Exhibit 10.86

                        FINANCING AND SECURITY AGREEMENT

     THIS FINANCING AND SECURITY  AGREEMENT (the  "Agreement") is made this 27th
day of March, 1997, by and between VERSAR, INC., a corporation  organized and in
good standing under the laws of the State of Delaware (the  "Company"),  and its
subsidiary,  GEOMET  TECHNOLOGIES,  INC., a  corporation  organized  and in good
standing  under  the  laws of the  State of  Delaware  ("Geomet";  the  Company,
collectively  with its  Subsidiaries  are  sometimes  collectively  called,  the
"Borrowers" and each a "Borrower")  and  NATIONSBANK,  N.A., a national  banking
association, its successors and assigns (the "Lender").

                                    RECITALS

     A.  The  Borrowers  have  applied  to  the  Lender  for  credit  facilities
consisting of a guidance line of credit in the maximum  principal amount of Five
Million Dollars ($5,000,000) to be used by the Borrowers to finance Acquisitions
(as  hereinafter  defined)  and a  revolving  credit  facility  in  the  maximum
principal  amount  of  Three  Million  Dollars  ($3,000,000)  to be  used by the
Borrowers to finance Receivables.

     B. The Lender is willing to make these credit  facilities  available to the
Borrowers upon the terms and subject to the conditions hereinafter set forth.

                                   AGREEMENTS

     NOW,  THEREFORE,  in consideration of the premises,  the mutual  agreements
herein  contained,  and other good and valuable  consideration,  the receipt and
sufficiency  of which are  hereby  acknowledged,  the  Borrowers  and the Lender
hereby agree as follows:

I.   DEFINITIONS

     SECTION 1.1 Certain  Defined Terms.  As used in this  Agreement,  the terms
defined in the Preamble and Recitals  hereto shall have the respective  meanings
specified therein, and the following terms shall have the following meanings:

     "Account"  individually  and  "Accounts"  collectively  mean all  presently
existing  or  hereafter  acquired  or  created  accounts,  accounts  receivable,
contract rights, notes, drafts, instruments,  acceptances, chattel paper, leases
and writings  evidencing a monetary  obligation  or a security  interest in or a
lease  of  goods,   all  rights  to  receive  the  payment  of  money  or  other
consideration under present or future contracts (including,  without limitation,
all monies due and to become due under any  Government  Contract,  all rights to
receive  payments  under  presently  existing or  hereafter  acquired or created
letters  of  credit),  or by  virtue of  merchandise  sold or  leased,  services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper,  note,  draft,  lease,
acceptance,  writing,  bond, insurance policy,  instrument,  document or general
intangible,  and all extensions and renewals of any thereof, all rights under or
arising out of present or future  contracts,  agreements or general  interest in
merchandise which gave rise to any or all of the foregoing, including all goods,
all claims or causes of action now

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existing or  hereafter  arising in  connection  with or under any  agreement  or
document or by operation of law or  otherwise,  all  collateral  security of any
kind (including real property mortgages) given by any person with respect to any
of the foregoing and all proceeds (cash and non-cash) of the foregoing.

     "Acquisition  Loan"  means  and  "Acquisition   Loans"  have  the  meanings
described in Section 2.01.

     "Acquisition  Note" and "Acquisition  Notes" have the meanings described in
Section 2.01(d).

     "Affiliate" means, with respect to the Borrowers,  any Person,  directly or
indirectly controlling, directly or indirectly controlled by, or under direct or
indirect  common control with the Borrowers or any  Subsidiary,  as the case may
be.

     "Agreement" means this Financing and Security Agreement and all amendments,
modifications  and  supplements  hereto  which  may  from  time to  time  become
effective in accordance with the provisions of Section 11.10 hereof.

     "Assets"  means,  at any time, all assets that should,  in accordance  with
GAAP  consistently  applied,  be  classified as assets on a balance sheet of the
Borrowers.

     "Banking Day" shall mean any day that is not a Saturday,  Sunday or banking
holiday in the Commonwealth of Virginia.

     "Borrowing  Base"  means the sum of (a) ninety  percent  (90%) of  Eligible
Government  Receivables,  eighty five  percent  (85%) of Eligible  Subcontractor
Receivables and eighty percent (80%) Eligible Commercial  Receivables,  less the
sum of (a) the then outstanding  balance of the Acquisitions  Notes, and (b) the
then outstanding balance of the Sarnia Note.

     "Collateral"  shall mean all of the  Borrowers'  Accounts,  chattel  paper,
Equipment, General Intangibles, documents, instruments and Inventory (whether or
not designated with initial capital letters),  as those terms are defined in the
Uniform  Commercial  Code as  presently  adopted  and in effect in the State and
shall also cover,  without  limitation,  (i) any and all  property  specifically
included  in  those  respective  terms  in this  Agreement  or in the  Financing
Documents  and  (ii)  all  proceeds  (cash  and  non-cash,   including,  without
limitation, insurance proceeds) of the foregoing.

     "Collection" means each check,  draft, cash, money,  instrument,  item, and
other  remittance  in  payment or on  account  of  payment  of the  Accounts  or
otherwise with respect to any Collateral,  including,  without limitation,  cash
proceeds of any returned,  rejected or repossessed  goods,  the sale or lease of
which  gave  rise  to  an  Account,  and  other  proceeds  of  Collateral;   and
"Collections" means the collective reference to all of the foregoing.

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     "Commonly  Controlled  Entity"  shall  mean  an  entity,   whether  or  not
incorporated,  which is under common control with the Company within the meaning
of Section 414(b) or (c) of the Internal Revenue Code.

     "Current  Assets" means at any date, the amount which,  in conformity  with
GAAP,  would be set forth opposite the caption  "total  current  assets" (or any
like  caption)  on  a  consolidated   balance  sheet  of  the  Company  and  its
Subsidiaries.

     "Current  Liabilities"  means at any date, the amount which,  in conformity
with GAAP,  would be set forth opposite the caption "total current  liabilities"
(or any like  caption) on a  consolidated  balance  sheet of the Company and its
Subsidiaries.

     "Current  Ratio"  means the  ratio of (a)  Current  Assets  to (b)  Current
Liabilities, including, without, limitation, the unpaid principal balance of the
Revolving Loans outstanding at such time.

     "Debt Service  Coverage" shall mean as to the Borrower and its Subsidiaries
for  any  period  of  determination  thereof,  the  ratio  of (a)  EBITDA  minus
dividends,  to (b) the sum of interest expense, and payments on Indebtedness for
Borrowed  Money  scheduled  to be  due  and  payable  during  the  same  period,
including,  any capital  leases,  cash taxes and capital  expenditures  for such
period.

     "Default" has the meaning described in Article IX.

     "Default Rate" has the meaning set forth in the Notes.

     "Documents"  means  all  documents  and  documents  of title,  whether  now
existing or hereafter  acquired or created,  and all proceeds (cash and non-cash
of the foregoing).

     "EBITDA"  means shall mean as to the Company and its  Subsidiaries  for any
period of determination  thereof, the sum of (a) net profit (or loss) determined
in accordance with GAAP,  plus (b) interest  expense and federal and state taxes
for such  period,  plus (c)  depreciation  and  amortization  of assets for such
period,  all as  determined  on a  consolidated  basis for the twelve (12) month
period then ending.

     "Eligible  Commercial  Receivable"  mean,  at  any  time  of  determination
thereof,  each  Account,  other  than  Eligible  Government  Receivables,  which
conforms and continues to conform to the Eligibility Standards.

     "Eligible  Government  Receivable"  and "Eligible  Government  Receivables"
means,  at any time of  determination  thereof,  all Accounts which arise out of
Government  Contracts,  where the Company is the "prime"  contractor,  where all
monies due thereunder may have been directly  assigned to the Lender in its sole
discretion in conformity  with the  Assignment of Claims Act of 1940, as amended
and which otherwise conform to the Eligibility Standards

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     "Eligible    Subcontractor    Receivable"   and   "Eligible   Subcontractor
Receivables"  means, at any time of  determination  thereof,  all Accounts which
arise  out of  Government  Contracts,  where  the  Company  is not  the  "prime"
contractor and all monies due thereunder may have been directly  assigned to the
Lender in its sole discretion in conformity with the Assignment of Claims Act of
1940, as amended and which otherwise conform to the Eligibility Standards

     "Eligibility  Standards" mean, at any time of determination  thereof,  each
Account which conforms and continues to the following  standards (a) the Account
arose from a bona fide outright sale or lease of goods by the Borrowers, or from
services  performed by the Borrowers,  and (i) such goods have been delivered to
the appropriate account debtors or their respective designees, such Borrower has
in its possession  shipping and delivery  receipts  evidencing such shipment and
delivery, no return, rejection or repossession has occurred, and such goods have
not been  rejected  by the  account  debtor,  or (ii)  such  services  have been
satisfactorily completed and accepted by the appropriate account debtor; (b) the
Account is based upon an  enforceable  order or contract,  written or oral,  for
goods delivered or for services performed,  and the same were shipped,  held, or
performed  in  accordance  with such  order or  contract;  (c) the title of each
Borrower to the Account  and,  except as to the account  debtor and any creditor
which  finances  the account  debtor's  purchase of such goods,  to any goods is
absolute and is not subject to any prior  assignment,  claim,  Lien, or security
interest,  except  Permitted  Liens and Liens created by the account  debtors in
connection  with their interests in the goods,  and each Borrower  otherwise has
the full and unqualified right and power to assign and grant a security interest
in it to  the  Lender  as  security  and  collateral  for  the  payment  of  the
Obligations;  (d) the  amount  shown on the  books of each  Borrower  and on any
invoice, certificate,  schedule or statement delivered to the Lender is owing to
such Borrower and no partial  payment has been received  unless  reflected  with
that  delivery;  (e) the  Account  is not  subject  to any  claim of  reduction,
counterclaim,  setoff,  recoupment,  or other  defense in law or equity,  or any
claim for credits,  allowances,  or adjustments by the account debtor because of
returned,  inferior,  or damaged goods or  unsatisfactory  services,  or for any
other reason;  (f) the account debtor has not returned or refused to retain,  or
otherwise  notified  either  Borrower  of any  dispute  concerning,  or  claimed
nonconformity  of,  any of the  goods or  services  from  the sale of which  the
Account  arose;  (g) the Account is not  outstanding  more than ninety (90) days
from the date of the  invoice  therefor;  (h) the  Account  is not  owing by any
account  debtor for which the Lender has deemed fifty  percent  (50%) or more of
such account  debtor's  other  Accounts  (or any portion  thereof) due to either
Borrower to be non-Eligible Receivables; (i) the Account does not arise out of a
contract with, or order from, an account  debtor that, by its terms,  forbids or
makes void or unenforceable the assignment by the Borrowers to the Lender of the
Account arising with respect thereto; (j) the account debtor is not a Subsidiary
or other Affiliate of the Company; (k) the account debtor is not incorporated in
or primarily  conducting  business in any  jurisdiction  located  outside of the
United  States of America;  (l) the  Borrowers are not indebted in any manner to
the account debtor, with the exception of customary credits,  adjustments and/or
discounts  given to an account  debtor by the Company in the ordinary  course of
their businesses, (m) no part of the Account represents a retainage, (n) no bond
has been  issued  or is  contemplated  with  respect  to the  goods or  services
furnished  by either  Borrower or with  respect to the  project or contract  for
which those goods or services were furnished, and (o) the

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Lender in the exercise of its sole but reasonable  discretion has not deemed the
Account  ineligible  because of  uncertainty as to the  creditworthiness  of the
account debtor or because the Lender  otherwise  considers the collateral  value
thereof to the Lender to be impaired or its ability to realize  such value to be
insecure.  In the event of any  dispute,  under the  foregoing  criteria,  as to
whether an Account is, or has ceased to be, an Eligible Receivable, the decision
of the Lender in the exercise of its sole and absolute discretion shall control.

     "Enforcement  Costs"  shall  mean all  expenses,  charges,  costs  and fees
whatsoever (including, without limitation,  attorney's fees and expenses) of any
nature  whatsoever  paid or incurred by or on behalf of the Lender in connection
with (a) the collection or enforcement of any or all of the Obligations, (b) the
preparation of or changes to this Agreement,  the Notes, the Security  Documents
and/or  any of the other  Financing  Documents,  (c) the  creation,  perfection,
collection,  maintenance,  preservation,  defense, protection, realization upon,
disposition,  sale  or  enforcement  of  all  or any  part  of  the  Collateral,
including,  without  limitation,  those  sums  paid or  advanced,  and costs and
expenses,  more specifically  described in Section 10.3, and (d) the monitoring,
administration,  processing,  servicing of any or all of the Obligations  and/or
the Collateral.

     "Equipment" shall mean all equipment, machinery, furniture and fixtures and
supplies of every nature,  presently  existing or hereafter  acquired or created
and  wherever  located,  together  with  all  accessions,  additions,  fittings,
accessories,  special tools, and improvements thereto and substitutions therefor
and all parts and equipment  which may be attached to or which are necessary for
the operation and use of such personal  property,  whether or not the same shall
be deemed to be affixed to real property, and all rights under or arising out of
present or future contracts relating to the foregoing and all proceeds (cash and
non-cash) of the foregoing.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended from time to time.

     "Event of Default" means an event which, with the giving of notice or lapse
of time, or both,  could or would  constitute a Default under the  provisions of
this Agreement.

     "Fees" means the fees described in Sections 2.06 and 2.07 hereof.

     "Financing  Documents"  means at any time  collectively  and  include  this
Agreement,  each  Note,  the  Security  Documents,  and  any  other  instrument,
agreement  or document  previously,  simultaneously  or  hereafter  executed and
delivered  by any  Borrower  and/or any other  Person,  singly or  jointly  with
another Person or Persons,  evidencing,  securing,  guarantying or in connection
with any of the Obligations and/or in connection with this Agreement, any Notes,
any of the Security  Documents,  any of the Loan and/or any of the  Obligations,
including  without  limitation,   the  Sarnia  Note  and  the  Sarnia  Financing
Documents.

     "Funded Debt" shall mean for any period of determination thereof, an amount
equal to the  aggregate  amount of all  payments  in  principal  in  respect  to
Indebtedness for Borrowed Money

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scheduled  to be due and payable  during such  period,  together  with all other
interest bearing Liabilities of the Borrowers.

     "GAAP" shall mean generally  accepted  accounting  principles in the United
States of America in effect from time to time.

     "General  Intangibles" shall mean all general  intangibles of every nature,
whether presently existing or hereafter  acquired or created,  including without
limitation all books, correspondence,  credit files, records, computer programs,
computer  tapes,  cards and other  papers and  documents  in the  possession  or
control of either Borrower,  claims (including without limitation all claims for
income tax and other refunds),  choses in action,  contract  rights,  judgments,
patents, patent licenses, trademarks,  trademark licenses, licensing agreements,
rights in  intellectual  property,  Goodwill  (including  all  Goodwill  of each
Borrower's  business  symbolized by and associated  with any and all trademarks,
trademark  licenses,   copyrights  and/or  service  marks),   royalty  payments,
contractual  rights,  rights  as  lessee  under  any  lease of real or  personal
property,  literary rights,  copyrights,  service names,  service marks,  logos,
trade  secrets,  all amounts  received as an award in or settlement of a suit in
damages,  deposit  accounts,  interests in joint  ventures or general or limited
partnerships,  rights in applications for any of the foregoing, and all proceeds
(cash and non-cash) of the foregoing.

     "Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive,  legislative,
judicial, regulatory or administrative functions of or pertaining to government.

     "Government  Contract" means and "Government  Contracts" means contracts of
either  Borrower  with  the  United  States,   or  any  agency,   department  or
instrumentality  thereof  and on which  either  Borrower  is  either  a  "prime"
contractor or a subcontractor of the prime contractor.

     "Hazardous  Materials"  means (a) any  "hazardous  waste" as defined by the
Resource  Conservation  and Recovery Act of 1976,  as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as defined
by the Comprehensive  Environmental Response,  Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder;  (c)
any  substance  the presence of which on any property now or hereafter  owned or
acquired by either  Borrower is prohibited by any Law similar to those set forth
in this  definition;  and (d) any other substance which by Law requires  special
handling in its collection, storage, treatment or disposal.

     "Hazardous  Materials   Contamination"  means  the  contamination  (whether
presently  existing or occurring  after the date of this Agreement) by Hazardous
Materials of any property  owned,  operated or controlled by either  Borrower or
for which either Borrower has  responsibility,  including,  without  limitation,
improvements,  facilities,  soil, ground water, air or other elements on, or of,
any  property  now or hereafter  owned or acquired by either  Borrower,  and any
other  contamination by Hazardous  Materials for which either Borrower is, or is
claimed to be, responsible.

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     "Indebtedness  for Borrowed Money" of a Person,  at any time shall mean the
sum at such time of (a)  indebtedness  of such Person for borrowed  money or for
the deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations  issued  or  created  for the  account  of such  Person,  (c)  lease
obligations  of such  Person  which have been or should be, in  accordance  with
GAAP,  capitalized on the books of such Person,  (d) all liabilities  secured by
any Lien on any property  owned by such Person,  to the extent  attached to such
Person's  interest in such property,  even though such Person has not assumed or
become liable for the payment thereof,  and (e) any obligation of such Person or
a commonly  controlled  entity to a multiemployer  plan (as those terms are used
under applicable ERISA statutes and regulations).

     "Inventory"  means  all  inventory  of the  Borrowers,  including,  without
limitation all packing,  shipping,  advertising,  and promotional materials, and
all  documents  of  title  or  documents  representing  the  same,  all  general
intangibles  necessary or beneficial  for the  disposition  of the same, and all
proceeds (cash and non-cash) of the foregoing.

     "Items of Payment" means each check, draft, cash, money, instrument,  item,
and other  remittance  in payment or on  account of payment of the  Accounts  or
otherwise with respect to any Collateral,  including,  without limitation,  cash
proceeds of any returned,  rejected or repossessed  Goods,  the sale or lease of
which gave rise to an Account, and other proceeds or products of Collateral; and
"Items of Payment" means the collective reference to all of the foregoing.

     "Law" or "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions,  writs,  or  decrees of any  Governmental  Authority  or  political
subdivision or agency thereof, or any court or similar entity established by any
thereof.

     "Liabilities"   means,  at  any  time,  all  liabilities  that  should,  in
accordance  with GAAP  consistently  applied,  be classified as liabilities on a
balance sheet of the Borrowers.

     "Lien"  means any  mortgage,  deed of trust,  deed to secure  debt,  grant,
pledge, security interest, assignment,  encumbrance, judgment, lien or charge of
any kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease  in the  nature  thereof,  and the  filing  of or  agreement  to give  any
financing  statement  under the  Uniform  Commercial  Code of any  jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in a
true lease transaction,  by any bailor in a true bailment  transaction or by any
consignor in a true consignment transaction under the Uniform Commercial Code of
any jurisdiction or the agreement to give any financing  statement by any lessee
in a true lease transaction,  by any bailee in a true bailment transaction or by
any consignee in a true consignment transaction.

     "Loan" means a Revolving Loan or an  Acquisition  Loan, as the case may be,
and "Loans" mean all Revolving Loans and all Acquisition Loans.

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     "Multiemployer  Plan"  shall mean a Plan which is a  multiemployer  plan as
defined in Section 4001(a)(3) of ERISA.

     "Net  Worth"  means,  at any  time,  the  excess  of (a)  Assets,  over (b)
Liabilities.

     "Note" means the Revolving  Promissory Note or any Acquisition Note, as the
case may be, and "Notes" mean collectively the Revolving Promissory Note and the
Acquisition  Notes,  and any other  promissory  note which may from time to time
evidence the Obligations.

     "Obligations"  means  all  present  and  future  debts,  obligations,   and
liabilities,  whether now existing or contemplated or hereafter arising,  of the
Borrowers to the Lender under, arising pursuant to, in connection with and/or on
account of the provisions of this Agreement,  the Notes, each Security Document,
and any of the other Financing Documents, any of the Loans, and any of the Loans
including,  without  limitation,  the  principal of, and interest on, the Notes,
late charges, Enforcement Costs, and other prepayment penalties (if any), letter
of credit fees or fees  charged  with  respect to any  guaranty of any letter of
credit,  and also means all other present and future  indebtedness,  liabilities
and obligations,  whether now existing or contemplated or hereafter arising,  of
the Borrowers to the Lender of any nature whatsoever  regardless of whether such
debts,  obligations and  liabilities be direct,  indirect,  primary,  secondary,
joint,  several,  joint  and  several,  fixed  or  contingent;  and  any and all
renewals,  extensions  and  rearrangements  of any such debts,  obligations  and
liabilities,  including,  but not  limited  to any and  all  obligations  of the
Company under the Sarnia Guaranty.

     "Overdraft"  means any  excess of debit  entries  over  collected  funds on
deposit in any banking account of either Borrower.

     "PBGC" means the Pension Benefit Guaranty Corporation.

     "Permitted  Liens" means:  (a) Liens for Taxes which are not  delinquent or
which the Lender  has  determined  in the  exercise  of its sole but  reasonable
discretion (i) are being  diligently  contested in good faith and by appropriate
proceedings,  (ii) the  Borrowers  have the  financial  ability to pay, with all
penalties and interest,  at all times without materially and adversely affecting
any Borrower,  and (iii) are not, and will not be with appropriate  filing,  the
giving of notice and/or the passage of time,  entitled to priority over any Lien
of the Lender;  (b)  deposits or pledges to secure  obligations  under  worker's
compensation,  social security or similar laws, or under unemployment  insurance
in the  ordinary  course  of  business;  (c) Liens in favor of the  Lender;  (d)
judgment  Liens to the extent the entry of such judgment does not  constitute an
Event of Default under the terms of this  Agreement or result in the sale of, or
levy of execution on, any of the  Collateral;  and (e) such other Liens, if any,
as are set forth on EXHIBIT __ attached hereto and made a part hereof.

     "Person"   shall  mean  and  include  an  individual,   a  corporation,   a
partnership,  a  joint  venture,  a  trust,  an  unincorporated  association,  a
government or political subdivision or agency thereof or any other entity.

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     "Prime Rate" means the prime rate charged by the Lender as announced by the
Lender. The Prime Rate is not necessarily the lowest rate of interest charged by
the Lender to borrowers.

     "Reportable  Event"  shall  mean any of the  events  set  forth in  Section
4043(b) of ERISA or the regulations thereunder.

     "Responsible  Officer" means the chief executive  officer of the Company or
the  president of the Company or, with respect to financial  matters,  the chief
financial officer of the Company.

     "Revolving  Loan  Committed  Amount" has the meaning  described  in Section
2.02(a).

     "Revolving  Loan" and  "Revolving  Loans" have the  meanings  described  in
Section 2.02(a).

     "Revolving Promissory Note" has the meaning described in Section 2.02(c).

     "Revolving Loan Account" has the meaning described in Section 2.04.

     "Sarnia" means Sarnia Corporation,  a Virginia corporation,  its successors
and assigns.

     "Sarnia Financing Documents" means at any time collectively and include the
Sarnia  Note,  and any  other  instrument,  agreement  or  document  previously,
simultaneously  or hereafter  executed and  delivered by Sarnia,  the  Borrowers
and/or any other  Person,  singly or jointly  with  another  Person or  Persons,
evidencing, securing, guarantying or in connection with the Sarnia Note.

     "Sarnia Note" means that certain  Promissory  Note of even date herewith in
the  principal  amount of  $1,500,000  from Sarnia  Corporation  in favor of the
Lender, as the same may be from time to time be amended, restated,  supplemented
or otherwise modified.

     "Sarnia  Guaranty" means that certain Guaranty of Payment Agreement of even
date herewith  from the Company in favor of the Lender,  as the same may be from
time to time be amended, restated,  supplemented or otherwise modified, pursuant
to which,  among other  things,  the  Borrower  has  unconditionally  guarantied
repayment of the Sarnia Note.

     "Security  Documents"  shall  mean  collectively  any  assignment,   pledge
agreement,  security  agreement,  mortgage,  deed of trust, deed to secure debt,
financing statement and any similar  instrument,  document or agreement under or
pursuant to which a Lien is now or hereafter  granted to, or for the benefit of,
the Lender on any  collateral  to secure the  Obligations,  as the same may from
time to time be amended, restated, supplemented or otherwise modified.

                                        9

<PAGE>

     "Senior  Management"  shall be deemed to refer to the  following  executive
positions:  President and Chief Executive Officer; Vice President, Treasurer and
Chief Financial Officer; and Vice President and General Counsel.

     "State" means the Commonwealth of Virginia.

     "Subsidiary"  means any  corporation  the majority of the voting  shares of
which  at the time are  owned  directly  by the  Company  and/or  by one or more
Subsidiaries of the Company.

     "Tangible Net Worth" means,  at any time,  the sum at such time of: (a) the
Net  Worth  less the  total of (i) all  assets  which  would  be  classified  as
intangible  assets  under  GAAP,  including  Goodwill,   trademarks,   trademark
applications,  trade names, service marks, patent applications and licenses, and
deferred  charges,  (ii)  leasehold  improvements,  (iii)  applicable  reserves,
allowances  and other  similar  properly  deductible  items to the  extent  such
reserves,  allowances and other similar properly  deductible items have not been
previously  deducted  by the Lender in the  calculation  of Net Worth,  (iv) any
revaluation or other write-up in book value of assets  subsequent to the date of
the most recent financial statements delivered to the Lender, and (v) the amount
of all loans and  advances to, or  investments  in, any Person,  excluding  cash
equivalents and deposit accounts  maintained by the Borrowers with any financial
institution;   plus  (b)  the  principal  amount  of  subordinated  indebtedness
outstanding at any time.

     "Taxes" mean all taxes and assessments whether general or special, ordinary
or extraordinary,  or foreseen or unforeseen,  of every character (including all
penalties  or  interest  thereon),  which at any time may be  assessed,  levied,
confirmed or imposed by any  Governmental  Authority on the  Borrowers or any of
their  properties  or assets or any part  thereof  or in  respect  of any of its
franchises, businesses, income or profits.

     "Wholly Owned Subsidiary" means any domestic United States  corporation all
the shares of stock of all classes of which  (other than  directors'  qualifying
shares) at the time are owned  directly or indirectly  by the Company  and/or by
one or more Wholly Owned Subsidiaries of the Company.

     SECTION 1.2  Accounting  Terms and Other  Definitional  Provisions.  Unless
otherwise  defined  herein,  as used in this  Agreement and in any  certificate,
report or other document made or delivered pursuant hereto, accounting terms not
otherwise  defined herein,  and accounting terms only partly defined herein,  to
the extent not defined,  shall have the respective  meanings given to them under
GAAP. Unless otherwise  defined herein,  all terms used herein which are defined
by the Virginia Uniform Commercial Code shall have the same meanings as assigned
to them by the Virginia Uniform  Commercial Code unless and to the extent varied
by this  Agreement.  The words  "hereof",  "herein" and "hereunder" and words of
similar  import when used in this  Agreement  shall refer to this Agreement as a
whole  and not to any  particular  provision  of this  Agreement,  and  section,
subsection,  schedule  and  exhibit  references  are  references  to sections or
subsections  of, or schedules or exhibits to, as the case may be, this Agreement
unless otherwise specified. As used herein, the singular

                                       10

<PAGE>

number  shall  include the plural,  the plural the  singular  and the use of the
masculine,  feminine or neuter gender shall include all genders,  as the context
may require.  Reference to any one or more of the Financing Documents and any of
the  Financing  Documents  shall mean the same as the foregoing may from time to
time be amended,  restated,  substituted,  extended,  renewed,  supplemented  or
otherwise modified.

II.  BORROWING

     SECTION 2.1 (a) The  Acquisition  Loans.  Subject to and in accordance with
the provisions of this  Agreement,  the Lender agrees from time to time from the
Closing Date until  November 30, 1998, to lend (each an  "Acquisition  Loan" and
collectively  the  "Acquisition  Loans")  to  the  Borrowers  such  sums  as the
Borrowers request and as the Lender approves  pursuant to this Agreement,  up to
the maximum aggregate principal amount of Five Million Dollars ($5,000,000) (the
"Acquisition Loan Committed Amount").

     (b) Proceeds of the Acquisition  Loans.  The proceeds of each advance under
the  Acquisition  Loan  shall  be used  by the  Borrowers  to  make a  Permitted
Acquisition in accordance with Section 8.04 of this Agreement,  and for no other
purposes except as may otherwise be agreed by the Lender in writing.

     (c) Procedure for Making  Acquisition Loans. The Borrowers may borrow under
the  Acquisition  Loan on any Banking Day. The Borrowers shall notify the Lender
no  later  than  ten  (10)  Banking  Days  prior  to the date of the date of the
proposed  borrowing.  The Lender will not lend more than  seventy  five  percent
(75%) of the Purchase  Price of any  Acquisition.  The Lender shall not consider
making an advance  under the  Acquisition  Loan  unless  the  Lender  shall have
received and approved  with respect to such advance,  among other things;  (i) a
pro forma post acquisition  balance statement,  income statement,  and cash flow
statement,  (ii) a  listing  of all  assets  to be  acquired,  (iii)  historical
financial statements on the Target (as hereinafter  defined);  (iv) the proposed
terms  and  conditions  for  the  proposed  acquisition;   and  (v)  such  other
information as the Lender may request.

     (d)  Acquisition  Loan  Notes.  The joint  and  several  obligation  of the
Borrowers to repay with  interest each advance made under the  Acquisition  Loan
made by the Lender from time to time shall be evidenced by an  Acquisition  Note
(as from time to time extended,  amended,  restated,  supplemented  or otherwise
modified, each an "Acquisition Note" and collectively,  the "Acquisition Notes")
substantially  in the form set forth in EXHIBIT "A-1" attached hereto and made a
part hereof, with appropriate insertions, dated as of the date of each advance.

     SECTION  2.2 The  Revolving  Loan.  (a) The  Lender  agrees  to lend to the
Borrowers  and the Borrowers  agree to borrow on a revolving  basis from time to
time the  principal  amount  (the  "Revolving  Loan")  not to exceed at any time
outstanding the lesser (the "Revolving Loan Committed  Amount") of Three Million
Dollars ($3,000,000) or the Borrowing Base.

                                       11

<PAGE>

     (b) If at any time the outstanding  principal balance of the Revolving Loan
exceeds the limitations  provided in subsection (a) above, the Borrowers promise
to pay to the order of the Lender, on demand, the amount of the excess.

     (c) The joint and several obligation of the Borrowers to repay the advances
under  the  Revolving  Loan  shall  be  evidenced  by the  Borrowers'  Revolving
Promissory Note of even date herewith (the "Revolving  Promissory Note") payable
to the  Lender in the form  attached  hereto as  EXHIBIT  "A-2".  The  Revolving
Promissory  Note shall bear interest and shall be repaid by the Borrowers in the
manner and at the times set forth in the Revolving Promissory Note.

     (d) The Borrowers may prepay the principal sum outstanding on the Revolving
Loan only in accordance  with the terms of the Revolving Note. Sums borrowed and
repaid may be readvanced under the terms and conditions of this Agreement.

     (e) The proceeds of the  Revolving  Loan shall be used by the Borrowers for
the purposes set forth in Recital A above,  and, unless prior written consent of
the Lender is obtained, for no other purpose.

     SECTION 2.3 Revolving Loan Procedure.  (a) Each advance under the Revolving
Loan shall be in an amount of not less than $10,000, or a multiple thereof.  The
Borrowers  shall  notify the  Lender not late than 1:00 p.m.  on the date of any
proposed advance.

     (b) The Borrowers shall furnish to the Lender such schedules, certificates,
lists,  records,  reports,  information  and documents as required by the Lender
from time to time so that the  Lender  may,  in its  discretion,  determine  the
Borrowing Base.

     (c) In addition,  the Borrowers hereby irrevocably  authorize the Lender to
make  advances  under  the  Revolving  Loan at any time  and from  time to time,
without  further request from or notice to the Borrowers,  which the Lender,  in
its sole and absolute discretion,  deems necessary or appropriate to protect the
Lender's  interests  under  this  Agreement  or  otherwise,  including,  without
limitation, advances made to cover Overdrafts, principal of, and/or interest on,
any  Loans,  fees,  and/or  Enforcement  Costs,  prior  to,  on,  or  after  the
termination of this Agreement, regardless of whether the aggregate amount of the
advances  which the Lender  may make  hereunder  exceeds  the  Revolving  Credit
Committed  Amount.  The Lender shall have no  obligation  whatsoever to make any
advance under this  subsection and the making of one or more advances under this
subsection  shall not  obligate  the  Lender to make  other  similar  advance or
advances. Any such advances will be secured by the Collateral.

     (d) The Lender is authorized to deduct any payment  (including  payments of
principal,  interest  and/or Fees as  provided  herein or in the Notes) from the
Borrowers' Account Number _____________ on or after the date the payment is due;
provided,  however,  that such authorization  shall not be deemed to relieve the
Borrowers from their obligation to make such payment when it is

                                       12

<PAGE>

due and,  further  provided,  that the Lender will  provide the  Borrowers  with
notice of any such deduction.

     SECTION 2.4 Revolving Loan Account.  The Lender will establish and maintain
a loan account on its books (the  "Revolving  Loan Account") to which the Lender
will ( debit (i) the principal  amount of each Revolving Loan made by the Lender
hereunder as of the date made,  (ii) the amount of any  interest  accrued on the
Revolving  Loans as and when due, and (ii) any other  amounts due and payable by
the  Borrowers  to the  Lender  from time to time under the  provisions  of this
Agreement in connection with the Revolving Loans, including, without limitation,
Enforcement Costs, Fees, late charges,  and service,  collection and audit fees,
as and when due and payable,  and (b) credit all payments  made by the Borrowers
to the Lender on account of the Revolving  Loans as of the date made  including,
without  limitation,  funds credited to the Collateral Account and collected and
paid to the Lender,  the Lender  reserving the right,  exercised in its sole and
absolute  discretion from time to time, to provide earlier credit or to disallow
credit for any Collection which is unsatisfactory to the Lender.

     The  Lender  may debit the  Revolving  Loan  Account  for the amount of any
Collection  which is returned to the Lender  unpaid.  All credit  entries to the
Revolving  Loan Account are  conditional  and shall be readjusted as of the date
made if final and indefeasible  payment is not received by the Lender in cash or
solvent credits. The Borrowers hereby promise to pay to the order of the Lender,
on demand,  an amount equal to the excess, if any, of all debit entries over all
credit  entries  recorded in the Revolving  Loan Account under the provisions of
this Agreement.

     SECTION 2.5 Collateral  Account.  The Borrowers will deposit or cause to be
deposited to a bank account  designated  by the Lender and from which the Lender
alone has power of access and withdrawal (the "Collateral  Account"),  all Items
of  Payment.  The  Borrowers  shall  deposit  Items of Payment for credit to the
Collateral  Account  not later  than the next  Banking  Day  after  the  receipt
thereof, and in precisely the form received,  except for the endorsements of the
Borrowers where necessary to permit the collection of any such Items of Payment,
which  endorsement the Borrowers  hereby agree to make.  Pending such deposit to
the Collateral Account, endorsement and/or other delivery thereof to the Lender,
the  Borrowers  will not  commingle  any Items of Payment  with any of its other
funds or property,  but will hold them separate and apart therefrom in trust and
for the account of the Lender.  The Lender is not,  however,  required to credit
the Collateral  Account for the amount of any Collection which is unsatisfactory
to the Lender.  In addition,  the Borrowers shall, if so directed by the Lender,
establish a lock box to which Items of Payments may be sent and shall direct the
Borrowers' customers and others as the Lender may require to forward payments to
that lock box.  Items of Payment  received in the lock box shall be deposited in
the Collateral Account or as otherwise directed by the Lender from time to time.

     SECTION 2.6 Commitment Fee. The Borrowers agree to pay to the Lender on the
first day of each calendar quarter commencing after the date of this Agreement a
commitment fee (computed on the basis of a year  consisting of three hundred and
sixty (360) days for the actual

                                       13

<PAGE>

number of days  elapsed) of one  quarter of one percent  (.25%) per annum on the
daily average of the unused amount of the Revolving Loan.

     SECTION 2.7 Acquisition  Loan Fee. The Borrowers agree to pay to the Lender
a fee  in  conjunction  with  each  advance  under  the  Acquisition  Loan.  The
Acquisition  Loan fee will be one half of one  percent  (.50%)  per annum of the
amount of each Acquisition Note and shall be payable on the date of each advance
under the  Acquisition  Loan.  THE  BORROWERS  ACKNOWLEDGE  AND  AGREE  THAT THE
ACQUISITION LOAN FEE IS PAID IN CONSIDERATION OF THE LENDER'S  PROCESSING OF THE
BORROWERS' CREDIT  APPLICATION,  AND IS NOT INTENDED AS A COMMITMENT FEE FOR THE
ACQUISITION  LOAN FACILITY;  PAYMENT OF THE ACQUISITION  LOAN FEE SHALL UNDER NO
CIRCUMSTANCES  OBLIGATE  THE LENDER TO MAKE ANY FUTURE  ADVANCES  OR APPROVE ANY
DISCRETIONARY ACQUISITIONS UNDER THE ACQUISITION LOAN FACILITY.

     SECTION 2.8 Transactions under this Agreement Between the Borrowers and the
Lender.  In respect to any advance and all other  matters under or in connection
with this  Agreement and any  transactions  contemplated  hereby,  the Borrowers
authorize the Lender to accept,  rely upon, act upon and comply with, any verbal
or written instructions,  requests,  confirmations and orders of any employee or
representative  of the Company  designated by the Borrowers in writing delivered
to the  Lender  from  time to time.  The  Borrowers  each  acknowledge  that the
transmission  between  the  Borrowers  and the Lender of any such  instructions,
requests,   confirmations   and  orders  involves  the  possibility  of  errors,
omissions, mistakes and discrepancies and agrees to adopt such internal measures
and  operational  procedures to protect its interests.  By reason  thereof,  the
Borrowers hereby assume all risk of loss and  responsibility  for,  releases and
discharges  the Lender from any and all  responsibility  or  liability  for, and
agrees to indemnify,  reimburse on demand and hold the Lender harmless from, any
and all claims, actions,  damages,  losses, liability and expenses by reason of,
arising  out of or in any way  connected  with or related  to, (i) the  Lender's
acceptance,  reliance and actions upon,  compliance  with or  observation of any
such instructions,  requests, confirmations or orders, and (ii) any such errors,
omissions, mistakes and discrepancies, except those caused by the Lender's gross
negligence or willful misconduct.

     SECTION 2.9 Account Statements. Any and all periodic or other statements or
reconciliations,   and  the  information   contained  in  those   statements  or
reconciliations, of the Revolving Loan Account shall be presumed conclusively to
be correct and shall  constitute  an account  stated  between the Lender and the
Borrowers unless the Lender receives specific written objection thereto from the
Borrowers within thirty (30) Banking Days after such statement or reconciliation
shall have been sent by the Lender.

     SECTION  2.10  Overdraft  Advances.  If, after the close of business on any
Banking  Day,  any  banking  account  of  either  Borrower  with the  Lender  is
determined  by the  Lender  to  have  an  Overdraft,  the  Lender,  in its  sole
discretion  on each  and any  such  occasion  may  (and  is  hereby  irrevocably
authorized by the Borrowers  to), but is not obligated to, make an advance under
the

                                       14

<PAGE>

Revolving  Loan  to the  Borrowers  in a  principal  amount  equal  to any  such
Overdraft as of the close of business on such Banking Day. All Overdrafts  shall
be secured by the Collateral.

III. COLLATERAL

     As security for the payment of all of the Obligations, each Borrower hereby
assigns,  grants and conveys to the Lender and agrees that the Lender shall have
a  perfected,  continuing  security  interest  in all of  the  Collateral.  Each
Borrower further agrees that the Lender shall have in respect the Collateral all
of the  rights  and  remedies  of a secured  party  under the  Virginia  Uniform
Commercial Code and under other applicable Laws and Security Documents,  as well
as those  provided in this  Agreement.  Each  Borrower  covenants  and agrees to
execute and deliver such financing  statements and other instruments and filings
as are necessary in the opinion of the Lender to perfect such security interest.
Notwithstanding  the fact that the proceeds of the Collateral  constitute a part
of the Collateral,  neither Borrower may dispose of the Collateral,  or any part
thereof,  other than in the ordinary  course of its business or as otherwise may
be permitted by this Agreement.

IV.  UNCONDITIONAL OBLIGATIONS

     The payment and  performance by the Borrowers of the  Obligations  shall be
absolute  and  unconditional,  irrespective  of any  defense  or any  rights  of
set-off, recoupment or counterclaim they might otherwise have against the Lender
and the Borrowers shall pay absolutely net all of the  Obligations,  free of any
deductions and without  abatement,  diminution or set-off;  and until payment in
full  of all of  the  Obligations,  the  Borrowers:  (a)  will  not  suspend  or
discontinue any payments provided for in the Notes; (b) will perform and observe
all of their other agreements  contained in this Agreement,  including  (without
limitation)  all  payments  required to be made to the Lender;  and (c) will not
terminate or attempt to terminate this Agreement for any cause.

V.   REPRESENTATIONS AND WARRANTIES

     To induce  the  Lender to make the  Loans,  each  Borrower  represents  and
warrants to the Lender and,  unless the Lender is notified by either Borrower of
a change or changes  effecting such  representations  and  warranties,  shall be
deemed to  represent  and warrant to the Lender at the time each  request for an
advance  under the Loans is submitted  and again at the time any advance is made
under the Loans that:

     SECTION 5.1 Subsidiaries. Geomet is the Company's only Subsidiary.

     SECTION 5.2 Good Standing.  The Company and each of its Subsidiaries (a) is
a corporation  duly  organized,  existing and in good standing under the laws of
the  jurisdiction of its  incorporation,  (b) has the corporate power to own its
property  and to carry on its business as now being  conducted,  and (c) is duly
qualified to do business and is in good standing in each  jurisdiction  in which
the character of the properties  owned by it therein or in which the transaction
of its business makes such qualification necessary.

                                       15

<PAGE>

     SECTION 5.3 Power and Authority.  The Company and each of its  Subsidiaries
has full power and  authority to execute and deliver this  Agreement and each of
the  other  Financing  Documents  executed  and  delivered  by it,  to make  the
borrowing hereunder,  and to incur the Obligations,  all of which have been duly
authorized by all proper and necessary  corporate action. No consent or approval
of  stockholders  or of any public  authority  is required as a condition to the
validity  or  enforceability  of this  Agreement  or any of the other  Financing
Documents executed and delivered by the Borrowers.

     SECTION  5.4  Binding  Agreements.  This  Agreement  and each of the  other
Financing  Documents  executed and delivered by the Borrowers have been properly
executed by each Borrower,  constitute valid and legally binding  obligations of
the  Borrowers,  and are fully  enforceable  against the Borrowers in accordance
with their respective terms.

     SECTION  5.5  Litigation.  There are no  proceedings  pending or, so far as
either  Borrower knows,  threatened  before any court or  administrative  agency
which will materially  adversely affect the financial condition or operations of
the Company or any Subsidiary, or the authority of either Borrower to enter into
this Agreement or any of the other Financing Documents executed and delivered by
the Borrowers.

     SECTION 5.6 No Conflicting  Agreements.  There is (a) no charter, by-law or
preference  stock  provision of either Borrower and no provision of any existing
mortgage,  indenture,  contract  or  agreement  binding  on either  Borrower  or
affecting its property,  and (b) to the knowledge of each Borrower, no provision
of law or order of court binding upon the  Borrowers,  which would conflict with
or in any way prevent the  execution,  delivery,  or performance of the terms of
this Agreement or of any of the other Financing Documents executed and delivered
by the  Borrowers,  or which would be  violated  as a result of such  execution,
delivery or performance.

     SECTION 5.7 Financial  Condition.  The financial  statements of the Company
dated June 30, 1996 are complete and correct and, in the opinion of the Company,
fairly  present the  current  financial  condition  of the Company and have been
prepared in accordance  with GAAP applied on a consistent  basis  throughout the
period involved. There are no material liabilities, direct or indirect, fixed or
contingent, of either Borrower as of the date of such financial statements which
are not  reflected  therein or in the notes  thereto.  There has been no adverse
change in the financial  condition or operations  of either  Borrower  since the
date of such financial  statements  (and to each Borrower's  knowledge,  no such
adverse change is pending or threatened),  and the Borrowers have not guaranteed
the  obligations  of, or made any  investments  in or advances  to, any company,
individual or other entity except as disclosed in such financial statements.

     SECTION 5.8 Taxes. Each Borrower has filed or has caused to have been filed
all  federal,  state  and local  tax  returns  which,  to the  knowledge  of the
Borrowers,  are  required to be filed,  and has paid or caused to have been paid
all taxes as shown on such returns or on any  assessment  received by it, to the
extent that such taxes have become due,  unless and to the extent only that such
taxes,  assessments  and  governmental  charges are currently  contested in good
faith and by appropriate

                                       16

<PAGE>

proceedings  by  the  Borrowers  and  adequate   reserves   therefor  have  been
established as required under generally accepted accounting principles.

     SECTION 5.10 Compliance With Law.  Neither  Borrower is in violation of any
law,  ordinance,  governmental rule or regulation to which it is subject and the
violation  of which would have a material  adverse  effect on the conduct of its
business,  and  each  Borrower  has  obtained  any  and all  licenses,  permits,
franchises or other governmental  authorizations  necessary for the ownership of
its properties and the conduct of its business.

     SECTION 5.11 Place(s) of Business and Location of Collateral. The Borrowers
warrant  that the  address  of each  Borrower's  chief  executive  office  is as
specified  in  EXHIBIT C  attached  hereto  and made a part  hereof and that the
address  of each  other  place  of  business  of the  Borrowers,  if any,  is as
disclosed to the Lender in EXHIBIT C. The  Collateral  and all books and records
pertaining to the Collateral are and will be located at the address indicated on
EXHIBIT C. Each  Borrower will  immediately  advise the Lender in writing of the
opening  of any new place of  business  or the  closing  of any of its  existing
places of  business,  and of any change in the  location of the places where the
Collateral,  or any part  thereof,  or the  books  and  records  concerning  the
Collateral,  or any part thereof,  are kept.  The proper and only places to file
financing  statements  with respect to the Collateral  within the meaning of the
Uniform  Commercial  Code are the Circuit Court for Fairfax County and the State
Corporation Commission.  A copy of a fully executed financing statement shall be
sufficient to satisfy for all purposes the requirements of a financing statement
as set forth in Article 9 of the Virginia Uniform Commercial Code.

     SECTION 5.12 Title to  Properties.  Each  Borrower has good and  marketable
title to all of its properties,  including the Collateral, and the Collateral is
free and clear of  mortgages,  pledges,  liens,  charges and other  encumbrances
other than the Permitted Liens.

     SECTION 5.13 Margin Stock.  None of the proceeds of the Loans will be used,
directly  or  indirectly,  by the Company or any  Subsidiary  for the purpose of
purchasing  or  carrying,  or for  the  purpose  of  reducing  or  retiring  any
indebtedness  which was  originally  incurred to purchase or carry,  any "margin
security"  within the  meaning  of  Regulation  G (12 CFR Part 207),  or "margin
stock"  within the meaning of  Regulation  U (12 CFR Part 221),  of the Board of
Governors of the Federal  Reserve System  (herein  called "margin  security" and
"margin  stock") or for any other  purpose  which  might  make the  transactions
contemplated  herein a "purpose  credit" within the meaning of said Regulation G
or Regulation U, or cause this Agreement to violate any other  regulation of the
Board of Governors of the Federal Reserve System or the Securities  Exchange Act
of 1934 or the Small Business  Investment Act of 1958, as amended,  or any rules
or regulations promulgated under any of such statutes.

     SECTION  5.14  ERISA.  With  respect  to any  "pension  plan" as defined in
Section 3(2) of ERISA,  which plan is now or previously  has been  maintained or
contributed to by either Borrower and/or by any Commonly  Controlled Entity: (a)
no  "accumulated  funding  deficiency" as defined in Code ss.412 or ERISA ss.302
has occurred, whether or not that accumulated funding deficiency has

                                       17

<PAGE>

been waived; (b) no "reportable event" as defined in ERISA ss.4043 has occurred;
(c) no  termination  of any plan subject to Title IV of ERISA has occurred;  (d)
neither any Borrower nor any Commonly Controlled Entity has incurred a "complete
withdrawal" within the meaning of ERISA ss.4203 from any multiemployer plan; (e)
neither any Borrower nor any Commonly  Controlled Entity has incurred a "partial
withdrawal"   within  the  meaning  of  ERISA   ss.4205   with  respect  to  any
multiemployer  plan;  (f) no  multiemployer  plan to which any  Borrower  or any
Commonly   Controlled   Entity   has  an   obligation   to   contribute   is  in
"reorganization"  within  the  meaning  of ERISA  ss.4241  nor has  notice  been
received  by  any  Borrower  or  any  Commonly  Controlled  Entity  that  such a
multiemployer plan will be placed in "reorganization".

     SECTION 5.15 Governmental Consent. Neither the nature of any Borrower or of
its business or properties,  nor any  relationship  between any Borrower and any
other entity or person,  nor any  circumstance  in connection with the making of
the Loans,  or the offer,  issue,  sale or  delivery  of the Notes is such as to
require a consent,  approval or  authorization  of, or filing,  registration  or
qualification with, any governmental  authority, on the part of any Borrower, as
a condition to the execution and delivery of this  Agreement or any of the other
Financing Documents,  the borrowing of the principal amounts of the Loans or the
offer, issue, sale or delivery of the Notes.

     SECTION 5.16 Inventory.  With respect to all Inventory of each Borrower, as
reflected on the books and records of each  Borrower,  (a) such  Inventory is of
good and merchantable  quality, free from defects, and (b) such Inventory is not
stored with a bailee,  warehouseman  or similar  party,  and such  Inventory  is
located at the places of business indicated on EXHIBIT C.

     SECTION 5.17 Full Disclosure.  The financial statements referred to in this
Part V do not, nor does this Agreement,  nor do any written statements furnished
by the  Borrowers  to the  Lender in  connection  with the  making of the Loans,
contain  any  untrue  statement  of fact or omit a fact  necessary  to make  the
statements  contained  therein or herein not misleading.  There is no fact which
the  Borrowers  have not  disclosed  to the Lender in writing  which  materially
adversely  affects or, will or could prove to  materially  adversely  affect the
properties,  business,  prospects, profits or condition (financial or otherwise)
of the Borrowers or the ability of either Borrower to perform this Agreement.

     SECTION  5.18  Presence  of  Hazardous  Materials  or  Hazardous  Materials
Contamination.  To the  best  of each  Borrower's  knowledge,  (a) no  Hazardous
Materials are located on any real property  owned,  controlled or operated by of
either  Borrower  or for  which  either  Borrower  is  responsible,  other  than
reasonable  quantities of Hazardous  Materials stored or kept by either Borrower
in the  ordinary  course  of its  current  line  of  business,  which  Hazardous
Materials  are at all  times  stored,  used  and  disposed  in  accordance  with
applicable  Laws;  and (b) no property  owned,  controlled or operated by either
Borrower  has ever  been  used as a  manufacturing,  storage,  or dump  site for
Hazardous Materials nor is affected by Hazardous Materials  Contamination at any
other property.

                                       18

<PAGE>

     SECTION 5.19 Intellectual Property.  Each Borrower owns or possesses rights
to use all of the patents,  trademarks,  service marks, trade names,  copyrights
and licenses and all rights with respect  thereto  necessary for the present and
planned  future  operation of its business,  without any known conflict with the
rights of any other Person.

     SECTION 5.20 Business Names and Addresses.  In the five (5) years preceding
the date hereof,  neither  Borrower has conducted  business under any name other
than its current name nor conducted its business in any jurisdiction  other than
those disclosed on EXHIBIT C attached hereto.

     SECTION 5.21  No  Default.  There is no Event of  Default  (as  hereinafter
defined) and no event has occurred and no condition exists which with the giving
of notice or the passage of time would  constitute an Event of Default.  Neither
Borrower is in default  under the terms of any other  agreement or instrument to
which it may be a party or by which the  Collateral or any of its properties may
be bound or subject.

     SECTION 5.22 Compliance with  Eligibility  Standards.  Unless the Lender is
advised by the Borrowers in writing to the contrary,  each Account  described in
any schedule,  certificate, record and data furnished to the Lender for purposes
of  calculating  the  Borrowing  Base will at all times meet and comply with the
Eligibility Standards.

     SECTION 5.23 Accounts. With respect to all Accounts and to the best of each
Borrower's knowledge (a) they are genuine, and in all respects what they purport
to be, and are not  evidenced by a judgment,  an  instrument,  or chattel  paper
(unless such judgment has been assigned and such instrument or chattel paper has
been endorsed and delivered to the Lender); (b) they represent undisputed,  bona
fide  transactions  completed  in  accordance  with  the  terms  and  provisions
contained in the invoices and purchase  orders relating  thereto;  (c) the goods
sold (or services  rendered) which resulted in the creation of the Accounts have
been  delivered  or rendered to and  accepted  by the  account  debtor;  (d) the
amounts shown on each  Borrower's  books and records,  with respect  thereto are
actually and  absolutely  owing to each Borrower and are not  contingent for any
reason;  (e) no  payments  have been or shall be made  thereon  except  payments
turned  over to the  Lender by  either  Borrower;  (f)  there  are no  set-offs,
counterclaims  or disputes  known by either  Borrower or asserted  with  respect
thereto,  and neither  Borrower has made any agreement  with any account  debtor
thereof for any  deduction  or discount  of the sum  payable  thereunder  except
regular  discounts  allowed  by each  Borrower  in the  ordinary  course  of its
business for prompt payment; (g) there are no facts, events or occurrences known
to either  Borrower which in any way impair the validity or enforcement  thereof
or tend to  reduce  the  amount  payable  thereunder;  (h) all  account  debtors
thereof,  to the  best  of each  Borrower's  knowledge,  have  the  capacity  to
contract;  (i) the goods sold or  transferred or the services  furnished  giving
rise thereto are not subject to any liens except the security  interest  granted
to the Lender by this Agreement; (j) the Borrowers have no knowledge of any fact
or circumstance which would impair the validity or collectibility  thereof;  and
(k) there are no  proceedings  or  actions  known to either  Borrower  which are
threatened or pending

                                       19

<PAGE>

against any account debtor which might result in any material  adverse change in
its financial condition.

     SECTION 5.24 Government Receivables. In addition to the representations set
forth in Section 5.23 above,  with respect to all Government  Receivables to the
best  of  either  Borrower's  knowledge,  (a)  there  has  been  no  default  or
cancellation  with  respect  thereto,  (b) they are not  dependent on any future
appropriation,  (c) the assignment of all sums due  thereunder  will not violate
any Laws and is permissible  under said Government  Contract,  (d) each Borrower
has the right to assign all monies due thereunder; and (e) any prior assignments
with respect thereto have been terminated.

     SECTION  5.25  Claims  and  Investigations.   There  exist  no  pending  or
threatened  claims,  investigations  (whether  formal or informal),  litigation,
disputes,  protests  or  other  controversies  involving  any  Borrower  or  any
Affiliate  pertaining to or arising out of any  Government  Contract  which,  if
adversely  determined,  would have a material  adverse  effect on the  business,
assets, operations or condition,  financial or otherwise, of any Borrower or any
Affiliate.  Neither any Borrower nor any  Affiliate  has filed nor has any basis
for filing any claims or demands  for payment  against the United  States or any
other party arising out of or in connection with any Government Contract,  other
than progress billings,  public vouchers, and invoices submitted in the ordinary
course of business.

VI.  CONDITIONS OF LENDING

     The  making of the Loans  and any  advance  thereunder  is  subject  to the
following conditions precedent:

     SECTION 6.1 Opinion of Counsel for the Borrowers.  On the date hereof,  the
Lender shall receive the favorable  written opinion of counsel for the Borrowers
satisfactory in all respects to the Lender.

     SECTION 6.2 Approval of Counsel for the Lender.  All legal matters incident
to the Loans and all  documents  necessary  in the opinion of the Lender to make
the Loans  shall be  satisfactory  in all  material  respects to counsel for the
Lender.

     SECTION 6.3  Supporting  Documents.  The Lender  shall  receive on the date
hereof:  (a) a  certificate  of  the  Secretary  of  each  Borrower,  in a  form
acceptable  to the  Lender  in all  respects,  dated as of the date  hereof  and
certifying  (i) that  attached  thereto is a true,  complete and correct copy of
resolutions  adopted by the Board of Directors of each Borrower  authorizing the
execution  and  delivery of this  Agreement,  the Notes and the other  Financing
Documents,  and the  Obligations,  and (ii) as to the  incumbency  and  specimen
signature of each officer of each Borrower  executing this Agreement,  the Notes
and the other Financing  Documents,  and a certification by the President or any
Vice  President  of each  Borrower as to the  incumbency  and  signature  of the
Secretary  of  such  Borrower;  (b)  such  other  documents  as the  Lender  may
reasonably require the Borrowers to execute,

                                       20

<PAGE>

in  form  and  substance  acceptable  to the  Lender;  and (c)  such  additional
information,  instruments,  opinions, documents, certificates and reports as the
Lender may reasonably deem necessary.

     SECTION 6.4 Financing Documents. All of the Financing Documents required by
the Lender shall be executed,  delivered and, if deemed necessary by the Lender,
recorded, all at the sole expense of the Borrowers.

     SECTION 6.5 Insurance.  The Borrowers  shall have satisfied the Lender that
any and all insurance  required by this Agreement is in effect as of the date of
this Agreement, and that, to the extent required by the Financing Documents, the
Lender has been named as an insured lienholder.

     SECTION 6.6 Security  Documents.  In order to perfect the lien and security
interest  created by this  Agreement,  the  Borrowers  shall have  executed  and
delivered to the Lender all financing statements and Security Documents (in form
and substance  acceptable to the Lender in its sole discretion) deemed necessary
by the Lender, in a sufficient  number of counterparts for recordation,  and, at
the  Borrowers'  sole expense,  shall record all such  financing  statements and
Security Documents,  or cause them to be recorded,  in all public offices deemed
necessary by the Lender.

     SECTION 6.7  Termination  Statements.  The Lender shall have  received from
creditors of each Borrower all  termination  statements  covering the Collateral
required by the Lender.  The termination  statements shall be fully and properly
executed,  in recordable form and sufficient,  in the opinion of counsel for the
Lender,  to terminate the  interests of other  creditors of each Borrower in the
Collateral.

     SECTION 6.8 Compliance. At the time of the making of each advance hereunder
(a) the Company and each  Subsidiary  shall have  complied  and shall then be in
compliance with all the terms,  covenants and conditions of this Agreement which
are  binding  upon it, (b) there  shall  exist no Event of Default  and no event
which,  with the  giving  of  notice  or the  passage  of time,  or both,  would
constitute an Event of Default, (c) the representations and warranties contained
in Part V shall be true with the same effect as though such  representations and
warranties had been made at the time of the making of the advance.

                                       21

<PAGE>

VII. AFFIRMATIVE COVENANTS OF BORROWERS

     Until  payment  in  full  and  the  performance  of all of the  Obligations
hereunder, the Borrowers shall:

     SECTION 7.1 Financial Statements. Furnish to the Lender:

          (a) Annual Statements and Certificates. As soon as available but in no
     event more than one  hundred  twenty  (120) days after the close of each of
     the Company's fiscal years, a copy of the consolidated  financial statement
     relating  to  the  Company  and  its  Subsidiaries  in  reasonable   detail
     satisfactory to the Lender,  prepared in accordance with GAAP and certified
     by an independent certified public accountant satisfactory to the Lender in
     its  reasonable  discretion,  which  financial  statement  shall  include a
     balance sheet as at the end of such fiscal year,  profit and loss statement
     and a statement  of changes in  financial  condition,  and which  financial
     statement shall be accompanied by a certificate of the principal  financial
     officer of the  Company  setting  forth the  calculation  of all  financial
     covenants  under this Agreement and stating  whether any event has occurred
     which constitutes an Event of Default or which would constitute an Event of
     Default with the giving of notice or the lapse of time or both, and, if so,
     stating the facts with respect thereto.

          (b) Quarterly Statements and Certificates. As soon as available but in
     no event more than sixty (60) days after the close of each of the Company's
     fiscal  quarters,  (i)  consolidated  balance sheets of the Company and its
     Subsidiaries  as at the close of such  period and  consolidated  income and
     expense  statements for such period,  certified by the principal  financial
     officer of the Company and  accompanied  by a  certificate  of that officer
     setting  forth  the  calculation  of all  financial  covenants  under  this
     Agreement and stating  whether any event has occurred which  constitutes an
     Event of Default or which  would  constitute  an Event of Default  with the
     giving  of notice or the lapse of time or both,  and,  if so,  stating  the
     facts  with  respect  thereto,  and (ii) a backlog  report  and list of any
     Government Contract having a value in excess of $500,000.

          (c)  Monthly  reports.  Within  twenty five (25) days after the end of
     each month  deliver  reports to the Lender  which  shall  include,  in such
     detail as the Lender may reasonably  request,  data for the preceding month
     with respect to aged Accounts.

          (d) Borrowing Base Reports. Within twenty five (25) days after the end
     of each month the  Company  shall  deliver to the Lender a fully  completed
     certificate  (each a "Borrowing Base  Certificate"  and  collectively,  the
     "Borrowing  Base  Certificates")  as of such date in the form of  EXHIBIT E
     attached hereto. Each Borrowing Base Certificate shall be effective only as
     accepted by the Lender (and with such  revision,  if any, as the Lender may
     require as a condition to such acceptance),  such acceptance to be presumed
     unless the Lender  otherwise  notifies the Company  within five (5) Banking
     Days after receipt of such Borrowing Base Certificate.

                                       22

<PAGE>

          (e) Additional  Reports and Information.  With reasonable  promptness,
     such additional  information,  reports or statements as the Lender may from
     time to time reasonably request.

     SECTION 7.2 Financial Covenants.

          (a) Debt Service  Coverage.  Maintain a Debt  Service  Coverage of not
     less than 1.20 to 1.0 as of the last day of each fiscal  quarter,  based on
     the four (4) quarter period ending on such date.

          (b) Funded  Debt to EBITDA.  Maintain a ratio of Funded Debt to EBITDA
     greater than the  following  amounts at the following  times,  based on the
     four (4) quarter period ending on such date:

          Funded Debt/EBITDA               Fiscal Year Ending
          ------------------               ------------------
              3.50 to 1.0                        1997;
              3.50 to 1.0                        1998;
              3.00 to 1.0                        1999;
              2.75 to 1.0                        2000;
              2.50 to 1.0                        2001 at all times thereafter.

          (c) Current  Ratio.  Maintain a Current Ratio of not less than 1.20 to
     1.0.

          (d) Liabilities to Tangible Net Worth. Maintain a ratio of liabilities
     (defined in  accordance  with GAAP) to Tangible  Net Worth not greater than
     the following amounts at the following times:

          Liabilities/Tangible Net Worth           Fiscal Year Ending
          ------------------------------           ------------------
                   3.50 to 1.00                           1997;
                   3.50 to 1.00                           1998;
                   3.00 to 1.00                           1999 and thereafter.

     SECTION  7.3 Taxes and  Claims.  Pay and  discharge  and cause  each of its
Subsidiaries  to pay and  discharge,  all taxes,  assessments  and  governmental
charges or levies  imposed upon it or any of its income or  properties  prior to
the date on which  penalties  attach  thereto,  and all lawful claims which,  if
unpaid,  might  become a lien or charge  upon any of its  properties;  provided,
however,  the Company and the Subsidiaries shall not be required to pay any such
tax, assessment,  charge, levy or claim, the payment of which is being contested
in good faith and by proper proceedings.

                                       23

<PAGE>

     SECTION  7.4  Corporate  Existence.   Maintain,   and  cause  each  of  its
Subsidiaries  to  maintain,  its  corporate  existence  in good  standing in the
jurisdiction in which it is incorporated  and in each  jurisdiction  where it is
required to register or qualify to do business.

     SECTION  7.5  Compliance  with  Laws.   Comply,   and  cause  each  of  its
Subsidiaries to comply, with all applicable federal, state and local laws, rules
and  regulations  to which it is subject and the violation of which would have a
material adverse effect on the conduct of its business.

     SECTION  7.6  Governmental  Regulation.  Promptly  notify the Lender in the
event that the Company or any  Subsidiary  receives any notice,  claim or demand
from any governmental agency which alleges that the Company or any Subsidiary is
in violation of any of the terms of, or has failed to comply with any applicable
order issued  pursuant to any federal or state statute  regulating its operation
and business,  including, but not limited to, the Occupational Safety and Health
Act and the  Environmental  Protection  Act which  could  materially  affect the
financial condition or operation of the Company or its Subsidiaries.

     SECTION  7.7  Litigation.  Give  prompt  notice  in  writing,  with  a full
description to the Lender,  of all litigation and of all proceedings  before any
court or any  governmental  or  regulatory  agency  affecting the Company or any
Subsidiary which, if adversely  decided,  would materially affect the conduct of
the Company's or such  Subsidiary's  business,  the  financial  condition of the
Company or such Subsidiary, or in any manner affect the Collateral.

     SECTION 7.8 Use of Proceeds.  Use the proceeds of the Loans for the purpose
or purposes set forth in Recital A above and,  without the prior written consent
of the Lender, for no other purpose or purposes.

     SECTION 7.9 Maintenance of Properties.  Keep, and cause the Subsidiaries to
keep and maintain, its properties, whether owned in fee or otherwise, or leased,
in good  operating  condition;  make and,  cause the  Subsidiaries  to make, all
proper  repairs,  renewals,  replacements,  additions and  improvements  thereto
needed to maintain such  properties in good  operating  condition;  comply,  and
cause the Subsidiaries to comply,  with the provisions of all leases to which it
is party or  under  which it  occupies  property  so as to  prevent  any loss or
forfeiture  thereof or  thereunder;  and comply,  or cause the  Subsidiaries  to
comply,  with  all  laws,  rules,  regulations  and  orders  applicable  to  its
properties or business or any part thereof.

     SECTION 7.10 Other Liens, Security Interests,  etc. Keep its properties and
assets,  including,  without  limitation,  the Collateral,  free from all liens,
security interests and claims of every kind and nature,  other than the security
interest  granted to the Lender  pursuant to this  Agreement  and the  Permitted
Liens.

     SECTION  7.11  Books  and  Records.  (a) Keep and  maintain  and  cause the
Subsidiaries to keep and maintain accurate books and records, (b) make and cause
the Subsidiaries to make entries on such books and records in form  satisfactory
to the Lender disclosing the Lender's assignment of,

                                       24

<PAGE>

and  security  interest  in and  lien on,  the  Collateral  and all  collections
received by the Company or any of the Subsidiaries on its Accounts,  (c) furnish
and cause the  Subsidiaries  to furnish to the Lender promptly upon request such
information,  reports,  contracts,  invoices,  lists of  purchases  of Inventory
(showing names,  addresses and amount owing) and other data  concerning  account
debtors and the  Company's  and  Subsidiaries'  Accounts and  Inventory  and all
contracts and collection(s) relating thereto as the Lender may from time to time
specify,  (d) unless the Lender  shall  otherwise  consent in writing,  keep and
maintain  and cause the  Subsidiaries  to keep and  maintain  all such books and
records  mentioned in (a) above only at the  addresses  listed in EXHIBIT C, and
(e) permit and cause the  Subsidiaries  to permit any Person  designated  by the
Lender to enter the  premises of the Company and the  Subsidiaries  and examine,
audit and inspect the books and records at any reasonable  time and from time to
time without notice, at the Borrowers' expense.

     SECTION  7.12  Business  Names.  Immediately  notify  and cause each of the
Subsidiaries  to notify  the  Lender of any  change in the name  under  which it
conducts its business.

     SECTION  7.13 ERISA.  Maintain at all times such  bonding as is required by
ERISA.  As soon as practicable and in any event within 15 days after it knows or
has reason to know that,  with  respect to any plan,  a  "reportable  event" has
occurred,  the Borrowers will deliver to the Lender a certificate  signed by its
chief financial  officer setting forth the details of such  "reportable  event".
Each  Borrower  shall  agrees that with  respect to any  pension  plan which any
Borrower  and/or any Commonly  Controlled  Entity  maintains or contributes  to,
either now or in the future,  that:  (a) such bonding as is required under ERISA
will be maintained;  (b) as soon as practicable  and in any event within 15 days
after either Borrower or any Commonly  Controlled  Entity knows or has reason to
know that a "reportable event" has occurred or is likely to occur, the Borrowers
will deliver to the Lender a certificate  signed by its chief financial  officer
setting forth the details of such "reportable  event";  (c) within 15 days after
notice is received by either Borrower or any Commonly Controlled Entity that any
multiemployer  plan has been or will be placed in  "reorganization"  within  the
meaning of ERISA  ss.4241,  the Borrowers will notify the Lender to that effect;
and (d) upon the Lender's  request,  the Borrowers  will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual report
completed  with  respect  to any  "defined  benefit  plan",  as defined in ERISA
ss.3(35).

     SECTION 7.14  Management.  Promptly  notify the Lender of any  contemplated
changes in its Senior Management subsequent to the date hereof.

     SECTION 7.15  Banking  Relationship.  Maintain the Lender as its  principal
depository.

     SECTION 7.16  Notification  of Events of Default and Adverse  Developments.
The Borrowers will promptly  notify the Lender upon  obtaining  knowledge of the
occurrence of:

          (a)  any Event of Default;

          (b)  any Default;

                                       25

<PAGE>

          (c)  any event,  development  or  circumstance  whereby the  financial
               statements  furnished  hereunder fail in any material  respect to
               present fairly, in accordance with GAAP, the financial  condition
               and operational results of the Company or its Subsidiaries;

          (d)  any default under any  Government  Contract or any event which if
               not corrected  could give rise to a default under any  Government
               Contract or a termination for convenience;

          (e)  any  judicial,  administrative  or  arbitral  proceeding  pending
               against the Company or any of its  Subsidiaries  and any judicial
               or   administrative   proceeding  known  by  the  Company  to  be
               threatened  against  it or  any  of its  Subsidiaries  which,  if
               adversely   decided,   could  materially   adversely  affect  its
               financial condition or operations (present or prospective); and

          (f)  any other  development  in the business or affairs of the Company
               and any of its Subsidiaries which may be materially adverse;

in each case describing in detail  satisfactory to the Lender the nature thereof
and, in the case of  notification  under  clauses  (i) and (ii),  the action the
Borrowers propose to take with respect thereto.

     SECTION  7.17  Insurance  Generally.   Maintain,  and  cause  each  of  its
Subsidiaries to maintain, insurance with responsible insurance companies on such
of its  properties,  in such  amounts and against  such risks as is  customarily
maintained  by  similar  businesses  operating  in the same  vicinity;  maintain
general public liability insurance against claims for personal injury,  death or
property damage in such amounts as are  satisfactory to the Lender and workmen's
compensation  insurance in statutory amounts with such companies as are licensed
to do  business in the state  requiring  the same;  file,  and cause each of its
Subsidiaries to file, with the Lender,  upon its request, a detailed list of the
insurance then in effect and stating the names of the insurance  companies,  the
amounts  and rates of the  insurance,  dates of the  expiration  thereof and the
properties and risks covered thereby;  and, within thirty (30) days after notice
in  writing  from the  Lender,  obtain,  and cause each of its  Subsidiaries  to
obtain, such additional insurance as the Lender may reasonably request.

     SECTION 7.18 Insurance With Respect to Equipment and Inventory. In addition
to and not by way of limitation  of Section 7.17 above,  maintain and cause each
of its Subsidiaries to maintain hazard insurance with fire and extended coverage
and with loss payable to the Lender as its interest may appear on the  Equipment
and  Inventory  in an  amount  at  least  equal  to  the  lesser  amount  of the
outstanding  principal  amount  of the  Note or the  fair  market  value  of the
Equipment and Inventory (but in any event  sufficient to avoid any  co-insurance
obligations)  and with a  specific  endorsement  to each such  insurance  policy
pursuant  to which the  insurer  agrees to give the Lender at least  thirty (30)
days written  notice before any  alteration or  cancellation  of such  insurance
policy and that no act or default of either  Borrower  shall affect the right of
the Lender to recover under such

                                       26

<PAGE>

policy in the event of loss or damage;  file, and cause each of its Subsidiaries
to file,  with the Lender,  upon its request,  a detailed  list of the insurance
then in effect and stating the names of the insurance companies, the amounts and
rates of the insurance,  dates of the expiration  thereof and the properties and
risks covered thereby; and, within thirty (30) days after notice in writing from
the  Lender,  obtain,  and  cause  each  of its  Subsidiaries  to  obtain,  such
additional insurance as the Lender may reasonably request.

     SECTION 7.19 Maintenance of the Collateral.  Not permit anything to be done
to the Collateral  which may impair the value thereof.  The Lender,  or an agent
designated  by the  Lender,  shall be  permitted  to enter the  premises  of the
Company, and the Subsidiaries,  and examine, audit and inspect the Collateral at
any reasonable time and from time to time without  notice.  The Lender shall not
have any duty to, and each Borrower  hereby  releases the Lender from all claims
of loss or damage  caused by the delay or failure  to collect or enforce  any of
the Accounts or to, preserve any rights against any other party with an interest
in the Collateral.

     SECTION 7.20 Inventory.  With respect to the Inventory, the Company and the
Subsidiaries  shall: (a) as soon as possible upon demand by the Lender,  execute
and deliver to the Lender designations of Inventory specifying the Company's and
the Subsidiaries'  cost of Inventory,  the retail price thereof,  and such other
matters and  information  relating to the Inventory as the Lender may reasonably
request,  (b) keep correct and accurate  records  itemizing and  describing  the
kind,  type,   quality  and  quantity  of  Inventory,   the  Company's  and  the
Subsidiaries' cost therefor and the selling price thereof,  all of which records
shall be  available  to the  officers,  employees  or agents of the Lender  upon
demand for  inspection and copying  thereof,  (c) not store any of its Inventory
with a bailee, warehouseman or similar person without the Lender's prior written
consent;  provided,  however,  in the  event the  Lender  does  consent  to such
storage,  the  Company  and  the  Subsidiaries  shall  cause  any  such  bailee,
warehouseman  or similar  person to issue and deliver to the  Lender,  in a form
acceptable  to the  Lender,  warehouse  receipts  in  the  name  of  the  Lender
evidencing  the  storage of  Inventory,  (d) permit the Lender and its agents or
representatives  to  inspect  and  examine  the  Inventory  at any time or times
hereafter  during the Company's and  Subsidiaries'  usual business hours, and to
check and test the same as to quality,  quantity,  value and condition,  and (e)
acquire and  maintain  all  Inventory  free from all liens,  except the security
interest  granted to the Lender  pursuant to this  Agreement  and the  Permitted
Liens.

     SECTION 7.21 Other Liens, Security Interests, etc. Keep the Collateral free
from all liens,  security  interests and claims of every kind and nature,  other
than the security  interest granted to the Lender pursuant to this Agreement and
the Permitted Liens.

     SECTION 7.22 Defense of Title and Further Assurances. At its expense defend
the title to the  Collateral  (or any part  thereof),  and promptly upon request
execute,  acknowledge and deliver any financing statement,  renewal,  affidavit,
deed, assignment,  continuation  statement,  security agreement,  certificate or
other document the Lender may require in order to perfect,  preserve,  maintain,
protect,  continue  and/or extend the lien or security  interest  granted to the
Lender under this  Agreement  and its priority.  The Borrowers  shall pay to the
Lender on demand all taxes, costs and

                                       27

<PAGE>

expenses  incurred by the Lender in connection with the preparation,  execution,
recording and filing of any such document or instrument.

     SECTION 7.23  Subsequent  Opinion of Counsel as to Recording  Requirements.
Provide  to the  Lender  a  subsequent  opinion  of  counsel  as to the  filing,
recording  and other  requirements  with which the Company and the  Subsidiaries
have has  complied to maintain  the lien and  security  interest in favor of the
Lender in the Collateral in the event that the Company or any  Subsidiary  shall
transfer  its  principal  place of  business  or the  office  where it keeps its
records pertaining to the Accounts.

     SECTION 7.24 Assignments of Accounts.  Promptly, upon request,  execute and
deliver to the Lender written assignments, in form and content acceptable to the
Lender, of specific Accounts or groups of Accounts;  provided, however, the lien
and/or security interest granted to the Lender under this Agreement shall not be
limited in any way to or by the  inclusion or exclusion of Accounts  within such
assignments.  Such Accounts shall secure payment of the  Obligations and are not
sold to the Lender whether or not any assignment thereof, which is separate from
this Agreement, is in form absolute.

     SECTION 7.25 Notice of Returned Goods,  etc.  Promptly notify and cause the
Subsidiaries  to  promptly  notify  the  Lender  of  the  return,  rejection  or
repossession  of any goods sold or delivered in respect of any Accounts,  and of
any claims made in regard thereto.  Whenever either Borrower obtains  possession
(by return,  rejection,  repossession  or otherwise)  of any goods,  the sale or
lease of which gave rise to an Account,  the  Borrowers  will (unless the Lender
shall  otherwise  consent in writing)  physically  segregate such goods from the
Borrowers'  other  property,  and label and hold such goods as  trustee  for the
Lender for such disposition as the Lender may direct.

     SECTION  7.26  Collections.  Until such time as the Lender shall notify the
Company and each of the  Subsidiaries of the revocation of such  privilege,  the
Company  and each of the  Subsidiaries  (a)  shall at its own  expense  have the
privilege  for the  account  of and in trust for the  Lender of  collecting  its
Accounts  and  receiving  in  respect  thereto  all items of  payment  and shall
otherwise  completely  service all of the  Accounts  including  (i) the billing,
posting and maintaining of complete  records  applicable  thereto,  and (ii) the
taking of such action with respect to such Accounts as the Lender may request or
in the absence of such request,  as the Company and each of the Subsidiaries may
deem advisable;  and (b) may grant,  in the ordinary course of business,  to any
account debtor, any rebate, refund or adjustment to which the account debtor may
be lawfully  entitled,  and may accept, in connection  therewith,  the return of
goods,  the sale or lease of which  shall  have given  rise to an  Account.  The
Lender  may,  at its  option,  at any time or from  time to time  after  default
hereunder,  revoke the collection privilege given to the Company and each of the
Subsidiaries  herein by either giving notice of its  assignment  of, and lien on
the Collateral to the account debtors or giving notice of such revocation to the
Company and each of the Subsidiaries.

     SECTION 7.27 Notice to Account Debtors and Escrow Account. In the event (a)
an Event of Default exists, (b) an event has occurred or condition exists which,
with the giving of notice

                                       28

<PAGE>

or the lapse of time will constitute an Event of Default, or (c) demand has been
made for any or all of the Obligations.  Promptly upon the request of the Lender
in such form and at such times as  specified  by the Lender,  give notice of the
Lender's  lien on the  Accounts to the  account  debtors  requiring  the account
debtors to make payments thereon directly to the Lender.

     SECTION 7.28 Government Accounts.  Promptly notify the Lender if any of the
Accounts arise out of Government  Contracts and execute any instruments and take
any steps  required by the Lender in order that all moneys due and to become due
under  such  contracts  with  potential  values in excess of  $500,000  shall be
assigned  to the Lender and notice  thereof  given to the  government  under the
Federal  Assignment of Claims Act or any other applicable law. In addition,  the
Lender  may,  without  notice  to  the  Borrowers,  discuss  the  status  of any
Government  Contract with the contracting officer responsible for such contract,
and the Borrowers  will  cooperate  with the Lender and its agents in connection
with such discussions.

     SECTION 7.29 Hazardous  Materials;  Contamination.  Each Borrower agrees to
(a) give  notice to the Lender  immediately  upon  either  Borrower's  acquiring
knowledge  of the  presence  of any  Hazardous  Materials  Contamination  on any
property  owned or leased by either  Borrower  or for which  either  Borrower is
responsible,  with a full description  thereof; (b) comply at all times with any
Laws  governing  the handling,  requiring the removal,  treatment or disposal of
Hazardous Materials or Hazardous Materials  Contamination and provide the Lender
with satisfactory evidence of such compliance; (c) in the event of any Hazardous
Materials  Contamination,  provide the Lender,  within  thirty (30) days after a
demand  by the  Lender,  with a bond,  letter of  credit  or  similar  financial
assurance  evidencing to the Lender's  satisfaction that the necessary funds are
available to pay the cost of removing, treating, and disposing of such Hazardous
Materials  Contamination  and discharging any Lien which may be established as a
result  thereof on any property  owned or controlled  by either  Borrower or for
which  either  Borrower  is  responsible;  and (d)  defend,  indemnify  and hold
harmless the Lender and its agents, employees,  trustees, successors and assigns
from any and all claims which may now or in the future  (whether before or after
the  termination  of this  Agreement) be asserted as a result of the presence of
any Hazardous  Materials on any property owned or controlled by either  Borrower
for  which  either   Borrower  is  responsible   for  any  Hazardous   Materials
Contamination.

VIII. NEGATIVE COVENANTS OF BORROWERS

     Until  payment  in full  and  the  performance  of all of the  Obligations,
without the prior written  consent of the Lender,  the Company will not and will
neither cause nor permit any of its Subsidiaries to, directly or indirectly:

     SECTION  8.1  Borrowings.  Create,  incur,  assume  or  suffer to exist any
Indebtedness for Borrowed Money,  except (a) borrowings in existence on the date
hereof and reflected on the financial  statements which the Borrowers  furnished
to the Lender in writing prior to the date hereof, and (b) borrowings secured by
Permitted Liens.

                                       29

<PAGE>

     SECTION 8.2 Mortgages and Pledges. Create, incur, assume or suffer to exist
any Lien on any of its  property  or  assets,  whether  now  owned or  hereafter
acquired, except for Permitted Liens.

     SECTION 8.3 Method of Accounting.  Change the method of accounting employed
in the  preparation of the financial  statements  furnished prior to the date of
this  Agreement  to the  Lender  pursuant  to Part V of this  Agreement,  unless
required to conform to GAAP and on the condition that the Borrowers' accountants
shall  furnish  such  information  as the Lender may  request to  reconcile  the
changes with the Borrowers' prior financial statements.

     SECTION 8.4 Merger, Acquisition or Sale of Assets. Enter into any merger or
consolidation  or acquire  all or  substantially  all the assets of any  person,
firm,  partnership,  joint venture or corporation,  or sell,  lease or otherwise
dispose of any of its assets (except assets  disposed of in the ordinary  course
of  business)  provided,  however,  that the Company may subject to the Lender's
approval,  which approval shall be in the Lender's sole and absolute discretion,
use the proceeds of the Acquisition  Loan for the purpose of financing the costs
associated  with the  acquisition of other entities (each an  "Acquisition"  and
collectively, the "Acquisitions"), provided, however, that each of the following
conditions  are, in the Lender's  discretion,  met (a) the acquired  entity (the
"Target") is a going  concern;  (b) the Target is in a similar line of business;
(c)  the  Company  is  the  controlling  corporation;  (f)  the  portion  of the
Acquisition  financed  under the  Acquisition  Loan must not exceed seventy five
percent  (75%) of the purchase  price  (based on the value of all  consideration
paid for the Target,  whether cash or otherwise,  but not including stock);  (g)
after giving affect to the  Acquisition,  the Borrowers'  Debt Service  Coverage
will be equal or  greater  than  1.20 to 1.00 on a  pro-forma  basis;  (h) after
giving affect to the Acquisition,  the Borrowers' ratio of Funded Debt to EBITDA
is less  than or  equal  to 3.50 to 1.0;  and (i) the  Target  is not an  entity
headquartered  or organized  outside of the United  States.  All Targets will be
required to pledge all of their assets to secure the Loan and will be added as a
co-obligors  of the Loans.  NOTWITHSTANDING  ANYTHING TO THE CONTRARY  CONTAINED
HEREIN NOR COMPLIANCE WITH ANY AND ALL OF THE CONDITIONS  PRECEDENT  PROVIDED IN
THIS  AGREEMENT,  NO PROVISION OF THIS  AGREEMENT OR ANY OF THE OTHER  FINANCING
DOCUMENTS  SHALL IMPOSE UPON THE LENDER ANY OBLIGATION TO MAKE ANY ADVANCE UNDER
THE ACQUISITION LOAN TO THE BORROWERS UNDER THE PROVISIONS OF THIS AGREEMENT.

     SECTION 8.5 Advances and Loans. Lend money, give credit or make advances to
any person, firm, joint venture or corporation,  including,  without limitation,
officers,  directors,  employees,  Subsidiaries  and  Affiliates of the Company,
other than  reasonable  advances for travel  expenses  and the like  incurred by
officers  and  employees  in  the  ordinary  course  and in  furtherance  of the
Borrowers' business.

     SECTION   8.6   Contingent   Liabilities.   Assume,   guarantee,   endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any person, firm, partnership, joint

                                       30

<PAGE>

venture or corporation,  except by the endorsement of negotiable instruments for
deposit  or  collection  or  similar  transactions  in the  ordinary  course  of
business.

     SECTION 8.7  Investments.  Purchase or acquire the obligations or stock of,
or any other or additional  interest in, any person,  firm,  partnership,  joint
venture  or  corporation  except  (a)  general  obligations  of, or  obligations
unconditionally guaranteed as to principal and interest by, the United States of
America, (b) bonds,  debentures,  participation  certificates or notes issued by
any agency or  corporation  which is or may  hereafter  be created by Act of the
Congress  of the  United  States as an agency or  instrumentality  thereof,  (c)
Public Housing Bonds,  Temporary Notes or Preliminary Loan Notes,  fully secured
by contracts with the United States,  and (d)  certificates of deposit issued by
the Lender.

     SECTION 8.8 Subsidiaries. Create or acquire any Subsidiaries other than the
Subsidiaries existing as of the date hereof.

     SECTION 8.9 Additional Stock.  Issue any additional stock for more than ten
percent (10%) of any class,  except stock of an existing class issued as a stock
dividend,  stock  options  and to  the  Company's  Employee  Savings  and  Stock
Ownership Plan (the "ESSOP") approved by the Company's shareholders.

     SECTION 8.10 Dividends and Purchase of Stock.  Declare any dividend  (other
than a dividend  payable in capital  stock of the  Company) on any shares of any
class of its capital stock (other than preferred  stock  outstanding on the date
hereof or issued in a face amount of less than six million dollars) or apply any
of its property or assets to the purchase, redemption or other retirement of, or
set apart  any sum for the  payment  of any  dividend  on, or for the  purchase,
redemption or other  retirement of, or make any other  distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital  stock
of the  Company  (except  pursuant to an ongoing  program to purchase  stock for
contribution  to the  Company's  existing  ESSOP),  or permit any  Subsidiary to
purchase or acquire any shares of any class of capital stock of the Company.

     SECTION  8.11  ERISA  Compliance.  Neither  the  Company  nor any  Commonly
Controlled Entity will: (a) engage in or permit any "prohibited transaction" (as
defined in ERISA); (b) cause any "accumulated  funding deficiency" as defined in
ERISA and/or the Internal  Revenue  Code;  (c)  terminate  any pension plan in a
manner  which could  result in the  imposition  of a lien on the property of the
Company  pursuant to ERISA;  (d) terminate or consent to the  termination of any
Multiemployer  Plan; or (e) incur a complete or partial  withdrawal with respect
to any Multiemployer Plan.

     SECTION 8.12  Prohibition on Hazardous  Materials.  The Borrowers shall not
place,  manufacture or store or permit to be placed,  manufactured or stored any
Hazardous  Materials  on any  property  owned,  controlled  or  operated  by the
Borrowers or for which either  Borrower is  responsible,  other than  reasonable
quantities of Hazardous Materials stored or kept by either

                                       31

<PAGE>

Borrower in the ordinary course of its current line of business, which Hazardous
Materials  are at all  times  stored,  used  and  disposed  in  accordance  with
applicable Laws.

     SECTION 8.13 Transfer of Collateral.  Transfer,  or permit the transfer, to
another  location of any of the  Collateral or the books and records  related to
any of the Collateral;  provided,  however,  that the Borrowers may transfer the
Collateral or the books and records related  thereto to another  location if (a)
the  Borrowers  shall have  provided  to the Lender  prior to such  transfer  an
opinion of counsel  addressed  to the  Lender to the  effect  that the  Lender's
perfected security interest shall not be affected by such move or if it shall be
affected,  setting forth the steps necessary to continue the Lender's  perfected
security  interest together with the commencement of such steps by the Borrowers
at their expense, and (b) shall have taken such steps.

     SECTION  8.14 Sale and  Leaseback.  Directly or  indirectly  enter into any
arrangement to sell or transfer all or any substantial  part of its fixed assets
then owned by it and thereupon or within one year  thereafter  rent or lease the
assets so sold or transferred.

     SECTION  8.15  Sale  of  Accounts.  Sell,  discount,  transfer,  assign  or
otherwise  dispose of any of its  Accounts,  notes  receivable,  installment  or
conditional sales agreements or any other rights to receive income,  revenues or
moneys, however evidenced.

     SECTION  8.16 Line of  Business.  Enter into any lines or areas of business
that would fundamentally change the business activities in which it is presently
engaged.

IX.  EVENTS OF DEFAULT

     The  occurrence of one or more of the following  events shall be "Events of
Default"  under this  Agreement,  and the terms  "Event of Default" or "Default"
shall mean,  whenever  they are used in this  Agreement,  any one or more of the
following events:

     SECTION  9.1  Failure  to Pay.  The  Borrowers  shall  fail to (a) make any
payment of  principal or interest on either of the Notes within five (5) days of
when due, or (b) pay any of the Obligations, within five (5) days of when and as
the same shall become due and payable.

     SECTION 9.2 Breach of Representations and Warranties. Any representation or
warranty  made  herein or in any report,  certificate,  opinion  (including  any
opinion of counsel for the Borrowers),  financial  statement or other instrument
furnished in connection  with the Obligations or with the execution and delivery
of any of the Financing Documents,  shall prove to have been false or misleading
when made in any material respect.

     SECTION 9.3  Failure to Comply with  Insurance  Provisions.  The  Borrowers
shall fail to duly and  promptly  perform,  comply  with or  observe  the terms,
covenants, conditions and agreements set forth in SECTIONS 7.17 and 7.18.

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<PAGE>

     SECTION  9.4  Failure to Comply with  Covenants.  Default  shall be made by
either Borrower in the due observance and performance of any covenant, condition
or  agreement  contained in SECTIONS  7.01,  7.02 7.04 or 7.16 hereof or in Part
VIII hereof.

     SECTION 9.5 Other Defaults. Default shall be made by either Borrower in the
due observance or performance  of any other term,  covenant or agreement  herein
contained,  which  default  shall remain  unremedied  for thirty (30) days after
written notice thereof to the Borrowers by the Lender.

     SECTION 9.6 Default Under Other  Financing  Documents.  An event of default
shall  occur  under  any of the other  Financing  Documents,  and such  event of
default is not cured within any applicable grace period provided therein.

     SECTION 9.7 Receiver;  Bankruptcy.  The Company or any Subsidiary shall (a)
apply for or consent to the appointment of a receiver,  trustee or liquidator of
itself or any of its  property,  (b) admit in writing its  inability  to pay its
debts  as  they  mature,  (c)  make a  general  assignment  for the  benefit  of
creditors,  (d) be  adjudicated  a bankrupt or  insolvent,  (e) file a voluntary
petition in bankruptcy or a petition or an answer seeking  reorganization  or an
arrangement   with   creditors  or  to  take   advantage   of  any   bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material  allegations of a petition filed
against it in any proceeding  under any such law or if corporate action shall be
taken by the Company or any  Subsidiary for the purposes of effecting any of the
foregoing,  or  (f)  by  any  act  indicate  its  consent  to,  approval  of  or
acquiescence  in any such  proceeding or the  appointment  of any receiver of or
trustee for any of its property, or suffer any such receivership, trusteeship or
proceeding to continue undischarged for a period of sixty (60) days.

     SECTION  9.8  Judgment.  Unless  adequately  insured in the  opinion of the
Lender,  the entry of a final  judgment for the payment of money  involving more
than  $150,000  against  the  Company or any  Subsidiary  and the failure by the
Company or such  Subsidiary to discharge the same, or cause it to be discharged,
within  thirty  (30) days from the date of the order,  decree or  process  under
which or pursuant to which such  judgment  was  entered,  or to secure a stay of
execution pending appeal of such judgment.

     SECTION 9.9  Execution;  Attachment.  Any execution or attachment  shall be
levied  against the  Collateral,  or any part  thereof,  and such  execution  or
attachment shall not be set aside,  discharged or stayed within thirty (30) days
after the same shall have been levied.

     SECTION 9.10 Default  Under Other  Borrowings.  Default  shall be made with
respect to any evidence of  indebtedness  or liability for borrowed money (other
than the Loans) if the effect of such default is to  accelerate  the maturity of
such evidence of indebtedness or liability.

                                       33

<PAGE>

     SECTION 9.11 Audit Results.  If the Lender  concludes  after  examining the
results of any audits of the Borrowers' books and records or the Collateral that
the condition of the Borrowers is  unsatisfactory  based on the Lender's  normal
and customary underwriting practices.

     SECTION 9.12  Contract  Default.  If (i) a notice of  debarment,  notice of
suspension or notice of termination for default shall have been issued under any
Government   Contract,   (ii)  either  Borrower  is  barred  or  suspended  from
contracting with any part of any Governmental Authority,  (iii) an investigation
of any  Governmental  Authority shall have been commenced in connection with any
Government Contract or either Borrower which could reasonably result in criminal
or civil liability,  suspension,  debarment or any other adverse  administrative
action arising by reason of alleged fraud, willful misconduct,  neglect, default
or other wrongdoing,  (iv) the actual termination of any Government Contract due
to alleged fraud, willful misconduct,  neglect, default or any other wrongdoing;
or (v) a cure notice issued under any  Government  Contract shall remain uncured
beyond  (A) the  expiration  of the time  period  available  to either  Borrower
pursuant  to such  Government  Contract  and/or  such cure  notice,  to cure the
noticed  default,  or (B) the  date on  which  the  other  contracting  party is
entitled to exercise its rights and remedies under the Government  Contract as a
consequence of such default,  which would  materially  affect the conduct of the
Company's or such Subsidiary's  business, the financial condition of the Company
or such Subsidiary, or in any manner affect the Collateral.

X.   RIGHTS AND REMEDIES UPON DEFAULT

     SECTION 10.1 Demand;  Acceleration.  The occurrence or non-occurrence of an
Event of Default  under this  Agreement  shall in no way affect or condition the
right of the  Lender to  demand  payment  at any time of any of the  Obligations
which are payable on demand regardless of whether or not an Event of Default has
occurred.  Upon the  occurrence of an Event of Default,  and in every such event
and at any time  thereafter,  the Lender may  declare  the  Obligations  due and
payable, without presentment, demand, protest, or any notice of any kind, all of
which are hereby expressly  waived,  anything  contained herein or in any of the
other Financing Documents to the contrary notwithstanding.

     SECTION 10.2 Specific Rights With Regard to Collateral.  In addition to all
other  rights and  remedies  provided  hereunder  or as shall exist at law or in
equity from time to time,  the Lender may,  after the  occurrence of an Event of
Default, without notice to the Borrowers:

          (a) request any account  debtor  obligated  on any of the  Accounts to
     make  payments  thereon  directly  to the  Lender,  with the Lender  taking
     control of the cash and non-cash proceeds thereof;

          (b) compromise, extend or renew any of the Collateral or deal with the
     same as it may deem advisable;

          (c) make exchanges,  substitutions or surrenders of all or any part of
     the Collateral;

                                       34

<PAGE>

          (d) remove  from any of the  Company's  or any  Subsidiary's  place of
     business all books, records,  ledger sheets,  correspondence,  invoices and
     documents,  relating to or evidencing any of the Collateral or without cost
     or  expense  to  the  Lender,  make  such  use  of  the  Company's  or  any
     Subsidiary's  place(s)  of  business  as may  be  reasonably  necessary  to
     administer, control and collect the Collateral;

          (e) repair,  alter or supply goods if necessary to fulfill in whole or
     in part the purchase order of any account debtor;

          (f)  demand,  collect,  receipt  for and  give  renewals,  extensions,
     discharges and releases of any of the Collateral;

          (g) institute and prosecute legal and equitable proceedings to enforce
     collection of, or realize upon, any of the Collateral;

          (h) settle, renew, extend,  compromise,  compound,  exchange or adjust
     claims in respect of any of the Collateral or any legal proceedings brought
     in respect thereof;

          (i)  endorse  the name of either  Borrower  upon any items of  payment
     relating to the  Collateral or on any proof of claim in bankruptcy  against
     an account debtor; and

          (j) notify the post office  authorities  to change the address for the
     delivery of mail to the Borrowers to such address or post office box as the
     Lender  may  designate  and  receive  and open all  mail  addressed  to the
     Borrowers.

     SECTION 10.3  Performance by Lender.  If either  Borrower shall fail to pay
the Obligations or otherwise fail to perform,  observe or comply with any of the
material conditions,  covenants,  terms, stipulations or agreements contained in
this  Agreement  or any of the other  Financing  Documents,  the Lender  without
notice to or demand upon the Borrowers  and without  waiving or releasing any of
the  Obligations or any Event of Default,  may (but shall be under no obligation
to) at any time thereafter make such payment or perform such act for the account
and at the  expense of the  Borrowers,  and may enter upon the  premises of each
Borrower  for that  purpose and take all such  action  thereon as the Lender may
consider necessary or appropriate for such purpose. All sums so paid or advanced
by the  Lender  and all  costs  and  expenses  (including,  without  limitation,
reasonable  attorneys' fees and expenses) incurred in connection  therewith (the
"Expense  Payments")  together with  interest  thereon from the date of payment,
advance  or  incurring  until paid in full at the rate of one  percent  (1%) per
annum in excess of the highest  fluctuating  interest  rate payable under any of
the Notes  from time to time  shall be paid by the  Borrowers  to the  Lender on
demand and shall constitute and become a part of the Obligations.

     SECTION  10.4  Uniform  Commercial  Code  and  Other  Remedies.   Upon  the
occurrence of an Event of Default (and in addition to all of its rights,  powers
and remedies under this Agreement),  the Lender shall have all of the rights and
remedies of a secured party under the Virginia

                                       35

<PAGE>

Uniform  Commercial Code and other applicable laws, and the Lender is authorized
to offset and apply to all or any part of the  Obligations  all moneys,  credits
and other  property of any nature  whatsoever  of either  Borrower now or at any
time hereafter in the possession of, in transit to or from, under the control or
custody  of, or on deposit  with,  the Lender.  Upon  demand by the Lender,  the
Borrowers shall assemble the Collateral and make it available to the Lender,  at
a place  designated by the Lender.  The Lender or its agents may enter upon each
Borrower's  premises  to take  possession  of the  Collateral,  to remove it, to
render it unusable, or to sell or otherwise dispose of it.

     Any written notice of the sale, disposition or other intended action by the
Lender with respect to the  Collateral  which is sent by regular  mail,  postage
prepaid,  to the  Borrowers at the address set forth in Part XI hereof,  or such
other  address  of the  Borrowers  which  may from  time to time be shown on the
Lender's  records,  at least ten (10) days  prior to such sale,  disposition  or
other action, shall constitute reasonable notice to the Borrowers. The Borrowers
shall pay on  demand  all costs and  expenses,  including,  without  limitation,
attorney's  fees  and  expenses,  incurred  by or on  behalf  of the  Lender  in
preparing  for sale or  other  disposition,  selling,  managing,  collecting  or
otherwise  disposing  of, the  Collateral.  All of such costs and expenses  (the
"Liquidation Costs") together with interest thereon from the date incurred until
paid in full at the Default  Rate,  shall be paid by the Borrowers to the Lender
on  demand  and  shall  constitute  and  become a part of the  Obligations.  Any
proceeds of sale or other  disposition of the Collateral  will be applied by the
Lender to the payment of the  Liquidation  Costs and Expense  Payments,  and any
balance of such  proceeds  will be  applied by the Lender to the  payment of the
balance of the Obligations in such order and manner of application as the Lender
may from time to time in its sole discretion  determine.  After such application
of the  proceeds,  any balance  shall be paid to the  Borrowers  or to any other
party entitled thereto.

XI.  MISCELLANEOUS

     SECTION 11.1 Notices.  All notices,  certificates  or other  communications
hereunder  shall be deemed  given when  delivered  by hand or  courier,  or when
mailed by certified mail, postage prepaid,  return receipt requested,  addressed
as follows:

          if to the Lender:    NATIONSBANK, N.A.
                               8300 Greensboro Drive
                               Suite 550
                               McLean, Virginia 22103
                               Attn: Mr. Rit Amin

          if to the Borrowers: VERSAR, INC.
                               6850 Versar Center
                               Springfield, Virginia 22151
                               Attn: Larry Sinnott

     SECTION  11.2  Consents  and  Approvals.  If  any  consent,   approval,  or
authorization of any state, municipal or other governmental  department,  agency
or authority or of any person, or

                                       36

<PAGE>

any  person,  corporation,  partnership  or other  entity  having  any  interest
therein,  should be necessary to effectuate any sale or other disposition of the
Collateral,  the  Borrowers  agree to execute  all such  applications  and other
instruments, and to take all other action, as may be required in connection with
securing any such consent, approval or authorization.

     SECTION 11.3 Remedies, etc. Cumulative. Each right, power and remedy of the
Lender  as  provided  for in this  Agreement  or in any of the  other  Financing
Documents  or now or  hereafter  existing  at law or in equity or by  statute or
otherwise  shall be cumulative  and concurrent and shall be in addition to every
other right,  power or remedy  provided  for in this  Agreement or in any of the
other Financing  Documents or now or hereafter  existing at law or in equity, by
statute or  otherwise,  and the  exercise or  beginning  of the  exercise by the
Lender of any one or more of such rights,  powers or remedies shall not preclude
the  simultaneous  or later  exercise  by the  Lender  of any or all such  other
rights,  powers or  remedies.  In order to entitle  the Lender to  exercise  any
remedy  reserved  to it herein,  it shall not be  necessary  to give any notice,
other than such notice as may be expressly required in this Agreement.

     SECTION 11.4 No Waiver of Rights by the Lender.  No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant or
agreement of this Agreement or of any of the other  Financing  Documents,  or to
exercise any right,  power or remedy  consequent  upon a breach  thereof,  shall
constitute a waiver of any such term, condition, covenant or agreement or of any
such breach or  preclude  the Lender from  exercising  any such right,  power or
remedy at any later time or times.  By accepting  payment  after the due date of
any amount  payable  under this  Agreement  or under any of the other  Financing
Documents,  the Lender  shall not be deemed to waive the right either to require
prompt  payment when due of all other amounts  payable  under this  Agreement or
under any of the other Financing Documents,  or to declare a default for failure
to effect such prompt payment of any such other amount.

     SECTION 11.5 Entire Agreement. The Financing Documents shall completely and
fully supersede all other agreements,  both written and oral, between the Lender
and the  Borrowers  relating  to the  Obligations.  Neither  the  Lender nor the
Borrowers shall hereafter have any rights under such prior  agreements but shall
look solely to the Financing  Documents for definition and  determination of all
of their respective  rights,  liabilities and  responsibilities  relating to the
Obligations.

     SECTION 11.6 Survival of Agreement;  Successors and Assigns. All covenants,
agreements,  representations  and warranties made by the Borrowers herein and in
any  certificate,  in the Financing  Documents and in any other  instruments  or
documents  delivered  pursuant  hereto shall survive the making by the Lender of
the Loans and the  execution  and delivery of the Notes,  and shall  continue in
full  force and effect so long as any of the  Obligations  are  outstanding  and
unpaid,  INCLUDING,  BUT NOT LIMITED TO,  REPAYMENT  IN FULL OF ALL  OBLIGATIONS
UNDER THE SARNIA DOCUMENTS. Whenever in this Agreement any of the parties hereto
is referred to, such  reference  shall be deemed to include the  successors  and
assigns of such party;  and all  covenants,  promises  and  agreements  by or on
behalf of the Borrowers,  which are contained in this  Agreement  shall inure to
the benefit of the successors and assigns of the Lender, and all covenants,

                                       37

<PAGE>

promises and  agreements  by or on behalf of the Lender  which are  contained in
this  Agreement  shall  inure to the  benefit of the  permitted  successors  and
permitted  assigns of the  Borrowers,  but this Agreement may not be assigned by
the Borrowers without the prior written consent of the Lender.

     SECTION  11.7  Expenses.  Each  Borrower  agrees  to pay all  out-of-pocket
expenses of the Lender  (including the reasonable fees and expenses of its legal
counsel) in connection with the  preparation of this Agreement,  the recordation
of all financing statements and such other instruments as may be required by the
Lender at the time of, or  subsequent  to, the  execution  of this  Agreement to
secure the  Obligations  (including any and all  recordation tax and other costs
and taxes  incident to  recording),  the  enforcement  of any  provision of this
Agreement  and the  collection  of the  Obligations.  Each  Borrower  agrees  to
indemnify  and save  harmless the Lender for any  liability  resulting  from the
failure to pay any required recordation tax, transfer taxes,  recording costs or
any other expenses  incurred by the Lender in connection  with the  Obligations.
The  provisions of this Section shall survive the execution and delivery of this
Agreement and the repayment of the Obligations.  Each Borrower further agrees to
reimburse  the Lender  upon  demand for all  out-of-pocket  expenses  (including
reasonable  attorneys'  fees and  legal  expenses)  incurred  by the  Lender  in
enforcing any of the Obligations or any security therefor, which agreement shall
survive the termination of this Agreement and the repayment of the Obligations.

     SECTION 11.8 Counterparts.  This Agreement may be executed in any number of
counterparts all of which together shall constitute a single instrument.

     SECTION 11.9 Governing  Law. This Agreement and all of the other  Financing
Documents shall be governed by, and construed in accordance with the laws of the
State.

     SECTION 11.10 Modifications.  No modification or waiver of any provision of
this Agreement or of any of the other  Financing  Documents,  nor consent to any
departure by the Borrowers therefrom, shall in any event be effective unless the
same shall be in  writing,  and then such waiver or consent  shall be  effective
only in the specific  instance and for the purpose for which given. No notice to
or demand on the  Borrowers in any case shall entitle the Borrowers to any other
or further notice or demand in the same, similar or other circumstance.

     SECTION 11.11  Illegality.  If fulfillment  of any provision  hereof or any
transaction  related hereto or to any of the other Financing  Documents,  at the
time performance of such provision shall be due, shall involve  transcending the
limit of validity  prescribed  by law,  then ipso facto,  the  obligation  to be
fulfilled  shall be reduced to the limit of such validity;  and if any clause or
provisions  herein  contained  other than the  provisions  hereof  pertaining to
repayment  of  the  Obligations  operates  or  would  prospectively  operate  to
invalidate  this  Agreement  in whole or in part,  then such clause or provision
only shall be void,  as though not herein  contained,  and the remainder of this
Agreement  shall  remain  operative  and in full force and  effect;  and if such
provision  pertains to repayment of the Obligations,  then, at the option of the
Lender,  all of the  Obligations  of the  Borrowers  to the Lender  shall become
immediately due and payable.

                                       38

<PAGE>

     SECTION 11.12 Extension of Maturity. Should the principal of or interest on
the Notes  become  due and  payable on other than a Banking  Day,  the  maturity
thereof shall be extended to the next succeeding  Banking Day and in the case of
principal,  interest shall be payable thereon at the rate per annum specified in
the Notes during such extension.

     SECTION 11.13 Gender,  etc. Whenever used herein, the singular number shall
include  the  plural,  the plural  the  singular  and the use of the  masculine,
feminine or neuter gender shall include all genders.

     SECTION 11.14 Headings.  The headings in this Agreement are for convenience
only and shall not limit or otherwise affect any of the terms hereof.

     SECTION  11.15  Waiver of Trial by Jury.  The parties  hereto  hereby waive
trial by jury in any action or  proceeding to which both of them may be parties,
arising out of or in any way  pertaining to (a) this  Agreement,  (b) the Loans,
Obligations, and Collateral which are the subject of this Agreement, and (c) any
and all notes, guarantees, assignments or agreements of any kind relating to the
Loans.  It is agreed and  understood  that this waiver  constitutes  a waiver of
trial by jury of all claims against all parties to such actions or  proceedings,
including claims against parties who are not parties to this Agreement.

     This waiver is  knowingly,  willingly and  voluntarily  made by each of the
parties hereto, and the parties hereby represent that no representations of fact
or opinion  have been made by any  individual  to induce this waiver of trial by
jury  or to in any way  modify  or  nullify  its  effect.  The  parties  further
represent  that they have been  represented in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of their own
free will,  and that they have had the  opportunity  to discuss this waiver with
counsel.

     SECTION 11.16 Liability of the Lender.  The Borrowers hereby agree that the
Lender shall not be chargeable for any negligence,  mistake,  act or omission of
any accountant,  examiner, agency or attorney employed by the Lender (except for
the  gross  negligence  or  willful  misconduct  of  any  person,   corporation,
partnership  or other  entity  employed by the  Lender) in making  examinations,
investigations  or  collections,   or  otherwise  in  perfecting,   maintaining,
protecting or realizing upon any lien or security interest or any other interest
in the Collateral or other security for the Obligations.

     SECTION 11.17  ARBITRATION.  ANY  CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES  HERETO  INCLUDING  BUT NOT LIMITED TO THOSE ARISING OUT OF THIS NOTE OR
ANY RELATED INSTRUMENTS,  AGREEMENTS OR DOCUMENTS,  INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT,  SHALL BE DETERMINED BY BINDING  ARBITRATION IN
ACCORDANCE  WITH  THE  FEDERAL  ARBITRATION  ACT  (OR  IF  NOT  APPLICABLE,  THE
APPLICABLE  STATE LAW),  THE RULES OF PRACTICE AND PROCEDURE FOR  ARBITRATION OF
COMMERCIAL DISPUTES OF ENDISPUTE, INC., D/B/A J.A.M.S./ENDISPUTE ("J.A.M.S.")

                                       39

<PAGE>

AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF AN  INCONSISTENCY,  THE
SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED
IN ANY COURT HAVING  JURISDICTION.  ANY PARTY TO THIS  INSTRUMENT,  AGREEMENT OR
DOCUMENT MAY BRING ANY ACTION,  INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,  TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE RELATES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.

     (A) SPECIAL RULES.  THE  ARBITRATION  SHALL BE CONDUCTED IN FAIRFAX COUNTY,
VIRGINIA  AND  ADMINISTERED  BY  J.A.M.S.  WHO WILL  APPOINT AN  ARBITRATOR.  IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN  ARBITRATION  ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR  SHALL  ONLY,  UPON A SHOWING OF CAUSE,  BE  PERMITTED  TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.

         (B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO: (I)
LIMIT THE  APPLICABILITY OF ANY OTHERWISE  APPLICABLE  STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,  AGREEMENT OR DOCUMENT;  OR
(II) BE A WAIVER BY THE  LENDER OF THE  PROTECTION  AFFORDED  TO IT BY 12 U.S.C.
ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE
LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET OFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL,  OR (C) TO
OBTAIN FROM A COURT  PROVISIONAL OR ANCILLARY  REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER.  THE
LENDER MAY EXERCISE  SUCH SELF HELP RIGHTS,  FORECLOSE  UPON SUCH  PROPERTY,  OR
OBTAIN  SUCH  PROVISIONAL  OR  ANCILLARY  REMEDIES  BEFORE,  DURING OR AFTER THE
PENDENCY OF ANY  ARBITRATION  PROCEEDING  BROUGHT  PURSUANT TO THIS  INSTRUMENT,
AGREEMENT  OR  DOCUMENT.  NEITHER  THE  EXERCISE OF SELF HELP  REMEDIES  NOR THE
INSTITUTION OR MAINTENANCE OF ANY ACTION FOR  FORECLOSURE OR FOR  PROVISIONAL OR
ANCILLARY  REMEDIES  SHALL  CONSTITUTE  A  WAIVER  OF THE  RIGHT  OF ANY  PARTY,
INCLUDING  THE  CLAIMANT  IN  SUCH  ACTION,  TO  ARBITRATE  THE  MERITS  OF  THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

     SECTION  11.18 Right of  Contribution.  The  Borrowers and the Lender agree
that on and after the Closing Date, each Borrower (an "Entitled Borrower") shall
be entitled to contribution from each other Borrower to the extent, if any, that
(a) an  Entitled  Borrower  incurs any  Obligations  in excess of such  Entitled
Borrowers Net Valuation (as hereinafter defined) or (b) the Obligations incurred
by  such  Entitled   Borrower  would  leave  such  Entitled   Borrower  with  an
unreasonably small

                                       40

<PAGE>

amount of capital to enable the  Entitled  Borrower to operate  the  business in
which it is engaged,  and/or the Obligations  incurred by such Entitled Borrower
prevent  such  Entitled  Borrower  from  paying its debts as such debts  mature;
provided,  however, that such right of contribution shall be subordinated to the
payment of the Obligations and may not be exercised by any Borrower until all of
the Obligations have been paid in full.  Nothing in this Section shall be deemed
to in any manner impair the joint and several liability of each Borrower for any
and all of the Obligations.  The provisions of this Section shall be in addition
to and shall in no manner  limit any other rights of  contribution  available to
any Borrower.  The term "Net Valuation" as used in this Section means the amount
by which (1) an Entitled  Borrower's  property at a fair  valuation  exceeds (2)
such Entitled Borrower's debts.

     IN WITNESS  WHEREOF,  the  parties  hereto  have  signed  and  sealed  this
Agreement on the day and year first above written.

WITNESS OR ATTEST:             VERSAR, INC.


/s/ Lula Fasold                By: /s/ Lawrence W. Sinnott            (SEAL)
--------------------------         --------------------------
                                   Name:  Lawrence W. Sinnott
                                   Title: V.P. and CFO

WITNESS OR ATTEST:             GEOMET TECHNOLOGIES, INC.


/s/ Lula Fasold                By: /s/ Lawrence W. Sinnott            (SEAL)
--------------------------         --------------------------
                                   Name:  Lawrence W. Sinnott
                                   Title: Treasurer



                               NATIONSBANK, N.A.

                               By:                                    (SEAL)
--------------------------         --------------------------
                                   Rit Amin
                                   Commercial Loan Officer


                                       41

<PAGE>

                                    EXHIBITS
                                    --------

                    A-1. Form of Acquisition Note

                    A-2. Revolving Note

                    B.   Subsidiaries

                    C.   Places of Business

                    D.   Liens on Collateral

                    E.   Borrowing Base Certificate

                    F.   Compliance Certificate


                                       42

<PAGE>

                                                                       EXHIBIT B


                                  SUBSIDIARIES

                                        Chief Executive       Ownership Interest
Name                                        Officer               of Company
----                                        -------               ----------
GEOMET TECHNOLOGIES, INC







                                       43

<PAGE>

                                                                       EXHIBIT C


                               PLACES OF BUSINESS


The Borrowers' Chief Executive Office is:

          6850 Versar Center
          Springfield, Virginia 22151



The Borrowers have other places of business at the following addresses:




The Collateral is located at the following address(es):





                                       44

<PAGE>

                                                                       EXHIBIT D


                               LIENS ON COLLATERAL



Asset Covered            Lienholder           Balance           Unpaid Principal
-------------            ----------           -------           ----------------







                                       45