Document:

Exhibit 10.1

 

EXECUTION VERSION

 

2,500,000 Shares

 

SANCHEZ ENERGY CORPORATION

 

4.875% CUMULATIVE PERPETUAL CONVERTIBLE PREFERRED STOCK, 
 SERIES A, PAR VALUE $0.01 PER SHARE

 

PURCHASE AGREEMENT

 

September 12, 2012

 

 

September 12, 2012

 

RBC Capital Markets, LLC

Three World Financial Center
 200 Vesey Street
 New York, New York 10281

 

Ladies and Gentlemen:

 

Sanchez Energy Corporation, a Delaware corporation (the “Company”), proposes to issue and sell to the several purchasers named in Schedule I hereto (the “Initial  Purchasers”) 2,500,000 shares of its 4.875% Cumulative Perpetual Convertible Preferred Stock, Series A, par value $0.01 per share (the “Firm Securities”). The Company also proposes to issue and sell to the Initial Purchasers not more than an additional 500,000 shares of its 4.875% Cumulative Perpetual Convertible Preferred Stock, Series A, par value $0.01 per share (the “Additional Securities”) if and to the extent that you shall have determined to exercise, on behalf of the Initial Purchasers, the right to purchase such Additional Securities granted to the Initial Purchasers in Section 2 hereof. The Firm Securities and the Additional Securities are hereinafter collectively referred to as the “Securities.” The Securities will be convertible into shares of common stock, par value $0.01 per share, of the Company (the “Underlying Securities”).

 

The Securities and the Underlying Securities will be offered without being registered under the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A under the Securities Act.

 

In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum (the “Preliminary Memorandum”) and will prepare a final offering memorandum (the “Final Memorandum”) including or incorporating by reference a description of the terms of the Securities and the Underlying Securities, the terms of the offering and a description of the Company.  For purposes of this Agreement, “Additional Written Offering Communication” means any written communication (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or a solicitation of an offer to buy the Securities other than the Preliminary Memorandum or the Final Memorandum, and “Time of Sale Memorandum” means the Preliminary Memorandum together with the Additional Written Offering Communications, if any, each identified in Schedule II hereto.  As used herein, the terms Preliminary Memorandum, Time of Sale Memorandum and Final Memorandum shall include the documents, if any, incorporated by reference therein on the date hereof.  The terms “supplement”, “amendment” and “amend” as used herein with respect to the Preliminary Memorandum, the Time of Sale Memorandum, the Final Memorandum or any Additional Written Offering Communication shall include all documents subsequently filed by the Company with the Securities and Exchange Commission (the

 

 

“Commission”) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are deemed to be incorporated by reference therein.

 

1.                Representations and Warranties.  The Company represents and warrants to, and agrees with, you that:

 

(a)                                  (i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Preliminary Memorandum, the Time of Sale Memorandum or the Final Memorandum complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (ii) the Time of Sale Memorandum does not, and at the time of each sale of the Securities in connection with the offering when the Final Memorandum is not yet available to prospective purchasers and at the Closing Date (as defined in Section 4), the Time of Sale Memorandum, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (iii) the Preliminary Memorandum, as of its date, did not contain and the Final Memorandum, as of its date, in the form used by the Initial Purchasers to confirm sales, and on the Closing Date (as defined in Section 4), will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Preliminary Memorandum, the Time of Sale Memorandum or the Final Memorandum based upon information furnished to the Company in writing by such Initial Purchaser through you expressly for use therein.

 

(b)                                 Except for the Additional Written Offering Communications, if any, identified in Schedule II hereto, and electronic road shows, if any, furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any Additional Written Offering Communication.

 

(c)                                  The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole.

 

(d)                                 Each subsidiary of the Company has been duly incorporated, is validly existing as a limited liability company in good standing under the laws of

 

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the jurisdiction of its formation, has the corporate or other entity power and authority to own its property and to conduct its business as described in the Time of Sale Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued equity interests of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid (to the extent required by applicable law and each subsidiary’s organizational documents) and non-assessable (except as non-assessability may be affected by Sections 18-607 and 18-804 of the Delaware Limited Liability Company Act) and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims.

 

(e)                                  This Agreement has been duly authorized, executed and delivered by the Company.

 

(f)                                    The authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in each of the Time of Sale Memorandum and the Final Memorandum.

 

(g)                                 The shares of common stock outstanding prior to the issuance of the Securities have been duly authorized and are validly issued, fully paid and non-assessable.

 

(h)                                 The Certificate of Designations creating the Securities, the proposed form of which has been furnished to you, will have been duly filed with the Secretary of State of Delaware and with all other offices where such filing is required, on or before the Closing Date.

 

(i)                                     The Securities have been duly authorized and, when issued and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Securities will not be subject to any preemptive or similar rights.

 

(j)                                     The maximum number of Underlying Securities issuable upon conversion of the Securities (including the maximum number that may be issued upon conversion of the Securities in connection with a fundamental change (the “Maximum Number of Underlying Securities”)) as of the Closing Date have been duly authorized and reserved and, when issued upon conversion of the Securities in accordance with the terms of the Securities, will be validly issued, fully paid and non-assessable, and the issuance of the Underlying Securities will not be subject to any preemptive or similar rights.

 

(k)                                  The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of (i) applicable law or (ii) the certificate of

 

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incorporation or by-laws of the Company or (iii) any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities, except where such contravention in the case of clauses (i) and (iii) or the failure to obtain such consents, approvals and authorizations individually or in the aggregate, would not have a material adverse effect on the Company and its subsidiaries taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Memorandum.

 

(l)                                     There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Memorandum provided to prospective purchasers of the Securities.

 

(m)                               Other than proceedings accurately described in all material respects in the Time of Sale Memorandum, there are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that would have a material adverse effect on the Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by the Time of Sale Memorandum.

 

(n)                                 The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole.

 

(o)                                 There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures

 

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required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole.

 

(p)                                 The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Final Memorandum will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”).

 

(q)                                 Neither the Company nor, to the knowledge of the Company, any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an “Affiliate”) of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities (or the Underlying Securities) or (ii) offered, solicited offers to buy or sold the Securities (or the Underlying Securities) by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act.

 

(r)                                    Assuming the accuracy of the representations and warranties of the Initial Purchasers herein, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register the Securities under the Securities Act.

 

(s)                                  The Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act.

 

(t)                                    Neither the Company nor any of its subsidiaries, nor any director or officer, nor, to the Company’s knowledge, any affiliate, employee, agent or representative of the Company or of any of its subsidiaries or affiliates, has taken any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment or giving of money, property, gifts or anything else of value, directly or indirectly, to any “government official” (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) to influence official action or secure an improper advantage; and the Company and its subsidiaries and, to the knowledge of the Company, affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintain and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws and with the representation and warranty contained herein.

 

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(u)                                 The operations of the Company and its subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Anti-Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(v)                                 (i)  Neither the Company nor any of its subsidiaries, nor any director or officer, thereof, nor, to the Company’s knowledge, any agent, affiliate, employee or representative of the Company or any of its subsidiaries, is an individual or entity (“Person”) that is, or is owned or controlled by a Person that is:

 

(A)  the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the United Nations Security Council (“UNSC”), the European Union (“EU”), Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor

 

(B)  located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Burma/Myanmar, Cuba, Iran, Libya, North Korea, Sudan and Syria).

 

(ii)  The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:

 

(A)  to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or

 

(B)  in any other manner that, to the knowledge of the Company, will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).

 

(iii)  Since the Company’s formation, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in,

 

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any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.

 

(w)                               The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested extensions thereof (except where the failure to file would not, individually or in the aggregate, have a material adverse effect) and have paid all taxes required to be paid thereon (except for cases in which the failure to file or pay would not have a material adverse effect, or, except as currently being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of the Company), and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company nor any of its subsidiaries have any notice or knowledge of any tax deficiency which could reasonably be expected to be determined adversely to the Company or its subsidiaries and which could reasonably be expected to have) a material adverse effect.

 

(x)                                   The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (v) the interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Time of Sale Memorandum is accurate. Except as described in the Time of Sale Memorandum, since the end of the Company’s most recent audited fiscal year, there has been (i) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (ii) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(y)                                 The interactive data in eXtensible Business Reporting Language included or incorporated by reference in the Time of Sale Memorandum fairly presents the information called for in all material respects and has been prepared in all material respects accordance with the Commission’s rules and guidelines applicable thereto.

 

(z)                                   BDO USA, LLP, who have certified certain financial statements of the Company and its subsidiaries, is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.

 

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(aa)                            Ryder Scott Company, LP (“Ryder Scott”), who has delivered the letter referred to in Section 5(e) hereof (the “Ryder Scott Letter”) was, as of the dates of the reports referenced in such letter, and is, as of the date hereof, an independent petroleum engineering firm with respect to the Company.

 

(bb)                          The factual information underlying the estimates of the Company’s oil and natural gas reserves, which was supplied by the Company to Ryder Scott for the purposes of preparing the reserves reports and estimates of the Company and preparing the Ryder Scott Letter, including, without limitation, costs of operation and development and agreements relating to current and future operations and sales of production, was true and correct in all material respects on the dates such estimates were made and such information was supplied and was prepared in accordance with customary industry practices; other than production of reserves in the ordinary course of business, intervening market commodity price fluctuations or as described in the Time of Sale Memorandum, the Company is not aware of any facts or circumstances that would result in a material adverse change in the estimates of the Company’s oil and natural gas resources, or the present value of future net cash flows therefrom, as reflected in the reports referenced in the Ryder Scott Letter; other than production of reserves in the ordinary course of business, intervening market commodity price fluctuations or as described in the Time of Sale Memorandum, the Company has no reason to believe that such estimates do not fairly reflect the oil and natural gas resources of the Company as of the dates of the Time of Sale Memorandum and the Final Memorandum.

 

2.                              Agreements to Sell and Purchase.  The Company hereby agrees to sell to the several Initial Purchasers, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Securities set forth in Schedule I hereto opposite its name at a purchase price of $48.375 per share (the “Purchase Price”) plus accrued dividends, if any, to the Closing Date.

 

On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Initial Purchasers the Additional Securities, and the Initial Purchasers shall have the right to purchase, severally and not jointly, up to 500,000 Additional Securities at the Purchase Price, provided, however, that the amount paid by the Initial Purchasers for any Additional Securities shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Firm Securities but not payable on such Additional Securities plus accrued dividends, if any, to the date of payment and delivery. You may exercise this right on behalf of the Initial Purchasers in whole or from time to time in part by giving written notice not later than 30 days after the date of this Agreement.  Any exercise notice shall specify the number of Additional Securities to be purchased by the Initial Purchasers and the date on which such Additional Securities are to be purchased.  Each purchase date must be at least two business days after the written notice is given, unless waived in writing by the Company, and may not be earlier than the

 

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closing date for the Firm Securities nor later than ten business days after the date of such notice.  Additional Securities may be purchased as provided in Section 4 solely for the purpose of covering sales of securities in excess of the number of the Firm Securities.  On each day, if any, that Additional Securities are to be purchased (an “Option Closing Date”), each Initial Purchaser agrees, severally and not jointly, to purchase the number of Additional Securities (subject to such adjustments to eliminate fractional Securities as you may determine) that bears the same proportion to the total number of Additional Securities to be purchased on such Option Closing Date as the number of Firm Securities set forth in Schedule I opposite the name of such Initial Purchaser bears to the total number of Firm Securities.

 

3.                              Terms of Offering.  You have advised the Company that the Initial Purchasers will make an offering of the Securities purchased by the Initial Purchasers hereunder as soon as practicable after this Agreement is entered into as in your judgment is advisable.

 

4.                              Payment and Delivery.  Payment for the Firm Securities shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Securities for the respective accounts of the several Initial Purchasers at 10:00 a.m., New York City time, on September 17, 2012, or at such other time on the same or such other date, not later than September 24, 2012, as shall be designated in writing by you and the Company.  The time and date of such payment are hereinafter referred to as the “Closing Date.”

 

Payment for any Additional Securities shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Securities for the respective accounts of the several Initial Purchasers at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 2 or at such other time on the same or on such other date, in any event not later than October 26,  2012, as shall be designated in writing by you and the Company.

 

The Securities shall be in definitive form or global form, as specified by you, and registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Securities shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Initial Purchasers, with any transfer taxes payable in connection with the transfer of the Securities to the Initial Purchasers duly paid, against payment of the Purchase Price therefor.

 

5.                              Conditions to the Initial Purchasers’ Obligations.  The several obligations of the Initial Purchasers to purchase and pay for the Firm Securities on the Closing Date are subject to the following conditions:

 

(a)                                  Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:

 

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(i)                 there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the securities of the Company by any “nationally recognized statistical rating organization,” as such term is defined in Section 3(a)(62) of the Exchange Act; and

 

(ii)              there shall not have occurred any material change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Memorandum provided to the prospective purchasers of the Securities that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Securities on the terms and in the manner contemplated in the Time of Sale Memorandum.

 

(b)                                 The Initial Purchasers shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in Section 5(a)(i) and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects (other than representations and warranties qualified by materiality, in which case such representations shall be true and correct in all respects) as of the Closing Date and that the Company has complied in all material respects with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date.

 

The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened.

 

(a)                                  The Initial Purchasers shall have received on the Closing Date an opinion of Akin Gump Strauss Hauer & Feld LLP, outside counsel for the Company, and Alfredo Gutierrez, Counsel of Sanchez Oil & Gas Corporation, on behalf of the Company, each to the effect set forth in Exhibit A and Exhibit B, respectively.  Such opinions shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein.

 

(b)                                 The Initial Purchasers shall have received on the Closing Date an opinion of Davis Polk & Wardwell LLP, counsel for the Initial Purchasers, dated the Closing Date, in form and substance satisfactory to the Initial Purchasers.

 

(c)                                  The Initial Purchasers shall have received on each of the date hereof and the Closing Date a letter, dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Initial Purchasers, from BDO USA LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to

 

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underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Time of Sale Memorandum and the Final Memorandum; provided that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.

 

(d)                                 The “lock-up” agreements, each substantially in the form of Exhibit C hereto, between you and officers and directors of the Company relating to sales and certain other dispositions of shares of common stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.

 

(e)                                  The Initial Purchasers shall have received on each of the date hereof and the Closing Date a letter, dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Initial Purchasers, from Ryder Scott, independent petroleum engineers, containing statements and information of the type ordinarily included in such letters to underwriters relating to the reserve information contained in or incorporated by reference into the Time of Sale Memorandum and the Final Memorandum.

 

(f)                                    The Maximum Number of Underlying Securities shall have been approved for listing, subject to notice of issuance, on the New York Stock Exchange, and evidence thereof shall have been provided to the Initial Purchasers.

 

The several obligations of the Initial Purchasers to purchase Additional Securities hereunder are subject to the delivery to you on the applicable Option Closing Date of such documents, not inconsistent with the foregoing, as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Securities to be sold on such Option Closing Date and other matters related to the issuance of such Additional Securities.

 

6.                              Covenants of the Company.  The Company covenants with each Initial Purchaser as follows:

 

(a)                                  To furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the second business day next succeeding the date of this Agreement and during the period mentioned in Section 6(d) or (e), as many copies of the Time of Sale Memorandum, the Final Memorandum, any documents incorporated by reference therein and any supplements and amendments thereto as you may reasonably request.

 

(b)                                 Before amending or supplementing the Preliminary Memorandum, the Time of Sale Memorandum or the Final Memorandum, to furnish to you a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which you reasonably object, except as may be required by applicable law.

 

(c)                                  To furnish to you a copy of each proposed Additional Written Offering Communication to be prepared by or on behalf of, used by, or referred to

 

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by the Company and not to use or refer to any proposed Additional Written Offering Communication to which you reasonably object.

 

(d)                                 If the Time of Sale Memorandum is being used to solicit offers to buy the Securities at a time when the Final Memorandum is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Memorandum in order to make the statements therein, in the light of the circumstances, not misleading, or if, in the opinion of counsel for the Company and counsel for the Initial Purchasers, it is necessary to amend or supplement the Time of Sale Memorandum to comply with applicable law, forthwith to prepare and furnish, at its own expense, to the Initial Purchasers and to any dealer upon request, either amendments or supplements to the Time of Sale Memorandum so that the statements in the Time of Sale Memorandum as so amended or supplemented will not, in the light of the circumstances when delivered to a prospective purchaser, be misleading or so that the Time of Sale Memorandum, as amended or supplemented, will comply with applicable law.

 

(e)                                  If, during such period after the date hereof and prior to the date on which all of the Securities shall have been sold by the Initial Purchasers, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Final Memorandum in order to make the statements therein, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Company and counsel for the Initial Purchasers, it is necessary to amend or supplement the Final Memorandum to comply with applicable law, forthwith to prepare and furnish, at its own expense, to the Initial Purchasers, either amendments or supplements to the Final Memorandum so that the statements in the Final Memorandum as so amended or supplemented will not, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, be misleading or so that the Final Memorandum, as amended or supplemented, will comply with applicable law.

 

(f)                                    To endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request in writing prior to the Closing Date, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction or subject itself to taxation in respect of doing business in any jurisdiction in which it is otherwise not so subject.

 

(g)                                 Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company’s counsel and the Company’s accountants in connection with the issuance and sale of the Securities and all other fees or expenses of the Company in connection with the preparation of the Preliminary Memorandum, the Time of Sale Memorandum, the

 

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Final Memorandum, any Additional Written Offering Communication prepared by or on behalf of, used by, or referred to by the Company and any amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the delivering of copies thereof to the Initial Purchasers, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Initial Purchasers, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Securities under state securities laws and all expenses in connection with the qualification of the Securities for offer and sale under state securities laws as provided in Section 6(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection with such qualification and in connection with the Blue Sky or legal investment memorandum (provided that any amounts to be paid by the Company under this subclause (iii) shall not exceed $5,000), (iv) any fees charged by rating agencies for the rating of the Securities, (v) the fees and expenses, if any, incurred in connection with the admission of the Securities for trading on any appropriate market system, (vi) the costs and charges of any transfer agent, registrar or depositary, (vii) the cost of the preparation, issuance and delivery of the Securities, (viii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Securities, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses associated with production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, (ix) the document production charges and expenses associated with printing this Agreement and (x) all other cost and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section.  It is understood, however, that except as provided in this Section, Section 8, and the last paragraph of Section 10, the Initial Purchasers will pay all of their costs and expenses, including fees and disbursements of their counsel, transfer taxes payable on resale of any of the Securities by them and any advertising expenses connected with any offers they may make.

 

(h)                                 Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Securities (or the Underlying Securities) in a manner which would require the registration under the Securities Act of the Securities (or the Underlying Securities).

 

(i)                                     Not to solicit any offer to buy or offer or sell the Securities or the Underlying Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or

 

13

 

in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act.

 

(j)                                     For one year after the latest date of initial issuance, to make available, upon request, to any seller of such Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act.

 

(k)                                  During the period of one year after the Closing Date or any Option Closing Date, if later, the Company will not, and will use its commercially reasonable efforts to not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to resell any of the Securities or the Underlying Securities which constitute “restricted securities” under Rule 144 that have been reacquired by any of them.

 

(l)                                     Not to take any action prohibited by Regulation M under the Exchange Act in connection with the distribution of the Securities contemplated hereby.

 

(m)                               To reserve and keep available at all times, free of preemptive rights, the Maximum Number of Underlying Securities.

 

(n)                                 To use all reasonable efforts to maintain the listing of the Maximum Number of Underlying Securities on the New York Stock Exchange for so long as the Securities are outstanding.

 

The Company also agrees that, without the prior written consent of RBC Capital Markets, LLC on behalf of the Initial Purchasers, it will not, during the period ending 60 days after the date of the Final Memorandum, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise.  The foregoing sentence shall not apply to (a) the sale of the Securities under this Agreement, (b) the issuance by the Company of any shares of common stock upon the exercise of an option or warrant or the conversion of the Securities or a security outstanding on the date hereof of which the Initial Purchasers have been advised in writing, (c) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that such plan does not provide for the transfer of common stock during the 60-day restricted period and no public announcement or filing under the Exchange Act regarding the establishment of such plan shall be required of or voluntarily made by or on behalf of the Company, (d) the issuance by the Company of shares of common stock or options to purchase shares of its common stock, or shares of common stock upon exercise of options, pursuant to any

 

14

 

stock option, stock bonus or other stock plan or arrangement described in the Time of Sale Memorandum (or any amendment to or replacement of such plan) of which the Initial Purchasers have been advised in writing, (e) the issuance of shares of common stock or securities convertible into or exercisable for shares of common stock as consideration in a merger or other acquisition (provided that any recipient of such securities agrees to be bound by the foregoing restrictions for the remainder of the 60-day restricted period), and (f) the filing of one or more registration statements either (x) on Form S-8 or amendments thereto relating to the issuance of shares of common stock or the issuance and exercise of options to purchase shares of common stock granted under the employee benefit plans of the Company existing on the date hereof or any amendment to or replacement of such plan or (y) to which RBC Capital Markets, LLC has consented, such consent not to be unreasonably withheld, in connection with the Company’s entry into a definitive agreement relating to an acquisition.

 

7.                              Offering of Securities; Restrictions on Transfer.  (a) Each Initial Purchaser, severally and not jointly, represents and warrants that such Initial Purchaser is (x) an institutional accredited investor (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and (y) a qualified institutional buyer as defined in Rule 144A under the Securities Act (a “QIB”). Each Initial Purchaser, severally and not jointly, agrees with the Company that:  (i) it will not solicit offers for, or offer or sell, such Securities (or any Underlying Securities) by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act; (ii) it will solicit offers for such Securities only from, and will offer such Securities only to, persons that it reasonably believes to be QIBs that, in purchasing such Securities are deemed to have represented and agreed as provided in the Time of Sale Memorandum and the Final Memorandum under the caption “Transfer Restrictions; Notice to Investors”; and (iii) it will take reasonable steps to ensure that each such person to whom it is soliciting offers for such Securities from, or offering such Securities to, is aware that it is relying on the exemption from registration provided by Rule 144A under the Securities Act.

 

(b)                                 The Company agrees that the Initial Purchasers may provide copies of the Preliminary Memorandum, the Time of Sale Memorandum, the Final Memorandum and any other agreements or documents relating thereto, to Xtract Research LLC (“Xtract”), following completion of the offering, for inclusion in an online research service sponsored by Xtract, access to which shall be restricted by Xtract to QIBs.

 

8.                              Indemnity and Contribution.  (a) The Company agrees to indemnify and hold harmless each Initial Purchaser, each person, if any, who controls any Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Initial Purchaser within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Time of Sale Memorandum or any amendment or

 

15

 

supplement thereto, any Additional Written Offering Communication prepared by or on behalf of, used by, or referred to by the Company, any “road show” as defined in Rule 433(h) under the Securities Act (a “road show”) or the Final Memorandum or any amendment or supplement thereto, or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser through you expressly for use therein.

 

(b)                                 Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Initial Purchaser, but only with reference to information furnished to the Company in writing by such Initial Purchaser through you expressly for use in the Preliminary Memorandum, the Time of Sale Memorandum, any Additional Written Offering Communication prepared by or on behalf of, used by or referred to by the Company, road show, or the Final Memorandum or any amendment or supplement thereto.

 

(c)                                  In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (the “indemnifying party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by RBC Capital Markets, LLC, in the case of parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its

 

16

 

written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days’ notice of its intention to settle.  No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

 

(d)                                 To the extent the indemnification provided for in Section 8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Securities (before deducting expenses) received by the Company and the total discounts and commissions received by the Initial Purchasers bear to the aggregate offering price of the Securities. The relative fault of the Company on the one hand and of the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Initial Purchasers’ respective obligations to contribute pursuant to this Section 8

 

17

 

are several in proportion to the respective number of Securities they have purchased hereunder, and not joint.

 

(e)                                  The Company and the Initial Purchasers agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities resold by it in the initial placement of such Securities were offered to investors exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

 

(f)                                    The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser, any person controlling any Initial Purchaser or any affiliate of any Initial Purchaser or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Securities.

 

9.                              Termination.  The Initial Purchasers may terminate this Agreement by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the New York Stock Exchange, the NYSE MKT LLC, the NASDAQ Global Market, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange, (iii) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this Section 9, makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Securities

 

18

 

on the terms and in the manner contemplated in the Time of Sale Memorandum or the Final Memorandum.

 

10.                                 Effectiveness; Defaulting Initial Purchasers.  This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

 

If, on the Closing Date, or an Option Closing Date, as the case may be, any one or more of the Initial Purchasers shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on such date, and the aggregate number of Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Securities to be purchased on such date, the other Initial Purchasers shall be obligated severally in the proportions that the number of Firm Securities set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Securities set forth opposite the names of all such non-defaulting Initial Purchasers, or in such other proportions as you may specify, to purchase the Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase on such date; provided that in no event shall the number of Securities that any Initial Purchaser has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an amount in excess of one-ninth of such number of Securities without the written consent of such Initial Purchaser. If, on the Closing Date any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase Firm Securities which it or they have agreed to purchase hereunder on such date and the aggregate number of Securities with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Securities to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Firm Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser or of the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Time of Sale Memorandum, the Final Memorandum or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase Additional Securities and the aggregate number of Additional Securities with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Securities to be purchased on such Option Closing Date, the non-defaulting Initial Purchasers shall have the option to (a) terminate their obligation hereunder to purchase the Additional Securities to be sold on such Option Closing Date or (b) purchase not less than the number of Additional Securities that such non-defaulting Initial Purchasers would have been obligated to purchase in the absence of such default.  Any action taken under this paragraph shall not relieve any defaulting Initial Purchaser from liability in respect of any default of such Initial Purchaser under this Agreement.

 

If this Agreement shall be terminated by the Initial Purchasers, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Initial Purchasers or such Initial Purchasers as have so terminated this Agreement

 

19

 

with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Initial Purchasers in connection with this Agreement or the offering contemplated hereunder.

 

11.                        Entire Agreement.  (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering of the Securities, represents the entire agreement between the Company and the Initial Purchasers with respect to the preparation of the Preliminary Memorandum, the Time of Sale Memorandum, the Final Memorandum, the conduct of the offering, and the purchase and sale of the Securities.

 

(b)                                 The Company acknowledges that in connection with the offering of the Securities: (i) the Initial Purchasers have acted at arm’s length, are not agents of, and owe no fiduciary duties to, the Company or any other person, (ii) the Initial Purchasers owe the Company only those duties and obligations set forth in this Agreement and prior written agreements (to the extent not superseded by this Agreement) if any, and (iii) the Initial Purchasers may have interests that differ from those of the Company.  The Company waives to the full extent permitted by applicable law any claims it may have against the Initial Purchasers arising from an alleged breach of fiduciary duty in connection with the offering of the Securities.

 

12.                        Counterparts.  This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

13.                        Applicable Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.

 

14.                        Headings.  The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.

 

15.                        Notices.  All communications hereunder shall be in writing and effective only upon receipt and if to the Initial Purchasers shall be delivered, mailed or sent to you in care of RBC Capital Markets, LLC, Three World Financial Center, 200 Vesey Street, New York, New York 10281, Attention:  Equity Syndicate Desk; and if to the Company shall be delivered, mailed or sent to Sanchez Energy Corporation, 1111 Bagby Street, Suite 1800, Houston, Texas 77002, Attention:  Michael G. Long.

 

20

 

	
 
    	
Very truly yours,  
    
	
 
    	
 
    
	
 
    	
SANCHEZ ENERGY CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Michael G. Long
    
	
 
    	
 
    	
Name: Michael G. Long
    
	
 
    	
 
    	
Title:    Senior   Vice President and Chief Financial Officer
    

 

[Signature Page to Purchase Agreement]

 

 

	
Accepted   as of the date hereof
    	
 
    
	
 
    	
 
    
	
RBC   CAPITAL MARKETS, LLC
    	
 
    
	
 
    	
 
    
	
Acting on behalf of itself and the several Initial   Purchasers named in Schedule I hereto.
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
RBC Capital Markets, LLC
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/ Nathaniel J. Raggette
    	
 
    
	
 
    	
Name: Nathaniel J. Raggette
    	
 
    
	
 
    	
Title:   Director
    	
 
    

 

[Signature Page to Purchase Agreement]

 

 

SCHEDULE I

 

	
Initial Purchaser
    	
 
    	
Number of Firm
   Securities to be
   Purchased
    
	
 
    	
 
    	
 
    
	
RBC Capital Markets, LLC
    	
 
    	
2,125,000
    
	
Capital One Southcoast, Inc.
    	
 
    	
125,000
    
	
Johnson Rice & Company L.L.C.
    	
 
    	
125,000
    
	
Macquarie Capital (USA) Inc.
    	
 
    	
125,000
    
	
Total:
    	
 
    	
2,500,000
    

 

I-1

 

SCHEDULE II

 

Time of Sale Memorandum

 

1.                                           Preliminary Memorandum issued September 10, 2012

 

2.                                           Pricing term sheet dated as of September 11, 2012

 

II-1

 

EXHIBIT A

 

OPINION OF OUTSIDE COUNSEL FOR THE COMPANY

 

1.               (a) The Company is validly existing as a corporation in good standing under the laws of the State of Delaware, the jurisdiction of its organization, and is duly qualified and is in good standing as a foreign corporation under the laws of the jurisdictions listed on Exhibit C attached hereto.  (b) Each of the Subsidiaries is validly existing as a limited liability company in good standing under the laws of the State of Delaware, the jurisdiction of its organization, and is duly qualified and is in good standing as a foreign limited liability company under the laws of the jurisdictions listed on Exhibit C attached hereto.

 

2.               (a) The Company has corporate power to enter into the Purchase Agreement and to own its properties and to conduct its business, in all material respects, as described in the Preliminary Offering Memorandum and the Final Offering Memorandum.  (b)  Each of the Subsidiaries has limited liability company power to own its properties and to conduct its business, in all material respects, as described in the Preliminary Offering Memorandum and the Final Offering Memorandum.

 

3.               (a) The execution and delivery of the Purchase Agreement by the Company and the performance by the Company of its obligations thereunder have been duly authorized by all necessary corporate action on the part of the Company.  (b) The Purchase Agreement has been duly and validly executed and delivered by the Company.

 

4.               The execution and delivery of the Purchase Agreement by the Company do not, and the performance by the Company of its obligations under the Purchase Agreement will not, (i) result in any violation of any law, rule or regulation of any Included Law (defined below), (ii) result in any violation of any order, writ, judgment or decree listed on Exhibit A attached hereto, (iii) result in a violation of any of the Governing Documents, or (iv) breach or result in a default under any Reviewed Agreement.

 

5.               No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (each, a “Filing”) is required under any of the Included Laws for the due execution and delivery of the Purchase Agreement by the Company and the performance by the Company of its obligations under the Purchase Agreement except for (i) routine Filings necessary in connection with the conduct of the Company’s business and (ii) such other Filings as have been obtained or made.

 

6.               (a) The authorized capital stock of the Company consists of 150,000,000 shares of common stock, par value $0.01 per share (“Common Stock”), and 15,000,000 shares of preferred stock, par value $0.01 per share, of which 3,000,000 shares have been designated as the Series A Preferred Stock.  (b) The Securities have been duly authorized and, when issued and delivered pursuant to the terms of the Purchase Agreement, will be validly issued, fully paid and non-assessable, and will not have been issued in violation of any preemptive rights granted under the Governing

 

A-1

 

Documents or under the General Corporation Law of the State of Delaware (the “DGCL”).  (c) The shares (including (in the event of a “fundamental change”) any additional shares) of the Common Stock initially issuable upon conversion of the Securities (the “Underlying Securities”) have been duly authorized and reserved for issuance by the Company and, when issued upon the conversion of the Securities in accordance with the terms of the Securities, will be validly issued, fully paid and non-assessable, and will not have been issued in violation of any preemptive rights granted under the Governing Documents or under the DGCL.  (d) The Securities, when issued and delivered pursuant to the terms of the Purchase Agreement, will conform in all material respects as to legal matters to the description thereof in the Final Offering Memorandum under the caption “Description of Convertible Preferred Stock.” (e) The Underlying Securities, when issued upon the conversion of the Securities in accordance with the terms of the Securities, will conform in all material respects as to legal matters to the description thereof in the Final Offering Memorandum under the caption “Description of Capital Stock.”

 

7.               The Company is not, and immediately after giving effect to the offering and sale of the Securities as contemplated by the Purchase Agreement and the application of the proceeds thereof as described in the Final Offering Memorandum, the Company will not be, an “investment company” required to register under the Investment Company Act of 1940, as amended.

 

8.               The statements in the Preliminary Offering Memorandum and the Final Offering Memorandum under the captions “Description of Preferred Stock” and “Description of Capital Stock,” insofar as such statements purport to summarize provisions of any law, statute, rule or regulation of or under any Included Law referred to therein, fairly summarize such laws, statutes, rules and regulations in all material respects, subject to the qualifications and assumptions stated therein.

 

9.               The statements in the Preliminary Offering Memorandum and the Final Offering Memorandum under the caption “Material U.S. Federal Income Tax Considerations,” insofar as such statements constitute a summary of the United States Federal tax laws referred to therein, as of the date of the Preliminary Offering Memorandum and the Final Offering Memorandum, in all material respects, fairly summarize the United States Federal tax laws referred to therein in all material respects, subject to the qualifications and assumptions stated therein.

 

10.         Assuming without independent investigation, (i) that the Securities are sold to the Initial Purchasers, and initially resold by the Initial Purchasers, in accordance with the terms of and in the manner contemplated by, the Purchase Agreement and the Final Offering Memorandum; (ii) the accuracy of the representations and warranties of the Company set forth in the Purchase Agreement and the matters certified in those certain certificates delivered on the date hereof; (iii) the accuracy of the representations and warranties of the Initial Purchasers set forth in the Purchase Agreement; (iv) the due performance and compliance by the Company and the Initial Purchasers of their respective covenants and agreements set forth in the Purchase Agreement; (v) the timely filing of all notices required to be filed with any Federal

 

A-2

 

agency subsequent to the date hereof in order to secure exemption from the registration requirements of the Securities Act; and (vi) the Initial Purchasers’ compliance with the transfer procedures and restrictions described in the Final Offering Memorandum, it is not necessary to register the Securities under the Securities Act in connection with (x) the issuance and sale of the Securities by the Company to the Initial Purchasers in the manner contemplated by the Purchase Agreement and the Final Offering Memorandum, or (y)  the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by the Purchase Agreement and the Final Offering Memorandum, it being expressly understood that we express no opinion in this paragraph 10 as to any subsequent offer or resale of any of the Securities or any conversion of Securities or offer or sale of any Underlying Securities.

 

Our identification of documents and information as part of the Time of Sale Information has been at your request and with your approval.  Such identification is for the limited purpose of making the statements set forth in this letter and is not the expression of a view by us as to whether any such information has been or should have been conveyed to investors generally or to any particular investors at any particular time or in any particular manner or has been used or communicated in compliance with applicable law.

 

Because the primary purpose of our professional engagement was not to establish or confirm factual matters or financial, accounting or statistical information, or information pertaining to oil and gas reserve and production, and our participation in the preparation of the documents incorporated by reference in the Time of Sale Information or the Final Offering Memorandum has been limited and because many determinations involved in the preparation of the Time of Sale Information and the Final Offering Memorandum are of a wholly or partially non-legal character, except as expressly set forth in paragraphs 8 and 9 herein, we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Final Offering Memorandum or the Time of Sale Information (the “Disclosure Documents”) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements.

 

However, in the course of our acting as special counsel to the Company in connection with the preparation of the Time of Sale Information  and the Final Offering Memorandum, we have reviewed each such Disclosure Document and have participated in conferences and telephone conversations with representatives of the Company, representatives of the independent public accountants for the Company, representatives of the independent reserve engineers for the Company, representatives of the Initial Purchasers and representatives of the Initial Purchasers’ counsel, during which conferences and conversations the contents of such Disclosure Documents and related matters were discussed.

 

Subject to the foregoing, on the basis of the information we gained in the course of our participation in such conferences and conversations and our review of such documents, we confirm to you that:

 

A-3

 

(a)           Each of the periodic and current reports filed by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the extent incorporated by reference in the Preliminary Offering Memorandum and the Final Offering Memorandum (except the financial statements, financial schedules and other financial, accounting and statistical data or oil and gas reserve and production information, contained or incorporated by reference in, or omitted from, such reports, as to which we express no view), at the time it was filed with the Securities and Exchange Commission (the “Commission”), appeared on its face to be appropriately responsive in all material respects to the requirements of the Exchange Act and the applicable rules and regulations promulgated by the Commission thereunder, except that we express no view as to the antifraud provisions of the Exchange Act and the rules and regulations promulgated under such provisions; and

 

(b)           No facts have come to our attention that cause us to believe that (i) the Final Offering Memorandum (except the financial statements and other financial, accounting and statistical data or oil and gas reserve and production information contained or incorporated by reference therein or omitted therefrom, as to which we express no view), as of the date of the Final Offering Memorandum and as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (ii) the Time of Sale Information  (except the financial statements and other financial, accounting and statistical data or oil and gas reserve and production information, contained or incorporated by reference therein or omitted therefrom, as to which we express no view), as of 8:30 A.M., New York City time, on September 12, 2012 (which you have informed us is a time prior to the time of the first sale of the Securities by the Initial Purchasers), contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.

 

A-4

 

EXHIBIT B

 

OPINION OF COUNSEL OF SANCHEZ OIL & GAS CORPORATION,

ON BEHALF OF THE COMPANY

 

Based upon the foregoing and subject to the assumptions, exceptions, qualifications and limitations set forth herein, I am of the opinion that, to my knowledge, there are no legal or governmental proceedings pending or threatened to which the Company or the Subsidiaries is a party or of which any property of the Company or the Subsidiaries is the subject other than proceedings accurately described in all material respects in the Time of Sale Information, proceedings that I believe are not likely to have a material adverse effect on the Company and the Subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under the Purchase Agreement or to consummate the transactions contemplated by the Time of Sale Information.

 

B-1

 

EXHIBIT C

 

[FORM OF LOCK-UP LETTER]

 

	
 
    	
                                 ,   2012
    

 

RBC Capital Markets, LLC

Three World Financial Center
 200 Vesey Street
 New York, New York 10281

 

Ladies and Gentlemen:

 

The undersigned understands that RBC Capital Markets, LLC (“RBC Capital Markets”) proposes to enter into a Purchase Agreement (the “Purchase Agreement”) with Sanchez Energy Corporation, a Delaware corporation (the “Company”), providing for the offering (the “Offering”) by the several Initial Purchasers, including RBC Capital Markets (the “Initial Purchasers”), of shares of the Cumulative Perpetual Convertible Preferred Stock, Series A, par value $0.01 per share of the Company (the “Securities”).  The Securities will be convertible into shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”).

 

To induce the Initial Purchasers that may participate in the Offering to continue their efforts in connection with the Offering, the undersigned hereby agrees that, without the prior written consent of RBC Capital Markets, LLC on behalf of the Initial Purchasers, it will not, during the period commencing on the date hereof and ending 60 days after the date of the final offering memorandum relating to the Offering (the “Final Memorandum”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), by the undersigned or any other securities so owned convertible into or exercisable or exchangeable for Common Stock, including the Securities or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) transfers of shares of Common Stock or any security convertible into Common Stock as a bona fide gift, (b) distributions of shares of Common Stock or any security convertible into Common Stock to members, limited partners or stockholders of the undersigned, (c) dispositions to any trust for the direct or indirect benefit of the undersigned and/or the immediate family of the undersigned (provided that in the case of any transfer, distribution or disposition pursuant to clause (a), (b) or (c), (i) each donee, distributee or trust shall sign and deliver a lock-up letter substantially in the form of this letter and (ii) no filing under Section 16(a) of the 

 

C-1

 

Exchange Act, reporting a reduction in beneficial ownership of shares of Common Stock (without the reporting of a corresponding increase), shall be voluntarily made during the restricted period referred to in the foregoing sentence), (d) the pledge of any shares of Common Stock or other securities to secure loans to such persons or entities in connection with any financing transaction to which such persons or entities are parties (provided that such shares of Common Stock or other securities may not be sold or disposed of in connection with the exercise by the lender of any remedies as a secured party until the expiration of the 60-day restricted period), (e) in connection with the vesting of any shares of Common Stock or other securities issued under restricted stock awards or the exercise of options (provided that any such securities received upon exercise shall be subject to the provisions of this letter for the remainder of the 60-day restricted period), or (f) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that such plan does not provide for the transfer of Common Stock during the 60-day restricted period and no public announcement or filing under the Exchange Act regarding the establishment of such plan shall be required of or voluntarily made by or on behalf of the undersigned or the Company.  For purposes of this paragraph, “immediate family” shall mean the undersigned and the spouse, any lineal descendent, father, mother, brother or sister of the undersigned.  In addition, the undersigned agrees that, without the prior written consent of RBC Capital Markets on behalf of the Initial Purchasers, it will not, during the period commencing on the date hereof and ending 60 days after the date of the Final Memorandum, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock, including the Securities. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s shares of Common Stock except in compliance with the foregoing restrictions.

 

It is understood that the undersigned will be released from its obligations under this letter agreement if the Company notifies the undersigned that it does not intend to proceed with the Offering, if the Purchase Agreement (other than the provisions thereof that survive termination) shall terminate or be terminated prior to payment for and delivery of the Securities or if the Offering shall not have occurred by September 28, 2012.

 

The undersigned understands that the Company and the Initial Purchasers are relying upon this agreement in proceeding toward consummation of the Offering.  The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.

 

Whether or not the Offering actually occurs depends on a number of factors, including market conditions.  Any Offering will only be made pursuant to a Purchase Agreement, the terms of which are subject to negotiation between the Company and the Initial Purchasers.

 

C-2

 

	
 
    	
Very truly yours,
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
(Name)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
(Address)
    

 

C-3LOAN AND SECURITY AGREEMENT

 

September 26, 2003

 

This Loan and Security Agreement
(as amended, supplemented or modified from time to time, this "Agreement"), is between VERSAR, INC., GEOMET TECHNOLOGIES,
LLC, VERSAR GLOBAL SOLUTIONS, INC. and VERSAR ENVIRONMENTAL COMPANY; and UNITED BANK.

 

The parties hereto agree as follows:

 

I.            DEFINITIONS.

 

(A)         As
used herein, terms defined in the Note shall have their defined meanings when used herein and the following terms shall have the
following meanings:

 

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

 

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

 

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

 

"Available Credit"
means that amount (which must be a positive number) obtained by subtracting the outstanding principal balance of the Note from
the Commitment.

 

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

 

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

 

"Borrower" means,
individually and collectively, Versar, GEOMET Technologies, LLC, a Maryland limited liability company, Versar Global Solutions,
Inc., a Virginia corporation, Versar Environmental Company, a Pennsylvania corporation, and each Person which becomes a Borrower
pursuant to Section VI(C)(16), and their respective successors.

 

"Borrowing Base" means,
without duplication, the sum of (i) 90% of the Net Unpaid Balance of Eligible Assigned Government Accounts, and (ii) the lesser
of (A) $2,000,000.00 and (B) the sum of (1) 75% of the Net Unpaid Balance of Eligible Non-Assigned Government Accounts and (2)
75% of the Net Unpaid Balance of Eligible Commercial Accounts. No item of Collateral will be included in the Borrowing Base unless
the Bank has a valid and perfected first priority Lien on it.

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii)         accounts
on terms other than those normal or customary in the business of the Borrower;

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(x)          accounts
owing from an Account Debtor that is an agency, department or instrumentality of any state Government in the United States unless
the Borrower shall have satisfied the requirements of any state legislation similar to the federal Assignment of Claims Act of
1940 in respect thereof and the Bank is satisfied as to the absence of set-offs, counterclaims and other defenses to payment on
the part of such state Government; and

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

"Eligible Non-Assigned Government
Accounts" means Eligible Government Accounts owing from the United States, or a prime contractor therewith, other than Eligible
Assigned Government Accounts.

 

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

 

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

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

"Note"
means that certain Revolving Commercial Note dated September 26, 2003, from the Borrower to the Bank in the amount of $5,000,000.00,
and all extensions and modifications thereto, renewals thereof and replacements therefor.

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

"Versar" means Versar, Inc., a Delaware
corporation, and its successors.

 

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

 

    	 	 	 

    	 

    

  

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

 

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

 

II.          THE
CREDIT.

 

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

 

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

 

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

 

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

 

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

 

(D)         Borrowing
Base Certificates.

 

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

 

    	 	 	 

    	 

    

 

(2)         A
Borrowing Base Certificate dated as of the last Business Day of each month (the "Certificate Date") shall be presented
by the Borrower to the Bank on or before the fifteenth (15th) day of the month next following the Certificate Date, or if such
day is not a Business Day, the next following Business Day (the "Delivery Date"). A Borrowing Base Certificate shall
be effective from and including the date the Bank receives it on or before the Delivery Date, until the Bank receives the next
Borrowing Base Certificate on or before the next following Delivery Date.

 

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

 

(E)         Fees.
During the Commitment Period, the Borrower shall pay to the Bank an administration fee of $800.00 per month, commencing on
the same day of the month following the Effective Date, and on the Date of Maturity.

 

III.         THE
SECURITY INTERESTS.

 

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

 

(1)         all
Receivables;

 

(2)         all
Other Intangibles;

 

(3)         all
Equipment;

 

(4)         all
Inventory;

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

(C)         Sales
and Collections.

 

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

 

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

 

    	 	 	 

    	 

    

 

(D)         Segregation
of Proceeds.

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

(F)         Release
of Collateral.

 

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

 

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

 

IV.         CONDITIONS
PRECEDENT.

 

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

 

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

 

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

 

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

 

(4)         the
presentation to the Bank of a Borrowing Base Certificate, and a current aging of the Borrower's Receivables in support of said
Borrowing Base Certificate.

 

(B)         The
First Advance. The obligation of the Bank to make the first Advance is subject to the satisfaction of the following conditions:

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

V.          REPRESENTATIONS
AND WARRANTIES.

 

The Borrower represents and warrants that:

 

(A)         Existence
and Power.

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

  

    	 	 	 

    	 

    

 

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

 

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

 

(I)          Financial
Information.

 

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

 

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

 

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

 

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

 

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

 

 

    	 	 	 

    	 

    

 

(M)         Regulation
U. The proceeds of the Loans will be used by the Borrower only for the purposes set forth in Section VI(C)(14) hereof. None of
the proceeds of any Advance will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock"
or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry margin stock or
for any other purpose which might constitute the loan evidenced by the Note, or any Advance, a "purpose credit" within
the meaning of Regulation U or Regulation X of the Board of Governors of the Federal Reserve System.

 

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

 

(0)         Subsidiaries.
Versar has no Subsidiary which is not a Borrower.

 

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

 

VI.         COVENANTS.

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

(3)         Liabilities
to Tangible Net Worth. The ratio of Versar's and its Consolidated Subsidiaries' Total consolidated Liabilities to its Tangible
Net Worth will not, as of the end of each fiscal quarter, exceed 2.5 to 1.0.

 

(4)         Minimum
Tangible Net Worth. Versar's and its Consolidated Subsidiaries' consolidated Tangible Net Worth will not, as of the end of each
fiscal quarter, be less than

$6,500,000.00.

 

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

 

(1)         Perfection
of Security Interests. The Borrower will, at its expense, cause all filings and recordings and other actions specified on Appendix
4 hereto to have been completed on or prior to the date of the first Advance.

 

(2)         Further
Actions.

 

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

 

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

 

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

 

(iii)        as
to any amount payable under or in connection with any of the Collateral which shall be or shall become evidenced by any promissory
note or other instrument, the Borrower will immediately pledge and deliver such note or other instrument to the Bank as part of
the Collateral, duly indorsed in a manner satisfactory to the Bank.

  

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

(6)        Maintenance
of Records. The Borrower will keep and maintain at its own cost and expense complete books and records relating to the Collateral
which are satisfactory to the Bank including, without limitation, a record of all payments received and all credits granted with
respect to the Collateral and all of its other dealings with the Collateral. The Borrower will mark its books and records pertaining
to the Collateral to evidence this Agreement and the security interests granted hereby. For the Bank's further security, the Borrower
agrees that, to the extent permitted by applicable law and any applicable contract between the Borrower and an Account Party giving
rise to a Receivable, the Bank shall have a special property interest in all of the Borrower's books and records pertaining to
the Collateral and the Borrower shall deliver and turn over any such books and records to the Bank or to its representatives at
any time on demand of the Bank. The Borrower further agrees that the Bank may conduct an audit of the Collateral pursuant to subsection
(B)(l6) within 30 days after the Effective Date.

 

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

 

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

GAAP.

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

  

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

(19)        Assignment
of Claims Act. The Borrower shall satisfy the requirements of the federal Assignment of Claims Act of 1940 (and all applicable
regulations), as amended, with respect to each Eligible Government Account in excess of $500,000.00 in contract price, where the
Borrower is the prime contractor with the United States.

 

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

 

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

 

    	 	 	 

    	 

    

 

(a)         as
soon as available and in any event within 90 days after the end of each fiscal year of Versar, (i) a consolidated balance sheet
of Versar and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated financial statements
for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by an opinion thereon by Versar's independent public accountants, which opinion shall state that such consolidated
financial statements present fairly the consolidated financial position of Versar and its Consolidated Subsidiaries as of the date
of such financial statements and the results of their operations for the period covered by such financial statements in conformity
with GAAP applied on a consistent basis (except for changes in the application of which such accountants concur) and shall not
contain any "going concern" or like qualification or exception or qualifications arising out of the scope of the audit;
and (ii) a statement of the projected financial statements and cash flows for the fiscal year immediately following said fiscal
year;

 

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

 

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

 

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

 

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

 

(f)         as
soon as reasonably practicable after obtaining knowledge of the commencement of, or of a material threat of the commencement of,
an action, suit or proceeding against the Borrower which could materially adversely affect the business, properties, financial
position, results of operations or prospects of the Borrower or which in any manner questions the validity of this Agreement, the
Note, any other Loan Document or any of the transactions contemplated hereby or thereby, the nature of such pending or threatened
action, suit or proceeding and such additional information as may be reasonably requested by the Bank;

 

    	 	 	 

    	 

    

 

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

 

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

 

(i)          on
or before the fifteenth (15th) day of each month, a Borrowing Base Certificate of the Borrower and the most recent report of the
aging of the Borrower's Receivables;

 

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

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

appropriate proceedings.

 

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

 

(7)         Debt.
The Borrower will not incur or at any time be liable with respect to any Debt except (i) Debt outstanding under this Agreement
and the Note and the other Loan Documents, and (ii) Debt secured by a Lien pursuant to paragraph (8) of this subsection (C).

 

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

 

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

  

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

 

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

 

(11)        Restricted
Payments. The Borrower will not (a) declare or pay any dividend or other distribution on any shares of the Borrower's capital
stock, (except dividends payable solely in shares of its capital stock), (b) make any payment on account of the purchase, redemption,
retirement or acquisition of (i) any shares of the Borrower's capital stock (except shares acquired upon the conversion thereof
into other shares of its capital stock) or (ii) any option, warrant or other right to acquire shares of the Borrower's capital
stock.

 

    	 	 	 

    	 

    

  

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

(v)         Such
Subsidiary shall have delivered the following documents to the Bank, each of which shall be certified as of the date on which such
Subsidiary is to become a Borrower, by its secretary or representative performing similar functions: (1) copies of evidence of
all actions taken by such Subsidiary to authorize the execution and delivery of the applicable Loan Documents; (2) copies of the
articles or certificate of incorporation and bylaws (or the organizational documents for a Borrower that is not a corporation)
of such Subsidiary; and (3) a certificate as to the incumbency and signatures of the officers of such Subsidiary executing the
Loan Documents.

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

VII.        REMEDIES.

 

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

 

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

 

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

 

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

 

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

 

(D)         Sale
of Collateral.

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

(F)         Additional
Rights of the Bank.

 

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

 

    	 	 	 

    	 

    

 

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

 

(G)         Remedies
Not Exclusive.

 

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

 

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

 

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

 

(H)         Waiver
and Estoppel.

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

VIII. MISCELLANEOUS.

 

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

 

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

 

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

 

    	 	 	 

    	 

    

 

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

 

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

 

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

 

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

 

(H)         Termination;
Survival. This Agreement shall terminate when the security interests granted hereunder have terminated and the Collateral has
been released as provided in Section III(F);

 

    	 	 	 

    	 

    

 

	 	 	 
	VERSAR, INC.	[SEAL]
	 	 
	By:	/s/ Theodore M. Prociv
	 	Name: Thedore M. Prociv
	 	Title: President
	 	 
	GEOMET TECHNOLOGIES, LLC	[SEAL]
	 	 
	By:	/s/ Theodore M. Prociv
	 	Name: Thedore M. Prociv
	 	Title: President
	 	 
	VERSAR GLOBAL SOLUTIONS	[SEAL]
	 	 
	By:	/s/ Theodore M. Prociv
	 	Name: Theodore Prociv
	 	Title: President
	 	 
	VERSAR ENVIRONMENTAL COMPANY, INC.	[SEAL]
	 	 
	By:	/s/ Theodore M. Prociv
	 	Name: Theodore M. Prociv
	 	Title: President

    	 	 	 

    	 

    

 

APPENDIX
1

 

Borrower's Current Chief Executive Office:

 

Previous Chief Executive Offices (last 4 months
only):

 

Locations of Records of Receivables

and Other Intangibles:

 

All Other Places of Business:

 

    	 	 	 

    	 

    

 

APPENDIX
2

 

Locations of Equipment and Inventory:

 

    	 	 	 

    	 

    

APPENDIX 3

Trade Names, Division Names, Etc.:

 

    	 	 	 

    	 

    

 

APPENDIX 4

 

Required Filings and Recordings:

 

Delaware Secretary of State

Maryland Department of Assessments
and Taxation

Virginia State Corporation Commission

Pennsylvania Department of State

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