Document:

exv10w102

 

Exhibit 10.102

 

 

FINANCING AND SECURITY AGREEMENT

Dated

April 22, 2002, but

Effective as of December 31, 2001

By and Among

Versar, Inc.

Geomet Technologies, Inc.

Versar Environmental Company

Versar Global Solutions, Inc

and

Bank of America, N.A.

26

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	
31	 
	Section 1.1	 	
Certain Defined Terms.
	 	 	31	 
	Section 1.2	 	
Accounting Terms and Other Definitional Provisions.
	 	 	48	 
	 	 	 	 	 	 	 
	ARTICLE II THE CREDIT FACILITIES	 	 	
48	 
	Section 2.1	 	
The Revolving Credit Facility.
	 	 	48	 
	    2.1.1	 	
Revolving Credit Facility.
	 	 	48	 
	    2.1.2	 	
Procedure for Making Advances Under the Revolving Loan; Lender Protection Loans.
	 	 	49	 
	    2.1.3	 	
Borrowing Base.
	 	 	49	 
	    2.1.4	 	
Borrowing Base Report.
	 	 	50	 
	    2.1.5	 	
Revolving Credit Note.
	 	 	51	 
	    2.1.6	 	
Mandatory Prepayments of Revolving Loan.
	 	 	51	 
	    2.1.7	 	
Optional Prepayments of Revolving Loan.
	 	 	51	 
	    2.1.8	 	
The Collateral Account.
	 	 	51	 
	    2.1.9	 	
Revolving Loan Account.
	 	 	52	 
	    2.1.10	 	
Revolving Credit Unused Line Fee.
	 	 	52	 
	Section 2.2	 	
The Letter of Credit Facility.
	 	 	53	 
	    2.2.1	 	
Letters of Credit.
	 	 	53	 
	    2.2.2	 	
Letter of Credit Fees.
	 	 	53	 
	    2.2.3	 	
Terms of Letters of Credit; Post-Expiration Date Letters of Credit.
	 	 	53	 
	    2.2.4	 	
Procedures for Letters of Credit.
	 	 	54	 
	    2.2.5	 	
Payments of Letters of Credit.
	 	 	55	 
	    2.2.6	 	
Change in Law; Increased Cost.
	 	 	56	 
	    2.2.7	 	
General Letter of Credit Provisions.
	 	 	56	 
	Section 2.3	 	
General Financing Provisions.
	 	 	57	 
	    2.3.1	 	
Borrowers’ Representatives.
	 	 	57	 
	    2.3.2	 	
Use of Proceeds of the Loans.
	 	 	59	 
	    2.3.3	 	
Computation of Interest and Fees.
	 	 	59	 
	    2.3.4	 	
Maximum Interest Rate.
	 	 	59	 
	    2.3.5	 	
Payments.
	 	 	60	 
	    2.3.6	 	
Liens; Setoff.
	 	 	60	 
	    2.3.7	 	
Requirements of Law.
	 	 	60	 
	    2.3.8	 	
Guaranty.
	 	 	61	 
	    2.3.9	 	
ACH Transactions and Swap Contracts.
	 	 	64	 

	 	 	 	 	 	 	 
	ARTICLE III THE COLLATERAL	 	 	
64	 
	Section 3.1	 	
Debt and Obligations Secured.
	 	 	64	 
	Section 3.2	 	
Grant of Liens.
	 	 	64	 
	Section 3.3	 	
Collateral Disclosure List.
	 	 	65	 
	Section 3.4	 	
Personal Property.
	 	 	65	 
	    3.4.1	 	
Investment Property, Chattel Paper, Promissory Notes, etc.
	 	 	65	 
	    3.4.2	 	
Patents, Copyrights and Other Property Requiring Additional Steps to Perfect.
	 	 	66	 
	Section 3.5	 	
Record Searches.
	 	 	66	 
	Section 3.6	 	
Costs.
	 	 	66	 
	Section 3.7	 	
Release.
	 	 	66	 
	Section 3.8	 	
Inconsistent Provisions.
	 	 	67	 

	 	 	 	 	 	 	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES	 	 	
67	 
	Section 4.1	 	
Representations and Warranties.
	 	 	67	 
	    4.1.1	 	
Subsidiaries.
	 	 	67	 

27

 

	 	 	 	 	 	 	 
	    4.1.2	 	
Existence.
	 	 	67	 
	    4.1.3	 	
Power and Authority.
	 	 	67	 
	    4.1.4	 	
Binding Agreements.
	 	 	68	 
	    4.1.5	 	
No Conflicts.
	 	 	68	 
	    4.1.6	 	
No Defaults, Violations.
	 	 	68	 
	    4.1.7	 	
Compliance with Laws.
	 	 	68	 
	    4.1.8	 	
Margin Stock.
	 	 	68	 
	    4.1.9	 	
Investment Company Act; Margin Stock.
	 	 	69	 
	    4.1.10	 	
Litigation.
	 	 	69	 
	    4.1.11	 	
Financial Condition.
	 	 	69	 
	    4.1.12	 	
Full Disclosure.
	 	 	69	 
	    4.1.13	 	
Indebtedness for Borrowed Money.
	 	 	70	 
	    4.1.14	 	
Taxes.
	 	 	70	 
	    4.1.15	 	
ERISA.
	 	 	70	 
	    4.1.16	 	
Title to Properties.
	 	 	71	 
	    4.1.17	 	
Patents, Trademarks, Etc.
	 	 	71	 
	    4.1.18	 	
Presence of Hazardous Materials or Hazardous Materials Contamination.
	 	 	71	 
	    4.1.19	 	
Perfection and Priority of Collateral.
	 	 	71	 
	    4.1.20	 	
No Suspension or Debarment.
	 	 	71	 
	    4.1.21	 	
Collateral Disclosure List.
	 	 	71	 
	    4.1.22	 	
Business Names and Addresses.
	 	 	72	 
	    4.1.23	 	
Equipment.
	 	 	72	 
	    4.1.24	 	
Accounts.
	 	 	72	 
	    4.1.25	 	
Compliance with Eligibility Standards.
	 	 	72	 
	    4.1.26	 	
Inventory.
	 	 	72	 
	Section 4.2	 	
Survival; Updates of Representations and Warranties.
	 	 	73	 

	 	 	 	 	 	 	 
	ARTICLE V CONDITIONS PRECEDENT	 	 	
73	 
	Section 5.1	 	
Conditions to the Initial Advance and Initial Letter of Credit.
	 	 	73	 
	    5.1.1	 	
Organizational Documents — Borrowers.
	 	 	73	 
	    5.1.2	 	
Consents, Licenses, Approvals, Etc.
	 	 	74	 
	    5.1.3	 	
Notes.
	 	 	74	 
	    5.1.4	 	
Financing Documents and Collateral.
	 	 	74	 
	    5.1.5	 	
Other Financing Documents.
	 	 	74	 
	    5.1.6	 	
Other Documents, Etc.
	 	 	74	 
	    5.1.7	 	
Payment of Fees.
	 	 	74	 
	    5.1.8	 	
Collateral Disclosure List.
	 	 	75	 
	    5.1.9	 	
Recordings and Filings.
	 	 	75	 
	    5.1.10	 	
Insurance Certificate.
	 	 	75	 
	    5.1.11	 	
Field Examination.
	 	 	75	 
	Section 5.2	 	
Conditions to all Extensions of Credit.
	 	 	75	 
	    5.2.1	 	
Compliance.
	 	 	75	 
	    5.2.2	 	
Borrowing Base.
	 	 	75	 
	    5.2.3	 	
Default.
	 	 	76	 
	    5.2.4	 	
Representations and Warranties.
	 	 	76	 
	    5.2.5	 	
Adverse Change.
	 	 	76	 
	    5.2.6	 	
Legal Matters.
	 	 	76	 

	 	 	 	 	 	 	 
	ARTICLE VI COVENANTS OF THE BORROWERS	 	 	
76	 
	Section 6.1	 	
Affirmative Covenants.
	 	 	76	 
	    6.1.1	 	
Financial Statements.
	 	 	76	 
	    6.1.2	 	
Reports to SEC and to Stockholders.
	 	 	78	 
	    6.1.3	 	
Recordkeeping, Rights of Inspection, Field Examination, Etc.
	 	 	78	 
	    6.1.4	 	
Existence.
	 	 	79	 
	    6.1.5	 	
Compliance with Laws.
	 	 	79	 

28

 

	 	 	 	 	 	 	 
	    6.1.6	 	
Preservation of Properties.
	 	 	79	 
	    6.1.7	 	
Line of Business.
	 	 	79	 
	    6.1.8	 	
Insurance.
	 	 	79	 
	    6.1.9	 	
Taxes.
	 	 	80	 
	    6.1.10	 	
ERISA.
	 	 	80	 
	    6.1.11	 	
Notification of Events of Default and Adverse Developments.
	 	 	80	 
	    6.1.12	 	
Hazardous Materials; Contamination.
	 	 	81	 
	    6.1.13	 	
Financial Covenants.
	 	 	82	 
	    6.1.14	 	
Collection of Receivables.
	 	 	82	 
	    6.1.15	 	
Assignments of Receivables.
	 	 	83	 
	    6.1.16	 	
Insurance With Respect to Equipment and Inventory.
	 	 	83	 
	    6.1.17	 	
Maintenance of the Collateral.
	 	 	83	 
	    6.1.18	 	
Equipment.
	 	 	84	 
	    6.1.19	 	
Defense of Title and Further Assurances.
	 	 	84	 
	    6.1.20	 	
Business Names; Locations.
	 	 	84	 
	    6.1.21	 	
Use of Premises and Equipment.
	 	 	85	 
	    6.1.22	 	
Protection of Collateral.
	 	 	85	 
	    6.1.23	 	
Inventory.
	 	 	85	 
	Section 6.2	 	
Negative Covenants.
	 	 	86	 
	    6.2.1	 	
Capital Structure, Merger, Acquisition or Sale of Assets.
	 	 	86	 
	    6.2.2	 	
Subsidiaries.
	 	 	86	 
	    6.2.3	 	
Issuance of Stock.
	 	 	86	 
	    6.2.4	 	
Purchase or Redemption of Securities, Dividend Restrictions.
	 	 	86	 
	    6.2.5	 	
Indebtedness.
	 	 	86	 
	    6.2.6	 	
Investments, Loans and Other Transactions.
	 	 	87	 
	    6.2.7	 	
Stock of Subsidiaries.
	 	 	87	 
	    6.2.8	 	
Subordinated Indebtedness.
	 	 	87	 
	    6.2.9	 	
Liens; Confessed Judgment.
	 	 	88	 
	    6.2.10	 	
Transactions with Affiliates.
	 	 	88	 
	    6.2.11	 	
Other Businesses.
	 	 	88	 
	    6.2.12	 	
ERISA Compliance.
	 	 	88	 
	    6.2.13	 	
Prohibition on Hazardous Materials.
	 	 	89	 
	    6.2.14	 	
Method of Accounting; Fiscal Year.
	 	 	89	 
	    6.2.15	 	
Compensation.
	 	 	89	 
	    6.2.16	 	
Transfer of Collateral.
	 	 	89	 
	    6.2.17	 	
Sale and Leaseback.
	 	 	89	 
	    6.2.18	 	
Disposition of Collateral.
	 	 	89	 
	    6.2.19	 	
Profitability.
	 	 	90	 

	 	 	 	 	 	 	 
	ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES	 	 	
90	 
	Section 7.1	 	
Events of Default.
	 	 	90	 
	    7.1.1	 	
Failure to Pay.
	 	 	90	 
	    7.1.2	 	
Breach of Representations and Warranties.
	 	 	90	 
	    7.1.3	 	
Failure to Comply with Covenants.
	 	 	90	 
	    7.1.4	 	
Default Under Other Financing Documents or Obligations.
	 	 	90	 
	    7.1.5	 	
Receiver; Bankruptcy.
	 	 	90	 
	    7.1.6	 	
Involuntary Bankruptcy, etc.
	 	 	91	 
	    7.1.7	 	
Judgment.
	 	 	91	 
	    7.1.8	 	
Execution; Attachment.
	 	 	91	 
	    7.1.9	 	
Default Under Other Borrowings.
	 	 	91	 
	    7.1.10	 	
Challenge to Agreements.
	 	 	92	 
	    7.1.11	 	
Impairment of Position.
	 	 	92	 
	    7.1.12	 	
Collateral Inadequacy.
	 	 	92	 
	    7.1.13	 	
Change in Ownership.
	 	 	92	 
	    7.1.14	 	
Contract Default, Debarment or Suspension.
	 	 	92	 

29

 

	 	 	 	 	 	 	 
	    7.1.15	 	
Liquidation, Termination, Dissolution, Change in Management, etc.
	 	 	92	 
	    7.1.16	 	
Swap Default.
	 	 	92	 
	Section 7.2	 	
Remedies.
	 	 	92	 
	    7.2.1	 	
Acceleration.
	 	 	93	 
	    7.2.2	 	
Further Advances.
	 	 	93	 
	    7.2.3	 	
Uniform Commercial Code.
	 	 	93	 
	    7.2.4	 	
Specific Rights With Regard to Collateral.
	 	 	94	 
	    7.2.5	 	
Application of Proceeds.
	 	 	95	 
	    7.2.6	 	
Performance by Lender.
	 	 	95	 
	    7.2.7	 	
Other Remedies.
	 	 	95	 

	 	 	 	 	 	 	 
	ARTICLE VIII MISCELLANEOUS	 	 	96	 
	Section 8.1	 	
Notices.
	 	 	96	 
	Section 8.2	 	
Amendments; Waivers.
	 	 	96	 
	Section 8.3	 	
Cumulative Remedies.
	 	 	97	 
	Section 8.4	 	
Severability.
	 	 	98	 
	Section 8.5	 	
Assignments by Lender.
	 	 	99	 
	Section 8.6	 	
Participations by Lender.
	 	 	99	 
	Section 8.7	 	
Disclosure of Information by Lender.
	 	 	99	 
	Section 8.8	 	
Successors and Assigns.
	 	 	99	 
	Section 8.9	 	
Continuing Agreements.
	 	 	100	 
	Section 8.10	 	
Enforcement Costs.
	 	 	100	 
	Section 8.11	 	
Applicable Law; Jurisdiction.
	 	 	100	 
	    8.11.1	 	
Applicable Law.
	 	 	100	 
	    8.11.2	 	
Submission to Jurisdiction.
	 	 	100	 
	    8.11.3	 	
Appointment of Agent for Service of Process.
	 	 	101	 
	    8.11.4	 	
Service of Process.
	 	 	101	 
	Section 8.12	 	
Duplicate Originals and Counterparts.
	 	 	101	 
	Section 8.13	 	
Headings.
	 	 	101	 
	Section 8.14	 	
No Agency.
	 	 	102	 
	Section 8.15	 	
Date of Payment.
	 	 	102	 
	Section 8.16	 	
Entire Agreement.
	 	 	102	 
	Section 8.17	 	
Waiver of Trial by Jury.
	 	 	102	 
	Section 8.18	 	
Liability of the Lender.
	 	 	103	 
	Section 8.19	 	
Indemnification.
	 	 	103	 

30

 

AMENDED AND RESTATED

FINANCING AND SECURITY AGREEMENT

     THIS AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (this
“Agreement”) is made this 22nd day of April, 2002, but effective as of December
31, 2001, by and among VERSAR, INC., a corporation organized under the laws of
the State of Delaware (“Versar”), GEOMET TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware (“Geomet”), VERSAR
ENVIRONMENTAL COMPANY, a corporation organized under the laws of the
Commonwealth of Pennsylvania (“Versar Environmental”) and VERSAR GLOBAL
SOLUTIONS, INC., a corporation organized under the laws of the Commonwealth of
Virginia (“Versar Global”) jointly and severally (each of Versar, Geomet,
Versar Environmental and Versar Global, a “Borrower”; Versar, Geomet, Versar
Environmental and Versar Global, collectively, the “Borrowers”); and BANK OF
AMERICA, N.A., a national banking association, its successors and assigns (the
“Lender”).

RECITALS

     A.      The Borrowers are parties to a certain Financing and Security Agreement
dated March 31, 1997 by and among the Versar, Geomet and the Lender (as
thereafter amended, restated, supplemented, renewed, extended or otherwise
modified, the “Original Financing Agreement”), which Original Financing
Agreement governs the terms of a revolving credit facility in the maximum
principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000) to
be used by the Borrowers to finance Receivables.

     B.      The Borrowers have requested that the Lender extend the maturity of the
revolving credit facility and the Lender has agreed to extend the revolving
credit facility upon the terms and subject to the terms, conditions and
understandings set forth in this Agreement and on the condition that the
Original Financing Agreement be amended and restated in its entirety by this
Agreement.

AGREEMENTS

     NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Certain Defined Terms.

     As used in this Agreement, the terms defined in the Preamble and Recitals
hereto shall have the respective meanings specified therein, and the following
terms shall have the following meanings:

31

 

     “Account” individually and “Accounts” collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
health-care insurance receivables, contract rights, notes, drafts, instruments,
acceptances, chattel paper, leases and writings evidencing a monetary
obligation or a security interest in, or a lease of, goods, all rights to
payment of a monetary obligation or other consideration under present or future
contracts (including, without limitation, all rights (whether or not earned by
performance) to receive payments under presently existing or hereafter acquired
or created letters of credit), or by virtue of property that has been sold,
leased, licensed, assigned or otherwise disposed of, services rendered or to be
rendered, loans and advances made or other considerations given, by or set
forth in or arising out of any present or future chattel paper, note, draft,
lease, acceptance, writing, bond, insurance policy, instrument, document or
general intangible, and all extensions and renewals of any thereof, all rights
under or arising out of present or future contracts, agreements or general
interest in goods which gave rise to any or all of the foregoing, including all
commercial tort claims, other claims or causes of action now existing or
hereafter arising in connection with or under any agreement or document or by
operation of law or otherwise, all collateral security of any kind (including,
without limitation, real property mortgages and deeds of trust) Supporting
Obligations, letter-of-credit rights and letters of credit given by any Person
with respect to any of the foregoing, all books and records in whatever media
(paper, electronic or otherwise) recorded or stored, with respect to any or all
of the foregoing and all equipment and general intangibles necessary or
beneficial to retain, access and/or process the information contained in those
books and records, and all Proceeds of the foregoing.

     “Account Debtor” means any Person who is obligated on a Receivable and
“Account Debtors” mean all Persons who are obligated on the Receivables.

     “ACH Transactions” means any cash management or related services including
the automatic clearing house transfer of funds by the Lender for the account of
any of the Borrowers pursuant to agreement or overdrafts.

     “Additional Borrower” means each Person that has executed and delivered an
Additional Borrower Joinder Supplement that has been accepted and approved by
the Lender.

     “Additional Borrower Joinder Supplement” means an Additional Borrower
Joinder Supplement in substantially the form attached hereto as EXHIBIT A, with
the blanks appropriately completed and executed and delivered by the Additional
Borrower and accepted by Versar on behalf of the Borrowers.

     “Adjustment Date” has the meaning described in Section 8.5 (Assignments by
Lender).

     “Affiliate” means, with respect to any designated Person, any other
Person, (a) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (c) five percent (5%)
or more of whose stock or other equity interest is directly or indirectly owned
or held by such designated Person. For purposes of this definition, the term
“control” (including with correlative meanings, the terms “controlling”,
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management

32

 

 and policies of a Person, whether through ownership of voting securities
or other equity interests or by contract or otherwise.

     “Agreement” means this Amended and Restated Financing and Security
Agreement, as amended, restated, supplemented or otherwise modified in writing
in accordance with the provisions of Section 8.2 (Amendments; Waivers).

     “Applicable Percentage” means for purposes of calculating the amount of
Eligible Unbilled Receivables to be included in the Borrowing Base, shall mean
0 percent (0%).

     “Assets” means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrowers and their respective Subsidiaries.

     “Assignee” means any Person to which the Lender assigns all or any portion
of its interests under this Agreement, any Commitment, and any Loan, in
accordance with the provisions of Section 8.5 (Assignments by Lender), together
with any and all successors and assigns of such Person; “Assignees” means the
collective reference to all Assignees.

     “Bankruptcy Code” means Title 11 of the United States Code, as amended
from time to time, and any successor Laws.

     “Borrower” means each Person defined as a “Borrower” in the preamble of
this Agreement and each Additional Borrower; “Borrowers” means the collective
reference to all Persons defined as “Borrowers” in the preamble to this
Agreement and all Additional Borrowers.

     “Borrowing Base” has the meaning described in Section 2.1.3 (Borrowing
Base).

     “Borrowing Base Deficiency” has the meaning described in Section 2.1.3
(Borrowing Base).

     “Borrowing Base Report” has the meaning described in Section 2.1.4
(Borrowing Base Report).

     “Business Day” means any day other than a Saturday, Sunday or other day on
which commercial banks in the State are authorized or required to close.

     “Capital Adequacy Regulation” means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.

     “Capital Expenditure” means an expenditure (whether payable in cash or
other property or accrued as a liability) for Fixed or Capital Assets
including, without limitation, the entering into of a Capital Lease.

33

 

     “Capital Lease” means with respect to any Person any lease of real or
personal property, for which the related Lease Obligations have been or should
be, in accordance with GAAP consistently applied, capitalized on the balance
sheet of that Person.

     “Cash Equivalents” means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit
with maturities of one (1) year or less from the date of acquisition of, or
money market accounts maintained with, the Lender, any Affiliate of the Lender,
or any other domestic commercial bank having capital and surplus in excess of
One Hundred Million Dollars ($100,000,000.00) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, the Lender and (c) commercial paper of a domestic issuer rated at
least either A-1 by Standard & Poor’s Corporation (or its successor) or P-1 by
Moody’s Investors Service, Inc. (or its successor) with maturities of six (6)
months or less from the date of acquisition.

     “Chattel Paper” means a record or records (including, without limitation,
electronic chattel paper) that evidence both a monetary obligation and a
security interest in specific goods, a security interest in specific goods and
software used in the goods, or a lease of specific goods; all Supporting
Obligations with respect thereto; any returned, rejected or repossessed goods
and software covered by any such record or records and all proceeds (in any
form including, without limitation, accounts, contract rights, documents,
chattel paper, instruments and general intangibles) of such returned, rejected
or repossessed goods; and all Proceeds of the foregoing.

     “Closing Date” means the Business Day, in any event not later than April
22, 2002, on which the Lender shall be satisfied that the conditions precedent
set forth in Section 5.1 (Conditions to Initial Advance) have been fulfilled or
otherwise waived by the Lender.

     “Collateral” means all property of each and every Borrower subject from
time to time to the Liens of this Agreement, any of the Security Documents
and/or any of the other Financing Documents, together with any and all Proceeds
thereof.

     “Collateral Account” has the meaning described in Section 2.1.8 (The
Collateral Account).

     “Collateral Disclosure List” has the meaning described in Section 3.3
(Collateral Disclosure List).

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

     “Commitment” means the collective reference to the Revolving Credit
Commitment and the commitment for any loan, letter of credit, interest rate
protection, foreign exchange risk, cash management, and other Credit Facility
now or hereafter provided to any of the Borrowers by the Lender whether under
this Agreement or otherwise.

34

 

     “Committed Amount” means the Revolving Credit Committed Amount.

     “Compliance Certificate” means a periodic Compliance Certificate described
in Section 6.1.1 (Financial Statements).

     “Commonly Controlled Entity” means an entity, whether or not incorporated,
which is under common control with any Borrower within the meaning of Section
414(b) or (c) of the Internal Revenue Code.

     “Copyrights” means and includes, in each case whether now existing or
hereafter arising, all of each Borrower’s rights, title and interest in and to
(a) all copyrights, rights and interests in copyrights, works protectable by
copyright, copyright registrations, copyright applications, and all renewals of
any of the foregoing, (b) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including, without
limitation, damages or payments for past, current or future infringements of
any of the foregoing, (c) the right to sue for past, present and future
infringements of any of the foregoing, and (d) all rights corresponding to any
of the foregoing throughout the world.

     “Credit Facility” means the Revolving Credit Facility or Letter of Credit
Facility, as the case may be, and “Credit Facilities” means collectively the
Revolving Credit Facility, the Letter of Credit Facility and any and all other
credit facilities now or hereafter extended under or secured by this Agreement.

     “Current Letter of Credit Obligations” has the meaning described in
Section 2.2.5 (Payments of Letters of Credit).

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

     “Documents” means all documents of title or receipts, whether now existing
or hereafter acquired or created, and all Proceeds of the foregoing.

     “EBITDA” means as to the Borrowers and their Subsidiaries for any period
of determination thereof, the sum of (a) the net profit (or loss) determined in
accordance with GAAP consistently applied, plus (b) interest expense and income
tax provisions for such period, plus (c) depreciation and amortization of
assets for such period, all as determined on a consolidated basis for the
twelve (12) month period then ending.

     “EBITDAR” means as to the Borrowers and their Subsidiaries for any period
of determination thereof, the sum of (a) EBITDA, plus (b) rent expense for such
period.

     “Eligible Receivable” and “Eligible Receivables” mean, at any time of
determination thereof, the unpaid portion of each account (net of any returns,
discounts, claims, credits, charges, accrued rebates or other allowances,
offsets, deductions, counterclaims, disputes or other defenses and reduced by
the aggregate amount of all reserves, limits and deductions provided for in
this definition and elsewhere in this Agreement) receivable in United States
Dollars by a Borrower, provided each account conforms and continues to conform
to the following criteria to the satisfaction of the Lender:

35

 

		
	 	                          (a)      the Account arose in the ordinary course of a Borrower’s
business from services performed by such Borrower;
	 
	 	                          (b)      the Account is a valid, legally enforceable obligation of
the Account Debtor and requires no further act on the part of any
Person under any circumstances to make the account payable by the
Account Debtor;
	 
	 	                          (c)      the Account is based upon an enforceable order or
contract, written or oral, for services performed, and the same
were performed in accordance with such order or contract;
	 
	 	                          (d)      if the Account arises from the performance of services,
such services have been fully rendered and do not relate to any
warranty claim or obligation;
	 
	 	                          (e)      the Account is evidenced by an invoice or other
documentation in form acceptable to the Lender, dated no later
than the date of shipment or performance and containing only terms
normally offered by the respective Borrower;
	 
	 	                          (f)      the amount shown on the books of a Borrower and on any
invoice, certificate, schedule or statement delivered to the
Lender is owing to such Borrower and no partial payment has been
received unless reflected with that delivery;
	 
	 	                          (g)      the Account is not outstanding more than ninety (90) days
from the date of the invoice therefore or past due more than sixty
(60) days after its due date, which shall not be later than thirty
(30) days after the invoice date;
	 
	 	                          (h)      the Account is not owing by any Account Debtor for which
the Lender has deemed fifty percent (50%) or more of such Account
Debtor’s other Accounts (or any portion thereof) due to a
Borrower, individually, or all of the Borrowers collectively, to
be non-Eligible Receivables;
	 
	 	                          (i)      the Account Debtor has not returned, rejected or refused
to retain, or otherwise notified a Borrower of any dispute
concerning, or claimed nonconformity of, any services from the
furnishing of which the account arose;
	 
	 	                          (j)      the Account is not subject to any present or contingent
(and no facts exist which are the basis for any future) offset,
claim, deduction or counterclaim, dispute or defense in law or
equity on the part of such Account Debtor, or any claim for
credits, allowances, or adjustments by the Account Debtor because
of unsatisfactory services, or for any other reason including,
without limitation, those arising on account of a breach of any
express or implied representation or warranty;

36

 

		
	 	                          (k)      the Account Debtor is not a Subsidiary or Affiliate of
any Borrower or an employee, officer, director or shareholder of
any Borrower or any Subsidiary or Affiliate of any Borrower;
	 
	 	                          (l)      the Account Debtor is not incorporated or primarily
conducting business or otherwise located in any jurisdiction
outside of the United States of America;
	 
	 	                          (m)      as to which none of the following events has occurred
with respect to the Account Debtor on such Account: death or
judicial declaration of incompetency of an Account Debtor who is
an individual; the filing by or against the Account Debtor of a
request or petition for liquidation, reorganization, arrangement,
adjustment of debts, adjudication as a bankrupt, winding-up, or
other relief under the bankruptcy, insolvency, or similar laws of
the United States, any state or territory thereof, or any foreign
jurisdiction, now or hereafter in effect; the making of any
general assignment by the Account Debtor for the benefit of
creditors; the appointment of a receiver or trustee for the
Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking
possession by a “custodian,” as defined in the Federal Bankruptcy
Code; the institution by or against the Account Debtor of any
other type of insolvency proceeding (under the bankruptcy laws of
the United States or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of
claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of
the assets of the Account Debtor; the nonpayment generally by the
Account Debtor of its debts as they become due; or the cessation
of the business of the Account Debtor as a going concern;
	 
	 	                          (n)      no Borrower is indebted in any manner to the Account
Debtor (as creditor, lessor, supplier or otherwise), with the
exception of customary credits, adjustments and/or discounts given
to an Account Debtor by a Borrower in the ordinary course of its
business;
	 
	 	                          (o)      the Account does not arise from services under or related
to any warranty obligation of a Borrower or out of service
charges, finance charges or other fees for the time value of
money;
	 
	 	                          (p)      the Account is not evidenced by chattel paper or an
instrument of any kind and is not secured by any letter of credit;
	 
	 	                          (q)      the title of the respective Borrower to the Account is
absolute and is not subject to any prior assignment, claim, Lien,
or security interest, except Permitted Liens;
	 
	 	                          (r)      no bond or other undertaking by a guarantor or surety has
been or is required to be obtained, supporting the performance of
any

37

 

		
	 	Borrower or any other obligor in respect of any of such
Borrower’s agreements with the Account Debtor;
	 
	 	                          (s)      each Borrower has the full and unqualified right and
power to assign and grant a security interest in, and Lien on, the
Account to the Lender as security and collateral for the payment
of the Obligations;
	 
	 	                          (t)      the Account does not arise out of a contract with, or
order from, an Account Debtor that, by its terms, forbids or makes
void or unenforceable the assignment or grant of a security
interest by the Borrowers to the Lender of the Account arising
from such contract or order;
	 
	 	                          (u)      the Account is subject to a Lien in favor of the Lender,
which Lien is perfected as to the account by the filing of
financing statements and which Lien upon such filing constitutes a
first priority security interest and Lien;
	 
	 	                          (v)      no part of the Account represents a progress billing or a
retainage;
	 
	 	                          (w)      the Lender in the good faith exercise of its sole and
absolute discretion has not deemed the Account ineligible because
of uncertainty as to the creditworthiness of the Account Debtor or
because the Lender otherwise considers the collateral value of
such Account to the Lender to be impaired or its ability to
realize such value to be insecure; and
	 
	 	                          (x)      the Account does not constitute a final billing or close
out billing relating to a completed contract.

     In the event of any dispute, under the foregoing criteria, as to whether
an account is, or has ceased to be, an Eligible Receivable, the decision of the
Lender in the good faith exercise of its sole and absolute discretion shall
control.

     “Eligible Unbilled Receivables” shall mean the right to payments due and
to become due to the Borrowers arising out of work actually performed by the
Borrowers under contracts with the United States or any agency, department or
instrumentality thereof, which (a) constitute an “Account” as defined in the
Uniform Commercial Code as in effect in the applicable jurisdiction; (b) are
eligible to be billed to a prime contractor pursuant to a subcontract under a
contract between a Borrower and the United States Government or any department
or agency thereof, within thirty (30) days of the “as of” date of the
applicable Borrowing Base Certificate (with no additional performance required
by any Person, and no condition to payment by the United States Government or
any department or agency thereof or prime contractor, as applicable, other than
receipt of an appropriate invoice); (c) have not been billed to the United
States Government or any department or agency thereof, solely as a result of
timing differences between the date the revenue is recognized on the Borrowers’
books and the date the invoice is actually rendered; (d) represent revenue
recognized on the books of the Borrowers not more than thirty (30) days prior
to the “as of” date of the applicable Borrowing Base Certificate; (e) may, in
accordance with GAAP, be included as current assets of the Borrowers, even
though such amounts have not been

38

 

 billed to the United States Government or any department or agency
thereof, or the prime contractor, as applicable; and (f) are Eligible
Receivables.

     “Enforcement Costs” means all expenses, charges, costs and fees whatsoever
(including, without limitation, reasonable outside and allocated in-house
counsel attorney’s fees and expenses) of any nature whatsoever paid or incurred
by or on behalf of the Lender in connection with (a) any or all of the
Obligations, this Agreement and/or any of the other Financing Documents, (b)
the creation, perfection, collection, maintenance, preservation, defense,
protection, realization upon, disposition, sale or enforcement of all or any
part of the Collateral, this Agreement or any of the other Financing Documents,
including, without limitation, those costs and expenses more specifically
enumerated in Section 3.6 (Costs) and/or Section 8.10 (Enforcement Costs), and
further including, without limitation, amounts paid to lessors, processors,
bailees, warehousemen, sureties, judgment creditors and others in possession of
or with a Lien against or claimed against the Collateral, and (c) the
monitoring, administration, processing and/or servicing of any or all of the
Obligations, the Financing Documents, and/or the Collateral.

     “Equipment” means all equipment, machinery, computers, chattels, tools,
parts, machine tools, furniture, furnishings, fixtures and supplies of every
nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real property
and all of such types of property leased by any of the Borrowers and all of the
Borrowers’ rights and interests with respect thereto under such leases
(including, without limitation, options to purchase), together with all
accessions, additions, fittings, accessories, special tools, and improvements
thereto and substitutions therefore and all parts and equipment which may be
attached to or which are necessary or beneficial for the operation, use and/or
disposition of such personal property, all licenses, warranties, franchises and
General Intangibles related thereto or necessary or beneficial for the
operation, use and/or disposition of the same, together with all Accounts,
Chattel Paper, Instruments and other consideration received by any Borrower on
account of the sale, lease or other disposition of all or any part of the
foregoing, and together with all rights under or arising out of present or
future Documents and contracts relating to the foregoing and all Proceeds of
the foregoing.

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

     “Event of Default” has the meaning described in ARTICLE VII (Default and
Rights and Remedies).

     “Facilities” means the collective reference to the loan, letter of credit,
interest rate protection, foreign exchange risk, cash management, and other
credit facilities now or hereafter provided to any one or more of the Borrowers
by the Lender or any of its Affiliates.

     “Fees” means the collective reference to the Revolving Credit Unused Line
Fee, the Letter of Credit Fee and each fee payable to the Lender under the
terms of this Agreement or under the terms of any of the other Financing
Documents.

     “Financing Documents” means at any time collectively this Agreement, the
Notes, the Security Documents, the Letter of Credit Documents, and any other
instrument, agreement or

39

 

 document previously, simultaneously or hereafter executed and delivered by
any Borrower, any Guarantor and/or any other Person, singly or jointly with
another Person or Persons, evidencing, securing, guarantying or in connection
with this Agreement, any Note, any of the Security Documents, any of the
Facilities, and/or any of the Obligations.

     “Fixed or Capital Assets” of a Person at any date means all assets which
would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.

     “Fixed Charges” means as to the Borrowers and their Subsidiaries for any
period of determination, the scheduled or required payments (including, without
limitation, principal and interest) on all Indebtedness for Borrowed Money of
the Borrowers and their Subsidiaries, plus Capital Expenditures of the
Borrowers and their Subsidiaries, plus cash Taxes paid, plus dividends declared
or paid by the Borrowers and their Subsidiaries.

     “Fixed Charge Coverage Ratio” means as to the Borrowers and their
Subsidiaries for any period of determination thereof the ratio of (a) EBITDAR
to (b) Fixed Charges.

     “GAAP” means generally accepted accounting principles in the United States
of America in effect from time to time.

     “General Intangibles” means all general intangibles of every nature,
whether presently existing or hereafter acquired or created, and without
implying any limitation of the foregoing, further means all books and records,
commercial tort claims, other claims (including without limitation all claims
for income tax and other refunds), payment intangibles, Supporting Obligations,
choses in action, claims, causes of action in tort or equity, contract rights,
judgments, customer lists, software, Patents, Trademarks, licensing agreements,
rights in intellectual property, goodwill (including goodwill of any Borrower’s
business symbolized by and associated with any and all Trademarks, trademark
licenses, Copyrights and/or service marks), royalty payments, licenses,
letter-of-credit rights, letters of credit, contractual rights, the right to
receive refunds of unearned insurance premiums, rights as lessee under any
lease of real or personal property, literary rights, Copyrights, service names,
service marks, logos, trade secrets, amounts received as an award in or
settlement of a suit in damages, deposit accounts, interests in joint ventures,
general or limited partnerships, or limited liability companies or
partnerships, rights in applications for any of the foregoing, books and
records in whatever media (paper, electronic or otherwise) recorded or stored,
with respect to any or all of the foregoing, all Supporting Obligations with
respect to any of the foregoing, and all Equipment and General Intangibles
necessary or beneficial to retain, access and/or process the information
contained in those books and records, and all Proceeds of the foregoing.

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

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

40

 

 any state or political subdivision thereof where, at the time of
determination thereof, Versar is the “prime” contractor and where all monies
due thereunder may have been directly assigned to the Lender in its sole
discretion in conformity with the Assignment of Claims Act of 1940, as amended.

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

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

     “Indebtedness” of a Person means at any date the total liabilities of such
Person at such time determined in accordance with GAAP consistently applied.

     “Indebtedness for Borrowed Money” of a Person means at any time the sum at
such time of (a) Indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker’s or other acceptances or
similar obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all liabilities
secured by any Lien on any property owned by such Person, to the extent
attached to such Person’s interest in such property, even though such Person
has not assumed or become personally liable for the payment thereof, (e)
obligations of third parties which are being guarantied or indemnified against
by such Person or which are secured by the property of such Person; (f) any
obligation of such Person under an employee stock ownership plan or other
similar employee benefit plan; (g) any obligation of such Person or a Commonly
Controlled Entity to a Multi-employer Plan; and (h) any obligations,
liabilities or indebtedness, contingent or otherwise, under or in connection
with, any Swap Contract; but excluding trade and other accounts payable in the
ordinary course of business in accordance with customary trade terms and which
are not overdue (as determined in accordance with customary trade practices) or
which are being disputed in good faith by such Person and for which adequate
reserves are being provided on the books of such Person in accordance with
GAAP.

     “Indemnified Parties” has the meaning set forth in Section 8.19
(Indemnification).

     “Instrument” means a negotiable instrument or any other writing which
evidences a right to payment of a monetary obligation and is not itself a
security agreement or lease and is of a

41

 

 type that in the ordinary course of business is transferred by delivery
with any necessary endorsement or assignment, and all Supporting Obligations
with respect to any of the foregoing and all Proceeds with respect to any of
the foregoing.

     “Internal Revenue Code” means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed
to be issued thereunder.

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

     “Investment Property” means a security, whether certificated or
uncertificated, security entitlement, securities account, commodity contract or
commodity account and all Proceeds of, and Supporting Obligations with respect
to, the foregoing.

     “Item of Payment” means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Receivables or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to a Receivable, and other proceeds of Collateral; and “Items
of Payment” means the collective reference to all of the foregoing.

     “Laws” means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority.

     “Lease Obligations” of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or
personal property (net of rent from subleases thereof, but including taxes,
insurance, maintenance and similar expenses which such Person, as the lessee,
is obligated to pay under the terms of said leases, except to the extent that
such taxes, insurance, maintenance and similar expenses are payable by
sublessees), including rental commitments under Capital Leases.

     “Letter of Credit” and “Letters of Credit” shall have the meanings
described in Section 2.2.1 (Letters of Credit).

     “Letter of Credit Agreement” means the collective reference to each letter
of credit application and agreement substantially in the form of the Lender’s
then standard form of application for letter of credit or such other form as
may be approved by the Lender, executed and delivered by any one or more of the
Borrowers in connection with the issuance of a Letter of Credit, as the same
may from time to time be amended, restated, supplemented or modified; and
“Letter of Credit Agreements” means all of the foregoing in effect at any time
and from time to time.

     “Letter of Credit Cash Collateral Account” has the meaning described in
Section 2.2.3 (Terms of Letters of Credit).

     “Letter of Credit Documents” means any and all drafts under or purporting
to be under a Letter of Credit, any Letter of Credit Agreement, and any other
instrument, document or

42

 

 agreement executed and/or delivered by any one or more of the Borrowers or
any other Person under, pursuant to or in connection with a Letter of Credit or
any Letter of Credit Agreement.

     “Letter of Credit Facility” means the facility established pursuant to
Section 2.2 (Letter of Credit Facility).

     “Letter of Credit Fee” and “Letter of Credit Fees” have the meanings
described in Section 2.2.2 (Letter of Credit Fees).

     “Letter of Credit Obligations” means all Obligations of any one or more of
the Borrowers with respect to the Letters of Credit and the Letter of Credit
Agreements.

     “Letter-of-credit right” means a right to payment or performance under a
letter of credit, whether or not the beneficiary has demanded or is at the time
entitled to demand payment or performance.

     “Liabilities” means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a consolidated
balance sheet of the Borrowers and their respective Subsidiaries.

     “Lien” means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien, financing
statement, hypothecation, provision in any instrument or other document for
confession of judgment, cognovit or other similar right or other remedy, claim,
charge, control over or interest of any kind in real or personal property
securing any indebtedness, duties, obligations, and liabilities owed to, or
claimed to be owed to, a Person, all whether perfected or unperfected,
avoidable or unavoidable, based on the common law, statute or contract or
otherwise, including, without limitation, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction, excluding the precautionary filing of any financing statement
by any lessor in a true lease transaction, by any bailor in a true bailment
transaction or by any consignor in a true consignment transaction under the
Uniform Commercial Code of any jurisdiction or the agreement to give any
financing statement by any lessee in a true lease transaction, by any bailee in
a true bailment transaction or by any consignee in a true consignment
transaction.

     “Loan” means the Revolving Loan.

     “Loan Notice” has the meaning described in Section 0 (Procedure for Making
Advances).

     “Lockbox” has the meaning described in Section 2.1.8 (The Collateral
Account).

		
	 	        “Maximum Eligible Unbilled Amounts” means for purposes of
calculating the amount of Eligible Unbilled Receivables to be included in
the Borrowing Base, means the following dollar limits at the following
times:

43

 

	 	 	 	 	 
	Period:	 	Maximum Eligible Unbilled Amount:
	 	 	 	 	 
	October 1, 2001 thru March 31, 2002
	 	$1,500,000; and
	At all times thereafter
	 	$	0.	 

     “Maximum Rate” has the meaning described in Section 2.3.4 (Maximum
Interest Rate).

     “Multi-employer Plan” means a Plan that is a Multi-employer plan as
defined in Section 4001(a)(3) of ERISA.

     “Net Worth” means the consolidated shareholders’ equity, defined in
accordance with GAAP, of the Borrowers and their Subsidiaries.

     “Note” means the Revolving Credit Note and “Notes” means collectively the
Revolving Credit Note and any other promissory note which may from time to time
evidence all or any portion of the Obligations.

     “Obligations” means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of any one or more of the Borrowers to the Lender under, arising
pursuant to, in connection with and/or on account of the provisions of this
Agreement, each Note, each Security Document, and/or any of the other Financing
Documents, the Loans, any Swap Contract and/or any of the Facilities including,
without limitation, the principal of, and interest on, each Note, late charges,
the Fees, Enforcement Costs, and prepayment fees (if any), letter of credit
reimbursement obligations, letter of credit fees or fees charged with respect
to any guaranty of any letter of credit; also means all other present and
future indebtedness, duties, obligations, and liabilities, whether now existing
or contemplated or hereafter arising, of any one or more of the Borrowers to
the Lender or its Affiliates of any nature whatsoever, regardless of whether
such indebtedness, duties, obligations, and liabilities be direct, indirect,
primary, secondary, joint, several, joint and several, fixed or contingent; and
also means any and all renewals, extensions, substitutions, amendments,
restatements and rearrangements of any such indebtedness, duties, obligations,
and liabilities.

     “Outstanding Letter of Credit Obligations” has the meaning described in
Section 2.2.3 (Terms of Letters of Credit).

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “Permitted Liens” means: (a) Liens for Taxes which are not delinquent or
which the Lender has determined in the exercise of its sole and absolute
discretion (i) are being diligently contested in good faith and by appropriate
proceedings, and such contest operates to suspend collection of the contested
Taxes and enforcement of a Lien, (ii) the respective Borrower has the financial
ability to pay, with all penalties and interest, at all times without
materially and adversely affecting such Borrower, and (iii) are not, and will
not be with appropriate filing, the giving of notice and/or the passage of
time, entitled to priority over any Lien of the Lender; (b) deposits or pledges
to secure obligations under workers’ compensation, social security or similar
laws, or under unemployment insurance in the ordinary course of business; (c)
Liens securing the Obligations; (d) judgment Liens to the extent the entry of
such judgment does not constitute a Default or an Event of Default under the
terms of this Agreement or result in the sale or levy of,

44

 

 or execution on, any of the Collateral; and (e) such other Liens, if any,
as are set forth on Schedule 4.1.17 attached hereto and made a part hereof.

     “Permitted Uses” means, with respect to the Revolving Loan, the payment of
expenses incurred in the ordinary course of any Borrower’s business and to
support the issuance of Letters of Credit.

     “Person” means and includes an individual, a corporation, a partnership, a
joint venture, a limited liability company or partnership, a trust, an
unincorporated association, a Governmental Authority, or any other organization
or entity.

     “Plan” means any pension plan that is covered by Title IV of ERISA and in
respect of which any Borrower or a Commonly Controlled Entity is an “employer”
as defined in Section 3 of ERISA.

     “Post-Default Rate” means (a) with respect to principal balance of the
Revolving Loan, the Prime Rate in effect from time to time, plus four percent
(4%) per annum and (b) with respect to all other Obligations, the Prime Rate in
effect from time to time, plus four percent (4%) per annum.

     “Post-Expiration Date Letter of Credit” and “Post-Expiration Date Letters
of Credit” have the meanings described in Section 2.2.3 (Terms of Letters of
Credit).

     “Prepayment” means a Revolving Loan Mandatory Prepayment or a Revolving
Loan Optional Prepayment, as the case may be, and “Prepayments” mean
collectively all Revolving Loan Mandatory Prepayments and all Revolving Loan
Optional Prepayments.

     “Prime Rate” means the rate of interest publicly announced from time to
time by the Lender as its prime rate. It is a rate set by the Lender based
upon various factors including the Lender’s costs and desired return, general
economic conditions, and other factors, and is used as a reference point for
pricing some loans. However, the Lender may price loans at, above, or below
such announced rate. Any changes in the Prime Rate shall take effect on the
day specified in the public announcement of such change.

     “Proceeds” has the meaning described in the Uniform Commercial Code as in
effect from time to time.

     “Receivable” means one of each Borrower’s now owned and hereafter owned,
acquired or created Accounts, Chattel Paper, General Intangibles, Inventory and
Instruments; and “Receivables” means all of each Borrower’s now or hereafter
owned, acquired or created Accounts, Chattel Paper, General Intangibles,
Inventory and Instruments, and all Proceeds thereof.

     “Registered Organization” means an organization organized solely under the
law of a single state or the United States and as to which the state or the
United States must maintain a public record showing the organization to have
been organized.

     “Reportable Event” means any of the events set forth in Section 4043(c) of
ERISA or the regulations thereunder.

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     “Responsible Officer” means for each Borrower, its chief executive officer
or president or, with respect to financial matters, its chief financial
officer.

     “Revolving Credit Commitment” means the agreement of the Lender relating
to the making of the Revolving Loan and advances thereunder subject to and in
accordance with the provisions of this Agreement.

     “Revolving Credit Commitment Period” means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.

     “Revolving Credit Committed Amount” has the meaning described in Section
2.1.1 (Revolving Credit Facility).

     “Revolving Credit Expiration Date” means November 30, 2003.

     “Revolving Credit Facility” means the facility established by the Lender
pursuant to Section 2.1 (Revolving Credit Facility).

     “Revolving Credit Note” has the meaning described in Section 2.1.5
(Revolving Credit Note).

     “Revolving Credit Termination Date” means the earlier of (a) the Revolving
Credit Expiration Date, or (b) the date on which the Revolving Credit
Commitment is terminated pursuant to Section 7.2 (Remedies) or otherwise.

     “Revolving Credit Unused Line Fee” and “Revolving Credit Unused Line Fees”
have the meanings described in Section 2.1.10 (Revolving Credit Unused Line
Fee).

     “Revolving Loan” has the meaning described in Section 2.1.1 (Revolving
Credit Facility).

     “Revolving Loan Account” has the meaning described in Section 2.1.9
(Revolving Loan Account).

     “Revolving Loan Mandatory Prepayment” and “Revolving Loan Mandatory
Prepayments” have the meanings described in Section 2.1.6 (Mandatory
Prepayments of Revolving Loan).

     “Revolving Loan Optional Prepayment” and “Revolving Loan Optional
Prepayments” have the meanings described in Section 2.1.7 (Optional Prepayment
of Revolving Loan).

     “Security Documents” means collectively any assignment, pledge agreement,
security agreement, mortgage, deed of trust, deed to secure debt, financing
statement and any similar instrument, document or agreement under or pursuant
to which a Lien is now or hereafter granted to, or for the benefit of, the
Lender on any real or personal property of any Person to secure all or any
portion of the Obligations, all as the same may from time to time be amended,
restated, supplemented or otherwise modified.

     “State” means the Commonwealth of Virginia.

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     “Subordinated Indebtedness” means all Indebtedness, incurred at any time
by any one or more of the Borrowers, which is in amounts, subject to repayment
terms, and subordinated to the Obligations, as set forth in one or more written
agreements, all in form and substance satisfactory to the Lender in its sole
and absolute discretion.

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

     “Supporting Obligation” means a Letter-of-credit right, secondary
obligation or obligation of a secondary obligor or that supports the payment or
performance of an account, chattel paper, a document, a general intangible, an
instrument or investment property.

     “Swap Contract” means any document, instrument or agreement between
Borrower and Lender or any affiliate of Lender, now existing or entered into in
the future, relating to an interest rate swap transaction, forward rate
transaction, interest rate cap, floor or collar transaction, any similar
transaction, any option to enter into any of the foregoing, and any combination
of the foregoing, which agreement may be oral or in writing, including, without
limitation, any master agreement relating to or governing any or all of the
foregoing and any related schedule or confirmation, each as amended from time
to time.

     “Tangible Net Worth” means as to the Borrowers and their Subsidiaries at
any date of determination thereof, the sum at such time of: the Net Worth less
the total of (a) all Assets which would be classified as intangible assets
under GAAP consistently applied, (b) leasehold improvements, (c) applicable
reserves, allowances and other similar properly deductible items to the extent
such reserves, allowances and other similar properly deductible items have not
been previously deducted by the Lender in the calculation of Net Worth, (d) any
revaluation or other write-up in book value of assets subsequent to the date of
the most recent financial statements delivered to the Lender, and (e) the
amount of all loans and advances to, or investments in, any Person, excluding
Cash Equivalents and deposit accounts maintained by such Borrower or its
Subsidiaries with any financial institution.

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

     “Trademarks” means and includes in each case whether now existing or
hereafter arising, all of each Borrower’s rights, title and interest in and to
(a) any and all trademarks (including service marks), trade names and trade
styles, and applications for registration thereof and the goodwill of the
business symbolized by any of the foregoing, (b) any and all licenses of
trademarks, service marks, trade names and/or trade styles, whether as licensor
or licensee, (c) any renewals of any and all trademarks, service marks, trade
names, trade styles and/or licenses of any of the foregoing, (d) income,
royalties, damages and payments now or hereafter due and/or payable with
respect thereto, including, without limitation, damages, claims, and payments
for past, present and future infringements thereof, (e) rights to sue for past,
present and future infringements of any of the foregoing, including the right
to settle suits involving claims

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 and demands for royalties owing, and (f) all rights corresponding to any
of the foregoing throughout the world.

     “Uniform Commercial Code” means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.

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

     Section 1.2 Accounting Terms and Other Definitional Provisions.

     Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP, as consistently applied to the applicable Person.
All terms used herein which are defined by the Uniform Commercial Code shall
have the same meanings as assigned to them by the Uniform Commercial Code
unless and to the extent varied by this Agreement. The words “hereof”,
“herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, subsection, schedule and
exhibit references are references to articles, sections or subsections of, or
schedules or exhibits to, as the case may be, this Agreement unless otherwise
specified. As used herein, the singular number shall include the plural, the
plural the singular and the use of the masculine, feminine or neuter gender
shall include all genders, as the context may require. Reference to any one or
more of the Financing Documents shall mean the same as the foregoing may from
time to time be amended, restated, substituted, extended, renewed, supplemented
or otherwise modified. Reference in this Agreement and the other Financing
Documents to the “Borrower”, the “Borrowers”, “each Borrower” or otherwise with
respect to any one or more of the Borrowers shall mean each and every Borrower
and any one or more of the Borrowers, jointly and severally, unless a specific
Borrower is expressly identified.

ARTICLE II

THE CREDIT FACILITIES

     Section 2.1 The Revolving Credit Facility.

		
	 	        2.1.1 Revolving Credit Facility.

                       Subject to and upon the provisions of this Agreement, the Lender
establishes a revolving credit facility in favor of the Borrowers. The
aggregate of all advances under the Revolving Credit Facility is sometimes
referred to in this Agreement as the “Revolving Loan”.

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                       The principal amount of Six Million Five Hundred Thousand Dollars
($6,500,000.00) is the “Revolving Credit Committed Amount”.

                       During the Revolving Credit Commitment Period, any or all of the Borrowers
may request advances under the Revolving Credit Facility in accordance with the
provisions of this Agreement; provided that after giving effect to any
Borrower’s request the aggregate outstanding principal balance of the Revolving
Loan and all Letter of Credit Obligations would not exceed the lesser of (a)
the Revolving Credit Committed Amount or (b) the then most current Borrowing
Base.

                       Unless sooner paid, the unpaid Revolving Loan, together with interest
accrued and unpaid thereon, and all other Obligations shall be due and payable
in full on the Revolving Credit Expiration Date.

		
	 	        2.1.2 Procedure for Making Advances Under
the Revolving Loan;
                 Lender Protection Loans.

                       The Borrowers may borrow under the Revolving Credit Facility on any
Business Day. Advances under the Revolving Loan shall be in an amount of not
less than Ten Thousand Dollars ($10,000), or a multiple thereof and deposited
to a demand deposit account of a Borrower with the Lender (or an Affiliate of
the Lender) or shall be otherwise applied as directed by the Borrowers, which
direction the Lender may require to be in writing. No later than 1:00 p.m.
(Eastern Time) on the date of the requested borrowing, the Borrowers shall give
the Lender oral or written notice (a “Loan Notice”) of the amount and (if
requested by the Lender) the purpose of the requested borrowing. Any oral Loan
Notice shall be confirmed in writing by the Borrowers within three (3) Business
Days after the making of the requested advance under the Revolving Loan. Each
Loan Notice shall be irrevocable.

                       In addition, each of the Borrowers hereby irrevocably authorizes the
Lender at any time and from time to time, without further request from or
notice to the Borrowers, to make advances under the Revolving Loan, and to
establish, without duplication, reserves against the Borrowing Base, which the
Lender, in its sole and absolute discretion, deems necessary or appropriate to
protect the interests of the Lender, including, without limitation, advances
and reserves under the Revolving Loan made to cover debit balances in the
Revolving Loan Account, principal of, and/or interest on, any Loan, the
Obligations (including, without limitation, any Letter of Credit Obligations),
and/or Enforcement Costs, prior to, on, or after the termination of other
advances under this Agreement, regardless of whether the outstanding principal
amount of the Revolving Loan that the Lender may advance or reserve hereunder
exceeds the Revolving Credit Committed Amount or the Borrowing Base.

		
	 	        2.1.3 Borrowing Base.

                       As used in this Agreement, the term “Borrowing Base” means at any time, an
amount equal to the aggregate of (a) ninety percent (90%) of the amount of
Eligible Receivables derived from Government Contracts, (b) eighty percent
(80%) of the amount of Eligible Receivables derived from contracts other than
Government Contracts and (c) the Applicable Percentage of Eligible Unbilled
Receivables up to the Maximum Eligible Unbilled Amounts.

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                       The Borrowing Base shall be computed based on the Borrowing Base Report
most recently delivered to and accepted by the Lender in its sole and absolute
discretion. In the event the Borrowers fail to furnish a Borrowing Base Report
required by Section 2.1.4 (Borrowing Base Report), or in the event the Lender
believes that a Borrowing Base Report is no longer accurate, the Lender may, in
its sole and absolute discretion exercised from time to time and without
limiting its other rights and remedies under this Agreement, suspend the making
of or limit advances under the Revolving Loan. The Borrowing Base shall be
subject to reduction by amounts credited to the Collateral Account since the
date of the most recent Borrowing Base Report and by the amount of any
Receivable which was included in the Borrowing Base but which the Lender
determines fails to meet the respective criteria applicable from time to time
for Eligible Receivables.

                       If at any time the total of the aggregate principal amount of the
Revolving Loan and Outstanding Letter of Credit Obligations exceeds the
Borrowing Base, a borrowing base deficiency (“Borrowing Base Deficiency”) shall
exist. Each time a Borrowing Base Deficiency exists, the Borrowers at the sole
and absolute discretion of the Lender exercised from time to time shall pay the
Borrowing Base Deficiency ON DEMAND to the Lender.

                       Without implying any limitation on the Lender’s discretion with respect to
the Borrowing Base, the criteria for Eligible Receivables contained in the
definition of Eligible Receivables are in part based upon the business
operations of the Borrowers existing on or about the Closing Date and upon
information and records furnished to the Lender by the Borrowers. If at any
time or from time to time hereafter, the business operations of the Borrowers
change or such information and records furnished to the Lender is incorrect or
misleading, the Lender in its discretion, may at any time and from time to time
during the duration of this Agreement change such criteria or add new criteria.
The Lender may communicate such changed or additional criteria to the
Borrowers from time to time either orally or in writing.

		
	 	        2.1.4 Borrowing Base Report.

                       The Borrowers will furnish to the Lender within fifteen (15) days after
the end of each month and at such other times as may be requested by the Lender
a report of the Borrowing Base (each a “Borrowing Base Report”; collectively,
the “Borrowing Base Reports”) in the form required from time to time by the
Lender, appropriately completed and duly signed. The Borrowing Base Report
shall contain the amount and payments on the Receivables and the calculations
of the Borrowing Base, all in such detail, and accompanied by such supporting
and other information, as the Lender may from time to time request. Upon the
Lender’s request upon the creation of any Receivables or at such other
intervals as the Lender may require, the Borrowers will provide the Lender with
(a) confirmatory assignment schedules; (b) copies of Account Debtor invoices;
(c) such further schedules, documents and/or information regarding the
Receivables as the Lender may reasonably require. The items to be provided
under this subsection shall be in form satisfactory to the Lender, and
certified as true and correct by a Responsible Officer (or by any other
officers or employees of the Borrower whom a Responsible Officer from time to
time authorizes in writing to do so), and delivered to the Lender from time to
time solely for the Lender’s convenience in maintaining records of the
Collateral. Any Borrower’s failure to deliver any of such items to the Lender
shall not affect, terminate, modify, or otherwise limit the Liens of the Lender
on the Collateral.

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	 	        2.1.5 Revolving Credit Note.

                       The obligation of the Borrowers to pay the Revolving Loan, with interest,
shall be evidenced by an amended and restated revolving promissory note (as
from time to time extended, amended, restated, supplemented or otherwise
modified, the “Revolving Credit Note”) substantially in the form of EXHIBIT B-1
attached hereto and made a part hereof, with appropriate insertions. The
Revolving Credit Note shall be dated as of the Closing Date, shall be payable
to the order of the Lender at the times provided in the Revolving Credit Note,
and shall be in the principal amount of the Revolving Credit Committed Amount.
Each of the Borrowers acknowledges and agrees that, if the outstanding
principal balance of the Revolving Loan outstanding from time to time exceeds
the face amount of the Revolving Credit Note, the excess shall bear interest at
the Post-Default Rate for the Revolving Loan and shall be payable, with accrued
interest, ON DEMAND. The Revolving Credit Note shall not operate as a novation
of any of the Obligations or nullify, discharge, or release any such
Obligations or the continuing contractual relationship of the parties hereto in
accordance with the provisions of this Agreement.

		
	 	        2.1.6 Mandatory Prepayments of Revolving Loan.

                       The Borrowers shall make the mandatory prepayments (each a “Revolving Loan
Mandatory Prepayment” and collectively, the “Revolving Loan Mandatory
Prepayments”) of the Revolving Loan at any time and from time to time in such
amounts requested by the Lender pursuant to Section 2.1.3 (Borrowing Base) in
order to cover any Borrowing Base Deficiency.

		
	 	        2.1.7 Optional Prepayments of Revolving Loan.

                       The Borrowers shall have the option at any time and from time to time to
prepay (each a “Revolving Loan Optional Prepayment” and collectively the
“Revolving Loan Optional Prepayments”) the Revolving Loan, in whole or in part
without premium or penalty.

		
	 	        2.1.8 The Collateral Account.

                       The Borrowers will deposit, or cause to be deposited, all Items of Payment
to a bank account designated by the Lender and from which the Lender alone has
power of access and withdrawal (the “Collateral Account”). Each deposit shall
be made not later than the next Business Day after the date of receipt of the
Items of Payment. The Items of Payment shall be deposited in precisely the
form received, except for the endorsements of the Borrowers where necessary to
permit the collection of any such Items of Payment, which endorsement the
Borrowers hereby agree to make. In the event the Borrowers fail to do so, the
Borrowers hereby authorize the Lender to make the endorsement in the name of
any or all of the Borrowers. Prior to such a deposit, the Borrowers will not
commingle any Items of Payment with any of the Borrowers’ other funds or
property, but will hold them separate and apart in trust and for the account of
the Lender.

                       In addition, if so directed by the Lender, the Borrowers shall direct the
mailing of all Items of Payment from their Account Debtors to one or more
post-office boxes designated by the Lender, or to such other additional or
replacement post-office boxes pursuant

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 to the request of the Lender from time to time (collectively, the
“Lockbox”). The Lender shall have unrestricted and exclusive access to the
Lockbox.

                       The Borrowers hereby authorize the Lender to inspect all Items of Payment,
endorse all Items of Payment in the name of any or all of the Borrowers, and
deposit such Items of Payment in the Collateral Account. The Lender reserves
the right, exercised in its sole and absolute discretion from time to time, to
provide to the Collateral Account credit prior to final collection of an Item
of Payment and to disallow credit for any Item of Payment which is
unsatisfactory to the Lender. In the event Items of Payment are returned to
the Lender for any reason whatsoever, the Lender may, in the exercise of its
discretion from time to time, forward such Items of Payment a second time. Any
returned Items of Payment shall be charged back to the Collateral Account, the
Revolving Loan Account, or other account, as appropriate.

                       The Lender will apply the whole or any part of the collected funds
credited to the Collateral Account against the Revolving Loan (or with respect
to Items of Payment that are not proceeds of Accounts or after an Event of
Default, against any of the Obligations) or credit such collected funds to a
depository account of any or all of the Borrowers with the Lender (or an
Affiliate of the Lender), the order and method of such application to be in the
sole discretion of the Lender.

		
	 	        2.1.9 Revolving Loan Account.

                       The Lender will establish and maintain a loan account on its books (the
“Revolving Loan Account”) to which the Lender will (a) debit (i) the principal
amount of each advance of the Revolving Loan made by the Lender hereunder as of
the date made, (ii) the amount of any interest accrued on the Revolving Loan as
and when due, and (iii) any other amounts due and payable by the Borrowers to
the Lender from time to time under the provisions of this Agreement in
connection with the Revolving Loan, including, without limitation, Enforcement
Costs, Fees, late charges, and service, collection and audit fees, as and when
due and payable, and (b) credit all payments made by the Borrowers to the
Lender on account of the Revolving Loan as of the date made including, without
limitation, funds credited to the Revolving Loan Account from the Collateral
Account. The Lender may debit the Revolving Loan Account for the amount of any
Item of Payment that is returned to the Lender unpaid. All credit entries to
the Revolving Loan Account are conditional and shall be readjusted as of the
date made if final and indefeasible payment is not received by the Lender in
cash or solvent credits. Any and all periodic or other statements or
reconciliations, and the information contained in those statements or
reconciliations, of the Revolving Loan Account shall be final, binding and
conclusive upon the Borrowers in all respects, absent manifest error, unless
the Lender receives specific written objection thereto from any Borrower within
thirty (30) Business Days after such statement or reconciliation shall have
been sent by the Lender.

		
	 	        2.1.10 Revolving Credit Unused Line Fee.

                       The Borrowers shall pay to the Lender a revolving credit facility fee
(collectively, the “Revolving Credit Unused Line Fees” and individually, a
“Revolving Credit Unused Line Fee”) in an amount equal to one quarter of one
percent (0.25%) per annum of the average daily unused and undisbursed portion
of the Revolving Credit Committed Amount in effect from time to time accruing
during each quarter. The accrued and unpaid portion of the

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Revolving Credit Unused Line Fee shall be paid by the Borrowers to the
Lender on the first day of each quarter, commencing on the first such date
following the date hereof, and on the Revolving Credit Termination Date.

     Section 2.2 The Letter of Credit Facility.

		
	 	        2.2.1 Letters of Credit.

                       Subject to and upon the provisions of this Agreement, and as a part of the
Revolving Credit Commitment, any of the Borrowers, upon the prior approval of
the Lender, may obtain standby letters of credit (as the same may from time to
time be amended, supplemented or otherwise modified, each a “Letter of Credit”
and collectively the “Letters of Credit”) from the Lender from time to time
from the Closing Date until the Business Day preceding the Revolving Credit
Termination Date. The Borrowers will not be entitled to obtain a Letter of
Credit hereunder unless after giving effect to the request, the outstanding
principal balance of the Revolving Loan and of the Letter of Credit Obligations
would not exceed the lesser of (i) the Revolving Credit Committed Amount or
(ii) the most current Borrowing Base.

		
	 	        2.2.2 Letter of Credit Fees.

                       Prior to or simultaneously with the opening of each Letter of Credit, the
Borrowers shall pay to the Lender, a letter of credit fee (each a “Letter of
Credit Fee” and collectively the “Letter of Credit Fees”) in an amount equal to
one and three quarter percent (1.75%) per annum of the face amount of the
Letter of Credit. The Letter of Credit Fees shall be paid upon the opening of
each Letter of Credit and upon each anniversary thereof, if any. In addition,
the Borrowers shall pay to the Lender all other reasonable and customary
amendment, negotiation, processing, transfer or other fees to the extent and as
and when required by the provisions of any Letter of Credit Agreement. All
Letter of Credit Fees and all such other additional fees are included in and
are a part of the “Fees” payable by the Borrowers under the provisions of this
Agreement and are a part of the Obligations.

		
	 	        2.2.3 Terms of Letters of Credit;
Post-Expiration Date Letters of Credit.

                       Each Letter of Credit shall (a) be opened pursuant to a Letter of Credit
Agreement and (b) expire on a date not later than the Business Day preceding
the Revolving Credit Expiration Date; provided, however, if any Letter of
Credit does have an expiration date later than the Business Day preceding the
Revolving Credit Termination Date (each a “Post-Expiration Date Letter of
Credit” and collectively, the “Post-Expiration Date Letters of Credit”),
effective as of the Business Day preceding the Revolving Credit Termination
Date and without prior notice to or the consent of the Borrowers, the Lender
shall make advances under the Revolving Loan for the account of the Borrowers
in the aggregate face amount of all such Letters of Credit. The Lender shall
deposit the proceeds of such advances into one or more non-interest bearing
accounts with and in the name of the Lender and over which the Lender alone
shall have exclusive power of access and withdrawal (collectively, the “Letter
of Credit Cash Collateral Account”). The Letter of Credit Cash Collateral
Account is to be held by the Lender as additional collateral and security for
any Letter of Credit Obligations relating to the Post-Expiration Date Letters
of Credit. The Borrowers hereby assign, pledge, grant and set over to the
Lender a first priority security interest in, and Lien on, all of the funds on
deposit in the

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Letter of Credit Cash Collateral Account, together with any and all
Proceeds and products thereof as additional collateral and security for the
Letter of Credit Obligations relating to the Post-Expiration Date Letters of
Credit. The Borrowers acknowledge and agree that the Lender shall be entitled
to fund any draw or draft on any Post-Expiration Date Letter of Credit from the
monies on deposit in the Letter of Credit Cash Collateral Account without
notice to or consent of the Borrowers or the Lender. The Borrowers further
acknowledge and agree that the Lender’s election to fund any draw or draft on
any Post-Expiration Date Letter of Credit from the Letter of Credit Cash
Collateral shall in no way limit, impair, lessen, reduce, release or otherwise
adversely affect the Borrowers’ obligation to pay any Letter of Credit
Obligations under or relating to the Post-Expiration Date Letters of Credit.
At such time as all Post-Expiration Date Letters of Credit have expired and all
Letter of Credit Obligations relating to the Post-Expiration Date Letters of
Credit have been paid in full, the Lender agrees to apply the amount of any
remaining funds on deposit in the Letter of Credit Cash Collateral Account to
the then unpaid balance of the Obligations under the Revolving Credit Facility
in such order and manner as the Lender shall determine in its sole and absolute
discretion in accordance with the provisions of this Agreement.

                       The aggregate face amount of all Letters of Credit at any one time
outstanding and issued by the Lender pursuant to the provisions of this
Agreement, including, without limitation, any and all Post-Expiration Date
Letters of Credit, plus the amount of any unpaid Letter of Credit Fees accrued
or scheduled to accrue thereon, and less the aggregate amount of all drafts
issued under or purporting to have been issued under such Letters of Credit
that have been paid by the Lender and for which the Lender has been reimbursed
by the Borrowers in full in accordance with Section 2.2.5 (Payments of Letters
of Credit) and the Letter of Credit Agreements, and for which the Lender has no
further obligation or commitment to restore all or any portion of the amounts
drawn and reimbursed, is herein called the “Outstanding Letter of Credit
Obligations”.

		
	 	        2.2.4 Procedures for Letters of Credit.

                       The Borrowers shall give the Lender written notice at least five (5)
Business Days prior to the date on which the Borrowers desire the Lender to
issue a Letter of Credit. Such notice shall be accompanied by a duly executed
Letter of Credit Agreement specifying, among other things: (a) the name and
address of the intended beneficiary of the Letter of Credit, (b) the requested
face amount of the Letter of Credit, (c) whether the Letter of Credit is to be
revocable or irrevocable, (d) the Business Day on which the Letter of Credit is
to be opened and the date on which the Letter of Credit is to expire, (e) the
terms of payment of any draft or drafts which may be drawn under the Letter of
Credit, and (f) any other terms or provisions the Borrowers desire to be
contained in the Letter of Credit. Such notice shall also be accompanied by
such other information, certificates, confirmations, and other items as the
Lender may require to assure that the Letter of Credit is to be issued in
accordance with the provisions of this Agreement and a Letter of Credit
Agreement. In the event of any conflict between the provisions of this
Agreement and the provisions of a Letter of Credit Agreement, the provisions of
this Agreement shall prevail and control unless otherwise expressly provided in
the Letter of Credit Agreement. Upon (x) receipt of such notice, (y) payment
of all Letter of Credit Fees and all other Fees payable in connection with the
issuance of such Letter of Credit, and (z) receipt of a duly executed Letter of
Credit Agreement, the Lender shall process such notice and

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Letter of Credit Agreement in accordance with its customary procedures and
open such Letter of Credit on the Business Day specified in such notice.

		
	 	        2.2.5 Payments of Letters of Credit.

                       The Borrowers hereby promise to pay to the Lender, ON DEMAND and in United
States Dollars, the following which are herein collectively referred to as the
“Current Letter of Credit Obligations”:

		
	 	                          (a)      the amount which the Lender has paid or will be required
to pay under each draft or draw on a Letter of Credit, whether
such demand be in advance of the Lender’s payment or for
reimbursement for such payment;
	 
	 	                          (b)      any and all reasonable charges and expenses which the
Lender may pay or incur relative to the Letter of Credit and/or
such draws or drafts; and
	 
	 	                          (c)      interest on the amounts described in (a) and (b) not paid
by the Borrowers as and when due and payable under the provisions
of (a) and (b) above from the day the same are due and payable
until paid in full at a rate per annum equal to the then current
highest rate of interest on the Revolving Loan.

                       In addition, the Borrowers hereby promise to pay any and all other Letter
of Credit Obligations as and when due and payable in accordance with the
provisions of this Agreement and the Letter of Credit Agreements. The
obligation of the Borrowers to pay Current Letter of Credit Obligations and all
other Letter of Credit Obligations shall be absolute and unconditional under
any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrowers or any other account party may have or
have had against the beneficiary of such Letter of Credit, the Lender, or any
other Person, including, without limitation, any defense based on the failure
of any draft or draw to conform to the terms of such Letter of Credit, any
draft or other document proving to be forged, fraudulent or invalid, or the
legality, validity, regularity or enforceability of such Letter of Credit, any
draft or other documents presented with any draft, any Letter of Credit
Agreement, this Agreement, or any of the other Financing Documents, all whether
or not the Lender had actual or constructive knowledge of the same, and
irrespective of any Collateral, security or guarantee therefore or right of
offset with respect thereto and irrespective of any other circumstances
whatsoever which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Borrowers for any Letter of Credit Obligations, in
bankruptcy or otherwise; provided, however, that the Borrowers shall not be
obligated to reimburse the Lender for any wrongful payment under such Letter of
Credit made as a result of the Lender’s willful misconduct. The obligation of
the Borrowers to pay the Letter of Credit Obligations shall not be conditioned
or contingent upon the pursuit by the Lender or any other Person at any time of
any right or remedy against any Person which may be or become liable in respect
of all or any part of such obligation or against any Collateral, security or
guarantee therefore or right of offset with respect thereto.

55

 

                       The Letter of Credit Obligations shall continue to be effective, or be
reinstated, as the case may be, if at any time payment of all or any portion of
the Letter of Credit Obligations is rescinded or must otherwise be restored or
returned by the Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Person, or upon or as a result of the
appointment of a receiver, intervenor, or conservator of, or trustee or similar
officer for, any Person, or any substantial part of such Person’s property, all
as though such payments had not been made.

		
	 	        2.2.6 Change in Law; Increased Cost.

                       If any change in any law or regulation or in the interpretation thereof by
any court or other Governmental Authority charged with the administration
thereof shall either (a) impose, modify or deem applicable any reserve, special
deposit or similar requirement against Letters of Credit issued by the Lender,
or (b) impose on the Lender any other condition regarding this Agreement or any
Letter of Credit, and the result of any event referred to in clauses (a) or (b)
above shall be to increase the cost to the Lender of issuing, maintaining or
extending the Letter of Credit or the cost to Lender of funding any obligation
under or in connection with the Letter of Credit, then, upon demand by the
Lender, the Borrowers shall immediately pay to the Lender from time to time as
specified by the Lender, additional amounts which shall be sufficient to
compensate the Lender for such increased cost, together with interest on each
such amount from the date demanded until payment in full thereof at a rate per
annum equal to the then highest current rate of interest on the Revolving Loan.
A certificate as to such increased cost incurred by the Lender, submitted by
the Lender to the Borrowers, shall be conclusive, absent manifest error.

		
	 	        2.2.7 General Letter of Credit Provisions.

                       The Borrowers hereby instruct the Lender to pay any draft complying with
the terms of any Letter of Credit irrespective of any instructions of the
Borrowers to the contrary. The Borrowers assume all risks of the acts and
omissions of the beneficiary and other users of any Letter of Credit. The
Lender and its respective branches, Affiliates and/or correspondents shall not
be responsible for and the Borrowers hereby indemnify and hold the Lender and
its branches, Affiliates and/or correspondents harmless from and against all
liability, loss and expense (including reasonable attorney’s fees and costs)
incurred by the Lender and/or its respective branches, Affiliates and/or
correspondents relative to and/or as a consequence of (a) any failure by the
Borrowers to perform the agreements hereunder and under any Letter of Credit
Agreement, (b) any Letter of Credit Agreement, this Agreement, any Letter of
Credit and any draft, draw and/or acceptance under or purported to be under any
Letter of Credit, (c) any action taken or omitted by the Lender and/or any of
its respective branches, Affiliates and/or correspondents at the request of the
Borrowers, (d) any failure or inability to perform in accordance with the terms
of any Letter of Credit by reason of any control or restriction rightfully or
wrongfully exercised by any de facto or de jure Governmental Authority, group
or individual asserting or exercising governmental or paramount powers, and/or
(e) any consequences arising from causes beyond the control of the Lender
and/or any of its respective branches, Affiliates and/or correspondents.

                       Except for willful misconduct, the Lender and its respective branches,
Affiliates and/or correspondents, shall not be liable or responsible in any
respect for any (a)

56

 

error, omission, interruption or delay in transmission, dispatch or
delivery of any one or more messages or advices in connection with any Letter
of Credit, whether transmitted by cable, telegraph, mail or otherwise and
despite any cipher or code which may be employed, and/or (b) action, inaction
or omission which may be taken or suffered by it or them in good faith or
through inadvertence in identifying or failing to identify any beneficiary or
otherwise in connection with any Letter of Credit.

                       Any Letter of Credit may be amended, modified or revoked only upon the
receipt by the Lender from the Borrowers and the beneficiary (including any
transferee and/or assignee of the original beneficiary), of a written consent
and request therefore.

                       If any Laws, order of court and/or ruling or regulation of any
Governmental Authority of the United States (or any state thereof) and/or any
country other than the United States permits a beneficiary under a Letter of
Credit to require the Lender and/or any of its respective branches, Affiliates
and/or correspondents to pay drafts under or purporting to be under a Letter of
Credit after the expiration date of the Letter of Credit, the Borrowers shall
reimburse the Lender, as appropriate, for any such payment pursuant to
provisions of Section 2.2.6 (Change in Law; Increased Cost).

                       Except as may otherwise be specifically provided in a Letter of Credit or
Letter of Credit Agreement, the laws of the State and the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 shall govern the Letters of Credit. The Laws,
rules, provisions and regulations of the Uniform Customs and Practice for
Documentary Credits are hereby incorporated by reference. In the event of a
conflict between the Uniform Customs and Practice for Documentary Credits and
the laws of the State, the Uniform Customs and Practice for Documentary Credits
shall prevail.

     Section 2.3 General Financing Provisions.

		
	 	        2.3.1 Borrowers’ Representatives.

                       The Borrowers hereby represent and warrant to the Lender that each of them
will derive benefits, directly and indirectly, from each Letter of Credit and
from each Loan, both in their separate capacity and as a member of the
integrated group to which each of the Borrowers belong and because the
successful operation of the integrated group is dependent upon the continued
successful performance of the functions of the integrated group as a whole,
because (a) the terms of the consolidated financing provided under this
Agreement are more favorable than would otherwise be obtainable by the
Borrowers individually, and (b) the Borrowers’ additional administrative and
other costs and reduced flexibility associated with individual financing
arrangements which would otherwise be required if obtainable would
substantially reduce the value to the Borrowers of the financing. The
Borrowers in the discretion of their respective managements are to agree among
themselves as to the allocation of the benefits of Letters of Credit and the
proceeds of the Loan, provided, however, that the Borrowers shall be deemed to
have represented and warranted to the Lender at the time of allocation that
each benefit and use of proceeds is a Permitted Use.

                       For administrative convenience, each Borrower hereby irrevocably appoints
Versar as the Borrowers’ attorney-in-fact, with power of substitution (with the
prior

57

 

written consent of the Lender in the exercise of its sole and absolute
discretion), in the name of Versar or in the name of the Borrowers or otherwise
to take any and all actions with respect to the this Agreement, the other
Financing Documents, the Obligations and/or the Collateral (including, without
limitation, the Proceeds thereof) as Versar may so elect from time to time,
including, without limitation, actions to (i) request advances under the Loan,
apply for and direct the benefits of Letters of Credits, and direct the Lender
to disburse or credit the proceeds of any Loan directly to an account of
Versar, any one or more of the Borrowers or otherwise, which direction shall
evidence the making of such Loan and shall constitute the acknowledgment by
each of the Borrowers of the receipt of the proceeds of such Loan or the
benefit of such Letter of Credit, (ii) enter into, execute, deliver, amend,
modify, restate, substitute, extend and/or renew this Agreement, any Additional
Borrower Joinder Supplement, any other Financing Documents, security
agreements, mortgages, deposit account agreements, instruments, certificates,
waivers, letter of credit applications, releases, documents and agreements from
time to time, and (iii) endorse any check or other item of payment in the name
of the Borrowers or in the name of Versar. The foregoing appointment is
coupled with an interest, cannot be revoked without the prior written consent
of the Lender, and may be exercised from time to time through Versar’s duly
authorized officer, officers or other Person or Persons designated by Versar to
act from time to time on behalf of Versar.

                       Each of the Borrowers hereby irrevocably authorizes the Lender to make
Loans to any one or more of the Borrowers, and hereby irrevocably authorizes
the Lender to issue or cause to be issued Letters of Credit for the account of
any or all of the Borrowers, pursuant to the provisions of this Agreement upon
the written, oral or telephone request of any one or more of the Persons who is
from time to time a Responsible Officer of a Borrower under the provisions of
the most recent certificate of corporate resolutions and/or incumbency of the
Borrowers on file with the Lender and also upon the written, oral or telephone
request of any one of the Persons who is from time to time a Responsible
Officer of Versar under the provisions of the most recent certificate of
corporate resolutions and/or incumbency for Versar on file with the Lender.

                       The Lender assumes no responsibility or liability for any errors,
mistakes, and/or discrepancies in the oral, telephonic, written or other
transmissions of any instructions, orders, requests and confirmations between
the Lender and the Borrowers in connection with the Credit Facilities, any
Loan, any Letter of Credit or any other transaction in connection with the
provisions of this Agreement. Without implying any limitation on the joint and
several nature of the Obligations, the Lender agrees that, notwithstanding any
other provision of this Agreement, the Borrowers may create reasonable
inter-company indebtedness between or among the Borrowers with respect to the
allocation of the benefits and proceeds of the advances and Credit Facilities
under this Agreement. The Borrowers agree among themselves, and the Lender
consents to that agreement, that each Borrower shall have rights of
contribution from all of the other Borrowers to the extent such Borrower incurs
Obligations in excess of the proceeds of the Loan received by, or allocated to
purposes for the direct benefit of, such Borrower. All such indebtedness and
rights shall be, and are hereby agreed by the Borrowers to be, subordinate in
priority and payment to the indefeasible repayment in full in cash of the
Obligations, and, unless the Lender agrees in writing otherwise, shall not be
exercised or repaid in whole or in part until all of the Obligations have been
indefeasibly paid in full in cash. The Borrowers agree that all of such
inter-company indebtedness and rights of contribution are part of the
Collateral and secure

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the Obligations. Each Borrower hereby waives all rights of counterclaim,
recoupment and offset between or among themselves arising on account of that
indebtedness and otherwise. Each Borrower shall not evidence the inter-company
indebtedness or rights of contribution by note or other instrument, and shall
not secure such indebtedness or rights of contribution with any Lien or
security. Notwithstanding anything contained in this Agreement to the
contrary, the amount covered by each Borrower under the Obligations (including,
without limitation, Section 2.3.8 (Guaranty)) shall be limited to an aggregate
amount (after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Borrower in
respect of the Obligations) which, together with other amounts owing by such
Borrowers to the Lender under the Obligations, is equal to the largest amount
that would not be subject to avoidance under the Bankruptcy Code or any
applicable provisions of any applicable, comparable state or other Laws.

		
	 	        2.3.2 Use of Proceeds of the Loans.

                       The proceeds of each advance under the Loans shall be used by the
Borrowers for Permitted Uses, and for no other purposes except as may otherwise
be agreed by the Lender in writing. The Borrowers shall use the proceeds of
the Loans promptly.

		
	 	        2.3.3 Computation of Interest and Fees.

                       All applicable Fees and interest shall be calculated on the basis of a
year of 360 days for the actual number of days elapsed. Any change in the
interest rate on any of the Obligations resulting from a change in the Prime
Rate shall become effective as of the opening of business on the day on which
such change in the Prime Rate is announced.

		
	 	        2.3.4 Maximum Interest Rate.

                       In no event shall any interest rate provided for hereunder exceed the
maximum rate permissible for corporate borrowers under applicable law for loans
of the type provided for hereunder (the “Maximum Rate”). If, in any month, any
interest rate, absent such limitation, would have exceeded the Maximum Rate,
then the interest rate for that month shall be the Maximum Rate, and, if in
future months, that interest rate would otherwise be less than the Maximum
Rate, then that interest rate shall remain at the Maximum Rate until such time
as the amount of interest paid hereunder equals the amount of interest which
would have been paid if the same had not been limited by the Maximum Rate. In
the event that, upon payment in full of the Obligations, the total amount of
interest paid or accrued under the terms of this Agreement is less than the
total amount of interest which would, but for this Section, have been paid or
accrued if the interest rates otherwise set forth in this Agreement had at all
times been in effect, then the Borrowers shall, to the extent permitted by
applicable law, pay the Lender, an amount equal to the excess of (a) the lesser
of (i) the amount of interest which would have been charged if the Maximum Rate
had, at all times, been in effect or (ii) the amount of interest which would
have accrued had the interest rates otherwise set forth in this Agreement, at
all times, been in effect over (b) the amount of interest actually paid or
accrued under this Agreement. In the event that a court determines that the
Lender has received interest and other charges hereunder in excess of the
Maximum Rate, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations other than interest, in the
inverse order of maturity, and if there are no Obligations outstanding, the
Lender shall refund to the Borrowers such excess.

59

 

		
	 	        2.3.5 Payments.

                       All payments of the Obligations, including, without limitation, principal,
interest, Prepayments, and Fees, shall be paid by the Borrowers without setoff,
recoupment or counterclaim to the Lender in immediately available funds not
later than 12:00 p.m. (Eastern Time) on the due date of such payment. All
payments received by the Lender after such time shall be deemed to have been
received by the Lender for purposes of computing interest and Fees and
otherwise as of the next Business Day. Payments shall not be considered
received by the Lender until such payments are paid to the Lender in
immediately available funds to the Lender’s principal office in McLean,
Virginia or at such other location as the Lender may at any time and from time
to time notify the Borrowers. Alternatively, at its sole discretion, the
Lender may charge any deposit account of the Borrowers at the Lender or any
Affiliate of the Lender with all or any part of any amount due to the Lender
under this Agreement or any of the other Financing Documents to the extent that
the Borrowers shall have not otherwise tendered payment to the Lender.

                       The Lender is authorized to deduct any payment (including payments of
principal, interest and/or Fees as provided herein or in the Notes) from the
Borrowers’ Account Number 4113103748 on or after the date the payment is due;
provided, however, that such authorization shall not be deemed to relieve the
Borrowers from their obligation to make such payment when it is due and,
further provided, that the Lender will provide the Borrowers with notice of any
such deduction.

		
	 	        2.3.6 Liens; Setoff.

                       The Borrowers hereby grant to the Lender as additional collateral and
security for all of the Obligations, a continuing Lien on any and all monies,
Investment Property, and other property of the Borrowers and the proceeds
thereof, now or hereafter held or received by or in transit to, the Lender,
and/or any Affiliate of the Lender, from or for the account of, the Borrowers,
and also upon any and all deposit accounts (general or special) and credits of
the Borrowers, if any, with the Lender or any Affiliate of the Lender, at any
time existing, excluding any deposit accounts held by the Borrowers in their
capacity as trustee for Persons who are not Borrowers or Affiliates of the
Borrowers. Without implying any limitation on any other rights the Lender may
have under the Financing Documents or applicable Laws, during the continuance
of an Event of Default, the Lender is hereby authorized by the Borrowers at any
time and from time to time, without notice to the Borrowers, to set off,
appropriate and apply any or all items hereinabove referred to against all
Obligations then outstanding (whether or not then due), all in such order and
manner as shall be determined by the Lender in its sole and absolute
discretion.

		
	 	        2.3.7 Requirements of Law.

                       In the event that the Lender shall have determined in good faith that (a)
the adoption of any Capital Adequacy Regulation, or (b) any change in any
Capital Adequacy Regulation or in the interpretation or application thereof or
(c) compliance by the Lender or any corporation controlling the Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) from any central bank or Governmental Authority, does or shall
have the effect of reducing the rate of return on the capital of the Lender or
any corporation controlling the Lender, as a consequence of the obligations of
the Lender hereunder to a level below that which the Lender or any corporation
controlling the Lender would have

60

 

achieved but for such adoption, change or compliance (taking into
consideration the policies of the Lender and the corporation controlling the
Lender, with respect to capital adequacy) by an amount deemed by the Lender, in
its discretion, to be material, then from time to time, after submission by the
Lender to the Borrowers of a written request therefore and a statement of the
basis for such determination, the Borrowers shall pay to the Lender such
additional amount or amounts in order to compensate the Lender or its
controlling corporation for any such reduction.

		
	 	        2.3.8 Guaranty.

                                (a)      Each Borrower hereby unconditionally and irrevocably, guarantees to
the Lender:

		
	 	                                   (i)      the due and punctual payment in full (and not merely the
collectibility) by the other Borrowers of the Obligations,
including unpaid and accrued interest thereon, in each case when
due and payable, all according to the terms of this Agreement, the
Notes and the other Financing Documents;
	 
	 	                                   (ii)      the due and punctual payment in full (and not merely the
collectibility) by the other Borrowers of all other sums and
charges which may at any time be due and payable in accordance
with this Agreement, the Notes or any of the other Financing
Documents;
	 
	 	                                   (iii)      the due and punctual performance by the other Borrowers
of all of the other terms, covenants and conditions contained in
the Financing Documents; and
	 
	 	                                   (iv)      all the other Obligations of the other Borrowers.

                                (b)      The obligations and liabilities of each Borrower as a guarantor under
this Section 2.3.8 shall be absolute and unconditional and joint and several,
irrespective of the genuineness, validity, priority, regularity or
enforceability of this Agreement, any of the Notes or any of the Financing
Documents or any other circumstance which might otherwise constitute a legal or
equitable discharge of a surety or guarantor. Each Borrower in its capacity as
a guarantor expressly agrees that the Lender may, in its sole and absolute
discretion, without notice to or further assent of such Borrower and without in
any way releasing, affecting or in any way impairing the joint and several
obligations and liabilities of such Borrower as a guarantor hereunder:

		
	 	                                   (i)      waive compliance with, or any defaults under, or grant
any other indulgences under or with respect to any of the
Financing Documents;
	 
	 	                                   (ii)      modify, amend, change or terminate any provisions of any
of the Financing Documents;

61

 

		
	 	                                   (iii)      grant extensions or renewals of or with respect to the
Credit Facilities, the Notes or any of the other Financing
Documents;
	 
	 	                                   (iv)      effect any release, subordination, compromise or
settlement in connection with this Agreement, any of the Notes or
any of the other Financing Documents;
	 
	 	                                   (v)      agree to the substitution, exchange, release or other
disposition of the Collateral or any part thereof, or any other
collateral for the Loan or to the subordination of any lien or
security interest therein;
	 
	 	                                   (vi)      make advances for the purpose of performing any term,
provision or covenant contained in this Agreement, any of the
Notes or any of the other Financing Documents with respect to
which the Borrowers shall then be in default;
	 
	 	                                   (vii)      make future advances pursuant to this Agreement or any
of the other Financing Documents;
	 
	 	                                   (viii)      assign, pledge, hypothecate or otherwise transfer the
Commitments, the Obligations, the Notes, any of the other
Financing Documents or any interest therein, all as and to the
extent permitted by the provisions of this Agreement;
	 
	 	                                   (ix)      deal in all respects with the other Borrowers as if this
Section 2.3.8 were not in effect;
	 
	 	                                   (x)      effect any release, compromise or settlement with any of
the other Borrowers, whether in their capacity as a Borrower or as
a guarantor under this Section 2.3.8, or any other guarantor; and
	 
	 	                                   (xi)      provide debtor-in-possession financing or allow use of
cash collateral in proceedings under the Bankruptcy Code, it being
expressly agreed by all Borrowers that any such financing and/or
use would be part of the Obligations.

                                (c)      The obligations and liabilities of each Borrower, as guarantor under
this Section 2.3.8, shall be primary, direct and immediate, shall not be
subject to any counterclaim, recoupment, set off, reduction or defense based
upon any claim that a Borrower may have against any one or more of the other
Borrowers, the Lender, and/or any other guarantor and shall not be conditional
or contingent upon pursuit or enforcement by the Lender of any remedies it may
have against the Borrowers with respect to this Agreement, the Notes or any of
the other Financing Documents, whether pursuant to the terms thereof or by
operation of law. Without limiting the generality of the foregoing, the Lender
shall not be required to make any demand upon any of the Borrowers, or to sell
the Collateral or otherwise pursue, enforce or exhaust its remedies against the
Borrowers or the Collateral either before, concurrently with or after pursuing
or enforcing its rights and remedies hereunder. Any one or more successive or

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concurrent actions or proceedings may be brought against each Borrower
under this Section 2.3.8, either in the same action, if any, brought against
any one or more of the Borrowers or in separate actions or proceedings, as
often as the Lender may deem expedient or advisable. Without limiting the
foregoing, it is specifically understood that any modification, limitation or
discharge of any of the liabilities or obligations of any one or more of the
Borrowers, any other guarantor or any obligor under any of the Financing
Documents, arising out of, or by virtue of, any bankruptcy, arrangement,
reorganization or similar proceeding for relief of debtors under federal or
state law initiated by or against any one or more of the Borrowers, in their
respective capacities as borrowers and guarantors under this Section 2.3.8, or
under any of the Financing Documents shall not modify, limit, lessen, reduce,
impair, discharge, or otherwise affect the liability of each Borrower under
this Section 2.3.8 in any manner whatsoever, and this Section 2.3.8 shall
remain and continue in full force and effect. It is the intent and purpose of
this Section 2.3.8 that each Borrower shall and does hereby waive all rights
and benefits which might accrue to any other guarantor by reason of any such
proceeding, and the Borrowers agree that they shall be liable for the full
amount of the obligations and liabilities under this Section 2.3.8, regardless
of, and irrespective to, any modification, limitation or discharge of the
liability of any one or more of the Borrowers, any other guarantor or any
obligor under any of the Financing Documents, that may result from any such
proceedings.

                                (d)      Each Borrower, as guarantor under this Section 2.3.8, hereby
unconditionally, jointly and severally, irrevocably and expressly waives:

		
	 	                                   (i)      presentment and demand for payment of the Obligations and
protest of non-payment;
	 
	 	                                   (ii)      notice of acceptance of this Section 2.3.8 and of
presentment, demand and protest thereof;
	 
	 	                                   (iii)      notice of any default hereunder or under the Notes or
any of the other Financing Documents and notice of all
indulgences;
	 
	 	                                   (iv)      notice of any increase in the amount of any portion of
or all of the indebtedness guaranteed by this Section 2.3.8;
	 
	 	                                   (v)      demand for observance, performance or enforcement of any
of the terms or provisions of this Section 2.3.8, the Notes or any
of the other Financing Documents;
	 
	 	                                   (vi)      all errors and omissions in connection with the Lender’s
administration of all indebtedness guaranteed by this Section
2.3.8, except errors and omissions resulting from acts of bad
faith;
	 
	 	                                   (vii)      any right or claim of right to cause a marshalling of
the assets of any one or more of the other Borrowers;
	 
	 	                                   (viii)      any act or omission of the Lender which changes the
scope of the risk as guarantor hereunder; and

63

 

		
	 	                                   (ix)      all other notices and demands otherwise required by law
which the Borrower may lawfully waive.

                       Within ten (10) days following any request of the Lender so to do, each
Borrower will furnish the Lender and such other persons as the Lender may
direct with a written certificate, duly acknowledged stating in detail whether
or not any credits, offsets or defenses exist with respect to this Section
2.3.8.

		
	 	        2.3.9 ACH Transactions and Swap Contracts.

                       The Borrowers may request and the Lender or its Affiliates may, in their
sole and absolute discretion, provide ACH Transactions and Swap Contracts. In
the event the Borrowers request Lender or its Affiliates to procure ACH
Transactions or Swap Contracts, then the Borrowers agree to indemnify and hold
the Lender or its Affiliates harmless from any and all obligations now or
hereafter owing to the Lender or its Affiliates. The Borrowers agree to pay
the Lender or its Affiliates all amounts owing to the Lender or its Affiliates
pursuant to ACH Transactions and Swap Contracts. In the event the Borrowers
shall not have paid to the Lender or its Affiliates such amounts, the Lender
may cover such amounts by an advance under the Revolving Loan, which advance
shall be deemed to have been requested by the Borrowers. The Borrowers
acknowledge and agree that the obtaining of ACH Transactions and Swap Contracts
from the Lender or its Affiliates (a) is in the sole and absolute discretion of
the Lender or its Affiliates and (b) is subject to all rules and regulations of
the Lender or its Affiliates.

ARTICLE III

THE COLLATERAL

     Section 3.1 Debt and Obligations Secured.

     All property and Liens assigned, pledged or otherwise granted under or in
connection with this Agreement (including, without limitation, those under
Section 3.2 (Grant of Liens)) or any of the Financing Documents shall secure
(a) the payment of all of the Obligations, including, without limitation, any
and all Outstanding Letter of Credit Obligations, and (b) the performance,
compliance with and observance by the Borrowers of the provisions of this
Agreement and all of the other Financing Documents or otherwise under the
Obligations.

     Section 3.2 Grant of Liens.

     Each of the Borrowers hereby assigns, pledges and grants to the Lender,
and agrees that the Lender shall have a perfected and continuing security
interest in, and Lien on, all of the Borrowers’ Accounts, Government Contracts,
Chattel Paper, Documents, Instruments, Equipment, Investment Property,
Inventory, and General Intangibles and all of the Borrowers’ deposit accounts
with any financial institution with which any of the Borrowers maintains
deposits, whether now owned or existing or hereafter acquired or arising, all
insurance policies relating to the foregoing, all books and records in
whatever media (paper, electronic or otherwise) recorded or stored, with
respect to the foregoing and all Equipment and General Intangibles necessary or
beneficial to retain, access and/or process the information contained in those
books and records, and all Proceeds and products of the foregoing. Each of the
Borrowers

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 further agrees that the Lender shall have in respect thereof all of the
rights and remedies of a secured party under the Uniform Commercial Code as
well as those provided in this Agreement, under each of the other Financing
Documents and under applicable Laws.

     Each Borrower covenants and agrees that the Borrowers shall provide the
Lender with all necessary information and will execute and deliver such
documents as are required to comply with the Federal Assignment of Claims Act
of 1940 (31 U.S.C. §3727 and 41 U.S.C. §15), to perfect the Lender’s security
interest in Government Contracts having a remaining value in excess of Five
Hundred Thousand Dollars ($500,000) and a remaining duration in excess of six
(6) months and such other contracts as the Lender may determine in its sole
discretion.

     Section 3.3 Collateral Disclosure List.

     On or prior to the Closing Date, each of the Borrowers shall deliver to
the Lender the Collateral Disclosure List which shall contain such information
with respect to such Borrower’s business and personal property as the Lender
may require and shall be certified by a Responsible Officer of such Borrower,
all in the form provided to the Borrowers by the Lender. Promptly after demand
by the Lender, the Borrowers, as appropriate, shall furnish to the Lender an
update of the information contained in the Collateral Disclosure List at any
time and from time to time as may be requested by the Lender.

     Section 3.4 Personal Property.

     The Borrowers acknowledge and agree that it is the intention of the
parties to this Agreement that the Lender shall have a first priority,
perfected Lien, in form and substance satisfactory to the Lender and its
counsel, on all of the Borrowers’ assets of any kind and nature whatsoever,
whether now owned or hereafter acquired, subject only to the Permitted Liens,
if any. In furtherance of the foregoing:

		
	 	        3.4.1 Investment Property, Chattel Paper,
Promissory Notes, etc.

                                (a)      On the Closing Date and without implying any limitation on the scope
of Section 3.2 (Grant of Liens), each of the Borrowers shall deliver to the
Lender the originals of all of its letters of credit, Investment Property,
Chattel Paper, Documents and Instruments and, if the Lender so requires, shall
execute and deliver separate pledge, assignment and security agreements in form
and content acceptable to the Lender, which pledge, assignment and security
agreements shall assign, pledge and grant a Lien to the Lender on all such
Borrower’s letters of credit, Investment Property, Chattel Paper, Documents,
and Instruments.

                                (b)      In the event that any of the Borrowers shall acquire after the Closing
Date any letters of credit, Investment Property, Chattel Paper, Documents, or
Instruments, each such Borrower shall promptly so notify the Lender and deliver
the originals of all of the foregoing to the Lender promptly and in any event
within ten (10) days of each acquisition.

                                (c)      All letters of credit, Investment Property, Chattel Paper, Documents
and Instruments shall be delivered to the Lender endorsed and/or assigned as
required by any pledge, assignment and security agreement and/or as the Lender
may require

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and, if applicable, shall be accompanied by blank irrevocable and
unconditional stock or bond powers and/or notices as the Lender may require.

           3.4.2 Patents, Copyrights and Other Property Requiring Additional Steps to Perfect.

           On the Closing Date and without implying any limitation on the scope of
Section 3.2 (Grant of Liens), the Borrowers shall execute and deliver all
Financing Documents and take all actions requested by the Lender in order to
perfect a first priority assignment of Patents, Copyrights, Trademarks or any
other type or kind of intellectual property acquired by any of the Borrowers
after the Closing Date.

     Section 3.5 Record Searches.

     As of the Closing Date and thereafter at the time any Financing Document
is executed and delivered by the Borrowers pursuant to this Section, the Lender
shall have received, in form and substance satisfactory to the Lender, such
Lien or record searches with respect to all of the Borrowers and/or any other
Person, as appropriate, and the property covered by such Financing Document
showing that the Lien of such Financing Document will be a perfected first
priority Lien on the property covered by such Financing Document subject only
to Permitted Liens or to such other matters as the Lender may approve.

     Section 3.6 Costs.

     The Borrowers agree to pay, as part of the Enforcement Costs and to the
fullest extent permitted by applicable Laws, on demand all costs, fees and
expenses incurred by the Lender in connection with the taking, perfection,
preservation, protection and/or release of a Lien on the Collateral, including,
without limitation:

		
	 	           (a)   customary fees and expenses incurred in preparing
Financing Documents from time to time (including, without
limitation, reasonable attorneys’ fees incurred in connection with
preparing the Financing Documents, including, any amendments and
supplements thereto);
	 
	 	           (b)   all filing and/or recording taxes or fees;
	 
	 	           (c)   all costs of Lien and record searches;
	 
	 	           (d)   reasonable attorneys’ fees in connection with all legal
opinions required; and
	 
	 	           (e)   all related costs, fees and expenses.

     Section 3.7 Release.

     Upon the indefeasible repayment in full in cash of the Obligations and
performance of all Obligations of the Borrowers and all obligations and
liabilities of each other Person, other than the Lender, under this Agreement
and all other Financing Documents, and the termination and/or

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 expiration of all of the Commitments, all Letters of Credit and all
Outstanding Letter of Credit Obligations, upon the Borrowers’ request and at
the Borrowers’ sole cost and expense, the Lender shall release and/or terminate
any Financing Document but only if and provided that there is no commitment or
obligation (whether or not conditional) of the Lender to re-advance amounts
which would be secured thereby and/or no commitment or obligation of the Lender
to issue any Letter of Credit or return or restore any payment of any Current
Letter of Credit Obligations.

     Section 3.8 Inconsistent Provisions.

     In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this Agreement
govern.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

     Section 4.1 Representations and Warranties.

     The Borrowers, for themselves and for each other, represent and warrant to
the Lender, as follows:

           4.1.1 Subsidiaries.

           The Borrowers have the Subsidiaries listed on the Collateral Disclosure
List and no others. Each of the Subsidiaries is a Wholly Owned Subsidiary
except as shown on the Collateral Disclosure List, which correctly indicates
the nature and amount of each Borrower’s ownership interests therein.

           4.1.2 Existence.

           Each Borrower (a) is a Registered Organization under the laws of the
jurisdiction stated in the Preamble of this Agreement, (b) is in good standing
under the laws of the jurisdiction in which it is organized, (c) has the power
to own its property and to carry on its business as now being conducted, and
(d) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it therein or in
which the transaction of its business makes such qualification necessary. Each
Borrower is organized under the laws of only one (1) jurisdiction.

           4.1.3 Power and Authority.

           Each Borrower has full power and authority to execute and deliver this
Agreement and the other Financing Documents to which it is a party, to make the
borrowings and request Letters of Credit under this Agreement and to incur and
perform the Obligations whether under this Agreement, the other Financing
Documents or otherwise, all of which have been duly authorized by all proper
and necessary action. No consent or approval of owners or any creditors of any
Borrower, and no consent, approval, filing or registration with or notice to
any Governmental Authority on the part of any Borrower, is required as a
condition to the

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 execution, delivery, validity or enforceability of this Agreement or any
of the other Financing Documents, the performance by any Borrower of the
Obligations.

           4.1.4 Binding Agreements.

           This Agreement and the other Financing Documents executed and delivered by
the Borrowers have been properly executed and delivered and constitute the
valid and legally binding obligations of the Borrowers and are fully
enforceable against each of the Borrowers in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties, and general principles of equity regardless of whether applied
in a proceeding in equity or at law.

           4.1.5 No Conflicts.

           Neither the execution, delivery and performance of the terms of this
Agreement or of any of the other Financing Documents executed and delivered by
any Borrower nor the consummation of the transactions contemplated by this
Agreement will conflict with, violate or be prevented by (a) any Borrower’s
organizational or governing documents, (b) any existing mortgage, indenture,
contract or agreement binding on any Borrower or affecting its property, or (c)
any Laws.

           4.1.6 No Defaults, Violations.

                 (a)   No Default or Event of Default has occurred and is continuing.

                 (b)   None of the Borrowers nor any of their respective Subsidiaries is in
default under or with respect to any obligation under any existing mortgage,
indenture, contract or agreement binding on it or affecting its property in any
respect which could be materially adverse to the business, operations, property
or financial condition of any Borrower, or which could materially adversely
affect the ability of any Borrower to perform its obligations under this
Agreement or the other Financing Documents, to which any Borrower is a party.

           4.1.7 Compliance with Laws.

           None of the Borrowers nor any of their respective Subsidiaries is in
violation of any applicable Laws (including, without limitation, any Laws
relating to employment practices, to environmental, occupational and health
standards and controls) or order, writ, injunction, decree or demand of any
court, arbitrator, or any Governmental Authority affecting any Borrower or any
of its properties, the violation of which, considered in the aggregate, could
materially adversely affect the business, operations or properties of any
Borrower and/or any Subsidiaries.

           4.1.8 Margin Stock.

           None of the proceeds of the Loans will be used, directly or indirectly, by
any Borrower or any Subsidiary for the purpose of purchasing or carrying, or
for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry, any

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“margin stock” within the meaning of Regulation U (12 CFR Part 221), of
the Board of Governors of the Federal Reserve System or for any other purpose
which might make the transactions contemplated in this Agreement a “purpose
credit” within the meaning of Regulation U, or cause this Agreement to violate
any other regulation of the Board of Governors of the Federal Reserve System or
the Securities Exchange Act of 1934 or the Small Business Investment Act of
1958, as amended, or any rules or regulations promulgated under any of such
statutes.

           4.1.9 Investment Company Act; Margin Stock.

           None of the Borrowers nor any of their respective Subsidiaries is an
investment company within the meaning of the Investment Company Act of 1940, as
amended, nor is it, directly or indirectly, controlled by or acting on behalf
of any Person which is an investment company within the meaning of said Act.
None of the Borrowers nor any of their respective Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying “margin stock”
within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors
of the Federal Reserve System.

           4.1.10 Litigation.

           Except
as otherwise disclosed on Schedule 4.1.10 attached hereto and made
a part hereof, there are no proceedings, actions or investigations pending or,
so far as any Borrower knows, threatened before or by any court, arbitrator or
any Governmental Authority which, in any one case or in the aggregate, if
determined adversely to the interests of any Borrower or any Subsidiary, would
have a material adverse effect on the business, properties, condition
(financial or otherwise) or operations, present or prospective, of any
Borrower.

           4.1.11 Financial Condition.

           The consolidated financial statements of the Borrowers dated September 30,
2001, are complete and correct and fairly present the financial position of
each of the Borrowers and their Subsidiaries and the results of their
operations and transactions in their surplus accounts as of the date and for
the period referred to and have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved. There are no
liabilities, direct or indirect, fixed or contingent, of any Borrower or any
Subsidiary as of the date of such financial statements that are not reflected
therein or in the notes thereto. There has been no adverse change in the
financial condition or operations of any Borrower or any Subsidiary since the
date of such financial statements and to the Borrowers’ knowledge no such
adverse change is pending or threatened. None of the Borrowers nor any
Subsidiary has guaranteed the obligations of, or made any investment in or
advances to, any Person, except as disclosed in such financial statements.

           4.1.12 Full Disclosure.

           The financial statements referred to in Section 4.1.11 (Financial
Condition), the Financing Documents (including, without limitation, this
Agreement), and the statements, reports or certificates furnished by any
Borrower in connection with the Financing Documents (a) do not contain any
untrue statement of a material fact and (b) when taken in their

69

 

 entirety, do not omit any material fact necessary to make the statements
contained therein not misleading. There is no fact known to any Borrower which
such Borrower has not disclosed to the Lender in writing prior to the date of
this Agreement with respect to the transactions contemplated by the Financing
Documents that materially and adversely affects or in the future could, in the
reasonable opinion of that Borrower materially adversely affect the condition,
financial or otherwise, results of operations, business, or assets of any
Borrower or any Subsidiary.

           4.1.13 Indebtedness for Borrowed Money.

           Except for the Obligations and except as set forth in Schedule 4.1.13
attached hereto and made a part hereof, the Borrowers have no Indebtedness for
Borrowed Money. The Lender has received photocopies of all promissory notes
evidencing any Indebtedness for Borrowed Money set forth in Schedule 4.1.13,
together with any and all subordination agreements, other agreements,
documents, or instruments securing, evidencing, guarantying or otherwise
executed and delivered in connection therewith.

           4.1.14 Taxes.

           Each of the Borrowers and their Subsidiaries has filed all returns,
reports and forms for Taxes that, to the knowledge of the Borrowers, are
required to be filed, and has paid all Taxes as shown on such returns or on any
assessment received by it, to the extent that such Taxes have become due,
unless and to the extent only that such Taxes, assessments and governmental
charges are currently contested in good faith and by appropriate proceedings by
a Borrower, such Taxes are not the subject of any Liens other than Permitted
Liens, and adequate reserves therefore have been established as required under
GAAP. All tax liabilities of the Borrowers were as of the date of audited
financial statements referred to in Section 4.1.11 (Financial Condition), and
are now, adequately provided for on the books of the Borrowers and their
Subsidiaries, as appropriate. No tax liability has been asserted by the
Internal Revenue Service or any state or local authority against any Borrower
for Taxes in excess of those already paid.

           4.1.15 ERISA.

           With respect to any Plan that is maintained or contributed to by any
Borrower and/or by any Commonly Controlled Entity or as to which any Borrower
retains material liability: (a) no “accumulated funding deficiency” as defined
in Code §412 or ERISA §302 has occurred, whether or not that accumulated
funding deficiency has been waived; (b) no Reportable Event has occurred other
than events for which reporting has been waived; (c) no termination of any plan
subject to Title IV of ERISA has occurred; (d) neither the Borrower nor any
Commonly Controlled Entity has incurred a “complete withdrawal” within the
meaning of ERISA §4203 from any Multi-employer Plan; (e) neither the Borrower
nor any Commonly Controlled Entity has incurred a “partial withdrawal” within
the meaning of ERISA §4205 with respect to any Multi-employer Plan; (f) no
Multi-employer Plan to which the Borrower or any Commonly Controlled Entity has
an obligation to contribute is in “reorganization” within the meaning of ERISA
§4241 nor has notice been received by the Borrower or any Commonly Controlled
Entity that such a Multi-employer Plan will be placed in “reorganization”.

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           4.1.16 Title to Properties.

           The Borrowers have good and marketable title to all of their respective
properties, including, without limitation, the Collateral and the properties
and assets reflected in the balance sheets described in Section 4.1.11
(Financial Condition). The Borrowers have legal, enforceable and uncontested
rights to use freely such property and assets.

           4.1.17 Patents, Trademarks, Etc.

           Each of the Borrowers and their Subsidiaries owns, possesses, or has the
right to use all necessary Patents, licenses, Trademarks, Copyrights, permits
and franchises to own its properties and to conduct its business as now
conducted, without known conflict with the rights of any other Person. Any and
all obligations to pay royalties or other charges with respect to such
properties and assets are properly reflected on the financial statements
described in Section 4.1.11 (Financial Condition).

           4.1.18 Presence of Hazardous Materials or Hazardous Materials Contamination.

           To the best of each Borrower’s knowledge, (a) no Hazardous Materials are
located on any real property owned, controlled or operated by any of the
Borrowers or for which any Borrower is, or is claimed to be, responsible,
except for reasonable quantities of necessary supplies for use by a Borrower in
the ordinary course of its current line of business and stored, used and
disposed in accordance with applicable Laws; and (b) no property owned,
controlled or operated by any Borrower or for which any Borrower has, or is
claimed to have, responsibility has ever been used as a manufacturing, storage,
or dump site for Hazardous Materials nor is affected by Hazardous Materials
Contamination at any other property.

           4.1.19 Perfection and Priority of Collateral.

           The Lender has, or upon execution and recording of this Agreement and the
Security Documents will have, and will continue to have as security for the
Obligations, a valid and perfected Lien on and security interest in all
Collateral, free of all other Liens, claims and rights of third parties
whatsoever except Permitted Liens, including, without limitation, those
described on Schedule 4.1.19 attached hereto and made a part hereof.

           4.1.20 No Suspension or Debarment.

           Neither the Borrowers nor any Affiliate nor any of their respective
directors, officers or employees has received any notice of, or information
concerning, any proposed, contemplated or initiated suspension or debarment, be
it temporary or permanent, due to an administrative or a statutory basis, of
the Borrower or any Affiliate by any Governmental Authority. Each of the
Borrowers and each Affiliate further warrants and represents that neither the
Borrower nor any Affiliate has defaulted under any Government Contract which
default would be a basis of terminating such Government Contract.

           4.1.21 Collateral Disclosure List.

           The information contained in the Collateral Disclosure List of each
Borrower is complete and correct. Each Collateral Disclosure List completely
and accurately identifies (a) the type of entity, the state of organization and
the chief executive office of the

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 applicable Borrower (b) each other place of business of such Borrower, (c)
the location of all books and records pertaining to the Collateral, and (d)
each location, other than the foregoing, where any of the Collateral is
located.

           4.1.22 Business Names and Addresses.

           In the five (5) years preceding the date hereof, no Borrower has changed
its name, identity or corporate structure, has conducted business under any
name other than its current name, and has conducted its business in any
jurisdiction other than those disclosed on the Collateral Disclosure List.

           4.1.23 Equipment.

           All Equipment is personalty and is not and will not be affixed to real
estate in such manner as to become a fixture or part of such real estate. No
equipment is held by any Borrower on a sale on approval basis.

           4.1.24 Accounts.

           With respect to all Accounts and to the best of the Borrowers’ knowledge
(a) they are genuine, and in all respects what they purport to be, and are not
evidenced by a judgment, an Instrument, or Chattel Paper (unless such judgment
has been assigned and such Instrument or Chattel Paper has been endorsed and
delivered to the Lender); (b) they represent bona fide transactions completed
in accordance with the terms and provisions contained in the invoices, purchase
orders and other contracts relating thereto, and the underlying transaction
therefore is in accordance with all applicable Laws; (c) the amounts shown on
the respective Borrower’s books and records, with respect thereto are actually
and absolutely owing to that Borrower and are not contingent or subject to
reduction for any reason other than regular discounts, credits or adjustments
allowed by that Borrower in the ordinary course of its business; (d) no
payments have been or shall be made thereon except payments turned over to the
Lender by the Borrowers; (e) all Account Debtors thereon have the capacity to
contract; and (f) the services furnished giving rise thereto are not subject to
any Liens except the security interest granted to the Lender by this Agreement
and Permitted Liens.

           4.1.25 Compliance with Eligibility Standards.

           Each Account included in the calculation of the Borrowing Base does and
will at all times meet and comply with all of the standards for Eligible
Receivables. With respect to those Accounts which the Lender has deemed
Eligible Receivables (a) there are no facts, events or occurrences which in any
way impair the validity, collectibility or enforceability thereof or tend to
reduce the amount payable thereunder; and (b) there are no proceedings or
actions known to any Borrower that are threatened or pending against any
Account Debtor which might result in any material adverse change in the
Borrowing Base.

           4.1.26 Inventory.

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

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     Section 4.2 Survival; Updates of Representations and Warranties.

     All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loans and extension of
credit made hereunder, and the incurring of any other Obligations and shall be
deemed to have been made at the time of each request for, and again at the time
of the making of, each advance under the Loans or the issuance of each Letter
of Credit, except that the representations and warranties which relate to the
financial statements which are referred to in Section 4.1.11 (Financial
Condition), shall also be deemed to cover financial statements furnished from
time to time to the Lender pursuant to Section 6.1.1 (Financial Statements).

ARTICLE V

CONDITIONS PRECEDENT

     Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit.

     The making of the initial advance under the Loans and the issuance of the
initial Letter of Credit is subject to the fulfillment on or before the Closing
Date of the following conditions precedent in a manner satisfactory in form and
substance to the Lender and its counsel:

           5.1.1 Organizational Documents — Borrowers.

           The Lender shall have received for each Borrower:

		
	 	           (a)   a certificate of good standing certified by the Secretary
of State, or other appropriate Governmental Authority, of the
state of formation of the Borrower;
	 
	 	           (b)   a certified copy from the appropriate Governmental
Authority under which the Borrower is organized, of the Borrower’s
organizational documents and all recorded amendments thereto;
	 
	 	           (c)   a certificate of qualification to do business certified
by the Secretary of State or other Governmental Authority of each
jurisdiction in which the Borrower conducts business; and
	 
	 	           (d)   a certificate dated as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower covering:

		
	 	           (i)   true and complete copies of the Borrower’s
organizational and governing documents and all
amendments thereto;
	 
	 	           (ii)   true and complete copies of the resolutions
of its Board of Directors authorizing (A) the
execution, delivery and performance of the Financing
Documents to which it is a party, (B) the borrowings
hereunder, and (C) the granting of

73

 

		
	 	the Liens contemplated by this Agreement and the
Financing Documents to which the Borrower is a party;
and
	 
	 	           (iii)   the incumbency, authority and signatures of
the officers of the Borrower authorized to sign this
Agreement and the other Financing Documents to which
the Borrower is a party.
	 
	 	           (iv)   the identity of the Borrower’s current directors, common
stock holders and other equity holders, as well as their
respective percentage ownership interests;

           5.1.2 Consents, Licenses, Approvals, Etc.

           The Lender shall have received copies of all consents, licenses and
approvals, required in connection with the execution, delivery, performance,
validity and enforceability of the Financing Documents, and such consents,
licenses and approvals shall be in full force and effect.

           5.1.3 Notes.

           The Lender shall have received the Revolving Credit Note, conforming to
the requirements hereof and executed by a Responsible Officer of each Borrower
and attested by a duly authorized representative of each Borrower.

           5.1.4 Financing Documents and Collateral.

           Each Borrower shall have executed and delivered the Financing Documents to
be executed by it, and shall have delivered original Chattel Paper,
Instruments, Investment Property, and related Collateral and all opinions,
title insurance, and other documents contemplated by ARTICLE III (The
Collateral).

           5.1.5 Other Financing Documents.

           In addition to the Financing Documents to be delivered by the Borrowers,
the Lender shall have received the Financing Documents duly executed and
delivered by Persons other than the Borrowers.

           5.1.6 Other Documents, Etc.

           The Lender shall have received such other certificates, opinions,
documents and instruments confirmatory of or otherwise relating to the
transactions contemplated hereby as may have been reasonably requested by the
Lender.

           5.1.7 Payment of Fees.

           The Lender shall have received payment of any Fees due on or before the
Closing Date.

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           5.1.8 Collateral Disclosure List.

           Each Borrower shall have delivered the Collateral Disclosure List required
under the provisions of Section 3.3 (Collateral Disclosure List) duly executed
by a Responsible Officer of each Borrower.

           5.1.9 Recordings and Filings.

           Each Borrower shall have: (a) executed and delivered all Financing
Documents required to be filed, registered or recorded in order to create, in
favor of the Lender, a perfected Lien in the Collateral (subject only to the
Permitted Liens) in form and in sufficient number for filing, registration, and
recording in each office in each jurisdiction in which such filings,
registrations and recordations are required, and (b) delivered such evidence as
the Lender deems satisfactory that all necessary filing fees and all recording
and other similar fees, and all Taxes and other expenses related to such
filings, registrations and recordings will be or have been paid in full.

           5.1.10 Insurance Certificate.

           The Lender shall have received an insurance certificate in accordance with
the provisions of Section 6.1.8 (Insurance) and Section 6.1.16 (Insurance With
Respect to Equipment).

           5.1.11 Field Examination.

           The Lender shall have completed a field examination of each Borrower’s
business, operations and income, the results of which field examination shall
be in all respects acceptable to the Lender in its sole and absolute discretion
and shall include reference discussions with key customers and vendors.

     Section 5.2 Conditions to all Extensions of Credit.

     The making of all advances under the Loans and the issuance of all Letters
of Credit is subject to the fulfillment of the following conditions precedent
in a manner satisfactory in form and substance to the Lender and its counsel:

           5.2.1 Compliance.

           Each Borrower shall have complied and shall then be in compliance with all
terms, covenants, conditions and provisions of this Agreement and the other
Financing Documents that are binding upon it.

           5.2.2 Borrowing Base.

           The Borrowers shall have furnished all Borrowing Base Reports required by
Section 2.1.4 (Borrowing Base Report), there shall exist no Borrowing Base
Deficiency, and as evidence thereof, the Borrowers shall have furnished to the
Lender such reports, schedules, certificates, records and other papers as may
be requested by the Lender, and the Borrowers shall be in compliance with the
provisions of this Agreement both immediately before and immediately after the
making of the advance requested.

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           5.2.3 Default.

           There shall exist no Event of Default or Default hereunder.

           5.2.4 Representations and Warranties.

           The representations and warranties of each of the Borrowers contained
among the provisions of this Agreement shall be true and with the same effect
as though such representations and warranties had been made at the time of the
making of, and of the request for, each advance under the Loan or the issuance
of each Letter of Credit, except that the representations and warranties which
relate to financial statements which are referred to in Section 4.1.11
(Financial Condition), shall also be deemed to cover financial statements
furnished from time to time to the Lender pursuant to Section 6.1.1 (Financial
Statements).

           5.2.5 Adverse Change.

           No adverse change shall have occurred in the condition (financial or
otherwise), operations or business of any Borrower that would, in the good
faith judgment of the Lender, materially impair the ability of that Borrower to
pay or perform any of the Obligations.

           5.2.6 Legal Matters.

           All legal documents incident to each advance under the Loans and each of
the Letters of Credit shall be reasonably satisfactory to counsel for the
Lender.

ARTICLE VI

COVENANTS OF THE BORROWERS

     Section 6.1 Affirmative Covenants.

     So long as any of the Obligations (or any the Commitments therefore) shall
be outstanding hereunder, the Borrowers agree jointly and severally with the
Lender as follows:

           6.1.1 Financial Statements.

           The Borrowers shall furnish to the Lender:

                 (a)   Annual
Statements and Certificates. The Borrowers shall furnish to
the Lender as soon as available, but in no event more than one hundred twenty
(120) days after the close of the Borrowers’ fiscal years, (i) a copy of the
annual financial statement in reasonable detail satisfactory to the Lender
relating to the Borrowers and their Subsidiaries, prepared in accordance with
GAAP and examined and certified by independent certified public accountants
satisfactory to the Lender, which financial statement shall include a
consolidated and consolidating balance sheet of the Borrowers and their
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income, cash flows and changes in shareholders
equity of the Borrowers and their Subsidiaries for such fiscal year, and (ii) a
Compliance Certificate, in substantially the form attached to this Agreement as
EXHIBIT C, as may be amended by the Lender from time to time, containing a
detailed computation of each financial covenant in this Agreement which is
applicable for the period reported, a certification that no change has occurred
to the information contained in the Collateral Disclosure List (except

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 as set forth in a schedule attached to the certification), and a cash flow
projection report, each prepared by a Responsible Officer of the Borrowers in a
format acceptable to the Lender and (iii) a management letter in the form
prepared by the Borrowers’ independent certified public accountants.

                 (b)   Quarterly
Statements and Certificates. The Borrowers shall furnish to
the Lender as soon as available, but in no event more than sixty (60) days
after the close of the Borrowers’ fiscal quarters, consolidated and
consolidating balance sheets of the Borrowers and their Subsidiaries as of the
close of such period, consolidated and consolidating income, cash flows and
changes in shareholders equity statements for such period, projected cash flow
on a month to month basis and projected income statements, and a Compliance
Certificate, in substantially the form attached to this Agreement as EXHIBIT C,
containing a detailed computation of each financial covenant in this Agreement
which is applicable for the period reported, a certification that no change has
occurred to the information contained in the Collateral Disclosure List (except
as set forth on a schedule attached to the certification), and a cash flow
projection report, each prepared by a Responsible Officer of or on behalf of
each Borrower in a format acceptable to the Lender, all as prepared and
certified by a Responsible Officer of the Borrowers and accompanied by a
certificate of that officer stating whether any event has occurred which
constitutes a Default or an Event of Default hereunder, and, if so, stating the
facts with respect thereto.

                 (c)   Monthly Reports. The Borrowers shall furnish to the Lender within
fifteen (15) days after the end of each fiscal month, a Borrowing Base Report
and a report containing the following information:

		
	 	                       (i)   a detailed aging schedule of all Receivables by Account
Debtor, in such detail, and accompanied by such supporting
information, as the Lender may from time to time reasonably
request; and
	 
	 	                       (ii)   such other information as the Lender may reasonably
request.

                 (d)   Contract Backlog Report. The Borrowers shall furnish to the Lender as
soon as available, but in no event later than sixty (60) days after each
quarter end, a contract backlog of the Borrowers, certified by an authorized
representative of Versar.

                 (e)   Government Accounts. The Borrowers shall furnish to the Lender as
soon as available, but in no event later than sixty (60) days after each
quarter end a list of all Government Contracts entered into since the end of
the prior fiscal quarter with remaining value in excess of Five Hundred
Thousand Dollars ($500,000) and such contracts shall be assigned to the Lender
and notice thereof given to the government under the Federal Assignment of
Claims Act or any other applicable law. In addition, the Lender may, without
notice to the Borrowers, discuss the status of any Government Contract with the
contracting officer responsible for such contract, and the Borrowers will
cooperate with the Lender and its agents in connection with such discussions.

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                 (f)   Additional Reports and Information. The Borrowers shall furnish to
the Lender promptly, such additional information, reports or statements as the
Lender may from time to time reasonably request.

           6.1.2 Reports to SEC and to Stockholders.

           The Borrowers will furnish to the Lender, promptly upon the filing or
making thereof, at least one (l) copy of all financial statements, reports,
notices and proxy statements sent by any Borrower to its stockholders, and of
all regular and other reports filed by any Borrower with any securities
exchange or with the Securities and Exchange Commission.

           6.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc.

                 (a)   Each of the Borrowers shall, and shall cause each of its Subsidiaries
to, maintain (i) a standard system of accounting in accordance with GAAP, and
(ii) proper books of record and account in which full, true and correct entries
are made of all dealings and transactions in relation to its properties,
business and activities.

                 (b)   Each of the Borrowers shall, and shall cause each of its Subsidiaries
to, permit authorized representatives of the Lender to visit and inspect the
properties of the Borrowers and their Subsidiaries, to review, audit, check and
inspect the Collateral at any time with or without notice, to review, audit,
check and inspect the Borrowers’ other books of record at any time with or
without notice and to make abstracts and photocopies thereof, and to discuss
the affairs, finances and accounts of the Borrowers and their Subsidiaries,
with the officers, directors, employees and other representatives of the
Borrowers and their Subsidiaries and their respective accountants, all at such
times during normal business hours and other reasonable times and as often as
the Lender may reasonably request.

                 (c)   Each of the Borrowers hereby irrevocably authorizes and directs all
accountants and auditors employed by any of the Borrowers and/or any of their
Subsidiaries at any time prior to the repayment in full of the Obligations to
exhibit and deliver to the Lender copies of any and all of the financial
statements, trial balances, management letters, or other accounting records of
any nature of any or all of the Borrowers and/or any or all of their respective
Subsidiaries in the accountant’s or auditor’s possession, and to disclose to
the Lender any information they may have concerning the financial status and
business operations of any or all of the Borrowers and/or any or all of their
respective Subsidiaries. Further, each of the Borrowers hereby authorizes all
Governmental Authorities to furnish to the Lender copies of reports or
examinations relating to any and all of the Borrowers and/or any or all
Subsidiaries, whether made by the Borrowers or otherwise.

                 (d)   Any and all costs and expenses incurred by, or on behalf of, the
Lender in connection with the conduct of any of the foregoing, including,
without limitation, travel, lodging, meals, and other expenses for inspections
of the Collateral and the Borrowers’ operations shall be part of the
Enforcement Costs and shall be payable to the Lender upon demand. The
Borrowers acknowledge and agree that such expenses may include, but shall not
be limited to, any and all out-of-pocket costs and expenses of the Lender’s
employees and agents in, and when, traveling to any of the Borrowers’
facilities.

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           6.1.4 Existence.

           Each of the Borrowers shall (a) maintain, and cause each of its
Subsidiaries to maintain, its existence in good standing in the jurisdiction in
which it is organized and in each other jurisdiction where it is required to
register or qualify to do business if the failure to do so in such other
jurisdiction might have a material adverse effect on the ability of the
Borrower to perform the Obligations, on the conduct of the Borrower’s
operations, on the Borrower’s financial condition, or on the value of, or the
ability of the Lender to realize upon, the Collateral and (b) remain a
Registered Organization under the laws of the jurisdiction stated in the
Preamble of this Agreement.

           6.1.5 Compliance with Laws.

           Each of the Borrowers shall comply, and cause each of its Subsidiaries to
comply, with all applicable Laws and observe the valid requirements of
Governmental Authorities, the noncompliance with or the non-observance of which
might have a material adverse effect on the ability of the Borrowers to perform
the Obligations, on the conduct of the Borrowers’ operations, on the Borrowers’
consolidated financial condition, or on the value of, or the ability of the
Lender to realize upon, the Collateral.

           6.1.6 Preservation of Properties.

           Each of the Borrowers will, and will cause each of its Subsidiaries to, at
all times (a) maintain, preserve, protect and keep its properties, whether
owned or leased, in good operating condition, working order and repair
(ordinary wear and tear excepted), and from time to time will make all proper
repairs, maintenance, replacements, additions and improvements thereto needed
to maintain such properties in good operating condition, working order and
repair, and (b) do or cause to be done all things necessary to preserve and to
keep in full force and effect its material franchises, leases of real and
personal property, trade names, Trademarks, Copyrights and permits which are
necessary for the orderly continuance of its business.

           6.1.7 Line of Business.

           Each of the Borrowers will continue to engage substantially only in the
business of ____________________________________.

           6.1.8 Insurance.

           Each of the Borrowers will, and will cause each of its Subsidiaries to, at
all times maintain with “A” or better rated insurance companies such insurance
as is required by applicable Laws and such other insurance, in such amounts, of
such types and against such risks, hazards, liabilities, casualties and
contingencies as are usually insured against in the same geographic areas by
business entities engaged in the same or similar business. Without limiting
the generality of the foregoing, each of the Borrowers will, and will cause
each of its Subsidiaries to, keep adequately insured all of its property
against loss or damage resulting from fire or other risks insured against by
extended coverage and maintain public liability insurance against claims for
personal injury, death or property damage occurring upon, in or about any
properties occupied or controlled by it, or arising in any manner out of the
businesses carried on by it, all in such amounts not less than the Lender shall
reasonably determine from time to time. Each of the Borrowers shall deliver to
the Lender on the Closing Date (and thereafter on each

79

 

date there is a material change in the insurance coverage) a certificate
of a Responsible Officer of the Borrowers containing a detailed list of the
insurance then in effect and stating the names of the insurance companies, the
types, the amounts and rates of the insurance, dates of the expiration thereof
and the properties and risks covered thereby. Within thirty (30) days after
notice in writing from the Lender, the Borrowers will obtain such additional
insurance as the Lender may reasonably request.

           6.1.9 Taxes.

           Except to the extent that the validity or amount thereof is being
contested in good faith and by appropriate proceedings, each of the Borrowers
will, and will cause each of its Subsidiaries, to pay and discharge all Taxes
prior to the date when any interest or penalty would accrue for the nonpayment
thereof. Each of the Borrowers shall furnish to the Lender at such times as
the Lender may require proof satisfactory to the Lender of the making of
payments or deposits required by applicable Laws including, without limitation,
payments or deposits with respect to amounts withheld by any of the Borrowers
from wages and salaries of employees and amounts contributed by any of the
Borrowers on account of federal and other income or wage taxes and amounts due
under the Federal Insurance Contributions Act, as amended.

           6.1.10 ERISA.

           Each Borrower will, and will cause each of its Commonly Controlled
Entities to, comply with the funding requirements of ERISA with respect to
Plans for its respective employees. No Borrower will permit with respect to
any Plan (a) any prohibited transaction or transactions under ERISA or the
Internal Revenue Code, which results, or may result, in any material liability
of any Borrower, or (b) any Reportable Event if, upon termination of the plan
or plans with respect to which one or more such Reportable Events shall have
occurred, there is or would be any material liability of the Borrower to the
PBGC. Upon the Lender’s request, each Borrower will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual
report completed with respect to any Plan.

           6.1.11 Notification of Events of Default and Adverse Developments.

           Each of the Borrowers shall promptly notify the Lender upon obtaining
knowledge of the occurrence of:

		
	 	                 (a)   any Event of Default;
	 
	 	                 (b)   any Default;
	 
	 	                 (c)   any litigation instituted or threatened against any of
the Borrowers or any of their Subsidiaries and of the entry of any
judgment or Lien (other than any Permitted Liens) against any of
the assets or properties of any of the Borrowers or any Subsidiary
where the claims against any Borrower or any Subsidiary exceed Two
Hundred Fifty Thousand Dollars ($250,000) and are not covered by
insurance;
	 
	 	                 (d)   any contingent liabilities of any Borrower or any
Subsidiary in excess of Two Hundred Fifty Thousand Dollars
($250,000).

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	 	                 (e)   any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material
respect to present fairly, in accordance with GAAP, the financial
condition and operational results of any of the Borrowers or any
of their respective Subsidiaries;
	 
	 	                 (f)   any judicial, administrative or arbitral proceeding
pending against any of the Borrowers or any of their respective
Subsidiaries and any judicial or administrative proceeding known
by any of the Borrowers to be threatened against any Borrower or
any Subsidiary that, if adversely decided, could materially
adversely affect the financial condition or operations (present or
prospective) of any Borrower or any Subsidiary;
	 
	 	                 (g)   the receipt by any of the Borrowers or any Subsidiary of
any notice, claim or demand from any Governmental Authority which
alleges that any of the Borrowers or any Subsidiary is in
violation of any of the terms of, or has failed to comply with any
applicable Laws regulating its operation and business, including,
but not limited to, the Occupational Safety and Health Act and the
Environmental Protection Act; and
	 
	 	                 (h)   any other development in the business or affairs of any
of the Borrowers or any of their respective Subsidiaries that may
be materially adverse;

in each case describing in detail satisfactory to the Lender the nature thereof
and the action the Borrowers propose to take with respect thereto.

           6.1.12 Hazardous Materials; Contamination.

           Each of the Borrowers agrees to:

		
	 	                 (a)   give notice to the Lender immediately upon acquiring
knowledge of the presence of any Hazardous Materials or any
Hazardous Materials Contamination on any property owned, operated
or controlled by any Borrower or for which any Borrower is, or is
claimed to be, responsible (provided that such notice shall not be
required for Hazardous Materials placed or stored on such property
in accordance with applicable Laws in the ordinary course
(including, without limitation, quantity) of a Borrower’s line of
business expressly described in this Agreement), with a full
description thereof;
	 
	 	                 (b)   promptly comply with any Laws requiring the removal,
treatment or disposal of Hazardous Materials or Hazardous
Materials Contamination and provide the Lender with satisfactory
evidence of such compliance;
	 
	 	                 (c)   provide the Lender, within thirty (30) days after a
demand by the Lender, with a bond, letter of credit or similar
financial assurance evidencing to the Lender’s satisfaction that
the necessary funds are available to pay the cost of removing,
treating, and disposing of such Hazardous Materials or Hazardous
Materials Contamination and discharging any Lien which may be

81

 

		
	 	established as a result thereof on any property owned,
operated or controlled by any Borrower or for which any Borrower
is, or is claimed to be, responsible; and
	 
	 	                 (d)   as part of the Obligations, defend, indemnify and hold
harmless the Lender and its agents, employees, trustees,
successors and assigns from any and all claims which may now or in
the future (whether before or after the termination of this
Agreement) be asserted as a result of the presence of any
Hazardous Materials or any Hazardous Materials Contamination on
any property owned, operated or controlled by any Borrower or for
which any Borrower is, or is claimed to be, responsible. Each
Borrower acknowledges and agrees that this indemnification shall
survive the termination of this Agreement and the Commitments and
the payment and performance of all of the other Obligations.

           6.1.13 Financial Covenants.

                 (a)   Tangible
Net Worth. The Borrowers, on a consolidated basis, will at
all times maintain a Tangible Net Worth of not less than Five Million Two
Hundred Thousand Dollars ($5,200,000) plus an amount equal to seventy five
percent (75%) of the Borrowers’ consolidated net income (without regard to any
loss) from each fiscal quarter of the Borrowers commencing with the fiscal
quarter ending June 30, 2002.

                 (b)   Fixed
Charge Coverage Ratio. The Borrowers will maintain, on a
consolidated basis and tested as of the last day of each of the Borrowers’
fiscal quarters, a Fixed Charge Coverage Ratio of not less than 1.15 to 1.00.
The Fixed Charge Coverage Ratio will be monitored on a year to day basis
through the fiscal quarter ending June 30, 2002, and thereafter will be
determined from the four (4) fiscal quarter period then ending.

                 (c)   Liabilities
to Tangible Net Worth. The Borrower will maintain a
ration of liabilities (as defined in accordance with GAAP) to Tangible Net
Worth not Greater than the following:

	 	 	 	 	 
	Period	 	Ratio
	
	 	

	Closing Date through June 29, 2002
	 	3.5 to 1.0; and
	June 30, 2002 and at all times thereafter
	 	3.0 to 1.0

           6.1.14 Collection of Receivables.

           Until such time that the Lender shall notify the Borrowers of the
revocation of such privilege, the Borrowers and their Subsidiaries shall at
their own expense have the privilege for the account of, and in trust for, the
Lender of collecting their Receivables and receiving in respect thereto all
Items of Payment and shall otherwise completely service all of the Receivables
including (a) the billing, posting and maintaining of complete records
applicable thereto, (b) the taking of such action with respect to the
Receivables as the Lender may request or in the absence of such request, as
each of the Borrowers and each of the Subsidiaries may deem advisable; and (c)
the granting, in the ordinary course of business, to any Account Debtor, any
rebate, refund or adjustment to which the Account Debtor may be lawfully
entitled, and may accept, in connection therewith, the return of goods, the
sale or lease of which shall have given rise to a Receivable and may take such
other actions relating to the settling of

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any Account Debtor’s claim as may be commercially reasonable. The Lender
may, at its option, at any time or from time to time after and during the
continuance of an Event of Default hereunder, revoke the collection privilege
given in this Agreement to any one or more of the Borrowers and each of the
Subsidiaries by either giving notice of its assignment of, and Lien on the
Collateral to the Account Debtors or giving notice of such revocation to the
Borrowers. The Lender shall not have any duty to, and the Borrowers hereby
release the Lender from all claims of loss or damage caused by the delay or
failure to collect or enforce any of the Receivables or to preserve any rights
against any other party with an interest in the Collateral. The Lender shall be
entitled at any time and from time to time to confirm and verify Receivables.

           6.1.15 Assignments of Receivables.

           Each Borrower will promptly, upon request, execute and deliver to the
Lender written assignments, in form and content acceptable to the Lender, of
specific Receivables or groups of Receivables; provided, however, the Lien
and/or security interest granted to the Lender under this Agreement shall not
be limited in any way to or by the inclusion or exclusion of Receivables within
such assignments. Receivables so assigned shall secure payment of the
Obligations and are not sold to the Lender whether or not any assignment
thereof, which is separate from this Agreement, is in form absolute. The
Borrowers agree that neither any assignment to the Lender nor any other
provision contained in this Agreement or any of the other Financing Documents
shall impose on the Lender any obligation or liability of any of the Borrowers
with respect to that which is assigned and the Borrowers hereby agree jointly
and severally to indemnify the Lender and hold the Lender harmless from any and
all claims, actions, suits, losses, damages, costs, expenses, fees, obligations
and liabilities which may be incurred by or imposed upon the Lender by virtue
of the assignment of and Lien on any Borrower’s rights, title and interest in,
to, and under the Collateral.

           6.1.16 Insurance With Respect to Equipment and Inventory.

           The Borrowers will (a) maintain and cause each of their Subsidiaries to
maintain hazard insurance with fire and extended coverage and naming the Lender
as an additional insured with loss payable to the Lender as its respective
interest may appear on the Equipment and Inventory in an amount at least equal
to the lesser amount of the outstanding principal amount of the Obligations or
the fair market value of the Equipment and Inventory (but in any event
sufficient to avoid any co-insurance obligations) and with a specific
endorsement to each such insurance policy pursuant to which the insurer agrees
to give the Lender at least thirty (30) days written notice before any
alteration or termination of such insurance policy and that no act or default
of any of the Borrowers shall affect the right of the Lender to recover under
such policy in the event of loss or damage; (b) file, and cause each of their
Subsidiaries to file, with the Lender, upon its request, a detailed list of the
insurance then in effect and stating the names of the insurance companies, the
amounts and rates of the insurance, dates of the expiration thereof and the
properties and risks covered thereby; and (c) within thirty (30) days after
notice in writing from the Lender, obtain, and cause each of their Subsidiaries
to obtain, such additional insurance as the Lender may reasonably request.

           6.1.17 Maintenance of the Collateral.

           The Borrowers will maintain the Collateral in good working order, saving
and excepting ordinary wear and tear, and will not permit anything to be done
to the Collateral

83

 

that may materially impair the value thereof. The Lender, or an agent
designated by the Lender, shall be permitted to enter the premises of each of
the Borrowers and their Subsidiaries and examine, audit and inspect the
Collateral at any reasonable time and from time to time without notice. The
Lender shall not have any duty to, and the Borrowers hereby release the Lender
from all claims of loss or damage caused by the delay or failure to collect or
enforce any of the Receivables or to, preserve any rights against any other
party with an interest in the Collateral.

           6.1.18 Equipment.

           The Borrowers shall (a) maintain all Equipment as personalty, (b) not
affix any Equipment to any real estate in such manner as to become a fixture or
part of such real estate, and (c) shall hold no Equipment on a sale on approval
basis. The Borrowers hereby declare their intent that, notwithstanding the
means of attachment, no goods of the Borrowers hereafter attached to any realty
shall be deemed a fixture, which declaration shall be irrevocable, without the
Lender’s consent, until all of the Obligations have been paid in full and all
of the Commitments and Letters of Credit have been terminated or have expired.

           6.1.19 Defense of Title and Further Assurances.

           At their expense, the Borrowers will defend the title to the Collateral
(and any part thereof), and will immediately execute, acknowledge and deliver
any renewal, affidavit, deed, assignment, security agreement, certificate or
other document which the Lender may require in order to perfect, preserve,
maintain, continue, protect and/or extend the Lien granted to the Lender under
this Agreement or under any of the other Financing Documents and the first
priority of that Lien, subject only to the Permitted Liens. The Borrowers
hereby authorize the filing of any financing statement or continuation
statement required under the Uniform Commercial Code. The Borrowers will from
time to time do whatever the Lender may require by way of obtaining, executing,
delivering, and/or filing landlords’ or mortgagees’ waivers, notices of
assignment and other notices and amendments and renewals thereof and the
Borrowers will take any and all steps and observe such formalities as the
Lender may require, in order to create and maintain a valid Lien upon, pledge
of, or paramount security interest in, the Collateral, subject to the Permitted
Liens. The Borrowers shall pay to the Lender on demand all taxes, costs and
expenses incurred by the Lender in connection with the preparation, execution,
recording and filing of any such document or instrument. To the extent that
the proceeds of any of the Accounts or Receivables of the Borrowers are
expected to become subject to the control of, or in the possession of, a party
other than the Borrowers or the Lender, the Borrowers shall cause all such
parties to execute and deliver on the Closing Date security documents or other
documents as requested by the Lender and as may be necessary to evidence and/or
perfect the security interest of the Lender in those proceeds. Each Borrower
hereby irrevocably appoints the Lender as the Borrower’s attorney-in-fact, with
power of substitution, in the name of the Lender or in the name of the Borrower
or otherwise, for the use and benefit of the Lender, but at the cost and
expense of the Borrowers and without notice to the Borrowers, to execute and
deliver any and all of the instruments and other documents and take any action
which the Lender may require pursuant the foregoing provisions of this Section
6.1.19.

           6.1.20 Business Names; Locations.

           Each of the Borrowers will notify and cause each of the Subsidiaries to
notify the Lender not less than thirty (30) days prior to (a) any change in the
name under which

84

 

the Borrower or the applicable Subsidiary conducts its business, (b) any
change of the location of the chief executive office of the applicable Borrower
or the applicable Subsidiary, and (c) the opening of any new place of business
or the closing of any existing place of business, and (d) any change in the
location of the places where the Collateral, or any part thereof, or the books
and records, or any part thereof, are kept.

           6.1.21 Use of Premises and Equipment.

           The Borrowers agree that until the Obligations are fully paid and all of
the Commitments and the Letters of Credit have been terminated or have expired,
the Lender (a) after and during the continuance of an Event of Default, may use
any of the Borrowers’ owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral; and (b) shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may proceed over and through any of the
Borrowers’ owned or leased property.

           6.1.22 Protection of Collateral.

           The Borrowers agree that the Lender may at any time following an Event of
Default take such steps as the Lender deems reasonably necessary to protect the
interest of the Lender in, and to preserve the Collateral, including, the
hiring of such security guards or the placing of other security protection
measures as the Lender deems appropriate, may employ and maintain at any of the
Borrowers’ premises a custodian who shall have full authority to do all acts
necessary to protect the interests of the Lender in the Collateral and may
lease warehouse facilities to which the Lender may move all or any part of the
Collateral to the extent commercially reasonable. The Borrowers agree to
cooperate fully with the Lender’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as the Lender may reasonably
direct. All of the Lender’s expenses of preserving the Collateral, including
any reasonable expenses relating to the compensation and bonding of a
custodian, shall be part of the Enforcement Costs.

           6.1.23 Inventory.

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

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     Section 6.2 Negative Covenants.

     So long as any of the Obligations or the Commitment shall be outstanding
hereunder, the Borrowers agree with the Lender as follows:

           6.2.1 Capital Structure, Merger, Acquisition or Sale of Assets.

           None of the Borrowers will alter or amend its capital structure, authorize
any additional class of equity, issue any stock or equity of any class, enter
into any merger or consolidation or amalgamation, windup or dissolve itself (or
suffer any liquidation or dissolution) or acquire all or substantially all the
assets of any Person, or sell, lease or otherwise dispose of any of its assets.
Any consent of the Lender to the disposition of any assets may be conditioned
on a specified use of the proceeds of disposition.

           6.2.2 Subsidiaries.

           None of the Borrowers will create or acquire any Subsidiaries other than
the Subsidiaries identified on the Collateral Disclosure List.

           6.2.3 Issuance of Stock.

           None of the Borrowers will issue, or grant any option or right to
purchase, any of its capital stock.

           6.2.4 Purchase or Redemption of Securities, Dividend Restrictions.

           None of the Borrowers will purchase, redeem or otherwise acquire any
shares of its capital stock or warrants now or hereafter outstanding, declare
or pay any dividends thereon (other than stock dividends), apply any of its
property or assets to the purchase, redemption or other retirement of, set
apart any sum for the payment of any dividends on, or for the purchase,
redemption, or other retirement of, make any distribution by reduction of
capital or otherwise in respect of, any shares of any class of capital stock of
any Borrower, or any warrants, permit any Subsidiary to purchase or acquire any
shares of any class of capital stock of, or warrants issued by, any Borrower,
make any distribution to stockholders or set aside any funds for any such
purpose, and not prepay, purchase or redeem any Indebtedness for Borrowed Money
other than the Obligations.

           6.2.5 Indebtedness.

           None of the Borrowers will create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money or permit any Subsidiary to do so, except:

		
	 	                 (a)   the Obligations;
	 
	 	                 (b)   current accounts payable arising in the ordinary course;
	 
	 	                 (c)   Indebtedness secured by Permitted Liens;
	 
	 	                 (d)   Subordinated Indebtedness; and

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	 	                 (e)   Indebtedness of the Borrowers existing on the date hereof
and reflected on the financial statements furnished pursuant to
Section 4.1.11 (Financial Condition).

           6.2.6 Investments, Loans and Other Transactions.

           Except as otherwise provided in this Agreement, none of the Borrowers
will, or will permit any of its Subsidiaries to, (a) make, assume, acquire or
continue to hold any investment in any real property (unless used in connection
with its business and treated as a Fixed or Capital Asset of any Borrower or
any Subsidiary) or any Person, whether by stock purchase, capital contribution,
acquisition of indebtedness of such Person or otherwise (including, without
limitation, investments in any joint venture or partnership), (b) guaranty or
otherwise become contingently liable for the Indebtedness or obligations of any
Person, or (c) make any loans or advances, or otherwise extend credit to any
Person, except:

		
	 	                       (i)   any advance to an officer or employee of any Borrower or
any Subsidiary for travel or other business expenses in the
ordinary course of business, provided that the aggregate amount of
all such advances by all of the Borrowers and their Subsidiaries
(taken as a whole) outstanding at any time shall not exceed Fifty
Thousand Dollars ($50,000);
	 
	 	                       (ii)   the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business;
	 
	 	                       (iii)   any investment in Cash Equivalents, which are pledged
to the Lender as collateral and security for the Obligations;
	 
	 	                       (iv)   trade credit extended to customers in the ordinary
course of business; and
	 
	 	                       (v)   advances to Subsidiaries of Versar Environmental
organized and existing outside the United States of America;
provided, however, that such advances shall not exceed Two Hundred
Thousand Dollars ($200,000) in the aggregate.

           6.2.7 Stock of Subsidiaries.

           None of the Borrowers will sell or otherwise dispose of any shares of
capital stock of any Subsidiary (except in connection with a merger or
consolidation of a Wholly Owned Subsidiary into any of the Borrowers or another
Wholly Owned Subsidiary of any of the Borrowers or with the dissolution of any
Subsidiary) or permit any Subsidiary to issue any additional shares of its
capital stock except pro rata to its stockholders.

           6.2.8 Subordinated Indebtedness.

           None of the Borrowers will, nor will permit any Subsidiary to make:

		
	 	                 (a)   any payment of principal of, or interest on, any of the
Subordinated Indebtedness, including, without limitation, the
Subordinated

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	 	Debt, if a Default or an Event of Default then exists
hereunder or would result from such payment;
	 
	 	                 (b)   any payment of the principal or interest due on the
Subordinated Indebtedness as a result of acceleration thereunder
or a mandatory prepayment thereunder;
	 
	 	                 (c)   any amendment or modification of or supplement to the
documents evidencing or securing the Subordinated Indebtedness;
and
	 
	 	                 (d)   payment of principal or interest on the Subordinated
Indebtedness other than when due (without giving effect to any
acceleration of maturity or mandatory prepayment).

           6.2.9 Liens; Confessed Judgment.

           Each Borrower agrees that it (a) will not create, incur, assume or suffer
to exist any Lien upon any of its properties or assets, whether now owned or
hereafter acquired, or permit any Subsidiary so to do, except for Liens
securing the Obligations and Permitted Liens, (b) will not agree to, assume or
suffer to exist any provision in any instrument or other document for
confession of judgment, cognovit or other similar right or remedy, (c) will not
allow or suffer to exist any Permitted Liens to be superior to Liens securing
the Obligations, (d) will not enter into any contracts for the consignment of
goods, will not execute or suffer the filing of any financing statements or the
posting of any signs giving notice of consignments, and will not, as a material
part of its business, engage in the sale of goods belonging to others, and (e)
will not allow or suffer to exist the failure of any Lien described in the
Security Documents to attach to, and/or remain at all times perfected on, any
of the property described in the Security Documents.

           6.2.10 Transactions with Affiliates.

           None of the Borrowers nor any of their Subsidiaries will enter into or
participate in any transaction with any Affiliate or, except in the ordinary
course of business, with the officers, directors, employees and other
representatives of any Borrower and/or any Subsidiary.

           6.2.11 Other Businesses.

           None of the Borrowers nor any of their Subsidiaries will engage directly
or indirectly in any business other than its current line of business described
elsewhere in this Agreement.

           6.2.12 ERISA Compliance.

           None of the Borrowers nor any Commonly Controlled Entity shall: (a)
engage in or permit any “prohibited transaction” (as defined in ERISA); (b)
cause any “accumulated funding deficiency” as defined in ERISA and/or the
Internal Revenue Code; (c) terminate any pension plan in a manner which could
result in the imposition of a lien on the property of any Borrower pursuant to
ERISA; (d) terminate or consent to the termination of any Multi-employer Plan;
or (e) incur a complete or partial withdrawal with respect to any
Multi-employer Plan.

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           6.2.13 Prohibition on Hazardous Materials.

           None of the Borrowers shall place, manufacture or store or permit to be
placed, manufactured or stored any Hazardous Materials on any property owned,
operated or controlled by any Borrower or for which any Borrower is responsible
other than Hazardous Materials placed or stored on such property in accordance
with applicable Laws in the ordinary course of a Borrower’s business expressly
described in this Agreement.

           6.2.14 Method of Accounting; Fiscal Year.

           Each Borrower agrees that:

                 (a)   it shall not change the method of accounting employed in the
preparation of any financial statements furnished to the Lender under the
provisions of Section 6.1.1 (Financial Statements), unless required to conform
to GAAP and on the condition that the Borrowers’ accountants shall furnish such
information as the Lender may request to reconcile the changes with the
Borrowers’ prior financial statements

                 (b)   it will not change its fiscal year from a year ending on June 30.

           6.2.15 Compensation.

           None of the Borrowers nor any Subsidiary will pay any bonuses, fees,
compensation, commissions, salaries, drawing accounts, or other payments (cash
and non-cash), whether direct or indirect, to any stockholders, Subsidiary, or
any Affiliate, other than reasonable compensation for actual services rendered
by stockholders in their capacity as officers or employees of the Borrower or
Subsidiary.

           6.2.16 Transfer of Collateral.

           None of the Borrowers nor any of their Subsidiaries will transfer, or
permit the transfer, to another location of any of the Collateral or the books
and records related to any of the Collateral.

           6.2.17 Sale and Leaseback.

           None of the Borrowers nor any of their Subsidiaries will directly or
indirectly enter into any arrangement to sell or transfer all or any
substantial part of its fixed assets and thereupon or within one (1) year
thereafter rent or lease the assets so sold or transferred.

           6.2.18 Disposition of Collateral.

           None of the Borrowers will sell, discount, allow credits or allowances,
transfer, assign, extend the time for payment on, convey, lease, assign,
transfer or otherwise dispose of the Collateral, except, prior to an Event of
Default, dispositions expressly permitted elsewhere in this Agreement, and the
sale of unnecessary or obsolete Equipment, but only if the proceeds of the sale
of such Equipment are (a) used to purchase similar Equipment to replace the
unnecessary or obsolete Equipment or (b) immediately turned over to the Lender
for application to the Obligations in accordance with the provisions of this
Agreement.

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           6.2.19 Profitability.

           The Borrowers will not incur a net loss in any fiscal quarter.

ARTICLE VII

DEFAULT AND RIGHTS AND REMEDIES

     Section 7.1 Events of Default.

     The occurrence of any one or more of the following events shall constitute
an “Event of Default” under the provisions of this Agreement:

           7.1.1 Failure to Pay.

           The failure of the Borrowers to pay any of the Obligations as and when due
and payable in accordance with the provisions of this Agreement, the Notes
and/or any of the other Financing Documents.

           7.1.2 Breach of Representations and Warranties.

           Any representation or warranty made in this Agreement or in any report,
statement, schedule, certificate, opinion (including any opinion of counsel for
the Borrowers), financial statement or other document furnished in connection
with this Agreement, any of the other Financing Documents, or the Obligations,
shall prove to have been false or misleading when made (or, if applicable, when
reaffirmed) in any material respect.

           7.1.3 Failure to Comply with Covenants.

           Default shall be made by the Borrowers in the due observance and
performance of any covenant, condition or agreement contained in Sections
6.1.1, 6.1.4, 6.1.11 or 6.1.13 hereof or in Section 6.2 hereof.

           7.1.4 Other Defaults.

           Default shall be made by the Borrowers in the due observance or
performance of any other term, covenant or agreement herein contained other
than those set forth in Sections 7.1.1, 7.1.2 or 7.1.3, which default shall
remain unremedied for thirty (30) days after written notice thereof to Versar
by the Lender.

           7.1.5 Default Under Other Financing Documents or Obligations.

           A default shall occur under any of the other Financing Documents or under
any other Obligations, and such default is not cured within any applicable
grace period provided therein.

           7.1.6 Receiver; Bankruptcy.

           Any Borrower or any Subsidiary shall (a) apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, (b) admit in writing its inability to pay its debts as they mature,
(c) make a general assignment for the benefit of creditors, (d) be adjudicated
a bankrupt or insolvent, (e) file a voluntary petition in bankruptcy

90

 

or a petition or an answer seeking or consenting to reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law, or take corporate action
for the purposes of effecting any of the foregoing, (f) by any act indicate its
consent to, approval of or acquiescence in any such proceeding or the
appointment of any receiver of or trustee for any of its property, or suffer
any such receivership, trusteeship or proceeding to continue undischarged for a
period of sixty (60) days, or (g) by any act indicate its consent to, approval
of or acquiescence in any order, judgment or decree by any court of competent
jurisdiction or any Governmental Authority enjoining or otherwise prohibiting
the operation of a material portion of any Borrower’s or any Subsidiary’s
business or the use or disposition of a material portion of any Borrower’s or
any Subsidiary’s assets.

           7.1.7 Involuntary Bankruptcy, etc.

                 (a)   An order for relief shall be entered in any involuntary case brought
against any Borrower or any Subsidiary under the Bankruptcy Code, or (b) any
such case shall be commenced against any Borrower or any Subsidiary and shall
not be dismissed within sixty (60) days after the filing of the petition, or
(c) an order, judgment or decree under any other Law is entered by any court of
competent jurisdiction or by any other Governmental Authority on the
application of a Governmental Authority or of a Person other than any Borrower
or any Subsidiary (i) adjudicating any Borrower, or any Subsidiary bankrupt or
insolvent, or (ii) appointing a receiver, trustee or liquidator of any Borrower
or of any Subsidiary, or of a material portion of any Borrower’s or any
Subsidiary’s assets, or (iii) enjoining, prohibiting or otherwise limiting the
operation of a material portion of any Borrower’s or any Subsidiary’s business
or the use or disposition of a material portion of any Borrower’s or any
Subsidiary’s assets, and such order, judgment or decree continues unstayed and
in effect for a period of thirty (30) days from the date entered.

           7.1.8 Judgment.

           Unless adequately insured in the opinion of the Lender, the entry of a
final judgment for the payment of money involving more than One Hundred
Thousand Dollars ($100,000) against any Borrower or any Subsidiary, and the
failure by such Borrower or such Subsidiary to discharge the same, or cause it
to be discharged, within thirty (30) days from the date of the order, decree or
process under which or pursuant to which such judgment was entered, or to
secure a stay of execution pending appeal of such judgment.

           7.1.9 Execution; Attachment.

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

           7.1.10 Default Under Other Borrowings.

           Default shall be made with respect to any Indebtedness for Borrowed Money
of any of the Borrowers (other than the Loans) if the default is a failure to
pay at maturity or if the effect of such default is to accelerate the maturity
of such Indebtedness for Borrowed

91

 

Money or to permit the holder or obligee thereof or other party thereto to
cause such Indebtedness for Borrowed Money to become due prior to its stated
maturity.

           7.1.11 Challenge to Agreements.

           Any Borrower shall challenge the validity and binding effect of any
provision of any of the Financing Documents or shall state its intention to
make such a challenge of any of the Financing Documents or any of the Financing
Documents shall for any reason (except to the extent permitted by its express
terms) cease to be effective or to create a valid and perfected first priority
Lien (except for Permitted Liens) on, or security interest in, any of the
Collateral purported to be covered thereby.

           7.1.12 Impairment of Position.

           The Lender, in its sole discretion, determines in good faith that an event
has occurred which impairs the prospect of payment of any of the Obligations
and/or the value of the Collateral.

           7.1.13 Collateral Inadequacy.

           The determination in good faith by the Lender that the security for the
Obligations is inadequate.

           7.1.14 Change in Ownership.

           Any change shall occur in the ownership of any of the Borrowers.

           7.1.15 Contract Default, Debarment or Suspension.

           Default shall be made under any Government Contract, or any Government
Contract is terminated for default by any Governmental Authority for any reason
whatsoever, or if any Borrower is debarred or suspended, whether temporarily or
permanently, by any Governmental Authority.

           7.1.16 Liquidation, Termination, Dissolution, Change in Management, etc.

           Any Borrower shall liquidate, dissolve or terminate its existence or shall
suspend or terminate a substantial portion of its business operations or any
change occurs in the management or control of any Borrower without the prior
written consent of the Lender.

           7.1.17 Swap Default.

           An event occurs which gives the Lender the right or option to terminate
any Swap Contract which is secured by the Collateral.

     Section 7.2 Remedies.

     Upon the occurrence of any Event of Default, the Lender may, in the
exercise of its sole and absolute discretion from time to time, at any time
thereafter exercise any one or more of the following rights, powers or
remedies:

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           7.2.1 Acceleration.

           The Lender may declare any or all of the Obligations to be immediately due
and payable, notwithstanding anything contained in this Agreement or in any of
the other Financing Documents to the contrary, without presentment, demand,
protest, notice of protest or of dishonor, or other notice of any kind, all of
which the Borrowers hereby waive.

           7.2.2 Further Advances.

           The Lender may from time to time without notice to the Borrowers suspend,
terminate or limit any further advances, loans or other extensions of credit
under the Commitments, under this Agreement and/or under any of the other
Financing Documents. Further, upon the occurrence of an Event of Default or
Default specified in Section 7.1.6 (Receiver; Bankruptcy) or Section 7.1.7
(Involuntary Bankruptcy, etc.), the Revolving Credit Commitment and any
agreement in any of the Financing Documents to provide additional credit and/or
to issue Letters of Credit shall immediately and automatically terminate and
the unpaid principal amount of the Notes (with accrued interest thereon) and
all other Obligations then outstanding, shall immediately become due and
payable without further action of any kind and without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrowers.

           7.2.3 Uniform Commercial Code.

           The Lender shall have all of the rights and remedies of a secured party
under the applicable Uniform Commercial Code and other applicable Laws. Upon
demand by the Lender, the Borrowers shall assemble the Collateral and make it
available to the Lender, at a place designated by the Lender. The Lender or
its agents may without notice from time to time enter upon any Borrower’s
premises to take possession of the Collateral, to remove it, to render it
unusable, to process it or otherwise prepare it for sale, or to sell or
otherwise dispose of it.

           Any written notice of the sale, disposition or other intended action by
the Lender with respect to the Collateral which is sent by regular mail,
postage prepaid, to the Borrowers at the address set forth in Section 8.1
(Notices), or such other address of the Borrowers which may from time to time
be shown on the Lender’s records, at least ten (10) days prior to such sale,
disposition or other action, shall constitute commercially reasonable notice to
the Borrowers. The Lender may alternatively or additionally give such notice
in any other commercially reasonable manner. Nothing in this Agreement shall
require the Lender to give any notice not required by applicable Laws.

           If any consent, approval, or authorization of any state, municipal or
other Governmental Authority or of any other Person or of any Person having any
interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral, the Borrowers agree to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.

           The Borrowers recognize that the Lender may be unable to effect a public
sale of all or a part of the Collateral consisting of Investment Property by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended, and other applicable Federal and state Laws. The Lender may,
therefore, in its discretion, take such steps as it may deem

93

 

appropriate to comply with such Laws and may, for example, at any sale of
the Collateral consisting of securities restrict the prospective bidders or
purchasers as to their number, nature of business and investment intention,
including, without limitation, a requirement that the Persons making such
purchases represent and agree to the satisfaction of the Lender that they are
purchasing such securities for their account, for investment, and not with a
view to the distribution or resale of any thereof. The Borrowers covenant and
agree to do or cause to be done promptly all such acts and things as the Lender
may request from time to time and as may be necessary to offer and/or sell the
securities or any part thereof in a manner which is valid and binding and in
conformance with all applicable Laws. Upon any such sale or disposition, the
Lender shall have the right to deliver, assign and transfer to the purchaser
thereof the Collateral consisting of securities so sold.

           7.2.4 Specific Rights With Regard to Collateral.

           In addition to all other rights and remedies provided hereunder or as
shall exist at law or in equity from time to time, the Lender may (but shall be
under no obligation to), without notice to any of the Borrowers, and each
Borrower hereby irrevocably appoints the Lender as its attorney-in-fact, with
power of substitution, in the name of the Lender and/or in the name of any or
all of the Borrowers or otherwise, for the use and benefit of the Lender, but
at the cost and expense of the Borrowers and without notice to the Borrowers:

		
	 	                 (a)   request any Account Debtor obligated on any of the
Accounts to make payments thereon directly to the Lender, with the
Lender taking control of the Proceeds thereof;
	 
	 	                 (b)   compromise, extend or renew any of the Collateral or deal
with the same as it may deem advisable;
	 
	 	                 (c)   make exchanges, substitutions or surrenders of all or any
part of the Collateral;
	 
	 	                 (d)   copy, transcribe, or remove from any place of business of
any Borrower or any Subsidiary all books, records, ledger sheets,
correspondence, invoices and documents, relating to or evidencing
any of the Collateral or without cost or expense to the Lender,
make such use of any Borrower’s or any Subsidiary’s place(s) of
business as may be reasonably necessary to administer, control and
collect the Collateral;
	 
	 	                 (e)   demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;
	 
	 	                 (f)   institute and prosecute legal and equitable proceedings
to enforce collection of, or realize upon, any of the Collateral;
	 
	 	                 (g)   settle, renew, extend, compromise, compound, exchange or
adjust claims in respect of any of the Collateral or any legal
proceedings brought in respect thereof;

94

 

		
	 	                 (h)   endorse or sign the name of any Borrower upon any Items
of Payment, certificates of title, Instruments, Investment
Property, stock powers, documents, documents of title, financing
statements, assignments, notices or other writing relating to or
part of the Collateral and on any proof of claim in bankruptcy
against an Account Debtor;
	 
	 	                 (i)   notify the Post Office authorities to change the address
for the delivery of mail to the Borrowers to such address or Post
Office Box as the Lender may designate and receive and open all
mail addressed to any of the Borrowers; and
	 
	 	                 (j)   take any other action necessary or beneficial to realize
upon or dispose of the Collateral or to carry out the terms of
this Agreement.

           7.2.5 Application of Proceeds.

           Any proceeds of sale or other disposition of the Collateral will be
applied by the Lender to the payment first of any and all Enforcement Costs,
and any balance of such proceeds will be applied to the Obligations in such
order and manner as the Lender shall determine. If the sale or other
disposition of the Collateral fails to fully satisfy the Obligations, the
Borrowers shall remain liable to the Lender for any deficiency.

           7.2.6 Performance by Lender.

           The Lender without notice to or demand upon the Borrowers and without
waiving or releasing any of the Obligations or any Default or Event of Default,
may (but shall be under no obligation to) at any time thereafter make such
payment or perform such act for the account and at the expense of the
Borrowers, and may enter upon the premises of the Borrowers for that purpose
and take all such action thereon as the Lender may consider necessary or
appropriate for such purpose and each of the Borrowers hereby irrevocably
appoints the Lender as its attorney-in-fact to do so, with power of
substitution, in the name of the Lender, in the name of any or all of the
Borrowers or otherwise, for the use and benefit of the Lender, but at the cost
and expense of the Borrowers and without notice to the Borrowers. All sums so
paid or advanced by the Lender together with interest thereon from the date of
payment, advance or incurring until paid in full at the Post-Default Rate and
all costs and expenses, shall be deemed part of the Enforcement Costs, shall be
paid by the Borrowers to the Lender on demand, and shall constitute and become
a part of the Obligations.

           7.2.7 Other Remedies.

           The Lender may from time to time proceed to protect or enforce its rights
by an action or actions at law or in equity or by any other appropriate
proceeding, whether for the specific performance of any of the covenants
contained in this Agreement or in any of the other Financing Documents, or for
an injunction against the violation of any of the terms of this Agreement or
any of the other Financing Documents, or in aid of the exercise or execution of
any right, remedy or power granted in this Agreement, the Financing Documents,
and/or applicable Laws. The Lender is authorized to offset and apply to all or
any part of the Obligations all moneys, credits and other property of any
nature whatsoever of any or all of the

95

 

           Borrowers now or at any time hereafter in the possession of, in transit to
or from, under the control or custody of, or on deposit with, the Lender or any
Affiliate of the Lender.

ARTICLE VIII

MISCELLANEOUS

     Section 8.1 Notices.

     All notices, requests and demands to or upon the parties to this Agreement
shall be in writing and shall be deemed to have been given or made when
delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:

	 	 	 
	Borrowers:	 	
VERSAR, INC.
	 	 	
6850 Versar Center
	 	 	
Springfield, Virginia 22151
	 	 	
Attention:  Larry Sinnott
	 
	Lender:	 	
BANK OF AMERICA, N.A.
	 	 	
8300 Greensboro Drive
	 	 	
Suite 550
	 	 	
McLean, Virginia 22103
	 	 	
Attention:  Elaine Eaton, SVP
	 
	with a copy to:	 	
Troutman Sanders LLP
	 	 	
1660 International Drive, Suite 600
	 	 	
McLean, Virginia 22102
	 	 	
Attention:  Richard M. Pollak, Esquire

     By written notice, each party to this Agreement may change the address to
which notice is given to that party, provided that such changed notice shall
include a street address to which notices may be delivered by overnight courier
in the ordinary course on any Business Day.

     Section 8.2 Amendments; Waivers.

     This Agreement and the other Financing Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the Lender and the Borrowers. No waiver of any provision of this Agreement or
of any of the other Financing Documents, nor consent to any departure by the
Borrowers therefrom, shall in any event be effective unless the same shall be
in writing signed by the Lender. No course of dealing between the Borrowers
and the Lender and no act or failure to act from time to time on the part of
the Lender shall constitute a waiver, amendment or modification of any
provision of this Agreement or any of the other Financing Documents or any
right or remedy under this Agreement, under any of the other Financing
Documents or under applicable Laws.

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     Without implying any limitation on the foregoing:

		
	 	                 (a)   Any waiver or consent shall be effective only in the
specific instance, for the terms and purpose for which given,
subject to such conditions as the Lender may specify in any such
instrument.
	 
	 	                 (b)   No waiver of any Default or Event of Default shall extend
to any subsequent or other Default or Event of Default, or impair
any right consequent thereto.
	 
	 	                 (c)   No notice to or demand on the Borrowers in any case shall
entitle the Borrowers to any other or further notice or demand in
the same, similar or other circumstance.
	 
	 	                 (d)   No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant or agreement
of this Agreement or of any of the other Financing Documents, or
to exercise any right, power or remedy consequent upon a breach
thereof, shall constitute a waiver, amendment or modification of
any such term, condition, covenant or agreement or of any such
breach or preclude the Lender from exercising any such right,
power or remedy at any time or times.
	 
	 	                 (e)   By accepting payment after the due date of any amount
payable under this Agreement or under any of the other Financing
Documents, the Lender shall not be deemed to waive the right
either to require prompt payment when due of all other amounts
payable under this Agreement or under any of the other Financing
Documents, or to declare a default for failure to effect such
prompt payment of any such other amount.

     Section 8.3 Cumulative Remedies.

     The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Lender
shall determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws. In order to entitle the Lender to exercise
any remedy reserved to it in this Agreement, it shall not be necessary to give
any notice, other than such notice as may be expressly required in this
Agreement. Without limiting the generality of the foregoing and subject to the
terms of this Agreement, the Lender may:

		
	 	                 (a)   proceed against any one or more of the Borrowers with or
without proceeding against any other Person who may be liable (by
endorsement, guaranty, indemnity or otherwise) for all or any part
of the Obligations;
	 
	 	                 (b)   proceed against any one or more of the Borrowers with or
without proceeding under any of the other Financing Documents or

97

 

		
	 	against any Collateral or other collateral and security for
all or any part of the Obligations;
	 
	 	                 (c)   without reducing or impairing the obligation of the
Borrowers and without notice, release or compromise with any
guarantor or other Person liable for all or any part of the
Obligations under the Financing Documents or otherwise;
	 
	 	                 (d)   without reducing or impairing the obligations of the
Borrowers and without notice thereof:

		
	 	                       (i)   fail to perfect the Lien in any or all Collateral or to
release any or all the Collateral or to accept substitute
Collateral;
	 
	 	                       (ii)   approve the making of advances under the Revolving Loan
under this Agreement;
	 
	 	                       (iii)   waive any provision of this Agreement or the other
Financing Documents;
	 
	 	                       (iv)   exercise or fail to exercise rights of set-off or other
rights; or
	 
	 	                       (v)   accept partial payments or extend from time to time the
maturity of all or any part of the Obligations.

     Section 8.4 Severability.

     In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:

		
	 	                 (a)   the validity, legality and enforceability of the
remaining provisions shall remain effective and binding on the
parties thereto and shall not be affected or impaired thereby;
	 
	 	                 (b)   the obligation to be fulfilled shall be reduced to the
limit of such validity;
	 
	 	                 (c)   if such provision or part thereof pertains to repayment
of the Obligations, then, at the sole and absolute discretion of
the Lender, all of the Obligations of the Borrowers to the Lender
shall become immediately due and payable; and
	 
	 	                 (d)   if the affected provision or part thereof does not
pertain to repayment of the Obligations, but operates or would
prospectively operate to invalidate this Agreement in whole or in
part, then such provision or

98

 

		
	 	part thereof only shall be void, and the remainder of this
Agreement shall remain operative and in full force and effect.

     Section 8.5 Assignments by Lender.

     The Lender may, without notice to or consent of the Borrowers, assign to
any Person (each an “Assignee” and collectively, the “Assignees”) all or a
portion of the Lender’s Commitment. The Lender and its Assignee shall notify
the Borrowers in writing of the date on which the assignment is to be effective
(the “Adjustment Date”). On or before the Adjustment Date, the Lender, the
Borrowers and the Assignee shall execute and deliver a written assignment
agreement in a form acceptable to the Lender, which shall constitute an
amendment to this Agreement to the extent necessary to reflect such assignment.
Upon the request of the Lender following an assignment made in accordance with
this Section 8.5, the Borrowers shall issue new Notes to the Lender and its
Assignee reflecting such assignment, in exchange for the existing Notes held by
the Lender.

     In addition, notwithstanding the foregoing, the Lender may at any time
pledge all or any portion of the Lender’s rights under this Agreement, any of
the Commitments or any of the Obligations to a Federal Reserve Bank.

     Section 8.6 Participations by Lender.

     The Lender may at any time sell to one or more financial institutions
participating interests in any of the Lender’s Obligations or Commitments;
provided, however, that (a) no such participation shall relieve the Lender from
its obligations under this Agreement or under any of the other Financing
Documents to which it is a party, (b) the Lender shall remain solely
responsible for the performance of its obligations under this Agreement and
under all of the other Financing Documents to which it is a party, and (c) the
Borrowers shall continue to deal solely and directly with the Lender in
connection with the Lender’s rights and obligations under this Agreement and
the other Financing Documents.

     Section 8.7 Disclosure of Information by Lender.

     In connection with any sale, transfer, assignment or participation by the
Lender in accordance with Section 8.5 (Assignments by Lender) or Section 8.6
(Participations by Lender), the Lender shall have the right to disclose to any
actual or potential purchaser, assignee, transferee or participant all
financial records, information, reports, financial statements and documents
obtained in connection with this Agreement and/or any of the other Financing
Documents or otherwise.

     Section 8.8 Successors and Assigns.

     This Agreement and all other Financing Documents shall be binding upon and
inure to the benefit of the Borrowers and the Lender and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign their rights hereunder or any interest herein without the prior written
consent of the Lender.

99

 

     Section 8.9 Continuing Agreements.

     All covenants, agreements, representations and warranties made by the
Borrowers in this Agreement, in any of the other Financing Documents, and in
any certificate delivered pursuant hereto or thereto shall survive the making
by the Lender of the Loans, the issuance of Letters of Credit and the execution
and delivery of the Notes, shall be binding upon the Borrowers regardless of
how long before or after the date hereof any of the Obligations were or are
incurred, and shall continue in full force and effect so long as any of the
Obligations are outstanding and unpaid.. From time to time upon the Lender’s
request, and as a condition of the release of any one or more of the Security
Documents, the Borrowers and other Persons obligated with respect to the
Obligations shall provide the Lender with such acknowledgments and agreements
as the Lender may require to the effect that there exists no defenses, rights
of setoff or recoupment, claims, counterclaims, actions or causes of action of
any kind or nature whatsoever against the Lender and/or any of its agents and
others, or to the extent there are, the same are waived and released.

     Section 8.10 Enforcement Costs.

     The Borrowers agree to pay to the Lender on demand all Enforcement Costs,
together with interest thereon from the date incurred or advanced until paid in
full at a per annum rate of interest equal at all times to the Post-Default
Rate. Enforcement Costs shall be immediately due and payable at the time
advanced or incurred, whichever is earlier. Without implying any limitation on
the foregoing, the Borrowers agree, as part of the Enforcement Costs, to pay
upon demand any and all stamp and other Taxes and fees payable or determined to
be payable in connection with the execution and delivery of this Agreement and
the other Financing Documents and to save the Lender harmless from and against
any and all liabilities with respect to or resulting from any delay in paying
or omission to pay any Taxes or fees referred to in this Section. The
provisions of this Section shall survive the execution and delivery of this
Agreement, the repayment of the other Obligations and shall survive the
termination of this Agreement.

     Section 8.11 Applicable Law; Jurisdiction.

           8.11.1 Applicable Law.

           Borrowers acknowledge and agree that the Financing Documents, including,
this Agreement, shall be governed by the Laws of the State, as if each of the
Financing Documents and this Agreement had each been executed, delivered,
administered and performed solely within the State even though for the
convenience and at the request of the Borrowers, one or more of the Financing
Documents may be executed elsewhere. The Lender acknowledges, however, that
remedies under certain of the Financing Documents that relate to property
outside the State may be subject to the laws of the state in which the property
is located.

           8.11.2 Submission to Jurisdiction.

           The Borrowers irrevocably submit to the jurisdiction of any state or
federal court sitting in the State over any suit, action or proceeding arising
out of or relating to this Agreement or any of the other Financing Documents.
Each of the Borrowers irrevocably

100

 

waives, to the fullest extent permitted by law, any objection that it may
now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment in any such suit, action or proceeding brought in any
such court shall be conclusive and binding upon the Borrowers and may be
enforced in any court in which the Borrowers are subject to jurisdiction, by a
suit upon such judgment, provided that service of process is effected upon the
Borrowers in one of the manners specified in this Section or as otherwise
permitted by applicable Laws.

           8.11.3 Appointment of Agent for Service of Process.

     The Borrowers hereby irrevocably designate and appoint _______________________, as the Borrowers’ authorized
agent to receive on the Borrowers’ behalf service of any and all process that
may be served in any suit, action or proceeding of the nature referred to in
this Section in any state or federal court sitting in the State. If such agent
shall cease so to act, the Borrowers shall irrevocably designate and appoint
without delay another such agent in the State satisfactory to the Lender and
shall promptly deliver to the Lender evidence in writing of such other agent’s
acceptance of such appointment and its agreement that such appointment shall be
irrevocable.

           8.11.4 Service of Process.

           Each of the Borrowers hereby consents to process being served in any suit,
action or proceeding of the nature referred to in this Section by (a) the
mailing of a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the Borrower at the Borrower’s address designated
in or pursuant to Section 8.1 (Notices), and (b) serving a copy thereof upon
the agent, if any, designated and appointed by the Borrower as the Borrower’s
agent for service of process by or pursuant to this Section. The Borrowers
irrevocably agree that such service (y) shall be deemed in every respect
effective service of process upon the Borrowers in any such suit, action or
proceeding, and (z) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon the Borrowers. Nothing in this Section
shall affect the right of the Lender to serve process in any manner otherwise
permitted by law or limit the right of the Lender otherwise to bring
proceedings against the Borrowers in the courts of any jurisdiction or
jurisdictions.

     Section 8.12 Duplicate Originals and Counterparts.

     This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.

     Section 8.13 Headings.

     The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.

101

 

     Section 8.14 No Agency.

     Nothing herein contained shall be construed to constitute the Borrowers as
the agent of the Lender for any purpose whatsoever or to permit the Borrowers
to pledge any of the credit of the Lender. The Lender shall not be responsible
or liable for any shortage, discrepancy, damage, loss or destruction of any
part of the Collateral wherever the same may be located and regardless of the
cause thereof. The Lender shall not, by anything herein or in any of the
Financing Documents or otherwise, assume any of the Borrowers’ obligations
under any contract or agreement assigned to the Lender, and the Lender shall
not be responsible in any way for the performance by the Borrowers of any of
the terms and conditions thereof.

     Section 8.15 Date of Payment.

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

     Section 8.16 Entire Agreement.

     This Agreement is intended by the Lender and the Borrowers to be a
complete, exclusive and final expression of the agreements contained herein.
Neither the Lender nor the Borrowers shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this Agreement but
shall look solely to this Agreement for definition and determination of all of
their respective rights, liabilities and responsibilities under this Agreement.

     Section 8.17 Waiver of Trial by Jury.

     THE BORROWERS AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY
OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.

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

102

 

     Section 8.18 Liability of the Lender.

     The Borrowers hereby agree that the Lender shall not be chargeable for any
negligence, mistake, act or omission of any accountant, examiner, agency or
attorney employed by the Lender in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.

     By inspecting the Collateral or any other properties of the Borrowers or
by accepting or approving anything required to be observed, performed or
fulfilled by the Borrowers or to be given to the Lender pursuant to this
Agreement or any of the other Financing Documents, the Lender shall not be
deemed to have warranted or represented the condition, sufficiency, legality,
effectiveness or legal effect of the same, and such acceptance or approval
shall not constitute any warranty or representation with respect thereto by the
Lender.

     Section 8.19 Indemnification.

     The Borrowers agree to indemnify and hold harmless, Lender, the Lender’s
parent and Affiliates and the Lender’s parent’s and Affiliates’ officers,
directors, shareholders, employees and agents (each an “Indemnified Party,” and
collectively, the “Indemnified Parties”), from and against any and all claims,
liabilities, losses, damages, costs and expenses (whether or not such
Indemnified Party is a party to any litigation), including without limitation,
reasonable attorney’s fees and costs and costs of investigation, document
production, attendance at depositions or other discovery, incurred by any
Indemnified Party with respect to, arising out of or as a consequence of (a)
this Agreement or any of the other Financing Documents, including without
limitation, any failure of the Borrowers to pay when due (at maturity, by
acceleration or otherwise) any principal, interest, fee or any other amount due
under this Agreement or the other Financing Documents, or any other Event of
Default; (b) the use by the Borrowers of any proceeds advanced hereunder; (c)
the transactions contemplated hereunder; or (d) any claim, demand, action or
cause of action being asserted against (i) the Borrowers or any of their
Affiliates by any other Person, or (ii) any Indemnified Party by the Borrowers
in connection with the transactions contemplated hereunder. Notwithstanding
anything herein or elsewhere to the contrary, the Borrowers shall not be
obligated to indemnify or hold harmless any Indemnified Party from any
liability, loss or damage resulting from the gross negligence, willful
misconduct or unlawful actions of such Indemnified Party. Any amount payable
to the Lender under this Section will bear interest at the Post- Default Rate
from the due date until paid.

[SIGNATURES ON FOLLOWING PAGE]

103

 

     IN WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement under their respective seals as of the day and year first
written above.

	 	 	 
	WITNESS OR ATTEST:	 	
VERSAR, INC.
	 
	/S/ May K. Tom

	 	
By: /S/ Lawrence W. Sinnott     (SEAL)

Name:   Lawrence W. Sinnott

Title:  Senior Vice President

Chief Financial Officer
	 
	WITNESS OR ATTEST:	 	
GEOMET TECHNOLOGIES, INC.
	 
	/S/ May K. Tom

	 	
By:  /S/ Lawrence W. Sinnott     (SEAL)

Name:   Lawrence W. Sinnott

Title:  Vice President
	 
	WITNESS OR ATTEST:	 	
VERSAR ENVIRONMENTAL COMPANY
	 
	/S/ May K. Tom

	 	
By:  /S/ Lawrence W. Sinnott     (SEAL)

Name:  Lawrence W. Sinnott

Title:  Vice President
	 
	WITNESS OR ATTEST:	 	
VERSAR GLOBAL SOLUTIONS, INC.
	 
	/S/ May K. Tom

	 	
By:  /S/ Lawrence W. Sinnott     (SEAL)

Name:  Lawrence W. Sinnott

Title:  Vice President
	 
	 	 	
BANK OF AMERICA, N.A.
	 
	 

	 	
By:  /S/ Elaine Eaton     (SEAL)

Elaine Eaton

Senior Vice President

104exv10w103

 

Exhibit 10.103

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement") is dated as of June
14, 2002, among Versar, Inc., a Delaware corporation (the “Company"), and the
purchasers identified on the signature pages hereto (each a “Purchaser" and
collectively the “Purchasers").

     WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and the Purchasers, severally and not jointly, desire to purchase
from the Company, shares of the Company’s common stock, $0.01 par value per
share with an aggregate value of $1,000,000 as determined hereunder and
Warrants (as defined below), as more fully described in this Agreement.

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

ARTICLE I.

DEFINITIONS

     1.1      Definitions In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms have the meanings
indicated in this Section 1.1:

		
	 	        “Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of
such Purchaser.
	 
	 	        “Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law
or other governmental action to close.
	 
	 	        “Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
	 
	 	        “Closing Date" means the date of the Closing which shall occur
within 2 Trading Days of the date hereof.
	 
	 	        “Commission" means the Securities and Exchange Commission.

105

 

		
	 	        “Common Stock" means the common stock of the Company, $0.01 par
value per share, and any securities into which such common stock may
hereafter be reclassified.

		
	 	        “Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
	 
	 	        “Company Counsel" means Paul, Hastings, Janofsky & Walker LLP,
counsel to the Company.
	 
	 	        “Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
	 
	 	        “Exchange Act" means the Securities Exchange Act of 1934, as
amended.
	 
	 	        “Long Term Warrants" means the 5–year Common Stock purchase
warrants, in the form of Exhibit E, issuable to the Purchasers at
Closing, which warrants shall have an exercise price equal to 115% of the
average of the VWAPs during the 10 Trading Days immediately prior to the
date hereof or $4.002, subject to adjustment therein.
	 
	 	        “Material Adverse Effect" shall have the meaning ascribed to such
term in Section 3.1(b).
	 
	 	        “Per Share Purchase Price" means 80% of the average of the daily
VWAPs during the 10 Trading Days immediately prior to the date hereof or
$2.7841.
	 
	 	        “Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
	 
	 	        “Principal Market” means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market or the Nasdaq SmallCap Market.
	 
	 	        “Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
	 
	 	        “Purchasers’ Counsel" means Feldman &Weinstein LLP with offices
located at 36 West 44th Street, New York, New York 10036, Attn: Robert
Charron, Fax No. (212) 401-4741.

106

 

		
	 	        “Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Shares and the Warrant Shares.
	 
	 	        “Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
the Purchasers, in the form of Exhibit B hereto.

		
	 	        “Rule 144,” means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rules may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
	 
	 	        “Securities" means the Shares, the Warrants and the Warrant Shares.
	 
	 	        “Securities Act" means the Securities Act of 1933, as amended.
	 
	 	        “Shares" means the shares of Common Stock issued or issuable to the
Purchasers pursuant to this Agreement.
	 
	 	        “Short Term Warrants" means the 120-day Common Stock purchase
warrants, in the form of Exhibit D, issuable to the Purchasers at
Closing, which warrants shall have an exercise price equal to the average
of the VWAPs during the 10 Trading Days immediately prior to the date
hereof or $3.4801, subject to adjustment therein.
	 
	 	        “Subsidiary" means any subsidiary of the Company that is required to
be listed in Schedule 3.1(a) of the Disclosure Schedules.
	 
	 	        “Trading Day" means (i) a day on which the Common Stock is traded on
a Principal Market, or (ii) if the Common Stock is not listed on a
Principal Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted
as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a
Business Day.
	 
	 	        “Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Warrants, the Instructions to
Transfer Agent and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
	 
	 	        “VWAP” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Trading Market, the daily volume weighted average price of
the Common Stock for such date (or 

107

 

		
	 	the nearest preceding date) on the
primary Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg Financial L.P. (based on a trading day from 9:30
a.m. ET to 4:02 p.m. Eastern Time) using the VAP function; (b) if the
Common Stock is not then listed or quoted on an Trading Market and if
prices for the
Common Stock are then quoted on the OTC Bulletin Board, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is
not then listed or quoted on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by the
National Quotation Bureau Incorporated (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent
bid price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Purchasers.

		
	 	        “Warrants" means the Long Term Warrants and the Short Term Warrants.
	 
	 	        “Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

     2.1      Closing. Subject to the terms and conditions set forth in this Agreement,
at the Closing the Company shall issue and sell to each Purchaser, and each
Purchaser shall, severally and not jointly with the other Purchasers, purchase
from the Company, (a) a number of Shares equal to the subscription amount set
forth below such Purchaser’s address on the signature pages to this Agreement
divided by the Per Share Purchase Price for such subscription amount, and (b)
the Warrants as determined in accordance with Section 2.2(a). The aggregate
subscription amount of all the Purchasers shall be $1,000,000. The Closing
shall take place at the offices of the Escrow Agent on the date hereof or at
such other location or time as the parties may agree.

     2.2      Closing Deliveries. At the Closing, the Company shall deliver or cause to
be delivered to the Escrow Agent on behalf of each Purchaser the following:

		
	 	        (i)      this Agreement duly executed by the Company.
	 
	 	        (ii)      a certificate evidencing a number of Shares equal to the
subscription amount indicated below such Purchaser’s name on the
signature page of this Agreement divided by the Per Share Purchase Price,
registered in the name of such Purchaser;
	 
	 	        (iii)      a legal opinion from Company Counsel, in the form of Exhibit C
hereto, addressed to the Purchasers;
	 
	 	        (iv)      the Registration Rights Agreement duly executed by the Company;

108

 

		
	 	        (v)      a Short Term Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire up to
the number of shares of Common Stock equal to 50% of the Shares to be
issued to such Purchaser at the Closing;
	 
	 	        (vi)      a Long Term Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire up to
the number of shares of Common Stock equal to 50% of the Shares to be
issued to such Purchaser at the Closing; and

		
	 	        (vii)      Instructions to Transfer Agent executed by the Company and
delivered to and acknowledged by the Company’s transfer agent in the form
annexed hereto as Exhibit A.

     (b)      At the Closing, each Purchaser shall deliver or cause to be delivered
to the Escrow Agent the following:

		
	 	        (i)      this Agreement duly executed by such Purchaser;
	 
	 	        (ii)      the subscription amount indicated below such Purchaser’s
address for notice on the signature page of this Agreement, in United
States dollars and in immediately available funds, by wire transfer to
the account of the Company; and
	 
	 	        (iii)      the Registration Rights Agreement duly executed by such
Purchaser.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1      Representations and Warranties of the Company. Except as set forth under
the corresponding section of the Disclosure Schedules attached hereto and the
SEC Reports and except as otherwise would not have a Material Adverse Effect,
the Company hereby makes the following representations and warranties to each
Purchaser:

		
	 	        (a)      Subsidiaries. Except as disclosed in Schedule 3.1(a), the
Company has no direct or indirect subsidiaries. The Company owns,
directly or indirectly, all of the capital stock of each Subsidiary free
and clear of any lien, charge, security interest, encumbrance, right of
first refusal or other restriction (collectively, “Liens”), except for
such Liens as are listed in Schedule 3.1(a), and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights.
	 
	 	        (b)      Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of 

109

 

		
	 	incorporation, bylaws or other organizational
or charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary,
except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, (i)
adversely affect the legality, validity or enforceability of any
Transaction Document, (ii) have or reasonably be expected to result in a
material adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole, or (iii) adversely impair the Company’s ability to
perform in any material respect on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”).

		
	 	        (c)      Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and transfer, moratorium or other
laws now or hereafter in effect relating to or affecting the rights or
remedies of creditors generally and by general principles of equity
(whether applied in a proceeding at law or in equity) including, without
limitation, standards of materiality, good faith and reasonableness in
the interpretation and enforcement of contracts, and the application of
such principles to limit the availability of equitable remedies such as
specific performance.
	 
	 	        (d)      No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational
or charter documents, or (ii) conflict with, or constitute a default (or
an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by
which any 

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	 	property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as
would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
	 
	 	        (e)      Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than the filing with the Commission of a
Form D and the Registration Statement following the Closing, the
application(s) to each Principal Market for the listing of the Shares and
Warrant Shares underlying the Parent Warrant for trading thereon in the
time and manner required thereby, and applicable Blue Sky filings.
	 
	 	        (f)      Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to this Agreement and the Warrants.
	 
	 	        (g)      Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in Schedule 3.1(g) of the Disclosure Schedules. No securities of
the Company are entitled to preemptive or similar rights, and no Person
has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by
the Transaction Documents. Except as a result of the purchase and sale
of the Securities and as set forth in Schedule 3.1(g), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock,
or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. The issue and sale of the
Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Purchasers) and will
not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
	 
	 	        (h)      SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the “SEC Reports" and,
together with the Schedules to this Agreement, the “Disclosure
Materials") on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC 

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	 	Reports prior to the expiration
of any such extension. The Company has delivered to the Purchasers a
copy of all SEC Reports filed within the 10 days preceding the date
hereof. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved (“GAAP”), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, year-end audit adjustments and
the absence of certain footnotes.
	 
	 	        (i)      Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports or set forth in Schedule
3.1(i), (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not
declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the Company
has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans. The
Company does not have pending before the Commission any request for
confidential treatment of information.
	 
	 	        (j)      Litigation. Except as specifically disclosed in the SEC
Reports, there is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an “Action”)
 which (i)
adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any 

112

 

		
	 	Subsidiary, nor any director or officer
thereof, is or has been within the past five years the subject of any
Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty. There has
not been, and to the knowledge of the Company, there is not pending or
threatened, any investigation by the
Commission involving the Company or any current or former director
or officer of the Company.

		
	 	        (k)      Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company.
	 
	 	        (l)      Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws relating to
taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case
as would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
	 
	 	        (m)      Regulatory Permits. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits would not, individually
or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company nor
any Subsidiary has received any written notice of proceedings relating to
the revocation or modification of any Material Permit.
	 
	 	        (n)      Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material
to the business of the Company and the Subsidiaries, in each case free
and clear of all Liens, except for Liens as do not materially affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and the
Subsidiaries. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in
material compliance.

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	 	        (o)      Patents
and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could, individually or in the
aggregate, have or
reasonably be expected to result in a Material Adverse Effect
(collectively, the “Intellectual Property Rights"). Neither the Company
nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. Except as set forth in the SEC
Reports, to the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.
	 
	 	        (p)      Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged. Neither the
Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business.
	 
	 	        (q)      Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports and in Schedule 3.1(o), none of the officers or
directors of the Company and, to the knowledge of the Company, none of
the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

		
	 	        (r)      Certain Fees. Except as set forth in Schedule 3.1(p), no
brokerage or finder’s fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement. The Purchasers shall have
no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated
by this Agreement.
	 
	 	        (s)      Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Principal Market and no shareholder approval

114

 

		
	 	is required for the Company to fulfill its obligations under the
Transaction Documents, including issuing and delivering to the Purchasers
the maximum number of Securities contemplated by this Agreement and the
maximum number of Warrant Shares issuable upon exercise in full of the
Warrants based on their present exercise price.

		
	 	        (t)      Listing and Maintenance Requirements. The Company has not, in
the 24 months preceding the date hereof, received written notice, from
any Principal Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Principal Market. The Company
is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and
maintenance requirements.

		
	 	        (u)      Investment Company. The Company is not, and is not an Affiliate
of, an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.
	 
	 	        (v)      Registration Rights. The Company has not granted or agreed to
grant to any Person any rights (including “piggy-back” registration
rights) to have any securities of the Company registered with the
Commission that have not been satisfied.

		
	 	        (w)      Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including
without limitation the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.
	 
	 	        (x)      Disclosure. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, furnished by or on
behalf of the Company, taken as a whole, are true and correct and do not
contain any untrue statement of a material fact or, except to the extent
non-public information was withheld at the Purchaser’s request, omit to
state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
	 
	 	        (y)      Form S-3 Eligibility. The Company is eligible to register for
resale of its Common Stock for resale by the Purchasers under Form S-3
promulgated under the Securities Act.

     3.2      Representations and Warranties of the Purchasers. Each Purchaser hereby,
for itself and for no other Purchaser, represents and warrants to the Company
as follows:

115

 

		
	 	        (a)      Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement has been duly authorized
by all necessary corporate action on the part of such Purchaser.
Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with terms hereof, will constitutes the valid and legally
binding obligation of such Purchaser, enforceable against it in
accordance with its terms.

		
	 	        (b)      Investment Intent. Such Purchaser is acquiring the Securities
as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any
part thereof, without prejudice, however, to such Purchaser’s right at
all times to sell or otherwise dispose of all or any part of such
Securities in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any period of time.
Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any
of the Securities.

		
	 	        (c)      Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is an “accredited investor”
as defined in Rule 501(a) under the Securities Act. The Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.

		
	 	        (d)      Experience of such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.

		
	 	        (e)      General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.

		
	 	        (f)      Access to Information. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the

116

 

		
	 	Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted
by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or
affect such Purchaser’s right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents.

     The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

		
	 	        4.1      Transfer Restrictions. (a) Securities may only be disposed of
in compliance with state and federal securities laws. In connection with
any transfer of Securities other than pursuant to an effective
registration statement, to the Company or to an Affiliate of a Purchaser
or in connection with a pledge as contemplated in Section 4.1(b), the
Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.

		
	 	        (b)      The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of the following legend on any the Securities:

		
	 	[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH 

117

 

		
	 	EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

		
	 	        The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement or grant a
security interest in some or all of the Securities and, if required under
the terms of such arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties; provided that the
Purchaser provides prior notice to the Company and such pledge or
security interest is structured in compliance with state and federal
securities laws. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith. At the Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer
of the Securities, including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the
list of Selling Stockholders thereunder.
	 
	 	        (c)      Certificates evidencing Securities shall not contain any legend
(including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering
the resale of such security is effective under the Securities Act, or
(ii) following any sale of such Securities pursuant to Rule 144, or (iii)
if such Securities are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the Staff of the Commission). The Company shall cause its
counsel to issue the legal opinion to the Company’s transfer agent on the
Effective Date. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the
resale of the Warrant Shares, such Warrant Shares shall be issued free of
all legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 4.1(c),
it will, no later than five Trading Days following the delivery by a
Purchaser to the Company or the Company’s transfer agent of a certificate
representing Securities issued with a restrictive legend and notice of
such delivery via facsimile transmission to Company’s Counsel, deliver or
cause to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. The
Company may not make any notation on its records or give instructions to
any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section.
	 
	 	        (d)      If the Company fails to deliver or cause to be delivered to any
Purchaser a certificate representing any Securities without legend as set
forth above by the tenth (10th) Trading Day after the date on which
delivery of such certificate is required by any Transaction Document, the
Company shall pay to such Purchaser, in cash, as liquidated 

118

 

		
	 	damages and
not as a penalty, $50 for each $5,000 of Securities so delivered (based
upon the original purchase price of the Securities) for each day after
such tenth (10th) Trading Day until such certificate is delivered.
Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Company’s failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such
Purchaser shall have
the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.

     4.2      Furnishing of Information. As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the
request of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to such laws, it will prepare
and furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.

     4.3      Integration. The Company shall not, and shall use its commercially
reasonable efforts to ensure that no Affiliate of the Company shall, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of
any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers, or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Principal Market.

     4.4      Subsequent Equity Sales. From the date hereof until the Effective
Date, except for (i) upon the exercise of the Warrant; (ii) upon the exercise
of or conversion of any Common Stock Equivalents, options or warrants issued
and outstanding on the date hereof; (iii) upon the grant or exercise of any
Common Stock or Common Stock Equivalents which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such securities is
approved by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose; or (iv) in connection with any
strategic partnership or joint venture or acquisition or key consulting
agreements (the primary purpose of which is not to raise equity capital for the
Company), neither the Company nor any Subsidiary shall issue additional shares
of Common Stock or Common Stock Equivalents (“Subsequent Financing”).

     4.5      Participation in Future Financing. From the date hereof until six
months after the Effective Date, the Company shall not effect any Subsequent
Financing unless (i) the Company delivers to each of the Purchasers a written
notice (the “Subsequent Financing Notice") of its

119

 

intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which shall be
a term sheet or similar document relating thereto and (ii) such Purchaser shall
not have notified the Company by 6:30 p.m. (New York City time)
on the fifth (5th) Trading Day after its receipt of the Subsequent
Financing Notice of its willingness to provide (or to cause its designee to
provide), subject to completion of mutually acceptable documentation, up to
$1,000,000 of such financing to the Company on the same terms set forth in the
Subsequent Financing Notice. If the Purchasers shall fail to so notify the
Company of their willingness to participate in the full Subsequent Financing,
the Company may effect the remaining portion of such Subsequent Financing on
the terms and to the Persons set forth in the Subsequent Financing Notice;
provided that the Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of first refusal
set forth above in this Section, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 45 Trading Days
after the date of the initial Subsequent Financing Notice with the Person
identified in the Subsequent Financing Notice. If the Purchasers indicate a
willingness to provide financing in excess of the amount set forth in the
Subsequent Financing Notice, then each Purchaser will be entitled to provide
financing pursuant to such Subsequent Financing Notice up to an amount equal to
such Holder’s pro rata portion of the Purchase Price, but the Company shall not
be required to accept financing from the Purchaser in an amount in excess of
the total amount of the offering set forth in the Subsequent Financing Notice.
Notwithstanding anything herein to the contrary, prior to the delivery of a
Subsequent Financing Notice and if required by U.S. securities laws, the
Company may require each Purchaser to enter into a confidentiality agreement
with the Company, which agreement shall be reasonably acceptable to the
purchaser and shall be limited in scope to the details of the Subsequent
Financing Notice. Each Purchaser shall have the right to waive a Subsequent
Financing Notice rather than enter into a confidentiality agreement.

     4.6      Securities Laws Disclosure; Publicity. The Company may issue a press
release or file a Current Report on Form 8-K, in each case reasonably
acceptable to the Purchasers disclosing the transactions contemplated hereby
and (ii) make such other filings and notices in the manner and time required by
the Commission. The Company and the Purchasers shall consult with each other
in issuing any press releases with respect to the transactions contemplated
hereby, and neither party shall issue any such press release or otherwise make
any such public statement without the prior consent of the other, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior
written consent of such Purchaser, except to the extent such disclosure is
required by law or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior notice of such disclosure.

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     4.7      Shareholders Rights Plan. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an “Acquiring Person” under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.

     4.8      Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information, including information necessary for the
Purchasers to exercise their rights under Section 4.5, that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

     4.9      Reservation and Listing of Securities.

		
	 	        (a)      The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full
under the Transaction Documents.
	 
	 	        (b)      The Company shall: (i) in the time and manner required by each
Principal Market, prepare and file with such Principal Market an
additional shares listing application covering a number of shares of
Common Stock at least equal to the shares of Common Stock issuable under
this Agreement and pursuant to the Warrants, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing
on each Principal Market as soon as possible thereafter, (iii) provide to
the Purchasers evidence of such listing, and (iv) maintain the listing of
such Common Stock on each such Principal Market or another Principal
Market. Failure to obtain such listing prior to the Effective Date shall
be deemed an Event under the Registration Rights Agreement.

ARTICLE V.
MISCELLANEOUS

     5.1      Fees and Expenses. The Company agrees to pay $15,000 to Purchasers’
Counsel as reimbursement for the Purchasers legal, escrow and other fees and
expenses incurred in connection with the investigation and negotiation of the
transaction and the preparation and negotiation of the Transaction Documents.
Accordingly, in lieu of the foregoing payments, on the Closing Date, the
aggregate amount that the Purchasers are to pay for the Securities at the
Closing will be reduced by $15,000. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the sale of the Securities.

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     5.2      Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements
and understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.

     5.3      Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as set forth
on the signature pages hereto or such other address as may be designated in
writing hereafter, in the same manner, by such Person.

     5.4      Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

     5.5      Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

     5.6      Successors
and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company
may not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the Purchasers. Any Purchaser may assign any or
all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the “Purchasers.”

     5.7      No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6 and 4.7.

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     5.8      Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the principles of conflicts of law thereof.
Each party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan. Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto (including its
affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     5.9      Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and exercise of the
Securities.

     5.10      Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

     5.11      Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

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     5.12      Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time
to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights.

     5.13      Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate
or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.

     5.14      Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

     5.15      Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

     5.16      Independent Nature of Purchasers’ Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible
in any way for the performance of the obligations of any other Purchaser under
any Transaction Document. Nothing contained herein or in any Transaction
Document, and no action taken by any Purchaser pursuant thereto, shall be
deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,

124

 

including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

*******************************

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     IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

	 	 	 	 
	 	 	COMPANY:
	 	 	 	 
	Address for Notice:	 	VERSAR, INC
	6850 Versar Center	 	 	 
	Springfield, VA 22151	 	 	 
	Attn: James Dobbs	 	 	 
	Tel: (703) 642-6712	 	By:  /S/  Theodore M. Prociv        
	Fax: (703) 642-6942	 	 	
Name: Theodore M. Prociv
	 	 	 	
Title: President & CEO
	With a copy to:	 	 	 
	Paul, Hastings, Janofsky & Walker LLP	 	 	 
	600 Peachtree Street, NE, Suite 2400	 	 	 
	Atlanta, GA 30308-2222	 	 	 
	Tel: (404) 815-2287	 	 	 
	Fax: (404) 815-2424	 	 	 
	Attn: Elizabeth Hardy, Esq	 	 	 

PURCHASERS:

RADYR INVESTMENTS LIMITED

	 
	By:    /S/ David Sims        
	 
	Name:  David Sims
	 
	Title:  Director

Subscription Amount: $1,000,000

Number of Shares: 359,183

Short Term Warrant Shares: 179,591 @ $3.4801

Long Term Warrant Shares: 179,591 @ $4.002

Address for Notice of Purchaser:

c/o Beacon Capital Management

Harbour House, 2nd Floor

Waterfront Drive

Road Town, Tortola

British Virgin Islands

Attn: Director

Fax: (284) 494-4090

With a copy to Purchaser’s Counsel as set forth in Section 1.1.

126

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