for collection or deposit
in the ordinary course of business. The term "Guaranty" used as a verb has a corresponding meaning.


 


"Inventory" means all inventory
now owned or hereafter acquired by the Borrower, including (i) all goods and other personal property which are held for sale or
lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in the Borrower's business, (ii) all inventory, wherever located, evidenced
by negotiable and non-negotiable documents of title, warehouse receipts and bills of lading, (iii) all of the Borrower's rights
in, to and under all purchase orders now owned or hereafter received or acquired by it for goods or services and (iv) all rights
of the Borrower as an unpaid seller, including rescission, replevin, reclamation and stopping in transit.


 




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“Letter of Credit” means any
Standby Letter of Credit issued by the Bank pursuant to an Application, for the account of any Borrower, and “Letters of
Credit” means all of said documents.


 


“Letter of Credit Loan” has
the meaning set forth in Section II(F).


 


"License" means, with respect
to any Patent, any agreement granting any right to practice any invention covered by any Patent and, with respect to any Trademark,
any agreement granting any right to use any Trademark, and "Licenses" means all of such Licenses.


 


"Lien" means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes
of this Agreement, the Borrower shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating
to such asset.


 


"Loan Documents" means the Notes,
this Agreement, the Applications and any other instrument or agreement which now or hereafter evidences, governs, secures or guaranties
the indebtedness evidenced by either Note or either Application, including any loan agreement, deed of trust, subordination agreement,
security agreement or guaranty, and all renewals, extensions and modifications thereof and substitutions therefor.


 


“Material Subsidiary” means
a Subsidiary having assets of $50,000.00 or more. The Borrower may at any time request, in writing and with appropriate supporting
documentation as requested by the Bank on a case-by-case basis, that the Bank make a determination that a Subsidiary is not a Material
Subsidiary, and the Bank may, in its reasonable discretion, make such determination.


 


"Net Unpaid Balance" means at
any date the unpaid balance of an Eligible Account at such date not including any unearned finance charges, late payment charges
or other similar charges, or any extension, service or collection fees in respect thereof.


 


"Note" means either the Revolving
Note or the Term Note, and “Notes” means both of said notes.


 


"Obligations" means (i) all amounts
now or hereafter payable by the Borrower to the Bank on the Notes and the Applications, (ii) all other obligations or liabilities
now or hereafter payable by the Borrower pursuant to this Agreement, (iii) all obligations and liabilities now or hereafter payable
by the Borrower under, arising out of or in connection with any other Loan Documents and any other instrument or agreement executed
in connection with either Note, any Application, or this Agreement, and (iv) all other indebtedness, obligations and liabilities
of the Borrower to the Bank, now existing or hereafter arising or incurred, whether or not evidenced by notes or other instruments,
and whether such indebtedness, obligations and liabilities are direct or indirect, fixed or contingent, liquidated or unliquidated,
due or to become due, secured or unsecured, joint, several or joint and several, related or unrelated to the loan evidenced by
a Note or any Application, similar or dissimilar to the indebtedness arising out of or in connection with either Note, any Application,
or this Agreement or of the same or a different class of indebtedness as the indebtedness arising out of or in connection with
either Note, any Application, or this Agreement, including, without limitation, any overdrafts in any deposit accounts maintained
by the Borrower with the Bank, any indebtedness of the Borrower that is purchased by or assigned to the Bank, and any indebtedness
of the Borrower to any assignee of all or a portion of either Note, any Application, or any other obligation referred to in this
definition.


 




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“Outstanding Letter of Credit Balance”
means the sum of (i) the un-drawn amount of the Letters of Credit, plus (ii) all amounts paid by the Bank in connection with drawings
under the Letters of Credit for which the Bank has not been reimbursed in accordance with the Applications or this Agreement.


 


"Other Intangibles" means all
accounts, accounts receivable, contract rights, documents, instruments, chattel paper (whether tangible or electronic), investment
property, money, deposit accounts, software, commercial tort claims, letter-of-credit rights (whether or not the letter of credit
is evidenced by a writing), payment intangibles and general intangibles now owned or hereafter acquired by the Borrower including,
without limitation, all customer lists, permits, federal and state tax refunds, reversionary interests in pension plan assets,
Trademarks, Patents, Licenses, copyrights and other rights in intellectual property, other than Receivables; together with all
supporting obligations thereto.


 


"Patent" means all letters patent
of the United States or any other county, and all applications for letters patent of the United States or any other county, in
which the Borrower may now or hereafter have any right, title or interest and all reissues, continuations, continuations-in-part
or extensions thereof.


 


"Permitted Liens" means the Liens
referred to in subparagraphs (a)-(h), inclusive, of Section VI(C)(8).


 


"Proceeds" means all proceeds,
including (i) whatever is received upon any collection, exchange, sale or other disposition of any of the Collateral and any property
into which any of the Collateral is converted, whether cash or non-cash, (ii) any and all payments or other property (in any form
whatsoever) made or due and payable on account of any insurance, indemnity, warranty or guaranty payable to the Borrower with respect
to any of the Collateral, (iii) any and all payments (in any form whatsoever) made or due and payable in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau
or agency (or any person, corporation, agency, authority or other entity acting under color of any Government), (iv) any claim
of the Borrower against third parties for past, present or future infringement of any patent or for past, present or future infringement
or dilution of any trademark or for injury to the goodwill associated with any trademark or for the breach of any license, and
(v) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.


 


“Purchase Agreement” means that
certain Stock Purchase Agreement dated June 27, 2014, among Versar, Waller and the Seller, together with all instruments and agreements
executed and delivered in connection with said agreement.


 


"Receivables" means all accounts
now or hereafter owing to the Borrower, and all accounts receivable, contract rights, documents, instruments or chattel paper (whether
tangible or electronic) representing amounts payable or monies due or to become due to the Borrower, whether or not earned by performance,
(i) for property that has been or is to be sold, leased, licensed, assigned or otherwise disposed of, (ii) for services rendered
or to be rendered, (iii) for a policy or policies of insurance issued or to be issued (iv) for a secondary obligation incurred
or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract,
(vii) arising out of the use of a credit or charge card or information contained on or for use with the card, and (viii) rights
to health-care-insurance receivables; together with all Inventory returned by or reclaimed from customers wherever such Inventory
is located, and all guaranties, securities and liens held for the payment of any such account, account receivable, contract right,
document, instrument or chattel paper; together with all other supporting obligations thereto.


 




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“Revolving Loan Balance” means,
at any time, the outstanding principal balance of Advances plus the Outstanding Letter of Credit Balance, at such time.


 


"Revolving Note" means that certain
Second Amended and Restated Revolving Commercial Note dated June 30, 2014, from the Borrower to the Bank in the amount of $15,000,000.00,
and all extensions and modifications thereto, renewals thereof and replacements therefor.


 


“Seller” means, individually
and collectively, Charles W. Scott, James W. Emery, Jr., and Wendell A. Newton, and their respective successors.


 


"Subsidiary" means any corporation
or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower.


 


"Tax" means any fee (including
license, filing and registration fee), tax (including any income, gross receipts, franchise, sales, use or real, personal, tangible
or intangible property tax), interest equalization or stamp tax, assessment, levy, impost, duty, charge or withholding of any kind
or nature whatsoever, imposed or assessed by any Government, together with any penalty, fine or interest thereon.


 


“Term Loan” has the meaning
set forth in Section II(G).


 


"Term Note" means that certain
Commercial Note dated June 30, 2014, from the Borrower to the Bank in the amount of $5,000,000.00, and all extensions and modifications
thereto, renewals thereof and replacements therefor.


 


"Trademark" means all right, title
or interest which the Borrower may now or hereafter have in any or all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos, other source of business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter
adopted or acquired, all registration and recordings thereof and all applications in connection therewith, including without limitation,
registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency
of the United States, any State thereof or any other country or political subdivision thereof and all reissues, extensions or renewals
thereof.


 


"UCC" means at any time the Uniform
Commercial Code as the same may from time to time be in effect in the Commonwealth of Virginia, provided that, if, by reason
of mandatory provisions of law, the validity or perfection of any security interest granted herein is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than Virginia then, as to the validity or perfection of such security interest, "UCC"
shall mean the Uniform Commercial Code in effect in such other jurisdiction.


 




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“Versar” has the meaning set
forth in the Recitals hereto.


 


“Waller” has the meaning set
forth in the Recitals hereto.


 


(B)         The
un-capitalized terms "account", "account debtor", "chattel paper", “commercial tort claim”,
"contract right", "document", "warehouse receipt", "bill of lading", "document of
title", “electronic chattel paper”, "equipment", "general intangible", “health-care-insurance
receivables”, "instrument", "inventory", “investment property”, “letter of credit rights”,
"money", “payment intangible”, "proceeds", "purchase money security interest", “software”
and “supporting obligations”, as used in this Section I or elsewhere in this Agreement, have the meanings of such terms
as defined in the UCC.


 


(C)         Accounting
Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance
with GAAP as in effect from time to time, applied on a basis consistent with the most recent audited financial statements of the
Borrower delivered to the Bank.


 


(D)         Other
Terms. Terms specifically defined in other sections of this Agreement shall have the meanings given to such terms in such sections.


 


II.          THE
CREDIT.


 


(A)         Advances.
Notwithstanding anything contained in the Revolving Note to the contrary:


 


(1)         The
Bank agrees, on the terms and conditions set forth in this Agreement and the Revolving Note, to make advances under the Revolving
Note ("Advances") to the Borrower from time to time during the Commitment Period in an aggregate principal amount not
to exceed, at any one time outstanding, the Commitment minus the Outstanding Letter of Credit Balance. Subject to the foregoing,
the Borrower may borrow under this paragraph (1), prepay and re-borrow during the Commitment Period.


 


(2)         The
aggregate amount of Advances made by the Bank during the period a Borrowing Base Certificate is effective (as provided in subsection
(D)(2)) shall not exceed the Available Credit set forth in such Borrowing Base Certificate, notwithstanding the receipt by the
Bank, during such period, of payments applied to the principal balance of the Revolving Note.


 


(B)         The
Advances shall be evidenced by, and repayable with interest in accordance with, the Revolving Note.


 


(C)         Advances
in Excess of Commitment. To the extent, at any time, the aggregate outstanding principal amount of Advances exceeds the Commitment
minus the Outstanding Letter of Credit Balance, such excess amount shall be immediately due and payable by the Borrower without
notice or demand.


 




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(D)         Borrowing
Base Certificates.


 


(1)         The
Borrowing Base shall be established by a certificate ("Borrowing Base Certificate") prepared by the Borrower and in form
satisfactory to the Bank. Presentation of a Borrowing Base Certificate shall constitute the Borrower's representation to the Bank
that, as of the date thereof, the Eligible Accounts included in the Borrowing Base Certificate qualify as such in accordance with
the terms of this Agreement, and that all other information contained therein is accurate and complete.


 


(2)         A
Borrowing Base Certificate dated as of the last Business Day of each month (the "Certificate Date") shall be presented
by the Borrower to the Bank on or before the tenth (10th) day of the month next following the Certificate Date, or if such day
is not a Business Day, the next following Business Day (the "Delivery Date"). A Borrowing Base Certificate shall be effective
from and including the date the Bank receives it on or before the Delivery Date, until the Bank receives the next Borrowing Base
Certificate on or before the next following Delivery Date.


 


(3)         If
the Borrower fails to present a Borrowing Base Certificate on or before the applicable Delivery Date, the Borrowing Base shall
be deemed to be zero, and shall remain zero until the Bank accepts in writing a Borrowing Base Certificate.


 


(E)         Fees.
During the Commitment Period, the Borrower shall pay the following fees to the Bank:


 


(1)         An
administration fee of $1,000.00 per month, commencing on the same day of the month following the Effective Date, and continuing
on the same day of each consecutive month thereafter, and on the Date of Maturity.


 


(2)         A
commitment fee at the rate of 0.25% per annum on the unused portion of the Commitment. Such commitment fee shall accrue from and
including April 25, 2014, to but excluding the Date of Maturity and shall be payable quarterly, in arrears, on the 25th of each
January, April, July and October, commencing July 25, 2014, and on the Date of Maturity.


 


(3)         A
commitment fee of $25,000.00 in connection with the Term Loan, payable on the Effective Date.


 


(4)         As
to each Letter of Credit, a letter of credit fee equal to the greater of (i) $300.00 or (ii) 1.75% of the amount of said Letter
of Credit at the time said fee is due and payable. Said fee shall be due and payable upon the issuance of a Letter of Credit and
annually thereafter on the anniversary of said issuance; provided, however, that upon the termination of said Letter of
Credit for any reason prior to an anniversary date, then said fee shall be due and payable on said date of termination.


 



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(F)         Letter
of Credit Sub-feature.


 


(1)         As
a sub-feature under the Commitment, the Bank agrees, on the terms and conditions set forth in this Agreement and in the applicable
Applications, to make loans to the Borrower by issuing Letters of Credit for the account of any Borrower (“Letter of Credit
Loans”); provided, that the amount allocated to the Letter of Credit Loans is a permissive use of such amount, and
not a mandatory allocation of the proceeds of the Commitment. At no time shall the Outstanding Letter of Credit Balance exceed
the lesser of (i) $5,000,000.00 and (ii) Commitment minus the outstanding principal balance of Advances at such time (the “Letter
of Credit Commitment”). Each Letter of Credit shall be issued for a term not to exceed one (1) year, although any Letter
of Credit may be automatically renewed in accordance with the terms and conditions of said Letter of Credit and the related Application.
A Letter of Credit may be denominated only in U.S. Dollars. Each draft paid by the Bank under a Letter of Credit shall, if such
amount is available under the Letter of Credit Commitment, be deemed an Advance and shall accrue interest at the rate then applicable
under the Revolving Note. To the extent the amount of a draft paid by the Bank as aforesaid is unavailable under the Letter of
Credit Commitment, said amount shall be payable by the Borrower ON DEMAND and until paid in full shall accrue interest at the rate
then applicable under the Revolving Note. Subject to the foregoing, the Borrower may borrow under this Section II(F)(1), prepay
and re-borrow.


 


(2)         Upon
the termination of the Commitment for any reason whatsoever, or upon the occurrence of a Default, the Bank may, at its option,
demand that the Borrower, within ten (10) days of such demand, arrange for the cancellation of any or all of the Letters of Credit
such that the Bank has no further liability under said Letters of Credit, or in the event the Borrower fails to procure the cancellation
of either Letter of Credit within such ten (10) day period, demand that the Borrower pay to the Bank, as cash collateral, the remaining
amount available to be drawn, if any, under said Letter of Credit and such amount shall thereupon become immediately due and payable.
In the event the Borrower pays to the Bank or the Bank collects from the Borrower sums representing the remaining amount available
to be drawn under said Letter of Credit, the Bank shall hold such sums in a non-interest-bearing account as security for the Borrower’s
obligation to reimburse the Bank for amounts paid by the Bank under said Letter of Credit or otherwise due hereunder. Upon the
expiration of said Letter of Credit and the Bank's reasonable determination that it has no further liability thereunder, the Bank
shall repay such sums to the Borrower to the extent they exceed the remaining amounts actually paid by the Bank under said Letter
of Credit. The Bank's rights under this Section II(F) are in addition to other rights and remedies which the Bank may have.


 


(G)         The
Term Loan. The Bank agrees, on the terms and conditions set forth in this Agreement and the Term Note, to make a term loan
(the “Term Loan”) to the Borrower on the Effective Date in the principal amount of $5,000,000.00. The Term Loan shall
be evidenced by, and repayable with interest in accordance with, the Term Note.


 


III.         THE
SECURITY INTERESTS.


 


(A)         Grant
of Security Interests. To secure the due and punctual payment of all Obligations, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or hereafter existing or due or to become due, in accordance with the terms
thereof and to secure the due and punctual performance of all of the obligations of the Borrower contained in the Notes and this
Agreement and in the other Loan Documents to which it is a party and in order to induce the Bank to enter into this Agreement and
make the Advances and the Term Loan provided for therein and herein in accordance with the terms hereof and thereof, the Borrower
hereby grants to the Bank a security interest in all of the Borrower's right, title and interest in, to and under the following,
whether now existing or hereafter acquired (all of which are herein collectively called the "Collateral"):


 




    	-11-



    	 



    

  


(1)         all
Receivables;


 


(2)         all
Other Intangibles;


 


(3)         all
Equipment;


 


(4)         all
Inventory;


 


(5)         to
the extent not included in the foregoing, all other personal property, whether tangible or intangible, and wherever located, including,
but not limited to, the balance of every deposit account now or hereafter existing of the Borrower with any bank and all monies
of the Borrower and all rights to payment of money of the Borrower;


 


(6)         to
the extent not included in the foregoing, all books, ledgers and records and all computer programs, tapes, discs, punch cards,
data processing software, transaction files, master files and related property and rights (including computer and peripheral equipment)
necessary or helpful in enforcing, identifying or establishing any item of Collateral; and


 


(7)         to
the extent not otherwise included, all Proceeds and products of any or all of the foregoing, whether existing on the date hereof
or arising hereafter.


 


Notwithstanding any provision herein to the contrary, the Bank
shall not have a security interest in any of the above property to the extent the granting of a security interest therein violates
any provision of applicable law or any contract with an Account Debtor giving rise to a Receivable.


 


(B)         Continuing
Liability of the Borrower. Anything herein to the contrary notwithstanding, the Borrower shall remain liable to observe and
perform all the terms and conditions to be observed and performed by it under any contract, agreement, warranty or other obligation
with respect to the Collateral, and shall do nothing to impair the security interests herein granted. The Bank shall not have any
obligation or liability under any such contract, agreement, warranty or obligation by reason of or arising out of this Agreement
or the receipt by the Bank of any payment relating to any Collateral, nor shall the Bank be required to perform or fulfill any
of the obligations of the Borrower with respect to the Collateral, to make any inquiry as to the nature or sufficiency of any payment
received by it or the sufficiency of the performance of any party's obligations with respect to any Collateral. Furthermore, the
Bank shall not be required to file any claim or demand to collect any amount due or to enforce the performance of any party's obligations
with respect to, the Collateral.


 


(C)         Sales
and Collections.


 


(1)         The
Borrower is authorized (a) to sell in the ordinary course of its business for fair value and on an arm's-length basis any of its
Inventory normally held by it for such purpose and (b) to use and consume, in the ordinary course of its business, any raw materials,
supplies and materials normally held by it for such purpose. The Bank may upon the occurrence of any Default Condition, without
cause or notice, curtail or terminate such authority at any time.


 




    	-12-



    	 



    

 


(2)         Upon
the request of the Bank, in the Bank’s sole discretion, all Account Debtors shall be notified to make payments under Receivables
directly to the Bank, in accordance with the Bank’s standard lockbox agreement. The Borrower will use all reasonable efforts
to cause each Account Debtor to comply with the foregoing instruction. In furtherance of the foregoing, the Borrower authorizes
the Bank (a) to ask for, demand, collect, receive and give acquittances and receipts for any and all amounts due and to become
due under any Collateral and, in the name of the Borrower or its own name or otherwise, (b) to take possession of, indorse and
collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Collateral and (c)
to file any claim or take any other action in any court of law or equity or otherwise which it may deem appropriate for the purpose
of collecting any amounts due under any Collateral. The Bank shall have no obligation to obtain or record any information relating
to the source of such funds or the obligations in respect of which payments have been made.


 


(D)         Segregation
of Proceeds.


 


(1)         The
Bank shall have the right at any time (regardless of whether or not a Default shall have occurred) to cause to be opened and maintained
at the principal office of the Bank a non-interest bearing bank account (the "Cash Collateral Account") which will contain
only Proceeds. Any cash proceeds (as such term is defined in Section 8.9A-102(a)(9) of the UCC) received by the Bank from the Borrower
pursuant to paragraph (2) of this subsection (D), whether consisting of checks, notes, drafts, bills of exchange, money orders,
commercial paper or other Proceeds received on account of any Collateral, shall be promptly deposited in the Cash Collateral Account,
and until so deposited shall be held in trust for and as the Bank's property and shall not be commingled with any funds of the
Borrower not constituting Proceeds of Collateral. The name in which the Cash Collateral Account is carried shall clearly indicate
that the funds deposited therein are the property of the Borrower, subject to the security interest of the Bank hereunder. Such
Proceeds, when deposited, shall continue to be security for the Obligations and shall not constitute payment thereof until applied
as hereinafter provided. The Bank shall have sole dominion and control over the funds deposited in the Cash Collateral Account,
and such funds may be withdrawn therefrom only by the Bank; provided, however, that until a Default shall occur,
all collected funds on deposit in the Cash Collateral Account, or so much thereof as is not required to make payment of the Obligations
which have become due and payable, shall be withdrawn by the Bank on the Business Day next following the day on which the Bank
considers the funds deposited therein to be collected funds and disbursed to the Borrower or its order.


 


(2)         Upon
notice by the Bank to the Borrower that the Cash Collateral Account has been opened, the Borrower shall cause all cash Proceeds
collected by it pursuant to paragraph (1), above, to be delivered to the Bank forthwith upon receipt, in the original form in which
received (with such indorsements or assignments as may be necessary to permit collection thereof by the Bank), and for such purpose
the Borrower hereby irrevocably authorizes and empowers the Bank, its officers, employees and authorized agents to indorse and
sign the name of the Borrower on all checks, drafts, money orders or other media of payment so delivered, and such indorsements
or assignments shall, for all purposes, be deemed to have been made by the Borrower prior to any indorsement or assignment thereof
by the Bank. The Bank may use any convenient or customary means for the purpose of collecting such checks, drafts, money orders
or other media of payment.


 




    	-13-



    	 



    

 


(E)         Verification
of Receivables. The Bank shall have the right to make test verifications of Receivables in any manner and through any medium
that it considers advisable, and the Borrower agrees to furnish all such assistance and information as the Bank may require in
connection therewith. The Borrower at its expense will cause either independent certified public accountants or, if agreeable to
the Bank in its sole discretion, the Borrower's chief financial officer, to furnish to the Bank at any time and from time to time
promptly upon the Bank's request, the following reports: (i) a reconciliation of all Receivables, (ii) an aging of all Receivables,
(iii) trial balances and (iv) a test verification of such Receivables as the Bank may request.


 


(F)         Release of Collateral.


 


(1)         The
Borrower may sell or realize upon or transfer or otherwise dispose of Collateral as permitted by Section VI(B)(13), and the security
interests of the Bank in such Collateral so sold, realized upon or disposed of (but not in the Proceeds arising from such sale,
realization or disposition) shall cease immediately upon such sale, realization or disposition, without any further action on the
part of the Bank. The Bank, if requested in writing by the Borrower but at the expense of the Borrower, is hereby authorized and
instructed to deliver to the Account Debtor or the purchaser or other transferee of any such Collateral a certificate stating that
the Bank no longer has a security interest therein, and such Account Debtor or such purchaser or other transferee shall be entitled
to rely conclusively on such certificate for any and all purposes.


 


(2)         Upon
the payment in full of all of the Obligations and if there is no commitment by the Bank to make further Advances, incur obligations
or otherwise give value, the Bank will (as soon as reasonably practicable after receipt of notice from the Borrower requesting
the same but at the expense of the Borrower) send the Borrower, for each jurisdiction in which a UCC financing statement is on
file to perfect the security interests granted to the Bank hereunder, a termination statement to the effect that the Bank no longer
claims a security interest under such financing statement.


 


IV.          CONDITIONS
PRECEDENT.


 


(A)         Each
Advance. The obligation of the Bank to make each Advance is subject to the satisfaction of the following conditions:


 


(1)         no
Default Condition has occurred and is continuing or would result from such Advance;


 


(2)         such
Advance is subject to all of the Loan Documents; and


 


(3)         the
representations and warranties contained in Section V are true on and as of the date of such Advance.


 


(B)         The
First Advance. The obligation of the Bank to make the first Advance after the Effective Date and the Term Loan is subject to
the satisfaction of the following conditions:


 


(1)         receipt
by the Bank of duly executed Notes and any other Loan Document required by the Bank;


 




    	-14-



    	 



    

 


(2)         receipt
by the Bank of evidence satisfactory to the Bank that each document (including, without limitation, each UCC financing statement)
requested by the Bank to be filed, registered or recorded has been so filed, registered or recorded and that all other requirements
in order to create in favor of the Bank a perfected first priority security interest in the Collateral have been satisfied;


 


(3)         receipt
by the Bank of certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports from an independent
search service satisfactory to the Bank, listing the documents referred to in paragraph (2) of this subsection (B), and all other
effective financing statements that name the Borrower (under its present name and any and all previous names) as debtor or seller,
together with copies of such other financing statements (none of which shall cover any of the Collateral);


 


(4)         receipt
by the Bank of any and all landlord's waivers, and any other consents required by the Bank;


 


(5)         receipt
by the Bank of evidence of the insurance required by this Agreement;


 


(6)         receipt
by the Bank of a Borrowing Base Certificate;


 


(7)         receipt
by the Bank of all documents and all opinions of counsel (all in form and substance satisfactory to the Bank) it may require relating
to (a) the existence of Versar and Versar International, Inc., and their authority to execute, deliver and perform the Notes, this
Agreement and the other Loan Documents; (b) the validity of the Notes, this Agreement and the other Loan Documents; and (c) any
other matters relevant hereto;


 


(8)         receipt
by the Bank of a satisfactory field audit of Versar’s and Waller’s Receivables; and


 


(9)         with
respect to Waller (all of the following to be in form and content satisfactory to the Bank):


 


(i)          the
closing of the acquisition of all of the issued and outstanding stock of Waller by Versar pursuant to the terms and conditions
set forth in the Purchase Agreement;


 


(ii)         reports
of the aging of Waller’s accounts receivable for the periods ending December 31, 2013 and March 31, 2014;


 


(iii)        fiscal
year-end financial statements for Waller for the years ending December 31, 2010, December 31, 2011, December 31, 2012, and December
31, 2013;


 


(iv)        interim
financial statements for the period ending March 31, 2014;


 


(v)         2013
- 2014 projections for the combined consolidated Borrower including Waller;


 


(vi)        a
pro-forma balance sheet for the combined consolidated Borrower including Waller; and


 




    	-15-



    	 



    

 


(vii)       to
the extent not required above, compliance with clauses (ii) through (ix), inclusive, of Section VI(C)(16) with respect to Waller
as a Material Subsidiary.


 


(C)         Letter
of Credit Loans. In addition to the requirements set forth above, the obligation of the Bank to make each Letter of Credit
Loan is subject to the satisfaction of the following conditions:


 


(1)         the
fact that no Default has occurred and is continuing or would result from such Letter of Credit Loan;


 


(2)         the
fact that the representations and warranties of the Borrower contained in this Agreement shall be true on and as of the date of
such Letter of Credit Loan; and


 


(3)         the
fact that such Letter of Credit Loan will be subject to and, as applicable, secured by, the Loan Documents; and


 


(4)         receipt
by the Bank of a duly executed Application, together with all agreements and documents required to be delivered to the Bank as
set forth therein.


 


Each borrowing hereunder shall be deemed to be a representation
and warranty by the Borrower on the date thereof that the facts hereinabove set forth in clauses (1), (2) and (3) of this subsection
(C) are true as of such date. All documents referred to in this subsection (C) shall be in form and substance satisfactory to the
Bank and its counsel. The failure of any action to be taken, or the failure of any documentation to be delivered to the Bank, required
by this subsection (C) to be taken or delivered after the making of the related Letter of Credit Loan, shall constitute a breach
of covenant under this Agreement.


 


V.          REPRESENTATIONS AND WARRANTIES.


 


The Borrower represents and warrants that:


 


(A)         Existence
and Power.


 


(1)         Each
corporate Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of
its incorporation, and no other jurisdiction. The name of the Borrower, as set forth on the signature pages of this Agreement,
is as said name appears in the public records of said jurisdiction. The Borrower has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its business as now conducted. The Borrower is duly qualified
as a foreign entity, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature
of its business or the character and location of its property, business or customers and in which the failure to so qualify or
be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results
of operations, properties or prospects of the Borrower.


 




    	-16-



    	 



    

 


(2)         Each
limited liability company Borrower is a limited liability company duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, and no other jurisdiction. The name of the Borrower, as set forth on the signature
pages of this Agreement, is as said name appears in the public records of said jurisdiction. The Borrower has all organizational
powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now
conducted. The Borrower is duly qualified as a foreign entity, licensed and in good standing in each jurisdiction where qualification
or licensing is required by the nature of its business or the character and location of its property, business or customers and
in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on
the business, financial position, results of operations, properties or prospects of the Borrower.


 


(B)         Organizational
and Governmental Authorization; Contravention. The execution, delivery and performance by the Borrower of this Agreement, the
Notes and the other Loan Documents to which it is a party are within its organizational power, have been duly authorized by all
necessary corporate action, or action of its members, as the case may be, require no action by or in respect of, or filing with,
any governmental body, agency or official and do not contravene, or constitute (with or without the giving of notice or lapse of
time or both) a default under, any provision of applicable law or of the organizational documents of the Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding upon or affecting the Borrower or result in the creation or imposition
of any Lien (other than the Lien of this Agreement and the other Loan Documents) on any of its assets.


 


(C)         Binding
Effect. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes and Applications, when executed
and delivered in accordance with this Agreement, will constitute valid and binding obligation of the Borrower, in each case enforceable
against the Borrower in accordance with its terms, except as (1) the enforceability hereof and thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (2) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.


 


(D)         Title
to Collateral. Except for the security interests granted to the Bank pursuant to this Agreement, the Borrower is the sole owner
of each item of the Collateral, having good and marketable title thereto, free and clear of any and all Liens, except Permitted
Liens.


 


(E)         Validity,
Perfection and Priority of Security Interests.


 


(1)         By
complying with Section VI(B)(1), the Borrower will have created a valid security interest in favor of the Bank in all existing
Collateral and in all identifiable Proceeds of such Collateral, which security interest (except in respect of motor vehicles for
which the exclusive manner of perfecting a security interest therein is by noting such security interest on the certificate of
title in accordance with local law) would be prior to the claims of a trustee in bankruptcy under Section 544(a) of the federal
Bankruptcy Code. Continuing compliance by the Borrower with the provisions of Section VI(B)(2) will also (a) create valid security
interests in all Collateral acquired after the date hereof and in all identifiable Proceeds of such Collateral and (b) cause such
security interests in all Collateral and in all Proceeds which are (i) identifiable cash Proceeds of Collateral covered by financing
statements required to be filed hereunder, (ii) identifiable Proceeds in which a security interest may be perfected by such filing
under the UCC and (iii) any Proceeds in the Cash Collateral Account to be duly perfected under the UCC, in each case prior to the
claims of a trustee in bankruptcy under the federal Bankruptcy Code.


 




    	-17-



    	 



    

 


(2)         The
security interests of the Bank in the Collateral rank first in priority. Other than financing statements or other similar documents
perfecting the security interests of the Bank, no financing statements or similar documents covering all or any part of the Collateral
are on file or of record in any government office in any jurisdiction in which such filing or recording would be effective to perfect
a security interest in such Collateral, nor is any of the Collateral in the possession of any person (other than the Borrower)
asserting any claim thereto or security interest therein.


 


(F)         Enforceability
of Receivables and Other Intangibles. To the best knowledge of the Borrower, each Receivable and Other Intangible is a valid
and binding obligation of the related Account Debtor in respect thereof, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general provisions of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law), and complies with any applicable legal requirements.


 


(G)         Places
of Business; Location of Collateral. Appendix 1 hereto correctly sets forth each Borrower’s current chief executive office,
any and all chief executive offices of said Borrower within the previous four (4) months, all other places of business of said
Borrower and the offices of said Borrower where records concerning Receivables and Other Intangibles are kept. Appendix 2 hereto
correctly sets forth the location of all Equipment and Inventory, other than rolling stock, aircraft, goods in transit and Inventory
sold in the ordinary course of business as permitted by Section VI(B)(13) of this Agreement. Except as otherwise specified in Appendix
2 hereto , all Inventory and Equipment has been located at the address specified on said Appendix 2 at all times during the four-month
period prior to the date hereof while owned by said Borrower. All Inventory has been and will be produced in compliance with the
Fair Labor Standards Act, 29 U.S.C. §§ 201-219. No Inventory is evidenced by a negotiable document of title, warehouse
receipt or bill of lading. No non-negotiable document of title, warehouse receipt or bill of lading has been issued to any person
other than said Borrower, and said Borrower has retained possession of all of such non-negotiable documents, warehouse receipts
and bills of lading. No amount payable under or in connection with any of the Collateral is evidenced by promissory notes or other
instruments.


 


(H)         Trade
Names. Any and all trade names, division names, assumed names or other names under which each Borrower transacts, or within
the four-month period prior to the date hereof has transacted, business are specified on Appendix 3 hereto.


 


(I)           Financial Information.


 


(1)         The
most recent fiscal year end consolidated balance sheet of Versar and the related consolidated financial statements, reported on
by Versar's independent public accountants, copies of which have been delivered to the Bank, fairly present, in conformity with
GAAP, the financial position of Versar and its Consolidated Subsidiaries as of the date thereof and its results of operations and
cash flows for such fiscal year. As of the date of such financial statements, no Borrower has had any material contingent obligation,
contingent liability or liability for Taxes, long-term lease or unusual forward or long-term commitment, which is not reflected
in any of such financial statements or notes thereto.


 




    	-18-



    	 



    

 


(2)         Since
the date of the most recent balance sheet, there has been no material adverse change in the business, financial position, results
of operations or prospects of the Borrower.


 


(J)         Litigation.
There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the
Borrower before any Government in which there is a reasonable possibility of an adverse decision which could materially adversely
affect the business, financial position or results of operations of the Borrower or which in any manner draws into question the
validity of this Agreement, the Notes, or any other Loan Document and there is no basis known to the Borrower for any such action,
suit or proceeding.


 


(K)         Marketable
Title. The Borrower has good and marketable title to all its properties and assets subject to no Lien, except Permitted Liens.


 


(L)         Filings.
All actions by or in respect of, and all filings with, any governmental body, agency or official required in connection with the
execution, delivery and performance of this Agreement, the Notes and the other Loan Documents, or necessary for the validity or
enforceability thereof or for the protection or perfection of the rights and interests of the Bank thereunder, will, prior to the
date of delivery thereof, have been duly taken or made, as the case may be, and will at all times thereafter remain in full force
and effect.


 


(M)         Regulation
U. The proceeds of the Advances and the Term Loan will be used by the Borrower only for the purposes set forth in Section VI(C)(14)
hereof. None of the proceeds of the Term Loan or any Advance will be used, directly or indirectly, for the purpose of purchasing
or carrying any "margin stock" or for the purpose of reducing or retiring any indebtedness which was originally incurred
to purchase or carry margin stock or for any other purpose which might constitute the loan evidenced by the Revolving Note, or
any Advance, a "purpose credit" within the meaning of Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System. The proceeds of the Term Loan will be used for the purpose of purchasing and carrying the stock of Geo-Marine,
but said stock is not "margin stock", and the Term Loan is therefore not a "purpose credit" within the meaning
of said Regulation U.


 


(N)         Taxes.
The Borrower has filed all United States Federal income Tax returns and all other material Tax returns which are required to be
filed by it and has paid all Taxes due pursuant to such returns or pursuant to any assessment received by the Borrower. The charges,
accruals and reserves on the books of the Borrower in respect of Taxes or other governmental charges are adequate.


 


(O)         Suspension
or Debarment. Neither the Borrower nor any Subsidiary, nor any of their respective directors, officers or employees, has received
any notice of, or information concerning, any proposed, contemplated or initiated suspension or debarment, be it temporary or permanent,
due to an administrative or a statutory basis, of the Borrower or any Subsidiary by any Government. The Borrower further warrants
and represents that neither the Borrower nor any Subsidiary has defaulted under any Government Contract which default would be
a basis of terminating such Government Contract.


 


(P)         Anti-Terrorism
Laws.


  


(1)         General.
Neither the Borrower nor or any Affiliate of the Borrower is in violation of any Anti-Terrorism Law or engages in or conspires
to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.


 




    	-19-



    	 



    

  


(2)         Executive
Order No. 13224. Neither the Borrower, nor or any Affiliate of the Borrower, or their respective agents acting or benefiting
in any capacity in connection with the Term Loan, the Advances, or other transactions hereunder, is any of the following (each
a “Blocked Person”): (a) a Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive
Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to,
or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person or entity with which any Bank is prohibited
from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person or entity that commits, threatens
or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, (e) a Person or entity that
is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office
of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list,
or (f) a person or entity who is affiliated or associated with a person or entity listed above.


 


The Borrower, or to the knowledge of any
Borrower, any of its agents acting in any capacity in connection with the Advances or the Term Loan or other transactions hereunder,
does not (i) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit
of any Blocked Person, or (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property
blocked pursuant to Executive Order No. 13224.


 


(Q)         Subsidiaries.
Versar has no Subsidiary that is not a Borrower. Versar Global Solutions, Inc., VEC Corp., and Advent Environmental, Inc., which
were “Borrowers” under the Original Loan Agreement and the Original Note, are not Material Subsidiaries and either
no longer exist or are in the process of being dissolved as of the Effective Date.


 


(R)         Disclosure.
None of this Agreement, any other Loan Document, any schedule or exhibit thereto or document, certificate, report, statement or
other information furnished to the Bank in connection herewith or therewith or in connection with the consummation of the transactions
contemplated hereby or thereby contains any material misstatement of fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact materially adversely affecting the assets, business, financial
position, results of operations or prospects of the Borrower which has not been set forth in a footnote included in the financial
statements referred to in subsection (I)(1), above, or any exhibit or schedule thereto.


 


VI.          COVENANTS.


 


(A)         Financial
Covenants. The Borrower agrees that so long as the Bank is committed to make Advances or any amount payable under the Notes
or any other Loan Document remains unpaid:


 


(1)         Certain
Definitions. As used in this paragraph (1) and hereafter in this Agreement, the following terms have the following meanings:


 




    	-20-



    	 



    

 


"Intangible Assets" means at any
date the amount of all capitalized organization and development costs, capitalized interest, Debt discount and expense, goodwill,
patents, trademarks, copyrights, franchises, licenses, amounts due from partners and affiliates, inter-company accounts and investments,
shareholder loans, employee advances and such other assets as are properly classified as "intangible assets" in accordance
with GAAP.


 


"Net Worth" means the excess of
Versar’s and its Consolidated Subsidiaries' assets over their liabilities.


 


"Tangible Net Worth" means, as of
any date, the excess of Versar’s and its Consolidated Subsidiaries' Net Worth over their Intangible Assets, as of said date.


 


“Total Liabilities” means such
Debt and other liabilities as are properly classified as "total liabilities" in accordance with GAAP.


 


(2)         Current
Ratio. The consolidated ratio of current assets to current liabilities of Versar and its Consolidated Subsidiaries will not,
as of the end of each fiscal quarter, be less than 1.25 to 1.0.


 


(3)         Liabilities
to Tangible Net Worth. The ratio of Versar’s and its Consolidated Subsidiaries’ Total consolidated Liabilities
to its Tangible Net Worth will not, as of the end of each fiscal quarter, exceed 2.25 to 1.00 through the quarter ending June 30,
2015, and 2.00 to 1.00 thereafter.


 


(4)         Minimum
Tangible Net Worth. Versar’s and its Consolidated Subsidiaries’ consolidated Tangible Net Worth will not, as of
the end of each fiscal quarter, be less than $18,000,000.00 through the quarter ending June 30, 2015, and 18,500,000.00 thereafter.


 


(B)         Covenants
Relating to the Collateral. The Borrower agrees that so long as the Bank is committed to make Advances or any amount payable
under the Notes or any other Loan documents remains unpaid:


 


(1)         Perfection
of Security Interests. The Borrower hereby authorizes the Bank, at the Borrower’s expense, to file all UCC filings in
the jurisdictions specified on Appendix 4 on or prior to the date of the first Advance, to the extent deemed necessary by the Bank.


 


(2)         Further
Actions.


 


(a)          At
all times after the date of the first Advance, the Borrower will, at its expense, comply with the following:


 


(i)          as
to all Receivables, Other Intangibles, Equipment and Inventory, it authorizes the Bank to file UCC financing statements and continuation
statements in all applicable jurisdictions as required to perfect the security interests granted to the Bank hereunder, to the
extent that applicable law permits perfection of a security interest by filing under the UCC;


 


(ii)         upon
the request of the Bank, it will ensure that the provisions of Section III(D) are complied with;


 




    	-21-



    	 



    

 


(iii)        as
to (A) any amount payable under or in connection with any of the Collateral which shall be or shall become evidenced by any promissory
note or other instrument, or tangible chattel paper, or (B) any negotiable document or certificated security, the Borrower will
immediately pledge and deliver such property to the Bank as part of the Collateral, duly indorsed or assigned in a manner satisfactory
to the Bank if required, or obtain the acknowledgement, in an authenticated record and otherwise in form and substance satisfactory
to the Bank, of any bailee having possession of any of the Collateral that said bailee holds such Collateral for the Bank;


 


(iv)        as
to all Real Estate acquired after the date hereof, the Borrower will execute and record such additional mortgages, deeds of trust
or other real estate security documents in such form as shall be satisfactory to the Bank so as to create a valid first priority
lien thereon in favor of the Bank;


 


(v)         as
to all Patents, Patent Licenses, Trademarks or Trademark Licenses, the Borrower will effect the recordation or renewal of the recordation
of the security interests of the Bank therein so as to maintain valid and perfected security interests therein under all applicable
state and United States federal laws;


 


(vi)        as
to all deposit accounts, electronic chattel paper, investment property and letter-of-credit rights, the Borrower shall cause the
Bank to obtain “control” (within the meaning of Sections 8.9A-104, 8.9A-105, 8.9A-106 and 8.9A-107, respectively, of
the UCC) of such property, with any agreements establishing control to be in form and substance satisfactory to the Bank; and


 


(vii)       as
to commercial tort claims, if the Borrower shall at any time acquire a “commercial tort claim”, as defined in Section
8.9A-102(a)(13) of the UCC, the Borrower shall immediately notify the Bank in a writing signed by the Borrower of the brief details
thereof and grant to the Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this
Security Agreement, with such writing to be in form and substance satisfactory to the Bank.


 


(b)          The
Borrower will, from time to time and at its expense, execute, deliver, file or record such financing statements pursuant to the
UCC, applications for certificates of title and such other statements, assignments, instruments, documents, agreements or other
papers and take any other action that may be necessary or desirable, or that the Bank may reasonably request, in order to create,
preserve, perfect, confirm or validate the security interests, to enable the Bank to obtain the full benefits of this Agreement
or to enable it to exercise and enforce any of its rights, powers and remedies hereunder, including, without limitation, its right
to take possession of the Collateral, and will use its best efforts to obtain such waivers from landlords and mortgagees as the
Bank may request.


 


(c)          To
the fullest extent permitted by law, the Borrower authorizes the Bank to sign and file financing and continuation statements and
amendments thereto with respect to the Collateral.


 




    	-22-



    	 



    

 


(3)         Change
of Name, Identity or Structure. The Borrower will not change its name, identity or type of entity in any manner and, except
as set forth on Appendix 3 hereto, will not conduct its business under any trade, assumed or fictitious name unless it shall have
given the Bank at least thirty days' prior written notice thereof and shall have taken all action (or made arrangements to take
such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably
requested by the Bank to amend any financing statement or continuation statement relating to the security interests granted hereby
in order to preserve such security interests and to effectuate or maintain the priority thereof against all persons.


 


(4)         State
of Organization, Place of Business and Collateral. The Borrower will not change the state of its organization,
or become organized under the laws of any additional state. The Borrower will not change the location of (i) its chief executive
office or (ii) the office or other locations where it keeps or holds any Collateral or any records relating thereto from the applicable
location listed on Appendices 1 or 2 hereto unless, prior to such change, it notifies the Bank of such change, makes all UCC filings
required by paragraph (2) of this subsection (B) and takes all other action necessary or that the Bank may reasonably request to
preserve, perfect, confirm and protect the security interests granted hereby. The Borrower will in no event change the location
of any Collateral if such change would cause the security interest granted hereby in such Collateral to lapse or cease to be perfected.
The Borrower will at all times maintain its chief executive office within the United States.


 


(5)         Fixtures.
The Borrower will not permit any Equipment to become a fixture unless it shall have given the Bank at least ten days' prior written
notice thereof and shall have taken all such action and delivered or caused to be delivered to the Bank all instruments and documents,
including, without limitation, waivers and subordination agreements by any landlords and mortgagees, and filed all financing statements
necessary or reasonably requested by the Bank, to preserve and protect the security interest granted herein and to effectuate or
maintain the priority thereof against all persons.


 


(6)         Maintenance of Records.
The Borrower will keep and maintain at its own cost and expense complete books and records relating to the Collateral which are
satisfactory to the Bank including, without limitation, a record of all payments received and all credits granted with respect
to the Collateral and all of its other dealings with the Collateral. If reasonably required by the Bank, the Borrower will mark
its books and records pertaining to the Collateral to evidence this Agreement and the security interests granted hereby. For the
Bank's further security, the Borrower agrees that, to the extent permitted by applicable law and any applicable contract between
the Borrower and an Account Party giving rise to a Receivable, the Bank shall have a special property interest in all of the Borrower's
books and records pertaining to the Collateral and the Borrower shall deliver and turn over any such books and records to the Bank
or to its representatives at any time on demand of the Bank. The Borrower further agrees that the Bank may conduct an audit of
the Collateral pursuant to subsection (B)(16) within 30 days after the Effective Date.


 


(7)         Compliance
with Laws, etc. The Borrower will comply, in all material respects, with all acts, rules, regulations, orders, decrees and
directions of any Government applicable to the Collateral or any part thereof or to the operation of the Borrower's business except
to the extent that the failure to comply would not have a material adverse effect on the financial or other condition of the Borrower;
provided, however, that the Borrower may contest any act, regulation, order, decree or direction in any reasonable
manner which shall not in the sole opinion of the Bank adversely affect the Bank's rights or the first priority of its security
interest in the Collateral.


 




    	-23-



    	 



    

 


(8)         Payment of Taxes,
etc. The Borrower will pay promptly when due, all Taxes, assessments and governmental charges or levies imposed upon the Collateral
or in respect of its income or profits therefrom, as well as all claims of any kind (including claims for labor, materials and
supplies), except that no such charge need be paid if (a) the validity thereof is being contested in good faith by appropriate
proceedings and (b) such charge is adequately reserved against in accordance with GAAP.


 


(9)         Compliance
with Terms of Accounts, Contracts and Licenses. The Borrower will perform, and comply in all material respects with, all of
its obligations under all agreements relating to the Collateral to which it is a party or by which it is bound.


 


(10)        Limitation on Liens on Collateral.
The Borrower will not create, permit or suffer to exist, and will defend the Collateral and the Borrower's rights with respect
thereto against and take such other action as is necessary to remove, any Lien, security interest, encumbrance, or claim in or
to the Collateral other than the security interests created hereunder and Permitted Liens.


 


(11)        Limitations on Modifications of
Receivables and Other Intangibles; No Waivers or Extensions. The Borrower will not (a) amend, modify, terminate or waive any
provision of any material Receivable or Other Intangible in any manner which might have a materially adverse effect on the value
of such Receivable or Other Intangible as Collateral, (b) fail to exercise promptly and diligently each and every material right
which it may have under each Receivable and Other Intangible or (c) fail to deliver to the Bank a copy of each material demand,
notice or document received by it relating in any way to any Receivable or Other Intangible. The Borrower will not, without the
Bank's prior written consent, grant any extension of the time of payment of any Receivable or amounts due under any material Other
Intangible, compromise, or settle the same for less than the full amount thereof, release, wholly or partly, any person liable
for the payment thereof or allow any credit or discount whatsoever thereon other than trade discounts granted in the normal course
of business, except such as in the reasonable judgment of the Borrower are advisable to enhance the collectability thereof.


 


(12)        Maintenance of Insurance.
The Borrower will maintain with financially sound insurance companies licensed to do business where the Borrower is located insurance
policies (a) insuring the Inventory and Equipment against loss by fire, explosion, theft and such other casualties as are usually
insured against by companies engaged in the same or similar business for an amount satisfactory to the Bank and (b) insuring the
Borrower and the Bank against liability for personal injury arising from, and property damage relating to, such Inventory and Equipment,
such policies to be in such form and to cover such amounts as may be satisfactory to the Bank, with losses payable to the Borrower
and the Bank as their respective interests may appear. The Borrower shall, if reasonably requested by the Bank, deliver to the
Bank as often as the Bank may reasonably request a report of the Borrower or, if requested by the Bank, of an insurance broker
satisfactory to the Bank of the insurance on the Inventory and Equipment. All insurance with respect to the Inventory and the Equipment
shall (w) contain a standard mortgagee clause in favor of the Bank, (x) provide that any loss shall be payable in accordance with
the terms thereof notwithstanding any act of the Borrower which might otherwise result in forfeiture of such insurance and that
the insurer waives all rights of set-off, counterclaim, deduction or subrogation against the Borrower, (y) provide that no cancellation,
reduction in amount or change in coverage therefor shall be effective until at least 30 days after receipt by the Bank of written
notice thereof and (z) provide that the Bank may, but shall not be obligated to, pay premiums in respect thereof.


 




    	-24-



    	 



    

 


(13)        Limitations
on Dispositions of Collateral. The Borrower will not directly or indirectly (through the sale of stock, merger or otherwise)
without the prior written consent of the Bank sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except for (a) sales of Inventory in the ordinary course of its business for fair value in arm's-length
transactions and (b) so long as no Default Condition has occurred and is continuing, dispositions in a commercially reasonable
manner of Equipment which has become redundant, worn out or obsolete or which should be replaced so as to improve productivity,
so long as the proceeds of any such disposition are (i) used to acquire replacement equipment which has comparable or better utility
and equivalent or better value and which is subject to a first priority security interest in favor of the Bank therein, except
as permitted by paragraph (10) of this subsection (B), and except for Permitted Liens, or (ii) applied to repay the Obligations.
The inclusion of Proceeds of the Collateral under the security interests granted hereby shall not be deemed a consent by the Bank
to any sale or disposition of any Collateral other than as permitted by this paragraph (13).


 


(14)        Further Identification of Collateral.
The Borrower will furnish to the Bank from time to time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Bank may reasonably request.


 


(15)        Notices.
The Borrower will advise the Bank promptly and in reasonable detail (a) of any Lien, security interest, encumbrance or material
claim made or asserted against any of the Collateral (other than a Permitted Lien), (b) of any material change in the composition
of the Collateral, and (c) of the occurrence of any other event, of which it has knowledge, which would have a material effect
on the aggregate value of the Collateral or on the security interests granted to the Bank in this Agreement.


 


(16)        Right
of Inspection. The Bank shall, within 60 days after the Effective Date, and at all times thereafter have full and free access
during normal business hours to all the books, correspondence and records of the Borrower, and the Bank or its representatives
may examine the same, take extracts therefrom, make photocopies thereof and have such discussions with officers, employees and
public accountants of the Borrower as the Bank may deem necessary, and the Borrower agrees to render to the Bank, at the Borrower's
cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Bank and its representatives
shall at all times also have the right to enter into and upon any premises where any of the Inventory or Equipment is located for
the purpose of inspecting the same, observing its use or protecting interests of the Bank therein.


 


(17)        Maintenance of Equipment.
The Borrower will, at its expense, generally maintain the Equipment in good operating condition, ordinary wear and tear excepted.


 


(18)        Reimbursement Obligation.
Should the Borrower fail to comply with the provisions of the Note, this Agreement, any other Loan Document to which it is a party
or any other agreement relating to the Collateral such that the value of any Collateral or the validity, perfection, rank or value
of any security interest granted to the Bank hereunder or thereunder is thereby diminished or potentially diminished or put at
risk (as reasonably determined by the Bank), the Bank on behalf of the Borrower may, but shall not be required to, effect such
compliance on behalf of the Borrower, and the Borrower shall reimburse the Bank for the cost thereof on demand, and interest shall
accrue on such reimbursement obligation from the date the relevant costs are incurred until reimbursement thereof in full at the
interest rate provided in the Revolving Note.


 




    	-25-



    	 



    

 


 


(19)        Assignment
of Claims Act. The Borrower shall deliver to the Bank a fully completed and executed Instrument of Assignment (or similar form
to be provided by the Bank for the purpose of satisfying the requirements of the federal Assignment of Claims Act of 1940, and
all applicable regulations), with respect to each Government Contract owing from the United States in excess of $1,000,000.00 in
contract price and having an initial contract term of one year or more. Each such document shall be delivered to the Bank prior
to said account’s being included in the Borrowing Base as an Eligible Government Account. Without the written consent of
the Borrower, or until the occurrence of a Default, the Bank shall not file a notice of assignment with respect to said Government
Contract.


 


(C)         Other
Covenants. The Borrower agrees that so long as the Bank is committed to make Advances or any amount payable under the Notes
or under any other Loan Document remains unpaid:


 


(1)         Information.
The Borrower will deliver or cause to be delivered to the Bank:


 


(a)          as
soon as available and in any event within 120 days after the end of each fiscal year of Versar, (i) a consolidated balance sheet
of Versar and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated financial statements
for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by an opinion thereon by Versar's independent public accountants, which opinion shall state that such consolidated
financial statements present fairly the consolidated financial position of Versar and its Consolidated Subsidiaries as of the date
of such financial statements and the results of their operations for the period covered by such financial statements in conformity
with GAAP applied on a consistent basis (except for changes in the application of which such accountants concur) and shall not
contain any "going concern" or like qualification or exception or qualifications arising out of the scope of the audit;
and (ii) a statement of the projected financial statements and cash flows for the fiscal year immediately following said fiscal
year;


 


(b)          as
soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of Versar,
a consolidated balance sheet of Versar and its Consolidated Subsidiaries and the related consolidated financial statements for
such quarter and for the portion of Versar's fiscal year ended at the end of such quarter, setting forth in each case in comparative
form the figures for the corresponding quarter and the corresponding portion of Versar's previous fiscal year, all certified (subject
to normal year-end audit adjustments) as complete and correct by the chief financial officer or chief accounting officer of Versar;


 


(c)          simultaneously
with the delivery of each set of financial statements referred to in subparagraphs (a) and (b) above, a certificate of the chief
financial officer or chief accounting officer of the Borrower, (i) setting forth in reasonable detail the calculations required
to establish whether the Borrower was in compliance with the requirements of paragraphs (2) through (4), inclusive, of subsection
(A), above, on the date of such financial statements, (ii) stating whether there exists on the date of such certificate any Default
Condition and, if any Default Condition then exists, setting forth the details thereof and the action which the Borrower is taking
or proposes to take with respect thereto and (iii) stating whether, since the date of the most recent previous delivery of financial
statements pursuant to subparagraph (a) or (b) of this paragraph (1) there has been any material adverse change in the business,
financial position, results of operations or prospects of the Borrower, and, if so, the nature of such material adverse change;


 




    	-26-



    	 



    

 


(d)          forthwith
upon the occurrence of any Default Condition, a certificate of the chief financial officer or chief accounting officer of the Borrower
setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;


 


(e)          promptly
upon the filing thereof, copies of all proxy statements, financial statements, and reports which each corporate Borrower sends
to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, which each Borrower
files with the U.S. Securities and Exchange Commission or any Governmental authority which may be substituted therefor, or with
any national securities exchange;


 


(f)          as
soon as reasonably practicable after (i) the receipt by any of the Borrower or any Subsidiary of any notice, claim, show cause
order or demand from any Government which alleges that any of the Borrower or any Subsidiary is in violation of any Government
Contract, or (ii) obtaining knowledge of the commencement of, or of a material threat of the commencement of, an action, suit or
proceeding against the Borrower which could materially adversely affect the business, properties, financial position, results of
operations or prospects of the Borrower or which in any manner questions the validity of this Agreement, the Note, any other Loan
Document or any of the transactions contemplated hereby or thereby; the nature of such notice, claim, show cause order, demand,
pending or threatened action, suit or proceeding, and such additional information as may be reasonably requested by the Bank;;


 


(g)          promptly
upon transmission thereof, copies of all press releases and other statements made available generally by the Borrower to the public
concerning material developments in the results of operations, financial condition, business or prospects of the Borrower;


 


(h)          promptly
upon receipt thereof, copies of each report submitted to the Borrower by independent public accountants in connection with any
annual, interim or special audit made by them of the books of the Borrower including, without limitation, each report submitted
to the Borrower concerning its accounting practices and systems and any final comment letter submitted by such accountants to management
in connection with the annual audit of the Borrower;


 


(i)          on
or before the tenth (10th) day of each month, a Borrowing Base Certificate of the Borrower and the most recent report of the aging
of the Borrower's Receivables;


 


(j)          on
or before 30 days after the end of each fiscal quarter of the Borrower, a contract backlog report of the Borrower for the three
month period then ending; and


 


(k)          from
time to time such additional information regarding the financial position, results of operations or business of the Borrower as
the Bank may reasonably request.


 




    	-27-



    	 



    

 


(2)         Payment
of Obligations. The Borrower will pay and discharge, as the same shall become due and payable, (a) all its obligations and
liabilities, including all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons
which, in any such case, if unpaid, might by law give rise to a Lien upon any of its property or assets, and (b) all lawful Taxes,
assessments and charges or levies made upon it or its property or assets, by any governmental body, agency or official except where
any of the items in subparagraphs (a) or (b) of this paragraph (2) may be diligently contested in good faith by appropriate proceedings,
and the Borrower shall have set aside on its books, if required under GAAP, appropriate reserves for the accrual of any such items.


 


(3)         Maintenance
of Property; Insurance. In addition to the specific requirements of subsection (B)(12) above, the Borrower generally will keep
all property useful and necessary in its business in good working order and condition, subject to ordinary wear and tear; will
maintain (either in the name of the Borrower or in the name of the Bank if required by subsection (B)(12) above) with financially
sound and reputable insurance companies, insurance on all its properties in at least such amounts and against at least such risks
(and with such risk retentions) as are usually insured against by companies engaged in the same or a similar business; and will
furnish to the Bank upon request full information as to the insurance carried.


 


(4)         Conduct
of Business and Maintenance of Existence. The Borrower will continue to engage in business of the same general type as now
conducted by the Borrower, and will preserve, renew and keep in full force and effect its corporate existence and its rights, privileges
and franchises necessary or desirable in the normal conduct of business.


 


(5)         Compliance
with Laws. The Borrower will comply with all applicable laws, ordinances, rules, regulations, and requirements of Government
(including, without limitation, the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the rules and regulations
thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings.


 


(6)         Accounting;
Inspection of Property, Books and Records. In addition to the specific requirements of subsection (B)(6), above, the Borrower
generally will keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be
made of all dealings and transactions in relation to its business and activities, will maintain its fiscal reporting periods on
the present basis and will permit representatives of the Bank to visit and inspect any of its properties, to examine and make abstracts
from any of its books and records and to discuss its affairs, finances and accounts with its officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably be desired.


 


(7)         Debt.
The Borrower will not incur or at any time be liable with respect to any Debt in excess of $2,000,000.00 in the aggregate at any
time, except (i) Debt outstanding under this Agreement and the Notes and the other Loan Documents, (ii) Debt secured by a Lien
pursuant to paragraph (8) of this subsection (C), (iii) Debt under performance, bid or surety bonds, in each case incurred in the
ordinary course of business, and (iv) Debt to the Seller under the Purchase Agreement.


 


(8)         Restriction
on Liens. The Borrower will not at any time create, assume or suffer to exist any Lien on any property or asset now owned or
hereafter acquired by it or assign or subordinate any present or future right to receive assets except:


 


(a)          any
Liens created by the this Agreement and all other Loan Documents;


 




    	-28-



    	 



    

 


(b)          any
purchase money security interest on any capital asset of the Borrower if such purchase money security interest attaches to such
capital asset concurrently with the acquisition thereof and if the Debt secured by such purchase money security interest does not
exceed the lesser of the cost or fair market value as of the time of acquisition of the asset covered thereby to the Borrower;
provided, that no such purchase money security interest shall extend to or cover any property or asset of the Borrower other
than the related asset;


 


(c)          Liens
securing Taxes, assessments or governmental charges or levies or the claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like persons; provided (i) with respect to Liens securing Taxes, assessments or governmental charges,
such Taxes are not yet payable pursuant to subsection (C)(2) above, or are not required to be paid, or (ii) with respect to Liens
securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and the like, such Liens are unfiled and
no other action has been taken to enforce the same;


 


(d)          Liens
not securing Debt which are incurred in the ordinary course of business in connection with workmen's compensation, unemployment
insurance, social security and other like laws;


 


(e)          any
Lien arising pursuant to any order of attachment, distraint or similar legal process arising in connection with court proceedings
so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested
in good faith by appropriate proceedings;


 


(f)          zoning
restrictions, easements, licenses, reservations, covenants, conditions, waivers, restrictions on the use of property or other minor
encumbrances or irregularities of title which do not materially impair the use of any property in the operation or business of
the Borrower or the value of such property for the purpose of such business;


 


(g)          deposits
securing the performance of bids, surety and appeal bonds, performance bonds and other similar items, in an amount not to exceed
$2,500,000.00 per bid, bond or other item; and


 


(h)          Liens
arising from judgments, interests or title of a lessor, licensor or sublessor under any license or lease agreement pursuant to
which rights are granted to Versar; and liens in favor of customs or revenue authorities arising as a matter of law to secure payment
of customs duties in connection with the importation of goods; in an amount of $2,500,000.00 at any time outstanding as to all
of the foregoing in the aggregate.


 


(9)         Consolidations,
Mergers and Sales of Assets. The Borrower will not (a) consolidate or merge with or into any other person or (b) sell, lease
or otherwise transfer all or any substantial part of its assets to any other person.


 


(10)        Transactions
with Affiliates. The Borrower will not directly or indirectly, pay any funds to or for the account of, make any investment
in, engage in any transaction with or effect any transaction in connection with any joint enterprise or other joint arrangement
with, any Affiliate of the Borrower, except that (a) the Borrower may make payment or provide compensation (including without limitation
the establishment of customary employee benefit plans) for personal services rendered by employees and other persons on terms fair
and reasonable in light of the circumstances under which such services were or are to be rendered, (b) the Borrower may make Shareholder/Employee
Advances, not to exceed, at any time in the aggregate, $100,000.00, and (c) the Borrower may make payments permitted by paragraph
(11), below.


 




    	-29-



    	 



    

 


Nothing in this paragraph (10) shall prohibit the Borrower from
making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making
payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary
course of business and on terms and conditions at least as favorable to the Borrower as the terms and conditions which would apply
in a similar transaction with a person not an Affiliate, or prohibit the Borrower from participating in, or effecting any transaction
in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Borrower participates in the ordinary
course of its business and on a basis no less advantageous than on the basis on which such Affiliate participates.


 


(11)        Restricted
Payments. The Borrower will not (a) declare or pay any dividend or other distribution on any shares of the Borrower's capital
stock, (except dividends payable solely in shares of its capital stock), (b) make any payment that would cause the aggregate amount
of all such payments in any fiscal year to exceed $500,000.00, on account of the purchase, redemption, retirement or acquisition
of (i) any shares of the Borrower's capital stock (except shares acquired upon the conversion thereof into other shares of its
capital stock) or (ii) any option, warrant or other right to acquire shares of the Borrower's capital stock.


 


(12)        Investments.
The Borrower will not make or acquire any investment in any person (whether by share purchase, capital contribution, loan, time
deposit or otherwise) other than (a) in direct obligations of the United States or any agency thereof, or obligations guaranteed
by the United States or any agency thereof, (b) in commercial paper rated in the highest grade by a nationally recognized credit
rating agency, (c) in time deposits with, including certificates of deposit issued by, any office located in the United States
of any bank or trust company which is organized under the laws of the United States or any state thereof and has capital, surplus
and undivided profits aggregating at least $200,000,000 (provided in each case that such investment matures within one year
from the date of acquisition thereof by the Borrower), (d) loans and advances to employees for travel in the ordinary course of
business and in an amount consistent with past practice, and (e) investments, not to exceed $500,000.00 per fiscal year in the
aggregate, in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers
of, and suppliers to, the Borrower, in each case in the ordinary course of business.


 


(13)        Transactions
with Other Persons. The Borrower shall not enter into any agreement with any person whereby any of them shall agree to any
restriction on the Borrower's right to amend or waive any of the provisions of this Agreement.


 


(14)        Use
of Proceeds. The proceeds of the Term Loan shall be used by Versar to acquire all of the issued and outstanding stock of Waller.
The proceeds of the Advances will be used by the Borrower for general working capital and other corporate purposes of the Borrower.
None of the proceeds of the Advances will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate,
of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System.


 




    	-30-



    	 



    

 


 


(15)        Bank
of Deposit. The Borrower shall at all times maintain the Bank as its primary bank of deposit.


 


(16)        New
Subsidiaries. Each Material Subsidiary of Versar that is in existence on, formed or acquired on or after, the Effective Date,
shall become a Borrower, jointly and severally liable with each other Borrower for the payment in full of the Obligations, and
Versar shall cause each such Subsidiary to satisfy each of the following conditions on or before the date on which such Subsidiary
is formed or acquired:


 


(i)          Such
Subsidiary shall execute and deliver to the Bank a joinder agreement on the Bank’s form therefor, and, within 30 days after
the acquisition or formation, as appropriate, any other Loan Documents required by the Bank to be executed and delivered by said
Subsidiary.


 


(ii)         All
legal matters incident to such Subsidiary’s becoming a Borrower shall be reasonably satisfactory to counsel for the Bank
and the Subsidiary shall execute and deliver to the Bank, within 30 days after its acquisition or formation, such additional documents
and certificates relating to the Loan as the Bank reasonably may request.


 


(iii)        The
Bank shall have received, within 30 days after said acquisition or formation, an opinion of counsel to such Subsidiary, addressed
to the Bank, covering such matters as the Bank may reasonably request, in form and substance reasonably satisfactory to the Bank.


 


(iv)        Financing
statements in form and substance reasonably satisfactory to the Bank shall have been properly filed in each office where necessary
to perfect the security interest of the Bank in the Collateral of such Subsidiary, and, within 30 days after said acquisition or
formation, (A) termination statements shall have been filed with respect to any other financing statements covering all or any
portion of such Collateral (except with respect to Liens permitted by this Agreement), (B) all Taxes and fees with respect to such
recording and filing shall have been paid by such Subsidiary or the Borrower and (C) the Bank shall have received such Lien searches
or reports as it shall require confirming that the foregoing filings and recordings have been completed.


 


(v)         Such
Subsidiary shall have delivered the following documents to the Bank, each of which shall be certified as of the date on which such
Subsidiary is to become a Borrower, by its secretary or representative performing similar functions; copies of evidence of all
actions taken by such Subsidiary to authorize the execution and delivery of the applicable Loan Documents;  copies of the
articles or certificate of incorporation and bylaws (or the organizational documents for a Borrower that is not a corporation)
of such Subsidiary; and  a certificate as to the incumbency and signatures of the officers of such Subsidiary executing the
Loan Documents.


 




    	-31-



    	 



    

 


(vi)        The
Bank shall have received current certificates of good standing and qualification issued by the appropriate state official of the
state of formation of such Subsidiary and in each jurisdiction in which it is qualified to do business.


 


(vii)       The
Bank shall have received, within 30 days after said acquisition or formation, such information and documents the Bank may reasonably
request with respect to the Collateral of such Subsidiary.


 


(viii)      If
required by the Bank, the Bank shall have received, within 30 days after said acquisition or formation, a satisfactory field examination
of the Collateral and internal control systems of such Subsidiary performed by a consultant selected by the Bank, and the Borrower
shall have reimbursed the Bank for the cost of such consultant.


 


(ix)         If
reasonably required by the Bank, it shall have received a landlord waiver from each landlord of such Subsidiary, which shall be
in form and substance reasonably acceptable to the Bank.


 


(17)        Merger
of Certain Subsidiaries. Within ninety (90) days of the date hereof, Versar intends to enter into one or more separate transactions
with Geomet Technologies, LLC, Charron Construction Consulting, Incorporated, Geo-Marine, Inc., and J.M. Waller Associates, Inc.
(collectively, the “Specified Subsidiaries”, and each, a “Specified Subsidiary”), whereby such Specified
Subsidiaries will be merged with and into Versar, with Versar surviving. Notwithstanding anything to the contrary in Paragraph
16, no later than ninety (90) days from the date hereof, time being of the essence, Borrower shall deliver to Bank, as to each
Specified Subsidiary, proof satisfactory to the Bank that such Specified Subsidiary has been merged with and into Versar, or an
opinion of counsel to such Specified Subsidiary, addressed to the Bank, covering such matters as the Bank may reasonably request,
in form and substance reasonably satisfactory to the Bank.


 


(D)         Independence
of Covenants. All covenants contained in this Agreement shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that such action or condition would be permitted by an exception
to, or otherwise be within the limitations of another covenant shall not avoid the occurrence of a Default Condition if such action
is taken or condition exists.


 


VII.         REMEDIES.


 


(A)         UCC
Rights. If any Default shall have occurred, the Bank may in addition to all other rights and remedies granted to it in this
Agreement, the Note, any and all other Loan Documents and in any other instrument or agreement securing, evidencing or relating
to the Obligations, exercise all rights and remedies of a secured party under the UCC and all other rights available to the Bank
at law or in equity.


 


(B)         Payments
on Collateral. Without limiting the rights of the Bank under any other provision of this Agreement, if a Default shall occur
and be continuing:


 




    	-32-



    	 



    

 


(1)         all
payments received by the Borrower under or in connection with any of the Collateral shall be held by the Borrower in trust for
the Bank, shall be segregated from other funds of the Borrower and shall forthwith upon receipt by the Borrower be turned over
to the Bank, in the same form as received by the Borrower (duly indorsed by the Borrower to the Bank, if required to permit collection
thereof by the Bank); and


 


(2)         all
such payments received by the Bank (whether from the Borrower or otherwise) may, in the sole discretion of the Bank, be held by
the Bank as collateral security for, and then or at any time thereafter applied in whole or in part by the Bank to the payment
of the expenses and Obligations as set forth in subsection (J), below.


 


(C)         Possession
of Collateral. In furtherance of the foregoing, the Borrower expressly agrees that, if a Default shall occur and be continuing,
the Bank may (i) by judicial powers, or without judicial process if it can be done without breach of the peace, enter any premises
where any of such Collateral is or may be located, and without charge or liability to the Bank seize and remove such Collateral
from such premises and (ii) have access to and use of the Borrower's books and records relating to such Collateral.


 


(D)         Sale
of Collateral.


 


(1)         The
Borrower expressly agrees that if a Default shall occur and be continuing, the Bank, without demand of performance or other demand
or notice of any kind (except the notice specified below of the time and place of any public or private sale) to the Borrower or
any other person (all of which demands and notices are hereby waived by the Borrower), may forthwith collect, receive, appropriate
and realize upon the Collateral and forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of
and deliver the Collateral or any part thereof (or contract to do so) in one or more parcels at public or private sale, at any
exchange, broker's board or at any office of the Bank or elsewhere in such manner as is commercially reasonable and as the Bank
may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Bank shall have the right
upon any such public sale, and, to the extent permitted by law, upon any such private sale, to purchase the whole or any part of
the Collateral so sold. The Borrower further agrees, at the Bank's request, to assemble the Collateral, and to make it available
to the Bank at places which the Bank may reasonably select. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands against the Bank arising out of the foreclosure, repossession, retention or sale of the Collateral.


 


(2)         Unless
the Collateral threatens to decline speedily in value or is of a type customarily sold in a recognized market, the Bank shall give
the Borrower five (5) days' written notice of its intention to make any such public or private sale or sale at a broker's board
or on a securities exchange. Such notice shall (a) in the case of a public sale, state the time and place fixed for such sale,
(b) in the case of a sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to
be made and the day on which the Collateral, or any portion thereof being sold, will first be offered for sale and (c) in the case
of a private sale, state the day after which such sale may be consummated. The Bank shall not be required or obligated to make
any such sale pursuant to any such notice. The Bank may adjourn any public or private sale or cause the same to be adjourned from
time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which
the same may be so adjourned. In the case of any sale of all or any part of the Collateral for credit or for future delivery, the
Collateral so sold may be retained by the Bank until the selling price is paid by the purchaser thereof, but the Bank shall not
incur any liability in case of failure of such purchaser to pay for the Collateral so sold and, in the case of such failure, such
Collateral may again be sold upon like notice.


 




    	-33-



    	 



    

 


(E)         Rights
of Purchasers. Upon any sale of the Collateral (whether public or private), the Bank shall have the right to deliver, assign
and transfer to the purchaser thereof the Collateral so sold. Each purchaser (including the Bank) at any such sale shall hold the
Collateral so sold free from any claim or right of whatever kind, including any equity or right of redemption of the Borrower,
and the Borrower, to the extent permitted by law, hereby specifically waives all rights of redemption and any right to a judicial
or other stay or approval which it has or may have under any law now existing or hereafter adopted.


 


(F)         Additional
Rights of the Bank.


 


(1)         The
Bank shall have the right and power to institute and maintain such suits and proceedings as it may deem appropriate to protect
and enforce the rights vested in it by this Agreement and may proceed by suit or suits at law or in equity to enforce such rights
and to foreclose upon and sell the Collateral or any part thereof pursuant to the judgment or decree of a court of competent jurisdiction.


 


(2)         The
Bank shall, to the extent permitted by law and without regard to the solvency or insolvency at the time of any Person then liable
for the payment of any of the Obligations or the then value of the Collateral, and without requiring any bond from any party to
such proceedings, be entitled to the appointment of a special receiver or receivers (who may be the Bank) for the Collateral or
any part thereof and for the rents, issues, tolls, profits, royalties, revenues and other income therefrom, which receiver shall
have such powers as the court making such appointment shall confer, and to the entry of an order directing that the rents, issues,
tolls, profits, royalties, revenues and other income of the property constituting the whole or any part of the Collateral be segregated,
sequestered and impounded for the benefit of the Bank, and the Borrower irrevocably consents to the appointment of such receiver
or receivers and to the entry of such order.


 


(G)         Remedies
Not Exclusive.


 


(1)         No
remedy conferred upon or reserved to the Bank in this Agreement is intended to be exclusive of any other remedy or remedies, but
every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing
at law, in equity or by statute.


 


(2)         If
the Bank shall have proceeded to enforce any right, remedy or power under this Agreement and the proceeding for the enforcement
thereof shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Bank, the Borrower
and the Bank shall, subject to any determination in such proceeding, severally and respectively be restored to their former positions
and rights under this Agreement, and thereafter all rights, remedies and powers of the Bank shall continue as though no such proceedings
had been taken.


 


(3)         All
rights of action under this Agreement may be enforced by the Bank without the possession of any instrument evidencing any Obligation
or the production thereof at any trial or other proceeding relative thereto, and any suit or proceeding instituted by the Bank
shall be brought in its name and any judgment shall be held as part of the Collateral.


 




    	-34-



    	 



    

 


(H)         Waiver
and Estoppel.


 


(1)         The
Borrower, to the extent it may lawfully do so, agrees that it will not at any time in any manner whatsoever claim or take the benefit
or advantage of any appraisement, valuation, stay, extension, moratorium, turnover or redemption law, or any law now or hereafter
in force permitting it to direct the order in which the Collateral shall be sold which may delay, prevent or otherwise affect the
performance or enforcement of this Agreement and the Borrower hereby waives the benefits or advantage of all such laws, and covenants
that it will not hinder, delay or impede the execution of any power granted to the Bank in this Agreement but will permit the execution
of every such power as though no such law were in force; provided that nothing contained in this subsection (H) shall be
construed as a waiver of any rights of the Borrower under any applicable federal bankruptcy law.


 


(2)         The
Borrower, to the extent it may lawfully do so, on behalf of itself and all who may claim through or under it, including without
limitation any and all subsequent creditors, vendees, assignees and lienors, waives and releases all rights to demand or to have
any marshalling of the Collateral upon any sale, whether made under any power of sale granted herein or pursuant to judicial proceedings
or upon any foreclosure or any enforcement of this Agreement and consents and agrees that all the Collateral may at any such sale
be offered and sold as an entirety.


 


(3)         The
Borrower, to the extent it may lawfully do so, waives presentment, demand, protest and any notice of any kind (except notices explicitly
required hereunder) in connection with this Agreement and any action taken by the Bank with respect to the Collateral.


 


(I)         Power
of Attorney. The Borrower hereby irrevocably constitutes and appoints the Bank, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Borrower and in the name of
the Borrower or in its own name, from time to time in the Bank's reasonable discretion for the purpose of carrying out the terms
of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the
Bank the power and right, on behalf of the Borrower, without notice to or assent by the Borrower to do the following:


 


(1)         to
pay or discharge Taxes, Liens, security interests or other encumbrances levied or placed on or threatened against the Collateral;


 


(2)         to
effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor
and the costs thereof; and


 




    	-35-



    	 



    

 


(3)         upon
the occurrence and continuance of any Default and otherwise to the extent provided in this Agreement, (a) to direct any party liable
for any payment under any of the Collateral to make payment of any and all moneys due and to come due thereunder directly to the
Bank or as the Bank shall direct; (b) to receive payment of and receipt for any and all moneys, claims and other amounts due and
to become due at any time in respect of or arising out of any Collateral; (c) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection
with accounts and other documents relating to the Collateral; (d) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other
right in respect of any Collateral; (e) to defend any suit, action or proceeding brought against the Borrower with respect to any
Collateral; (f) to settle, compromise and adjust any suit, action or proceeding described above and, in connection therewith, to
give such discharges or releases as the Bank may deem appropriate; (g) to assign any patent or trademark (along with the goodwill
of the business to which such trademark pertains), for such term or terms, on such conditions, and in such manner, as the Bank
shall in its sole discretion determine; and (h) generally to sell, transfer, pledge, make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the Bank were the absolute owner thereof for all purposes, and
to do, at the Bank's option and the Borrower's expense, at any time, or from time to time, all acts and things which the Bank deems
necessary to protect, preserve or realize upon the Collateral and the Bank's security interest therein, in order to effect the
intent of this Agreement, all as fully and effectively as the Borrower might do.


 


The Borrower hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and
shall be irrevocable.


 


(J)          Application
of Proceeds. The Bank shall retain the net proceeds of any collection, recovery, receipt, appropriation, realization or sale
of the Collateral and, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care
and safekeeping of any or all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable
attorneys' fees and legal expenses, apply such net proceeds to the payment in whole or in part of the Obligations in such order
as the Bank may elect, the Borrower remaining liable for any amount remaining unpaid (and any attorneys' fees paid by the Bank
in collecting such deficiency) after such application. Only after applying such net proceeds and after the payment by the Bank
of any other amount required by any provision of law, including Section 9-504(1)(c) of the UCC, need the Bank account for the surplus,
if any, to the Borrower or to whomsoever may be lawfully entitled to the same.


 


VIII. MISCELLANEOUS.


 


(A)         Notices.
Unless otherwise specified herein, all notices, requests or other communications to any party hereunder shall be in writing and
shall be given to such party at its address set forth on the signature page hereof or any other address which such party shall
have specified for the purpose of communications hereunder by notice to the other parties hereunder. Each such notice, request
or other communication shall be effective (1) if given by mail, three days after such communication is deposited, certified or
registered, in the mails with first class postage prepaid, addressed as aforesaid; or (2) if given by other means, when delivered
at the address specified in this subsection (A).


 


(B)         No
Waivers. No failure on the part of the Bank to exercise, no course of dealing with respect to, and no delay in exercising any
right, power or privilege under this Agreement or any document or agreement contemplated hereby shall operate as a waiver thereof
nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.


 




    	-36-



    	 



    

 


(C)         Compensation
and Expenses of the Bank. The Borrower shall pay to the Bank from time to time upon demand, all of the fees, costs and expenses
incurred by the Bank (including, without limitation, the reasonable fees and disbursements of counsel and any amounts payable by
the Bank to any of its agents, whether on account of fees, indemnities or otherwise) (1) arising in connection with the preparation,
administration, modification, amendment, waiver or termination of this Agreement or any document or agreement contemplated hereby
or any consent or waiver hereunder or thereunder or (2) incurred in connection with the administration of this Agreement, or any
document or agreement contemplated hereby, or in connection with the administration, sale or other disposition of Collateral hereunder
or under any document or agreement contemplated hereby or the preservation, protection or defense of the rights of the Bank in
and to the Collateral.


 


(D)         Indemnification.
The Borrower shall at all times hereafter indemnify, hold harmless and, on demand, reimburse the Bank, its subsidiaries, affiliates,
successors, assigns, officers, directors, employees and agents, and their respective heirs, executors, administrators, successors
and assigns (all of the foregoing parties, including, but not limited to, the Bank, being hereinafter collectively referred to
as the "Indemnitees" and individually as an "Indemnitee") from, against and for any and all liabilities, obligations,
claims, damages, actions, penalties, causes of action, losses, judgments, suits, costs, expenses and disbursements, including,
without limitation, attorney's fees (any and all of the foregoing being hereinafter collectively referred to as the "Liabilities"
and individually as a "Liability") which the Indemnitees, or any of them, might be or become subjected, by reason of,
or arising out of the preparation, execution, delivery, modification, administration or enforcement of, or performance of the Bank's
rights under, this Agreement or any other document, instrument or agreement contemplated hereby or executed in connection herewith;
provided that the Borrower shall not be liable to any Indemnitee for any Liability caused solely by the gross negligence
or willful misconduct of such Indemnitee. In no event shall any Indemnitee, as a condition to enforcing its rights under this subsection
(D) or otherwise, be obligated to make a claim against any other person (including, without limitation, the Bank) to enforce its
rights under this subsection (D).


 


(E)         Amendments,
Supplements and Waivers. The parties hereto may, from time to time, enter into written agreements supplemental hereto for the
purpose of adding any provisions to this Agreement, waiving any provisions hereof or changing in any manner the rights of the parties.


 


(F)         Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and shall inure to
the benefit of the Bank's successors and assigns. Nothing herein is intended or shall be construed to give any other person any
right, remedy or claim under, to or in respect of this Agreement or any Collateral.


 


(G)         Waiver
of Jury Trial; Submission to Jurisdiction. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY SUIT, ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Borrower irrevocably (i) submits to the exclusive jurisdiction of any
Virginia state court or federal court sitting in the state of Virginia with respect to any suit, action, or proceeding relating
to this Agreement, either Note, or any other Loan Document, (ii) waives any objection which it may now or hereafter have to the
laying of venue of any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum, (iii)
waives the right to object that any such court does not have jurisdiction over it, and (iv) consents to the service of process
in any such suit, action, or proceeding by the mailing of copies of such process to it by certified mail at the addresses indicated
on the signature pages of this Agreement or at such other addresses of which the Bank shall have received notice. Nothing in this
paragraph shall affect the Bank's right to serve process in any other manner permitted by law or to bring proceedings against the
Borrower in any other court having jurisdiction.


 




    	-37-



    	 



    

 


(H)         Termination;
Survival. This Agreement shall terminate when the security interests granted hereunder have terminated and the Collateral has
been released as provided in Section III(F); provided that the obligations of the Borrower under any of Section VI(B)(18),
VIII(C) and VIII(D) shall survive any such termination.


 


(I)         Entire
Agreement. This Agreement, the Notes and the other Loan Documents set forth the entire agreement of the parties with respect
to the subject matter hereof and thereof and supersede all previous understandings, written or oral, in respect thereof.


 


(J)         Limitation
of Law; Severability.


 


(1)         All
rights, remedies and powers provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate
any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory
provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement
invalid, unenforceable in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable
law.


 


(2)         If
any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible; and (b) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of such provisions in any other jurisdiction.


 


(K)         Amendment
and Restatement. The parties hereto do not intend that this Agreement constitute a novation of the Original Loan Agreement
or the Original Note. The Borrower represents and warrants that there are no offsets or defenses to the Original Loan Agreement
or the Original Note.


 


(L)         Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia.


 


(M)         Patriot
Act Notice. The Bank hereby notifies the Borrower that, pursuant to the requirements of the USA PATRIOT ACT (Title III of Pub.
L.107-56) (signed into law October 26, 2001), the Bank may be required to obtain, verify and record information that identifies
the Borrower, which information includes the name and address of the Borrower and other information that will allow the Bank to
identify the Borrower in accordance with said Act.


 


[SIGNATURES BEGIN ON THE FOLLOWING PAGE]


 




    	-38-



    	 



    

 


WITNESS the following signatures and seals:


 


	 	 	UNITED BANK                           [SEAL]
	 	 	 	 
	2071 Chain Bridge Road	 	 	 
	Vienna, Virginia 22182	 	 	 
	 	 	By:	/s/E. Allen Schirmer
	 	 	 	E. Allen Schirmer
	 	 	 	Senior Vice President
	 	 	 	 
	 	 	VERSAR, INC.                    [SEAL]
	(as to all Borrowers):	 	 	 
	6850 Versar Center	 	 	 
	Springfield, Virginia  22151	 	 	 
	 	 	By:	/s/ James D. Villa
	 	 	 	Name: James D. Villa
	 	 	 	Title: Senior VP & General Counsel
	 	 	 	 
	 	 	GEOMET TECHNOLOGIES, LLC     [SEAL]
	 	 	 	 
	 	 	By:	/s/ James D. Villa
	 	 	 	Name: James D. Villa
	 	 	 	Title: Vice President & Secretary
	 	 	 	 
	 	 	VERSAR INTERNATIONAL, INC.     [SEAL]
	 	 	 	 
	 	 	By:	/s/ James D. Villa
	 	 	 	Name: James D. Villa
	 	 	 	Title: Vice President & Secretary


 




    	-39-



    	 



    

 


	 	 	CHARRON CONSTRUCTION CONSULTING, INCORPORATED                                      [SEAL]
	 	 	 	 
	 	 	By:	/s/ James D. Villa
	 	 	 	Name: James D. Villa
	 	 	 	Title: Vice President & Secretary
	 	 	 	 
	 	 	GEO-MARINE, INC.                                   [SEAL]
	 	 	 	 
	 	 	By:	/s/ James D. Villa
	 	 	 	Name: James D. Villa
	 	 	 	Title: Vice President & Secretary
	 	 	 	 
	 	 	J.M. WALLER ASSOCIATES, INC.         [SEAL]
	 	 	 	 
	 	 	By:	/s/ James D. Villa
	 	 	 	Name: James D. Villa
	 	 	 	Title: Vice President & Secretary


 




    	-40-



    	 



    

 


APPENDIX 1


 


Borrower's Current Chief Executive Office:


 


6850 Versar Center


Springfield, Virginia 22151


 


Previous Chief Executive Offices (last 4 months only):


 


[None]


 


Locations of Records of Receivables


and Other Intangibles:


 


6850 Versar Center


Springfield, Virginia 22151


 


9200 Rumsey Road


Columbia, MD 21045


 


5330 Primrose Drive, Suite 147


Fair Oaks, CA 95628


 


498 Wando Park, Su 500


Mt. Pleasant, SC 29464


 


12050 N. Pecos St., Suite 300,


West Minister, CO 80234


 


4165 Westport Road, #103


Louisville, KY 40207


 


85 NE Loop 410, Suite 217


San Antonio, TX 78216


 


20251 Century Blvd


Germantown, MD 20874


 


 


7101 Wimsatt Road


Springfield, VA 22151


 




    	-41-



    	 



    

 


8577 Atlas Drive


Gaithersburg, MD 20877


 


4580-G Mack Avenue


Frederick, MD 21703


 


901 Main Street


Lynchburg, VA 24505


 


5041 Corporate Woods Drive, Suite 170,


Virginia Beach, VA 23462


 


1058 Technology Park Drive


Glen Allen, VA 23059


 


843 West 36th Street


Baltimore, MD 21211


 


200 North 2nd Street, Unit 8


Dillsburg, PA 17019


 


Protection House, Sherbourne Dr.,


Tilbrook, Milton Keynes. MK7 8HX


United Kingdom


 


Khalidiya-Kamala Tower


11th Floor Office 1101-02,


P.O. Box 28991


Abu Dhabi, UAE


 


114 Benavidez St.


Herco Building, Legaspi Village


Makati City, Philippines


 


Baghdad, Iraq


 


Kabul, Afghanistan


 


Ft. Irwin, CA


 


Nellis Air Force Base, NV


  


All Other Places of Business:


 


9200 Rumsey Road


Columbia, MD 21045


 




    	-42-



    	 



    

 


5330 Primrose Drive, Suite 147


Fair Oaks, CA 95628


 


498 Wando Park, Su 500


Mt. Pleasant, SC 29464


 


12050 N. Pecos St., Suite 300,


West Minister, CO 80234


 


4165 Westport Road, #103


Louisville, KY 40207


 


85 NE Loop 410, Suite 217


San Antonio, TX 78216


 


20251 Century Blvd


Germantown, MD 20874


 


7101 Wimsatt Road


Springfield, VA 22151


 


8577 Atlas Drive


Gaithersburg, MD 20877


 


4580-G Mack Avenue


Frederick, MD 21703


 


901 Main Street


Lynchburg, VA 24505


 


5041 Corporate Woods Drive, Suite 170,


Virginia Beach, VA 23462


 


1058 Technology Park Drive


Glen Allen, VA 23059


 


843 West 36th Street


Baltimore, MD 21211


 


200 North 2nd Street, Unit 8


Dillsburg, PA 17019


 


Protection House, Sherbourne Dr.,


Tilbrook, Milton Keynes. MK7 8HX


United Kingdom


 


Khalidiya-Kamala Tower


11th Floor Office 1101-02,


P.O. Box 28991


Abu Dhabi, UAE


 


114 Benavidez St.


Herco Building, Legaspi Village


Makati City, Philippines


 


Baghdad, Iraq


 


Kabul, Afghanistan


 


Ft. Irwin, CA


 


Nellis Air Force Base, NV




 




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APPENDIX 2


 


Locations of Equipment and Inventory:


 


6850 Versar Center


Springfield, Virginia 22151


 


9200 Rumsey Road


Columbia, MD 21045


 


5330 Primrose Drive, Suite 147


Fair Oaks, CA 95628


 


498 Wando Park, Su 500


Mt. Pleasant, SC 29464


 


12050 N. Pecos St., Suite 300,


West Minister, CO 80234


 


4165 Westport Road, #103


Louisville, KY 40207


 


85 NE Loop 410, Suite 217


San Antonio, TX 78216


 


20251 Century Blvd


Germantown, MD 20874


 




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7101 Wimsatt Road


Springfield, VA 22151


 


8577 Atlas Drive


Gaithersburg, MD 20877


 


4580-G Mack Avenue


Frederick, MD 21703


 


901 Main Street


Lynchburg, VA 24505


 


5041 Corporate Woods Drive, Suite 170,


Virginia Beach, VA 23462


 


1058 Technology Park Drive


Glen Allen, VA 23059


 


843 West 36th Street


Baltimore, MD 21211


 


200 North 2nd Street, Unit 8


Dillsburg, PA 17019


 


Protection House, Sherbourne Dr.,


Tilbrook, Milton Keynes. MK7 8HX


United Kingdom


 


Khalidiya-Kamala Tower


11th Floor Office 1101-02,


P.O. Box 28991


Abu Dhabi, UAE


 


114 Benavidiz St.


Herco Building, Legaspi Village


Makati City, Philippines


Baghdad, Iraq


 


Kabul, Afghanistan


 


Ft. Irwin, CA


 


Nellis Air Force Base, NV


 




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APPENDIX 3


 


Trade Names, Division Names, Etc.:


 


Versar


GEOMET


Versar International


Charron Construction Consulting


Versar, Inc.


GEOMET Technologies, LLC


Versar International, Inc.


Charron Construction Consulting, Inc.


Versar, Inc. Abu Dhabi Branch Office


Versar International, Inc. Asia Pacific


Versar International, Inc. Philippine Branch Office


 






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APPENDIX 4


 


California


Colorado


Delaware


Kentucky


Maryland


Nevada


Pennsylvania


South Carolina


Texas


Virginia


 




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