GSE SYSTEMS, INC.
SENIOR SUBORDINATED SECURED CONVERTIBLE NOTE AND WARRANT
PURCHASE AGREEMENT
May 26, 2005
GSE SYSTEMS, INC.
SENIOR SUBORDINATED SECURED CONVERTIBLE NOTE AND WARRANT
PURCHASE AGREEMENT
This Senior Subordinated Secured Convertible Note and Warrant Purchase
Agreement (the "Agreement") is made as of the 26th day of May 2005 by and
between GSE Systems, Inc., a Delaware corporation (the "Company"), and Dolphin
Direct Equity Partners, LP, a Delaware limited partnership (the "Investor").
RECITALS
The Company desires to issue and sell, and the Investor desires to
purchase, a senior subordinated secured convertible promissory note of the
Company in the aggregate principal amount of $2,000,000 in the form attached to
this Agreement as Exhibit A (the "Note"), which shall be convertible on the
terms stated therein into equity securities of the Company.
The Company desires to issue and the Investor desires to receive a warrant
to purchase an aggregate of 380,952 shares (the "Warrant Shares") of common
stock, par value $0.01 per share (the "Common Stock"), of the Company in the
form attached to this Agreement as Exhibit B (the "Warrant"). The Note, the
Warrant and the Common Stock issuable upon conversion or exercise thereof are
collectively referred to herein as the "Securities." References herein to the
Company include the Company and each of its Subsidiaries (as defined below).
AGREEMENT
In consideration of the mutual promises contained herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement agree as follows:
1. Purchase and Sale of Note and Warrant.
(a) Sale and Issuance of Note and Warrant. Subject to the terms
and conditions of this Agreement, the Investor agrees to purchase at the Closing
(as defined below), and the Company agrees to sell and issue to the Investor at
the Closing, for a purchase price of $2,000,000 delivered in accordance with
Section 1(b)(ii) below, the Note and the Warrant.
(b) Closing; Delivery.
(i) The purchase and sale of the Note and Warrant referred
to in Section 1(a) shall take place simultaneously herewith at the offices of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (which
time and place are designated as the "Closing").
(ii) At the Closing, the Company shall execute and deliver
to the Investor the Note and the Warrant to be purchased or received by the
Investor as contemplated above, the escrow agreement in the form attached hereto
as Exhibit C (the "Escrow Agreement")(also executed and delivered by the
Investor and the escrow agent thereunder), the security agreement in the form
attached hereto as Exhibit D (the "Security Agreement")(also executed and
delivered by the Investor), the pledge agreement in the form attached hereto as
Exhibit E (the "Pledge Agreement")(also executed and delivered by the Investor),
the subordination agreement in the form attached hereto as Exhibit F (the
"Subordination Agreement") (also executed and delivered by the Investor and
Wachovia Bank, National Association) and each other document or instrument to be
executed in connection herewith or therewith (all of the foregoing,
collectively, the "Transaction Documents"), against delivery by the Investor of
(A) the purchase price as follows: (1) a wire transfer to the escrow agent
under the Escrow Agreement in the amount of $500,000 in accordance with the
terms hereof and thereof, (2) payment to the Investor in the aggregate net
amount of $109,000, consisting of (w) a closing fee in the amount of $78,000,
plus (x) a structuring fee in the amount of $13,500, plus (y) a reimbursement of
legal expenses in the amount of $25,000, minus (z) a prepayment in the amount of
$7,500, which aggregate net amount shall be retained by the Investor from the
purchase price, and (3) a wire transfer to a bank designated by the Company in
the amount of the purchase price contemplated by Section 1(a) above, less the
$500,000 referred to in clause (1) above and the $109,000 referred to in clause
(2) above, and (B) such documentation as is required pursuant to this Agreement.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor as follows:
(a) Duly Incorporated. Each of the Company and the Subsidiaries (as
defined in the Note) is a corporation duly incorporated, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation or
formation, as the case may be, with the requisite power and authority to own,
lease and operate its respective properties and conduct its respective
businesses as presently conducted or proposed to be conducted, and is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below).
(b) Corporate Power. The execution and delivery of this Agreement, the
Note, the Warrant, the Security Agreement, the Pledge Agreement, the
Subordination Agreement and each other Transaction Document are within the
Company's and each Subsidiary's, as the case may be, powers and have been duly
authorized by all necessary corporate and, if required, stockholder action. The
Transaction Documents have been duly executed and delivered by the Company and
each Subsidiary party thereto and each constitutes a legal, valid and binding
obligation of the Company and the Subsidiaries party thereto, as the case may
be, enforceable in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and general equity
principles (whether considered in a proceeding in equity or at law).
(c) Capitalization. The capitalization of the Company is set forth in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2004 as filed with the Commission (as defined below) prior to the date hereof
(the "Form 10-K"), and the information set forth in the Form 10-K is true,
correct and complete in all material respects as of the date thereof. The
Company does not own directly or indirectly more than 5% of any class of capital
stock or other equity or long-term debt securities of or have any equity
interest in excess of 5% of any other person, other than the Subsidiaries and
Red Storm Scientific LLC; all of the outstanding shares of capital stock of the
Company and each Subsidiary that is a corporation have been duly authorized and
validly issued, are fully paid and non-assessable and were not issued in
violation of any preemptive or similar rights and are owned free and clear of
all liens, encumbrances, equities and restrictions on transferability (other
than those imposed by the Securities Act (as defined below) and the state
securities or "Blue Sky" laws) or voting. Except as set forth in the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2005 (the "March
31, 2005 Form 10-Q"), no options, warrants or other rights to purchase from the
Company, agreements or other obligations of the Company to issue or other rights
to convert any obligation into, or exchange any securities for, shares of
capital stock of or ownership interests in the Company are outstanding. Except
as reflected in the SEC Reports (as defined below), there is no agreement,
understanding or arrangement among the Company and each of its stockholders or
any other person relating to the ownership or disposition of any capital stock
of the Company or any Subsidiary or the election of directors of the Company or
the governance of the Company's affairs, and, if any, such agreements,
understandings and arrangements will not be breached or violated as a result of
the execution and delivery of, or the consummation of the transactions
contemplated by, the Transaction Documents.
(d) No Consents. The execution and delivery of the Transaction
Documents and the issuance of the Securities (i) does not require any consent or
approval of, registration or filing with, or any other action by, any
governmental authority, (ii) will not violate any applicable law or regulation
applicable to the Company or any Subsidiary or the articles of incorporation or
comparable formation documentation of the Company or any Subsidiary, the bylaws
or comparable documentation of the Company or any Subsidiary or other agreement
of the Company or any subsidiary or any order of any governmental authority
applicable to the Company or any of its subsidiaries, (iii) will not violate any
agreement of the Company or any Subsidiary or result in a default under any
agreement or instrument evidencing or governing any indebtedness of the Company
or any Subsidiary or assets of the Company or any Subsidiary or give rise to a
right thereunder to require any payment to be made by the Company or any
Subsidiary, and (iv) will not result in the creation or imposition of any lien
on any asset of the Company or any Subsidiary, except for liens created or
imposed pursuant to this Agreement.
(e) SEC Reports; Financial Statements; ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act Compliance.
The Company has filed all reports required to be filed by it under the
Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including pursuant to
Section 13(a) or Section 15(d) of the Exchange Act, for the three (3) years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports"). 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 Securities and Exchange Commission (the "Commission")
promulgated thereunder, as applicable, 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. Since January 1, 2004, the staff of the Division of Corporation
Finance of the Commission has not provided the Company with any comments on any
registration statement, report or other document filed with the Commission under
the Securities Act or the Exchange Act. 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 United States 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 except that unaudited financial statements may not contain
all footnotes required by GA AP, 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,
immaterial, year-end audit adjustments. KPMG LLP, which have certified certain
financial statements of the Company and its consolidated subsidiaries included
in the SEC Reports, are independent public accountants as required by the
Securities Act, the Exchange Act and the respective rules and regulations of the
Commission thereunder and are registered and in good standing with the Public
the Company Accounting Oversight Board in accordance with the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
of 2002. Except as disclosed as such in the SEC Reports, the Company is in
compliance with all applicable material requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
of 2002 and applicable rules and regulations promulgated by the Commission
thereunder in effect as of the date of this Agreement. The Company does not have
pending before the Commission any request for confidential treatment of
information.
(f) Material Changes. Since December 31, 2004, other than as described
in registration statements and reports filed with the Commission, (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 material 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, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its holders of Common Stock 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. For purposes herein, a "Material Adverse Effect" shall mean (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Documents, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company's ability to perform in any material respect on a timely basis its
obligations under the Transaction Documents.
(g) Litigation. Other than potential claims by ▇▇▇▇ ▇▇▇▇▇▇▇▇, a former
employee of the Company (the "▇▇▇▇▇▇▇▇ Potential Claim"), and by a group of
former employees including ▇▇▇▇ ▇▇▇▇ (the "▇▇▇▇ Potential Claim"), there is no
action, suit, inquiry, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or likely to materially
affect the Company, any Subsidiary or any of their respective properties before
or by any court, arbitrator, governmental or administrative agency and/or
regulatory authority (federal, state, county, local or foreign), including, but
not limited to, the Commission or any State Attorney General (collectively, an
"Action") which (i) adversely affects or challenges or could adversely affect or
challenge the legality, validity or enforceability of any of the Transaction
Documents or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor, to the knowledge of the Company, any current director or officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state or province securities laws or a claim of
breach of fiduciary duty. There is not pending or, to the knowledge of the
Company, contemplated, any investigation by the Commission and/or other entity
involving the Company or any current directors or officers of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(h) 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 or any Subsidiary that could reasonably be expected to result in a
Material Adverse Effect, other than the ▇▇▇▇▇▇▇▇ Potential Claim and the ▇▇▇▇
Potential Claim.
(i) Compliance. Neither the Company nor any Subsidiary (a) 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), other than as
disclosed in the March 31, 2005 Form 10-Q, (b) is in violation of any order of
any court, arbitrator or governmental body, or (c) is or has been in violation
of any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws applicable to its
business, except in the case of clauses (a), (b) and (c) as would not result in
a Material Adverse Effect.
(j) Regulatory Permits. Each of the Company and the Subsidiaries
possesses all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such permits
would not have or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any
Material Permit.
(k) Title to Assets. All material property and assets owned by the
Company and the Subsidiaries are owned outright free and clear of mortgages,
pledges, security interests, liens, charges and other encumbrances, except for
(i) liens securing Existing Senior Indebtedness (as defined in the Note)
pursuant to the Senior Credit Agreement (as defined in the Note) as of the date
hereof, (ii) Permitted Liens (as defined in the Senior Credit Agreement) as of
the date hereof, (iii) liens for current taxes not yet due, and (iv) minor
imperfections of title, if any, not material in amount and not materially
detracting from the value or impairing the use of the property subject thereto
or impairing the operations of the Company or any Subsidiary.
(l) Intellectual Property Rights.
(i) The Company and its Subsidiaries own, or possess
adequate rights or licenses to use, all trademarks, trademark applications,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent applications, patent rights, copyrights, copyright applications,
inventions, licenses, permits, approvals, governmental authorizations,know-how
(including trade secrets and other unpatented and/or unpatentableproprietary and
confidential information, systems or procedures) and otherintellectual property
rights (collectively, the "Intellectual PropertyRights") necessary to conduct
their respective businesses as now conductedor proposed to be conducted. The
Company's and the Subsidiaries' Intellectual Property Rights are valid and
enforceable, and no registration relating thereto has lapsed, expired or been
abandoned or cancelled or is the subject of cancellation or other adversarial
proceedings, or is expected to expire or terminate within three years from the
date of this Agreement, and all applications therefor are pending and in good
standing. Neither the Company nor any Subsidiary has any knowledge of any
infringement by the Company of Intellectual Property Rights of others, or of any
such development of similar or identical trade secrets or technical information
by others and no claim, action or proceeding has been made or brought against,
or to the Company's knowledge, has been threatened against, the Company or the
Subsidiaries regarding infringement of Intellectual Property Rights. All
personnel, including employees, agents, consultants and contractors, who have
contributed to or participated in the conception and development of the
Company's and the Subsidiaries' Intellectual Property Rights have either (a)
been a party to a "work for hire" arrangement or agreement with the Company or a
Subsidiary, in accordance with federal, state or province law, that by its terms
accords to the Company or a Subsidiary ownership of all tangible or intangible
property thereby arising, or (b) have executed appropriate instruments of
assignment in favor of the Company or a Subsidiary as assignee that bytheir
terms validly convey to the Company or a Subsidiary complete and sole ownership
of all tangible and intangible property thereby arising, and the Company and the
Subsidiaries have taken other reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property Rights.
(ii)Neither the Company nor any Subsidiary is in material
default under or in material 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
material default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in material default under
or that it is in material violation of, any license agreement, collaboration
agreement, development agreement or similar agreement relating to their
respective businesses.
(m) Transactions With Affiliates and Employees. Other than as
described in SEC Reports, none of the officers, directors, employees and/or
affiliates of the Company or the Subsidiaries is 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 employee or such affiliate 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, partner or affiliate,
other than (a) for payment of salary or consulting fees for services rendered,
(b) reimbursement for expenses incurred on behalf of the Company and (c) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(n) Disclosure Controls and Procedures; Internal Accounting Controls.
Other than as described in SEC Reports, the management of the Company has (i)
designed disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
management of the Company by others within those entities, and (ii) has
disclosed, based on its most recent evaluation, to the Company's outside
auditors and the audit committee of the Board of Directors (A) any significant
deficiencies in the design or operation of internal controls which could
adversely affect the Company's ability to record, process, summarize and report
financial data and have identified for the Company's outside auditors any
material weaknesses in internal controls and (B) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the Company's internal controls. Other than as described in SEC Reports,
each of the Company and the Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(o) Listing and Maintenance Requirements. The Company is, and has not
received any notice from the American Stock Exchange ("Amex") that it will not
in the foreseeable future continue to be, in compliance with all listing and
maintenance requirements of the Amex, on which the Common Stock is traded.
(p) Tax Status. Each of the Company and the Subsidiaries has made or
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations or to the Company's knowledge otherwise due and payable, except
those being contested in good faith and has set aside on its books reserves in
accordance with GAAP reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
(q) Right of First Refusal; Anti-Dilution Right. No person is a party
to any agreement, contract or understanding, written or oral entitling such
party to (i) a right of first refusal or (ii) purchase or otherwise receive any
securities of the Company or any Subsidiary, at any time, in each case with
respect to offerings of securities by the Company or any Subsidiary.
(r) Insurance. Each of the Company and the Subsidiaries maintain
insurance of the types and in the amounts deemed adequate for their respective
businesses, including, but not limited to, product liability insurance,
insurance covering real and personal property owned or leased by the Company and
the Subsidiaries against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full force
and effect.
(s) Environmental. Each of the Company and the Subsidiaries is, to the
best of its knowledge, in material compliance with all applicable published
rules and regulations (and applicable standards and requirements) of the United
States Environmental Protection Agency (the "EPA") and of any similar foreign or
state agency. To the knowledge of the Company, there is no material suit, claim,
action or proceeding now pending before any court, governmental agency or board,
or other forum, nor is any of the same threatened by any Person; and, there is
no fact or circumstance actually known to the Company which could reasonably be
anticipated to be the basis for any such suit, claim, action or proceeding, for
(i) noncompliance by the Company or any Subsidiary with any environmental law,
rule, regulation or requirement, or (ii) relating to the release or threatened
release into the environment by the Company or any Subsidiary of any pollutant,
toxic or hazardous material, oil, or waste generated by the Co mpany or any
Subsidiary. To the knowledge of the Company, neither the Company nor any
Subsidiary has released any Hazardous Materials (as hereinafter defined) at any
site owned or leased by the Company or any Subsidiary or shipped any Hazardous
Materials for treatment, storage or disposal at any other site of facility. For
purposes of this Section 2(s), "Hazardous Materials" shall mean and include any
solid, hazardous or toxic waste, substance or material as defined in the United
States Resource Conservation and Recovery Act; the Clean Air Act; the Clean
Water Act; the Toxic Substances Control Act; the Comprehensive Environmental
Response, Compensation and Liability Act; applicable foreign and state laws for
the protection of the environment, and the regulations promulgated under any of
the foregoing.
(t) Conduct of Business. Except as disclosed in the March 31, 2005
Form 10-Q, since December 31, 2004, neither the Company nor any Subsidiary has
(a) incurred any debts, obligations or liabilities, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities incurred in the usual and ordinary course of business, having a
Material Adverse Effect, (b) made or suffered any changes in its contingent
obligations by way of guaranty, endorsement (other than the endorsement of
checks for deposit in the usual and ordinary course of business), indemnity,
warranty or otherwise, (c) discharged or satisfied any liens other than those
securing, or paid any obligation or liability other than, current liabilities
shown on the balance sheet dated as at December 31, 2004, and forming part of
the SEC Reports, and current liabilities incurred since December 31, 2004, in
each case in the usual and ordinary course of business, (d) mortgaged, pledged
or subjected to lien any of its assets, tangible or intangible, (e) sold,
transferred or leased any of its assets except in the usual and ordinary course
of business, (f) cancelled or compromised any debt or claim, or waived or
released any right, of material value, except that upon consummation of the
transactions contemplated hereby, the agreement by GP Strategies Corporation to
lend up to $1,000,000 to the Company shall terminate, (g) suffered any physical
damage, destruction or loss (whether or not covered by insurance) adversely
affecting the properties or business of the Company, (h) entered into any
transaction other than in the usual and ordinary course of business except for
this Note and the related agreements referred to herein, (i) encountered any
labor difficulties or labor union organizing activities, (j) made or granted any
wage or salary increase or entered into any employment agreement, (k) issued or
sold any shares of capital stock or other securities or granted any options with
respect thereto, or modified any equi ty security of the Company, except
pursuant to existing Company stock option plans disclosed in the Company's most
recent Definitive Schedule 14A filed with the Commission, (l) declared or paid
any dividends on or made any other distributions with respect to, or purchased
or redeemed, any of its outstanding equity securities, (m) suffered or
experienced any change in, or condition affecting, its condition (financial or
otherwise), properties, assets, liabilities, business operations or results of
operations, other than changes, events or conditions in the usual and ordinary
course of its business, having (either by itself or in conjunction with all such
other changes, events and conditions) a Material Adverse Effect, (n) made any
change in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted, or (o)
entered into any agreement or otherwise obligated itself, to do any of the
foregoing.
(u) Conversion Securities. The equity securities issuable upon
conversion of the Note and the exercise of the Warrant, when issued in
compliance with the provisions of the Note (assuming the holder of the Note
converts it into equity securities) or the Warrant, as applicable, will be duly
authorized and validly issued, fully paid and nonassessable, and will be free of
any liens or encumbrances created by the Company.
(v) Registration. Provided that the representations and warranties of
the Investor in Section 3 are true and correct, the execution, issuance and
delivery of the Transaction Documents, each issuance and sale of the Note and
Warrant pursuant hereto and the Securities issuable upon conversion of the Note
and the exercise of the Warrant will be exempt from registration under the
Securities Act.
(w) Stockholder Approval. The Company has obtained and prior to the
date hereof delivered to the Investor a true and correct copy of the majority
written consent (the "Majority Consent") of the stockholders of the Company,
certified as such by the Secretary of the Company, that irrevocably authorizes
and approves the transactions contemplated by this Agreement, including without
limitation the issuance and sale of the Note and Warrant, and the Transaction
Documents, which Majority Consent constitutes all stockholder approval required
pursuant to all applicable rules and regulations of the Amex (the "Amex
Stockholder Approval Requirements"), including without limitation Sections 705
and 713 of the Amex Company Guide, in order to permit the issuance and sale of
the Note and Warrant. Prior to the Closing, the Company shall have prepared and
delivered to the Investor in draft form a copy of its information statement on
Schedule 14C as promulgated by the Commission relating to the Majority Consent
(the "Information Statement").
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
(a) Authorization. The Investor has full power and authority to enter
into this Agreement. This Agreement, when executed and delivered by the
Investor, will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies.
(b) Investor Entirely for Own Account. This Agreement is made with
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement, the Investor hereby
confirms, that the Securities to be acquired by the Investor will be acquired
for investment for the Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Investor
further represents that the Investor does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Investor has not been formed for the specific purpose of
acquiring any of the Securities.
(c) Knowledge. The Investor is aware of the Company's business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Securities.
(d) Restricted Securities. The Investor understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Investor's representations as
expressed herein. The Investor understands that the Securities are "restricted
securities" under applicable U.S. federal, state and province securities laws
and that, pursuant to these laws, the Investor must hold the Securities
indefinitely unless they are registered with the Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Other than as set forth herein, the Investor
acknowledges that the Company has no obligation to register or qualify the
Securities for resale. The Investor further acknowledges that if an exemption
from registration or qualification is available, it may be conditioned on
various requirements including, but not limited to, the time and manner of sale,
the holding period for the Securities, and on requirements relating to the
Company which are outside of the Investor's control, and which the Company is
under no obligation and may not be able to satisfy.
(e) No Public Market. The Investor understands that no public market
now exists for the Note or the Warrant and that the Company has made no
assurances that a public market will ever exist for the Note or the Warrant.
(f) Legends. The Investor understands that the Securities, and any
securities issued in respect thereof or exchange therefor, except as set forth
below, may bear a legend to the following effect:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO GSE SYSTEMS, INC.,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT."
This legend shall be removed upon a written request to the Company's transfer
agent for removal and the Company shall issue the relevant Securities without
such legend to the holder of the Securities requesting such removal if (x) such
Securities are registered for resale under the Securities Act, or (y) such
holder provides the Company with reasonable assurances that the Securities can
be sold pursuant to Rule 144; provided that such Securities not sold pursuant to
a registration statement or other transaction pursuant to which an unlegended
certificate may be issued shall be returned for re-legending within a reasonable
time following written notice from the Company to each holder thereof.
(ii) Any legend required by the applicable Blue Sky laws of
any state.
(g) Accredited Investor. The Investor is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act,
pursuant to clause (3) thereof.
4. Covenants.
(a) For so long as the Note remains outstanding,
(i) Maintaining Properties, Assets. The Company shall reasonably
maintain in good repair, working order and condition its properties and other
assets, and those of any Subsidiary, and from time to time make all reasonably
necessary repairs, renewals and replacements thereto.
(ii) Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, create, incur or suffer to exist any security interests,
liens, claims, charge or encumbrances ("Liens") upon any of its or its
Subsidiaries' assets or properties, except for (i) Liens created by operation of
law such as ▇▇▇▇▇▇▇'▇ liens, mechanic's liens and other similar liens;
(ii) deposits, pledges or Liens securing obligations incurred in respect of
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits; (iii) Liens imposed by any governmental authority for
taxes, assessments or charges not yet due or that are being contested in good
faith by appropriate proceedings with the establishment of adequate reserves on
the balance sheet of the Company; (iv) Liens securing, or expressly permitted by
as of the date hereof, Existing Senior Indebtedness; and (v) Liens that are
subordinate in all respects to the Liens held by the Investor.
(iii) Extraordinary Actions. The Company shall not nor shall
it permit any Subsidiary to: (i) acquire, sell or otherwise transfer any
material assets or rights of the Company or a Subsidiary, or enter into any
contract or agreement relating to the sale of assets, which is not consummated
pursuant to an arms length transaction, (ii) enter into any contract, agreement
or transaction (including any transfer or sale of Intellectual Property Rights)
with any officer, director, stockholder or affiliate of the Company or a
subsidiary other than ordinary course transactions that are consistent with past
practice and pursuant to arms length terms, (iii) directly or indirectly pay or
declare any dividend or make any distribution upon, redeem, retire or repurchase
or otherwise acquire, any shares of capital stock or other securities of the
Company or a Subsidiary, other than approximately $366,065 of dividends
currently owed to ManTech International on preferred stock of the Company that
has been converted into Common Stock, or (iv) materially change the Company's
or any Subsidiary's line of business as currently conducted.
(b) Until the date occurs on which: (A) no Note or Warrant remains
outstanding and (B) either (x) no share of Common Stock issued upon the
conversion or exercise of the Note or Warrant remains outstanding or (y) 180
days have elapsed since the date upon which any Note or Warrant was last
outstanding,
(i) Non-Public Information. The Company covenants and agrees
that neither it nor any other person acting on its behalf will provide Investor
or its agents or counsels with any information that the Company believes
constitutes material non-public information, and, in any event, the Company
hereby agrees that Investor shall not have any duty of confidentiality or any
other obligation with respect to any such information if any such disclosure
occurs, subject to the Investor complying with all applicable securities laws.
(ii) Form D and Blue Sky. If required, the Company shall file a
Form D with respect to the issuance of the Note and the Warrant (or the issuance
of Common Stock or other equity securities upon conversion of the Note or
exercise of the Warrant) as required under Regulation D under the Securities Act
and, upon written request, provide a copy thereof to the Investor promptly after
such filing. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Note and Warrant for sale to the Investor pursuant to this Agreement (or the
issuance of Common Stock or other equity securities upon conversion of the Note
or exercise of the Warrant) under applicable securities or "Blue Sky" laws of
the states of the United States, and shall provide evidence of any such action
so taken to the Investor promptly after such filing. However, the Company shall
not be required to execute any general consent to service of process in order to
obtain such blue sky clearance, except in a jurisdiction where the Company is
already subject to such process.
(iii) Listing of Common Stock. The Company hereby agrees to use
its best efforts to maintain the listing and trading of the Common Stock on the
Amex or another Eligible Market (as defined in the Note) and to file with the
Amex to list the applicable shares of Common Stock issuable in connection
herewith on the trading market, including all prior notices to Amex as required
by the bylaws, rules, regulations and policies thereof. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
trading market, it will include in such application the shares of Common Stock
issuable in connection herewith and will take such other action as is necessary
or desirable to cause such shares to be listed on such other trading market as
promptly as possible. The Company will use its best efforts to comply in all
material respects with the Company's reporting, filing and other obligations
under the bylaws, rules, regulations and policies of the Amex or another
Eligible Market for so long as the Common Stock is listed on the Amex or such
other Eligible Market, as the case may be.
(iv) Furnishing of Information. The Company covenants and agrees
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. Until neither the Investor, nor
any of its successors or assigns, owns any Note, Warrant or any Registrable
Securities (as defined below), if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to Investor and make
publicly available in accordance with Rule 144(c) such information as is
required for Investor to sell its shares of Common Stock under Rule 144. The
Company further covenants and agrees that it will take such further action as
Investor may reasonably request, all to the extent required from time to time to
enable such person to sell any shares of Common Stock without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144.
(v) Shareholders Rights Plan. No claim will be made or enforced
by the Company or any other person that Investor is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that the Investor could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Registrable Securities under the Note, Warrant or under any other agreement
between the Company and the Investor.
(vi) Reporting Obligations. The Company shall continue to file
or furnish pursuant to the Exchange Act or the Securities Act, and the Company
shall use commercially reasonable best efforts to maintain its status as an
issuer required to file such reports under the Exchange Act. In addition, the
Company shall take all actions necessary to continue to meet the "registrant
eligibility" requirements set forth in the general instructions to Form S-3 or
any successor form thereto, to continue to be eligible to register the resale of
the shares of Common Stock issuable on the conversion of the Note or exercise of
the Warrant under the Securities Act on such Form.
(c) Information Statement. The Information Statement shall be filed by
the Company with the Commission within ten Business Days of the date of the
Closing and neither it nor any amendment or supplement thereto, as so filed or
mailed to stockholders of the Company, shall contain an untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein not misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the Majority Consent that has become false or misleading. In connection with the
Information Statement and the Majority Consent, the Company shall comply in all
respects with Regulation 14(c) of the Exchange Act and the rules and regulations
thereunder. The Company shall provide a copy of any written comments received
from the Commission, and any written responses thereto, with respect to the
Information Statement within one Business Day of its receipt or delivery
thereof, as the case may be, and shall use its best efforts to respond to such
comments on, obtain Commission approval of and mail to the stockholders of the
Company the Information Statement as soon as possible following the date hereof.
The Company shall notify the Investor in writing at least five Business Days
prior to the date that is the last day of the 20-day period commencing on the
mailing date of the Information Statement to stockholders of the Company
contemplated by Rule 14c-2(b) with respect to the Information Statement and the
Majority Consent, which notice shall specify the last day of such 20-day period.
The limitation on the increase in the number of shares of Common Stock issuable
upon the conversion into Common Stock of the Note as contained in Section 3(d)
thereof (the "Conversion Share Limit") shall automatically terminate and be of
no force or effect ab initio (the "Conversion Share Limit Termination") at the
end of the 20-day period referenced above, and any such increases that would
have occurred but for the effectiveness of the Conversion Share Limit shall be
effected for all purposes. After the Conversion Share Limit Termination, the
transactions contemplated by this Agreement, including the issuance of the Note
without any such limitation on the number of shares of Common Stock issuable
upon conversion thereof, shall be in full compliance with the Amex Stockholder
Approval Requirements.
(d) Stockholder Approval Default. In the event that, for any reason
whatsoever, on or prior to the 75th day after the date of the Closing, (i) the
Conversion Share Limit Termination has not occurred in accordance with all of
the terms of the last sentence of Section 4(c), or (ii) the Company has not
provided written notice to the Holder certified by an authorized officer of the
Company to the effect that all of the covenants contained in such sentence have
been performed in full, then the Company shall pay to the Investor $500,000 in
cash, as liquidated damages and not as a penalty, which amount shall be paid out
of an escrow account funded as contemplated by Section 1(b) hereof and created
for the purposes of this Section 4(d) pursuant to the Escrow Agreement. In the
event of the payment of such liquidated damages, the Company shall continue to
use its best efforts to effect the Conversion Share Limit Termination as soon as
practicable.
5. Registration Rights.
(a) Piggyback Registration Rights in the Company. If, at any time,
there is not an effective registration statement covering the resale all of the
shares of Common Stock of the Company issued pursuant to or in connection with
the conversion of the Note or exercise of the Warrant, including without
limitation any additional such shares as may be issued in connection with any
adjustment affecting the number of such shares pursuant to the Note or the
Warrant (collectively, the "Registrable Securities"), and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act, of any of its equity securities (other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock optio n or other employee benefit plans), then the Company
shall send to Investor a written notice of such determination and, if within ten
(10) days after receipt by Investor of such notice, the Company shall receive a
request in writing from Investor, the Company shall include in such registration
statement all or any part of such Registrable Securities Investor requests to be
registered at no cost to Investor (other than underwriting discounts, fees and
commissions). Investor (or its designee(s)) shall also be provided with such
other rights, and the Company shall have such obligations, as customarily
accompany investor piggyback registration rights, including, without limitation,
the right of Investor to customary indemnification by the Company, the Company's
obligation to prepare and file with the Commission such amendments and
supplements to such registration statement as may be necessary to keep such
registration statement effective until the disposition of all securities covered
by such registration state ment, the obligation of the Company to register and
qualify the securities covered by such registration statement under applicable
state securities and blue sky laws, the obligation of the Company to cause the
securities covered by such registration statement to be listed or quoted on the
principal exchange (which as of the date hereof is Amex) or electronic quotation
system on which the Company's Common Stock is then listed or quoted (the
"Principal Market) and the obligation of the Company to cause to be provided
customary legal opinions and comfort letters of its independent certified
accountants if requested in connection with a sale pursuant to such registration
statement. Notwithstanding the foregoing, if a registration involves an
underwritten offering, and the lead managing underwriter shall advise the
Company that the amount of securities to be included in the offering exceeds the
amount which can be sold in the offering, the number of securities owned by
Investor to be included in the offering shall be eliminated or reduced as
required by the managing underwriter; provided that in the event of any such
reduction, all securities of any other selling stockholder for which a bonafide
irrevocable commitment (included in such underwriter advice) has been made for
inclusion in such registration shall be reduced in the same proportion.
(b) Registration Right in the Company.
(i) No later than thirty days following the date of the
Closing (assuming no registration statements have been filed as provided in
Section 5(a) that already cover the resale of all of the Registrable
Securities), the Company shall prepare and file with the Commission a
registration statement (the "Registration Statement") covering the resale of all
of the Registrable Securities not included in any another effective registration
statement of the Company, which offering shall be made on a continuous basis
pursuant to Rule 415 under the Securities Act. The Registration Statement
required hereunder shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in which
case the Registration Statement shall be on another appropriate form in
accordance herewith). The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in no event later than
ninety days from the date of this Agreement. The Company shall use its best
efforts to keep the Registration Statement continuously effective under the
Securities Act until the date when all Registrable Securities covered by the
Registration Statement (a) have been sold pursuant to the Registration Statement
or an exemption from the registration requirements of the Securities Act or (b)
may be sold without any volume or other restrictions pursuant to Rule 144(k).
The Investor (or its designee(s)) shall also be provided with such other
rights, and the Company shall have such obligations, as customarily accompany
investor registration rights, including, without limitation, the right of
Investor to customary indemnification by the Company, the Company's obligation
to prepare and file with the Commission such amendments and supplements to such
registration statement as may be necessary to keep such registration statement
effective until the disposition of all securities covered by such registration
statement, the obligation of the Company to register and qualify the securities
covered by such registration statement under applicable state securities and
blue sky laws (provided, however, that the Company shall not be required to
execute any general consent to service of process in order to obtain such blue
sky clearance, except in a jurisdiction where the Company is already subject to
such process), the obligation of the Company to cause the securities covered by
such registration statement to be listed or quoted on the Principal Market and
the obligation of the Company to cause to be provided customary legal opinions
and comfort letters of its independent certified accountants if requested in
connection with a sale pursuant to such registration statement).
(ii) Filing Default Liquidation Damages. If a Registration
Statement is not filed on or prior to the date that is thirty days following the
date hereof (the "Filing Deadline Penalty Date"), then the Company shall pay to
the Investor an amount in cash, until the earlier of the date that the
Registration Statement is filed or the Registrable Securities may be sold
pursuant to Rule 144(k) without regard to volume or other restrictions, as
liquidated damages and not as a penalty, (i) two percent of the outstanding
Principal (as defined in the Note) for the first thirty days (or any part
thereof) following the Filing Deadline Penalty Date, and (ii) an additional two
percent of such outstanding Principal for each thirty-day period subsequent
thereto (or any part thereof), such payment(s) to be made in immediately
available funds no later than five days after the first date of each such
thirty-day period (or any part thereof).
(iii) Effectiveness Default Liquidation Damages. In
addition to any liquidated damages paid, accrued and/or to be paid pursuant to
Section 5(b)(ii), if (1) the Registration Statement is not declared effective on
or prior to ninety days following the date of the Closing, or (2) if the
Registration Statement has been declared effective and subsequent thereto is not
effective (or otherwise does not permit the resale of the Registrable Securities
covered thereby) for any period of time until the date that the Investor no
longer owns any Registrable Securities, other than as provided in Section 5(d)
(an "Effectiveness Default"), then the Company shall pay to the Investor an
amount in cash, as liquidated damages and not as a penalty, equal to (i) two
percent of the outstanding Principal for the first thirty days (or any part
thereof), and (ii) an additional two percent of such Principal for each
thirty-day period subsequent thereto (or any part thereof) until the earlier of
such date (a) the Reg istration Statement is declared effective and permits the
resale of the Registrable Securities covered thereby (or if previously declared
effective until the date the Registration Statement becomes effective again and
otherwise permits the resale of the Registrable Securities covered thereby), and
(b) the Registrable Securities may be sold pursuant to Rule 144(k) without
volume limitation or other restriction. Any such payment(s) shall be made in
immediately available funds no later than five days after the first day of each
thirty-day period (or any part thereof), as the case maybe, of each such
Effectiveness Default.
(c) No Inconsistent Agreements. The Company agrees not to enter into
any other agreement that is inconsistent with the registration rights provisions
of this Agreement or contains registration rights provisions which are senior to
the registration rights granted in this Agreement.
(d) Suspension of Registration. Under any Registration Statement filed
pursuant to this Section 5, the Company may restrict disposition of Registrable
Securities, and Investor will not be able to dispose of such Registrable
Securities, if the Company shall have delivered a certificate signed by an
officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company a delay in the disposition of such Registrable
Securities is necessary because the Company has determined that such sales would
require public disclosure by the Company of material nonpublic information that
is not included in such registration statement. In the event of the delivery of
such certificate, the Company shall use its best efforts to amend such
Registration Statement or amend or supplement the related prospectus as
necessary, and take all other actions necessary, to allow the proposed sales to
take place as promptly as possible (or, if in the reasonable judgment of the
Board of Directors of the Company disclosure of such information would be
detrimental to the Company, promptly after the date that disclosure of such
information would not be detrimental to the Company; provided, however, that
such right to delay the sales of Registrable Securities may be exercised by the
Company not more than twice in any 12-month period and that the delays in the
sale of the Registrable Securities included in the Registration Statement shall
not in the aggregate exceed 90 days in any 12-month period.
6. Conditions to Closing. The obligation of the Investor to purchase and
pay for the Note and Warrant in accordance with Section 1 is subject to the
satisfaction by the Company or waiver in writing by the Investor of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the date of the Closing, with the same effect
as though such representations and warranties had been made on and as of that
date (except for representations and warranties that speak as of a specific
date, in which case such representations and warranties shall be true and
correct in all material respects on and as of such specific date).
(b) Performance. The Company shall have performed and complied in
all material respects with all agreements and obligations contained in this
Agreement or the other Transaction Documents that are required to be performed
or complied with by it on or before the Closing.
(c) Officer's Certificate. The Company shall have delivered to the
Investor a certificate of an executive officer of the Company, dated the date of
the Closing, certifying to the effect that the conditions contained in Sections
6(a) and (b) have been fulfilled.
(d) Approvals. All authorizations, approvals or permits, if any, that
are required in connection with the issuance and sale of the Note and Warrant
pursuant to this Agreement shall be obtained and effective as of the date of the
Closing. The Company shall have obtained all necessary "blue sky" permits and
qualifications, or have the availability of exemptions therefrom, required by
any state for the offer and sale of the Note and Warrant.
(e) Organizational Documents. The Company shall have delivered to
the Investor (a) a certificate evidencing the good standing of the Company in
the State of Delaware issued by the Secretary of State of the State of Delaware
and dated no earlier than three (3) Business Days prior to the date of the
Closing, and (b) a certificate of the Secretary of the Company, dated as of the
date of the Closing, certifying as to (i) the resolutions of the Board of
Directors of the Company approving this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby (and certifying that such resolutions have not been modified, amended or
revoked and remain in full force and effect), (ii) the Certificate of
Incorporation, as in effect as of the date of the Closing, and (iii) the
By-laws, as in effect as of the date of the Closing.
(f) Filings. The Company shall have made all filings, if any,
under all applicable federal and state securities laws necessary to consummate
the issuance of the Note and Warrant pursuant to this Agreement in compliance
with such laws.
(g) Amex Listing. The Common Stock shall not have been suspended
by the Commission from trading on the Amex nor have been delisted by the
Amex nor shall suspension by the Commission or the Amex or delisting by the Amex
have been threatened in writing by the Commission or the Amex. The Company shall
be in full compliance with all Amex listing maintenance requirements, other than
the director meeting requirements.
(h) Purchased Shares. The Company shall have delivered to the
Investor valid certificates in the form attached hereto representing the Note
and the Warrant in each case registered in the name of the Investor.
(i) Miscellaneous. The Company shall have delivered to the Investor
the Security Agreement, the Pledge Agreement, the Escrow Agreement (and the
Escrow Agreement shall have been fully funded in accordance with the terms
hereof and thereof) and the instruments and documents required to be delivered
thereunder or in connection therewith and such other documents relating to the
transactions contemplated by the Transaction Documents as the Investor or its
counsel may reasonably request.
7. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
(b) Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of law.
(c) Indemnification. In consideration of the Investor's execution and
delivery of the Transaction Documents and acquiring the Note and Warrant
hereunder and thereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and each other holder of the Note or
Warrant and all of their stockholders, partners, members, officers, directors,
employees and direct or indirect investors and any of the foregoing Persons'
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and reasonable expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents, or
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.
(d) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(f) Notices. All notices, consents, demands, instructions, requests
and other communications required or permitted hereunder must be in writing and
shall be deemed to have been duly given only if delivered personally, by
facsimile transmission, by first-class mail (postage prepaid, return receipt
requested), or by overnight delivery by a recognized overnight courier service
(all costs prepaid) to the parties at the following addresses or facsimile
numbers:
If to the Company, to:
GSE Systems, Inc.
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with a copy to:
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If to the Investor, to:
Dolphin Advisors, LLC
c/o Dolphin Asset Management Corp.
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with a copy to:
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Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices, requests and other communications will be deemed given upon
receipt thereof. Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
like notice specifying such change to the other party hereto.
(g) Jurisdiction. Each of the Investor and the Company hereby
irrevocably consents and submits to the exclusive jurisdiction of the United
States District Court for the Southern District of New York in connection with
any dispute arising out of or relating to this Agreement or the transactions
contemplated hereby, waives any objection to venue in such District (unless such
court lacks jurisdiction with respect to such dispute, in which case, the
Company irrevocably consents to the jurisdiction of the courts of the State of
New York located in New York County in connection with such dispute and waives
any objection to venue in the County of New York), and agrees that service of
any summons, complaint, notice or other process relating to such dispute may be
effected in the manner provided by Section 7(f).
(h) Waiver of Jury Trial. EACH OF INVESTOR AND THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED AND
DELIVERED IN CONNECTION HEREWITH OR THEREWITH, INCLUDING THE TRANSACTION
DOCUMENTS.
(i) Finder's Fee. Each party represents that it neither is nor will
be obligated for any finder's fee or commission in connection with this
transaction. Each of the Investor and the Company agrees to indemnify and hold
harmless the other from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the other or any of its officers,
employees or representatives is responsible.
(j) Amendments and Waivers. Any term of this Agreement may be amended
or waived only with the written consent of the Company and the Investor. Any
amendment or waiver effected in accordance with this Section 7(j) shall be
binding upon the Investor and each transferee of the Securities, each future
holder of all such Securities, and the Company.
(k) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(l) Entire Agreement. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
(m) Survival of Representations, Warranties and Covenants. The
representations and warranties contained in Sections 2 and 3 hereof and the
covenant contained in Section 7(n) hereof shall survive until both (i) the Note
is repaid or converted in full and (ii) the Warrant is exercised in full or
expires. The covenants contained in Section 4 hereof shall survive for the
period of time set forth in Section 4. The covenant contained in Section 7(o)
hereof shall survive until the Note is repaid or converted in full.
(n) No Shorting. Neither Investor nor any of its Affiliates, as such
term is defined in Rule 405 under the Securities Act, has engaged or will
engage, or has caused or will cause any other person or entity to engage, in
"short sales" of Common Stock.
(o) Subordination Agreement. Investor shall enter into a subordination
agreement with the holder of Existing Senior Indebtedness, provided that (i)
such holder has become such by providing refinancing of the Indebtedness under
the Senior Credit Agreement and (ii) the terms collectively and each term
individually of such subordination agreement shall be no less favorable to
Investor than those of the Subordination Agreement.
[Signature Page Follows]
The parties have executed this Senior Subordinated Secured Convertible Note and
Warrant Purchase Agreement as of the date first written above.
GSE SYSTEMS, INC.
____________________________________
Name:
Title:
DOLPHIN DIRECT EQUITY PARTNERS, LP
By: Dolphin Advisors, LLC
its managing general partner
By: Dolphin Management Inc.
its managing member
By:__________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
