UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Conformed
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-26494
GSE Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1868008
(State of incorporation) (I.R.S. Employer Identification Number)
9189 Red Branch Road, Columbia, Maryland 21045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 772-3500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, $.01 par value
(Title of each class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates as of March
15, 2000 was $40,170,164 based on closing price of such stock on that date.
Number of shares of Common Stock outstanding as of March 15, 2000: 5,183,247
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement to be filed for its 2000 Annual Meeting
of Shareholders.
GSE SYSTEMS, INC.
FORM 10-K
For the Year Ended December 31, 1999
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1. Business.............................................................. 3
Item 2. Properties............................................................12
Item 3. Legal Proceedings.................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................. 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................. 14
Item 6. Selected Financial Data.............................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk........... 22
Item 8. Financial Statements and Supplementary Data.......................... 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................. 24
PART III
Item 10. Directors and Executive Officers of the Company*.................... 25
Item 11. Executive Compensation*............................................. 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management*..................................................... 25
Item 13. Certain Relationships and Related Transactions*..................... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................................. 26
SIGNATURES................................................................... 26
Exhibits Index............................................................... 28
* to be incorporated by reference from the Proxy Statement for the
registrant's 2000 Annual Meeting of Shareholders.
<PAGE>
Cautionary Statement Regarding Forward-Looking Statements. This Form 10-K
contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are subject to the safe harbors created
by those Acts. These statements include the plans and objectives of management
for future operations, including plans and objectives relating to the
development of the Company's business in the domestic and international
marketplace. All forward-looking statements involve risks and uncertainties,
including, without limitation, risks relating to the Company's ability to
enhance existing software products and to introduce new products in a timely and
cost-effective manner, reduced development of nuclear power plants that may
utilize the Company's products, a long pay-back cycle from the investment in
software development, uncertainties regarding the ability of the Company to grow
its revenues and successfully integrate operations through expansion of its
existing business and strategic acquisitions, the ability of the Company to
respond adequately to rapid technological changes in the markets for process
control and simulation software and systems, significant quarter-to-quarter
volatility in revenues and earnings as a result of customer purchasing cycles
and other factors, dependence upon key personnel, and general market conditions
and competition. See "Risk Factors", in Part I. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties as set forth herein, the failure of any one of which could
materially adversely affect the operations of the Company. The Company's plans
and objectives are also based on the assumptions that market conditions and
competitive conditions within the Company's business areas will not change
materially or adversely and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments with respect, among other things, to future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and there can, therefore, be no assurance that the forward-looking
statements included in this Form 10-K will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
PART I
ITEM 1. BUSINESS.
GSE Systems, Inc. ("GSE Systems", "GSE" or the "Company") develops and
delivers business and technology solutions by applying process control,
simulation software, systems and services to the energy, process and
manufacturing industries worldwide. The Company's solutions and services assist
customers in reducing the time-to-market for new product development; improving
chemistry for producing products; improving quality, safety and throughput;
reducing operating expenses; and enhancing overall productivity. The Company's
products are used in over 500 applications, representing over 200 customers in
30 countries, in the following industries: specialty chemical, food & beverage,
pharmaceutical, and fossil and nuclear power generation.
Recent Developments.
Following the scale back of the Company to its core business units in 1998,
Power Systems and Process Solutions, GSE developed a business strategy in 1999
that leverages the strengths of these core businesses, simulation and
automation. In May, 1999 the Company introduced its new business and marketing
strategy VirtualPlant. VirtualPlant combines the benefits of real-time
simulation with control systems to create a "living", learning real-time
representation of an operating plant. VirtualPlant also allows a customer to
create an environment for simulation-enhanced experimentation, thereby reducing
the amount of physical experimentation necessary to achieve an optimal design
result for a new process product. Based on sophisticated simulation technologies
and expert knowledge of processing realities, VirtualPlant is a fully
integrated, comprehensive strategy including software, consulting services and
training that energy and process manufacturing companies can use to dramatically
reduce new product time-to-market, minimize development costs, achieve greater
optimization and improve overall profitability. Several significant events have
occurred in the last year that reflect the development of the Company's
strategy:
o In April, 1999 the Company purchased certain assets and employed the
associates of BatchCAD Limited, a United Kingdom-based supplier of batch
process development and design consulting services and simulation software
tools. The BatchCAD software tools provide simulation-based solutions that
enable chemical, food, and pharmaceutical companies to achieve optimal
configurations of chemistry, equipment, control system and other
charcteristics necessary to technically describe enough parameters to
successfully design and transfer to manufacturing a chemical product. In
doing so, the product helps achieve a faster time-to-market and enables
more product ideas to reach the full manufacturing stage.
o In April, 1999 the Company purchased certain assets and contracts of
Mitech, a Massachusetts-based supplier of neural network and artificial
intelligence software.
o In February, 2000 the Company participated in the founding of Avantium
Technologies, a high technology company that employs high speed
experimentation and simulation ("HSE&S") technologies in contract research
and development in the area of new product development and process
chemistry. GSE is an equity shareholder along with Shell International
Chemical, SmithKline Beecham, W.R. Grace, three Dutch universities
(Technical University of Delft, Technical University of Eindhoven, and
Twente University) and three venture capital firms (Alpinvest, The Generics
Group, and S.R.One, the SmithKline Beecham venture funding company).
Avantium Technologies will deploy HSE&S techniques to rapidly discover and
optimize new processes and products of interest to the petrochemicals, fine
chemicals and pharmaceutical industries. GSE will provide the basis for the
informatics system that will automate and maximize Avantium's lab
environment, and the Company will utilize its core simulation technologies
to assist in the optimization of experimentation as well as analysis of the
resulting data. The Company's undiluted holdings in Avantium Technologies
will be approximately 10%; after taking into consideration the expected
dilutive effect of stock option plans, the Company's diluted ownership
percentage is anticipated to be approximately 5%.
o The Company will have exclusive distribution and marketing rights to the
technology developed with Avantium Technologies (including but not limited
to the informatics solution set, the laboratory equipment/solution and
associated equipment/sensor technology, the management services associated
with the laboratory technology, the technology contributed by any of the
current or future partners in Avantium) and will provide engineering and
development services on a contract basis to Avantium for the completion of
this technology.
o The Company initiated a market development program designed to bring the
benefits of VirtualPlant, plus the products and services associated with
its affiliation with Avantium Technologies, to major customers around the
world. Additionally, the Company will directly, but non-exclusively, market
the R&D capabilities of Avantium Technologies.
Background.
GSE Systems was formed on April 13, 1994, by ManTech International
Corporation ("ManTech"), GP Strategies Corporation ("GP Strategies") and its
affiliates, General Physics Corporation and SGLG, Inc.; and Vattenfall AB to
consolidate the simulation and related businesses of their affiliates, GSE Power
Systems, Inc. ("Power Systems" and formerly known as "Simulation, Systems &
Services Technologies Company" or "S3 Technologies"), GP International
Engineering & Simulation, Inc. ("GPI") and GSE Power Systems AB ("Power Systems
AB" and formerly known as "EuroSim AB"). On December 30, 1994, GSE Systems
expanded into the process control automation and supply chain management
consulting industry through its acquisition of the process systems division of
Texas Instruments Incorporated, which the Company operates as GSE Process
Solutions, Inc. ("Process Solutions").
In April 1996, the Company aligned its operating groups into three
strategic business units ("BUs") to better serve its then primary vertical
markets - Power, Process and Oil & Gas. The realignment allowed the
Company to focus on providing all of its technologies to these markets,
while addressing the specific needs of each market and delivering industry
specific solutions. In May 1996, the Company acquired Erudite Software &
Consulting, Inc. "Erudite"), a regional provider of client/server
technology, custom application software development, training services,
hardware/software sales, and network design and implementation services.
The acquisition was made to facilitate the Company's efforts to enter the
client/server information technology solutions market. Erudite was
subsequently combined with a small pre-existing consulting group within the
Company to form the Company's Business Systems BU.
In December 1997, the Company acquired 100% of the outstanding common
stock of J.L.Ryan,Inc.,("Ryan"), a provider of engineering modifications
and upgrade services to the power plant simulation market. The combination
of the Compan's pre-existing technology with the technical staff of the
acquired Ryan business positioned the Company to be more competitive for
modifications and upgrade services projects within the nuclear
simulation market.
After incurring substantial losses in 1997, management decided to divest
the Company's unprofitable BU's and concentrate its resources on its core
businesses, Power Systems and Process Solutions. Accordingly, in April 1998, the
Company sold substantially all of the assets of Erudite to Keane, Inc. and in
November 1998, the Company divested certain assets of the Oil & Gas BU to Valmet
Automation (USA), Inc. See Note 3, Acquisitions and dispositions, in the"Notes
to Consolidated Financial Statements," for a discussion of these
transactions.
As discussed in the "Recent Developments" Section above, in April
1999 the Company acquired certain assets and employed the associates of BatchCAD
Limited. With this acquisition, the Company gained a presence in the United
Kingdom, with an office in Hexham, England, that will provide the baseline for
future expansion in the region. The BatchCAD product is a key element in the
Company's VirtualPlant strategy.
Business Strategy.
GSE Systems combines real-time control automation, real-time simulation and
application engineering for true problem solving techniques and solutions.
The Company believes this provides a technological advantage which, when
combined with its focused efforts on targeted industry markets and defined
application solution approach, allows its staff to assess, define, develop,
and apply innovative solutions that meet the current and future
industry-specific needs of its customers.
Users in the markets served by the Company want to focus their resources on
their own customers and wish to spend less resources on managing areas such
as control and simulation systems, the core strengths of GSE. Its products
and services are designed to help its customers solve problems and create
opportunity within these areas.
Within the targeted industry segments, the Company seeks customers who
will make investments based primarily on one of the following six
basic goals:
o Reduction in time-to-market for new product development
o Improvement in chemistry for producing products
o Increase in yield or efficiency
o Improvement in quality
o Solution to an environmental concern
o Solution to a safety concern
All of these directly or indirectly impact the profitability of a
particular customer. GSE Systems utilizes its expertise within real-time control
automation, real-time simulation and application engineering to provide
solutions to its customers in those areas.
The Company believes that GSE Systems can partner with customers to help
provide them with cost-effective solutions for problems associated with
simulation and control, which would allow its customers to focus their resources
on their own strengths.
The Company has enhanced its ability to develop strategic
opportunities with the formation of a Business Development group. This
group will focus on identifying industry trends and creating new
opportunities for the Company to leverage its core capabilities of
resources and products.
As a result of this strategy, the Company has recently developed
an informatics strategy that provides an integrated system for the
management and implementation of advanced lab environments to assist
companies in the development of new products and to improve the
chemistry necessary to produce products under the most optimum
conditions.
Services and Products.
GSE Systems has developed its knowledge and expertise in process control
and simulation systems that are utilized to improve, control and model
processes. This expertise is concentrated heavily in the process industries,
including the chemicals, food & beverage, and pharmaceuticals fields, as well as
in the power generation industry, where the Company is a world leader in nuclear
power plant simulation.
As the Microsoft Windows NT operating environment continues to evolve, the
Company has continued the migration of its products to this platform in such a
way as to assure current customers' legacy applications will function properly
while at the same time offering the advantages of the new technology. Although
the Company uses open standards for its products, the Company's standard system
configurations are based on the proprietary technology and know-how, which are
necessary to meet the requirements of its customers in the controls and
simulation markets.
The Company's business model is based on software licensing and value-added
services, as well as hardware sales. Because this model is based primarily on
software and value-added services, the Company believes it can maintain its
business model in an environment of rapidly decreasing hardware costs.
<PAGE>
In the Process Business Unit, the flagship product is a Distributed Control
System ("DCS") product, known as the D/3 DCS that is highly flexible and open.
This product is a real-time system, which uses multiple process control modules
to monitor, measure, and automatically control variables in both continuous and
complex batch processes, as well as form the platform for plant-wide information
for use by operators, engineers and management.
Other products include the following:
o VPbatch (formerly FlexBatch) , a flexible batch manufacturing system
used to facilitate the rapid creation of various batch production
processes;
o TotalVision, which is a graphical system that provides a
client/server-based human-machine interface for real-time process and plant
information;
o VPtv, a web enabled version of the TotalVision package; and
o SABL, which is a sophisticated batch and sequential manufacturing
software language that permits the scheduling and tracking of raw materials
and finished products, data collection and emergency shutdown procedures.
The Company's proprietary technology also includes real-time dynamic
simulation tools and products that are used to develop high fidelity simulations
for use in petroleum refineries, chemical processing plants and other industrial
plants. The most prominent set of products and tools is known as SimSuite Pro,
which facilitates design verification, process optimization and operator
training.
The Power Business Unit focuses on developing high fidelity, real-time,
dynamic simulators for nuclear and fossil power plants for use in both operator
training and plant optimization. GSE's SimSuite Power set of auto-code
generators provides state of the art simulation of flow processes, logic and
control systems and electrical distribution systems within a power plant. This
technology is both licensed by the Company to its customers as well as used by
the Company to develop simulators for its customers.
In addition, other products include:
o SimExec, a Windows NT based real-time simulation executive system that
controls all simulation activities and allows for off-line software
development environment in parallel with the training environment.
o RACS, a fully integrated Access Control and Intrusion Detection System
ideally suited for nuclear power plant security applications, and other
large, multi-access facilities.
o Simon, a computer workstation system used for monitoring stability of
boiling water reactor plants. SIMON assists the operator in determining
potential instability events, enabling corrective action to be taken to
prevent unnecessary plant shutdowns.
The Company also provides value-added services to help users plan, design,
implement, and manage/support simulation and control systems. Services
include application engineering, project management, training,
site services, maintenance contracts and repair.
Customers.
The Company has provided over 500 simulation and process control systems to
an installed base of over 200 customers worldwide. In 1999, approximately 38% of
the Company's worldwide revenue was generated from end users outside the United
States.
The Companys customers include, among others, Archer Daniels Midland
Company, Bethlehem Steel Corporation, BASF Corporation, Cargill Incorporated,
Carolina Power and Light Company, Commonwealth Edison Company, Eastman Company,
Eskom South Africa, Karnaraft Sakerhet & Utbildning AB, Merck & Co., Inc.,
Miller Brewing Company, Nationalina Elecktrischecka Kompania, Orgrez SC, Pacific
Northwest National Laboratory, and Westinghouse Savannah River Company.
For the year ended December 31, 1999, one customer accounted for
approximately 13% of the Company's revenues.
Strategic Alliances.
In recent years, a high portion of the Company's international business has
come from major contracts in Europe, the republics of the former Soviet Union,
and the Pacific Rim. In order to acquire and perform these contracts, the
Company entered into strategic alliances or partnerships with various entities
including Automation Systems Co. Inc., a subsidiary of ManTech China Systems
Corporation; Siemens AG (Europe); All Russian Research Institute for Nuclear
Power Plant Operation (Russia); Kurchatov Institute (Russia); Samsung
Electronics (Korea); Toyo Engineering Corporation (Japan); and Institute for
Information Industry (Taiwan). These alliances have enabled the Company to
penetrate these regions by combining its technological expertise with the
regional or local presence and knowledge of its partners.
Also, the Company continues to believe that it must have strong solutions
partners as well as strong technology partners in order to address the myriad of
systems needs of its customers in the various geographical areas in which they
do business.
Sales and Marketing.
The Company markets its products and services through a network of direct
sales staff, agents and representatives, systems integrators and strategic
alliance partners. The Company also employs personnel that support corporate
advertising, literature development and exhibit/conference participation.
GSE Systems employs a direct sales force in the continental United States
that is regionally based, market focused and trained on its product and service
offerings. Market-oriented business and customer development teams define and
implement specific campaigns to pursue opportunities in the power, process and
manufacturing marketplaces. This effort is supported by an extensive,
regionally-based support organization focused on the current customer installed
base. The Company's ability to support its multi-facility, international and/or
multinational clients, is facilitated by its network of offices throughout the
U.S. and overseas. Within the U.S., the Company maintains offices in: Alabama,
Georgia, Louisiana, Maryland, North and South Carolina, Pennsylvania and Texas.
Outside the U.S., the Company has offices in Sweden, Belgium, Japan, Taiwan and
the United Kingdom. In addition to its offices located overseas, the Company's
ability to conduct international business is enhanced by its multilingual and
multicultural work force.
<PAGE>
The Company has recently enhanced the sales and marketing function by
establishing a VirtualPlant customer and marketing development team. This group
focuses on the executive level relationship between GSE and potential customer
partners. This group will also be responsible for handling the new customer
growth as a result of the Avantium venture.
Strategic alliance partners, systems integrators and agents represent the
Company's interests in Russia, Germany, Switzerland, Spain, Czech Republic,
Slovakia, United Arab Emirates, India, South Africa, Venezuela, Mexico,
Argentina, and the People's Republic of China.
Product Development.
The Company continued to invest in the conversion of its D/3 DCS (Version
10.0 was released in October, 1999), VPbatch, and SimSuite Pro products to the
Microsoft Windows NT platform. For the years ended December 31, 1999, 1998 and
1997, gross research and product development expenditures for the Company were
$5.4 million, $4.3 million, and $5.1 million, respectively. Capitalized software
development costs totaled $2.5 million, $2.3 million and $3.5 million for the
years ended December 31, 1999, 1998 and 1997. See Note 2, Summary of significant
accounting policies, in the "Notes to Consolidated Financial Statements", for a
discussion of the Company's policy regarding capitalization of software
development costs.
Industries Served.
The following chart illustrates the approximate percentage of the Company's
1999, 1998 and 1997 revenues, respectively, attributable to each of the major
industries served by the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------ ------ ------
Power 48 % 42 % 31 %
Process 52 % 49 % 46 %
Other 0 % 9 % 23 %
------ ------ ------
Total 100 % 100 % 100 %
====== ====== ======
</TABLE>
Contract Backlog.
The Company does not reflect an order in backlog until it has received a
contract that specifies the terms and milestone delivery dates. As of December
31, 1999, the Company's aggregate contract backlog totaled approximately $40
million.
Employees.
As of December 31, 1999, the Company had 406 employees, a 9% increase from
December 1998.
Segment Information.
See Note 17, Segment information, in the "Notes to Consolidated Financial
Statements", for discussion of the Company's segments.
<PAGE>
RISK FACTORS.
Fluctuations in Quarterly Operating Results.
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors,
including purchasing patterns, timing of new products and enhancements by the
Company and its competitors, and fluctuating foreign economic conditions. Since
the Company's expense levels are based in part on its expectations as to future
revenues, the Company may be unable to adjust spending in a timely manner to
compensate for any revenue shortfall and such revenue shortfalls would likely
have a disproportionate adverse effect on net income. The Company believes that
these factors may cause the market price for its common stock to fluctuate,
perhaps significantly. In addition, in recent years the stock market in general,
and the shares of technology companies in particular, have experienced extreme
price fluctuations. The Company's common stock has also experienced a relatively
low trading volume, making it further susceptible to extreme price fluctuations.
International Sales and Operations.
Sales of products and the provision of services to end users outside the
United States accounted for approximately 38% of the Companys consolidated
revenues in 1999. The Company anticipates that international sales and services
will continue to account for a significant portion of its revenues in the
foreseeable future. As a result, the Company may be subject to certain risks,
including risks associated with the application and imposition of protective
legislation and regulations relating to import or export (including export of
high technology products) or otherwise resulting from trade or foreign policy
and risks associated with exchange rate fluctuations. Additional risks include
potentially adverse tax consequences, tariffs, quotas and other barriers,
potential difficulties involving the Company's strategic alliances and managing
foreign sales agents or representatives and potential difficulties in accounts
receivable collection. The Company currently sells products and provides
services to customers in emerging market economies such as Russia, Ukraine,
Bulgaria, and the Czech Republic, as well as to customers in countries whose
economies have suffered in the recent Asian financial crisis. The Company has
taken steps designed to reduce the additional risks associated with doing
business in these countries, but the Company believes that such risks may still
exist and include, among others, general political and economic instability,
lack of currency convertibility, as well as uncertainty with respect to the
efficacy of applicable legal systems. There can be no assurance that these and
other factors will not have a material adverse effect on the Company's business,
financial condition or results of operations. Furthermore, the Company's ability
to expand its business into certain emerging international markets is dependent,
in part, on the ability of its customers to obtain financing.
Revenues in the Nuclear Power Industry.
The Company will continue to derive a significant portion of its revenues
from customers in the nuclear power industry, particularly the international
nuclear power industry, for the foreseeable future. The Company's ability to
supply nuclear power plant simulators and related products and services is
dependent on the continued operation of nuclear power plants and, to a lesser
extent, on the construction of new nuclear power plants. A wide range of factors
affect the continued operation and construction of nuclear power plants,
including the political and regulatory environment, the availability and cost of
alternative means of power generation, the occurrence of future nuclear
incidents, general economic conditions and the ability of customers to obtain
adequate financing.
Revenues in the Chemicals Industry.
The Company derives a portion of its revenues from companies in the
chemicals industry. Accordingly, the Company's future performance is dependent
to a certain extent upon the demand for the Company's products by customers in
the chemical industry. The Company's revenues may be subject to period-to-period
fluctuations as a consequence of industry cycles, as well as general domestic
and foreign economic conditions and other factors affecting spending by
companies in the Company's target process industries. There can be no assurance
that such factors will not have a material adverse effect on the Company's
business, operating results and financial condition.
<PAGE>
Product Development and Technological Change.
The Company believes that its success will depend in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
needs. The Company's product development activities are aimed at the development
and expansion of its library of software modeling tools, the improvement of its
display systems and workstation technologies, and the advancement and upgrading
of its simulation and process control technologies. The life cycles for software
modeling tools, display system software, process control and simulation
technologies are variable and largely determined by competitive pressures.
Consequently, the Company will need to continue to make significant investments
in research and development to enhance and expand its capabilities in these
areas and to maintain its competitive advantage.
The Company's products are offered in markets affected by technological
change and emerging standards that are influenced by customer preferences. The
Company has expended significant resources in developing versions of its core
products that operate in the increasingly popular Windows NT environment;
however, there can be no assurance of customer acceptance of these Windows
NT-based products or that these products will be competitive with products
offered by the Company's competitors. Although the Company believes that no
significant trends to migrate to other operating platforms currently affect the
markets for the Company's products, there can be no assurance that customers
will not require compatibility with such other operating platforms in the
future.
Intellectual Property Rights.
Although the Company believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements and reliable product maintenance are important to establishing and
maintaining a technological leadership position, the Company's business depends,
in part, on its intellectual property rights in its proprietary technology and
information. The Company relies upon a combination of trade secret, copyright,
patent and trademark law, contractual arrangements and technical means to
protect its intellectual property rights. The Company generally enters into
confidentiality agreements with its employees, consultants, joint venture and
alliance partners, customers and other third parties that are granted access to
its proprietary information, and generally limits access to and distribution of
its proprietary information. There can be no assurance, however, that the
Company has protected or will be able to protect its proprietary technology and
information adequately, that the unauthorized disclosure or use of the Company's
proprietary information will be prevented, that others have not or will not
develop similar technology or information independently, or, to the extent the
Company owns patents, that others have not or will not be able to design around
those patents. Furthermore, the laws of certain countries in which the Company's
products are sold do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
Competition.
The Company's businesses operate in highly competitive environments with
both domestic and foreign competitors, many of whom have substantially greater
financial, marketing and other resources than the Company. The principal factors
affecting competition include price, technological proficiency, ease of system
configuration, product reliability, applications expertise, engineering support,
local presence and financial stability. The Company believes that competition in
the simulation and process automation fields may further intensify in the future
as a result of advances in technology, consolidations and/or strategic alliances
among competitors, increased costs required to develop new technology and the
increasing importance of software content in systems and products. The Company
believes that its technology leadership, experience, ability to provide a wide
variety of solutions, product support and related services, open architecture
and international alliances will allow it to compete effectively in these
markets. As the Company's business has a significant international component,
changes in the value of the dollar could adversely affect the Company's ability
to compete internationally.
Additionally, GSE Systems' operations are dependent on the efforts of its
technical personnel and its senior management. Thus, recruiting and retaining
capable personnel, particularly engineers, computer scientists and other
personnel with expertise in computer software and hardware, as well as
particular customer processes, are critical to the future performance of the
Company. Competition for qualified technical and management personnel is
substantial.
<PAGE>
Legal Liability.
The Company's business could expose it to third party claims with respect
to product, environmental and other similar liabilities. Although the Company
has sought to protect itself from these potential liabilities through a variety
of legal and contractual provisions as well as through liability insurance, the
effectiveness of such protections has not been fully tested. The failure or
malfunction of one of the Company's systems or devices could create potential
liability for substantial monetary damages and environmental cleanup costs. Such
damages or claims could exceed the applicable coverage of the Company's
insurance. Although management has no knowledge of material liability claims
against the Company to date, such potential future claims could have a material
adverse effect on the business or financial condition of the Company. Certain of
the Company's products and services are used by the nuclear power industry. The
Company believes that it does not have significant liability exposure associated
with such use, as nearly all such products and services relate to training.
Although the Company's contracts for such products and services typically
contain provisions designed to protect the Company from potential liabilities
associated with such use, there can be no assurance that the Company would not
be materially adversely affected by claims or actions which may potentially
arise.
Influence of Affiliate Stockholders.
As of the date of this report, certain directors, executive officers and
other parties that are affiliates of the Company beneficially own approximately
45% of the common stock of the Company. If these stockholders vote together as a
group, they will be able to exert significant influence on the business and
affairs of the Company, including the election of individuals to the Company's
Board of Directors, and the outcome of actions that require stockholder
approval.
ITEM 2. PROPERTIES.
In early 1998, the Company entered into agreements whereby the lease for
its then-existing Columbia facility was terminated. The operations that occupied
this facility were relocated into two separate facilities during the second
quarter of 1998. One of these facilities is in Columbia, Maryland (approximately
53,000 square feet) and is occupied by the operations of Power Systems, as well
the Company's corporate headquarters offices and support functions; the other
facility is in Baltimore, Maryland (approximately 39,000 square feet) and is
occupied by the operations of Process Solutions. Each of the leases for these
smaller facilities has a term of ten years.
In addition, the Company leases office space domestically in Alabama,
Georgia, Louisiana, Texas, Pennsylvania, North and South Carolina, and
internationally in Belgium, Japan, Sweden, Taiwan, and the United Kingdom. The
Company leases these facilities for terms ending between 2000 and 2002. During
1999, as part of the wind down of the Oil & Gas BU, the Company's facilities in
Singapore and Korea were shut down.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in legal proceedings incidental
to the conduct of its business. The Company currently is not a party to legal
proceedings which, in the opinion of management, are likely to have a material
adverse effect on the Company's business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the quarter
ended December 31, 1999.
<PAGE> PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following table sets forth, for the periods indicated, the high and low
sale prices for the Company's common stock reported by the American Stock
Exchange.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999
Quarter High Low
First $5 $2 1/2
Second $6 3/4 $4 1/8
Third $6 1/4 $3 3/4
Fourth $4 1/4 $3
1998
Quarter High Low
First $3 1/2 $2
Second $5 $2 1/4
Third $3 11/16 $1
Fourth $3 1/2 $2 1/4
</TABLE>
In January 1999, the Company's common stock was approved for listing on the
American Stock Exchange, where it now trades under the symbol "GVP". Previously,
the Company's common stock had traded on the NASDAQ National Market System under
the symbol "GSES".
There were approximately 37 holders of record of the common stock as of
March 15, 2000. Based upon information available to it, the Company believes
there are approximately 700 beneficial holders of the common stock. The Company
has never declared or paid a cash dividend on its common stock. The Company
currently intends to retain future earnings to finance the growth and
development of its business, and therefore does not anticipate paying any cash
dividends in the foreseeable future.
The Company believes factors such as quarterly fluctuations in results of
operations and announcements of new products by the Company or by its
competitors may cause the market price of the common stock to fluctuate, perhaps
significantly. In addition, in recent years the stock market in general, and the
shares of technology companies in particular, have experienced extreme price
fluctuations. The Company's common stock has also experienced a relatively low
trading volume, making it further susceptible to extreme price fluctuations.
These factors may adversely affect the market price of the Company's common
stock.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Historical consolidated results of operations and balance sheet data
presented below, have been derived from the historical financial statements of
the Company. Erudite was acquired on May 22, 1996 through a merger accounted for
by using the pooling of interests method. Accordingly, the Company's financial
statements have been restated to include, on a historical cost basis, the
accounts and operations of Erudite for all periods presented. The Company
disposed of substantially all of the assets of Erudite as of April 30, 1998. In
November 1998, the Company completed the sale of certain assets related to
activities of its Oil & Gas business unit ("O&G"), effective as of October 30,
1998. The balance sheet data of the Company as of December 31, 1997 includes the
operations of Ryan which was acquired by Power Systems as of December 1, 1997.
The statement of operations data for the year ended December 31, 1997 includes
the activity of Ryan from the date of its acquisition.
For information and disclosures regarding the Compan's business segments,
see Note 17, Segment Information, in the "Notes to Consolidated Financial
Statements".
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended December 31,
(in thousands, except per share data)
1995 1996 1997 1998 1999
Contract revenue $ 96,060 $ 96,033 $ 79,711 $73,818 $66,699
Cost of revenue 65,592 63,679 58,326 49,814 41,629
Gross profit 30,468 32,354 21,385 24,004 25,070
Operating expenses:
Selling, general and administrative 21,815 24,192 27,320 20,345 22,646
Depreciation and amortization 2,341 2,111 2,368 1,768 1,680
Business combination costs - 1,206 - - -
Employee severance and termination costs - - 1,124 - -
Total operating expenses 24,156 27,509 30,812 22,113 24,326
Operating income (loss) 6,312 4,845 (9,427) 1,891 744
Gain on sale of assets - - - 550 -
Interest expense, net (983) (387) (765) (350) (450)
Other income (expense) 364 394 (1,228) 326 40
Income (loss) before income taxes 5,693 4,852 (11,420) 2,417 334
Provision for (benefit from) income taxes 2,017 709 (2,717) 1,020 233
Net income (loss) $ 3,676 $ 4,143 $ (8,703) $ 1,397 $ 101
Earnings (loss) per common share -Basic $ 0.91 $ 0.82 $ (1.72) $ 0.28 $ 0.02
-Diluted $ 0.91 $ 0.82 $ (1.72) $ 0.27 $ 0.02
===============--==============--============--============--============
Weighted average common shares outstanding
-Basic 4,049 5,066 5,066 5,066 5,066
==============--==============--==============--============--============
==============--==============--==============--============--============
-Diluted 4,059 5,073 5,066 5,107 5,351
==============--==============--==============--============--============
==============--==============--==============--============--============
As of December 31,
1995 1996 1997 1998 1999
Working capital $ 16,077 $ 13,867 $ 1,646 $ 4,058 $ 8,665
Total assets 54,688 51,006 48,362 48,743 43,027
Long-term liabilities 6,055 2,580 2,369 3,350 9,083
Stockholders' equity 20,532 24,693 15,924 17,089 17,170
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations.
The following table sets forth the results of operations for the periods
presented expressed in thousands of dollars and as a percentage of revenues.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1999 % 1998 % 1997 %
Contract revenue 66,699 100.0% 73,818 100.0% 79,711 100.0%
Cost of revenue 41,629 62.4% 49,814 67.5% 58,326 73.2%
Gross profit 25,070 37.6% 24,004 32.5% 21,385 26.8%
Operating expenses:
Selling, general and administrative 22,646 34.0% 20,345 27.6% 27,320 34.3%
Depreciation and amortization 1,680 2.5% 1,768 2.4% 2,368 3.0%
Employee severance and termination costs - - - - 1,124 1.4%
Total operating expenses 24,326 36.5% 22,113 30.0% 30,812 38.7%
Operating income (loss) 744 1.1% 1,891 2.6% (9,427) -11.8%
Gain on sale of assets - 0.0% 550 0.7% - -
Interest expense, net (450) -0.7% (350) -0.5% (765) -1.0%
Other income (expense) 40 0.1% 326 0.4% (1,228) -1.5%
Income (loss) before income taxes 334 0.5% 2,417 3.3% (11,420) -14.3%
Provision for (benefit from) taxes 233 0.3% 1,020 1.4% (2,717) -3.4%
Net income (loss) $ 101 0.2% $ 1,397 1.9% (8,703) -10.9%
==========--===========-===========--==========--==========--========
==========--===========-===========--==========--==========--========
</TABLE>
Comparison of 1999 to 1998.
Contract Revenue. Total contract revenue was $66.7 million and $73.8
million for the years ended December 31, 1999 and 1998, respectively. As
previously disclosed, the assets of the Company's Erudite subsidiary and Oil &
Gas business unit were divested in 1998. Included in 1998 revenue was $5.3
million from Erudite and $1.1 million from the Oil & Gas BU. After excluding
these revenues from 1998 results, total revenues decreased $0.7 million from
1998, or 1.0%.
The Power business unit increased revenue by $1.2 million, or 3.9%, to
$32.1 million in 1999 from $30.9 million in 1998, primarily due to higher
domestic simulator upgrade projects and service contracts. The Process business
unit's revenues decreased by $1.9 million, or 5.2%, to $34.6 million in 1999
from $36.5 million in 1998. During the second half of 1999, the Process Business
Unit experienced an order slowdown as customers postponed additional investments
in their process control systems, pending the resolution of Y2K date issue
concerns.
<PAGE>
Gross Profit. Despite the lower revenues in 1999, gross profit increased to
$25.1 million in 1999 (37.6% of revenue) from $24.0 million in 1998 (32.5% of
revenue). The increase in gross profit as a percentage of revenues reflects a
higher component of upgrade projects in the Process business unit in 1999 than
in 1998, mainly due to customer concerns about Year 2000 date calculations in
their existing process control software. Such upgrades typically have fewer
hardware and instrumentation components and more license fees and application
engineering work, which tend to generate better margins. In addition, the 1998
margins were impacted slightly by low margins on revenues generated by Erudite
and the Oil & Gas business unit prior to the divestiture of their assets.
Excluding the margins on the revenues of these divested businesses, 1998 gross
profit as a percentage of revenue would have been 33.1%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $22.6 million in 1999 (34.0% of revenues), an
11.3% increase from 1998 expenses of $20.3 million (27.6% of revenues). Other
than changes in research and development costs which increased $900,000 and are
discussed below, the increase reflects additional sales and marketing personnel
in the Process business unit, increased advertising and promotions related to
the Company's VirtualPlant suite of products and services, higher legal fees
related to the Company's new credit facility, and internal Y2K compliance
programs.
Gross research and product development expenditures were $5.4 million (8.1%
of revenue) and $4.3 million (5.8% of revenue) for the years ended December 31,
1999 and 1998, respectively. Of these expenditures, $2.5 million in 1999 and
$2.3 million in 1998 were capitalized. Thus, net research and development costs
included in selling, general and administrative expenses were $2.9 million and
$2.1 million during the years ended December 31, 1999 and 1998, respectively.
The Company continued to invest in the conversion of its D/3 DCS (Version 10.0
was released in October, 1999), VPBatch, and SimSuite Pro products to the
Microsoft Windows NT platform.
Depreciation and Amortization. Depreciation expense amounted to $1.3
million and $1.2 million during the years ended December 31, 1999 and 1998,
respectively.
Amortization of goodwill was $388,000 and $365,000 during the years ended
December 31, 1999 and 1998, respectively.
Operating Income (Loss). Operating income amounted to $744,000 (1.1% of
revenue) versus $1.9 million, (2.6% of revenue), for the years ended December
31, 1999 and 1998, respectively. The decrease in operating income reflects the
lower revenues in 1999 coupled with higher selling, general and administrative
costs, as discussed above.
Gain on Sale of Assets. The gain on sale of assets in 1998 reflects the net
pre-tax gain realized on the disposition of the Erudite and the Oil & Gas
business unit assets. During the second quarter of 1998, the Company recorded a
gain of $5.6 million on the sale of the Erudite assets. In the third quarter of
1998, the Company recognized a ($5.0) million pre-tax loss on the disposition of
the Oil & Gas business unit assets. These sales and related gains and losses are
described more fully under Note 3, Acquisitions and dispositions, in the "Notes
to Consolidated Financial Statements".
Interest Expense. Interest expense increased to $450,000 in 1999 from
$350,000 in 1998. This increase is attributable primarily to an increase in the
Company's borrowings under its lines of credit made during the period to fund
working capital requirements.
Other Income (Expense). Other income amounted to $40,000 in 1999 versus
$326,000 in 1998, resulting from recognized foreign currency transaction gains.
<PAGE>
Provision for (Benefit from) Income Taxes. The Company's effective tax rate
was 69.8% in 1999 versus 42.2% in 1998. The difference between the statutory
U.S. tax rate and the Company's effective rate for 1999 is primarily the effect
of foreign operations taxed at different rates, state taxes and adjustments to
the prior year tax provision based on the final 1998 tax returns.
Comparison of 1998 to 1997.
Contract Revenue. Total contract revenue was $73.8 million and $79.7
million for the years ended December 31, 1998 and 1997, respectively. This $5.9
million (7.4%) decrease in revenue was primarily attributable to the disposition
of substantially all of the assets of GSE's wholly owned subsidiary, Erudite,
and the disposition of certain assets related to activities of the Oil & Gas BU,
as previously disclosed. Revenue of $5.3 million and $18.0 million from Erudite
were included in 1998 and 1997, respectively, and revenue of $1.1 million and
$2.3 million from the Oil & Gas BU were included in 1998 and 1997, respectively.
Revenue from the Company's two core businesses, operated through the
Process and Power business units, increased in 1998. The Process business unit
increased revenue by $1.7 million to $36.5 million in 1998 from $34.8 million in
1997, or 4.9%, due to increases in customer orders. The Power business unit
increased revenue by $6.4 million to $30.9 million in 1998 from $24.5 million in
1997, or 26.1%, primarily due to revenues generated by its domestic service
contracts resulting from the acquisition of Ryan, as previously disclosed, and
increases in customer orders.
Gross Profit. Gross profit increased to $24.0 million in 1998 from $21.4
million in 1997, or 12.2%, primarily due to increased customer orders and
improved margins in the core businesses, and the disposition of unprofitable
businesses. Gross profit percentage was 32.5% in 1998 compared to 26.8% in 1997,
reflecting improved margins in the core businesses and the disposition of
unprofitable businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $20.3 million, or 27.6% of revenue, during
the year ended December 31, 1998 from $27.3 million, or 34.3% of revenue, during
the corresponding period in 1997. The decrease in these expenses in 1998 was
attributable to the disposition of unprofitable businesses, reduced facilities
costs in 1998 due to the relocation of the primary offices of the Company, and
ongoing cost containment efforts. 1997 expenses reflected one-time costs for a
$600,000 reserve recorded to reduce certain Korean receivables to their
estimated realizable value as a result of the Asian financial crisis,
professional services related to a lawsuit, and costs of $852,000 associated
primarily with the future lease commitments on the unused portion of the former
Columbia, Maryland leased facility for which the Company would derive no future
benefit.
Gross research and product development expenditures were $4.3 million and
$5.1 million for the years ended December 31, 1998 and 1997, respectively.
Capitalized software development costs totaled $2.3 million and $3.5
million, during the years ended December 31, 1998 and 1997, respectively.
Net research and development costs included in selling, general and
administrative expenses were $2.1 million and $1.6 million during the years
ended December 31, 1998 and 1997, respectively. The Company continued
investing in the conversion of its D/3 DCS product to the Microsoft Windows
NT platform and the productization of its SimSuite software tools.
Employee Severance and Termination Costs. The Company recorded a net charge
for severance and other employee obligations of $1.1 million in 1997 in
connection with cost reduction efforts initiated to offset the impact of a
decrease in contract revenues. Of this charge, $976,000 was expended as of
December 31, 1997 and the remaining balance was expended in 1998.
<PAGE>
Depreciation and Amortization. Depreciation expense amounted to $1.2
million and $2.1 million during the years ended December 31, 1998 and 1997,
respectively. This decrease was primarily attributable to the disposition of
assets included in the Erudite and the Oil & Gas BU sales.
Amortization of goodwill and intangibles was $365,000 and $219,000 during
the years ended December 31, 1998 and 1997, respectively. This increase
primarily resulted from the amortization of certain intangible assets acquired
as a result of the acquisition of Ryan in December of 1997.
Operating Income (Loss). Operating income amounted to $1.9 million, or 2.6%
of revenues, and operating loss amounted to ($9.4) million, or (11.8%) of
revenues, during the years ended December 31, 1998 and 1997, respectively. This
significant increase in operating income reflected the disposition of
unprofitable businesses, increases in customer orders, improved margins and
reduced selling, general and administrative expenses in 1998 as compared to
1997.
Gain on Sale of Assets. Gain on sale of assets reflected the net pre-tax
gain realized on the disposition of the Erudite and the Oil & Gas BU assets, as
previously disclosed. In the third quarter of 1998, the Company recognized a
($5.0) million pre-tax loss on the disposition of the Oil & Gas BU assets.
During the second quarter, the Company recorded a gain of $5.6 million on the
sale of the Erudite assets. These sales and related gains and losses are
described more fully under Note 3, Acquisitions and dispositions, in the "Notes
to Consolidated Financial Statements".
Interest Expense. Interest expense decreased to $350,000 in 1998 from
$765,000 in 1997. This decrease is attributable primarily to a significant
decrease in the Company's borrowings under its lines of credit made during the
period to fund working capital requirements.
Other Income (Expense). Other income amounted to $326,000 in 1998, and
other expenses amounted to $1.2 million in 1997, resulting almost exclusively
from recognized foreign exchange gains in 1998 and recognized foreign exchange
losses in 1997 from the Company's Asian operations.
Provision for (Benefit from) Income Taxes. The Company's effective tax rate
amounted to 42.2% in 1998. The difference between the statutory U.S. tax rate
and the Company's effective tax rate for 1998 is primarily the result of the
effects of foreign operations at different tax rates, state income taxes, and
other non-deductible expenses reflected in the calculation of the 1998 tax
provision. Due to the loss experienced in 1997, the Company recognized a tax
benefit of $2.7 million.
Liquidity and Capital Resources.
Operating Activities. Net cash provided by operating activities was $2.6
million during 1999, as reported on the Consolidated Statements of Cash Flows.
Significant changes in the Company's assets and liabilities included a $4.4
million reduction in contract receivables partially due to improvements in
internal collection processes; a $1.9 million reduction in accounts payable and
accrued expenses; and a $3.3 million reduction in billings in excess of
revenues.
Investing Activities. Net cash used in investing activities was $4.1
million in 1999, including $1.4 million of capital expenditures, $2.5 million of
capitalized software development costs, and $930,000 in cash payments for
acquired businesses ($300,000 for the Mitech acquisition in 1999, $530,000 for
contingent considerations for prior year acquisitions, and $100,000 for notes
payable related to a prior year acquisition). The Company received $731,000 from
Keane, Inc. as final payment on the 1998 Erudite sale. In 1998, the Company's
investing activities generated $5.3 million in cash, made up primarily of $9.7
million from the sale of assets (see Note 3, Acquisitions and dispositions, in
the "Notes to Consolidated Financial Statements") offset by $2.1 million of
capital expenditures and $2.3 million of capitalized software development costs.
In 1997, the Company used $4.4 million in investing activities, mainly for
capital expenditures and capitalized software development costs.
<PAGE>
Financing Activities. In 1999, the Company generated $2.0 million net cash
from financing activities. The assignment of two long-term customer lease
contracts to a finance company generated $3.4 million cash, which was partially
offset by the paydown of the Company's credit lines ($.5 million), repayments
under capital lease obligations ($143,000) and the deposit of $735,000 into a
bank account for which the balance is being used to collateralize two of the
Company's outstanding letters of credit. In 1998, the Company's financing
activities used cash of approximately $2.6 million, consisting primarily of $2.3
million in repayments under the Companys lines of credit. In 1997, the Company
generated $6.2 million of net cash mainly through increases in its lines of
credit.
Credit Facilities. On June 4, 1999, the Company entered into a loan and
security agreement with a financial institution for a new credit facility with a
maturity date of May 31, 2002. Borrowings from this facility were used to pay
off the existing debt under the Company's previous credit facility. The new
agreement established two lines of bank credit, through the Company's
subsidiaries, which were cross-collateralized, and provided for borrowings up to
a total of $9.0 million to support working capital needs and foreign letters of
credit.
The first line, for $6.0 million, used by the Power business unit, was 90%
guaranteed by the Export-Import Bank of the United States ("EX-IM") through
March 31, 2000, was collateralized by substantially all of Power's assets, and
provided for borrowings up to 90% of eligible receivables and 60% of unbilled
receivables. The second line, for $3.0 million, used by the Process business
unit, was collateralized by substantially all of Process' assets, and provided
for borrowing up to 85% of eligible receivables and 20% of eligible inventory up
to a maximum of $600,000 . Both lines were guaranteed by the Company and
collateralized by substantially all of the Company's assets. In addition, GP
Strategies Corporation ("GP Strategies") and ManTech International Corporation
("ManTech"), both of which are shareholders of the Company, provided limited
guarantees for these lines totaling $1.8 million from each company.
The credit lines required the Company to comply with certain financial
ratios and precluded the Company from paying dividends and making acquisitions
beyond certain limits without the bank's consent. At December 31, 1999, the
Company was not in compliance with its minimum EBITDA and minimum tangible net
worth covenants; however, the bank has provided a written waiver for these
covenants.
As noted above, the EX-IM guarantee was scheduled to expire on March 31,
2000. EX-IM Bank's Working Capital Guarantee Program is designed to facilitate
the expansion of U.S. exports by helping small and medium-sized businesses that
have exporting potential but need funds to buy or produce goods or provide
services for export. The program is intended to help businesses for a limited
time, until the businesses have grown their export trade enough to finance them
without the EX-IM guarantees. The Company has benefited from this program since
the Company's inception in 1994. However, when the EX-IM guarantee was renewed
in 1999, GSE was informed by EX-IM that the Company was expected to graduate
from the program when the current guarantee expired in 2000. An agreement could
not be worked out with the Company's bank to allow GSE to continue its credit
facility without the EX-IM guarantee, so the Company negotiated a new loan and
security agreement with another financial institution, which was entered into on
March 23, 2000. Borrowings from this facility were used to pay off the existing
debt under the Company's previous credit facility.
The new agreement established a $10 million line of bank credit for the
Company and its subsidiaries, GSE Process Solutions, Inc. and GSE Power Systems,
Inc., jointly and severally as co-borrowers. The credit facility has a maturity
date of March 23, 2003 and provides for borrowings to support working capital
needs and foreign letters of credit ($2 million sublimit). The line is
collateralized by substantially all of the Company's assets and provides for
borrowings up to 85% of eligible accounts receivable, 50% of eligible unbilled
receivables and 40% of eligible inventory up to a maximum of $1.2 million. In
addition, ManTech has provided a one-year $900,000 standby letter of credit to
the bank as additional collateral for the Company's credit facility. GSE is
allowed to borrow up to 100% of the letter of credit value. GP Strategies
provided a limited guarantee totaling $1.8 million; ManTech has provided a
limited guarantee totaling $900,000.
<PAGE>
The loan and security agreement requires the Company to comply with certain
financial ratios and precludes the Company from paying dividends and making
acquisitions beyond certain limits without the bank's consent. Management
believes that these covenants are attainable for the foreseeable future, based
on existing budgets and forecasts.
In 1998, in connection with the Company's then existing credit facility,
the Company had arranged for certain guarantees to be provided on its behalf by
GP Strategies and ManTech. In consideration for these guarantees, the Company
granted each of ManTech and GP Strategies warrants to purchase shares of the
Company's common stock; each of such warrants provides the right to purchase
150,000 shares of the Company's common stock at $2.375 per share. In 1998, the
Company recorded $300,000 as the estimated fair value of such warrants in the
consolidated financial statements and amortized such value over the life of the
initial guarantee, which expired in June 1999. During 1999, the Company
recognized $120,000 of expense related to these warrants; in 1998 the Company
recognized $180,000 of expense. The fair value of the warrants was determined
using the Black-Scholes valuation model. Assumptions used in the calculation
were as follows: dividend yield of 0%, expected volatility of 61%, risk-free
interest rates of 5.6% and expected terms of 2.5 years.
As of December 31, 1999, the Company was contingently liable for three
letters of credit totaling $765,000. Two of the letters of credit represent
payment bonds on contracts, while the remaining one was issued to the landlord
of the Company's previous facility (whose lease was terminated in 1998). Of the
total amount of letters of credit, approximately $735,000 was issued in 1998
through the Company's bank at the time and was supported by the Company's credit
facility. These letters of credit could not be reissued by the Company's new
financial institution, and in June 1999, the Company was required to deposit
funds with the issuing institution as collateral against the letters of credit.
On January 27, 2000, the Company issued 116,959 shares of its common stock,
at fair market value less discount, to ManTech for $500,000. The proceeds of the
stock issuance were used for working capital.
Management believes that the Company has sufficient liquidity and working
capital resources necessary in 2000 for planned business operations, debt
service requirements, planned investments and capital expenditures.
Year 2000.
As previously reported, beginning in 1998, GSE developed and implemented a
plan to address the anticipated impacts of the Year 2000 problem on the
Company's products and installed base and on its financial and administrative
information technology systems. The Company also surveyed selected third parties
to determine the status of their Year 2000 compliance programs. In addition,
contingency plans were developed specifying what the Company would do if it or
important third parties experienced disruptions to critical business activities
as a result of the Year 2000 problem. GSE's Year 2000 plan was completed in all
material respects prior to the anticipated Year 2000 failure dates. As of March
30, 2000, the Company has not experienced any materially important business
disruptions or system failures as a result of Year 2000 issues. However, Year
2000 compliance has many elements and potential consequences, some of which may
not be foreseeable or may be realized in future periods. Consequently, there can
be no assurance that unforeseen circumstances may not arise, or that the Company
will not in the future identify equipment or systems that are not Year 2000
compliant.
<PAGE>
The Company estimates that the aggregate costs to address the Year 2000
issue totaled approximately $1.7 million in 1999. The Company believes that most
of the customer related costs associated with the Year 2000 issue would have
occurred as part of its normal operations. The Company did not track these costs
separately. In 1999, the Company spent approximately $238,000, incremental to
normal operating costs, on upgrades to its internal systems and outside
consultant fees. The Company's policy is to expense as incurred information
system maintenance costs and to capitalize the cost of new software and hardware
and amortize or depreciate it over the assets' useful lives.
Foreign Exchange.
A portion of the Company's international sales revenue has been and may be
received in a currency other than the currency in which the expenses relating to
such revenue are paid. When necessary, the Company manages its foreign currency
exposure primarily by entering into foreign currency exchange agreements and
purchasing foreign currency options.
Other Matters.
To date, management believes inflation has not had a material impact on the
Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's market risk is principally confined to changes in foreign
currency exchange rates and potentially adverse effects of differing tax
structures. The Company's exposure to foreign exchange rate fluctuations arises
in part from inter-company accounts in which costs incurred in one entity are
charged to other entities in different foreign jurisdictions. The Company is
also exposed to foreign exchange rate fluctuations as the financial results of
all foreign subsidiaries are translated into U.S. dollars in consolidation. As
exchange rates vary, those results when translated may vary from expectations
and adversely impact overall expected profitability.
The Company is also subject to market risk related to the interest rates on
its existing line of credit. As of March 30, 2000, such interest rates are based
on the prime rate.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page
INDEX TO FINANCIAL STATEMENTS
GSE Systems, Inc. and Subsidiaries
Report of Independent Accountants........................................... F-1
Consolidated Balance Sheets as of December 31,1999 and 1998................. F-2
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997............................................ F-3
Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 1999, 1998 and 1997............................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997.............................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.............................................F-6
Notes to Consolidated Financial Statements...................................F-7
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
and Stockholders of GSE Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, comprehensive income (loss),
changes in stockholders' equity and cash flows present fairly, in all
material respects, the financial position of GSE Systems, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
February 29, 2000, except for Note 19, as to which the date is March 23,
2000
<TABLE>
<CAPTION>
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
December 31,
1999 1998
Current assets:
Cash and cash equivalents $ 2,695 $ 2,240
Restricted cash 255 -
Contract receivables 16,881 24,426
Note receivable - 1,000
Inventories 3,255 2,892
Prepaid expenses and other current assets 2,207 1,654
Deferred income taxes 146 150
Total current assets 25,439 32,362
Property and equipment, net 3,094 2,714
Software development costs, net 5,395 4,715
Goodwill, net 2,949 2,781
Deferred income taxes 3,251 3,366
Restricted cash 480 -
Other assets 2,419 2,805
Total assets $ 43,027 $ 48,743
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ - $ 6,746
Accounts payable 5,024 8,407
Accrued expenses 3,965 3,140
Accrued compensation an payroll taxes 1,539 1,204
Billings in excess of revenue earned 3,077 6,359
Accrued warranty reserves 620 846
Income taxes payable 30 151
Other current liabilities 2,519 1,451
Total current liabilities 16,774 28,304
Line of credit 6,233 -
Note payable to related party 131 148
Accrued warranty reserves 680 596
Other liabilities 2,039 2,606
Total liabilities 25,857 31,654
Stockholders' equity:
Common stock $.01 par value, 8,000,000 shares authorized,
5,065,688 shares issued and outstanding 50 50
Additional paid-in capital 21,691 21,678
Retained earnings (deficit) - at formation (5,112) (5,112)
Retained earnings - since formation 1,259 1,158
Accumulated other comprehensive loss (718) (685)
Total stockholders' equity 17,170 17,089
Total liabilities & stockholders' equity $ 43,027 $ 48,743
==================-----================--
==================-----================--
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31,
1999 1998 1997
Contract revenue $ 66,699 $ 73,818 $ 79,711
Cost of revenue 41,629 49,814 58,326
Gross profit 25,070 24,004 21,385
Operating expenses
Selling, general and administrative 22,646 20,345 27,320
Depreciation and amortization 1,680 1,768 2,368
Employee severance and termination costs - - 1,124
Total operating expenses 24,326 22,113 30,812
Operating income (loss) 744 1,891 (9,427)
Gain on sale of assets - 550 -
Interest expense, net (450) (350) (765)
Other income (expense) 40 326 (1,228)
Income (loss) before income taxes 334 2,417 (11,420)
Provision for (benefit from) income taxes 233 1,020 (2,717)
Net income (loss) $ 101 $ 1,397 $ (8,703)
Basic earnings (loss) per common share $ 0.02 $ 0.28 $ (1.72)
Diluted earnings (loss) per common share $ 0.02 $ 0.27 $ (1.72)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Years ended December 31,
1999 1998 1997
Net income (loss) $ 101 $ 1,397 $ (8,703)
Foreign currency translation adjustment (33) (532) (66)
Comprehensive income (loss) $ 68 $ 865 $ (8,769)
============--=============--============
============--=============--============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
GSE SYSTEMS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Retained Earnings Accumulated
Common Additional (Deficit) Other
Stock Paid-in At Since Comprehensive
Shares Amount Capital Formation Formation Loss Total
Balance, January 1, 1997 5,066 $ 50 $ 21,378 $ (5,112) $ 8,464 $ (87) $ 24,693
Foreign currency translation adjustment - - - - - (66) (66)
Net loss - - - - (8,703) (8,703)
Balance, December 31, 1997 5,066 50 21,378 (5,112) (239) (153) 15,924
Foreign currency translation adjustment - - - - - (532) (532)
Fair value of warrants issued to non-employees - - 300 - - - 300
Net income - - - - 1,397 - 1,397
Balance, December 31, 1998 5,066 50 21,678 (5,112) 1,158 (685) 17,089
Foreign currency translation adjustment - - - - - (33) (33)
Fair value of warrants issued to non-employees - - 13 - - - 13
Net income - - - - 101 - 101
Balance, December 31, 1999 5,066 $ 50 $ 21,691 $ (5,112) $ 1,259 $ (718) $ 17,170
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
1999 1998 1997
Cash flows from operating activities:
Net income (loss) $ 101 $ 1,397 $ (8,703)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,481 3,492 3,492
Provision (credit) for doubtful contract receivables - (255) 723
Foreign currency transaction (gain) loss (40) (326) 1,275
Fair value of warrants issued to non-employees 133 180 -
Deferred income taxes 119 301 (2,277)
Gain on sale of assets - (550) -
Changes in assets and liabilities:
Contract receivables 4,382 (2,344) 1,464
Inventories (363) (185) 727
Prepaid expenses and other assets (563) (1,381) 819
Accounts payable, accrued compensation and accrued expenses (1,888) (2,600) (1,152)
Billings in excess of revenues earned (3,282) 83 644
Accrued warranty reserves (142) 102 (710)
Other liabilities 744 1,428 198
Income taxes payable (121) (114) (315)
Net cash provided by (used in) operating activities 2,561 (772) (3,815)
Cash flows from investing activities:
Proceeds from sale of assets 731 9,697 -
Net cash paid for acquisition of businesses (930) - (578)
Capital expenditures (1,398) (2,061) (918)
Capitalization of software development costs (2,460) (2,304) (3,474)
Proceeds from sale/leaseback transaction - - 521
Net cash provided by (used in) investing activities (4,057) 5,332 (4,449)
Cash flows from financing activities:
Proceeds from assignment of sales-type leases 3,432 - -
Restricted cash (735) - -
(Decrease) increase in lines of credit with banks (513) (2,287) 6,450
Repayments under capital lease obligations (143) (265) (266)
Decrease in note payable to related party (17) (12) (17)
Net cash provided by (used in) financing activities 2,024 (2,564) 6,167
Effect of exchange rate changes on cash (73) (90) (19)
Net increase (decrease) in cash and cash equivalents 455 1,906 (2,116)
Cash and cash equivalents at beginning of period 2,240 334 2,450
Cash and cash equivalents at end of period $2,695 $ 2,240 $ 334
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
GSE Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Business
GSE Systems, Inc. ("GSE Systems", "GSE" or the "Company") develops and
delivers business and technology solutions by applying process control,
simulation software, systems and services to the energy, process and
manufacturing industries worldwide. The Company's solutions and services assist
customers in reducing the time-to-market for new product development; improving
chemistry for producing products; improving quality, safety and throughput;
reducing operating expenses; and enhancing overall productivity.
The Company's operations are subject to certain risks and uncertainties
including, among others, rapid technological changes, success of the Company's
product development, marketing and distribution strategies, the need to manage
growth, the need to retain key personnel and protect intellectual property, and
the availability of additional financing on terms acceptable to the Company.
2. Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. The results of operations of GSE
Erudite Software, Inc. ("Erudite") are included through April 30, 1998. All
intercompany balances and transactions have been eliminated.
Revenue recognition
Revenue under fixed-price contracts generally is accounted for on the
percentage-of-completion method, based on contract costs incurred to date and
estimated costs to complete. Estimated contract earnings are reviewed and
revised periodically as the work progresses, and the cumulative effect of any
change is recognized in the period in which the change is determined. The effect
of changes in estimates of contract earnings was to increase gross profit by
approximately $353,000 during the year ended December 31, 1999 and decrease
gross profit by approximately $45,000 and $410,000 during the years ended
December 31, 1998 and 1997, respectively. Estimated losses are charged against
earnings in the period such losses are identified. The remaining liability for
contract costs to be incurred in excess of contract revenue is reflected as
accrued contract reserves in the Company's consolidated balance sheets. Revenue
from certain consulting or training contracts are recognized on a time and
material basis. For time-and-material type contracts, revenue is recognized
based on hours incurred at a contracted labor rate plus expenses.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with maturities of three (3) months or less at the date of purchase.
<PAGE>
Inventories
Inventories are stated at the lower of cost, as determined by the average
cost method, or market. Obsolete or unsaleable inventory is reflected at its
estimated net realizable value. Inventory costs include raw materials and
purchased parts.
Property and equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method with estimated useful lives ranging from three to ten
years. Leasehold improvements are amortized over the life of the lease or the
estimated useful life, whichever is shorter, using the straight-line method.
Upon sale or retirement, the cost and related amortization are eliminated from
the respective accounts and any resulting gain or loss is included in
operations. Maintenance and repairs are charged to expense as incurred.
Software development costs
Certain computer software development costs are capitalized in the
accompanying consolidated balance sheets. Capitalization of computer software
development costs begins upon the establishment of technological feasibility.
Capitalization ceases and amortization of capitalized costs begins when the
software product is commercially available for general release to customers.
Amortization of capitalized computer software development costs is included in
cost of revenue and is provided using the straight-line method over the
remaining estimated economic life of the product, not to exceed five years.
Goodwill
Goodwill represents the excess of purchase price for acquired businesses
over the fair value of net tangible and intangible assets acquired. These
amounts are amortized on a straight-line basis over periods ranging from seven
to fifteen years.
Research and development
Development expenditures incurred to meet customer specifications under
contracts accounted for under the percentage of completion method are charged to
contract costs. Company sponsored research and development expenditures are
charged to operations as incurred and are included in selling, general and
administrative expenses. The amounts incurred for Company sponsored research and
development activities relating to the development of new products and services
or the improvement of existing products and services, exclusive of amounts
capitalized, were approximately $2,915000, $2,051,000, and $1,580,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Asset impairment
The Company periodically evaluates the recoverability of its long-lived
assets by comparing the carrying value of the intangible with the assets'
expected future cash flows, undiscounted and without interest costs. Estimates
of expected future cash flows represent management's best estimate based on
reasonable and supportable assumptions and projections. Impairments are
recognized in operating results to the extent that the carrying value exceeds
fair value. No impairment losses were recognized in 1999, 1998 or 1997.
<PAGE>
Foreign currency translation
Balance sheet accounts for foreign operations are translated at the
exchange rate at the balance sheet date, and income statement accounts are
translated at the average exchange rate for the period. The resulting
translation adjustments are included in accumulated other comprehensive income
(loss) in stockholders' equity. Transaction gains and losses, resulting from
changes in exchange rates, are included in other income (expense) in the
Consolidated Statement of Operations in the period in which they occur. For the
years ended December 31, 1999 and 1998, foreign currency transaction gains were
approximately $40,000 and $326,000, respectively. In 1997, the Company
experienced a foreign currency loss of approximately $1,275,000, resulting
primarily from intercompany transactions which were negatively impacted by the
poor financial condition of Asian markets.
Warranties
As the Company recognizes revenue under the percentage-of-completion
method, it provides an accrual for estimated future warranty costs based on
historical and projected claims experience.
Income taxes
Deferred income taxes are provided under the asset and liability method.
Under this method, deferred income taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized. Provision is made
for the Company's current liability for federal, state and foreign income taxes
and the change in the Company's deferred income tax assets and liabilities. No
provision has been made for the undistributed earnings of the Company's foreign
subsidiaries as they are considered permanently invested. Amounts of
undistributed earnings are not material to the overall consolidated financial
statements.
Earnings per share
Basic earnings per share is computed based on the weighted average number
of outstanding common shares for the period. Diluted earnings per share adjusts
such weighted average for the potential dilution that could occur if stock
options, warrants or other convertible securities were exercised or converted
into common stock. Diluted earnings per share is the same as basic earnings per
share for the year ended December 31, 1997 because the effects of such items
were anti-dilutive.
The number of common shares and common share equivalents used in the
determination of basic and diluted earnings (loss) per share was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended December 31,
1999 1998 1997
Weighted average shares outstanding - Basic 5,065,688 5,065,688 5,065,688
Weighted average shares outstanding - Diluted 5,351,474 5,107,428 5,065,688
</TABLE>
<PAGE>
The difference between the amounts in 1999 and 1998 represents dilutive
options and warrants to purchase shares of common stock computed under the
treasury stock method, using the average market price during the related
periods.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with current year presentation. Additionally, certain reclassifications have
been made to the December 31, 1997 financial statements to conform with the
reporting requirements of FAS No. 130,Reporting Comprehensive Income.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities This statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, FAS 137, Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133 -
an amendment of FASB Statement No. 133 was issued. The Company will be required
to adopt this new accounting standard by March 31, 2001. Management does not
anticipate early adoption. The Company does not believe that the effect of the
adoption of FAS No. 133 will be material.
In December 1999, the SEC released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements. This bulletin establishes more
clearly defined revenue recognition criteria than previously existing accounting
pronouncements. This bulletin will become effective for the Company for the
quarter ended March 31, 2000. The Company is currently evaluating the full
impact of this bulletin to determine the impact on its financial position and
results of operations.
Concentration of credit risk
The Company is subject to concentration of credit risk with respect to
contract receivables. Credit risk on contract receivables is mitigated by the
nature of the Company's worldwide customer base and its credit policies. The
Company's customers are not concentrated in any specific geographic region, but
are concentrated in the energy and manufacturing industries. For the year ended
December 31, 1999, one customer accounted for approximately 13% of the Company's
revenues. No single customer accounted for a significant (greater than 10%)
amount of the Company's revenue during the years ended December 31, 1998 and
1997, and there were no significant contract receivables from a single customer
at December 31, 1999 or 1998.
Fair values of financial instruments
The carrying amounts of current assets and current liabilities reported in
the Consolidated Balance Sheets approximate fair value.
Off balance sheet risk and foreign exchange contracts
When necessary, the Company enters into forward exchange contracts, options
and swaps as hedges against certain foreign currency commitments. The Company
also enters into letters of credit and performance guarantees in the ordinary
course of business as required by certain contracts and proposal requirements.
The Company does not hold any derivative financial instruments for trading
purposes. Gains and losses on foreign exchange contracts and swaps are
recognized as part of the cost of the underlying transactions being hedged in
the period in which the exchange rates changed. Foreign exchange contracts have
an element of risk that the counterparty may not be able to meet the terms of
the agreement. However, the Company minimizes such risk exposure by limiting
counterparties to nationally recognized financial institutions. Foreign exchange
options contracts permit but do not require the Company to exchange foreign
currencies at a future date with counterparties at a contracted exchange rate.
Costs associated with such contracts are amortized over the life of the contract
matching the underlying receipts.
<PAGE>
3. Acquisitions and dispositions
Acquisitions
In April, 1999, the Company completed two acquisitions for the Process
business unit using the purchase method of accounting. On April 20, the Company
purchased certain assets and employed the associates of BatchCAD Limited, a
United Kingdom-based supplier of batch process development and design consulting
services and simulation software tools. The purchase price was approximately
$548,000 payable in cash in three equal installments on January 1, 2000, 2001
and 2002 and was allocated as follows (in thousands):
<TABLE>
<S> <C>
Purchased software (property and equipment) $481
Trade receivables 45
Property and equipment 22
-----------
Total purchase price $548
===========
</TABLE>
On April 30, 1999 the Company acquired all proprietary technology and
software assets from, and assumed substantially all customer contracts
of, Mitech Corporation, a Massachusetts-based supplier of neural network
and artificial intelligence software. The purchase price was $350,000
(consisting of $300,000 in cash and $50,000 payable one year from the closing)
and was allocated 100% to property and equipment as purchased software.
On December 1, 1997, the Company acquired 100% of the outstanding common
stock of J.L. Ryan, Inc. ("Ryan") for an initial purchase price of $1,000,000
and contingent consideration based on the performance of the business from 1998
to 2002; a minimum of $250,000 of such earnings payments for each of 1998 and
1999 has been guaranteed by the Company. The Company paid $600,000 in cash upon
the closing of the transaction and entered into a promissory note payable in
four annual installments of $100,000 each beginning on January 2, 1999. This
acquisition was accounted for under the purchase method. The financial results
of Ryan have been included in the results of operations from the date of
acquisition. The acquisition resulted in total goodwill of $1,133,976, which is
being amortized over seven years. For 1999 and 1998, the contingent
consideration in excess of the minimum guaranteed amount was approximately
$411,000 and $166,000, respectively, which the Company has recorded as additions
to goodwill.
Dispositions
On November 10, 1998, the Company completed the sale of certain assets
related to activities of its Oil & Gas business unit ("O&G"), to Valmet
Automation (USA), Inc. ("Valmet"), pursuant to an Asset Purchase Agreement,
effective as of October 30, 1998, by and between the Company and Valmet. The
Company recognized a loss before income taxes on this transaction of $5.0
million, including the write-off of approximately $2.9 million in capitalized
software development costs, since all operations that would support the
recoverability of these capitalized costs were sold. The Company received
approximately $742,000 in cash, subject to certain adjustments, and Valmet
assumed certain identified liabilities. Included in the Consolidated Statement
of Operations for the year ended December 31, 1998, are revenues of $1.1 million
and operating losses of $721,000 attributable to O&G prior to the sale to
Valmet. See Note 17, Segment Information, for historical revenues and business
unit contribution provided by O&G during 1997.
<PAGE>
On May 1, 1998, the Company completed the sale of substantially all of the
assets of Erudite to Keane, Inc. ("Keane"), pursuant to an Asset Purchase
Agreement, dated as of April 30, 1998, by and among the Company, Erudite and
Keane. The aggregate purchase price for the Erudite assets was approximately
$9.9 million (consisting of $8.9 million in cash and $1.0 million in the form of
an uncollateralized promissory note due on April 30, 1999, subject to certain
adjustments described in the next paragraph). In connection with the
transaction, Keane purchased certain assets with a book value of $4.4 million
and assumed certain operating liabilities totaling approximately $2.2 million.
The Company recognized a gain before income taxes on this transaction of $5.6
million. In connection with the sale of these assets, the Company wrote off
approximately $800,000 in capitalized software development costs, as well as
$321,000 of purchased software, since all operations that would support the
recoverability of these costs were sold. The write-off of these costs is
reflected in the calculation of the gain on the sale. Included in the
Consolidated Statement of Operations for the year ended December 31, 1998, are
revenues of $5.3 million and operating losses of $64,000 attributable to Erudite
prior to the sale to Keane. See Note 17, Segment Information, for historical
revenues and business unit contribution provided by Erudite during 1997.
As noted above, the purchase price for the sale of Erudite Software was
subject to post-closing adjustments based upon a balance sheet as of the closing
date (the "Closing Balance Sheet"). Due to certain differences in valuation
amounts of the Closing Balance Sheet, the purchase price was reduced by
$269,000, which had been provided for in 1998. Accordingly, of the $1.0 million
promissory note due to the Company on April 30, 1999, the Company received
$731,000, plus $60,000 interest income.
4. Contract receivables
Contract receivables represent balances due from a broad base of both
domestic and international customers. All contract receivables are considered to
be collectible within twelve months. Recoverable costs and accrued profit not
billed, represent costs incurred and associated profit accrued on contracts that
will become billable upon future milestones or completion of contracts.
The components of contract receivables are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Billed receivables $ 9,797 $16,469
Recoverable costs and accrued profit not billed 7,593 8,839
Allowance for doubtful accounts (509) (882)
Total contract receivables $16,881 $24,426
</TABLE>
<PAGE>
5. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Raw materials $ 2,536 $ 1,873
Service parts 719 1,019
Total inventories $ 3,255 $ 2,892
</TABLE>
6. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Investment in sales-type lease - current portion $ 1,137 $ 560
Prepaid expenses 641 889
Employee advances 98 159
Other current assets 331 46
Total $ 2,207 $ 1,654
</TABLE>
7. Property and equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Computer equipment $ 7,820 $ 7,300
Leasehold improvements 817 657
Furniture and fixtures 2,944 2,205
11,581 10,162
Accumulated depreciation and amortization (8,487) (7,448)
Property and equipment, net $ 3,094 $ 2,714
</TABLE>
Depreciation and amortization expense was approximately $1,292,000,
$1,218,000 and $2,149,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company has approximately $404,000 in assets held under capital lease
as of December 31, 1999 and 1998. Accumulated amortization on these assets,
included in accumulated depreciation and amortization above, was approximately
$386,000 and $142,000 as of December 31, 1999 and 1998, respectively.
<PAGE>
8. Software development costs
Software development costs, net, consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Capitalized software development costs $9,888 $ 7,407
Accumulated amortization (4,493) (2,692)
Software development costs, net $ 5,395 $ 4,715
</TABLE>
Software development costs capitalized were approximately $2,460,000,
$2,304,000 and $3,474,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Amortization of software development costs capitalized, excluding
write-offs in connection with asset dispositions, was approximately $1,801,000,
$1,909,000 and $1,124,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, and are included in cost of revenue.
9. Goodwill
Goodwill consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Goodwill, at cost $ 4,287 $ 3,731
Accumulated amortization (1,338) (950)
Goodwill, net $ 2,949 $ 2,781
</TABLE>
Amortization expense for goodwill was approximately $388,000, $365,000 and
$219,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
10. Notes payable and financing arrangements
Notes payable and financing arrangements consist of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Lines of credit with bank $ 6,233 $ 6,746
Obligations under sales-type lease 2,465 1,680
Notes payable, other 1,485 1,760
Note payable to related party 149 174
Capital lease obligations 10 153
Total notes payable and financing arrangements 10,342 10,513
Less amounts payable within one year (1,938) (8,530)
Long-term portion $ 8,404 $ 1,983
</TABLE>
<PAGE>
Lines of Credit
On June 4, 1999, the Company entered into a loan and security agreement
with a financial institution for a new credit facility with a maturity date of
May 31, 2002. Borrowings from this facility were used to pay off the existing
debt under the Company's previous credit facility. The new agreement established
two lines of bank credit, through the Company's subsidiaries, which were
cross-collateralized, and provided for borrowings up to a total of $9.0 million
to support working capital needs and foreign letters of credit. The interest
rate on these lines of credit was based on the bank's prime rate plus 1 1/2%
(10% as of December 31, 1999), with interest only payments due monthly.
The first line, for $6.0 million, used by the Power business unit, was 90%
guaranteed by the Export-Import Bank of the United States "EX-IM") through
March 31, 2000, was collateralized by substantially all of Power's assets, and
provided for borrowings up to 90% of eligible receivables and 60% of unbilled
receivables. The second line, for $3.0 million, used by the Process business
unit, was collateralized by substantially all of Process' assets, and provided
for borrowing up to 85% of eligible receivables and 20% of eligible inventory
(up to a maximum of $600,000). Both lines were guaranteed by the Company and
collateralized by substantially all of the Company's assets. In addition, GP
Strategies Corporation ("GP Strategies") and ManTech International Corporation
("ManTech"), both of which are shareholders of the Company, provided limited
guarantees for these lines totaling $1.8 million from each company.
The credit lines required the Company to comply with certain financial
ratios and precluded the Company from paying dividends and making acquisitions
beyond certain limits without the bank's consent. At December 31, 1999, the
Company was not in compliance with its minimum EBITDA and minimum tangible net
worth covenants; however, the bank has provided a written waiver for these
covenants.
As noted above, the EX-IM guarantee was scheduled to expire on March 31,
2000. EX-IM Bank's Working Capital Guarantee Program is designed to facilitate
the expansion of U.S. exports by helping small and medium-sized businesses that
have exporting potential but need funds to buy or produce goods or provide
services for export. The program is intended to help businesses for a limited
time, until the businesses have grown their export trade enough to finance them
without the EX-IM guarantees. The Company has benefited from this program since
the Company's inception in 1994. However, when the EX-IM guarantee was renewed
in 1999, GSE was informed by EX-IM that the Company was expected to graduate
from the program when the current guarantee expired in 2000. An agreement could
not be worked out with the Company's bank to allow GSE to continue its credit
facility without the EX-IM guarantee, so the Company has negotiated a new loan
and security agreement with another financial institution. See Note 19,
Subsequent events, for information regarding the new loan and security
agreement.
In 1998, in connection with the Company's then existing credit facility,
the Company had arranged for certain guarantees to be provided on its behalf by
GP Strategies and ManTech. In consideration for these guarantees, the Company
granted each of ManTech and GP Strategies warrants to purchase shares of the
Company's common stock; each of such warrants provides the right to purchase
150,000 shares of the Company's common stock at $2.375 per share. In 1998, the
Company recorded $300,000 as the estimated fair value of such warrants in the
consolidated financial statements and amortized such value over the life of the
initial guarantee, which expired in June 1999. During 1999, the Company
recognized $120,000 of expense related to these warrants; in 1998 the Company
recognized $180,000 of expense. The fair value of the warrants was determined
using the Black-Scholes valuation model. Assumptions used in the calculation
were as follows: dividend yield of 0%, expected volatility of 61%, risk-free
interest rates of 5.6% and expected terms of 2.5 years.
<PAGE>
Obligations under sales-type lease
In March 1999 and December 1998, the Company entered into two separate
contracts with a customer for the lease of certain hardware and software under
two 36-month leases. The Company has accounted for the leases as sales-type
leases. During 1999, the Company assigned the payments due under the sales-type
leases to a third party financing company and received proceeds of $3,432,000.
Since the Company remains contingently liable for amounts due to the third party
financing company, the remaining investment in and obligation under the
sales-type leases are reflected in the Company's balance sheets as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Net investment in sales-type lease
Prepaid expense and other assets $1,137 $ 560
Other assets 1,328 1,120
$2,465 $1,680
Obligation under sales-type lease
Other current liabilities $1,137 $ 560
Other liabilities 1,328 1,120
$2,465 $1,680
As of December 31, 1999, the components of the net investment in the
sales-type leases are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum rentals receivable $ 2,834
Less: unearned interest income (369)
Net investment in sales-type leases $ 2,465
Minimum rentals receivable under this lease at December 31, 1999 are as
follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $ 1,420
2001 1,414
Total $ 2,834
</TABLE>
Notes payable, other
Notes payable, other is comprised of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1999 1998
Acquisitions $ 1,148 $ 1,323
Insurance and other 337 437
Total notes payable, other $ 1,485 $ 1,760
Less amounts payable within one year (773) (1,035)
Long-term portion $ 712 $ 725
</TABLE>
<PAGE>
Capital lease obligations
The Company entered into capital lease agreements for furniture and
equipment, totaling $58,000, and $102,000 during the years ended December 31,
1998 and 1997, respectively. These obligations bear interest between 9% and 11%
per annum and expire during 2000.
Debt maturities
Aggregate maturities of debt as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $1,938
2001 1,585
2002 6,725
2003 18
2004 18
2005 and thereafter 58
Total $10,342
</TABLE>
11. Income taxes
The consolidated income (loss) before income taxes, by domestic and foreign
sources, is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years ended December 31,
1999 1998 1997
Domestic $ (1,386) $ 1,379 $ (8,850)
Foreign 1,720 1,038 (2,570)
$ 334 $ 2,417 $(11,420)
</TABLE>
<PAGE>
The provision for (benefit from) income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31,
1999 1998 1997
Current:
Federal $ - $ - $ (27)
State 30 157 -
Foreign 84 257 (413)
114 414 (440)
Deferred:
Federal (88) 556 (2,388)
State - - (229)
Foreign 207 50 340
119 606 (2,277)
Total $ 233 $ 1,020 $ (2,717)
</TABLE>
The (benefit from) provision for income taxes varies from the amount of income
tax determined by applying the applicable U.S. statutory rate to pre-tax (loss)
income as a result of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Effective tax rate percentage (%)
Years ended December 31,
1999 1998 1997
Statutory U.S. tax rate 34.0 % 34.0 % (34.0)%
State income tax, net of federal tax benefit 2.7 2.7 (2.7)
Effect of foreign operations 7.1 (2.2) 3.8
Gain on debt forgiveness of foreign entities (115.4) - -
Change in valuation allowance - (0.8) 7.8
Adjustments to prior year provision based on
actual 1998 tax return amounts 97.6 - -
Other, principally permanent differences 43.8 8.5 1.3
Effective tax rate 69.8 % 42.2 % (23.8)%
</TABLE>
At December 31, 1999, the Company had available $11,196,000 and $1,650,000
of domestic and foreign net operating loss carryforwards, respectively, which
expire between 2007 and 2019. In addition, the Company had $362,000 of foreign
tax credit carryforwards which expire between 2000 and 2004. These carryforwards
will be utilized to reduce taxable income in subsequent years. A portion of the
net operating losses were generated by certain of the Company's predecessors
prior to the formation of the Company and, as a result, there are limitations on
the amounts that can be utilized to offset taxable income in a given year.
<PAGE>
Deferred income taxes arise from temporary differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements. A summary of the tax effect of the significant components of the
deferred income tax assets (liabilities) is as follows (in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Years ended December 31,
1999 1998
Net operating loss carryforwards $ 4,563 $ 4,945
Software development costs (1,980) (1,731)
Book reserves not deductible for tax purposes 1,165 876
Foreign tax credits 362 338
Property and equipment 326 340
Swedish tax deferral (299) (645)
Accrued expenses 109 164
Cash to accrual adjustment (29) (58)
Contract loss reserves - 48
Other 238 297
4,455 4,574
Valuation allowance (1,058) (1,058)
Total $ 3,397 $ 3,516
==============---================
</TABLE>
The valuation allowance at December 31, 1999 and 1998 primarily relates to
the future utilization of net operating loss carryforwards and foreign tax
credits that the Company has determined are not realizable at this time.
Management believes that it is more likely than not that the net deferred tax
asset as of December 31, 1999 is realizable.
12. Capital stock
As of December 31, 1999, the Company had 10,000,000 total shares of capital
stock authorized, of which 8,000,000 are common stock and 2,000,000 are
preferred stock. As of December 31, 1999 and 1998, there are no shares of
preferred stock outstanding. The Board of Directors has the authority to
establish one or more classes of preferred stock and to determine, within any
class of preferred stock, the preferences, rights and other terms of such class
13. Stock options
Long term incentive plan
During 1995, the Company established the 1995 Long-Term Incentive Stock
Option Plan (the "Plan"), which includes all officers, key employees and
non-employee members of the Company's Board of Directors. All options to
purchase shares of the Company's common stock under the Plan expire ten years
from the date of grant and generally become exercisable in three installments
with 40% vesting on the first anniversary of the grant date and 30% vesting on
each of the second and third anniversaries of the grant date, subject to
acceleration under certain circumstances. Under the original terms of the Plan,
the Company had reserved 425,000 shares of common stock for issuance of stock
options, which amount was increased to 625,000 shares in 1996 by action of the
Company's directors and stockholders.
<PAGE>
In 1997, the executive and compensation committees of the Company's Board
of Directors determined that the purposes of the Plan were no longer being met
with respect to those individuals holding nonstatutory stock options with
exercise prices greater than the then-current market value of the Company's
common stock. As a result, the Company offered certain employees and
non-management directors who were holders of outstanding options under the Plan
as of December 1, 1997 the opportunity to exchange such options for replacement
stock options at an exercise price of $3.875 per share, the fair market value of
the Company's common stock at the close of business on that date. Each option
holder accepting such offer was required to surrender his or her existing option
and enter into new stock option agreements whereby each option's three-phased
vesting period (40% vested as of the first anniversary of the date of grant, 70%
vested as of the second anniversary of the date of grant, and 100% vested as of
the third anniversary of the date of grant) would re-commence as of December 1,
1997, the new date of grant. A total of 84 individuals were eligible to
participate in this replacement of options, and those individuals' existing
options had an average exercise price of $13.26 per share prior to the
replacement. Of such individuals, 81 participated in the replacement of options,
representing a total of 295,837 options which are included in the stock option
activity table as new options granted and options cancelled.
In November 1998, the Company amended the Plan such that the term of any
future options granted would be seven years and that upon termination, the
option holder would have 90 days in which to exercise options. Prior to the
amendment, the term of options granted was ten years and there were no time
frames related to termination.
On April 5, 1999, the Company amended and restated the Plan. The amendment
increased the number of shares available for issuance under the Plan, from
625,000 shares to 1,175,000 shares and also increased the maximum number of
shares with respect to which awards may be granted in any one fiscal year to any
one person from 100,000 shares to 400,000 shares. The class of eligible
individuals was expanded to include consultants, and the Plan was modified to
permit the Company to grant phantom stock awards and performance-based awards.
The amendment eliminated the Independent Director Program previously provided
under the Plan. Under the Independent Director Program, each non-employee
director of the Company received a nonqualified stock option for 1,500 shares on
initial election or appointment to the Board and on each following December 31st
while serving as a member of the board of directors. Pursuant to the amendment,
all awards granted under the Plan, including those granted to non-employee
directors, are determined at the discretion of the board of directors or the
compensation committee of the board of directors. The amendment will not
adversely affect the rights or obligations of award holders with respect to any
of their awards granted prior to the amendment. In December 1999, the number of
shares available for issuance under Plan was further increased by the Company
pending shareholder approval.
Stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Stock option activity under the plan is as follows:
1999 1998 1997
Weigted Weigted Weigted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Options outstanding, beginning of period 535,206 $ 5.93 595,015 $ 6.89 413,366 $ 13.61
Options canceled (45,601) (5.62) (246,009) (4.77) (306,044) (11.57)
Options granted 678,000 4.07 186,200 2.79 487,693 4.12
Options outstanding, end of period 1,167,605 4.93 535,206 5.93 595,015 6.89
</TABLE>
<PAGE>
The following table summarizes information relating to currently
outstanding and exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Weighted
Average
Remaining Weighted Weighted
Range of Options Contract Average Options Average
Exercise Prices Outstanding Life in Years Exercise Price Outstanding Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
$1.48-$2.95 162,800 6.2 $ 2.69 55,480 $ 2.68
$2.96-$4.43 858,364 6.8 3.98 180,292 3.82
$4.44-$5.90 20,000 6.5 5.88 - -
$5.91-$10.32 - - - - -
$10.33-11.80 200 6.6 11.25 200 11.25
$11.81-$13.27 - - - - -
$13.28-$14.75 126,241 5.7 14.11 126,241 14.11
- ---------------------------------------------------------------------------------------------------------------------------
1,167,605 6.6 4.93 362,213 7.24
================----------------------------------------------================---------------------
</TABLE>
The Company accounts for grants under the Plan in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation expense
has been recognized as all options granted under the Plan have been granted at
an exercise price equal to the fair value of the underlying common stock on the
date of grant. Had compensation expense been determined based on the fair value
at the grant dates for awards under the Plan consistent with the recognition
method of FAS No. 123, "Accounting for Stock Based Compensation," the Compan's
pro forma net income (loss) and basic and diluted earnings (loss) per common
share would have been approximately ($615,000) and ($.12), respectively, in
1999; $900,000 and $.18, respectively, in 1998; and ($10,276,000) and ($2.03),
respectively, in 1997.
The fair value of each option is estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1999, 1998, and
1997, respectively: expected volatility of 82%, 61% and 80%, dividend yield of
0%, risk-free interest rates ranging from 5.6% to 6.6%, and expected terms
ranging from 3 to 7 years.
At December 31, 1999, the Company had 7,395 shares of common stock reserved
for the future grants under the Plan. The weighted average fair value of options
granted during 1999, 1998 and 1997 was $2.82 per share, $2.79 per share and
$3.00 per share, respectively.
In 1997, the Company granted one of its senior executives a stock option to
acquire 25,000 shares of common stock at an exercise price of $11.25. This grant
was not made pursuant to the Plan. This option expires ten years from the date
of grant and was exercisable in three installments with 40% vesting on the first
anniversary of the date of grant and 30% vesting on each of the second and third
anniversaries of the date of grant. During 1999, the executive terminated
employment with the Company and was vested in 70% of the stock options at the
date of termination. In accordance with the provisions of the Plan, no further
vesting will occur.
<PAGE>
14. Commitments and contingencies
Leases
The Company is obligated under certain noncancelable operating leases for
office facilities and equipment. Future minimum lease payments under
noncancelable operating leases as of December 31, 1999 are approximately as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 2,017
2001 1,759
2002 1,379
2003 1,305
2004 1,339
Thereafter 4,591
Total $12,390
</TABLE>
The future minimum lease payments above include approximately $28,000 for
noncancelable leases entered into during the first quarter of 2000. Total rent
expense under operating leases was approximately $2,013,000, $2,134,000, and
$3,220,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
In early 1998, the Company entered into agreements whereby the lease for
its then-existing Columbia facility was terminated. The operations that occupied
this facility were relocated into two separate facilities during the second
quarter of 1998. One of these facilities is in Columbia, Maryland (approximately
53,000 square feet) and is occupied by the operations of Power Systems, as well
the Company's corporate headquarters offices and support functions; the other
facility is in Baltimore, Maryland (approximately 39,000 square feet) and is
occupied by the operations of Process Solutions. Each of the leases for these
smaller facilities has a term of ten years.
In addition, the Company leases office space domestically in Alabama,
Georgia, Louisiana, Texas, Pennsylvania, North and South Carolina, and
internationally in Belgium, Japan, Sweden, Taiwan, and the United Kingdom. The
Company leases these facilities for terms ending between 2000 and 2002. During
1999, as part of the wind down of the Oil & Gas BU, the Company's facilities in
Singapore and Korea were shut down
Letters of credit and performance bonds
As of December 31, 1999, the Company was contingently liable for three
letters of credit totaling approximately $765,000. Two of the letters of credit
represent payment bonds on contracts, while the remaining one was issued to the
landlord of the Company's previous facility (whose lease was terminated in
1998). Of the total amount of letters of credit, approximately $735,000 was
issued in 1998 through the Company's bank at the time and was supported by the
Company's credit facility. These letters of credit could not be reissued by the
Company's new financial institution, and in June 1999, the Company was required
to deposit funds with the issuing institution as collateral against the letters
of credit. Restricted cash of $255,000 will be released by the bank in 2000 upon
the expiration of the related letters of credit.
During 1998, the Company placed approximately $332,000 in escrow as a
performance bond deposit in connection with a simulator contract in Taiwan. Of
this amount, approximately $221,000 will be held in escrow until April 30, 2000
and approximately $111,000 will be held in escrow until April 30, 2003. These
deposits are classified in other assets on the Consolidated Balance Sheet at
December 31, 1999
<PAGE>
Contingencies
Various actions and proceedings are presently pending to which the Company
is a party. In the opinion of management, the aggregate liabilities, if any,
arising from such actions are not expected to have a material adverse effect on
the financial position, results of operations or cash flows of the Company.
15. Related party transactions
A subsidiary of the Company subleased office space to ManTech based on
square footage used through May 1998. For the years ended December 31, 1998 and
1997 , such charges amounted to $30,000 and $117,000, respectively.
During 1997, ManTech entered into arrangements for the consulting services
of a member of the Company's finance staff. Payments to the Company for such
services were $92,000 for the year ended December 31, 1997.
In 1997, a subsidiary of the Company entered into certain agreements
regarding the formation of a joint venture with a company organized in the
People's Republic of China. In connection with the initial capitalization of
this joint venture, each of ManTech and GP Strategies made advances of $126,000
on behalf of the Company. During 1998, ManTech assumed control of the joint
venture. The operations of the joint venture were immaterial during the years
ended December 31, 1998 and 1997.
16. Employee benefits
The Company has a qualified defined contribution plan that covers
substantially all U.S. employees under Section 401(k) of the Internal Revenue
Code. Under this plan, the Company's stipulated basic contribution matches a
portion of the participants' contributions based upon a defined schedule.
Contributions are invested by an independent investment company in one or more
of several investment alternatives. The choice of investment alternatives is at
the election of each participating employee. The Company's contributions to the
plan were approximately $359,000, $468,000 and $524,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
During 1997, the Company recorded a net charge for severance and other
employee obligations of $1.1 million in connection with cost reduction efforts
initiated to offset the impact of a decrease in contract revenues. Of this
charge, $976,000 was expended as of December 31, 1997, with the remainder
expended in 1998.
17. Segment information
In 1998, the Company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
and disclosure requirements for operating segments. The prior years' segment
information has been restated to present GSE's two reportable segments, Process
and Power, its core business units.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies". The Company is primarily
organized on the basis of these two business units. The Company has a wide range
of knowledge of control and simulation systems and the processes those systems
are intended to improve, control and model. The Company's knowledge is
concentrated heavily in the process industries, which include the chemicals,
food & beverage, and pharmaceuticals fields, as well as in the power generation
industry. The Process business unit is primarily engaged in process control and
simulation in a variety of commercial industries. Contracts typically range from
three to nine months. The Power business unit is primarily engaged in simulation
for the power generation industry, with the vast majority of customers being in
the nuclear power industry. Contracts typically range from 18 months to three
years.
<PAGE>
GSE evaluates the performance of its business units utilizing "Business
Unit Contribution", which is substantially equivalent to earnings before
interest and taxes (EBIT) before allocating any corporate expenses. The segment
information regarding the two divested businesses is also included below (see
Note 3, Acquisitions and dispositions).
The table below presents information about reported segments:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands)
Years ended December 31,
1999
Process Power Total
Contract revenue $34,638 $32,061 $66,699
Business unit contribution $ 1,026 $ 5,093 $ 6,119
1998
- --------------------------------------------------------------------------------------------------------------------
Process Power Total
Contract revenue $36,484 $30,930 $67,414
Business unit contribution $ 3,444 $ 4,535 $ 7,979
1997
- --------------------------------------------------------------------------------------------------------------------
Process Power Total
Contract revenue $34,837 $24,552 $59,389
Business unit contribution $ 3,480 $ 718 $ 4,198
</TABLE>
A reconciliation of segment revenue to consolidated revenue and segment
business unit contribution to consolidated income before taxes for the years
ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands)
Years ended December 31,
1999 1998 1997
- ---------------------------------------------------------------------------------------------
Total segment contract revenue $66,699 $67,414 $59,389
Erudite - 5,267 17,999
Oil & Gas - 1,137 2,323
Consolidated contract revenue $66,699 $73,818 $79,711
===============--==============--===============
Segment business unit contribution $ 6,119 $ 7,979 $ 4,198
Erudite and Oil & Gas business unit losses - (491) (4,848)
Corporate expenses (5,335) (5,271) (8,881)
Severance cost - - (1,124)
Gain on disposition of assets - 550 -
Interest expense, net (450) (350) (765)
Consolidated income (loss) before taxes $ 334 $ 2,417 $(11,420)
===============--==============--===============
</TABLE>
<PAGE>
The Company designs, develops and delivers business and technology
solutions to the energy, process and manufacturing industries worldwide.
Revenue, operating income and identifiable assets for the Company's United
States, European and Asian operations are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
--------------------------------------------------------------------------------
United States Europe Asia Eliminations Consolidated
Contract revenue $ 60,150 $6,549 $ - $ - $ 66,699
Transfers between geographic locations 832 223 - (1,055) -
------------- ---------- ------------- --------------- --------------
Total contract revenue $ 60,982 $6,772 $ - $ (1,055) $ 66,699
============== ========== ============= =============== ==============
Operating income (loss) $ 1,690 ($946) $ - $ - $ 744
============= ========== ============= =============== =============
Identifiable assets $ 47,002 $4,568 $ 414 $ (8,956) $ 43,027
============== ========== ============= =============== ==============
Year Ended December 31, 1998
--------------------------------------------------------------------------------
United States Europe Asia Eliminations Consolidated
Contract revenue $ 62,689 $8,241 $ 2,888 $ - $ 73,818
Transfers between geographic locations 1,761 423 (2,184) -
------------- ---------- ------------- --------------- --------------
Total contract revenue $ 64,450 $8,664 $ 2,888 $ (2,184) $ 73,818
============= ========== ============= =============== ==============
Operating income (loss) $ 1,571 $ 592 $ (272) $ - $ 1,891
============= ========== ============= =============== ===============
Identifiable assets $ 50,904 $5,836 $ 953 $ (8,950) $ 48,743
============= ========== ============= =============== ==============
Year Ended December 31, 1997
--------------------------------------------------------------------------------
United States Europe Asia Eliminations Consolidated
Contract revenue $ 70,580 $5,907 $ 3,224 $ - $ 79,711
Transfers between geographic locations 1,582 - 1,314 (2,896) -
---------------- ---------- ------------- --------------- --------------
Total contract revenue $ 72,162 $5,907 $ 4,538 $ (2,896) $ 79,711
================ ========== ============= =============== ==============
Operating income (loss) $ (6,930) $ (324) $ (2,173) $ - $ (9,427)
================ ========== ============= =============== ==============
Identifiable assets $ 50,296 $3,686 $ 2,111 $ (7,731) $ 48,362
================ ========== ============= =============== ==============
</TABLE>
<PAGE>
18. Supplemental disclosure of cash flow information
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands)
Years ended December 31,
1999 1998 1997
- ---------------------------------------------------------------------------------------------
Non-cash investing & financing activities:
Obligations under capital leases $ - $ 58 $ 102
===========---==========----===========
Notes payable to related party for
investment in joint venture $ - $ - $ 252
===========---==========----===========
Asset acquisitions financed with debt to seller (see Note 3):
Notes payable issued $598 $250 $ 900
===========---==========----===========
Interest $481 $580 $ 741
===========---==========----===========
Income taxes $683 $426 $ 233
===========---==========----===========
</TABLE>
19. Subsequent events
Lines of credit
On March 23, 2000, the Company entered into a new loan and security
agreement with a financial institution for a new credit facility with a maturity
date of March 23, 2003. Borrowings from this facility were used to pay off the
existing debt under the Company's previous credit facility.
The new agreement established a $10 million line of bank credit for the
Company and its subsidiaries, GSE Process Solutions, Inc. and GSE Power Systems,
Inc, jointly and severally as co-borrowers. The credit facility provides for
borrowings to support working capital needs and foreign letters of credit ($2
million sublimit). The line is collateralized by substantially all of the
Company's assets and provides for borrowings up to 85% of eligible accounts
receivable, 50% of eligible unbilled receivables and 40% of eligible inventory
(up to a maximum of $1.2 million). In addition, ManTech has provided a one-year
$900,000 standby letter of credit to the bank as additional collateral for the
Company's credit facility. GSE is allowed to borrow up to 100% of the letter of
credit value. GP Strategies provided a limited guarantee totaling $1.8 million
ManTech has provided a limited guarantee totaling $900,000. The interest rate on
this line of credit is based on the bank's prime rate (9% as of March 30, 2000),
with interest only payments due monthly.
The loan and security agreement requires the Company to comply with certain
financial ratios and precludes the Company from paying dividends and making
acquisitions beyond certain limits without the bank's consent.
<PAGE>
Capital stock issued
On January 27, 2000, the Company issued 116,959 shares of its common stock,
at fair market value less discount, to ManTech for $500,000. The proceeds of the
stock issuance were used for working capital.
Investment (unaudited)
In February, 2000 the Company participated in the founding of Avantium
Technologies, a high technology company that will employ high speed
experimentation and simulation ("SE&S") technologies in contract research and
development in the area of new product development and process chemistry. GSE is
an equity shareholder along with Shell International Chemical, SmithKline
Beecham, W.R. Grace, three Dutch universities (Technical University of Delft,
Technical University of Eindhoven, and Twente University) and three venture
capital firms (Alpinvest, The Generics Group, and S.R.One, the SmithKline
Beecham venture funding company). Avantium Technologies will deploy HSE&S
techniques to rapidly discover and optimize new processes and products of
interest to the petrochemicals, fine chemicals and pharmaceutical industries.
GSE will provide the basis for the informatics system that will automate and
maximize Avantium's lab environment. Additionally, the Company will utilize its
core simulation technologies to assist in the optimization of experimentation as
well as analysis of the resulting data.
GSE SYSTEMS, INC.
FORM 10-K
For the Year Ended December 31, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 19, 1999, GSE Systems, Inc. ("Registrant") notified their
independent accountants PricewaterhouseCoopers LLP ("PwC") that PwC would
not be reappointed as the Registrant's independent accountants for the
fiscal year ending December 31, 2000.
The reports of PwC on the Registrant's financial statements for each of the
past three fiscal years contained no adverse opinions or disclaimers of
opinion and were not qualified or modified as to uncertainty, audit scope
or accounting principle.
In connection with its audits for the three most recent years, there have
been no disagreements between the Registrant and PwC on any matter of
accounting principle or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PwC, would have caused them to make reference thereto in
their report on financial statements for such fiscal years.
During the three most recent fiscal years, there have been no reportable
events (as defined in Regulation S-K Item 304 (a) (1) (v) ).
The Registrant has requested that PwC furnish it with a letter addressed to
the SEC stating whether or not it agrees with the above statements. A copy
of such letter, dated March 30, 2000, is filed as Exhibit 16.1 to this Form
10-K.
<PAGE>
PART III
The information required in response to Items 10, 11, 12 and 13 is hereby
incorporated by reference to the information under the captions "Election
of Directors", "Principal Executive Officers of the Company Who Are Not
Also Directors", "Executive Compensation", "Voting Securities and Principal
Stockholders", "Security Ownership of Management", and "Certain Related
Transactions" in the Proxy Statement for the Company's 2000 Annual Meeting
of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) List of Financial Statements
The following financial statements are included in Item 8:
GSE Systems, Inc. and Subsidiaries
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999
and 1998 and 1997
Notes to Consolidated Financial Statements
(a)(2) List of Schedules
All other schedules to the consolidated financial statements are
omitted as the required information is either inapplicable or presented in
the consolidated financial statements or related notes.
(a)(3) List of Exhibits
The Exhibits which are filed with this report or which are
incorporated by reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
No current report on Form 8-K was filed by the Registrant with the
Securities and Exchange Commission during the quarter ended December 31,
1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GSE Systems, Inc.
By: /s/ Christopher M. Carnavos
Christopher M. Carnavos
Director, Chief Executive Officer and President
Pursuant to the requirements of the Securities Act, this report has
been signed by the following persons in the capacities and on the dates
indicated.
Date: March 30, 2000 /s/ CHRISTOPHER M. CARNAVOS
Christopher M. Carnavos, Director,
Chief Executive Officer and President
(Principal Executive Officer)
Date: March 30, 2000 /s/ JEFFERY G. HOUGH
Jeffery G. Hough, Senior Vice President
and Chief Financial Officer
Principal Financial and Accounting Officer)
Date: March 30, 2000
(Jerome I. Feldman, Chairman of the Board) By/s/JEFFERY G. HOUGH
(Scott N. Greenberg, Director) Jeffery G. Hough
(John A. Moore, Jr. Director) Attorney-in-Fact
(George J. Pedersen, Director)
A Power of Attorney, dated March 30, 2000, authorizing Jeffery G.
Hough to sign this Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 on behalf of certain of the directors of the Registrant
is filed as Exhibit 24 to this Annual Report.
EXHIBIT INDEX
The following exhibits are either filed herewith or have been previously
filed with the Securities and Exchange Commission and are referred to and
incorporated by reference.
Exhibit
Exhibit Description of Exhibit Number Page
- ------------- ------------------------------------------------------------------
3. Articles of Incorporation and Bylaws
a. Second Amended and Restated Certificate of Incorporation
of the Company.Previously filed in connection with the GSE
Systems, Inc. Form S-1 Registration Statement as filed with
the Securities and Exchange Commission on April 24, 1995 and
incorporated herein by reference.
b. Form of Amended and Restated Bylaws of the Company.
Previously filed in connection with Amendment No. 1 to the GSE
Systems, Inc. Form S-1 Registration Statement as filed with the
Securities and Exchange Commission on June 14, 1995 and
incorporated herein by reference.
4. Instruments Defining Rights of Security Holders, including
Indenture.
a. Specimen Common Stock Certificate of the Company. Previously
filed in connection with Amendment No. 3 to the GSE Systems,
Inc. Form S-1 Registration Statement as filed with the Securities
and Exchange Commission on July 24, 1995 and incorporated herein
by reference.
10. Material Contracts
a. Agreement among ManTech International Corporation, National
Patent Development Corporation, GPS Technologies, Inc., General
Physics Corporation, Vattenfall Engineering AB and GSE Systems,
Inc. (dated as of April 13, 1994). Previously filed in connection
with the GSE Systems, Inc.
Form S-1 Registration Statement as filed with the Securities and
Exchange Commission on April 24, 1995 and incorporated herein by
reference
b. GSE Systems, Inc. 1995 Long-Term Incentive Plan, amended as
of April 5,1999.* 10.1 X-10.-1
c. Form of Option Agreement Under the GSE Systems, Inc. 1995
Long-Term Incentive Plan. Previously filed in connection with
the GSE Systems, Inc. Form 10-K as filed with the Securities
and Exchange Commission on March 22, 1996 and incorporated herein
by reference. *
d. Letter Agreement dated January 8, 1997 between GSE Systems, Inc.
and Christopher M. Carnavos. Previously filed in connection with
the GSE Systems, Inc. Form 10-K as filed with the Securities and
Exchange Commission on March 31, 1998 and incorporated herein by
reference.
<PAGE>
Exhibit
Exhibit Description of Exhibit Number Page
- ------------- ------------------------------------------------------------------
e. Office Lease Agreement between Sterling Rutherford
Plaza, L.L.C. and GSE Systems, Inc. (dated as of February
10, 1998). Previously filed in connection with the GSE
Systems, Inc. Form 10-K as filed with the Securities and
Exchange Commission on March 31, 1998 and incorporated
herein by reference.
f. Office Lease Agreement between Red Branch Road, L.L.C.
and GSE Systems, Inc. (dated February 10, 1998).
Previously filed in connection with the GSE Systems,
Inc. Form 10-K as filed with the Securities and Exchange
Commission on March 31, 1998 and incorporated herein
by reference.
g. Loan and Security Agreement among GSE Systems, Inc.,
GSE Process Solutions, Inc., GSE Power Systems, Inc.,
and National Bank of Canada, dated March 23,2000. 10.2 X-10.2-1
h. $10,000,000 Promissory Note dated March 23, 2000,
from GSE Systems, Inc., GSE Process Solutions, Inc.,
and GSE Power Systems, Inc. to National Bank of Canada. 10.3 X-10.3-1
i. ManTech International Corporation Guarantee to National
Bank of Canada, dated March 23, 2000. 10.4 X-10.4-1
j. GP Strategies, Inc. Guarantee to National Bank of Canada,
dated March 23, 2000. 10.5 X-10.5-1
k. Subscription and Shareholders' Agreement by and among 10.6 X-10.6-1
Avantium International B.V., B.V. Licht en Kracht
Maatschappij, SmithKline Beecham PLC, S.R. One,Limited,
GSE Systems, Inc. Delft University of Technology, Universiteit
Twente, Eindhoven University of Technology, the Generics Group
Limited, and Alpinvest Holding NV, dated February 24, 2000.
l. Software License and Intellectual Property Agreement between 10.7 X-10.7-1
GSE Systems, Inc.and Avantium International B.V . dated
February 24, 2000.
16. Letter regarding change in Certified Accountant
a. Letter from PricewaterhouseCoopers, dated March 30,
2000, regarding change in certifying accountants. 16.1 X-16.1-1
21. Subsidiaries.
a. List of Subsidiaries of Registrant at December 31,
1999. 21.1 X-21.1-1
<PAGE>
Exhibit
Exhibit Description of Exhibit Number Page
- ------------- ------------------------------------------------------------------
23. Consents of Experts and Counsel
a. Consent of Independent Accountants. 23.1 X-23.1-1
24. Power of Attorney
a. Power of Attorney for Directors and Officers'
Signatures on SEC Form 10-K. 24.1 X-24.1-1
27. Financial Data Schedule
a. Financial Data Schedule for the year ended December 31,
1999, submitted to the Securities and Exchange Commission
in electronic format.
99. Additional Exhibits
a. Form of Right of First Refusal Agreement. Previously filed
in connection with Amendment No. 3 to the GSE Systems, Inc.
Form S-1 Registration Statement as filed with the Securities
and Exchange Commission on July 24, 1995 and incorporated
herein by reference.
* Management contracts or compensatory plans required to be filed as
exhibits pursuant to Item 14 (c) of this report.
Exhibit 10.1
GSE SYSTEMS, INC.
1995 LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective April 5, 1999)
1. Restatement, Purpose and Types of Awards GSE Systems, Inc., a
Delaware corporation (the "Corporation"), maintained the GSE Systems, Inc.
1995 Long-Term Incentive Plan (As Amended through November 20, 1998) (the
"Prior Plan"). The Prior Plan has been amended and restated, as set forth
herein, effective April 5, 1999, subject to the approval of the
shareholders of the Corporation within twelve months of such effective date
(the "Plan"). Notwithstanding anything herein to the contrary, nothing in
this Plan shall adversely affect the rights or obligations, under any Award
granted under the Prior Plan, of any grantee or holder of the Award without
such person's approval.
The purpose of the Plan is to promote the long-term growth and
profitability of the Corporation by: (i) providing key people with
incentives to improve stockholder value and to contribute to the growth and
financial success of the Corporation; and (ii) enabling the Corporation to
attract, retain and reward the best-available persons. The Plan permits the
granting of stock options (including incentive stock options qualifying
under Code section 422 and nonqualified stock options), stock appreciation
rights, restricted or unrestricted stock awards, phantom stock, performance
awards, or any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing, which
controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited
liability companies, and partnerships). For this purpose, "control" shall
mean ownership of 50% or more of the total combined voting power or value
of all classes of stock or interests of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock award,
phantom stock award, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Corporation, $.01
par value.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
<PAGE>
(g) "Fair Market Value" of a share of the Corporation's Common Stock for any
purpose on a particular date shall mean the last reported sale price per
share of Common Stock, regular way, on such date or, in case no such sale
takes place on such date, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted
to trading on a national securities exchange or included for quotation on
the American Stock Exchange, or if the Common Stock is not so listed or
admitted to trading or included for quotation, the last quoted price, or if
the Common Stock is not so quoted, the average of the high bid and low
asked prices, regular way, in the over-the-counter market, as reported by
the American Stock Exchange or, if such system is no longer in use, the
principal other automated quotations system that may then be in use or, if
the Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices, regular way, as furnished by a professional
market maker making a market in the Common Stock as selected in good faith
by the Administrator or by such other source or sources as shall be
selected in good faith by the Administrator. If, as the case may be, the
relevant date is not a trading day, the determination shall be made as of
the next preceding trading day. As used herein, the term "trading day"
shall mean a day on which public trading of securities occurs and is
reported in the principal consolidated reporting system referred to above,
or if the Common Stock is not listed or admitted to trading on a national
securities exchange or included for quotation on the American Stock
Exchange, any business day.
(h) "Grant Agreement" shall mean a written document memorializing the terms and
conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in
Code section 424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the
Code, or any successor thereto.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the Board or
by such committee or committees as may be appointed by the Board from time
to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in
its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take allother
Actions necessary to carry out the purpose and intent of the Plan,
including, but not limited to, the authority to: (i) determine the
eligible persons to whom, and the time or times at which Awards shall
be granted; (ii) determine the types of Awards to be granted;
(iii) determine the number of shares to be covered by or used for
reference purposes for each Award; (iv) impose such terms,
limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or
renew outstanding Awards, or accept the surrender of outstanding
wards and substitute new Awards (provided however, that, except as
provided in Section 7(d) of the Plan, any modification that would
materially adversely affect any outstanding Award shall not be made
without the consent of the holder); (vi) accelerate or otherwise
change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any
restriction or condition with respect to such Award, including, but
not limited to, any restriction or condition with respect to the
vesting or exercisability of an Award following termination of any
grantee's employment or other relationship with the Corporation; and
(vii) establish objectives and conditions, if any, for earning Awards
and determining whether Awards will be paid after the end of a
performance period. The Administrator shall have full power and
authority, in its sole and absolute discretion, to administer and
interpret the Plan and to adopt and interpret such rules, regulations,
agreements, guidelines and instruments for the administration of the
Plan and for the conduct of its business as the Administrator deems
necessary or advisable.
<PAGE>
(c) Non-Uniform Determinations. The Administrator's determinations under the
Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards)
need not be uniform and may be made by the Administrator selectively among
persons who receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no member of the
Administrator shall be liable for any action taken or decision made in good
faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall
be indemnified by the Corporation in respect of all their activities under
the Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions and
determinations made by the Administrator on all matters relating to the
Plan pursuant to the powers vested in it hereunder shall be in the
Administrator's sole and absolute discretion and shall be conclusive and
binding on all parties concerned, including the Corporation, its
stockholders, any participants in the Plan and any other employee,
consultant, or director of the Corporation, and their respective successors
in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d), the shares of Common
Stock that may be issued with respect to Awards granted under the Plan
(including, for purposes of this Section 4, the Prior Plan) shall not
exceed an aggregate of 1,175,000 shares of Common Stock. The Corporation
shall reserve such number of shares for Awards under the Plan, subject to
adjustments as provided in Section 7(d). If any Award, or portion of an
Award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated, surrendered or
canceled as to any shares, or if any shares of Common Stock are surrendered
to the Corporation in connection with any Award (whether or not such
surrendered shares were acquired pursuant to any Award), the shares subject
to such Award and the surrendered shares shall thereafter be available for
further Awards under the Plan; provided, however, that any such shares that
are surrendered to the Corporation in connection with any Award or that are
otherwise forfeited after issuance shall not be available for purchase
pursuant to incentive stock options intended to qualify under Code section
422.
<PAGE>
Subject to adjustments as provided in Section 7(d), the
maximum number of shares of Common Stock subject to Awards of any
combination that may be granted during any one fiscal year of the
Corporation to any one individual under this Plan shall be
limited to 400,000. Such per-individual limit shall not be
adjusted to effect a restoration of shares of Common Stock with
respect to which the related Award is terminated, surrendered or
canceled. 5. Participation
Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Corporation, or of any Affiliate of
the Corporation, as may be selected by the Administrator from time to
time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of
all Awards granted under the Plan. Awards may be granted individually
or in tandem with other types of Awards. All Awards are subject to the
terms and conditions provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to eligible
participants Awards of incentive stock options as that term is defined in
Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options
intended to qualify as incentive stock options under Code section 422 must
have an exercise price at least equal to Fair Market Value on the date of
grant, but nonqualified stock options may be granted with an exercise price
less than Fair Market Value. No stock option shall be an incentive stock
option unless so designated by the Administrator at the time of grant or in
the Grant Agreement evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time grant to
eligible participants Awards of Stock Appreciation Rights ("SAR"). An SAR
entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the
product of (i) the excess of (A) the Fair Market Value on the exercise date
of one share of Common Stock over (B) the base price per share specified in
the Grant Agreement, times (ii) the number of shares specified by the SAR,
or portion thereof, which is exercised. Payment by the Corporation of the
amount receivable upon any exercise of an SAR may be made by the delivery
of Common Stock or cash, or any combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. If upon settlement
of the exercise of an SAR a grantee is to receive a portion of such payment
in shares of Common Stock, the number of shares shall be determined by
dividing such portion by the Fair Market Value of a share of Common Stock
on the exercise date. No fractional shares shall be used for such payment
and the Administrator shall determine whether cash shall be given in lieu
of such fractional shares or whether such fractional shares shall be
eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted or
unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law, as
it shall determine. A stock Award may be paid in Common Stock, in cash, or
in a combination of Common Stock and cash, as determined in the sole
discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom
stock") in such amounts and on such terms and conditions as it shall
determine. Phantom stock units granted to a participant shall be credited
to a bookkeeping reserve account solely for accounting purposes and shall
not require a segregation of any of the Corporation's assets. An Award of
phantom stock may be settled in Common Stock, in cash, or in a combination
of Common Stock and cash, as determined in the sole discretion of the
Administrator. Except as otherwise provided in the applicable Grant
Agreement, the grantee shall not have the rights of a stockholder with
respect to any shares of Common Stock represented by a phantom stock unit
solely as a result of the grant of a phantom stock unit to the grantee.
<PAGE>
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or
more performance goals established by the Administrator. Performance awards
may be paid by the delivery of Common Stock or cash, or any combination of
Common Stock and cash, as determined in the sole discretion of the
Administrator. Performance goals established by the Administrator may be
based on the Corporation's or an Affiliate's operating income or one or
more other business criteria selected by the Administrator that apply to an
individual or group of individuals, a business unit, or the Corporation or
an Affiliate as a whole, over such performance period as the Administrator
may designate.
7. Miscellaneous
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Corporation or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld in respect
of Awards under the Plan no later than the date of the event creating the
tax liability. The Corporation or its Affiliate may, to the extent
permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the grantee or holder of an Award. In the event that
payment to the Corporation or its Affiliate of such tax obligations is made
in shares of Common Stock, such shares shall be valued at Fair Market Value
on the applicable date for such purposes.
(b) Loans. The Corporation or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any
withholding tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator, and
in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise
than by will or the laws of descent and distribution. Unless otherwise
determined by the Administrator in accord with the provisions of the
immediately preceding sentence, an Award may be exercised during the
lifetime of the grantee, only by the grantee or, during the period the
grantee is under a legal disability, by the grantee's guardian or legal
representative.
(d) Adjustments; Business Combinations. In the event of changes in the Common
Stock of the Corporation by reason of any stock dividend, spin-off,
split-up, recapitalization, merger, consolidation, business combination or
exchange of shares and the like, the Administrator shall, in its
discretion, make appropriate adjustments to the maximum number and kind of
shares reserved for issuance or with respect to which Awards may be granted
under the Plan as provided in Section 4 of the Plan and to the number, kind
and price of shares covered by outstanding Awards, and shall, in its
discretion and without the consent of holders of Awards, make any other
adjustments in outstanding Awards, including but not limited to reducing
the number of shares subject to Awards or providing or mandating
alternative settlement methods such as settlement of the Awards in cash or
in shares of Common Stock or other securities of the Corporation or of any
other entity, or in any other matters which relate to Awards as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
<PAGE>
Notwithstanding anything in the Plan to the contrary and without the
consent of Holders of Awards, the Administrator, in its sole
discretion, may make any modifications to any Awards, including but
not limited to cancellation, forfeiture, surrender or other
termination of the Awards in whole or in part regardless of the vested
status of the Award, in order to facilitate any business combination
that is authorized by the Board to comply with requirements for
treatment as a pooling of interests transaction for accounting
purposes under generally accepted accounting principles. The
Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events affecting the Corporation, or the financial
statements of the Corporation or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the
Administrator determines that such adjustments are appropriate in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan.
<PAGE>
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be granted
under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become
employees or directors of the Corporation or an Affiliate as the result of
a merger or consolidation of the employing entity with the Corporation or
an Affiliate, or the acquisition by the Corporation or an Affiliate of the
assets or stock of the employing entity. The terms and conditions of any
substitute Awards so granted may vary from the terms and conditions set
forth herein to the extent that the Administrator deems appropriate at the
time of grant to conform the substitute Awards to the provisions of the
awards for which they are substituted.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any
time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to
continue in the service of the Corporation or shall interfere in any
way with the right of the Corporation to terminate such service at any
time with or without cause or notice.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Corporation and a grantee or any
other person. To the extent that any grantee or other person acquires
a right to receive payments from the Corporation pursuant to an Award,
such right shall be no greater than the right of any unsecured general
creditor of the Corporation.
(i) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator
relating to the Plan or such Grant Agreements, and the rights of any
and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with
applicable federal laws and the laws of the State of Maryland without
regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of April 5,
1999, the date on which the Plan, as an amendment and restatement of
the Prior Plan, was approved by the Board, subject to the approval of
the stockholders of the Corporation within twelve months of such
effective date. No Award shall be granted under the Plan after the
close of business on June 30, 2005. Subject to other applicable
provisions of the Plan, all Awards made under the Plan prior to such
termination of the Plan shall remain in effect until such Awards have
been satisfied or terminated in accordance with the Plan and the terms
of such Awards.
Date Approved by the Stockholders: May 27, 1999.
Exhibit 10.2
LOAN AND SECURITY AGREEMENT
between
GSE SYSTEMS, INC.,
A Delaware Corporation,
GSE PROCESS SOLUTIONS, INC.,
A Delaware Corporation
and
GSE POWER SYSTEMS, INC.,
A Delaware Corporation
Borrowers
and
NATIONAL BANK OF CANADA,
A Canadian Chartered Bank,
Lender
___________________________________________
$10,000,000.00 Revolving Credit Facility
____________________________________________
Dated: March 23, 2000
TABLE OF CONTENTS Page
ARTICLE 1DEFINITIONS.........................................................-1-
Section 1.1. Account Debtor..................................................-1-
Section 1.2. Accounts, Chattel Paper, Documents, Equipment, Fixtures,
General Intangibles, Goods, Instruments and
Investment Property .........................................................-2-
Section 1.3. Acquisition.....................................................-2-
Section 1.4. Acquisition Agreement...........................................-2-
Section 1.5. Additional Collateral Borrowing Base............................-2-
Section 1.6. Additional Collateral Credit Percentage.........................-2-
Section 1.7. Adjusted Base Rate..............................................-2-
Section 1.8. Adjusted LIBOR Rate.............................................-2-
Section 1.9. Affiliate. .....................................................-3-
Section 1.10. Agreement. ....................................................-3-
Section 1.11. Applicable Margin..............................................-3-
Section 1.12. Base Rate......................................................-3-
Section 1.13. Base Rate Borrowing............................................-3-
Section 1.14. Billed Commercial Accounts Borrowing Base......................-3-
Section 1.15. Billed Commercial Accounts Credit Percentage...................-3-
Section 1.16. Billed Government Accounts Borrowing Base......................-3-
Section 1.17. Billed Government Accounts Credit Percentage...................-4-
Section 1.18. Borrowing Base.................................................-4-
Section 1.19. Business Day. .................................................-4-
Section 1.20. Capital Adequacy Requirement. .................................-4-
Section 1.21. Capital Lease. ................................................-4-
Section 1.22. Capital Lease Obligations. ....................................-4-
Section 1.23. Capital Stock..................................................-4-
Section 1.24. Closing. ......................................................-4-
Section 1.25. Code. .........................................................-5-
Section 1.26. Collateral. ...................................................-5-
Section 1.27. Collection Account. ...........................................-5-
Section 1.28. Commercial Account. ...........................................-5-
Section 1.29. Credit Facility................................................-5-
Section 1.30. Default. ......................................................-5-
Section 1.31. Dollar Cap. ...................................................-5-
Section 1.32. Domestic Subsidiary. ..........................................-5-
Section 1.33. EBITDA.........................................................-5-
Section 1.34. Eligible Additional Collateral Value...........................-6-
Section 1.35. Eligible Billed Commercial Accounts. ..........................-6-
Section 1.36. Eligible Billed Government Accounts............................-7-
Section 1.37. Eligible Inventory. ...........................................-8-
Section 1.38. Eligible Unbilled Government Accounts..........................-9-
Section 1.39. Employee Benefit Plan. ........................................-9-
Section 1.40. Environmental Laws. ...........................................-9-
Section 1.41. EPA Permit. ..................................................-10-
Section 1.42. ERISA. .......................................................-10-
Section 1.43. ERISA Affiliate. .............................................-10-
Section 1.44. ERISA Liabilities. ...........................................-10-
Section 1.45. Event Of Default. ............................................-10-
Section 1.46. Facilities. ..................................................-10-
Section 1.47. Federal Funds Effective Rate..................................-10-
Section 1.48. Fiscal Year. .................................................-10-
Section 1.49. G.A.A.P. .....................................................-10-
Section 1.50. GSE Power Systems AB Note. ...................................-11-
Section 1.51. GSE Systems. .................................................-11-
Section 1.52. Guaranteed Pension Plan. .....................................-11-
Section 1.53. Guarantors. ..................................................-11-
Section 1.54. Guaranty Agreements. .........................................-11-
Section 1.55. Guaranty Indebtedness. .......................................-11-
Section 1.56. Government Contract...........................................-11-
Section 1.57. Indebtedness. ................................................-12-
Section 1.58. Insolvency Proceedings. ......................................-12-
Section 1.59. Intellectual Property.........................................-12-
Section 1.60. Interest Period...............................................-12-
Section 1.61. Interest Rate Protection Agreement............................-12-
Section 1.62. Inventory. ...................................................-12-
Section 1.63. Inventory Borrowing Base......................................-13-
Section 1.64. Inventory Credit Percentage...................................-13-
Section 1.65. Inventory Maximum Credit Amount...............................-13-
Section 1.66. Laws. ........................................................-13-
Section 1.67. L/C Exposure..................................................-13-
Section 1.68. Lender Expenses. .............................................-13-
Section 1.69. Letters Of Credit. ...........................................-14-
Section 1.70. LIBOR Borrowing...............................................-14-
Section 1.71. LIBOR Rate....................................................-14-
Section 1.72. Limited Guarantors............................................-14-
Section 1.73. Loan. ........................................................-14-
Section 1.74. Loan Documents. ..............................................-14-
Section 1.75. Lock Box. ....................................................-15-
Section 1.76. Material Adverse Event. ......................................-15-
Section 1.77. Maximum Credit Amount. .......................................-15-
Section 1.79. Net Profit After Taxes........................................-15-
Section 1.80. Note. ........................................................-15-
Section 1.81. Obligations. .................................................-15-
Section 1.82. Permitted Acquisitions........................................-16-
Section 1.83. Permitted Liens. .............................................-17-
Section 1.84. Person. ......................................................-17-
Section 1.85. Quarter.......................................................-17-
Section 1.86. Receivables. .................................................-17-
Section 1.87. Records. .....................................................-18-
Section 1.88. Regulated Substance. .........................................-18-
Section 1.89. Regulatory Change.............................................-18-
Section 1.90. Reimbursement Obligations.....................................-18-
Section 1.91. Release. .....................................................-18-
Section 1.92. Reserve Requirement...........................................-18-
Section 1.93. Restricted Payment. ..........................................-18-
Section 1.94. Solvent. .....................................................-19-
Section 1.95. Stated Amount.................................................-19-
Section 1.96. Subordinated Debt.............................................-19-
Section 1.97. Subsidiary. ..................................................-19-
Section 1.98. Tangible Net Worth............................................-19-
Section 1.99. Target........................................................-20-
Section 1.100. Termination Event. ..........................................-20-
Section 1.102. Total Assets.................................................-20-
Section 1.103. Total Current Assets.........................................-20-
Section 1.104. Total Current Liabilities....................................-20-
Section 1.105. Total Liabilities............................................-21-
Section 1.106. Unbilled Government Accounts Borrowing Base..................-21-
Section 1.107. Unbilled Government Accounts Credit Percentage...............-21-
Section 1.108. Unbilled Government Accounts Maximum Credit Amount...........-21-
Section 1.109. Working Capital..............................................-21-
Section 1.110. Year 2000 Compliant..........................................-21-
Section 1.111. Year 2000 Problem............................................-21-
ARTICLE 2TERMS OF THE CREDIT FACILITY.......................................-22-
Section 2.1. Agreement To Extend The Loan...................................-22-
Section 2.1.1. Note; Interest, And Lender=s Records.........................-22-
Section 2.1.2. Term.........................................................-22-
Section 2.1.3. Purpose......................................................-23-
Section 2.2. Letters Of Credit..............................................-23-
Section 2.2.1. Availability.................................................-23-
Section 2.2.2. Requests for Letters of Credit. .............................-23-
Section 2.2.3. Letter of Credit Fees And Other Charges. ....................-23-
Section 2.2.4. Payment of Reimbursement Obligations.........................-24-
Section 2.2.5. Conversion of Reimbursement Obligations to Loans.............-24-
Section 2.2.6. Payment of L/C Exposure Upon Termination Date. ..............-24-
Section 2.2.7. Payment Obligations Unconditional. ..........................-24-
Section 2.2.8. Suspension of Commitment to Issue Letters of Credit. ........-25-
Section 2.2.9. Rights And Remedies Of The Lender. ..........................-25-
Section 2.2.10. Indemnification. ...........................................-26-
Section 2.3. Interest Rates.................................................-26-
Section 2.3.1. Calculation Of Interest......................................-26-
Section 2.3.2. Adjusted Base Rate...........................................-26-
Section 2.3.3. Adjusted LIBOR Rate Option...................................-26-
Section 2.3.4. Default Rate.................................................-28-
Section 2.3.5. Maximum Rate Of Interest.....................................-28-
Section 2.4. Payments To Be Made To The Lender..............................-29-
Section 2.5. Application Of Payments........................................-29-
Section 2.6. Late Payment Charge............................................-29-
Section 2.7. Facility Fee. .................................................-29-
Section 2.8. Commitment Fee.................................................-30-
Section 2.9. Examination Fee................................................-30-
Section 2.10. Termination Fee...............................................-30-
Section 2.11. Capital Adequacy. ............................................-31-
Section 2.12. Payments. ....................................................-31-
Section 2.13. Advancements. ................................................-31-
Section 2.14. Cross-Guaranty; Waiver Of Suretyship Defenses; Subordination..-32-
Section 2.14.1. Cross-Guaranty. ............................................-32-
Section 2.14.2. Postponement of Subrogation. ...............................-32-
Section 2.14.3. Subordination. .............................................-32-
Section 2.14.4. Joint And Several Liability; Appointment Of Agent. .........-32-
ARTICLE 3SECURITY FOR THE OBLIGATIONS.......................................-33-
Section 3.1. Grant Of Security Interest. ...................................-33-
Section 3.2. Proceeds And Products. ........................................-33-
Section 3.3. Priority Of Security Interests. ...............................-33-
Section 3.4. Future Advances. ..............................................-33-
Section 3.5. Receivable Collections. .......................................-34-
Section 3.6. Collection Of Receivables By Lender. ..........................-34-
Section 3.7. Guaranty Agreements. ..........................................-35-
Section 3.8. Further Assurances. ...........................................-35-
Section 3.9. Fair Labor Standards Act. .....................................-36-
ARTICLE 4CONDITIONS PRECEDENT...............................................-36-
Section 4.1. Conditions to Closing..........................................-36-
Section 4.1.1. Organizational Documents.....................................-36-
Section 4.1.2. Opinion Of Counsel...........................................-36-
Section 4.1.3. Execution Of Loan Documents..................................-37-
Section 4.1.4. Submissions..................................................-37-
Section 4.1.5. Insurance....................................................-37-
Section 4.1.6. Record Searches..............................................-37-
Section 4.1.7. Absence Of Material Adverse Change...........................-37-
Section 4.1.8. Payment Of Closing Fees......................................-37-
Section 4.1.9. Payment Of Lender=s Closing Costs............................-37-
Section 4.1.10. Dime Commercial Corp. Facility..............................-37-
Section 4.2. Conditions Precedent To All Advances and Issuance of
Letters of Credit.........................................................-37-
Section 4.2.1. No Defaults Or Events Of Default.............................-38-
Section 4.2.2. Continuing Accuracy Of Representations And Warranties........-38-
Section 4.2.3. Receipt Of Reports...........................................-38-
Section 4.2.4. No Illegalities..............................................-38-
Section 4.2.5. No Material Adverse Event....................................-38-
ARTICLE 5REPRESENTATIONS AND WARRANTIES.....................................-38-
Section 5.1. Accuracy Of Information. ......................................-38-
Section 5.2. No Litigation. ................................................-39-
Section 5.3. No Liability Or Adverse Change. ...............................-39-
Section 5.4. Title To Collateral. ..........................................-39-
Section 5.5. Authority; Approvals And Consents. ............................-39-
Section 5.5.1. Authority. ..................................................-39-
Section 5.5.2. Approvals. ..................................................-39-
Section 5.5.3. Consents. ...................................................-39-
Section 5.6. Binding Effect Of Documents, Etc. .............................-40-
Section 5.7. Other Names. ..................................................-40-
Section 5.8. No Events Of Default. .........................................-40-
Section 5.9. Guaranty Agreements. ..........................................-40-
Section 5.10. Taxes. .......................................................-40-
Section 5.11. Compliance With Laws. ........................................-40-
Section 5.12. Chief Place Of Business. .....................................-40-
Section 5.13. Location Of Inventory. .......................................-40-
Section 5.14. No Subsidiaries. .............................................-41-
Section 5.15. No Labor Agreements. .........................................-41-
Section 5.16. Eligible Accounts. ...........................................-41-
Section 5.17. Eligible Inventory. ..........................................-41-
Section 5.18. Eligible Additional Collateral Value. ........................-41-
Section 5.19. Approvals. ...................................................-41-
Section 5.20. Financial Statements. ........................................-41-
Section 5.21. Solvency. ....................................................-42-
Section 5.22. Fair Labor Standards Act. ....................................-42-
Section 5.23. Employee Benefit Plans. ......................................-42-
Section 5.23.1. Compliance. ................................................-42-
Section 5.23.2. Absence Of Termination Event. ..............................-42-
Section 5.23.3. Actuarial Value. ...........................................-42-
Section 5.23.4. No Withdrawal Liability. ...................................-42-
Section 5.24. Environmental Conditions. ....................................-42-
Section 5.24.1. Existence Of Permits. ......................................-42-
Section 5.24.2. Compliance With Permits. ...................................-43-
Section 5.24.3. No Litigation. .............................................-43-
Section 5.24.4. No Releases. ...............................................-43-
Section 5.24.5. Transportation. ............................................-43-
Section 5.24.6. No Violation Notices. ......................................-43-
Section 5.24.7. No Notice Of Violations.....................................-43-
ARTICLE 6AFFIRMATIVE COVENANTS..............................................-43-
Section 6.1. Payment. ......................................................-43-
Section 6.2. Insurance. ....................................................-44-
Section 6.3. Books And Records. ............................................-44-
Section 6.4. Collection Of Accounts; Sale Of Inventory. ....................-44-
Section 6.5. Notice Of Litigation And Proceedings. .........................-44-
Section 6.6. Payment Of Liabilities To Third Persons. ......................-45-
Section 6.7. Change Of Business Location. ..................................-45-
Section 6.8. Payment Of Taxes. .............................................-45-
Section 6.9. Inspections Of Records. .......................................-45-
Section 6.10. Notice Of Events Affecting Collateral; Compromise Of
Receivables; Returned Or Repossessed Goods................................. -46-
Section 6.11. Documentation Of Collateral. .................................-46-
Section 6.12. Reporting Requirements. ......................................-46-
Section 6.12.1. Inventory Reports. .........................................-46-
Section 6.12.2. Receivables And Accounts Payable Reports. ..................-47-
Section 6.12.3. Government Contracts Report. ...............................-47-
Section 6.12.4. Borrowing Base Report. .....................................-47-
Section 6.12.5. Quarterly Financial Statements. ............................-47-
Section 6.12.6. Annual Financial Statements. ...............................-47-
Section 6.12.7. Annual Business Plan and Financial Projections. ............-47-
Section 6.12.8. SEC And Other Filings.......................................-48-
Section 6.12.9. Management Letters. ........................................-48-
Section 6.12.10. Certificates Of No Default. ...............................-48-
Section 6.12.11. Reports To Other Creditors. ...............................-48-
Section 6.12.12. Management Changes. .......................................-49-
Section 6.12.13. General Information........................................-49-
Section 6.13. Employee Benefit Plans And Guaranteed Pension Plans. .........-49-
Section 6.14. Maintenance Of Fixed Assets. .................................-49-
Section 6.15. Consignments. ................................................-49-
Section 6.16. Foreign Receivables...........................................-50-
Section 6.17. Federal Assignment Of Claims Act. ............................-50-
Section 6.18. Compliance With Laws. ........................................-50-
Section 6.19. Formation of Subsidiaries.....................................-51-
Section 6.19.1. Domestic Subsidiaries.......................................-51-
Section 6.19.2. Foreign Subsidiaries........................................-51-
Section 6.20. Year 2000. ...................................................-52-
Section 6.21. Minimum EBITDA................................................-52-
Section 6.22. Minimum Tangible Net Worth Plus Subordinated Debt.............-52-
Section 6.23. Minimum Working Capital.......................................-53-
Section 6.24. Ratio of Total Liabilities to Tangible Net Worth Plus
Subordinated Debt...........................................................-53-
ARTICLE 7NEGATIVE COVENANTS.................................................-53-
Section 7.1. No Change Of Name, Merger, Etc. ...............................-53-
Section 7.2. No Sale Or Transfer Of Assets. ................................-53-
Section 7.3. No Encumbrance Of Assets. .....................................-54-
Section 7.4. No Indebtedness. ..............................................-54-
Section 7.5. Restricted Payments. ..........................................-54-
Section 7.6. Transactions With Affiliates. .................................-54-
Section 7.7. Loans, Investments And Sale-Leaseback. ........................-54-
Section 7.8. No Acquisition Of Equity In Or Assets Of Third Persons. .......-55-
Section 7.9. No Assignment. ................................................-55-
Section 7.10. No Alteration Of Structure Or Operations. ....................-55-
Section 7.11. Unpermitted Uses Of Loan Proceeds. ...........................-55-
Section 7.12. Long Term Contracts. .........................................-55-
Section 7.13. Changes In Fiscal Year. ......................................-55-
Section 7.14. Limitation On Issuance Of Certain Equity Interests. ..........-55-
ARTICLE 8EVENTS OF DEFAULT..................................................-55-
Section 8.1. Failure To Pay. ...............................................-55-
Section 8.2. Representation Or Warranty. ...................................-56-
Section 8.3. Default Under Negative Covenants...............................-56-
Section 8.6. Default Under Loan Documents. .................................-56-
Section 8.7. Invalidity of any Loan Document; Failure of Lien...............-56-
Section 8.9. Judgments. ....................................................-56-
Section 8.10. Levy By Judgment Creditor. ...................................-57-
Section 8.11. Failure To Pay Liabilities. ..................................-57-
Section 8.12. Involuntary Insolvency Proceedings. ..........................-57-
Section 8.13. Voluntary Insolvency Proceedings. ............................-57-
Section 8.14. Insolvency Proceedings Pertaining To Guarantors, other
Subsidiaries or Limited Guarantors......................................... -57-
Section 8.15. Material Adverse Event. ......................................-57-
Section 8.16. Default By Guarantors. .......................................-57-
Section 8.17. Attempt To Terminate Guaranties. .............................-57-
Section 8.18. ERISA. .......................................................-57-
Section 8.19. Transfer Of Equity Interests. ................................-58-
Section 8.20. Change in Control.............................................-58-
Section 8.21. Indictment Of Borrowers, Guarantors or Limited Guarantors. ...-58-
Section 8.22. Injunction. ..................................................-58-
ARTICLE 9RIGHTS AND REMEDIES ON THE OCCURRENCEOF AN EVENT OF DEFAULT........-59-
Section 9.1. Lender=s Specific Rights And Remedies. ........................-59-
Section 9.2. Automatic Acceleration. .......................................-59-
Section 9.3. Sale Of Collateral. ...........................................-59-
Section 9.4. Letters Of Credit. ............................................-60-
Section 9.5. Remedies Cumulative. ..........................................-60-
ARTICLE 10GENERAL CONDITIONS AND TERMS......................................-60-
Section 10.1. Obligations Are Unconditional. ...............................-60-
Section 10.2. Indemnity. ...................................................-60-
Section 10.3. Lender Expenses. .............................................-61-
Section 10.4. Authorization To Obtain Financial Information. ...............-61-
Section 10.5. Incorporation; Construction Of Inconsistent Provisions. ......-61-
Section 10.6. Waivers. .....................................................-61-
Section 10.7. Continuing Obligation Of Borrowers. ..........................-61-
Section 10.8. Choice Of Law. ...............................................-61-
Section 10.9. Submission To Jurisdiction; Venue; Actions Against Lender. ...-62-
Section 10.9.1. Jurisdiction. ..............................................-62-
Section 10.9.2. Venue. .....................................................-62-
Section 10.9.3. Waiver Of Objections To Venue. .............................-62-
Section 10.10. Notices. ....................................................-63-
Section 10.12. Miscellaneous Provisions. ...................................-64-
Section 10.13. Waiver Of Trial By Jury. ....................................-64-
Schedules and Exhibits
Schedule 1.82 Permitted Liens
Schedule 5.2 Litigation
Schedule 5.7 Other Names
Schedule 5.10 Taxes
Schedule 5.12 Chief Place Of Business
Schedule 5.13 Location Of Inventory
Schedule 5.14 Foreign Subsidiaries
Schedule 5.15 Labor Agreements
Schedule 5.19 Liabilities And Obligations Not Disclosed In Financial
Statements
Schedule 7.4 Existing Indebtedness
Schedule 7.7 Loans and Investments
Exhibit 2.3.3(b) Notice of Election
Exhibit 4.1.2 Officers Certificate
Exhibit 4.1.3 Opinion of Counsel
,PAGE.
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of March 23, 2000 by and
between GSE SYSTEMS, INC., a Delaware corporation, GSE PROCESS
SOLUTIONS, INC., a Delaware corporation, and GSE POWER SYSTEMS, INC.,
a Delaware corporation (collectively, BORROWERS); and NATIONAL BANK OF
CANADA, a Canadian chartered bank (LENDER).
RECITALS
The BORROWERS have requested that the LENDER extend various credit
accommodations to the BORROWERS. The LENDER is willing to provide the
requested credit accommodations upon the terms and conditions of this
Loan And Security Agreement, and upon the granting by the BORROWERS to
the LENDER of the security interests, liens, and other assurances of
payment provided for in this Loan And Security Agreement.
The BORROWERS businesses are a mutual and collective enterprise and
the BORROWERS believe that the consolidation of their facilities and
other financial accommodations in accordance with the terms of this
Loan And Security Agreement will enhance the aggregate borrowing
powers of the BORROWERS and ease the administration of their credit
relationship with the LENDER, all to the mutual advantage of the
BORROWERS. In order to utilize the financial powers of the BORROWERS
in the most efficient and economical manner, and in order to
facilitate the administration of their financing needs, the LENDER
will, at the request of a BORROWER, extend financial accommodations to
all of the BORROWERS on a combined basis in accordance with the
provisions set forth in this Loan And Security Agreement. The LENDERS
willingness to extend credit to the BORROWERS and to administer the
collateral security therefor on a combined basis as more fully set
forth in this Loan And Security Agreement is done solely as an
accommodation to the BORROWERS and at the BORROWERS joint request and
in furtherance of the BORROWERS mutual and collective enterprise.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Loan And Security Agreement, the terms set forth in
this Article 1 have the meanings set forth below, unless the specific
context of this Loan And Security Agreement clearly requires a
different meaning. Terms defined in this Article 1 or elsewhere in
this Loan And Security Agreement are in all capital letters throughout
this Loan And Security Agreement. The singular use of any defined term
includes the plural and the plural use includes the singular.
Section 1.1. Account Debtor. The term CCOUNT DEBTOR means collectively
each PERSON: (a) to or for whom any or all of the BORROWERS has
provided or has agreed to provide any goods or services; or (b) which
owes any or all of the BORROWERS any sum of money as a result of
goods sold or services provided by any or all of the BORROWERS; or
(c) which is the maker or endorser on any INSTRUMENT payable to
any or all of the BORROWERS or otherwise owes any or all of the
BORROWERS any sum of money on account of any loan or other payment
obligation. With respect to each RECEIVABLE which is payable by any
governmental authority, ACCOUNT DEBTOR includes, without
limitation, the agency, instrumentality or official which has the
on such ACCOUNT or other RECEIVABLE.
Section 1.2. Accounts, Chattel Paper, Documents, Equipment, Fixtures,
General Intangibles, Goods, Instruments and Investment Property. The
terms ACCOUNTS, CHATTEL PAPER, DOCUMENTS, EQUIPMENT, GENERAL
INTANGIBLES, GOODS, INSTRUMENTS, and INVESTMENT PROPERTY shall have
the same respective meanings as are given to those terms in the New
York Uniform Commercial Code-Secured Transactions, Article 9, as
amended. The term FIXTURES shall have the meaning provided by the
common law of the state in which the fixtures are located.
Section 1.3. Acquisition. The term ACQUISITION means any transaction,
or any series of related transactions, consummated after the date of
this AGREEMENT, by means of which any of the BORROWERS (a) acquires
any going business or all or substantially all of the assets of any
PERSON, whether through purchase of assets, merger or otherwise, (b)
directly or indirectly acquires control of at least a majority (in
number of votes) of the securities of a corporation which have
ordinary voting power for the election of directors, or (c) directly
or indirectly acquires control of a majority ownership interest in any
PERSON that is not a corporation.
Section 1.4. Acquisition Agreement. The term ACQUISITION AGREEMENT
means the agreement between a BORROWER and a TARGET or the seller or
sellers of a TARGET, pursuant to which such BORROWER agrees to acquire
substantially all of the assets or CAPITAL STOCK of a TARGET, or merge
with a TARGET, together with all amendments to such agreement.
Section 1.5. Additional Collateral Borrowing Base. The term ADDITIONAL
COLLATERAL BORROWING BASE means, at any date of determination thereof,
the product, as at such time, of (a) ELIGIBLE ADDITIONAL COLLATERAL
VALUE and (b) the ADDITIONAL COLLATERAL CREDIT PERCENTAGE.
Section 1.6. Additional Collateral Credit Percentage. The term
ADDITIONAL COLLATERAL CREDIT PERCENTAGE means one hundred percent
(100%).
Section 1.7. Adjusted Base Rate. The term ADJUSTED BASE RATE means the
BASE RATE plus the APPLICABLE MARGIN.
Section 1.8. Adjusted LIBOR Rate. The term ADJUSTED LIBOR RATE means,
for any INTEREST PERIOD: (a) the LIBOR RATE for such INTEREST PERIOD;
plus (b) the APPLICABLE MARGIN.
Section 1.9. Affiliate. The term AFFILIATE means collectively any
PERSON: (a) that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common
control with any or all of the BORROWERS, including, without
limitation, the officers, managers and directors of the BORROWERS; (b)
that directly or beneficially owns or holds five percent (5%) or more
of any equity interests in any or all of the BORROWERS; or (c) five
percent (5%) or more of whose equity interests are owned directly or
controlled by any or all of the BORROWERS. As used herein, the term
control (including, with correlative meanings, the terms controlled
by and under common control with) shall mean possession, directly or
indirectly, of the power to direct the management or policies of a
PERSON, whether through ownership of equity interests, by contract or
otherwise.
Section 1.10. Agreement. The term AGREEMENT means this Loan And
Security Agreement, as amended, extended, or modified from time to
time by the parties hereto, as well as all schedules, exhibits and
attachments hereto.
Section 1.11. Applicable Margin. The term APPLICABLE MARGIN means that
percentage to be added to either the BASE RATE or the LIBOR RATE in
order to determine an applicable ADJUSTED BASE RATE or ADJUSTED LIBOR
RATE, which percentage shall be determined in accordance with the
following schedule:
BASE RATE LIBOR RATE
0.00% 2.50%
Section 1.12. Base Rate. The term BASE RATE means that fluctuating
rate of interest publicly announced by National Bank of Canada, New
York, from time to time as its Prime Rate and as a base rate for
calculating interest on certain loans. If and when the BASE RATE
changes, the interest rate will change automatically without notice to
the BORROWERS, effective on the date of any such change.
Section 1.13. Base Rate Borrowing. The term BASE RATE BORROWING means
any portion of the LOAN upon which interest accrues at the ADJUSTED
BASE RATE.
Section 1.14. Billed Commercial Accounts Borrowing Base. The term
BILLED COMMERCIAL ACCOUNTS BORROWING BASE means, at any date of
determination thereof, the product, as at such time, of (a) ELIGIBLE
BILLED COMMERCIAL ACCOUNTS and (b) the BILLED COMMERCIAL ACCOUNTS
CREDIT PERCENTAGE.
Section 1.15. Billed Commercial Accounts Credit Percentage. The term
BILLED COMMERCIAL ACCOUNTS CREDIT PERCENTAGE means eighty-five percent
(85%).
Section 1.16. Billed Government Accounts Borrowing Base. The term
BILLED GOVERNMENT ACCOUNTS BORROWING BASE means, at any date of
determination thereof, the product, as at such time, of (a) ELIGIBLE
BILLED GOVERNMENT ACCOUNTS and (b) the BILLED GOVERNMENT ACCOUNTS
CREDIT PERCENTAGE.
Section 1.17. Billed Government Accounts Credit Percentage. The term
BILLED GOVERNMENT ACCOUNTS CREDIT PERCENTAGE means eighty-five (85%).
Section 1.18. Borrowing Base. The term BORROWING BASE means, at any
date of determination thereof, the sum, as at such time, of: (a) the
BILLED COMMERCIAL ACCOUNTS BORROWING BASE; (b) the BILLED GOVERNMENT
ACCOUNTS BORROWING BASE; (c) the UNBILLED GOVERNMENT ACCOUNTS
BORROWING BASE; (d) the INVENTORY BORROWING BASE; and (e) the
ADDITIONAL COLLATERAL BORROWING BASE; minus (e) such reserves as the
LENDER deems appropriate from time to time, including without
limitation, reserves determined by the LENDER to be appropriate with
respect to bankers acceptances, GUARANTY INDEBTEDNESS, INTEREST RATE
PROTECTION AGREEMENTS, risks under ENVIRONMENTAL LAWS, and other
obligations of any of the BORROWERS, provided, however, with respect
to any such reserve taken, so long as no DEFAULT or EVENT OF DEFAULT
shall have occurred, the LENDER shall release such reserve upon
receipt by the LENDER of evidence satisfactory to the LENDER in its
reasonable credit judgment that the event, circumstance, or risk
giving rise to such reserve has been cured to the satisfaction of the
LENDER.
Section 1.19. Business Day. The term BUSINESS DAY means any day other
than a Saturday, Sunday, or other day on which commercial banking
institutions in the State of New York are required to be closed and,
if the applicable BUSINESS DAY relates to any LOAN to which the LIBOR
RATE applies, such day must also be a day on which banks are open for
dealings in dollar deposits in the London interbank market.
Section 1.20. Capital Adequacy Requirement. The term CAPITAL ADEQUACY
REQUIREMENT means any LAW imposing any capital adequacy requirement or
any other similar requirement (including but not limited to the
capital adequacy regulations contained in Parts 3, 208 and 225 of
Title 12 of the Code of Federal Regulations, as amended), any change
in such LAWS or in the interpretation or application thereof, and any
request or directive regarding capital adequacy (whether or not having
the force of law) from any central bank or government authority.
Section 1.21. Capital Lease. The term CAPITAL LEASE means a lease with
respect to which the lessee's obligations thereunder should, in
accordance with G.A.A.P., be capitalized and reflected as a liability
on the balance sheet of the lessee.
Section 1.22. Capital Lease Obligations. The term CAPITAL LEASE
OBLIGATIONS means any indebtedness incurred as a lessee pursuant to a
CAPITAL LEASE.
Section 1.23. Capital Stock. The term CAPITAL STOCK means any and all
shares, participations, and other equivalents (however designated) of
capital stock of a corporation, any and all other equivalent ownership
interests in a PERSON (other than a corporation) and any and all
warrants, or options to purchase any of the foregoing.
Section 1.24. Closing. The term CLOSING means the execution and
delivery of this AGREEMENT, the NOTE, and various other LOAN
DOCUMENTS. The date of CLOSING is the date written above as the date
of this AGREEMENT.
Sectio 1.25. Code. The term CODE means the Internal Revenue Code of
1986, as amended, and all Treasury regulations, revenue rulings,
revenue procedures or announcements issued thereunder.
Section 1.26. Collateral. The term COLLATERA means all of the
tangible and intangible assets of any or all of the BORROWERS,
wherever located, whether now owned or hereafter acquired by the
BORROWERS, together with all substitutions therefor, and all
replacements and renewals thereof, and all accessions, additions,
replacement parts, manuals, warranties and packaging relating thereto,
including but not limited to the following tangible and intangible
assets and property rights of any of the BORROWERS: (a) ACCOUNTS; (b)
CHATTEL PAPER; (c) DOCUMENTS; (d) EQUIPMENT; (e) FIXTURES; (f) GENERAL
INTANGIBLES, including, but not limited to, INTELLECTUAL PROPERTY; (g)
GOODS; (h) INSTRUMENTS; (i) INVENTORY, including returned, rejected,
or repossessed INVENTORY and rights of reclamation and stoppage in
transit with respect to INVENTORY; (j) INVESTMENT PROPERTY; (k)
RECEIVABLES; (l) deposit accounts (including, without limitation, the
COLLECTION ACCOUNT); (m) letter of credit rights; and (n) all RECORDS
relating to or pertaining to any of the above listed COLLATERAL;
provided, however, the COLLATERAL shall not include CAPITAL STOCK of
any SUBSIDIARY which is not a DOMESTIC SUBSIDIARY in excess of 65% of
any series of such stock.
Section 1.27. Collection Account. The term COLLECTION ACCOUNT means a
bank account designated by the LENDER from which the LENDER alone has
power of access and withdrawal.
Section 1.28. Commercial Account. The term COMMERCIAL ACCOUNT means
the commercial checking account to be established and maintained by
any or all of the BORROWERS with the LENDER and which may be utilized
as the means of advancing funds under the LOAN.
Sectio 1.29. Credit Facility. The term CREDIT FACILITY means the
credit facility extended by the LENDER to the BORROWERS, jointly and
severally as co-obligors, pursuant to the terms and conditions of this
AGREEMENT and the other LOAN DOCUMENTS, providing for, among other
things, the LOAN and LETTERS OF CREDIT.
Section 1.30. Default. The term DEFAULT means any event, occurrence or
omission which, with the giving of notice, the passage of time, or
both, would constitute an EVENT OF DEFAULT.
Section 1.31. Dollar Cap. The term DOLLAR CAP means Ten Million
Dollars ($10,000,000.00).
Section 1.32. Domestic Subsidiary. The term DOMESTIC SUBSIDIARY means
any SUBSIDIARY organized under the laws of any State of the United
States.
Section 1.33. EBITDA. The term EBITDA means, for any period, the sum
of the following determined on a consolidated basis, without
duplication, for the BORROWERS and their consolidated SUBSIDIARIES in
accordance with G.A.A.P.: (a) net income for such period plus (b) the
sum of the following to the extent deducted in determining net income
for such period: (i) income taxes; (ii) total interest expense; (iii)
amortization and depreciation; and (iv) extraordinary losses, minus
(c) the sum of the following if not deducted in determining net income
for such period: (i) interest income; and (ii) any extraordinary
gains, including but not limited to gains arising from the sale of
assets not in the ordinary course of business.
Section 1.34. Eligible Additional Collateral Value. The term ELIGIBLE
ADDITIONAL COLLATERAL VALUE means, at any date of determination
thereof, the STATED AMOUNT of a duly issued irrevocable standby letter
of credit having an original undrawn face amount of Nine Hundred
Thousand Dollars ($900,000.00) naming the LENDER as beneficiary, which
is issued on behalf of ManTech International Corporation by Mellon
Bank, First Union National Bank or another bank acceptable to the
LENDER, has terms and provisions acceptable to the LENDER and an
expiration date acceptable to the LENDER.
Section 1.35. Eligible Billed Commercial Accounts. The term ELIGIBLE
BILLED COMMERCIAL ACCOUNTS means, at any date of determination
thereof, the aggregate amount, as at such time, of bona fide ACCOUNTS
(excluding any ACCOUNTS that arise out of a GOVERNMENT CONTRACT)
created or acquired by any BORROWER in the ordinary course of its
business which have been billed to the ACCOUNT DEBTOR thereon and
which are payable in conformity with such billing, and which are, but
only in the amounts such ACCOUNTS are, acceptable to the LENDER. The
criteria for eligibility as ELIGIBLE BILLED COMMERCIAL ACCOUNTS may be
fixed and revised from time to time by the LENDER in its reasonable
discretion in accordance with its internal credit policies, and any
such determinations by the LENDER will be promptly communicated to the
BORROWERS. An ACCOUNT in no event shall be deemed an ELIGIBLE BILLED
COMMERCIAL ACCOUNT unless: (a) the ACCOUNT is a bona fide, existing,
and legally enforceable obligation of the named ACCOUNT DEBTOR arising
from goods sold or leased or from services performed in the ordinary
course of business on terms that are normal and customary in the
business of such BORROWER, the ACCOUNT is actually and absolutely
owing to such BORROWER and is not contingent for any reason, and such
BORROWER has lawful title to such ACCOUNT; (b) the delivery of the
goods or the performance of the services has been completed; (c) no
return, rejection, or repossession, has occurred (or if a return,
rejection or repossession has occurred, only to the extent such
ACCOUNT is in excess of the maximum amount of such return, rejection
or repossession and provided the balance of such ACCOUNT otherwise
represents a valid, uncontested and legally enforceable obligation of
the ACCOUNT DEBTOR and satisfies all of the other criteria set forth
herein); (d) the goods delivered or the services performed have been
delivered or performed, as the case may be, in accordance with the
terms of the contract between the applicable BORROWER and the ACCOUNT
DEBTOR, without dispute, objection, complaint, offset, defense,
counterclaim, adjustment or allowance (including without limitation
discounts, advertising allowances, or contra accounts) (or if such
ACCOUNT is subject to any such dispute, objection, complaint, offset,
defense, counterclaim, adjustment, or allowance, only to the extent
such ACCOUNT is in excess of the maximum amount of such dispute,
objection, complaint, offset, defense, counterclaim, adjustment, or
allowance, and provided the balance of such ACCOUNT otherwise
represents a valid, uncontested and legally enforceable obligation of
the ACCOUNT DEBTOR and satisfies all of the other criteria set forth
herein); (e) the ACCOUNT is not payable by an ACCOUNT DEBTOR to whom
any or all of the BORROWERS owes money (or if so, only to the extent
that such ACCOUNT is in excess of the total amount owed by any or all
of the BORROWERS to the ACCOUNT DEBTOR and provided the balance of
such ACCOUNT otherwise represents a valid, uncontested and legally
enforceable obligation of the ACCOUNT DEBTOR and satisfies all of the
other criteria set forth herein); (f) the ACCOUNT DEBTORS obligation
to pay the ACCOUNT is not subject to any repurchase obligation or
return right, as with sales made on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, or consignment basis; (g) the
ACCOUNT is not evidenced by CHATTEL PAPER or an INSTRUMENT or any
kind; (h) the ACCOUNT has not been turned over to any PERSON other
than a BORROWER for collection; (i) the ACCOUNT is evidenced by an
invoice and no more than ninety (90) days have elapsed from the
billing or invoice date; (j) no prior, contemporaneous, or subsequent
assignment, claim, lien, or security interest, other than that of the
LENDER, applies to the ACCOUNT; (k) no bankruptcy or insolvency
proceedings or payment moratoriums of any kind apply to the ACCOUNT;
(l) the ACCOUNT DEBTOR is not, in the LENDERS sole opinion, unlikely
to pay because of death, incompetency, disappearance, financial
inability, potential bankruptcy, insolvency, damage to or disposition
of the goods, default, or any other reason whatsoever; (m) no bonding
company or surety asserts or has the ability to assert any claim based
upon the legal doctrine of equitable subrogation, or under any other
right to claim a lien into or right to payment of the ACCOUNT; (n) the
ACCOUNT does not arise from or pertain to any transaction with any
employee, officer, agent, director, stockholder or other AFFILIATE
unless arising in the ordinary course of business on an arms-length
basis; (o) the ACCOUNT is not payable from any ACCOUNT DEBTOR located
outside of the geographic boundaries of the United States of America
or Canada unless such ACCOUNT (i) is credit guaranteed in full by a
policy of credit insurance insuring comprehensive (commercial and
political) risks, acceptable to the LENDER in its sole discretion, or
(ii) if approved by the LENDER, is payable in the full amount of the
face value of the ACCOUNT in U.S. Dollars and fully secured by a
perfected assignment of proceeds of an irrevocable letter of credit
acceptable to the LENDER in form and substance and issued by a United
States financial institution satisfactory to the LENDER in its sole
discretion; (p) a BORROWER is legally empowered to collect the ACCOUNT
against the ACCOUNT DEBTOR in the jurisdiction in which the ACCOUNT
DEBTOR is located; (q) the ACCOUNT is not payable by an ACCOUNT DEBTOR
with respect to which more than fifty percent (50%) of the dollar
amount of that ACCOUNT DEBTORS RECEIVABLES to any or all of the
BORROWERS are more than ninety (90) days due from the date of invoice;
(r) the ACCOUNT does not arise from any contract or agreement with any
state, local or foreign government; and (s) the LENDER has a perfected
first priority security interest therein. An ACCOUNT which otherwise
satisfies the LENDERS criteria for eligibility shall also be subject
to the following eligibility limitations: (A) if the ACCOUNT is due
from an ACCOUNT DEBTOR whose billed ACCOUNTS in the aggregate
constitute in excess of fifteen percent (15%) of all billed ACCOUNTS
of the BORROWERS, only the portion of the aggregate amount of the
billed ACCOUNTS from that ACCOUNT DEBTOR which does not exceed fifteen
percent (15%) of all billed ACCOUNTS of the BORROWERS may be eligible;
and (B) to the extent the ACCOUNT contains finance charges, delivery
charges or sales taxes, such finance charges, delivery charges or
sales taxes shall not be eligible.
Section 1.36. Eligible Billed Government Accounts. The term ELIGIBLE
BILLED GOVERNMENT ACCOUNTS means, at any date of determination
thereof, the aggregate amount, at such time, of bona fide ACCOUNTS
arising out of GOVERNMENT CONTRACTS and created or acquired by any
BORROWER in the ordinary course of its business, which have been
billed to the ACCOUNT DEBTOR thereon and which are payable in
conformity with such billing, and which are, but only in the amounts
such ACCOUNTS are, acceptable to the LENDER. The criteria for
eligibility as an ELIGIBLE BILLED GOVERNMENT ACCOUNT may be fixed and
revised from time to time by the LENDER in its reasonable discretion
in accordance with its internal credit policies, and any such
determinations by the LENDER will be promptly communicated to the
BORROWERS. An ACCOUNT shall in no event be deemed an ELIGIBLE BILLED
GOVERNMENT ACCOUNT unless: (a) the ACCOUNT and the respective
GOVERNMENT CONTRACT shall be in compliance with all applicable LAWS,
including federal procurement LAWS and regulations; (b) if so
requested by the LENDER, the applicable BORROWER shall have complied
with all provisions necessary to protect the LENDERS interest under
the Assignment of Claims Act of 1940, as amended, and all regulations
promulgated thereunder; (c) the LENDER is satisfied as to the absence
of setoffs, counterclaims, and other defenses to payment on the part
of the United States of America; (d) such ACCOUNT shall not constitute
or include any retainage; (e) the LENDER is satisfied that funds for
the payment of such ACCOUNT have been appropriated by the United
States of America or such agency, department or instrumentality
thereof, such ACCOUNT and GOVERNMENT CONTRACT are enforceable against
the full faith and credit of the United States of America, and funds
for the payment of such ACCOUNT are available; and (f) the ACCOUNT
satisfies and continues to satisfy requirements contained in the
definition of ELIGIBLE BILLED COMMERCIAL ACCOUNTS set forth in Section
1.35 of this AGREEMENT; provided, however, (i) in lieu of clause (i),
the ACCOUNT shall be evidenced by an invoice and no more than one
hundred twenty (120) days shall have elapsed from the billing or
invoice date, (ii) in lieu of clause (q), the ACCOUNT is not payable
under a GOVERNMENT CONTRACT with respect to which more than fifty
percent (50%) of the aggregate dollar amount of all ACCOUNTS payable
to any or all of the BORROWERS thereunder are more than one hundred
twenty (120) days due from the date of invoice; (iii) and in lieu of
clause (A), if the ACCOUNT is payable under a GOVERNMENT CONTRACT as
to which all billed ACCOUNTS payable to any of the BORROWERS
thereunder in the aggregate constitute in excess of fifteen percent
(15%) of all billed ACCOUNTS of the BORROWERS, only the portion of the
aggregate amount of the ACCOUNTS pursuant to such GOVERNMENT CONTRACT
which does not exceed fifteen percent (15%) of all billed ACCOUNTS of
the BORROWERS may be eligible.
Section 1.37. Eligible Inventory. The term ELIGIBLE INVENTORY means,
at any date of determination thereof, the aggregate amount, as at such
time, of INVENTORY owned by any or all of the BORROWERS which is
acceptable to the LENDER to be included in the calculation of the
BORROWING BASE. The criteria for eligibility may be fixed and revised
by the LENDER from time to time in its reasonable discretion in
accordance with its internal credit policies, and any such
determinations by the LENDER will be promptly communicated to the
BORROWERS. INVENTORY in no event shall be deemed to be ELIGIBLE
INVENTORY unless: (a) the LENDER has a first priority perfected
security interest in its INVENTORY; (b) it is normally and currently
saleable in the ordinary course of business of any or all of the
BORROWERS; (c) it is not work in process; (d) it is located on the
premises of a BORROWER; (e) it does not consist of defective, damaged,
obsolete, returned or repossessed items of INVENTORY or used goods or
goods taken in trade; (f) it does not consist of slow moving items or
items determined by the LENDER in its sole discretion to be stale or
dated merchandise; (g) it does not consist of packing or packaging
materials, general supplies, catalogs, promotion materials, specialty
inventory, inventory on loan to any PERSON, items used as
demonstrators, prototypes, or salesman's samples; (h) it does not
consist of an item consigned to any or all of the BORROWERS or with
respect to which any PERSON claims a lien; (i) it has not been
consigned by any or all of the BORROWERS to a consignee; (j) it is not
held by any PERSON (other than a BORROWER) or located upon any
premises not owned in fee simple by a BORROWER unless such PERSON or
the owner of such premises has executed a lien waiver agreement in
form and substance satisfactory to the LENDER; and (k) it has not been
deemed unmerchantable or otherwise unsatisfactory by the LENDER for
any reason, in the LENDERS sole discretion, by written notice to the
BORROWERS. The value of any INVENTORY deemed to meet the criteria for
ELIGIBLE INVENTORY shall be determined at the least of: (i) the
BORROWERS net purchase or manufacturing cost; (ii) the lowest
then-existing market price; (iii) the BORROWERS lowest selling price,
less estimated expenses for packing, selling and delivery; or (iv) any
price ceiling which may be established by governmental order,
regulation, or restriction. The LENDER shall be the discretionary
judge of the value of any INVENTORY, based upon such information as it
deems, in its reasonable discretion, to be relevant or applicable in
making that determination.
Section 1.38. Eligible Unbilled Government Accounts. The term ELIGIBLE
UNBILLED GOVERNMENT ACCOUNTS means, at any date of determination
thereof, the aggregate amount, at such time, of those bona fide
ACCOUNTS which would be ELIGIBLE BILLED GOVERNMENT ACCOUNTS, but for
the fact that such ACCOUNTS have not been invoiced as a result of
normal frequency of billing under the particular GOVERNMENT CONTRACTS,
and which ACCOUNTS are acceptable, but only in the amounts such
ACCOUNTS are acceptable to the LENDER. The criteria for eligibility as
an ELIGIBLE UNBILLED GOVERNMENT ACCOUNT may be fixed and revised by
the LENDER in its reasonable discretion in accordance with its
internal credit policies, and any such determinations by the LENDER
will be promptly communicated to the BORROWERS. An ACCOUNT shall in no
event be deemed eligible unless: (a) such ACCOUNT represents costs
incurred by or profits accrued to a BORROWER and recoverable under a
GOVERNMENT CONTRACT; (b) such ACCOUNT shall not constitute or include
any retainage; (c) no more than sixty (60) days have elapsed from the
date services were completed or goods delivered; (d) upon issuance of
an invoice therefor an ELIGIBLE BILLED GOVERNMENT ACCOUNT will arise
in favor of a BORROWER; and (e) such ACCOUNT is not simultaneously
reported as an ELIGIBLE BILLED GOVERNMENT ACCOUNT on any Borrowing
Base Certificate provided to the LENDER.
Section 1.39. Employee Benefit Plan. The term EMPLOYEE BENEFIT PLAN
means an employee benefit plans as defined in Section 3(3) of ERISA.
Section 1.40. Environmental Laws. The term ENVIRONMENTAL LAWS means
individually or collectively any local, state or federal LAW, statute,
rule, regulation, order, ordinance, common law, permit or license term
or condition, or state super-lien or environmental clean-up or
disclosure statutes pertaining to the environment or to environmental
contamination, regulation, management, control, treatment, storage,
disposal, containment, removal, clean-up, reporting, or disclosure,
including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as now or hereafter
amended (including, but not limited to, the Super-fund Amendments and
Reauthorization Act); the Resource Conservation and Recover Act, as
now or hereafter amended (including, but not limited to, the Hazardous
and Solid Waste Amendments of 1984); the Toxic Substances Control Act,
as now or hereafter amended; the Clean Water Act, as now or hereafter
amended; the Safe Drinking Water Act, as now or hereafter amended; or
the Clean Air Act, as now or hereafter amended.
Section 1.41. EPA Permit. The term EPA PERMITS has the meaning given
that term in Section 5.23 of this AGREEMENT.
Section 1.42. ERISA. The term ERISAS means the Employee Retirement
Income Security Act of 1974 and regulations issued thereunder, as
amended from time to time and any successor statute.
Section 1.43. ERISA Affiliate. The term ERISA AFFILIATE means, in
relation to any PERSON, any trade or business (whether or not
incorporated) which is a member of a group of which that PERSON is a
member and which is under common control within the meaning of the
regulations promulgated under Section 414 of the CODE.
Section 1.44. ERISA Liabilities. The term ERISA LIABILITIES means
the aggregate of all unfunded vested benefits under any employee
pension benefit plan, within the meaning of Section 3(2) of ERISA, of
any of the BORROWERS or any ERISA AFFILIATE of any of the BORROWERS
under any plan covered by ERISA that is not a MULTIEMPLOYER PLAN and
all potential withdrawal liabilities of any of the BORROWERS or any
ERISA AFFILIATE under all MULTIEMPLOYER PLANS.
Section 1.45. Event Of Default. The term EVENT OF DEFAULT means any
of the events set forth in Article 8 of this AGREEMENT, provided that
any requirement for the giving of notice, the lapse of time, or both,
or any other expressly stated condition, has been satisfied.
Section 1.46. Facilities. The term FACILITIES means all real property
and the improvements thereon used or occupied or leased by any of the
BORROWERS or otherwise used at any time by any of the BORROWERS in the
operation of its business or for the manufacture, storage, or location
of any of the COLLATERAL.
Section 1.47. Federal Funds Effective Rate. The term FEDERAL FUNDS
EFFECTIVE RATE means for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published
for such day (or, if such day is not a BUSINESS DAY, for the preceding
BUSINESS DAY) by the Federal Reserve Bank of New York or, if such rate
is not so published for any day that is a BUSINESS DAY, the average of
the quotations for such day on such transactions received by the
LENDER from three (3) Federal funds brokers of recognized standing
selected by the LENDER.
Section 1.48. Fiscal Year. The term FISCAL YEAR means the fiscal year
of each of the BORROWERS which is the twelve (12) month accounting
period commencing January 1 and ending December 31 of each calendar
year.
Section 1.49. G.A.A.P. The term G.A.A.P. means, with respect to any
date of determination, generally accepted accounting principles as
used by the Financial Accounting Standards Board and/or the American
Institute of Certified Public Accountants consistently applied and
maintained throughout the periods indicated.
Section 1.50. GSE Power Systems AB Note. The term GSE POWER SYSTEMS
AB NOTE means the Promissory Note dated May 1, 1999 from GSE SYSTEMS
and payable to the order of GSE Power Systems AB in the original
principal amount of Eleven Million, Three Hundred Twenty-Seven
Thousand, One Hundred Thirty-Four and 94/100 Swedish kronor (SEK
11.327.134,94).
Section 1.51. GSE Systems. The term GSE SYSTEMS means GSE Systems,
Inc., a Delaware corporation.
Section 1.52. Guaranteed Pension Plan. The term GUARANTEED PENSION
PLAN means any pension plan maintained by any of the BORROWERS or an
ERISA AFFILIATE of any of the BORROWERS, or to which any of the
BORROWERS or an ERISA AFFILIATE contributes, some or all of the
benefits under which are guaranteed by the United States Pension
Benefit Guaranty Corporation.
Section 1.53. Guarantors. The term GUARANTORS means collectively GSE
Systems International, Ltd., a Delaware corporation, MSHI, Inc., a
Virginia corporation, GSE Erudite Software, Inc., a Delaware
corporation, GP International Engineering & Simulation, Inc., a
Delaware corporation, GSE Services Company, LLC, a Delaware limited
liability company, and all other direct or indirect DOMESTIC
SUBSIDIARIES of any of the BORROWERS.
Section 1.54. Guaranty Agreements. The term GUARANTY AGREEMENTS
means collectively the Guaranty Agreements executed from time to time
by the GUARANTORS or the LIMITED GUARANTORS for the benefit of the
LENDER.
Section 1.55. Guaranty Indebtedness. The term GUARANTY INDEBTEDNESS
means any obligation, contingent or otherwise, of any referenced
PERSON directly or indirectly guaranteeing any debt or obligation of
any other PERSON and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or
otherwise, of such PERSON: (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such debt or obligation
(whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or
otherwise, other than agreements to purchase goods at an arms length
price in the ordinary course of business); or (b) entered into for the
purpose of assuring in any other manner the holder of such debt or
obligation of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part). The term GUARANTY
INDEBTEDNESS shall not include endorsements for collection or deposit
in the ordinary course of business.
Section 1.56. Government Contract. The term GOVERNMENT CONTRACT
means a contract between any BORROWER and any agency, department or
instrumentality of the United States of America where such BORROWER is
the prime contractor.
Section 1.57. Indebtedness. The term INDEBTEDNESS means, as to any
referenced PERSON (determined without duplication): (a) indebtedness
of such PERSON for borrowed money (whether by loan or the issuance and
sale of debt securities), or for the deferred purchase or acquisition
price of property or services (other than accounts payable incurred in
the ordinary course of business); (b) obligations of such PERSON in
respect of letters of credit or similar instruments issued or accepted
by financial institutions for the account of such PERSON (whether or
not such obligations are contingent); (c) CAPITAL LEASE OBLIGATIONS of
such PERSON; (d) obligations of such PERSON to redeem or otherwise
retire equity interests in such PERSON; (e) indebtedness of others of
the type described in clause (a), (b), (c) or (d) above secured by a
lien on any of the property of such PERSON, whether or not the
respective obligation so secured has been assumed by such PERSON; and
(f) GUARANTY INDEBTEDNESS.
Section 1.58. Insolvency Proceedings. The term INSOLVENCY
PROCEEDINGS means, with respect to any referenced PERSON, any case or
proceeding commenced by or against such PERSON, under any provision of
the United States Bankruptcy Code, as amended, or under any other
federal or state bankruptcy or insolvency law, or any assignments for
the benefit of creditors, formal or informal moratoriums,
receiverships, compositions or extensions with some or all creditors
with respect to any indebtedness of such PERSON.
Section 1.59. Intellectual Property. The term INTELLECTUAL PROPERTY
means all present and future designs, patents, patent rights and
applications therefor, trademarks and registrations or registrations
therefor, copyrights, software or computer programs, license rights,
trade secrets, methods, processes, know-how, drawings, specifications,
descriptions, and all memoranda, notes and records with respect to any
research and development, whether now owned or hereafter acquired, all
goodwill associated with any of the foregoing, and all proceeds of all
of the foregoing.
Section 1.60. Interest Period. The term INTEREST PERIOD means with
respect to any LIBOR BORROWING, each period commencing on the date
such LIBOR BORROWING is made or converted to a LIBOR BORROWING and
ending on the numerically corresponding date in the first, second, or
third calendar month thereafter (or, if there is no numerically
corresponding day, on the last BUSINESS DAY of such month), as the
BORROWERS may select.
Sectio 1.61. Interest Rate Protection Agreement. The term INTEREST
RATE PROTECTION AGREEMENT means, for any referenced PERSON, an
interest rate swap, cap or collar agreement or similar arrangement and
documentation between such PERSON and one or more financial
institutions providing for the transfer or mitigation of interest
risks either generally or under specific contingencies.
Section 1.62. Inventory. The term INVENTORY shall have the same
meaning as provided to such term in the New York Uniform Commercial
Code - Secured Transactions, Article 9, as amended, together with all
of the BORROWERS goods, merchandise, materials, raw materials, goods
in process, finished goods, work in progress, bindings or component
materials, packaging and shipping materials and other tangible or
intangible personal property, now owned or hereafter acquired and held
for sale or lease or furnished or to be furnished under contracts of
service or which contribute to the finished products or the sale,
promotion, storage and shipment thereof, whether located at facilities
owned or leased by any of the BORROWERS, in the course of transport to
or from ACCOUNT DEBTORS, used for demonstration, placed on
consignment, or held at storage locations.
Section 1.63. Inventory Borrowing Base. The term INVENTORY BORROWING
BASE means, at any date of determination thereof, the lesser, as at
such time, of (a) the product of (i) ELIGIBLE INVENTORY and (ii) the
INVENTORY CREDIT PERCENTAGE, and (b) the INVENTORY MAXIMUM CREDIT
AMOUNT.
Section 1.64. Inventory Credit Percentage. The termINVENTORY CREDIT
PERCENTAGE means forty percent (40%).
Section 1.65. Inventory Maximum Credit Amount. The term INVENTORY
MAXIMUM CREDIT AMOUNT means One Million Two Hundred Thousand Dollars
($1,200,000.00).
Section 1.66. Laws. The term LAWS means all ordinances, statutes,
rules, regulations, orders, injunctions, writs or decrees of any
government or political subdivision or agency thereof, or any court or
similar entity established by any thereof.
Section 1.67. L/C Exposure. The term L/C EXPOSURE means,
collectively, at any time of determination the sum, as at such time
of: (a) the STATED AMOUNT of all LETTERS OF CREDIT issued and
outstanding; and (b) all REIMBURSEMENT OBLIGATIONS.
Section 1.68. Lender Expenses. The term LENDER EXPENSES means the
out-of-pocket expenses or costs incurred by the LENDER arising out of,
pertaining to, or in any way connected with this AGREEMENT, any of the
other LOAN DOCUMENTS or the OBLIGATIONS, or any documents executed in
connection herewith or transactions hereunder. The term LENDER
EXPENSES shall include, without limitation: (a) the costs or expenses
required to be paid by any or all of the BORROWERS pursuant to this
AGREEMENT or any of the other LOAN DOCUMENTS; (b) costs and expenses
in connection with COLLECTION ACCOUNTS; (c) LETTER OF CREDIT fees and
charges; (d) taxes and insurance premiums advanced or otherwise paid
by the LENDER in connection with the COLLATERAL or on behalf of any or
all of the BORROWERS; (e) filing, recording, title insurance,
environmental and consulting fees, audit fees, search fees and other
expenses paid or incurred by the LENDER in connection with the
LENDERS transactions with any or all of the BORROWERS contemplated by
this AGREEMENT or any of the other LOAN DOCUMENTS or otherwise related
to the CREDIT FACILITY or any of the OBLIGATIONS; (f) costs and
expenses incurred by the LENDER in the collection of the ACCOUNTS
(with or without the institution of legal action), or to enforce any
provision of this AGREEMENT, or in gaining possession of, maintaining,
handling, evaluating, preserving, storing, shipping, selling,
preparing for sale and/or advertising to sell the COLLATERAL or any
other property of any of the BORROWERS whether or not a sale is
consummated; (g) costs and expenses of litigation incurred by the
LENDER, or any participant of the LENDER in any of the OBLIGATIONS, in
enforcing or defending this AGREEMENT or any portion hereof or in
collecting any of the OBLIGATIONS; (h) reasonable attorneys fees and
expenses incurred by the LENDER in obtaining advice or the services of
its attorneys with respect to the structuring, drafting, negotiating,
reviewing, amending, terminating, enforcing or defending of this
AGREEMENT, or any portion hereof or any agreement or matter related
hereto, whether or not litigation is instituted; and (i travel
expenses related to any of the foregoing.
Section 1.69. Letters Of Credit. The term LETTERS OF CREDIT means
collectively standby letters of credit issued from time to time by the
LENDER for the account or benefit of any or all of the BORROWERS.
Section 1.70. LIBOR Borrowing. The term LIBOR BORROWING means each
advance of proceeds of a LOAN which is accruing interest based upon
the ADJUSTED LIBOR RATE for a separate INTEREST PERIOD.
Section 1.71. LIBOR Rate. The term LIBOR RATE means, with respect to
any LIBOR BORROWING for any INTEREST PERIOD, the interest rate per
annum determined by the LENDER by dividing (the resulting quotient
rounded upwards, to the next whole multiple of one-sixteenth of one
percent (.0625%) (a) the rate of interest determined by the LENDER in
accordance with its usual procedures to be the weighted average
(rounded, if necessary, to the nearest one-hundredth of one percent
(.01%)) of the rate quotation offered to the LENDER by leading banks
in the London Interbank Eurodollar Market for Dollar deposits for
amounts in immediately available funds comparable to the outstanding
principal amount of the LIBOR BORROWING for which an interest rate is
then being determined and having a borrowing date and a maturity
comparable to such INTEREST PERIOD, as of 11:00 a.m. or as soon
thereafter as practicable, two (2) BUSINESS DAYS preceding the first
day of such INTEREST PERIOD by (b) a number equal to 1.00 minus the
RESERVE REQUIREMENT. In each instance, the LENDERS determination of
the LIBOR RATE shall be conclusive, absent manifest error.
Section 1.72. Limited Guarantors. The term LIMITED GUARANTORS means
collectively, GP Strategies Corporation, a Delaware corporation, and
ManTech International Corporation, a New Jersey corporation.
Section 1.73. Loan. The term LOAN means the revolving loan extended
by the LENDER to the BORROWERS as joint and several co-obligors in
accordance with the terms set forth in this AGREEMENT.
Section 1.74. Loan Documents. The term LOAN DOCUMENTS means all
agreements, instruments and documents, together with all other loan
agreements (including without limitation this AGREEMENT), notes
(including without limitation the NOTE), security agreements,
guarantees, subordination agreements, intercreditor agreements,
pledges, affidavits, powers of attorney, consents, assignments,
landlord and mortgage waivers, opinions, collateral assignments,
reimbursement agreements, contracts, notices, leases, financing
statements, mortgages, deeds of trusts, assignments of rents or
contract proceeds, intellectual property security agreements, letter
of credit applications and agreements, cash collateral account
agreements, INTEREST RATE PROTECTION AGREEMENTS, and all other written
matter, whether heretofore, now or hereafter executed by or on behalf
of any or all of the BORROWERS, any of the GUARANTORS, any of the
LIMITED GUARANTORS or by any other PERSON in connection with any of
the OBLIGATIONS.
Section 1.75. Lock Box. The term LOCK BOX has the meaning given that
term in Section 3.5 of this AGREEMENT.
Section 1.76. Material Adverse Event. The term MATERIAL ADVERSE
EVENT means the occurrence of any event, condition, or omission which
the LENDER in the good faith reasonable exercise of the LENDERS
discretion determines could be expected to have a material adverse
effect upon: (a) the condition (financial or otherwise), results of
operations, properties, assets, liabilities (including, without
limitation, tax liabilities, liabilities under ENVIRONMENTAL LAWS, and
ERISA LIABILITIES), businesses, operations, capitalization, equity,
licenses, franchises or prospects of any of the BORROWERS, any of the
GUARANTORS, or any of the LIMITED GUARANTORS; (b) the ability of any
of the BORROWERS, any of the GUARANTORS, or any of the LIMITED
GUARANTORS to perform any of the OBLIGATIONS when and as required by
the terms of the LOAN DOCUMENTS; (c) the rights and remedies of the
LENDER as provided by the LOAN DOCUMENTS; or (d) the value, condition,
use, or availability of any of the COLLATERAL or upon any of the
LENDERS liens and security interests securing the OBLIGATIONS.
Section 1.77. Maximum Credit Amount. The term MAXIMUM CREDIT AMOUNT
means the lesser of the BORROWING BASE or the DOLLAR CAP.
Section 1.78. Multiemployer Plan. The term MULTIEMPLOYER PLAN means
a multiemployer plan as defined in Section 4001(a)(3) of ERISA which
is maintained for employees of the BORROWERS, or any ERISA AFFILIATE
of the BORROWERS.
Section 1.79. Net Profit After Taxes. The term NET PROFIT AFTER
TAXES means, for any period, the aggregate net income of the
BORROWERS and their consolidated SUBSIDIARIES for such period
determined in conformity with G.A.A.P., after payment of or provision
for, or distributions with respect to, taxes applicable to such
period; provided, however, in no event shall such amount be less than
One Dollar ($1.00).
Section 1.80. Note. The term NOTE means the Promissory Note of even
date herewith from the BORROWERS as co-makers thereof which is payable
to the order of the LENDER in the stated principal amount of Ten
Million Dollars ($10,000,000.00).
Section 1.81. Obligations. The term OBLIGATIONS means collectively
all of the obligations of each of the BORROWERS to pay to the LENDER:
(a) all sums due to the LENDER arising out of or in connection with
the LOAN or otherwise pursuant to the terms of the LOAN DOCUMENTS and
all renewals, refinancings, extensions, substitutions, amendments,
restatements, modifications, supplements or replacements thereof,
whether direct or indirect, joint or several, absolute or contingent,
contemplated or uncontemplated, now existing or hereafter arising,
including, but not limited to, all amounts of principal, interest,
charges, reimbursements, advancements, escrows and fees; (b) other
indemnification obligations owed by any or all of the BORROWERS to the
LENDER in accordance with the terms of the LOAN DOCUMENTS; (c) all
LENDER EXPENSES; (d all overdrafts of any of the BORROWERS upon any
accounts with the LENDER; (e) payments, duties or obligations owed to
the LENDER arising from or with respect to INTEREST RATE PROTECTION
AGREEMENTS, foreign exchange facilities or currency transactions,
existing or arising from time to time; (f) all sums outstanding on
account of REIMBURSEMENT OBLIGATIONS and any other sums owed to the
LENDER arising out of or relating to any LETTERS OF CREDIT including,
without limitation, all indemnification obligations, obligations to
deposit cash collateral, and obligations to pay fees; (g) all duties
of payment and performance owed to the LENDER in connection with any
guaranties; (h) all other indebtedness or liability of any of the
BORROWERS to the LENDER, whether direct or indirect, joint or several,
absolute or contingent, contemplated or not presently contemplated,
now existing or hereafter arising in connection with the CREDIT
FACILITY; and (i) any indebtedness or liability which may exist or
arise as a result of any payment made by or for the benefit of any of
the BORROWERS being avoided or set aside for any reason including,
without limitation, any payment being avoided as a preference under
Sections 547 and 550 of the United States Bankruptcy Code, as amended,
or under any state law governing insolvency or creditors rights.
Section 1.82. Permitted Acquisitions. The term PERMITTED ACQUISITION
means an ACQUISITION by any BORROWER pursuant to an ACQUISITION
AGREEMENT provided: (a) no DEFAULT or EVENT OF DEFAULT shall have
occurred or shall occur after giving effect to such ACQUISITION; (b)
the BORROWERS and the consolidated SUBSIDIARIES shall have
demonstrated in a writing delivered to the LENDER full compliance with
all of the terms and provisions of this AGREEMENT (including but not
limited to the financial covenants set forth in Sections 6.21, 6.22,
6.23, and 6.24 hereof) before giving effect to such ACQUISITION and,
on a pro forma basis, after giving effect to such ACQUISITION; (c) the
BORROWERS and the consolidated SUBSIDIARIES shall have demonstrated to
the LENDER in writing that, after giving full effect to the
ACQUISITION, the TANGIBLE NET WORTH of the BORROWERS and the
consolidated SUBSIDIARIES shall not be less than their TANGIBLE NET
WORTH immediately prior to such ACQUISITION; (d) the net income
(determined in accordance with G.A.A.P.) of the TARGET for the most
12-month period most recently preceding the ACQUISITION is not less
than One Dollar ($1.00), unless the ACQUISTION is a true asset
purchase only; (e) the TARGET is a going concern (unless the
ACQUISITION is a true asset purchase only), organized under one of the
states of the United States and located solely in (or if an asset
purchase, whose assets are located solely in), the United States, and
is in substantially the same line of business as the BORROWERS or a
complementary line of business; (f) a BORROWER is the surviving,
controlling corporation upon the consummation of such ACQUISITION; (g)
such ACQUISITION was not preceded by an unsolicited tender offer for
the CAPITAL STOCK of the TARGET that was not recommended or approved
by the TARGETS board of directors or similar governing body, and the
BORROWER shall have delivered to the LENDER evidence satisfactory to
the LENDER that the board of directors or similar governing body of
the TARGET has approved such ACQUISITION; (h) the TARGET is not
subject to any material pending litigation which could reasonably be
expected to have a material adverse effect on the BORROWERS or any
SUBSIDIARY; (i) the BORROWERS have given the LENDER at least fifteen
(15) BUSINESS DAYS prior written notice of the closing of the
ACQUISITION; and (j) if the aggregate value of cash and securities
paid and issued in connection with such transaction (including the
maximum amount of any compensation or consideration which such
BORROWER is obligated to pay in connection therewith in addition to
the purchase price) is One Million Dollars ($1,000,000.00) or more,
such transaction has been approved by the LENDER, which approval shall
be subject to the review by the LENDER of all documentation and
financial analysis related to the transaction as the LENDER shall
reasonably require.
Section 1.83. Permitted Liens. The term PERMITTED LIENS means: (a)
liens for taxes, assessments, or similar charges incurred in the
ordinary course of business that are (i) not yet due and payable or
(ii) due and payable but are being contested in good faith by
appropriate proceedings in accordance with the terms and conditions of
Section 6.8 hereof, provided that, in the case of liens under this
clause (ii), a reserve against the BORROWING BASE shall have been
established in the amount of the claims for any such taxes,
assessments, or similar charges; (b) liens in favor of the LENDER; (c)
any existing liens specifically described on Schedule 1.82 hereof; (d)
any lien on specifically allocated money or securities to secure
payments under workers compensation, unemployment insurance, social
security and other similar LAWS, or to secure the performance of bids,
tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations or appeal bonds, or to secure
leases, or indemnity, performance or other similar bonds in the
ordinary course of business; (e) purchase money security interests for
EQUIPMENT not to exceed in aggregate amount outstanding at any one
time the sum of Fifty Thousand Dollars ($50,000.00), provided that
such purchase money security interests do not attach to any assets
other than the specific item(s) of EQUIPMENT acquired with the
proceeds of the loan secured by such purchase money security
interests; (f) statutory liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by LAW which
are incurred in the ordinary course of business for sums not more than
thirty (30) days delinquent or the validity of which is being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted, the outcome of such contest proceedings, if
adversely determined, could not have a material adverse effect on any
of the BORROWERS or the GUARANTORS, such contest proceedings have the
effect of preventing the forfeiture or sale of such property subject
to such liens, and reserves satisfactory to the LENDER against the
BORROWING BASE shall have been established for payment of such sums,
fees and expenses for which any of the BORROWERS would be liable if
unsuccessful in such contest; and provided that such liens do not, in
any case, materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of any
of the BORROWERS; (g) easements, rights-of-way, restrictions and other
similar charges or encumbrances which, in the aggregate, are not
material in amount, and which in any case do not materially detract
from the value of the property subject thereto or interfere with the
ordinary conduct of the business of any of the BORROWERS; (h) liens
securing judgments, but only to the extent, for an amount, and for a
period not resulting in a DEFAULT or an EVENT OF DEFAULT; and (i)
subsequently arising liens which are expressly approved by the LENDER
in writing in advance of the creation of any such liens.
Section 1.84. Person. The term PERSON means any individual,
corporation, partnership, limited liability company, association,
joint-stock company, trust, estate, unincorporated organization, joint
venture, court, government or political subdivision or agency thereof,
or other legal entity.
Section 1.85. Quarter. The term QUARTER means each of the periods of
three calendar months beginning on each January 1, April 1, July 1,
and October 1 of each calendar year.
Section 1.86. Receivables. The term RECEIVABLES means all of the
ACCOUNTS, INSTRUMENTS, DOCUMENTS, GENERAL INTANGIBLES, CHATTEL PAPER,
notes, notes receivable, drafts, acceptances, and choses in action, of
any or all of the BORROWERS, now existing or hereafter created or
acquired, and all proceeds and products thereof, and all rights
thereto, arising from the sale or lease of or the providing of
INVENTORY, GOODS, or services by any of the BORROWERS to ACCOUNT
DEBTORS, as well as all other rights, contingent or non-contingent, of
any kind of any of the BORROWERS to receive payment, benefit, or
credit from any PERSON, including, but not limited to contracts with
customers (including but not limited to GOVERNMENT CONTRACTS),
deposits, prepayments and any rights to receive payment under any
policy of credit insurance.
Section 1.87. Records. The term RECORDS means correspondence,
memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type, whether expressed in ordinary,
computer or machine language.
Section 1.88. Regulated Substance. The term REGULATED SUBSTANCE
means any substance which, pursuant to any ENVIRONMENTAL LAW, is
identified as a hazardous substance (or other term having similar
import) or is otherwise subject to special requirements in connection
with the use, storage, transportation, disposition or other handling
thereof.
Section 1.89. Regulatory Change. The term REGULATORY CHANGE means
any change after the CLOSING in the laws of the United States, any
state thereof, or any foreign nation or state, or the adoption or
making after such date, of any interpretations, directives or requests
applying to a class of depository institutions, including the LENDER,
of or under any law of the United States, any states thereof, or any
foreign nation or state (whether or not any such interpretation,
directive or request has the force of law) by any court or
governmental authority or monetary authority with authority with
respect to the interpretation or administration of such law.
Section 1.90. Reimbursement Obligations. The term REIMBURSEMENT
OBLIGATIONS means, at any particular time, the aggregate amount of
all drawings made under LETTERS OF CREDIT which, as at such time, have
not been reimbursed to the LENDER by the BORROWERS.
Section 1.91. Release. The term RELEASE means a release as defined
in Section 101(22) of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as now or hereafter amended.
Section 1.92. Reserve Requirement. The term RESERVE REQUIREMENT
means, for any INTEREST PERIOD, the average rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such INTEREST PERIOD under Regulation
D of the Board of Governors of the Federal Reserve System, from time
to time in effect (or any successor or other regulation relating to
reserve requirements applicable to member banks of the Federal Reserve
System) by member banks of the Federal Reserve System with deposits
exceeding One Billion Dollars ($1,000,000,000) against Eurocurrency
Liabilities as currently defined in Regulation D.
Section 1.93. Restricted Payment. The term RESTRICTED PAYMENT means
collectively: (a) any dividend or other payment or distribution,
direct or indirect, on account of any equity interest in any of the
BORROWERS or any of their respective SUBSIDIARIES now or hereafter
outstanding, except a dividend or distribution payable solely in the
same class or type of equity interest to the holders of that class or
type; (b) any payment or prepayment of principal of, premium, if any,
or interest on, or any redemption, conversion, exchange, retirement,
sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, by any of the BORROWERS of any SUBORDINATED
DEBT, the GSE POWER SYSTEMS AB NOTE, or any equity interest in any of
the BORROWERS or any of their respective SUBSIDIARIES now or hereafter
outstanding; (c) any payment made by any of the BORROWERS or any of
their respective SUBSIDIARIES to retire, or to obtain the surrender
of, any outstanding warrants, options or other rights to acquire
equity interests in any of the BORROWERS or any of their respective
SUBSIDIARIES now or hereafter outstanding; or (d) any payment by any
of the BORROWERS or any of their respective SUBSIDIARIES to any
AFFILIATE or any other PERSON of any management, consulting or similar
fees outside the ordinary course of business or which are not in
amounts comparable to sums paid in the marketplace for similar
services.
Section 1.94. Solvent. The term SOLVENT means, as to any referenced
PERSON, that as of the date of determination both: (a) (i) the then
fair saleable value of the property of such PERSON is greater than the
total amount of liabilities (including contingent liabilities) of such
PERSON and is not less than the amount that will be required to pay
the probable liabilities on such PERSONS then existing debts as they
become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such PERSON; (ii) such
PERSONS capital is not unreasonably small in relation to its business
or any contemplated or undertaken transaction; and (iii) such PERSON
does not intend to incur, or believe (nor should it reasonably
believe) that it will incur, debts beyond its ability to pay such
debts as they become due; and (b) such PERSON is solvent within the
meaning given that term and similar terms under applicable laws
relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall
be computed as the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
Section 1.95. Stated Amount. The term STATED AMOUNT means with
respect to each LETTER OF CREDIT, the lesser of (a) the face amount
thereof, or (b) the amount remaining available for drawing thereunder
(regardless of whether any conditions for drawing could then be
satisfied).
Section 1.96. Subordinated Debt. The term SUBORDINATED DEBT means
the INDEBTEDNESS of any of the BORROWERS to any PERSON which is
expressly subordinated to the repayment and enforcement of the
OBLIGATIONS pursuant to a written agreement acceptable to the LENDER.
Section 1.97. Subsidiary. The term SUBSIDIARY means, with respect to
any PERSON, any other PERSON of which securities or other ownership
interests representing an aggregate of fifty percent (50%) or more of
the equity or the ordinary voting power are, at the time as of which
any determination is being made, owned or controlled directly, or
indirectly through one or more intermediaries, by such PERSON.
Section 1.98. Tangible Net Worth. The term TANGIBLE NET WORTH means,
as at the end of any period, the difference obtained by subtracting
(a) TOTAL LIABILITIES as at the end of such period from (b) TOTAL
ASSETS as at the end of such period, exclusive of goodwill,
trademarks, tradenames, licenses and such other assets as are properly
classified as intangible assets in accordance with G.A.A.P.
consistently applied, and exclusive of all transactions with, and all
amounts due or to become due to any of the BORROWERS or any of the
consolidated SUBSIDIARIES from, and all investments in, AFFILIATES.
For purposes of this Section 1.98, investments in AFFILIATES shall
not include the initial non-cash investment by GSE SYSTEMS in exchange
for an equity interest in Avantium International BV.
Section 1.99. Target. The term TARGET means any PERSON, a majority
of the CAPITAL STOCK of which, a division or similar business unit of
which, or all or substantially all of the assets and business of any
of the foregoing of which, are to be acquired by a BORROWER, pursuant
to the terms of an ACQUISITION AGREEMENT.
Section 1.100. Termination Event. The term TERMINATION EVENT means:
(a) a Reportable Event described in Section 4043 of ERISA and the
regulations issued thereunder, but not including any such event for
which the 30-day notice requirement has been waived by applicable
regulation; (b) the withdrawal of any of the BORROWERS or an ERISA
AFFILIATE of any of the BORROWERS from a GUARANTEED PENSION PLAN
during a plan year in which it was a substantial employer as defined
in Section 4001(a)(2) of ERISA; (c) the filing of a notice of intent
to terminate a GUARANTEED PENSION PLAN or the treatment of a
GUARANTEED PENSION PLAN amendment as a termination under Section 4041
of ERISA; (d) the institution of proceedings to terminate a GUARANTEED
PENSION PLAN by the Pension Benefit Guaranty Corporation; (e) the
withdrawal or partial withdrawal of any of the BORROWERS or an ERISA
AFFILIATE of any of the BORROWERS from a MULTIEMPLOYER PLAN; or (f)
any other event or condition which might reasonably be expected to
constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any GUARANTEED PENSION PLAN.
Section 1.101. Termination Date. The term TERMINATION DATE means
March 23, 2003
Section 1.102. Total Assets. The term TOTAL ASSETS means, as at the
end of any period, the aggregate amount which, in accordance with
G.A.A.P. consistently applied, would be included in a total assets or
comparable account reflected in a balance sheet of the BORROWERS and
their consolidated SUBSIDIARIES as at the end of such period.
Section 1.103. Total Current Assets. The term TOTAL CURRENT ASSETS
means, as at the end of any period, the aggregate amount which, in
accordance with G.A.A.P. consistently applied, would be included in a
total current assets or comparable account reflected in a balance
sheet of the BORROWERS and their consolidated SUBSIDIARIES as at the
end of such period, exclusive of deferred assets other than prepaid
items such as insurance, taxes, interest, commissions, rents,
royalties and the like, and exclusive of all transactions with, and
all amounts due or to become due to any of the BORROWERS and their
consolidated SUBSIDIARIES from, and all investments in, AFFILIATES.
Section 1.104. Total Current Liabilities. The term TOTAL CURRENT
LIABILITIES means, as at the end of any period, the aggregate amount
which, in accordance with G.A.A.P. consistently applied, would be
included in a total current liabilities or comparable account
reflected in a balance sheet of the BORROWERS and their consolidated
SUBSIDIARIES as at the end of such period, including all reserves,
accruals and deferred charges and the aggregate amount of current
indebtedness of persons other than the BORROWERS and their
consolidated SUBSIDIARIES for which any BORROWER or their consolidated
SUBSIDIARIES is liable, contingently or noncontingently, or which are
secured by property of any of the BORROWERS or any consolidated
SUBSIDIARIES.
Section 1.105. Total Liabilities. The term TOTAL LIABILITIES means,
as at the end of any period, the aggregate amount which, in accordance
with G.A.A.P. consistently applied, would be included in a total
liabilities or comparable account reflected in a balance sheet of the
BORROWERS and their consolidated SUBSIDIARIES as at the end of such
period, including all reserves, accruals and deferred charges and the
aggregate amount of the liabilities of PERSONS other than the
BORROWERS for which any of the BORROWERS and their consolidated
SUBSIDIARIES is liable, contingently or noncontingently, or which are
secured by property of any of the BORROWERS or any consolidated
SUBSIDIARIES.
Section 1.106. Unbilled Government Accounts Borrowing Base. The term
UNBILLED GOVERNMENT ACCOUNTS BORROWING BASE means, at any date of
determination thereof, the lesser, as at such time, of (a) the product
of (i) ELIGIBLE UNBILLED GOVERNMENT ACCOUNTS and (ii) the UNBILLED
GOVERNMENT ACCOUNTS CREDIT PERCENTAGE, and (b) UNBILLED GOVERNMENT
ACCOUNTS MAXIMUM CREDIT AMOUNT.
Section 1.107. Unbilled Government Accounts Credit Percentage. The
term UNBILLED GOVERNMENT ACCOUNTS CREDIT PERCENTAGE means fifty
percent (50%).
Section 1.108. Unbilled Government Accounts Maximum Credit Amount. The
term UNBILLED GOVERNMENT ACCOUNTS MAXIMUM CREDIT AMOUNT means Two
Million Two Hundred Fifty Thousand Dollars ($2,250,000.00).
Section 1.109. Working Capital. The term WORKING CAPITAL means, as
at the end of any period, the difference obtained by subtracting (a)
TOTAL CURRENT LIABILITIES as at the end of such period, plus the
aggregate amount of all outstanding balances under the CREDIT
FACILITY, as at the end of such period, from (b) TOTAL CURRENT ASSETS
as at the end of such period.
Section 1.110. Year 2000 Compliant. The term YEAR 2000 COMPLIANT
means, with respect to any PERSON, that all computer hardware and
software that are material to the business and operations of such
PERSON will on a timely basis be able to perform properly
date-sensitive functions for all dates before, on, and after January
1, 2000, including functions with respect to any leap year.
Section 1.111. Year 2000 Problem. The term Year 2000 PROBLEM shall
have the meaning set forth in Section 6.20 hereof.
ARTICLE 2
TERMS OF THE CREDIT FACILITY
Section 2.1. Agreement To Extend The Loan. Subject to the terms and
conditions stated in this AGREEMENT and the LOAN DOCUMENTS, the LENDER
agrees to extend the LOAN to the BORROWERS as co-obligors. The LENDER
shall advance proceeds of the LOAN to the BORROWERS by depositing into
the COMMERCIAL ACCOUNT or in accordance with such other procedures as
may be agreed to between the LENDER and the BORROWERS, such sums as
any of the BORROWERS may request during the period from and including
the date of CLOSING to but not including the TERMINATION DATE;
provided that the aggregate outstanding principal balance of the LOAN
plus the L/C EXPOSURE shall never exceed at any time the MAXIMUM
CREDIT AMOUNT. All requests for advances of proceeds of the LOAN shall
be in minimum amounts of not less than One Hundred Thousand Dollars
($100,000.00). The BORROWERS shall not request or permit any advance
of proceeds of the LOAN which would cause the aggregate amount of
advances made to or for the BORROWERS and outstanding under the LOAN
DOCUMENTS to exceed the limitations herein set forth. In the event
that the principal balance outstanding under the LOAN plus the L/C
EXPOSURE ever exceeds the MAXIMUM CREDIT AMOUNT (or any of the
percentages or sublimits set forth therein) the BORROWERS shall
immediately, upon demand of the LENDER, pay to the LENDER in cash the
amount of such excess and prior to such repayment such over advances
shall bear interest at the highest rate provided under this AGREEMENT.
Subject to the terms and conditions of the LOAN DOCUMENTS, the
BORROWERS may borrow, repay and reborrow advances under the LOAN
during the above-described period. Any termination of the CREDIT
FACILITY by the LENDER, whether on the TERMINATION DATE or upon and
after the occurrence of an EVENT OF DEFAULT, shall relieve the LENDER
of the LENDERS obligation to lend money or to make financial
accommodations to or for any or all of the BORROWERS and the
BORROWERS accounts, and shall in no way release, terminate, discharge
or excuse any of the BORROWERS from its absolute duty to pay or
perform the OBLIGATIONS. All repayments shall be credited to the
balance due from the BORROWERS pursuant to the normal and customary
practices of the LENDER. All amounts received by LENDER in payment of
RECEIVABLES shall be credited to the BORROWERS account after allowing
the LENDERS customary period of time for collection and clearance,
but shall be conditional upon final payment to the LENDER.
Section 2.1.1. Note; Interest, And Lenders Records. The obligations
of the BORROWERS, jointly and severally, to repay to the LENDER the
LOAN shall be evidenced by the NOTE. Interest shall accrue on the
unpaid principal balance of the LOAN at the rate or rates described in
Section 2.3 of this AGREEMENT. The date and amounts of each advance
made by the LENDER and each payment made by any of the BORROWERS shall
be recorded by the LENDER on the books and records of the LENDER, but
any failure to record such dates or amounts shall not relieve any of
the BORROWERS of its duties and obligations under the LOAN DOCUMENTS.
Interest accrued upon the LOAN shall be computed on outstanding
balances as reflected on the LENDERS books and records.
Section 2.1.2. Term. All sums due under the LOAN shall be paid in full
on TERMINATION DATE.
Section 2.1.3. Purpose. The proceeds of the LOAN shall be used by the
BORROWERS solely for the BORROWERS general corporate purposes,
including working capital needs.
Section 2.2. Letters Of Credit.
Section 2.2.1. Availability. Subject to the terms and conditions of
this AGREEMENT and the LOAN DOCUMENTS, including but not limited to
the terms of all reimbursement agreements, applications and other
documents required by the LENDER in the issuance of LETTERS OF CREDIT,
the CREDIT FACILITY may be used by the BORROWERS for, and the LENDER
agrees to issue, LETTERS OF CREDIT as requested by any of the
BORROWERS for the account of the BORROWERS on any BUSINESS DAY from
the date of CLOSING through but not including the TERMINATION DATE;
and provided (a) the L/C EXPOSURE (after giving effect to any
requested issuance) shall not at any time exceed Two Million Dollars
($2,000,000.00); (b) the sum of the L/C EXPOSURE (after giving effect
to the requested issuance) plus the aggregate unpaid principal balance
of the LOAN shall not exceed the MAXIMUM CREDIT AMOUNT; (c) no LETTER
OF CREDIT (including any extension or renewal thereof, whether or not
automatic) shall expire on a date which is later than one (1) year
from the date of issuance thereof; (d) no LETTER OF CREDIT (including
any extension or renewal thereof, whether or not automatic) shall
expire on a date which is on or after thirty (30) days prior to the
TERMINATION DATE, unless such LETTER OF CREDIT is secured by cash
collateral satisfactory to the LENDER in an amount equal to one
hundred percent (100%) of the STATED AMOUNT, to be applied in
accordance with Section 9.4 hereof; and (e) the issuance of any
requested LETTER OF CREDIT shall not conflict with or cause the LENDER
to exceed any limits imposed by any LAWS applicable to the LENDER. If
at any time the L/C EXPOSURE exceeds any such permitted amounts, the
BORROWERS shall furnish to the LENDER cash collateral satisfactory to
the LENDER in an amount equal to such excess to be applied in
accordance with Section 9.4 hereof.
Section 2.2.2. Requests for Letters of Credit. Each LETTER OF CREDIT
shall be issued only in accordance with the then current practices of
the LENDER relating to its issuance of standby letters of credit,
including the payment by the BORROWERS of all applicable fees and
charges in connection therewith. Each LETTER OF CREDIT shall be in
such form as may be approved from time to time by the LENDER. Each
request for a LETTER OF CREDIT shall be made to the LENDER pursuant to
a written application and agreement for letter of credit complying
with the LENDERS then current requirements, at least five (5)
BUSINESS DAYS before the proposed date of issuance of such LETTER OF
CREDIT.
Section 2.2.3. Letter of Credit Fees And Other Charges. The BORROWERS,
jointly and severally, shall pay to the LENDER a fee with respect to
each outstanding LETTER OF CREDIT computed on the face amount of such
LETTER OF CREDIT at an annual percentage rate equal to two and
one-half percent (2.5%). The aforesaid letter of credit fee shall be
payable quarterly in arrears on the last BUSINESS DAY of each QUARTER
and on the TERMINATION DATE. In addition, the BORROWERS, jointly and
severally, shall pay to the LENDER such other normal and customary
fees, costs and expenses that may be charged or incurred by the LENDER
in connection with issuing, effecting payment under, amending,
continuing, extending, or renewing or otherwise administering any
LETTER OF CREDIT including, without limitation, correspondent bank
fees, amendment fees, reissuance costs, cancellation fees and all
reasonable out-of-pocket costs and expenses. Each LETTER OF CREDIT fee
shall be non-refundable, even if the LETTER OF CREDIT is surrendered
or drawn before the expiration date thereof.
Section 2.2.4. Payment of Reimbursement Obligations. REIMBURSEMENT
OBLIGATIONS, together with any taxes, charges or other costs or
expenses incurred by LENDER in connection with such payment, shall be
due and payable by the BORROWERS, jointly and severally, immediately
upon the payment by the LENDER of the draw giving rise thereto. Each
of the BORROWERS acknowledges and agrees that it shall be jointly and
severally, irrevocably and unconditionally obligated forthwith to
reimburse the LENDER, immediately upon any drawing under any LETTER OF
CREDIT, without presentment, demand, protest or other formalities or
notices of any kind.
Section 2.2.5. Conversion of Reimbursement Obligations to Loans.
Immediately upon the payment of each drawing or acceptance under any
LETTER OF CREDIT, unless the amount of such drawing or acceptance is
immediately reimbursed to the LENDER, by one or more of the BORROWERS
from its separate funds: (a) the BORROWERS shall be deemed to have
made an irrevocable request for a BASE RATE BORROWING under the LOAN
in an amount equal to such drawing or acceptance; and (b) the
REIMBURSEMENT OBLIGATION resulting from the payment by the LENDER of
such drawing or acceptance shall be converted to a BASE RATE BORROWING
under the LOAN in a corresponding principal amount. Anything to the
contrary in this AGREEMENT notwithstanding, except as otherwise
provided above in this subsection, each advance which is to be made
pursuant to this subsection shall be made regardless of whether the
conditions precedent required of any of the BORROWERS under Section
4.2 are satisfied at the time thereof.
Section 2.2.6. Payment of L/C Exposure Upon Termination Date. If any
LETTERS OF CREDIT remain outstanding on the TERMINATION DATE, the
BORROWERS shall, without demand or the taking of any other action by
the LENDER, pay to the LENDER an amount in immediately available funds
equal to 100% of the L/C EXPOSURE, which funds shall be held by the
LENDER in a restricted collateral account maintained by the LENDER in
its own name. Such funds shall be applied in accordance with Section
9.4 hereof.
Section 2.2.7. Payment Obligations Unconditional. The payment
obligations of the BORROWERS under this Section 2.2 shall be absolute,
unconditional, and irrevocable and shall be paid strictly in
accordance with this AGREEMENT regardless of the circumstances.
Without limiting the foregoing, none of the following circumstances
shall reduce, discharge, stay, defer or impair in any other manner the
payment obligations of any of the BORROWERS under this Section 2.2:
a. any lack of validity or enforceability of any LETTER OF CREDIT or
any LOAN DOCUMENT;
b. any amendment, waiver, release or termination of or any consent to
departure from the terms of any LETTER OF CREDIT or any LOAN DOCUMENT;
c. any extension of time or other modification or the terms and
conditions governing the making and honoring of any drawing, or any
extension of time or other modification of the terms and conditions
for any other act to be performed under the terms of any LETTER OF
CREDIT;
d. the existence of any dispute, claim, set-off, defense or other
right which any of the BORROWERS may have at any time against any
beneficiary under, or any transferee of, any LETTER OF CREDIT (or any
PERSONS for whom any such beneficiary or transferee may hold a LETTER
OF CREDIT or any interest therein), or the LENDER or any other PERSON,
regardless of whether such dispute, claim, set-off, defense or other
right is held or asserted in connection with this AGREEMENT or any
unrelated transaction;
e. the surrender or impairment of any security for the OBLIGATIONS;
f. any question of form, validity, accuracy, legal effect, or
genuineness of drafts, endorsements, documents or required statements,
even if such drafts, endorsements, documents or statements should in
fact prove to be in any or all respects invalid, inaccurate,
fraudulent or forged or any failure of any draft to bear any reference
or adequate reference to any LETTER OF CREDIT;
g. payment by the LENDER under any LETTER OF CREDIT against
presentation of a draft, certificate or other documentation which does
not comply with the terms of such LETTER OF CREDIT, except to the
extent that such payment constitutes gross negligence or wilful
misconduct of the LENDER; or
h. any other circumstance or occurrence whatsoever, whether or not
similar to any of the foregoing, except to the extent resulting from
the gross negligence or wilful misconduct of the LENDER.
Section 2.2.8. Suspension of Commitment to Issue Letters of Credit. In
the event any provision of any LAW ever would prohibit or restrict the
LENDER from issuing any LETTER OF CREDIT, the agreement of the LENDER
to issue LETTERS OF CREDIT hereunder shall immediately be suspended
until such restrictions cease to be applicable. In the event of any
such suspension, the BORROWERS may continue to obtain advances under
the LOAN, subject to the terms and conditions of this AGREEMENT.
Section 2.2.9. Rights And Remedies Of The Lender. In the event that,
coincident with or subsequent to the occurrence of, and during the
continuance of, a DEFAULT or an EVENT OF DEFAULT (but without limiting
any right and remedies of the LENDER arising as a result of any such
EVENT OF DEFAULT), the LENDER becomes aware of the possibility of a
draw, or enforcement of the LENDERs obligations, under a LETTER OF
CREDIT, the LENDER, at its option, may, but shall not be required to,
make an advance (regardless of whether the conditions precedent to
advances or issuances of LETTERS OF CREDIT have been satisfied) of
proceeds of the LOAN in an amount equal to the STATED AMOUNT of such
LETTER OF CREDIT, together with any LENDER EXPENSES charged or
incurred or reasonably expected to be charged or incurred in
connection therewith in accordance with Section 2.2.2 hereof, to be
deposited in the cash collateral account described in Section 9.4
hereof and applied in accordance therewith. All such advances shall be
secured by all of the COLLATERAL and shall bear interest and be
payable at the same rate (including the default rate of interest) and
in the same manner as the LOAN. If any LETTER OF CREDIT is drawn upon
to discharge any obligation of any of the BORROWERS to the beneficiary
of such LETTER OF CREDIT, in whole or in part, the LENDER shall be
fully subrogated to the rights of such beneficiary with respect to the
obligations owed by such BORROWER to such beneficiary discharged with
the proceeds of the LETTER OF CREDIT.
Section 2.2.10. Indemnification. The BORROWERS jointly and severally
and unconditionally and irrevocably agree to indemnify the LENDER and
to hold the LENDER harmless from any and all losses, claims or
liabilities arising from any transactions or occurrences relating to
LETTERS OF CREDIT issued, established, opened or accepted for the
account of any of the BORROWERS, and any drafts or acceptances
thereunder, and all OBLIGATIONS incurred in connection therewith,
other than losses, claims or liabilities arising from the gross
negligence or willful misconduct of the LENDER.
Section 2.3. Interest Rates. Interest shall accrue on the unpaid
principal balances of the LOAN and on all REIMBURSEMENT OBLIGATIONS at
the rate or rates described in this Section 2.3.
Section 2.3.1. Calculation Of Interest. Interest shall be calculated
on the basis of a 360 days per year factor applied to actual days in
which there exists unpaid principal balances of the LOAN or
REIMBURSEMENT OBLIGATIONS.
Section 2.3.2. Adjusted Base Rate. Except as provided in
Section 2.3.3. of this AGREEMENT, the LOAN, and each advance
thereunder, shall bear interest on the unpaid principal balances at a
fluctuating annual rate which shall at all times equal the ADJUSTED
BASE RATE. Changes in the interest rate shall be made when and as
changes in the BASE RATE occur. For each BASE RATE BORROWING, all
accrued and unpaid interest shall be payable monthly in arrears on the
1st calendar day of each month, commencing on April 1, 2000. Payments
made upon the LOAN shall be first applied to BASE RATE BORROWINGS and
then to any LIBOR BORROWING outstanding under the LOAN. All
REIMBURSEMENT OBLIGATIONS shall bear interest on the unpaid balances
thereof at a fluctuating annual rate which shall at all times equal
the ADJUSTED BASE RATE. All accrued and unpaid interest on
REIMBURSEMENT OBLIGATIONS shall be payable immediately upon demand of
the LENDER.
Section 2.3.3. Adjusted LIBOR Rate Option. Subject to the terms of
this Section, interest may accrue, at the election of the BORROWERS
during INTEREST PERIODS selected by the BORROWERS on portions of the
outstanding principal balances of the LOAN for which such a rate
election is not then in effect, at a rate equal to the ADJUSTED LIBOR
RATE. Any LIBOR BORROWING or election for a LIBOR BORROWING pursuant
to the provisions of this Section shall be subject to the following
terms and conditions:
a. Repayment Of Interest. For each of the LIBOR BORROWINGS, accrued
interest shall be paid in arrears on (i) the last day of each
applicable INTEREST PERIOD, and (ii) as to any INTEREST PERIOD which
is longer than three (3) months, on the ninetieth (90th) day of each
such INTEREST PERIOD and on the last day of each such INTEREST PERIOD.
b. Notice Of Election. By 10:00 a.m. on that BUSINESS DAY which occurs
three (3) BUSINESS DAYS prior to the BUSINESS DAY on which the
BORROWERS desire that an INTEREST PERIOD commence, the BORROWERS shall
deliver written notice to the LENDER in the form attached hereto as
Exhibit 2.3.3(b) specifying: (i) the commencement date of and length
of the relevant INTEREST PERIOD, and (ii) the dollar amount of that
portion of the total aggregate principal amount of the particular LOAN
identified by the BORROWERS, which is to bear interest at the ADJUSTED
LIBOR RATE, which amount shall be not be less than Five Hundred
Thousand Dollars ($500,000). If no notice of election is received in
respect of an outstanding LIBOR BORROWING that is expiring, the
interest rate shall, at the end of the INTEREST PERIOD, accrue at the
ADJUSTED BASE RATE.
c. Interest Periods. There shall be no more than six (6) INTEREST
PERIODS outstanding at any one time. No INTEREST PERIOD may expire
after the TERMINATION DATE.
d. Availability. If the LENDER should determine at any time that a
REGULATORY CHANGE or a change in market conditions has made it
impractical for the LENDER to offer pricing based on the ADJUSTED
LIBOR RATE, the LENDER shall forthwith give notice of its
determination to the BORROWERS, and all advances which are then
accruing interest at an ADJUSTED LIBOR RATE shall, on the last day(s)
of the then applicable current INTEREST PERIOD(S) automatically and
without further notice, begin to accrue interest at the ADJUSTED BASE
RATE. Until such time as the LENDER shall determine that a REGULATORY
CHANGE or a change in market conditions has again made it practical
for the LENDER to offer pricing on the ADJUSTED LIBOR RATE, the LENDER
shall not be obligated to further offer pricing based upon the
ADJUSTED LIBOR RATE, and any notice from the BORROWERS requesting such
a rate option shall be ineffective.
e. Additional Costs. The BORROWERS, jointly and severally, shall
compensate the LENDER from time to time, upon demand, for all losses,
expenses, costs and liabilities (including, without limitation, in the
event of any repayment or prepayment described in clause (i) below,
all interest paid to lenders of funds borrowed by the LENDER to carry
LIBOR BORROWINGS) which the LENDER shall sustain if (i) any repayment
or prepayment of any LIBOR BORROWING shall occur on a date which is
not the last day of the applicable INTEREST PERIOD(S), or (ii) any
REGULATORY CHANGE (A) subjects the LENDER to additional taxes of any
kind with respect to LIBOR BORROWING, other than changes in federal
income tax rates applicable to the LENDER, (B) imposes, modifies or
deems applicable any reserve, special deposit or similar requirement
against assets held by or the deposits in or for the account of, or
loans by, the LENDER (other than such reserves as are taken into
account as of the date of CLOSING in calculating the ADJUSTED LIBOR
RATE), or (C) imposes on the LENDER, directly or indirectly, any other
conditions affecting the LIBOR BORROWINGS or the cost of U.S. dollar
deposits obtained by the LENDER in obtaining the funds to carry LIBOR
BORROWINGS; and the result of any of the foregoing is to increase the
costs to the LENDER of making or maintaining loans accruing interest
at the ADJUSTED LIBOR RATE or decrease the yields of the LENDER. The
LENDER shall, upon the request of the BORROWERS, provide the BORROWERS
with a certificate as to any amounts payable under this Section,
showing in reasonable detail the basis for the calculation thereof,
which calculation, absent manifest error, shall be presumed to be
correct.
f. Prepayment And Termination. No LIBOR BORROWING may be prepaid prior
to the expiration of the applicable INTEREST PERIOD unless the
BORROWERS have fully compensated the LENDER as provided above in
Section 2.3.3.e. of this AGREEMENT.
g. Termination Of Right To Elect LIBOR Borrowings. Notwithstanding
anything to the contrary set forth in this AGREEMENT, and without
limiting any other rights and remedies of the LENDER, upon the
occurrence of an EVENT OF DEFAULT which is then continuing, the LENDER
may suspend the right of the BORROWERS to convert any BASE RATE
BORROWING into a LIBOR BORROWING or to permit any LIBOR BORROWING to
continue as a LIBOR BORROWING, in which case (i) all BASE RATE
BORROWINGS shall be continued as BASE RATE BORROWINGS and (ii) all
LIBOR BORROWINGS having thirty (30) days or more remaining in the
respective INTEREST PERIODS may, in the sole discretion of the LENDER,
be converted immediately or at any time to BASE RATE BORROWINGS, but
shall, in any event, be converted on the last days of the respective
INTEREST PERIODS therefor, and (iii) all LIBOR BORROWINGS having less
than thirty (30) days remaining in the respective INTEREST PERIODS
shall be converted on the last days of the respective INTEREST PERIODS
therefor.
Section 2.3.4. Default Rate. Upon the occurrence of an EVENT OF
DEFAULT, and even if the LOAN or the REIMBURSEMENT OBLIGATIONS have
not been accelerated, the interest rate payable on the LOAN, the
REIMBURSEMENT OBLIGATIONS and the other OBLIGATIONS may be increased
by the LENDER to a rate equal to two percentage points (2%) above the
rate of interest otherwise in effect, until such EVENT OF DEFAULT has
been cured to the satisfaction of the LENDER or waived. The default
rate set forth in this Section shall continue to apply whether or not
judgment shall be entered on any of the OBLIGATIONS.
Section 2.3.5. Maximum Rate Of Interest. Any provision contained in
the LOAN DOCUMENTS to the contrary notwithstanding, the holder of the
NOTE shall not be entitled to receive or collect, nor shall any of the
BORROWERS be obligated to pay, interest thereunder in excess of the
maximum rate of interest permitted by the laws of any state determined
to be applicable thereto or the laws of the United States of America
applicable to loans in such applicable state or states, and if any
provision of this AGREEMENT, the NOTE or of any of the other LOAN
DOCUMENTS shall ever be construed or held to permit or require the
charging, collection or payment of any amount of interest in excess of
that permitted by such laws applicable thereto, the provisions of this
Section shall control and shall override any contrary or inconsistent
provision. The intention of the parties is to at all times conform
strictly with all applicable usury laws, and other applicable laws
limiting the maximum rates of interest which may be lawfully charged
upon the LOANS and REIMBURSEMENT OBLIGATIONS. The interest to be paid
pursuant to the NOTE shall be held subject to reduction to the amount
allowed under said usury or other laws as now or hereafter construed
by the courts having jurisdiction, and any sums of money paid in
excess of the interest rate allowed by applicable law shall be applied
in reduction of the principal amount owing pursuant to the NOTE. EACH
OF THE BORROWERS EXPRESSLY ACKNOWLEDGES AND UNCONDITIONALLY AND
IRREVOCABLY STIPULATES FOR ALL PURPOSES THAT IT HAS BEEN CONTEMPLATED
AT ALL TIMES BY THE PARTIES THAT THE LAWS OF THE STATE OF NEW YORK
WILL GOVERN THE MAXIMUM RATE OF INTEREST THAT IT IS PERMISSIBLE FOR
THE LENDER TO CHARGE THE BORROWERS.
Section 2.4. Payments To Be Made To The Lender. Except as expressly
provided to the contrary in any of the LOAN DOCUMENTS, all payments of
principal, interest, fees and other sums to be paid by the BORROWERS
to the LENDER in accordance with the terms of the LOAN DOCUMENTS shall
be made in U.S. Dollars, in immediately available funds, without
deduction, set-off or counterclaim to the LENDER not later than 10:00
a.m. (Eastern time) on the date on which such payments shall become
due (each such payment made after such time on such due date to be
deemed to be made on the next succeeding BUSINESS DAY). If the due
date of any payment under the LOAN DOCUMENTS would otherwise fall on a
day that is not a BUSINESS DAY, such date shall be extended to the
next succeeding BUSINESS DAY, and interest shall be payable for any
principal so extended from the period of such extension.
Section 2.5. Application Of Payments. All payments upon the
OBLIGATIONS shall be applied first to charges, if any, next to fees,
next to interest, and then to principal or in such other order or
proportion as the LENDER, in the discretion of the LENDER, may
determine.
Section 2.6. Late Payment Charge. Any payment of principal, interest,
or fees due from time to time upon or in connection with the LOAN or
the REIMBURSEMENT OBLIGATIONS which is received by the LENDER more
than fifteen (15) calendar days after its due date shall incur a late
payment charge equal to five percent (5%) of the amount of the payment
due. All late payment charges shall be payable upon the demand of the
LENDER. The existence of the right by the LENDER to receive a late
payment charge shall not constitute a grace period or provide any
right to any of the BORROWERS to make a payment other than on such
payments scheduled due date. Notwithstanding the foregoing, no late
charge shall be payable in connection with any delinquent payment
resulting from the failure of the LENDER to debit any COLLECTION
ACCOUNT of the BORROWERS in which sufficient collected funds were
present to satisfy any required payment, if the LENDER was authorized
to make such debit.
Section 2.7. Facility Fee. For each QUARTER or portion thereof during
which the CREDIT FACILITY is in existence and has not been terminated,
until the payment in full and termination of the CREDIT FACILITY, the
BORROWERS shall pay to the LENDER a facility fee equal to one quarter
of one percent (0.25%) per annum on that sum obtained by subtracting
the average daily disbursed principal balance of the LOAN plus the
aggregate STATED AMOUNT outstanding under all LETTERS OF CREDIT during
such QUARTER or portion thereof from the DOLLAR CAP. The facility fee
shall be payable quarterly in arrears, on the first day of each
succeeding April, July, October and January or on the last day of a
portion of a QUARTER commencing with the first of such payments to be
made on April 1, 2000. The facility fee is not to be considered a fee
being paid by the BORROWERS to the LENDER as an inducement to the
LENDER to make advances or issue LETTERS OF CREDIT, nor shall it be
considered to modify or limit the ability of the LENDER to terminate
in accordance with the provisions of this AGREEMENT the ability of the
BORROWERS to borrow under the LOAN, or obtain LETTERS OF CREDIT but is
instead intended as part of the compensation which is earned by the
LENDER for agreeing to provide the CREDIT FACILITY in accordance with
the terms of the LOAN DOCUMENTS. The facility fee shall be calculated
on the basis of three hundred sixty (360) days per year factor.
Section 2.8. Commitment Fee. The BORROWERS, jointly and severally,
shall pay to the LENDER on or before CLOSING a non-refundable and
unconditional fee of Fifty Thousand Dollars ($50,000.00), which shall
be the absolute property of the LENDER upon payment. This fee shall
not be considered to be a payment of any of the LENDERS expenses
incurred in connection with the LOAN and shall be paid independent of
the amount of proceeds of the LOAN ultimately advanced to the
BORROWERS, even if that amount is less than the stated principal
amount of the LOAN.
Section 2.9. Examination Fee. The BORROWERS, jointly and severally,
shall pay to the LENDER, as billed by the LENDER, an examination fee
equal to Two Thousand Dollars ($2,000.00) for each field examination
by the LENDER of the BORROWERS books and records. The BORROWERS shall
not be billed for more than one (1) field examination in any
consecutive ninety (90) day period, unless an EVENT OF DEFAULT has
occurred and continues for more than thirty (30) days.
Section 2.10. Termination Fee. In the event the BORROWERS terminate
the CREDIT FACILITY and repay the LOAN in full with funds derived from
any source other than revenues from the BORROWERS normal business
operations, the BORROWERS, jointly and severally, shall pay to the
LENDER termination fee equal to the following percentage of the DOLLAR
CAP: (a) one and one-half percent (1.5%) if the prepayment in full
occurs at any time on or before March 22, 2001; (b) one percent
(1.00%) if the prepayment occurs at any time after March 22, 2001 but
on or before March 22, 2002; (c) one-half of one percent (0.50%) if
the prepayment occurs at any time after March 22, 2002, but on or
before March 22, 2003; (d) zero percent (0%) if the prepayment in full
occurs after March 22, 2003. Notwithstanding the foregoing, the
termination fee described in this Section 2.10 shall not be due if the
prepayment and termination of the CREDIT FACILITY occurs in the
absence of any DEFAULT or EVENT OF DEFAULT and the BORROWERS elect to
prepay and terminate the CREDIT FACILITY as a result of (a) a
determination by the LENDER that, pursuant to 2.2.3.d. hereof, a
REGULATORY CHANGE has occurred and made it impractical for the LENDER
to offer pricing based on the ADJUSTED LIBOR RATE or (b) having been
billed by the LENDER for additional costs arising as a result of a
REGULATORY CHANGE pursuant to subsections 2.3.3.e (ii)(A), (B) or (C)
hereof, provided such REGULATORY CHANGE and the additional costs
arising as a result thereof are applicable only to the LENDER and not
to a class of lenders, banks or financial institutions including the
LENDER or any corporation controlling the LENDER, and are not
applicable to the LENDER as a result of its obligations hereunder, the
creditworthiness of any of the BORROWERS, or the occurrence of any
DEFAULT or EVENT OF DEFAULT; and provided further that nothing in this
clause (b) shall affect or alter the obligation of the BORROWERS,
jointly and severally, to pay to the LENDER the full amount of all
such additional costs.
Sectio 2.11. Capital Adequacy. If the LENDER determines at any time
that the adoption or implementation of any CAPITAL ADEQUACY
REQUIREMENT, or the compliance therewith by the LENDER or any
corporation or other PERSON controlling the LENDER, affects the amount
of capital to be maintained by the LENDER or any PERSON controlling
the LENDER as a result of its obligations hereunder, or reduces the
effective rate of return on the LENDERS or such controlling PERSONS
capital to a level below that which the LENDER or such controlling
PERSON would have achieved but for such CAPITAL ADEQUACY REQUIREMENT
as a consequence of its obligations hereunder (taking into
consideration the LENDERS or such controlling PERSONS policies with
respect to capital adequacy), then after submission by the LENDER to
the BORROWERS of a written request therefor and a statement of the
basis for such determination, the BORROWERS shall pay to the LENDER
such additional amounts as will compensate the LENDER or the
controlling PERSON for the cost of maintaining the increased capital
or for the reduction in the rate of return on capital, together with
interest thereon at the highest rate of interest then in effect under
the NOTE from the date the LENDER requests such additional amounts
until those amounts are paid in full.
Section 2.12. Payments. All payments received by the LENDER which are
to be applied to reduce the OBLIGATIONS shall be credited to the
balances due from any or all of the BORROWERS pursuant to the normal
and customary practices of the LENDER, but shall be provisional and
shall not be considered final unless and until such payment is not
subject to avoidance under any provision of the United States
Bankruptcy Code, as amended, including Sections 547 and 550, or any
state law governing insolvency or creditors rights. If any payment is
avoided or set aside under any provision of the United States
Bankruptcy Code, including Sections 547 and 550, or any state law
governing insolvency or creditors rights, the payment shall be
considered not to have been made for all purposes of this AGREEMENT
and the LENDER shall adjust its records to reflect the fact that the
avoided payment was not made and has not been credited against the
OBLIGATIONS.
Section 2.13. Advancements. If any of the BORROWERS fails to perform
any of its agreements or covenants contained in this AGREEMENT or if
any of the BORROWERS fails to protect or preserve the COLLATERAL or
the status and priority of the security interest of the LENDER in the
COLLATERAL, the LENDER may make advances to perform the same on behalf
of such BORROWER to protect or preserve the COLLATERAL or the status
and priority of the security interest of the LENDER in the COLLATERAL,
and all sums so advanced shall immediately upon advance become secured
by the security interests granted in this AGREEMENT, and shall become
part of the principal amount owed to the LENDER with interest to be
assessed at the applicable rate thereon and subject to the terms and
provisions of this AGREEMENT and all of the LOAN DOCUMENTS. The
BORROWERS shall repay on demand all sums so advanced on any BORROWERS
behalf, plus all expenses or costs incurred by the LENDER, including
reasonable legal fees, with interest thereon at the highest rate
authorized in the NOTE. The provisions of this Section shall not be
construed to prevent the institution of the rights and remedies of the
LENDER upon the occurrence of an EVENT OF DEFAULT. The authorization
contained in this Section is not intended to impose any duty or
obligation on the LENDER to perform any action or make any advancement
on behalf of any or all of the BORROWERS and is intended to be for the
sole benefit and protection of the LENDER.
Section 2.14. Cross-Guaranty; Waiver Of Suretyship Defenses;
Subordination.
Section 2.14.1. Cross-Guaranty. Each BORROWER guarantees to the LENDER
the payment in full of all of the OBLIGATIONS of the other BORROWERS
and further guarantees the due performance by the other BORROWERS of
their respective duties and covenants made in favor of the LENDER
hereunder and under the other LOAN DOCUMENTS. Each BORROWER agrees
that neither this cross guaranty nor the joint and several liability
of the BORROWERS provided in this AGREEMENT nor the LENDERs liens and
rights in any of the COLLATERAL shall be impaired or affected by any
modification, supplement, extension or amendment of any contract or
agreement to which the parties hereto may hereafter agree, nor by any
modification, release or other alteration of any of the rights of the
LENDER with respect to any of the COLLATERAL, nor by any delay,
extension of time, renewal, compromise or other indulgence granted by
the LENDER with respect to any of the OBLIGATIONS, nor by any other
agreements or arrangements whatever with the other BORROWERS or with
any other PERSON, each BORROWER hereby waiving all notice of any such
delay, extension, release, substitution, renewal, compromise or other
indulgence, and hereby consenting to be bound thereby as fully and
effectively as if it had expressly agreed thereto in advance. The
liability of each BORROWER hereunder is direct and unconditional as to
all of the OBLIGATIONS, and may be enforced without requiring the
LENDER first to resort to any other right, remedy or security.
Section 2.14.2. Postponement of Subrogation. Until all of the
OBLIGATIONS are paid in full, no BORROWER shall have any right of
subrogation, reimbursement or indemnity whatsoever, nor any right of
recourse to security for any of the OBLIGATIONS, and nothing shall
discharge or satisfy the liability of a BORROWER hereunder, until the
full, final and absolute payment and performance of all of the
OBLIGATIONS at any time after all commitments of the LENDER under this
AGREEMENT are terminated. Any and all present and future debts and
obligations of each BORROWER to each of the other BORROWERS are hereby
waived and postponed in favor of and subordinated to the full payment
and performance of all present and future OBLIGATIONS; provided,
however, so long as no DEFAULT or EVENT OF DEFAULT has occurred, each
of the BORROWERS may repay debts and obligations to any other
BORROWER.
Section 2.14.3. Subordination. Each BORROWER hereby subordinates any
claims (other than claims evidenced by notes which have been assigned
and delivered to the LENDER), including, without limitation, any other
right of payment, subrogation, contribution and indemnity that it may
have from or against the other BORROWERS, and any successor or assign
of the other BORROWERS, including, without limitation, any trustee,
receiver or debtor-in-possession, howsoever arising, due or owing and
whether heretofore, now or hereafter existing, to all of the
OBLIGATIONS of the other BORROWERS to the LENDER; provided, however,
so long as no DEFAULT or EVENT OF DEFAULT has occurred, each of the
BORROWERS may accept payments from any other BORROWER.
Section 2.14.4. Joint And Several Liability; Appointment Of Agent.
Notwithstanding anything to the contrary contained herein, the
BORROWERS shall be jointly and severally liable to the LENDER for all
OBLIGATIONS, regardless of whether such OBLIGATIONS arise as a result
of credit extensions to one BORROWER, it being stipulated and agreed
that the LOAN, the LETTERS OF CREDIT, and all of the credit extensions
hereunder to one BORROWER inure to the benefit of all BORROWERS, and
that the LENDER is relying on the joint and several liability of the
BORROWERS in extending the LOAN and in issuing any of the LETTERS OF
CREDIT and in providing credit hereunder. To facilitate the
administration of the LOAN, each of GSE Process Solutions, Inc., and
GSE Power Systems, Inc., hereby irrevocably appoints GSE SYSTEMS as
its true and lawful agent and attorney-in-fact with full power and
authority to execute, deliver and acknowledge, as appropriate, all
LOAN DOCUMENTS or certificates from time to time deemed necessary or
appropriate by the LENDER in connection with the LOAN, any LETTERS OF
CREDIT, or the issuance or administration of any of the other
OBLIGATIONS. This power-of-attorney is coupled with an interest and
cannot be revoked, modified or amended without the prior written
consent of the LENDER. Upon the request of the LENDER, GSE Process
Solutions, Inc. and GSE Power Systems, Inc., shall execute,
acknowledge and deliver to the LENDER a form of power of attorney
confirming and restating the power-of-attorney granted herein.
ARTICLE 3
URITY FOR THE OBLIGATIONS
The payment, performance and satisfaction of the OBLIGATIONS shall be
secured by the following assurances of payment and security.
Section 3.1. Grant Of Security Interest. In order to secure the
repayment and performance of all OBLIGATIONS, both currently existing
and arising in the future, each of the BORROWERS grants to the LENDER
an immediate and continuing security interest in and to the
COLLATERAL. Each of the BORROWERS further pledges, hypothecates and
grants to the LENDER a continuing security interest in and to, all
amounts that may be owing at any time and from time to time by the
LENDER to any of the BORROWERS in any capacity, including but not
limited to any balance or share belonging to any of the BORROWERS of
any deposit or other account with the LENDER, which security interest
shall be independent of and in addition to any right of set-off to
which the LENDER may be entitled.
Sectio 3.2. Proceeds And Products. The LENDERS security interests
provided for herein shall apply to the proceeds, including but not
limited to insurance proceeds, and the products of the COLLATERAL.
Section 3.3. Priority Of Security Interests. Each of the security
interests, pledges, and liens granted by each of the BORROWERS to the
LENDER pursuant to any of the LOAN DOCUMENTS shall be perfected first
priority security interests, pledges, and liens (except for security
interests in motor vehicles for which a notation of lien on a
certificate of title is required).
Section 3.4. Future Advances. The security interests, liens, and
pledges granted by each of the BORROWERS to the LENDER pursuant to the
LOAN DOCUMENTS shall secure all current and all future advances made
by the LENDER to the BORROWERS, or for the account or benefit of any
of the BORROWERS, and the LENDER may advance or readvance upon
repayment by any of the BORROWERS all or any portion of the sums
loaned to the BORROWERS and any such advance or readvance shall be
fully secured by the security interests, liens, and pledges created by
the LOAN DOCUMENTS.
Section 3.5. Receivable Collections. The BORROWERS shall establish a
COLLECTION ACCOUNT arrangement acceptable to the LENDER at a bank
acceptable to the LENDER. Each of the BORROWERS shall deposit or cause
to be deposited into the COLLECTION ACCOUNT, immediately upon receipt
thereof, all cash, checks, drafts, and other instruments for the
payment of money, properly endorsed, which have been received by it in
full or partial payment of any RECEIVABLE. Prior to any such deposit
by any of the BORROWERS into the COLLECTION ACCOUNT, none of the
BORROWERS will commingle such items of payment with any of its other
funds or property but will hold them separate and apart. Upon the
written request of the LENDER each of the BORROWERS shall instruct all
of its ACCOUNT DEBTORS to make all payments on its RECEIVABLES to a
post office box in which the LENDER alone shall have sole access
(LOCK BOX). If payment of any BORROWERS RECEIVABLES is paid into
the LOCK BOX the LENDER shall, on each BUSINESS DAY, withdraw the
items of payment from the LOCK BOX and deposit them into the
COLLECTION ACCOUNT. The LENDER, from time to time, shall apply all of
the collected funds held in the COLLECTION ACCOUNT toward payment of
all or any part of the OBLIGATIONS, whether or not then due, in such
order of application as the LENDER may determine. The LENDER shall
have no obligation to provide any provisional or other credit for any
deposited funds which are not collected funds free of any rights of
return.
Section 3.6. Collection Of Receivables By Lender. The LENDER shall
have the right during any continuing EVENT OF DEFAULT to send notices
of assignment or notices of the LENDERS security interest to any and
all ACCOUNT DEBTORS or any third party holding or otherwise concerned
with any of the COLLATERAL, and thereafter the LENDER shall have the
sole right to collect the RECEIVABLES and to take possession of the
COLLATERAL and RECORDS relating thereto. All of the LENDERS
collection expenses shall be charged to the BORROWERS accounts and
added to the OBLIGATIONS. During any continuing EVENT OF DEFAULT the
LENDER shall have the right to receive, indorse, assign and deliver in
the LENDERS name or any of the BORROWERS name any and all checks,
drafts and other instruments for the payment of money relating to the
RECEIVABLES, and each of the BORROWERS hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed. If
the LENDER is collecting the RECEIVABLES, each of the BORROWERS hereby
constitutes the LENDER or the LENDERS designee as its
attorney-in-fact with power with respect to the RECEIVABLES: (a) to
indorse its name upon all notes, acceptances, checks, drafts, money
orders or other evidences of payment of COLLATERAL that may come into
the LENDERS possession; (b) to sign its name on any invoices relating
to any of the RECEIVABLES, drafts against ACCOUNT DEBTORS, assignments
and verifications of RECEIVABLES and notices to ACCOUNT DEBTORS; (c)
to send verifications of RECEIVABLES to any ACCOUNT DEBTOR; (d) to
notify the Post Office to change the address for delivery of mail
addressed to it to such address as the LENDER may designate; (e) to
receive and open all mail addressed to it and to remove therefrom all
cash, checks, drafts and other payments of money; and (f) to do all
other acts and things necessary, proper, or convenient to carry out
the terms and conditions and purposes and intent of this AGREEMENT.
All acts of such attorney or designee are hereby ratified and
approved, and such attorney or designee shall not be liable for any
acts of omission or commission, nor for any error of judgment or
mistake of fact or law in accordance with this AGREEMENT, with the
exception of acts arising from actual fraud or gross and wanton
negligence. The power of attorney hereby granted, being coupled with
an interest, is irrevocable while any of the OBLIGATIONS remain
unpaid. During any continuing EVENT OF DEFAULT, the LENDER, without
notice to or consent from any of the BORROWERS, may sue upon or
otherwise collect, extend the time of payment of or compromise or
settle for cash, credit or otherwise upon any terms, any of the
RECEIVABLES or any securities, instruments or insurances applicable
thereto or release the obligor thereon. During any continuing EVENT OF
DEFAULT, the LENDER is authorized and empowered to accept the return
of the goods represented by any of the RECEIVABLES, without notice to
or consent by any of the BORROWERS; provided, however in no event
(whether during the continuance of an EVENT OF DEFAULT or otherwise)
shall acceptance of returned goods by the LENDER discharge or in any
way affect the liability of any of the BORROWERS under the LOAN
DOCUMENTS. The LENDER does not, by anything herein or in any
assignment or otherwise, assume any of the obligations of any of the
BORROWERS under any contract or agreement assigned to the LENDER, and
the LENDER shall not be responsible in any way for the performance by
any of the BORROWERS of any of the terms and conditions thereof.
Section 3.7. Guaranty Agreements. Each of the GUARANTORS shall execute
and deliver a GUARANTY AGREEMENT which shall guarantee, among other
things, the absolute full payment and performance by the BORROWERS of
the OBLIGATIONS. Each of the LIMITED GUARANTORS shall execute and
deliver a GUARANTY AGREEMENT which shall guarantee, among other
things, the absolute full payment and performance by the BORROWERS of
the OBLIGATIONS, subject to the limitation as to monetary amount set
forth therein.
Section 3.8. Further Assurances. Each of the BORROWERS will, at its
expense, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or
desirable or that the LENDER may reasonably request from time to time
in order: (a) to perfect and protect the security interests to be
created hereby; (b) to enable the LENDER to exercise and enforce its
rights and remedies hereunder in respect of the COLLATERAL; or (c)
otherwise to effect the purposes of this AGREEMENT, including, without
limitation: (i) upon such BORROWERS acquisition thereof, delivering
to the LENDER each item of CHATTEL PAPER of the BORROWER, (ii) if any
RECEIVABLES are evidenced by an INSTRUMENT delivering and pledging to
the LENDER such INSTRUMENT duly endorsed and accompanied by executed
instruments of transfer or assignment, all in form and substance
satisfactory to the LENDER, (iii) executing and filing such financing
statements or amendments thereto as may be necessary or desirable or
that the LENDER may request in order to perfect and preserve the
security interests purported to be created hereby, (iv) upon the
acquisition after the date hereof by such BORROWER of any EQUIPMENT
covered by a certificate of title or ownership, cause the LENDER to be
listed as the lienholder on such certificate of title and within sixty
(60) days of the acquisition thereof deliver evidence of the same to
the LENDER, and (v) upon the acquisition after the date hereof of any
asset for which an assignment, pledge, mortgage, or other document is
required to be filed in order to grant or perfect a lien therein for
the benefit of the LENDER, execute and deliver to the LENDER such
assignment, pledge, mortgage, or other INSTRUMENT within thirty (30)
days of the acquisition thereof. If any of the BORROWERS fails to
execute any instrument or document described above within five (5)
BUSINESS DAYS of being requested to do so by the LENDER, each of the
BORROWERS hereby appoints the LENDER or any officer of the LENDER as
such BORROWERS attorney in fact for purposes of executing such
instruments or documents in such BORROWERS name, place and stead,
which power of attorney shall be considered as coupled with an
interest and irrevocable.
Section 3.9. Fair Labor Standards Act. As further security for the
OBLIGATIONS, each of the BORROWERS shall comply in all material
respects with the Fair Labor Standards Act of 1938, as amended.
ARTICLE 4
CONDITIONS PRECEDENT
Any obligation of the LENDER to perform any duty imposed upon or
assumed by the LENDER in accordance with the terms of the LOAN
DOCUMENTS or otherwise with respect to the LOAN or LETTERS OF CREDIT
shall be conditioned upon the satisfaction by the BORROWERS of the
conditions precedent set forth in this Article 4.
Section 4.1. Conditions to Closing. Each of the following conditions
precedent shall be satisfied prior to the date of CLOSING:
Section 4.1.1. Organizational Documents. The delivery to the LENDER by
each of the BORROWERS, the GUARANTORS and the LIMITED GUARANTORS of
the following documents, each certified as indicated below: (a) a copy
of its the Articles of Incorporation or Articles of Organization, as
the case may be, as amended and in effect on the date of CLOSING,
certified as of a recent date by the Secretary of State of its
jurisdiction of formation, a certificate from such Secretary of State
dated as of a recent date as to the good standing of and charter
documents filed by each of the BORROWERS, the GUARANTORS, and the
LIMITED GUARANTORS, as applicable, and certificates of good standing
for each jurisdiction in which each of the BORROWERS and each of the
GUARANTORS is required by the nature of its business or assets qualify
to do business; (b) a certificate of the Secretary or Assistant
Secretary of each of the BORROWERS, the GUARANTORS and the LIMITED
GUARANTORS, dated as of the date of CLOSING and certifying: (i) that
attached thereto is a true and accurate copy of the Bylaws or
operating agreement (as the case may be) of each of the BORROWERS, the
GUARANTORS and the LIMITED GUARANTORS, as applicable, as amended and
in effect at all times from the date on which the resolutions referred
to in clause (ii) hereto were adopted and including the date of such
certificate; (ii) that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of each of the
BORROWERS, the GUARANTORS and the LIMITED GUARANTORS, as applicable,
authorizing the execution, delivery and performance of each of the
LOAN DOCUMENTS to which such BORROWER, GUARANTOR, or LIMITED
GUARANTOR, as applicable, is or is intended to be a party, and that
such resolutions have not been modified, rescinded, or amended and are
in full force and effect; and (iii) as to the incumbency and specimen
signature of each officer of the BORROWERS, the GUARANTORS, or the
LIMITED GUARANTORS, as applicable, executing the LOAN DOCUMENTS to
which such BORROWER, GUARANTOR, or LIMITED GUARANTOR, as applicable,
is intended to be a party.
Section 4.1.2. Opinion Of Counsel. The delivery to the LENDER of an
opinion of counsel to the BORROWERS, GUARANTORS, and LIMITED
GUARANTORS addressed to the LENDER and dated as of the date of
CLOSING, in substantially the same form as Exhibit 4.1.3. attached
hereto.
Sectio 4.1.3. Execution Of Loan Documents. The execution and delivery
of all of the LOAN DOCUMENTS.
Section 4.1.4. Submissions. The delivery to the LENDER of such
certificates, submissions, and supporting documents as have been
previously requested by the LENDER
Section 4.1.5. Insurance. The delivery to the LENDER of certificates
of insurance evidencing the existence of all insurance required to be
maintained by the BORROWERS and the GUARANTORS pursuant to the terms
and conditions of the LOAN DOCUMENTS and evidence that such insurance
is in full force and effect and that all premiums then due and payable
thereon have been paid.
Sectio 4.1.6. Record Searches. The receipt and satisfactory review by
the LENDER of such Uniform Commercial Code, tax, pending litigation
and judgment searches as have been requested by the LENDER
Section 4.1.7. Absence Of Material Adverse Change. The absence of the
occurrence of any material adverse change in the financial conditions
or business affairs of any of the BORROWERS, the GUARANTORS, or the
LIMITED GUARANTORS.
Section 4.1.8. Payment Of Closing Fees. The payment by the BORROWERS
of each of the closing fees agreed in writing to be paid by the
BORROWERS to the LENDER, which fees shall be nonrefundable upon
payment. Such closing fees paid by the BORROWERS shall not be
considered to be a payment of any of the LENDERS EXPENSES, and shall
be paid independently of the amount of proceeds of the LOAN ultimately
advanced to the BORROWERS.
Section 4.1.9. Payment Of Lenders Closing Costs. The payment by the
BORROWERS of all of the reasonable costs, fees and expenses incurred
by the LENDER in connection with the negotiation, preparation,
execution, and delivery of the LOAN DOCUMENTS, including but not
limited to reasonable attorneys fees, the cost of any public record
searches, recording costs, and other reasonable and necessary
out-of-pocket costs and expenses incurred by the LENDER.
Section4.1.10. Dime Commercial Corp. Facility. On the date of
CLOSING: (a) there shall have been paid in cash in full all
outstanding principal balances and all accrued but unpaid interest,
fees and charges due on the loans outstanding to Dime Commercial
Corp.; and (b) the LENDER shall have received an agreement
satisfactory to the LENDER from Dime Commercial Corp. to promptly
terminate all liens and security interests against the BORROWERS and
to forward to the LENDER all outstanding promissory notes issued by
the BORROWERS to Dime Commercial Corp. marked paid in full.
Section 4.2. Conditions Precedent To All Advances and Issuance of
Letters of Credit. The obligation of the LENDER to make any advances
of the proceeds of the LOAN, including the initial advance, and the
obligation of the LENDER to issue any LETTERS OF CREDIT, shall be
subject to the satisfaction, concurrently therewith, of each of the
following conditions precedent:
Section4.2.1. No Defaults Or Events Of Default. No event shall have
occurred on or prior to such date and be continuing on such date, and
no condition shall exist on such date, which constitutes a DEFAULT or
EVENT OF DEFAULT.
Section4.2.2. Continuing Accuracy Of Representations And Warranties.
Each of the representations and warranties made by or on behalf of the
BORROWERS, or by the GUARANTORS or by the LIMITED GUARANTORS to the
LENDER in the LOAN DOCUMENTS shall be true and correct in all material
respects when made and shall be deemed to be repeated as true,
accurate and complete as of the date of the BORROWERS request for
each advance of proceeds of the LOAN or issuance of a LETTER OF
CREDIT, unless otherwise agreed to by the LENDER in writing.
Section4.2.3. Receipt Of Reports. The LENDER shall be in receipt of
all reports, financial statements, financial information and financial
disclosures required by the LOAN DOCUMENTS, except to the extent that
the LENDER has waived the receipt thereof.
Section4.2.4. No Illegalities. It shall not be unlawful for the
LENDER to perform any of the agreements or obligations imposed upon
the LENDER by any of the LOAN DOCUMENTS or for any of the BORROWERS,
the GUARANTORS or the LIMITED GUARANTORS to perform any of their
respective agreements or obligations as provided by the LOAN
DOCUMENTS.
Section4.2.5. No Material Adverse Event. No MATERIAL ADVERSE EVENT
shall have occurred and be then continuing.
Each borrowing request by a BORROWER hereunder or a request for the
issuance of a LETTER OF CREDIT shall constitute a representation and
warranty by each of the BORROWERS as of the date of such LOAN or the
date of issuance of such LETTER OF CREDIT that the conditions
contained in this Section 4.2 have been satisfied.
ARTICLE 5
EPRESENTATIONS AND WARRANTIES
To induce the LENDER to extend the CREDIT FACILITY and to enter into
this AGREEMENT, each of the BORROWERS makes the representations and
warranties set forth in this Article 5. Each of the BORROWERS
acknowledges the LENDERS justifiable right to rely upon these
representations and warranties.
SectioN 5.1. Accuracy Of Information. All information submitted by or
on behalf of any of the BORROWERS, any of the GUARANTORS, or any of
the LIMITED GUARANTORS in connection with any of the OBLIGATIONS is
true, accurate and complete in all material respects as of the date
made and contains no knowingly false, incomplete or misleading
statements.
Section5.2. No Litigation. Except as specifically disclosed on
Schedule 5.2 attached hereto, there are no material actions, suits,
investigations, or proceedings pending or, to the knowledge of any of
the BORROWERS, threatened against any of the BORROWERS or the assets
of any of the BORROWERS
Section5.3. No Liability Or Adverse Change. None of the BORROWERS has
any direct or contingent liability known to any of the BORROWERS and
not previously disclosed to the LENDER, nor do any of the BORROWERS
know of or have any reason to expect any material adverse change in
any BORROWERS assets, liabilities, properties, business, or
condition, financial or otherwise.
Section5.4. Title To Collateral. Each of the BORROWERS has good and
marketable title to the COLLATERAL. The liens granted by each of the
BORROWERS to the LENDER in the COLLATERAL will have the priority
required by the LOAN DOCUMENTS.
Section 5.5. Authority; Approvals And Consents.
Section 5.5.1. Authority. Each of the BORROWERS has the legal
authority to enter into each of the LOAN DOCUMENTS and to perform,
observe and comply with all of such BORROWERS agreements and
obligations thereunder, including, without limitation the borrowings
contemplated hereby.
Section 5.5.2. Approvals. The execution and delivery by each of the
BORROWERS of each of the LOAN DOCUMENTS, the performance by each of
the BORROWERS of all of its agreements and obligations under the LOAN
DOCUMENTS, and the borrowings contemplated by this AGREEMENT, have
been duly authorized by all necessary action on the part of each
BORROWER and do not and will not (i) contravene any provision of the
organizational documents of any of the BORROWERS; (ii) conflict with,
or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in the creation of any lien upon
any of the property of any of the BORROWERS under any material
agreement, trust deed, indenture, mortgage or other instrument to
which any of the BORROWERS is a party or by which any of the BORROWERS
or any property of any of the BORROWERS is bound or affected (except
for liens created for the benefit of the LENDER); (iii) violate or
contravene any provision of any LAW, rule or regulation (including,
without limitation, Regulations G, T, U or X of the Board of Governors
of the Federal Reserve System) or any order, ruling or interpretation
thereunder or any decree, order of judgment of any court or
governmental or regulatory authority, bureau, agency or official (all
as from time to time in effect and applicable to any of the
BORROWERS); or (iv) require any waivers, consents or approvals by any
of the creditors of any of the BORROWERS.
Section 5.6. Binding Effect Of Documents, Etc. Each of the LOAN
DOCUMENTS which each of the BORROWERS has executed and delivered as
contemplated and required to be executed and delivered as of the date
of CLOSING by this AGREEMENT, has been duly executed and delivered by
each BORROWER and is the legal, valid and binding obligation of each
BORROWER and is enforceable against each BORROWER in accordance with
all stated terms.
Section 5.7. Other Names. None of the BORROWERS has changed its name,
been the surviving entity in a merger, or changed the location of its
chief executive office within the last twelve (12) years, except as is
disclosed on Schedule 5.7 attached hereto. No BORROWER trades under
any trade or fictitious names except as set forth on Schedule 5.7.
Sectio 5.8. No Events Of Default. There is not currently existing any
action, event, or condition which presently constitutes a DEFAULT or
an EVENT OF DEFAULT
Section 5.9. Guaranty Agreements. The GUARANTY AGREEMENTS are the
valid and binding obligation of the GUARANTORS and the LIMITED
GUARANTORS, as the case may be, and are fully enforceable against the
respective GUARANTORS and the LIMITED GUARANTORS in accordance with
their terms.
Section 5.10. Taxes. Each of the BORROWERS: (a) has filed all federal,
state and local tax returns and other reports which such BORROWER is
required by LAW to file prior to the date hereof and which are
material to the conduct of the business of such BORROWER; (b) has paid
or caused to be paid all taxes, assessments and other governmental
charges that are due and payable prior to the date hereof, except as
disclosed on Schedule 5.10 attached hereto; and (c) has made adequate
provision for the payment of such taxes, assessments or other charges
accruing but not yet payable. None of the BORROWERS has any knowledge
of any deficiency or additional assessment in connection with any
taxes, assessments or charges not provided for on such BORROWERS
books of account or reflected in such BORROWERS financial statements.
Section 5.11.
Compliance With Laws. Each of the BORROWERS has complied in all
material respects with all applicable LAWS, including, but not limited
to, all LAWS with respect to: (a) all restrictions, specifications, or
other requirements pertaining to products that it sells or to the
services it performs; (b) the conduct of its business; and (c) the
use, maintenance, and operation of the real and personal properties
owned or leased by it in the conduct of its business.
Section 5.12. Chief Place Of Business. The chief executive office,
chief place of business, and the place where each of the BORROWERS
keeps its RECORDS concerning the COLLATERAL is set forth on Schedule
5.12 attached hereto.
Section 5.13. Location Of Inventory. The INVENTORY is and shall be
kept solely at the BORROWERS locations set forth on Schedule 5.13
attached hereto, and shall not be moved, sold or otherwise disposed of
without prior notification to the LENDER, except for sales of
INVENTORY to ACCOUNT DEBTORS in the ordinary course of the BORROWERS
businesses. None of the INVENTORY is stored with or in the possession
of any bailee, warehouseman, or other similar PERSON, except as
specifically disclosed on Schedule 5.13 attached hereto.
Section 5.14. No Subsidiaries. None of the BORROWERS has any direct or
indirect DOMESTIC SUBSIDIARIES except for the GUARANTORS listed by
name in Section 1.53 of this AGREEMENT. None of the BORROWERS has any
direct or indirect SUBSIDIARIES which are not DOMESTIC SUBSIDIARIES,
except for the SUBSIDIARIES listed on Schedule 5.14 attached hereto.
Section 5.15.
No Labor Agreements. Except as described in Schedule 5.15 hereto, none
of the BORROWERS is subject to any collective bargaining agreement or
any agreement, contract, decree or order requiring it to recognize,
deal with or employ any PERSONS organized as a collective bargaining
unit or other form of organized labor
Section 5.16. Eligible Accounts. Each ACCOUNT which any of the
BORROWERS contends should be included in the calculation of the
BORROWING BASE from time to time will be an ELIGIBLE BILLED COMMERCIAL
ACCOUNT, ELIGIBLE BILLED GOVERNMENT ACCOUNT or an ELIGIBLE UNBILLED
GOVERNMENT ACCOUNT, as the case may be. At the time each is listed on
or included in (whether singularly or in the aggregate with other
eligible accounts) a schedule or report delivered to the LENDER to be
included in the calculation of the BORROWING BASE, all of such
ELIGIBLE BILLED COMMERCIAL ACCOUNTS, ELIGIBLE BILLED GOVERNMENT
ACCOUNTS or ELIGIBLE UNBILLED GOVERNMENT ACCOUNTS, as the case may be,
will have been generated in compliance with such BORROWERS normal
credit policies as historically in effect (or as modified from time to
time on prior written notice of the LENDER), or on such other
reasonable terms disclosed in writing to the LENDER in advance of the
creation of such ACCOUNTS, and such terms shall be expressly set forth
on the face of all invoices.
Section 5.17. Eligible Inventory. Each item of INVENTORY which any of
the BORROWERS from time to time contends should be included in the
calculation of the BORROWING BASE shall be ELIGIBLE INVENTORY.
Section 5.18. Eligible Additional Collateral Value. Any letter of
credit which any of the BORROWERS contend should be included in the
calculation of ELIGIBLE ADDITIONAL COLLATERAL VALUE shall have an
expiry date which is not less than one year from issuance and shall be
considered eligible only if, at the time of determination of
eligibility, there shall be no less than thirty (30) days remaining
from such date of determination to the expiry date of the letter of
credit. Failure to maintain such letter of credit as ELIGIBLE
ADDITIONAL COLLATERAL VALUE for at least one year from issuance shall
constitute an EVENT OF DEFAULT.
Section 5.19. Approvals. Each of the BORROWERS possesses all
franchises, approvals, licenses, contracts, INTELLECTUAL PROPERTY,
merchandising agreements, merchandising contracts and governmental
approvals, registrations and exemptions necessary for it lawfully to
conduct its business and operation as presently conducted and as
anticipated to be conducted after CLOSING.
Section 5.20. Financial Statements. The financial statements of each
of the BORROWERS which have been delivered to the LENDER prior to the
date of this AGREEMENT, fairly present the financial condition of the
BORROWERS as of the respective dates thereof and the results and
operations of the BORROWERS for the fiscal periods ended on such
respective dates, all in accordance with G.A.A.P. None of the
BORROWERS has any direct or contingent liability or obligation known
to any of the BORROWERS and not disclosed on the financial statements
delivered to the LENDER or disclosed on Schedule 5.19 hereto. There
has been no adverse change in the financial condition of any of the
BORROWERS since the financial statements of the BORROWERS dated
December 31, 1999, and none of the BORROWERS knows of or have any
reason to expect any material adverse change in the assets,
liabilities, properties, business, or condition, financial or
otherwise, of any of the BORROWERS.
Section 5.21. Solvency. Each of the BORROWERS will be SOLVENT both
before and after CLOSING, after giving full effect to the OBLIGATIONS
and all of the BORROWERS respective liabilities.
Section 5.22. Fair Labor Standards Act. Each of the BORROWERS has
complied in all material respects with the Fair Labor Standards Act of
1938, as amended.
Section 5.23. Employee Benefit Plans.
Section 5.23.1. Compliance. Each of the BORROWERS and its ERISA
AFFILIATES are in compliance in all material respects with all
applicable provisions of ERISA and the regulations thereunder and of
the CODE with respect to all EMPLOYEE BENEFIT PLANS.
Section 5.23.2. Absence Of Termination Event. No TERMINATION EVENT has
occurred or is reasonably expected to occur with respect to any
GUARANTEED PENSION PLAN.
Section 5.23.3. Actuarial Value. The actuarial present value (as
defined in Section 4001 of ERISA) of all benefit commitments (as
defined in Section 4001 of ERISA) under each GUARANTEED PENSION PLAN
does not exceed the assets of that plan.
Section 5.23.4. No Withdrawal Liability. None of the BORROWERS nor any
of their ERISA AFFILIATES has incurred or reasonably expects to incur
any withdrawal liability under ERISA in connection with any
MULTIEMPLOYER PLANS.
Section 5.24. Environmental Conditions.
Section 5.24.1. Existence Of Permits. Each of the BORROWERS has
obtained all legally required permits, licenses, variances, clearances
and all other necessary approvals (collectively, the EPA PERMITS)
for use of the FACILITIES and the operation and conduct of its
business from all applicable federal, state, and local governmental
authorities, utility companies or development-related entities
including, but not limited to, any and all appropriate Federal or
State environmental protection agencies and other county or city
departments, public water works and public utilities in regard to the
use of the FACILITIES, the operation and conduct of its business, and
the handling, transporting, treating, storage, disposal, discharge, or
RELEASE of REGULATED SUBSTANCES, if any, into, on or from the
environment (including, but not limited to, any air, water, or soil).
Section 5.24.2. Compliance With Permits. Each issued EPA PERMIT is in
full force and effect, has not expired or been suspended, denied or
revoked, and is not under challenge by any PERSON. Each of the
BORROWERS is in compliance in all material aspects with each issued
EPA PERMIT.
Section 5.24.3. No Litigation. None of the BORROWERS nor any of the
FACILITIES is subject to any private or governmental litigation, or to
the knowledge of any of the BORROWERS, threatened litigation, lien or
judicial or administrative notice, order or action involving any of
the BORROWERS or any of the FACILITIES relating to REGULATED
SUBSTANCES or environmental problems, impairments or liabilities
Section 5.24.4. No Releases. To the best knowledge of each of the
BORROWERS, there has been no RELEASE into, on or from any of the
FACILITIES and no REGULATED SUBSTANCES are located on or have been
treated, stored, processed, disposed of, handled or transported to or
from, any of the FACILITIES in violation of any ENVIRONMENTAL LAWS. To
the best knowledge of each of the BORROWERS, no REGULATED SUBSTANCES
have been treated, stored, disposed, RELEASED, located, discharged,
possessed, managed, processed, or otherwise handled in the operation
or conduct of any BORROWERS business in violation of any
ENVIRONMENTAL LAWS. Each of the BORROWERS has complied in all material
respects with all ENVIRONMENTAL LAWS affecting the FACILITIES and each
BORROWERS business.
Section 5.24.5. Transportation. None of the BORROWERS transports, in
any manner, any REGULATED SUBSTANCES except in the ordinary course of
such BORROWERS business in material compliance with all ENVIRONMENTAL
LAWS.
Section 5.24.6. No Violation Notices. No BORROWER has received any
notices that any REGULATED SUBSTANCES transported from any FACILITY
have been disposed of in violation of any ENVIRONMENTAL LAWS.
Section 5.24.7. No Notice Of Violations. No BORROWER has received
written notice of any circumstances which would be likely to result in
any obligation under any ENVIRONMENTAL LAW to investigate or remediate
any REGULATED SUBSTANCES in, on or under any of the FACILITIES.
ARTICLE 6
FFIRMATIVE COVENANTS
Each of the BORROWERS agrees during the term of this AGREEMENT and
while any OBLIGATIONS are outstanding and unpaid to do and perform
each of the acts and promises set forth in this Article 6:
Section 6.1. Payment. All OBLIGATIONS shall be paid in full when and
as due.
Section 6.2. Insurance. Each of the BORROWERS shall obtain and
maintain such insurance coverages as are reasonable, customary and
prudent for businesses engaged in activities similar to the business
activities of the BORROWERS. Without limitation to the foregoing, each
of the BORROWERS shall maintain for all of its assets and properties,
whether real, personal, or mixed and including but not limited to the
COLLATERAL, fire and extended coverage casualty insurance in amounts
satisfactory to the LENDER and sufficient to prevent any co-insurance
liability (which amount shall be the full insurable value of the
assets and properties insured unless the LENDER in writing agrees to a
lesser amount), naming the LENDER as loss payee with respect to the
COLLATERAL, with insurance companies and upon policy forms containing
standard loss payee and mortgagee clauses which are acceptable to and
approved by the LENDER. Each of the BORROWERS shall submit to the
LENDER, upon request, duplicate originals of the casualty insurance
policies and paid receipts evidencing payment of the premiums due on
the same. The casualty insurance policies shall be endorsed so as to
make them noncancellable unless thirty (30) days prior notice of
cancellation or material alteration is provided to the LENDER. The
proceeds of any insured loss shall be applied by the LENDER to the
OBLIGATIONS, in such order of application as determined by the LENDER,
unless the LENDER in its sole discretion permits the use thereof to
repair or replace damaged or destroyed COLLATERAL. The LENDER agrees
that the BORROWERS will be permitted to use all or such portion of the
loss proceeds as may be necessary for the purposes of repairing,
restoring, renovating or replacing the damaged property, provided: (a)
no EVENT OF DEFAULT shall exist or occur and be continuing during the
course of such repair, restoration, renovation or replacement; (b) the
amount of the loss is less than One Hundred Thousand Dollars
($100,000.00); and (c) the schedule for the repair, restoration,
renovation or replacement indicates a full and complete repair,
restoration, renovation or replacement within a reasonable period
after the date of receipt of any such loss proceeds; (d) the
applicable insurance carriers shall have waived any rights of
subrogation against the BORROWERS in connection with such loss; and
(e) the amount of the insurance proceeds and any separate funds to be
contributed by the BORROWERS are sufficient in the reasonable business
judgment of the LENDER to accomplish such repair, restoration,
replacement or renovation in a reasonably satisfactory manner. The
BORROWERS shall also maintain public liability and property damage
insurance in such amounts, with insurance companies, and upon policy
forms acceptable to and approved by the LENDER, naming the LENDER as
additional insured. In addition, the BORROWERS shall maintain workers
compensation insurance in such amounts, with insurance companies
acceptable to and approved by the LENDER. The BORROWERS shall submit
to the LENDER satisfactory evidence of all such insurance.
Section 6.3. Books And Records. Each of the BORROWERS shall notify the
LENDER in writing if any of the BORROWERS modifies or changes its
method of accounting or enters into, modifies, or terminates any
agreement presently existing, or at any time hereafter entered into
with any third party accounting firm for the preparation and/or
storage of any BORROWERS accounting records.
Section 6.4. Collection Of Accounts; Sale Of Inventory. Each of the
BORROWERS shall only collect its RECEIVABLES and sell its INVENTORY in
the ordinary course of its business.
Section 6.5. Notice Of Litigation And Proceedings. Each of the
BORROWERS shall give prompt notice to the LENDER of any action, suit,
citation, violation, direction, notice or proceeding before any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any of the BORROWERS,
or the assets or properties thereof, which, if determined adversely to
any of the BORROWERS: (a) could require any or all of the BORROWERS to
pay more than One Hundred Thousand Dollars ($100,000.00) or deliver
assets the value of which exceeds that sum (whether or not the claim
is considered to be covered by insurance); or (b) could reasonably be
expected to have a material adverse effect upon the financial
condition or business operations of any of the BORROWERS.
Section 6.6. Payment Of Liabilities To Third Persons. Each of the
BORROWERS shall pay when and as due, or within applicable grace
periods, all liabilities due to third persons, except when the amount
thereof is being contested in good faith by appropriate proceedings
and with adequate reserves therefor being set aside
Section 6.7. Change Of Business Location. Each of the BORROWERS shall
notify the LENDER thirty (30) days in advance of: (a) any change in
the location of its existing offices or place of business; (b) the
establishment of any new, or the discontinuation of any existing,
place of business; and (c) any change in or addition to the locations
at which the COLLATERAL is kept. Prior to moving any COLLATERAL to any
location not owned by it (other than deliveries to ACCOUNT DEBTORS of
sold or leased items), each of the BORROWERS shall obtain and deliver
to the LENDER an agreement, in form and substance acceptable to the
LENDER, pursuant to which the owner of such location shall: (a)
subordinate any rights which it may have, or thereafter may obtain, in
any of the COLLATERAL to the rights and security interests of the
LENDER in the COLLATERAL; and (b) allow the LENDER access to the
COLLATERAL in order to remove the COLLATERAL from such location. In
the event any COLLATERAL is stored with a warehousemen or other
bailee, and the COLLATERAL is evidenced by a negotiable document of
title, each of the BORROWERS shall immediately deliver the document of
title to the LENDER.
Section 6.8. Payment Of Taxes. Each of the BORROWERS shall pay or
cause to be paid when and as due all taxes, assessments and charges or
levies imposed upon it or on any of its property or which it is
required to withhold and pay over to the taxing authority or which it
must pay on its income, except where contested in good faith, by
appropriate proceedings and at its own cost and expense; provided,
however, that the BORROWERS shall not be deemed to be contesting in
good faith by appropriate proceedings unless: (a) such proceedings
operate to prevent the taxing authority from attempting to collect the
taxes, assessments or charges; (b) the COLLATERAL is not subject to
sale, forfeiture or loss during such proceedings; (c) such BORROWERS
contest does not subject the LENDER to any claim by the taxing
authority or any other person; (d) such BORROWER establishes
appropriate reserves, satisfactory to the LENDER in its sole
discretion, for the payment of all taxes, assessments, charges,
levies, legal fees, court costs and other expenses for which such
BORROWER would be liable if unsuccessful in the contest; (e) such
BORROWER prosecutes the contest continuously to its final conclusion;
and (f) at the conclusion of the proceedings, such BORROWER promptly
pays all amounts determined to be payable, including but not limited
to all taxes, assessments, charges, levies, legal fees and court
costs.
Section 6.9. Inspections Of Records. Each of the BORROWERS shall
permit representatives of the LENDER access to each BORROWERS places
of business, at intervals and at such times as determined by the
LENDER, to inspect the COLLATERAL and to review and make extracts from
or photocopies of the books and records of each of the BORROWERS. Each
of the BORROWERS agrees to pay to the LENDER the examination fee set
forth in Section 2.9 hereof and shall reimburse the LENDER for any
other reasonable out-of-pocket expenses incurred by the LENDER in
connection with such examinations, audits, inspections, extractions
and verifications.expenses incurred by the LENDER in connection with
such examinations, audits, inspections, extractions and verifications.
Section 6.10. Notice Of Events Affecting Collateral; Compromise Of
Receivables; Returned Or Repossessed Goods. Each of the BORROWERS
shall promptly report to the LENDER: (a) any reclamation, return or
repossession of goods; (b) all claims or disputes asserted by any
ACCOUNT DEBTOR or other obligor involving in excess of One Hundred
Thousand Dollars ($100,000.00); provided, however, the BORROWER shall
report all claims or disputes asserted by any ACCOUNT DEBTOR affecting
COLLATERAL included in the BORROWING BASE; and (c) all matters
materially affecting the value, enforceability or collectibility of
any of the COLLATERAL. Without the LENDERS consent, none of the
BORROWERS shall compromise or adjust any of the RECEIVABLES which have
been included by any of the BORROWERS in the determination of the
BORROWING BASE, extend the time for payment thereof, or grant any
additional discounts, allowances or credits thereon; provided,
however, that any of the BORROWERS may grant, in the ordinary course
of business, to any party obligated on any of the RECEIVABLES, any
rebate, refund, or adjustment to which such party may be lawfully
entitled, and may accept, in connection therewith, the return of
goods, sale, or lease of which shall have given rise to such
RECEIVABLES. If any goods, the sale of which has resulted in
RECEIVABLES included in determining the BORROWING BASE, are returned
by the ACCOUNT DEBTOR for credit or repossessed by any of the
BORROWERS, the BORROWERS shall receive and hold such goods as trustee
for the LENDER and as additional security for the payment of the
OBLIGATIONS, and make disposition thereof as required by the LENDER.
Section 6.11. Documentation Of Collateral. Each of the BORROWERS
agrees that upon the request of the LENDER, each of the BORROWERS will
provide the LENDER with: (a) written statements or schedules
identifying and describing the COLLATERAL, and all additions,
substitutions, and replacements thereof, in such detail as the LENDER
may require; (b) copies of ACCOUNT DEBTORS invoices or billing
statements; (c) evidence of shipment or delivery of goods or
merchandise to or performance of services for ACCOUNT DEBTORS; and (d)
such other schedules and information as the LENDER reasonably may
require. The items to be provided under this Section shall be in form
satisfactory to the LENDER and are to be executed and delivered to the
LENDER from time to time solely for the LENDERS convenience in
maintaining RECORDS of the COLLATERAL. The failure of any of the
BORROWERS to give any of such items to the LENDER shall not affect,
terminate, modify or otherwise limit the LENDERS security interests
in the COLLATERAL. The LENDER shall have the right, at any time and
from time to time, to verify the eligibility of the BORROWERS
RECEIVABLES, including, in connection with its quarterly field
examinations of the BORROWERS books and records or at any time during
any continuing DEFAULT or EVENT OF DEFAULT, obtaining verification of
the RECEIVABLES directly from ACCOUNT DEBTORS.
Section 6.12. Reporting Requirements. The BORROWERS shall submit the
following items to the LENDER:
Section 6.12.1. Inventory Reports. On or before the 20th day of each
calendar month, reports of INVENTORY on such reporting forms as are
required by the LENDER from time to time, certified to be accurate and
correct by the chief financial officer of each of the BORROWERS, which
reports shall be compiled in a manner acceptable to the LENDER.
Section 6.12.2. Receivables And Accounts Payable Reports. On or before
the 20th day of each calendar month: (i) a RECEIVABLES report and
aging; and (ii) an accounts payable report and aging, both in form
reasonably acceptable to the LENDER and containing such information as
the LENDER may specify from time to time. Such reports shall be
accompanied by such reports, copies of sales journals, remittance
reports, and other documentation as the LENDER may reasonably request
from time to time.
Section 6.12.3. Government Contracts Report. On or before the 20th day
of each calendar month, a status report with respect to all GOVERNMENT
CONTRACTS of the BORROWERS, in form and substance satisfactory to the
LENDER.
Section 6.12.4. Borrowing Base Report. Once each calendar week, or
more frequently if requested by the LENDER, a collateral and loan
report in such form and context as may be specified by the LENDER from
time to time.
Sectio 6.12.5. Quarterly Financial Statements. As soon as available
and in any event within forty-five (45) calendar days after the end of
each of the first three QUARTERS of each FISCAL YEAR, the BORROWERS
shall submit to the LENDER a consolidated and consolidating balance
sheet of the BORROWERS and their SUBSIDIARIES as of the end of such
quarter, a consolidated and consolidating statement of income and
retained earnings of the BORROWERS and their SUBSIDIARIES for the
period commencing at the end of the previous FISCAL YEAR and ending
with the end of such quarter, and a consolidated statement of cash
flow of the BORROWERS and their SUBSIDIARIES for the portion of the
FISCAL YEAR ended with the last day of such quarter, all in reasonable
detail and stating in comparative form the respective consolidated and
consolidating figures for the corresponding date and period in the
prior FISCAL YEAR and all prepared in accordance with G.A.A.P. and
certified by the chief financial officer of each of the BORROWERS
(subject to year-end adjustments).
Section 6.12.6. Annual Financial Statements. As soon as available and
in any event within ninety (90) calendar days after the end of each
FISCAL YEAR of each of the BORROWERS, the BORROWERS shall submit to
the LENDER a consolidated and consolidating balance sheet of the
BORROWERS and their SUBSIDIARIES as of the end of such FISCAL YEAR and
a consolidated and consolidating statement of income and retained
earnings of the BORROWERS and their SUBSIDIARIES for such FISCAL YEAR,
and a consolidated statement of cash flow of the BORROWERS and their
SUBSIDIARIES for such FISCAL YEAR, all in reasonable detail and
stating in comparative form the respective consolidated and
consolidating figures for the corresponding date and period in the
prior FISCAL YEAR and all prepared in accordance with G.A.A.P. and, as
to the consolidated financial statements described above, accompanied
by an audited opinion thereon acceptable to the LENDER by independent
accountants selected by the BORROWERS and acceptable to the LENDER.
Section 6.12.7. Annual Business Plan and Financial Projections. As
soon as available and in any event within ninety (90) calendar days
after the beginning of each FISCAL YEAR of the BORROWERS beginning
with the 2000 FISCAL YEAR, the BORROWERS shall submit to the LENDER a
business plan of the BORROWERS and their SUBSIDIARIES for the ensuing
FISCAL YEAR, such plan to be prepared in accordance with G.A.A.P. and
to include a capital budget, projected income statement, statement of
cash flows and balance sheet, and a report containing managements
discussion and analysis of such projections, accompanied by a
certificate from the chief financial officer of each of the BORROWERS
to the effect that, to the best of such officers knowledge, such
projections are good faith estimates of the financial condition and
operations of the BORROWERS and their SUBSIDIARIES for such FISCAL
YEAR
Section 6.12.8. SEC And Other Filings. Within five (5) days after the
sending, filing, or receipt thereof, copies of: (a) all financial
statements, reports, notices and proxy statements that each of the
BORROWERS sends to its shareholders; and (b) all regular, periodic and
special reports, registration statements and prospectuses that each of
the BORROWERS renders to or files with the Securities And Exchange
Commission, the National Association of Securities Dealers, Inc. or
any national securities exchange, including without limitation each of
the Forms 10-K and 10-Q filed by each of the BORROWERS with the
Securities And Exchange Commission.
Section 6.12.9. Management Letters. Promptly upon receipt thereof,
each of the BORROWERS shall submit to the LENDER copies of any reports
submitted to any of the BORROWERS or any SUBSIDIARY by independent
certified public accountants in connection with the examination of the
financial statements of the BORROWERS or any SUBSIDIARY made by such
accountants.
Section 6.12.10. Certificates Of No Default. Within thirty (30)
calendar days after the end of each of the QUARTERS of each FISCAL
YEAR of each of the BORROWERS, each of the BORROWERS shall submit to
the LENDER certificates of the chief financial officers of each of the
BORROWERS certifying that: (i) there exists no DEFAULT or EVENT OF
DEFAULT, or if a DEFAULT or an EVENT OF DEFAULT exists, specifying the
nature thereof, the period of existence thereof and what action such
BORROWER proposes to take with respect thereto; (ii) no material
adverse change in the condition, financial or otherwise, business,
property or results of operations of such BORROWER has occurred since
the previous certificate was sent to the LENDER by such BORROWER or,
if any such change has occurred, specifying the nature thereof and
what action such BORROWER has taken or proposes to take with respect
thereto; (iii) all insurance premiums then due have been paid; (iv)
all taxes then due have been paid or, for those taxes which have not
been paid, a statement of the taxes not paid and a description of such
BORROWERS rationale therefor; (v) no litigation, investigation or
proceedings, or injunction, writ or restraining order is pending or
threatened or, if any such litigation, investigation, proceeding,
injunction, writ or order is pending, describing the nature thereof;
and (vi) stating whether or not the GUARANTORS and the BORROWERS are
in compliance with the covenants in this AGREEMENT, including a
calculation of the financial covenants in the schedule attached to
such officers certificates in form satisfactory to the LENDER.
Section 6.12.11. Reports To Other Creditors. Promptly after the
furnishing thereof, each of the BORROWERS shall submit to the LENDER
copies of any statement or report furnished to any other PERSON
pursuant to the terms of any indenture, loan, or credit or similar
agreement and not otherwise required to be furnished to the LENDER
pursuant to any other provisions of this AGREEMENT.
Section 6.12.12. Management Changes. Each of the BORROWERS shall
notify the LENDER immediately of any changes in the personnel holding
the positions of either President or Chief Financial Officer of any of
the BORROWERS
Section 6.12.13. General Information. In addition to the items set
forth in subsections 6.12.1 through 6.12.12 above, each of the
BORROWERS agrees to submit to the LENDER, or cause to be submitted to
the LENDER (a) such other information respecting the condition or
operations, financial or otherwise, of each of the BORROWERS as the
LENDER may reasonably request from time to time and (b) such financial
statements and other information respecting the condition or
operations, financial or otherwise, of each of the GUARANTORS and the
LIMITED GUARANTORS as may be required pursuant to the LOAN DOCUMENTS
Section 6.13. Employee Benefit Plans And Guaranteed Pension Plans.
Each of the BORROWERS will, and will cause each of its ERISA
AFFILIATES to: (a) comply with all requirements imposed by ERISA and
the CODE, applicable from time to time to any of its GUARANTEED
PENSION PLANS or EMPLOYEE BENEFIT PLANS; (b) make full payment when
due of all amounts which, under the provisions of EMPLOYEE BENEFIT
PLANS or under applicable LAW, are required to be paid as
contributions thereto; (c) not permit to exist any material
accumulated funding deficiency, whether or not waived; (d) file on a
timely basis all reports, notices and other filings required by any
governmental agency with respect to any of its EMPLOYEE BENEFITS
PLANS; (e) make any payments to MULTIEMPLOYER PLANS required to be
made under any agreement relating to such MULTIEMPLOYER PLANS, or
under any LAW pertaining thereto; (f) not amend or otherwise alter any
GUARANTEED PENSION PLAN if the effect would be to cause the actuarial
present value of all benefit commitments under any GUARANTEED PENSION
PLAN to be less than the current value of the assets of such
GUARANTEED PENSION PLAN allocable to such benefit commitments; (g)
furnish to all participants, beneficiaries and employees under any of
the EMPLOYEE BENEFIT PLANS, within the periods prescribed by LAW, all
reports, notices and other information to which they are entitled
under applicable LAW; and (h) take no action which would cause any of
the EMPLOYEE BENEFIT PLANS to fail to meet any qualification
requirement imposed by the CODE. As used in this Section, the term
accumulated funding deficiency has the meaning specified in Section
302 of ERISA and Section 412 of the CODE, and the terms actuarial
present value, benefit commitments and current value have the
meaning specified in Section 4001 of ERISA.
Section 6.14. Maintenance Of Fixed Assets. Each of the BORROWERS shall
maintain and preserve all of its fixed assets in a state of good and
efficient working order, normal wear and tear excepted.
Section 6.15. Consignments. Each of the BORROWERS shall advise the
LENDER of all PERSONS to whom it has consigned or assigned INVENTORY
for sale or distribution, and the location of the INVENTORY subject to
any such consignment or assignment arrangement. Each of the BORROWERS
shall: (a) duly and properly file financing statements in all
applicable places of public record with respect to each of such
consignments or assignments, which filings shall comply with Section
9-114 of the 1972 version of the Uniform Commercial Code, as amended
from time to time, and with all other requirements necessary for such
BORROWER to protect its interests therein under applicable LAWS; (b)
supply the LENDER with prior evidence of such filing and with a
financing statement, judgment and tax lien search in the name of the
consignee or assignee in all applicable places of public record; and
(c) provide written notification to any holder of any security
interests in the inventory of the consignee or assignee who has filed
a financing statement before such BORROWER files its financing
statement, which notice shall state that such BORROWER expects to
deliver goods or assignments, shall describe the goods by item or type
and which notification shall be received by any such holder within
five (5) years before the consignee receives possession of the goods
and at five (5) year intervals thereafter.
Section 6.16. Foreign Receivables. As to any RECEIVABLE from an
ACCOUNT DEBTOR not domiciled in the United States of America or which
otherwise arises in connection with INVENTORY for export sales or
export accounts receivable and contract rights, the BORROWERS shall
execute all documents and instruments and shall take all steps or
actions as may be required by the LENDER to ensure that such
RECEIVABLE is covered by export credit insurance insuring
comprehensive (commercial and political) risks as the LENDER may deem
necessary or advisable, or if approved by the LENDER, fully secured by
a perfected assignment of proceeds of an irrevocable confirmed letter
of credit issued by a United States bank fully acceptable to the
LENDER in form and substance.
Section 6.17. Federal Assignment Of Claims Act. Each of the BORROWERS
shall notify the LENDER if any RECEIVABLE arises out of a contract
with the United States of America, or any department, agency or
instrumentality thereof, and shall execute all documents or
instruments and shall take all steps or actions as may be required by
the LENDER so that all monies due or to become due under such contract
are assigned to the LENDER and notice given thereof to the United
States in accordance with the requirements of the Federal Assignment
of Claims Act, as amended.
Section 6.18. Compliance With Laws. Each of the BORROWERS shall comply
in all material respects with all applicable LAWS, including, but not
limited to, all LAWS with respect to: (a) all restrictions,
specifications, or other requirements pertaining to products that it
sells or to the services it performs; (b) the conduct of its business;
(c) the use, maintenance, and operation of the real and personal
properties owned or leased by it in the conduct of its business; and
(d) the obtaining and maintenance of all necessary licenses,
franchises, permits and governmental approvals, registrations and
exemptions necessary to engage in its business. Without limiting the
generality of the preceding Section, each of the BORROWERS shall: (i)
comply in all material respects with, and ensure such compliance by
all tenants and subtenants, if any, with, all applicable ENVIRONMENTAL
LAWS and obtain and comply in all material respects with and maintain,
and ensure that all tenants and subtenants obtain and comply with and
maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable ENVIRONMENTAL LAWS;
(ii) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
ENVIRONMENTAL LAWS, and promptly comply with all lawful orders and
directives of any governmental authority regarding ENVIRONMENTAL LAWS;
and (iii) defend, indemnify and hold harmless the LENDER, and its
employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any ENVIRONMENTAL
LAWS applicable to the operations of each of the BORROWERS, or any
orders, requirements or demands of governmental authorities related
thereto, including, without limitation, reasonable attorneys and
consultants fees, investigation and laboratory fees, response costs,
court costs and litigation expenses, except to the extent that any of
the foregoing directly result from the gross negligence or willful
misconduct of the party seeking indemnification therefor. Each of the
BORROWERS agrees to promptly notify the LENDER of any RELEASE of a
REGULATED SUBSTANCE on, to or from any FACILITY in violation of any
ENVIRONMENTAL LAWS or of any notice received by such BORROWER that
such BORROWER or any FACILITY is not in compliance with any
ENVIRONMENTAL LAWS.
Section 6.19. Formation of Subsidiaries. The BORROWERS shall deliver,
or cause to be delivered to the LENDER, the following (but without
implying the LENDERS consent to the formation of same unless
specifically granted) :
Section 6.19.1. Domestic Subsidiaries. Each DOMESTIC SUBSIDIARY,
promptly upon its acquisition or creation, shall execute and deliver
to the LENDER: (a) a guaranty agreement in form and substance
satisfactory to the LENDER pursuant to which such SUBSIDIARY shall
guarantee, among other things, the absolute full payment and
performance by the BORROWERS of the OBLIGATIONS; (b) a complete copy
of such SUBSIDIARYS charter, or other organizational document filed
of public record, with all amendments thereto, certified by the
Secretary of State of the jurisdiction of formation; (c) a copy of
such SUBSIDIARYs bylaws, operating agreement, or partnership
agreement, as applicable, with all amendments thereto; (d) a
certificate of good standing dated as of a recent date from the
jurisdiction of formation and each jurisdiction in which such
SUBSIDIARY is required by the nature of its business or assets to
qualify to do business; (e) a certificate of corporate resolutions,
partnership or limited liability company certificate, as applicable,
and incumbency from the duly authorized and appropriate representative
of such SUBSIDIARY in form and substance satisfactory to the LENDER;
and (f) an opinion of counsel satisfactory to the LENDER opining as to
such matters in connection with such SUBSIDIARY as may be reasonably
requested by the LENDER. The repayment and performance of the
OBLIGATIONS and of the obligations of the SUBSIDIARY to the LENDER
shall be secured by (i) the pledge of one hundred percent (100%) of
the issued and outstanding CAPITAL STOCK of the SUBSIDIARY, pursuant
to the terms and conditions of a pledge agreement, stock powers and
financing statements, all in form and substance acceptable to the
LENDER and (ii) a first priority perfected lien and security interest
in all real and personal property (both tangible and intangible),
whether now existing or hereafter arising, of such SUBSIDIARY,
pursuant to security agreements in form and substance satisfactory to
the LENDER, subject only to PERMITTED LIENS.
Section 6.19.2. Foreign Subsidiaries. Each direct SUBSIDIARY of the
BORROWERS or of any DOMESTIC SUBSIDIARY that is not a DOMESTIC
SUBSIDIARY (FIRST TIER FOREIGN SUBSIDIARY), promptly upon its
acquisition or creation, shall execute and deliver to the LENDER: (a)
a complete copy of such FIRST TIER FOREIGN SUBSIDIARYS charter, or
other organizational document filed of public record, with all
amendments thereto, certified by the Secretary of State of the
jurisdiction of formation; (b) a copy of such FIRST TIER FOREIGN
SUBSIDIARYs bylaws, operating agreement, or partnership agreement, as
applicable, with all amendments thereto; (c) if such jurisdiction
generally issues such a certification, a certificate of good standing
dated as of a recent date from the jurisdiction of formation and each
jurisdiction in which such FIRST TIER FOREIGN SUBSIDIARY is required
by the nature of its business or assets to qualify to do business; and
(d) an opinion of counsel satisfactory to the LENDER opining as to
such matters in connection with such FIRST TIER FOREIGN SUBSIDIARY as
may be reasonably requested by the LENDER. The repayment and
performance of the OBLIGATIONS and of the obligations of the BORROWER
OR DOMESTIC SUBSIDIARY to the LENDER shall be secured by the pledge of
sixty-five percent (65%) of the issued and outstanding CAPITAL STOCK
of the FIRST TIER FOREIGN SUBSIDIARY, pursuant to the terms and
conditions of a pledge agreement, stock powers, financing statements,
registration and acknowledgment of pledge by issuer, all in form and
substance acceptable to the LENDER. The BORROWERS, DOMESTIC SUBSIDIARY
and FIRST TIER FOREIGN SUBSIDIARY shall execute all documents
necessary to effectuate the Pledge.
Section 6.20. Year 2000. Each of the BORROWERS has initiated a review
and assessment of all areas within its and each of its SUBSIDIARIES
businesses and operations that could be adversely affected by the
YEAR 2000 PROBLEM (that is, the risk that computer hardware and
software used by any of the BORROWERS or any SUBSIDIARIES may be
unable to operate, recognize, effectively process and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (including recognizing and performing properly
date-sensitive functions in leap years)). All computer applications
that are material to the businesses and operations of the BORROWERS
and SUBSIDIARIES are YEAR 2000 COMPLIANT. Each of the BORROWERS and
the SUBSIDIARIES has made inquiry of each of its key suppliers,
vendors and customers as to whether such persons are YEAR 2000
COMPLIANT in all material respects. Key suppliers, vendors, and
customers refers to those suppliers, vendors and customers of each of
the BORROWERS and the SUBSIDIARIES, the business failure of which
could result in a material adverse change in the financial condition
or business operations of any of the BORROWERS and/or the
SUBSIDIARIES, or harm or deterioration to the COLLATERAL. In addition,
the BORROWERS will promptly notify the LENDER in the event that any of
the BORROWERS discovers or determines that any computer hardware or
software (including that of its suppliers, vendors and customers) that
is material to any BORROWERS or any SUBSIDIARYS financial condition
or business operations is not YEAR 2000 COMPLIANT.
Section 6.21. Minimum EBITDA. The EBITDA of the BORROWERS and their
respective consolidated SUBSIDIARIES on a consolidated basis, measured
at the end of each QUARTER for the trailing four-QUARTER period ending
on the date of determination shall be: (a) as at the QUARTER ending
December 31, 1999, not less than Four Million Two Hundred Thousand
Dollars ($4,200,000.00) and (b) as at the end of each QUARTER
thereafter, not less than Four Million Five Hundred Thousand Dollars
($4,500,000.00).
Section 6.22. Minimum Tangible Net Worth Plus Subordinated Debt. As of
the end of each QUARTER set forth below, the sum of TANGIBLE NET WORTH
plus SUBORDINATED DEBT of the BORROWERS and their respective
consolidated SUBSIDIARIES on a consolidated basis shall be not less
than the respective amount set forth for such QUARTER (each such
amount, calculated as set forth in clauses (a), (b), and (c) below, a
Minimum TNW Requirement):
(a) for the QUARTER ending December 31, 1999: $8,800,000.00;
(b) for each of the QUARTERS ending March 31, 2000, June 30, 2000, and
September 30, 2000: $9,500,000.00;
(c) for the QUARTERS ending December 31, 2000, March 31, 2001, June
30, 2001, and September 30, 2001: $9,500,000.00 plus 50% of NET PROFIT
AFTER TAX of the BORROWERS for the FISCAL YEAR ending December 31,
2000;
(d) for the QUARTERS ending December 31, 2001, March 31, 2002, June
30, 2002, and September 30, 2002: the Minimum TNW Requirement
calculated in accordance with the immediately preceding clause (c),
plus 50% of NET PROFIT AFTER TAX of the BORROWERS for the FISCAL YEAR
ending December 31, 2001;
(e) for the QUARTER ending December 31, 2002: the Minimum TNW
Requirement calculated in accordance with the immediately preceding
clause (d), plus 50% of NET PROFIT AFTER TAX of the BORROWERS for the
FISCAL YEAR ending December 31, 2002.
Section 6.23. Minimum Working Capital. The BORROWERS and their
respective consolidated SUBSIDIARIES on a consolidated basis shall
maintain at all times WORKING CAPITAL of not less than One Million
Dollars ($1,000,000.00).
Section 6.24. Ratio of Total Liabilities to Tangible Net Worth Plus
Subordinated Debt. The BORROWERS and their respective consolidated
SUBSIDIARIES on a consolidated basis shall maintain as of the end of
each QUARTER a ratio of (a) TOTAL LIABILITIES to (b) TANGIBLE NET
WORTH plus SUBORDINATED DEBT of not greater than 4.50 to 1.00
Section 6.25. Notice of Existence of Default. Each of the BORROWERS
shall promptly advise the LENDER of the existence of any condition or
event of which it has knowledge, which is or which will be with notice
and/or the passage of time a DEFAULT or an EVENT OF DEFAULT.
ARTICLE 7
NEGATIVE COVENANTS
Each of the BORROWERS covenants while any OBLIGATIONS are outstanding
and unpaid not to do or to permit to be done or to occur any of the
acts or occurrences set forth in this Article 7 without the prior
written authorization of the LENDER.
Section 7.1. No Change Of Name, Merger, Etc. None of the BORROWERS
shall change its name or enter into any merger, consolidation,
reorganization or recapitalization.
Section 7.2. No Sale Or Transfer Of Assets. None of the BORROWERS
shall sell, transfer, lease or otherwise dispose of all or any part of
the COLLATERAL, or all or any part of any of its other assets, except
that (a) INVENTORY may be sold to ACCOUNT DEBTORS in the ordinary
course of a BORROWERS business and (b) provided no DEFAULT or EVENT
OF DEFAULT has occurred, INVENTORY not qualifying as ELIGIBLE
INVENTORY or included in the BORROWING BASE in an amount not to exceed
One Hundred Thousand Dollars ($100,000.00), in the aggregate, may be
sold to PERSONS other than ACCOUNT DEBTORS.
Section 7.3. No Encumbrance Of Assets. None of the BORROWERS shall
mortgage, pledge, grant or permit to exist a security interest in or
lien upon any of its assets of any kind, now owned or hereafter
acquired, except for PERMITTED LIENS.
Sectio 7.4. No Indebtedness. None of the BORROWERS shall incur,
create, assume, or permit to exist any INDEBTEDNESS except: (a) the
OBLIGATIONS; (b) INDEBTEDNESS secured by PERMITTED LIENS; (c) the GSE
POWER SYSTEMS AB NOTE; (d) INDEBTEDNESS existing on the date of
CLOSING and described on Schedule 7.4 attached hereto; (e)
intercompany INDEBTEDNESS among the BORROWERS and the GUARANTORS; (f)
indebtedness in favor of the seller thereof securing PERMITTED
ACQUISITIONS in an amount not to exceed One Million Dollars
($1,000,000.00) in the aggregate, provided the same is unsecured and
subordinated to the OBLIGATIONS in writing pursuant to a written
subordination agreement satisfactory to the LENDER in form and
substance.
Section 7.5. Restricted Payments. None of the BORROWERS shall make any
RESTRICTED PAYMENTS, except that provided no DEFAULT or EVENT OF
DEFAULT shall have occurred or shall occur after giving effect to such
RESTRICTED PAYMENT and provided the total amount of such RESTRICTED
PAYMENTS in any given FISCAL YEAR do not exceed fifty percent (50%) of
its NET PROFIT AFTER TAX for such FISCAL YEAR: (a) With respect to the
GSE POWER SYSTEMS AB NOTE, GSE SYSTEMS may (i) make regularly
scheduled payments of interest in accordance with the stated terms of
such note, or (ii) permit GSE Power Systems AB to offset dividends due
GSE SYSTEMS to repay regularly scheduled payments of interest in
accordance with the stated terms of such note or payments of principal
in accordance with the stated terms of such note, when and as any of
the same become due (but without giving effect to any acceleration or
any amendment which would have the effect of increasing such payments)
under such note; (b) GSE SYSTEMS may pay dividends to its
shareholders; (c) the other BORROWERS may pay cash dividends to GSE
SYSTEMS; and (d) a BORROWER may make payments to other BORROWERS.
Section 7.6. Transactions With Affiliates. None of the BORROWERS shall
make any contract for the purchase of any items from any AFFILIATE or
the performance of any services (including employment services) by any
AFFILIATE, unless such contract is on terms which fairly represent
generally available terms to be obtained in transactions of a similar
nature with independent third PERSONS.
Section 7.7. Loans, Investments And Sale-Leaseback. None of the
BORROWERS shall make any (i) advance, loan (except for loans to
BORROWERS or GUARANTORS provided such loans are evidenced by a note
which is pledged to the LENDER), investment (including, without
limitation any advance or loan to, or investment in, a SUBSIDIARY that
is not a DOMESTIC SUBSIDIARY), except as set forth on Schedule 7.7
hereto; (ii) material acquisition of assets other than a PERMITTED
ACQUISITION; or (iii) enter into any sale-leaseback transactions.
Section 7.8. No Acquisition Of Equity In Or Assets Of Third Persons.
None of the BORROWERS shall acquire any equity interests in, or all or
substantially all of the assets of, any PERSON except for PERMITTED
ACQUISITIONS. None of the BORROWERS shall form or acquire any
SUBSIDIARIES, without LENDERS prior written consent.
Section 7.9. No Assignment. None of the BORROWERS shall assign or
attempt to assign its rights under this AGREEMENT.
Section 7.10. No Alteration Of Structure Or Operations. None of the
BORROWERS shall amend or change materially its capital structure or
its line or scope of business, nor shall it engage in business
ventures other than those in which it is presently engaged, except for
compatible lines of business.
Section 7.11. Unpermitted Uses Of Loan Proceeds. None of the BORROWERS
shall use any part of the proceeds of the LOAN hereunder for any
purpose which constitutes a violation of, or is inconsistent with,
regulations of the Board of Governors of the Federal Reserve System,
including without limitation, the purchase or carrying of (or
refinancing of indebtedness originally incurred to purchase or carry)
margin securities.
Section 7.12. Long Term Contracts. None of the BORROWERS shall enter
into any non-competition contract having a term in excess of thirteen
(13) months or requiring the payment of any monies by any of the
BORROWERS on a date occurring more than thirteen (13) months after the
date of such contract with any AFFILIATE if such non-competition
contract would materially adversely affect the BORROWERS ability to
perform the OBLIGATIONS.
Section 7.13. Changes In Fiscal Year. None of the BORROWERS shall
change its FISCAL YEAR.
Section 7.14. Limitation On Issuance Of Certain Equity Interests. None
of the BORROWERS shall issue or sell any equity interest in such
BORROWER that, by its terms or by the terms of any security into which
it is convertible or exchangeable, is, or upon the happening of an
event or passage of time would be: (a) convertible or exchangeable
into a liability of such BORROWER; or (b) required to be redeemed or
repurchased, including at the option of the holder, in whole or in
part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due.
ARTICLE 8
EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an
EVENT OF DEFAULT.
Section 8.1. Failure To Pay. The failure by any or all of the
BORROWERS to pay any of the OBLIGATIONS when and as due.
Section 8.2. Representation Or Warranty. The failure of any
representation or warranty made by any or all of the BORROWERS, any of
the GUARANTORS, or any of the LIMITED GUARANTORS to be true in any
material respect, as of the date made.
Section 8.3. Default Under Negative Covenants. The failure by any of
the BORROWERS to perform, or a violation of, any of the negative
covenants set forth in Article 7 of this AGREEMENT.
Section 8.4. Default Under Certain Covenants. The failure by any of
the BORROWERS to perform or a violation of any of the covenants set
forth in Article 3, or Sections 5.18, 6.12, 6.21, 6.22, 6.23, 6.24, or
6.25 of this AGREEMENT, or the failure by any of the BORROWERS to
provide to the LENDER any notice of the existence of certain
conditions or events required pursuant to the terms of this AGREEMENT
Section 8.5. Default Under Any Other Covenant. Any failure by any of
the BORROWERS to comply with or a violation of any of the covenants or
agreements of any of the BORROWERS under this AGREEMENT not
specifically addressed in any other section or provision of this
Article 8, if such breach or failure continues for a period of thirty
(30) days after notice thereof from the LENDER to the BORROWER;
provided, that if with respect to any such event or circumstance
another provision of this AGREEMENT or another LOAN DOCUMENT
specifically provides a cure period different from that set forth in
this Section 8.5, such other, specifically provided cure period shall
be the sole cure period applicable.
Section 8.6. Default Under Loan Documents. A breach of or default by
any or all of the BORROWERS under the terms, covenants, and conditions
set forth in any other LOAN DOCUMENT which is not cured within any
applicable cure period.
Section 8.7. Invalidity of any Loan Document; Failure of Lien. Any
LOAN DOCUMENT or material provision thereof shall cease to be in full
force and effect in accordance with its terms, or any of the
BORROWERS, the LIMITED GUARANTORS, the GUARANTORS or any other
SUBSIDIARY shall, or shall purport to, terminate, revoke, repudiate,
declare voidable or void or otherwise contest the validity or
enforceability of any LOAN DOCUMENT or material provision thereof or
any of the OBLIGATIONS. Any lien or security interest created or
purported to be created by any LOAN DOCUMENT shall fail to be a valid,
enforceable and perfected lien or security interest in favor of the
LENDER securing the OBLIGATIONS.
Section 8.8. Cross-Default. A breach of or default under the terms,
covenants, or conditions of any agreement, loan, guaranty, or other
transaction of any or all of the BORROWERS, or any of the GUARANTORS
with the LENDER or with any other lender, after expiration of any
applicable notice and cure rights.
Section 8.9. Judgments. Any of the BORROWERS, any of the GUARANTORS,
or any of the LIMITED GUARANTORS shall suffer final judgments for the
payment of money aggregating in excess of One Hundred Thousand Dollars
($100,000.00) and shall not discharge the same within a period of
thirty (30) days unless, pending further proceedings, execution has
not been commenced or if commenced has been effectively stayed.
Section 8.10. Levy By Judgment Creditor. A judgment creditor of any of
the BORROWERS shall obtain possession of any of the COLLATERAL by any
means, including but not limited to levy, distraint, replevin or
self-help, and none of the BORROWERS shall remedy same within thirty
(30) days thereof; or a writ of garnishment is served on the LENDER
relating to any of the accounts of any of the BORROWERS maintained by
the LENDER.
Section 8.11. Failure To Pay Liabilities. Any of the BORROWERS shall
fail to pay any of its debts, in any material amount, due any third
PERSON and such failure shall continue beyond any applicable grace
period, unless the applicable BORROWER holds a good faith defense to
payment and has set aside reasonable reserves for the payment thereof.
Section 8.12. Involuntary Insolvency Proceedings. The institution of
involuntary INSOLVENCY PROCEEDINGS against any of the BORROWERS and
the failure of any such INSOLVENCY PROCEEDINGS to be dismissed before
the earliest to occur of: (a) the date which is ninety (90) days after
the institution of such INSOLVENCY PROCEEDINGS; (b) the entry of any
order for relief in the INSOLVENCY PROCEEDING or any order
adjudicating any or all of the BORROWERS insolvent; or (c) the
impairment (as to validity, priority or otherwise) of any security
interest or lien of the LENDER in any of the COLLATERAL.
Section 8.13. Voluntary Insolvency Proceedings. The commencement by
any of the BORROWERS of INSOLVENCY PROCEEDINGS.
Section 8.14. Insolvency Proceedings Pertaining To Guarantors, other
Subsidiaries or Limited Guarantors. The occurrence of any of the
events listed in Sections 8.12 and 8.13 above to any GUARANTOR, or any
other SUBSIDIARY, or any LIMITED GUARANTOR.
Section 8.15. Material Adverse Event. The occurrence of a MATERIAL
ADVERSE EVENT.
Section 8.16. Default By Guarantors. A breach of or default by any of
the GUARANTORS or LIMITED GUARANTORS under the terms, covenants, and
conditions set forth in any GUARANTY AGREEMENT any other LOAN DOCUMENT
to which it is a party. The failure by any of the GUARANTORS or
LIMITED GUARANTORS to satisfy any obligation imposed upon it in the
GUARANTY AGREEMENTS.
Section 8.17. Attempt To Terminate Guaranties. The receipt by the
LENDER of notice from a GUARANTOR that the GUARANTOR is attempting to
terminate or limit any portion of its obligations under a GUARANTY
AGREEMENT. The receipt by the LENDER of notice from a LIMITED
GUARANTOR that the LIMITED GUARANTOR is attempting to terminate or
limit any portion of its obligations under a GUARANTY AGREEMENT other
than in accordance with the terms thereof.
Section 8.18. ERISA. If any TERMINATION EVENT shall occur and as of
the date thereof or any subsequent date, the sum of the various
liabilities of any of the BORROWERS and its ERISA AFFILIATES (such
liabilities to include, without limitation, any liability to the
Pension Benefit Guaranty Corporation (or any successor thereto) or to
any other party under Sections 4062, 4063, or 4064 of ERISA or any
other provision of LAW and to be calculated after giving effect to the
tax consequences thereof) resulting from or otherwise associated with
such event exceeds One Hundred Thousand Dollars ($100,000.00); or any
of the BORROWERS or any of its ERISA AFFILIATES as an employer under
any MULTIEMPLOYER PLAN shall have made a complete or partial
withdrawal from such MULTIEMPLOYER PLANS and the plan sponsors of such
MULTIEMPLOYER PLANS shall have notified such withdrawing employer that
such employer has incurred a withdrawal liability requiring a payment
in an amount exceeding One Hundred Thousand Dollars ($100,000.00).
Section 8.19. Transfer Of Equity Interests. The transfer of any equity
interests in any of the BORROWERS (other than GSE SYSTEMS) or any of
the GUARANTORS from the ownership existing as of CLOSING and disclosed
on the Perfection Certificates delivered by the BORROWERS and the
GUARANTORS to the LENDER as of CLOSING, the dissolution of any of the
BORROWERS or any of the GUARANTORS, the pledge of any equity interests
of any of the BORROWERS (other than GSE SYSTEMS) or any of the
GUARANTORS except to the LENDER, or the issuance of additional equity
interests in any of the BORROWERS (other than GSE SYSTEMS) or any of
the GUARANTORS which issuance has the effect of diluting the existing
interests of the existing equity holders in any of such BORROWERS or
GUARANTORS.
Section 8.20. Change in Control. Any PERSON or group of PERSONS
(within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended) other than GP Strategies Corporation or ManTech
International Corporation shall obtain ownership or control in one or
more series of transactions of more than twenty percent (20%) of the
common stock or twenty percent (20%) of the voting power of GSE
SYSTEMS entitled to vote in the election of members of the board of
directors of GSE SYSTEMS. Any PERSON or group of PERSONS (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as
amended) shall obtain ownership or control in one or more series of
transactions of more than thirty percent (30%) of the common stock or
thirty percent (30%) of the voting power of GSE SYSTEMS entitled to
vote in the election of members of the board of directors of GSE
SYSTEMS. For purposes of this Section 8.20, a PERSON shall be deemed
to have ownership of all shares that any such PERSON has the right
to acquire without condition, other than passage of time, whether such
right is exercisable immediately or only after the passage of time.
Section 8.21. Indictment Of Borrowers, Guarantors or Limited
Guarantors. The indictment of any of the BORROWERS, any of the
GUARANTORS, or any of the LIMITED GUARANTORS for a felony under any
federal, state or other LAW.
Section 8.22. Injunction. The issuance of any injunction against any
of the BORROWERS which enjoins or restrains any of the BORROWERS from
continuing to conduct any material part of any BORROWERS business
affairs.
Section 8.23. Payment On Subordinated Debt. The payment by any of the
BORROWERS on the account of any SUBORDINATED DEBT which payment is not
specifically permitted by the LENDER under the terms of this AGREEMENT
or any written subordination agreements existing for the benefit of
the LENDER.
ARTICLE 9
RIGHTS AND REMEDIES ON THE OCCURRENCE
OF AN EVENT OF DEFAULT
Section 9.1. Lenders Specific Rights And Remedies. In addition to all
other rights and remedies provided by LAW and the LOAN DOCUMENTS, upon
the occurrence of any EVENT OF DEFAULT, the LENDER may: (a) accelerate
and call immediately due and payable all or any part of the
OBLIGATIONS; (b) seek specific performance or injunctive relief to
enforce performance of the undertakings, duties, and agreements
provided in the LOAN DOCUMENTS, whether or not a remedy at law exists
or is adequate; (c) exercise any rights of a secured creditor under
the Uniform Commercial Code, as adopted and amended in New York,
including the right to take possession of the COLLATERAL without the
use of judicial process or hearing of any kind and the right to
require any or all of the BORROWERS to assemble the COLLATERAL at such
place as the LENDER may specify; and (d) reduce the BILLED COMMERCIAL
ACCOUNTS BORROWING BASE, BILLED GOVERNMENT ACCOUNTS BORROWING BASE,
UNBILLED GOVERNMENT ACCOUNTS BORROWING BASE, INVENTORY BORROWING BASE,
ADDITIONAL COLLATERAL BORROWING BASE, or DOLLAR CAP.
Section 9.2. Automatic Acceleration. Upon the occurrence of an EVENT
OF DEFAULT as described in Sections 8.12 or 8.13 of this AGREEMENT,
the OBLIGATIONS shall be automatically accelerated and due and payable
without any notice, demand or action of any type on the part of the
LENDER.
Section 9.3. Sale Of Collateral. In addition to any other remedy
provided herein, upon the occurrence of an EVENT OF DEFAULT, the
LENDER, in a commercially reasonable fashion, may sell at public or
private sale or otherwise realize upon, the whole or, from time to
time, any part of all COLLATERAL which is personal property, or any
interest which any of the BORROWERS may have therein. Pending any such
action, the LENDER may collect and liquidate the COLLATERAL. After
deducting from the proceeds of sale or other disposition of such
COLLATERAL all expenses, including all expenses for legal services,
the LENDER shall apply such proceeds toward the satisfaction of the
OBLIGATIONS. Any remainder of the proceeds after satisfaction in full
of the OBLIGATIONS shall be distributed as required by applicable LAW.
Notice of any sale or other disposition (other than sales or other
dispositions of COLLATERAL which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized
market) shall be given to the BORROWERS not less than ten (10)
calendar days before the time of any intended public sale or of the
time after which any intended private sale or other disposition of the
COLLATERAL is to be made, which each of the BORROWERS hereby agrees
shall be commercially reasonable notice of such sale or other
disposition. The BORROWERS shall assemble, or shall cause to be
assembled, at the BORROWERS own expense, the COLLATERAL at such place
or places as the LENDER shall designate. At any such sale or other
disposition, the LENDER may, to the extent permissible under
applicable law, purchase the whole or any part of the COLLATERAL, free
from any right of redemption on the part of any of the BORROWERS,
which right is hereby waived and released to the extent lawfully
permitted. Without limiting the generality of any of the rights and
remedies conferred upon the LENDER under this Section, the LENDER may,
to the full extent permitted by applicable law: (a) enter upon the
premises of any of the BORROWERS, exclude therefrom any of the
BORROWERS or any PERSON connected therewith, and take immediate
possession of the COLLATERAL, either personally or by means of a
receiver appointed by a court of competent jurisdiction; (b) at the
LENDERS option, use, operate, manage, and control the COLLATERAL in
any lawful manner; (c) collect and receive all income, revenue,
earnings, issues, and profits therefrom; and (d) maintain, alter or
remove the COLLATERAL as the LENDER may determine in the LENDERS
discretion.
Section 9.4. Letters Of Credit. Upon the request of the LENDER, at any
time after the occurrence of an EVENT OF DEFAULT, the BORROWERS shall
immediately deposit in a cash collateral account at the LENDER, over
which the LENDER has sole access, an amount equal to the aggregate
then undrawn and unexpired amount of all LETTERS OF CREDIT. Amounts
held in such cash collateral account shall be applied by the LENDER to
the payment of drafts drawn under LETTERS OF CREDIT, and the unused
portion thereof after all LETTERS OF CREDIT shall have expired or been
fully drawn upon shall be applied to repay the other OBLIGATIONS.
After all LETTERS OF CREDIT shall have expired or have been fully
drawn upon and all other OBLIGATIONS shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to
the BORROWERS. In the event the BORROWERS fail to deposit into the
cash collateral account an amount equal to the then undrawn and
unexpired amount of all LETTERS OF CREDIT, the LENDER shall be
authorized to deposit into such cash collateral account proceeds from
the liquidation of the COLLATERAL until the balance in such account
equals the aggregate then undrawn and unexpired amount of all LETTERS
OF CREDIT.
Section 9.5. Remedies Cumulative. The rights and remedies provided in
this AGREEMENT and in the other LOAN DOCUMENTS or otherwise under
applicable LAWS shall be cumulative and the exercise of any particular
right or remedy shall not preclude the exercise of any other rights or
remedies in addition to, or as an alternative of, such right or
remedy.
ARTICLE 10
ENERAL CONDITIONS AND TERMS
Section 10.1. Obligations Are Unconditional. The payment and
performance of the OBLIGATIONS shall be the absolute and unconditional
joint and several duty and obligation of each of the BORROWERS, and
shall be independent of any defense or any rights of set-off,
recoupment or counterclaim which any of the BORROWERS might otherwise
have against the LENDER. The BORROWERS shall pay the payments of the
principal and interest to be made upon the OBLIGATIONS, free of any
deductions and without abatement, diminution or set-off other than
those herein expressly provided. Until such time as the OBLIGATIONS
have been fully paid and performed, none of the BORROWERS shall: (a)
suspend or discontinue any payments required by the LOAN DOCUMENTS;
and (b) fail to perform and observe all of each BORROWERS covenants
and agreements set forth in the LOAN DOCUMENTS.
Section 10.2. Indemnity. Each of the BORROWERS agrees to defend,
indemnify and hold harmless the LENDER and the entities affiliated
with the LENDER and all of the LENDERS and its affiliated entities
employees, agents, officers and directors, from and against any
losses, penalties, fines, liabilities, settlements, damages, costs and
expenses, suffered in connection with any claim, investigation,
litigation or other proceeding (whether or not the LENDER or an
affiliated entity is a party thereto) and the prosecution and defense
thereof, arising out of or in any way connected with any LOAN
DOCUMENT, including without limitation reasonable attorneys and
consultants fees, except to the extent that any of the foregoing
directly result from the gross negligence or willful misconduct of the
party seeking indemnification therefor. Notwithstanding any
termination of this AGREEMENT or payment and performance of the
OBLIGATIONS, the indemnities provided for herein shall continue in
full force and effect and shall protect all of the above-described
PERSONS against events arising after such termination, payment or
performance as well as before.
Section 10.3. Lender Expenses. All LENDER EXPENSES shall be paid by
the BORROWERS, whether incurred prior to or after CLOSING, such that
the subject transactions shall at all times be cost free to the
LENDER.
Section 10.4. Authorization To Obtain Financial Information. Each of
the BORROWERS hereby irrevocably authorizes its accounting firm to
provide the LENDER from time to time with such information as may be
requested by the LENDER, and hereby authorizes the LENDER to contact
directly such accounting firm in order to obtain such information.
Section 10.5. Incorporation; Construction Of Inconsistent Provisions.
The terms and conditions of the LOAN DOCUMENTS are incorporated by
reference and made a part hereof, as if fully set forth herein. In the
event of any inconsistency between this AGREEMENT and any other LOAN
DOCUMENT, such inconsistency shall be construed, interpreted, and
resolved so as to benefit the LENDER, independent of whether this
AGREEMENT or another LOAN DOCUMENT controls, and the LENDERS election
of which interpretation or construction is for the LENDERS benefit
shall govern.
Section 10.6. Waivers. The LENDER at any time or from time to time may
waive all or any rights under this AGREEMENT or any other LOAN
DOCUMENT, but any waiver or indulgence by the LENDER at any time or
from time to time shall not constitute a future waiver of performance
or exact performance by any of the BORROWERS.
Section 10.7. Continuing Obligation Of Borrowers. The terms,
conditions, and covenants set forth herein and in the LOAN DOCUMENTS
shall survive CLOSING and shall constitute a continuing obligation of
each of the BORROWERS during the course of the transactions
contemplated herein. The security interests, liens and other security
provided by this AGREEMENT shall remain in effect so long as any
OBLIGATION, whether direct or contingent, is outstanding, unpaid or
unsatisfied.
Section 10.8. Choice Of Law. The laws of the State of New York
(excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this AGREEMENT and the
rights and obligations of the parties hereto, including the validity,
construction, interpretation, and enforceability of this AGREEMENT and
its various provisions and the consequences and legal effect of all
transactions and events which resulted in the execution of this
AGREEMENT or which occurred or were to occur as a direct or indirect
result of this AGREEMENT having been executed.
Section 10.9. Submission To Jurisdiction; Venue; Actions Against
Lender. For purposes of any action, in law or in equity, which is
based directly or indirectly on this AGREEMENT, any other LOAN
DOCUMENT or any matter related to this AGREEMENT or any other LOAN
DOCUMENT, including any action for recognition or enforcement of any
of the LENDERS rights under the LOAN DOCUMENTS or any judgment
obtained by the LENDER in respect thereof, each of the BORROWERS
hereby:
Section 10.9.1. Jurisdiction. Irrevocably submits to the non-exclusive
general jurisdiction of the courts of the State of New York and the
State of Maryland and, if a basis for federal jurisdiction exists at
any time, the courts of the United States of America for the Southern
District of New York and for the District of Maryland.
Section 10.9.2. Venue. Agrees that venue shall be proper in any
circuit court in the State of New York or in the State of Maryland, as
selected by the LENDER, and, if a basis for federal jurisdiction
exists, the courts of the United States of America for the Southern
District of New York or for the District of Maryland (as selected by
the LENDER).
Section 10.9.3. Waiver Of Objections To Venue. Waives any right to
object to the maintenance of any suit in any of the courts specified
in Section 10.9.2 above on the basis of improper venue or convenience
of forum. Each of the BORROWERS further agrees that it shall not
institute any suit or other action against the LENDER, in law or in
equity, which is based directly or indirectly on this AGREEMENT, any
other LOAN DOCUMENT or any matter related to this AGREEMENT or any
other LOAN DOCUMENT, in any court other than a court specified in
Section 10.9.2 above; provided, that in any instance in which there is
then pending a suit instituted by the LENDER against any of the
BORROWERS in a court other than a court specified in Section 10.9.2
above, the BORROWERS may file in such suit any counterclaim which they
have against the LENDER. Each of the BORROWERS agrees that any suit
brought by it against the LENDER not in accordance with this paragraph
should be forthwith dismissed or transferred to a court specified in
Section 10.9.2 above.
Section 10.10. Notices. Any notice required or permitted by or in
connection with this AGREEMENT shall be in writing and shall be made
by facsimile (confirmed on the date the facsimile is sent by one of
the other methods of giving notice provided for in this Section) or by
hand delivery, by Federal Express, or other similar overnight delivery
service, or by certified mail, unrestricted delivery, return receipt
requested, postage prepaid, addressed to the LENDER or the BORROWERS
at the appropriate address set forth below or to such other address as
may be hereafter specified by written notice by the LENDER or the
BORROWERS. Notice shall be considered given as of the date of the
facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3)
calendar days after the date of mailing, independent of the date of
actual delivery or whether delivery is ever in fact made, as the case
may be, provided the giver of notice can establish the fact that
notice was given as provided herein. If notice is tendered pursuant to
the provisions of this Section and is refused by the intended
recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
NATIONAL BANK OF CANADA
125 West 55th Street
New York, New York 10019
And
c/o NATIONAL BANK OF CANADA
401 E. Pratt Street, Suite 631
Baltimore, Maryland 21202
Attn: Robert A. Incorvati, Vice President
Facsimile: (410) 837-8359
If to the BORROWERS:
GSE SYSTEMS, INC.
GSE PROCESS SOLUTIONS, INC.
GSE POWER SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
Attn: Jeffery G. Hough, Sr.Vice President
Facsimile: (410) 772-3599
With A Courtesy Copy To:
GOLDEN & NELSON, PLLC
8285 Highglade Court
Millersville, Maryland 21108
Attn.: Hedy L. Nelson, Esquire
Facsimile No.: (410) 729-2246
The failure of the LENDER to send the above courtesy copy shall not
impair the effectiveness of notice given to the BORROWERS in the
manner provided herein.
Section 10.11. Participations. The LENDER reserves the right to assign
all or any portion of its interests in any of the OBLIGATIONS or the
LOAN DOCUMENTS or to participate with other lending institutions any
of the OBLIGATIONS and the LOAN DOCUMENTS on such terms and at such
times as the LENDER may determine from time to time, all without any
consent thereto or notice thereof to the BORROWERS. Each of the
BORROWERS hereby grants to each participating lending institution, to
the full extent of the OBLIGATIONS, the right to set off deposit
accounts maintained by the BORROWERS with such institution, and each
of the BORROWERS agrees to pay the LENDER EXPENSES of any such
participating lending institution which arise or are incurred as a
result of the occurrence of an EVENT OF DEFAULT.
Section 10.12. Miscellaneous Provisions. The parties agree that: (a)
this AGREEMENT shall be effective as of the date first above written,
independent of the date of execution or delivery hereof; (b) this
AGREEMENT shall be binding upon the parties and their successors and
assigns, contains the final and entire agreement and understanding of
the parties, and may neither be amended or altered except by a writing
signed by the parties; (c) time is strictly of the essence of this
AGREEMENT; (d) as used herein, the singular includes the plural and
the plural includes the singular, the use of any gender applies to all
genders; (e) the captions contained herein are for purposes of
convenience only and are not a part of this AGREEMENT; (f) a carbon,
photographic, photocopy or other reproduction of a security agreement
or financing statement shall be sufficient as a financing statement;
(g) this AGREEMENT may be delivered by facsimile, and a facsimile of
any partys signature to this AGREEMENT shall be deemed an original
signature for all purposes; and (h) this AGREEMENT may be executed in
several counterparts, each of which shall be an original, but all of
which, when taken together, shall constitute one and the same
document. Section 10.13. Waiver Of Trial By Jury. Each party to this
AGREEMENT agrees that any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by any party hereto or any
successor or assign of any party on or with respect to this AGREEMENT
or any other LOAN DOCUMENT or which in any way relates, directly or
indirectly, to the OBLIGATIONS or any event, transaction, or
occurrence arising out of or in any way connected with any of the
OBLIGATIONS, or the dealings of the parties with respect thereto,
shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION, OR PROCEEDING. [Signatures begin on next page]
IN WITNESS WHEREOF, the LENDER and the BORROWERS have duly executed
this AGREEMENT under seal as of the date first above written.
WITNESS/ATTEST: THE BORROWERS:
GSE SYSTEMS, INC.
By: (SEAL)
Jeffery G. Hough,
Senior Vice President
GSE PROCESS SOLUTIONS, INC.
By: (SEAL)
Jeffery G. Hough,
Senior Vice President
GSE POWER SYSTEMS, INC.
By: (SEAL)
Jeffery G. Hough,
Senior Vice President
THE LENDER:
NATIONAL BANK OF CANADA
By: (SEAL)
Robert A. Incorvati,
Vice President
By: (SEAL)
Michael E. Williams,
Vice President/Manager
Exhibit 10.3
Baltimore, Maryland
$10,000,000.00
March 23, 2000
REVOLVING LOAN PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned GSE SYSTEMS, INC., a Delaware
corporation, GSE PROCESS SOLUTIONS, INC., a Delaware corporation, and
GSE POWER SYSTEMS, INC., a Delaware corporation (collectively,
BORROWERS), jointly and severally, promise to pay to the order of
NATIONAL BANK OF CANADA, a Canadian chartered bank (LENDER), at its
New York branch, 125 West 55th Street, New York, New York 10019, or at
such other places as the holder of this Promissory Note may from time
to time designate, the principal sum of Ten Million Dollars
($10,000,000.00), or so much as has been advanced to the BORROWERS as
the proceeds of the LOAN, as such term is defined and described in
the Loan And Security Agreement of even date herewith (as the same may
be amended, modified, extended, renewed, restated, supplemented or
replaced from time to time AGREEMENT between the LENDER and the
BORROWERS, together with interest on the unpaid principal balance from
time to time outstanding at the rate or rates specified in the
AGREEMENT until paid in full and any and all other sums which may be
owing to the holder of this Promissory Note by the BORROWERS pursuant
to this Promissory Note, on or before the TERMINATION DATE, as such
term is defined in the AGREEMENT, or such earlier date as is required
by the AGREEMENT. This Promissory Note is the NOTE, as such term is
defined in the AGREEMENT. The following terms shall apply to this
Promissory Note.
1. Interest Rates, Calculation Of Interest, And Terms Of Repayment.
The BORROWERS, jointly and severally, promise to pay principal and all
interest which accrues on the unpaid balance of this Promissory Note
from the date of this Promissory Note until such time as the
obligations evidenced hereunder have been paid in full, at the times
and in accordance with the covenants, procedures and requirements set
forth in the AGREEMENT. Interest shall accrue, be payable, and shall
be calculated as set forth in the AGREEMENT. The BORROWERS, jointly
and severally, further promise to pay all default interest, late
payment charges, fees and other expenses, costs and payment
obligations as are required by the AGREEMENT to be made by any of the
BORROWERS to or for the account of the LENDER.
2. Application Of Payments. Except as expressly provided to the
contrary in the AGREEMENT, all payments made hereunder shall be
applied first to late payment charges or other sums owed to the
holder, next to accrued interest, and then to principal, or in such
other order or proportion as the holder, in the holders sole
discretion, may elect from time to time.
3. Prepayment. The BORROWERS rights to prepay this Promissory Note
shall be governed by the terms and conditions of the AGREEMENT.
4. Rights Upon Occurrence of an Event of Default. Upon the occurrence
of an EVENT OF DEFAULT, as such term is defined in the AGREEMENT,
the holder of this Promissory Note shall have the following rights in
addition to all other rights and remedies as are authorized by the
AGREEMENT or otherwise available to the holder under applicable laws:
4.1. Acceleration. The holder of this Promissory Note, in the holders
sole discretion and without notice or demand, may accelerate and
declare due and immediately owing the entire unpaid principal balance
plus accrued interest and all other sums payable to the holder in
accordance with the terms of any of the LOAN DOCUMENTS, as such term
is defined in the AGREEMENT.
4.2. Default Interest Rate. The holder of this Promissory Note, in the
holders sole discretion and without notice or demand, may raise the
rate of interest accruing on the unpaid principal balance by two (2)
percentage points above the rate of interest otherwise applicable,
independent of whether the holder elects to accelerate the unpaid
principal balance as a result of such default, unless prior to the
imposition of the default rate of interest, the BORROWERS cure such
event to the satisfaction of the holder hereof. Any individual waiver
of the holders right to impose the default rate of interest shall not
be considered a waiver of this Section or any future right of the
holder to impose the default rate of interest pursuant to this
Section.
4.3. Confession Of Judgment. Each of the BORROWERS authorizes any
attorney admitted to practice before any court of record in the United
States to appear on its behalf in any court in one or more
proceedings, or before any clerk thereof or prothonotary, or other
court official, and to confess judgment against the BORROWERS in favor
of the holder of this Promissory Note in the full amount due on this
Promissory Note (including principal, accrued interest and any and all
charges, fees and costs) plus attorneys fees, equal to fifteen
percent (15%) of the amount then due, plus court costs, all without
prior notice or opportunity of the BORROWERS for prior hearing. Each
of the BORROWERS agrees and consents that venue and jurisdiction shall
be proper in the Circuit Court of any County of the State of Maryland
or of Baltimore City, Maryland, or of the State of New York, or in the
United States District Court for the District of Maryland or the
United States District Court for the Southern District of New York.
Each of the BORROWERS waives the benefit of any and every statute,
ordinance, or rule of court which may be lawfully waived conferring
upon it any right or privilege of exemption, homestead rights, stay of
execution, or supplementary proceedings, or other relief from the
enforcement or immediate enforcement of a judgment or related
proceedings on a judgment, but without waiving any right the BORROWER
may have to file a motion to open, modify or vacate a judgment by
confession in accordance with Rule 2-611(c) of the Maryland Rules or
the equivalent statute under New York law. The authority and power to
appear for and enter judgment against any or all of the BORROWERS,
jointly and severally, shall not be exhausted by one or more exercises
thereof, or by any imperfect exercise thereof, and shall not be
extinguished by any judgment entered pursuant thereto; such authority
and power may be exercised on one or more occasions from time to time,
in the same or different jurisdictions, as often as the holder shall
deem necessary, convenient, or proper.
5. Interest Rate After Judgment. If judgment is entered against any or
all of the BORROWERS on this Promissory Note, the amount of the
judgment entered (which may include principal, interest, fees, and
costs) shall bear interest at the higher of the maximum interest rate
imposed upon judgments by applicable law or the above described
default interest rate, to be determined on the date of the entry of
the judgment.
6. Expenses Of Collection And Attorneys Fees. Should this Promissory
Note be referred to an attorney for collection, whether or not
judgment has been confessed or suit has been filed, the BORROWERS,
jointly and severally, shall pay all of the holders reasonable costs,
fees and expenses, including reasonable attorneys fees, resulting
from such referral.
7. Waiver of Defenses. In the event any one or more holders of this
Promissory Note transfer this Promissory Note for value, each of the
BORROWERS agrees that all subsequent holders of this Promissory Note
who take for value and without actual knowledge of a claim or defense
of any of the BORROWERS against a prior holder shall not be subject to
any claims or defenses which any of the BORROWERS may have against a
prior holder, all of which are waived as to the subsequent holder, and
that all such subsequent holders shall have all rights of a holder in
due course with respect to the BORROWERS even though the subsequent
holder may not qualify, under applicable law, absent this section, as
a holder in due course. The BORROWERS shall retain all rights and
claims which the BORROWERS may have against prior holders despite any
such transfers and the waiver of defenses provided in this section as
to subsequent holders. Notwithstanding the foregoing, nothing herein
shall represent the waiver by any of the BORROWERS of any defense
based upon any payment hereof made to any former holder hereof prior
to the BORROWERS having been notified of the transfer of this
Promissory Note to any subsequent holder.
8. Waiver Of Protest. Each of the BORROWERS, and all parties to this
Promissory Note, whether maker, indorser, or guarantor, waive
presentment, notice of dishonor and protest.
9. Extensions Of Maturity. All parties to this Promissory Note,
whether maker, indorser, or guarantor, agree that the maturity of this
Promissory Note, or any payment due hereunder, may be extended at any
time or from time to time without releasing, discharging, or affecting
the liability of such party.
10. Manner and Method of Payment. All payments called for in this
Promissory Note shall be made in lawful money of the United States of
America. If made by check, draft, or other payment instrument, such
check, draft, or other payment instrument shall represent immediately
available funds. In the holdes discretion, any payment made by a
check, draft, or other payment instrument shall not be considered to
have been made until such time as the funds represented thereby have
been collected by the holder. Should any payment date fall on a
non-banking day, the BORROWERS shall make the payment on the next
succeeding banking day
11. Maximum Rate Of Interest. Any provision contained in any of the
LOAN DOCUMENTS to the contrary notwithstanding, the holder of this
Promissory Note shall not be entitled to receive or collect, nor shall
the BORROWERS be obligated to pay, interest hereunder in excess of the
maximum rate of interest permitted by the laws of any state determined
to be applicable thereto or the laws of the United States of America
applicable to loans in such applicable state or states, and if any
provisions of this Promissory Note or of any of the other LOAN
DOCUMENTS shall ever be construed or held to permit or require the
charging, collection or payment of any amount of interest in excess of
that permitted by such laws applicable thereto, the provisions of this
paragraph shall control and shall override any contrary or
inconsistent provision. The intention of the parties is to at all
times conform strictly with all applicable usury laws, and other
applicable laws regulating the rates of interest which may be lawfully
charged upon the credit facility evidenced by this Promissory Note.
The interest to be paid in accordance with the terms of this
Promissory Note shall be held subject to reduction to the amount
allowed under any usury or other laws as now or hereafter construed by
the courts having jurisdiction, and any sums of money paid in excess
of the interest rate allowed by law shall be applied in reduction of
the principal amounts owing under this Promissory Note.
12. Notices. Any notice or demand required or permitted by or in
connection with this Promissory Note shall be given in the manner
specified in the AGREEMENT for the giving of notices under the
AGREEMENT. Notwithstanding anything to the contrary, all notices and
demands for payment from the holder actually received in writing by
the BORROWERS shall be considered to be effective upon the receipt
thereof by the BORROWERS regardless of the procedure or method
utilized to accomplish delivery thereof to the BORROWERS.
13. Assignability. This Promissory Note may be assigned by the LENDER
or any holder at any time or from time to time without notice to or
consent from the BORROWERS.
14. Binding Nature. This Promissory Note shall inure to the benefit of
and be enforceable by the LENDER and the LENDERS successors and
assigns and any other person to whom the LENDER or any holder may
grant an interest in the BORROWERS obligations hereunder, and shall
be binding and enforceable against any or all of the BORROWERS and the
BORROWERS respective successors and assigns.
15. Invalidity Of Any Part. If any provision or part of any provision
of this Promissory Note shall for any reason be held invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this
Promissory Note and this Promissory Note shall be construed as if such
invalid, illegal or unenforceable provision or part thereof had never
been contained herein, but only to the extent of its invalidity,
illegality, or unenforceability.
16. Choice Of Law. The laws of the State of New York (excluding,
however, conflict of law principles) shall govern and be applied to
determine all issues relating to this Promissory Note and the rights
and obligations of the parties hereto, including the validity,
construction, interpretation, and enforceability of this Promissory
Note and its various provisions and the consequences and legal effect
of all transactions and events which resulted in the issuance of this
Promissory Note or which occurred or were to occur as a direct or
indirect result of this Promissory Note having been executed.
17. Consent To Jurisdiction; Agreement As To Venue. Each of the
BORROWERS irrevocably consents to the non-exclusive jurisdiction of
the courts of the State of New York and the State of Maryland and of
the United States District Courts for the Southern District of New
York and the District of Maryland, if a basis for federal jurisdiction
exists. Each of the BORROWERS agrees that venue shall be proper in any
circuit court of the State of New York or the State of Maryland
selected by the LENDER or in the United States District Court for the
Southern District of New York or the District of Maryland (as selected
by the LENDER if a basis for federal jurisdiction exists and waives
any right to object to the maintenance of a suit in any of the state
or federal courts of the State of New York or the State of Maryland on
the basis of improper venue or of inconvenience of forum.
18. Unconditional Obligations. The BORROWERS obligations under this
Promissory Note shall be the joint and several, absolute and
unconditional duty and obligation of each of the BORROWERS and shall
be independent of any rights of set-off, recoupment or counterclaim
which any of the BORROWERS might otherwise have against the holder of
this Promissory Note. The BORROWERS, jointly and severally, shall pay
absolutely the payments of principal, interest, fees and expenses
required hereunder, free of any deductions and without abatement,
diminution or set-off.
19. Seal and Effective Date. This Promissory Note is an instrument
executed under seal and is to be considered effective and enforceable
as of the date set forth on the first page hereof, independent of the
date of actual execution and delivery
20. Tense; Gender; Defined Terms; Section Headings. As used herein,
the singular includes the plural and the plural includes the singular.
A reference to any gender also applies to any other gender. Defined
terms are entirely capitalized throughout. The section headings are
for convenience only and are not part of this Promissory Note.
21. Actions Against Lender. Any action brought by any of the BORROWERS
against the LENDER which is based, directly or indirectly, on this
Promissory Note or any matter in or related to this Promissory Note,
including but not limited to the making of the loan evidenced hereby
or the administration or collection thereof, shall be brought only in
the courts of the State of New York or, if the LENDER has instituted
action against any or all of the BORROWERS in such courts, the courts
of the State of Maryland. The BORROWERS agree that any forum other
than the State of New York or the State of Maryland is an inconvenient
forum and that a suit brought by the BORROWERS against the LENDER in a
court of any state other than the State of New York or the State of
Maryland should be forthwith dismissed or transferred to a court
located in the State of New York or, if the LENDER has instituted
action against the BORROWERS in such state, the State of Maryland, by
that Court.
22. Waiver Of Jury Trial. Each of the BORROWERS (by execution of this
Promissory Note) and the LENDER (by acceptance of this Promissory
Note) agree that any suit, action, or proceeding, whether claim or
counterclaim, brought or instituted by or against any or all of the
BORROWERS or the LENDER, or any successor or assign any or all of the
BORROWERS or the LENDER, on or with respect to this Promissory Note or
any of the other LOAN DOCUMENTS, or which in any way relates, directly
or indirectly, to the obligations of the BORROWERS to the LENDER under
this Promissory Note or any of the other LOAN DOCUMENTS, or the
dealings of the parties with respect thereto, shall be tried only by a
court and not by a jury. THE BORROWERS AND THE LENDER HEREBY EXPRESSLY
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING.
IN WITNESS WHEREOF, each of the BORROWERS has duly executed this
Promissory Note under seal as of the date first above written.
WITNESS/ATTEST: GSE SYSTEMS, INC.
_________________ By: ____________________________(SEAL)
Jeffery G. Hough,
Senior Vice President
GSE PROCESS SOLUTIONS, INC.
__________________ By: ____________________________(SEAL)
Jeffery G. Hough,
Senior Vice President
GSE POWER SYSTEMS, INC.
_________________ By:
____________________________(SEAL)
Jeffery G. Hough,
enior Vice President
ACKNOWLEDGMENTS
STATE OF MARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this ______ day of March, 2000, before me,
the undersigned Notary Public of the State of Maryland, personally
appeared Jeffrey G. Hough, and acknowledged himself to be the Senior
Vice President of GSE SYSTEMS, INC., a Delaware corporation, and that
he, as such, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of
GSE SYSTEMS, INC., by himself as Senior Vice President.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
______________________
STATE OFMARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this ______ day of March, 2000, before me,
the undersigned Notary Public of the State of Maryland, personally
appeared Jeffery G. Hough, and acknowledged himself to be the Senior
Vice President of GSE PROCESS SOLUTIONS, INC., a Delaware corporation,
and that he, as such, being authorized so to do, executed the
foregoing instrument for the purposes therein contained by signing the
name of GSE PROCESS SOLUTIONS, INC. by himself as Senior Vice
President.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
______________________
ACKNOWLEDGMENT
STATE OF MARYLAND, CITY/COUNTY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this ______ day of March, 2000, before me,
the undersigned Notary Public of the State of Maryland, personally
appeared Jeffrey G. Hough, and acknowledged himself to be the Senior
Vice President of GSE POWER SYSTEMS, INC., a Delaware corporation, and
that he, as such, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of
GSE POWER SYSTEMS, INC., by himself as Senior Vice President.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
______________________
Exhibit 10.4
LIMITED GUARANTY AGREEMENT
THIS LIMITED GUARANTY AGREEMENT (GUARANTY) is given as of March 23,
2000, by MANTECH INTERNATIONAL CORPORATION, a New Jersey corporation
(GUARANTOR), for the benefit of NATIONAL BANK OF CANADA, a Canadian
chartered bank (LENDER), with respect to the obligations of GSE
SYSTEMS, INC., a Delaware corporation, GSE PROCESS SOLUTIONS, INC., a
Delaware corporation, and GSE POWER SYSTEMS, INC., a Delaware
corporation (individually, a BORROWER and collectively, the
BORROWERS), to the LENDER.
RECITALS
The BORROWERS have requested certain credit accommodations from the
LENDER as set forth in the Loan and Security Agreement of even date
herewith by and between the BORROWERS and the LENDER (as the same may
be amended, modified, extended, renewed, restated, supplemented or
replaced from time to time LOAN AGREEMENT). The LENDER has agreed to
provide the requested credit accommodations to the BORROWERS, but only
if, inter alia, the GUARANTOR provides to the LENDER the guaranties of
payment and performance set forth in this GUARANTY. The GUARANTOR is
willing to provide this GUARANTY to the LENDER in order to induce the
LENDER to provide the requested credit accommodations to the
BORROWERS.
All capitalized terms used in this GUARANTY without definition shall
have the respective meanings given such terms in the LOAN AGREEMENT.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the GUARANTOR hereby agrees to provide to the
LENDER the following guaranties and indemnifications.
Section 1. Guaranty. The GUARANTOR guarantees: (a) the payment of any
and all sums now or hereafter due and owing to the LENDER by the
BORROWERS (or any of them) arising out of, related to, as a result of,
or in connection with the LOAN, the LETTERS OF CREDIT, the CREDIT
FACILITY, or any other existing or future indebtedness, liability, or
obligation of every kind, nature, type, and variety owed by the
BORROWERS (or any of them) to the LENDER from time to time, arising
out of, related to, as a result of, or in connection with the LOAN
AGREEMENT, or any of the transactions contemplated by the LOAN
DOCUMENTS (as defined below), including all renewals, refinancings,
extensions, substitutions, amendments, and modifications thereof, no
matter when or how created, arising, evidenced, or acquired, and
whether or not presently contemplated or anticipated, whether joint or
several, including, but not limited to, all amounts of principal,
interest, charges, reimbursements, advancements, escrows, and fees;
(b) that all sums now or hereafter due and owing by the BORROWERS (or
any of them) to the LENDER arising out of, related to, as a result of,
or in connection with the LOAN, the LETTERS OF CREDIT, the CREDIT
FACILITY, the LOAN AGREEMENT, or any of the transactions contemplated
by the LOAN DOCUMENTS, shall be paid when and as due, whether by
reason of installment, maturity, acceleration or otherwise, time being
of the essence; and (c) the timely, complete, continuous, and strict
performance and observance by the BORROWERS of each of the terms,
covenants, agreements and conditions contained in any and all existing
or future documents, instruments, agreements, and writings of every
kind, nature, type, and variety which evidence, reflect, embody, give
rise to or secure any and all existing and future indebtedness,
liabilities, and obligations of any kind of the BORROWERS (or any of
them) to the LENDER arising out of, related to, as a result of, or in
connection with the LOAN, the LETTERS OF CREDIT, the CREDIT FACILITY,
the LOAN AGREEMENT, or any of the transactions contemplated thereby
(together with the LOAN AGREEMENT, collectively, LOAN DOCUMENTS). As
used in this GUARANTY, the term OBLIGATIONS shall refer to the
obligations of payment, performance, and indemnification which the
GUARANTOR has undertaken and assumed pursuant to this GUARANTY, both
as described in this Section and in other Sections of this GUARANTY
Section 2. Maximum Amount of Guaranty. The monetary liability of the
GUARANTOR with respect to the OBLIGATIONS hereunder shall be limited
to the sum of One Million Eight Hundred Thousand Dollars
($1,800,000.00) (GUARANTY MONETARY AMOUNT); provided that the
proceeds of the liquidation of any of the collateral securing the
obligations of the BORROWERS (or any of them) to the LENDER and any
payments made by any of the BORROWERS or any other guarantor, and any
other payments obtained from any other source, shall not be applied
to, or be considered a discharge of, the OBLIGATIONS until all
amounts, other than those which have been guaranteed, have been paid
in full. Notwithstanding the immediately preceding sentence, the
GUARANTY MONETARY AMOUNT and the limitation set forth in this Section
on the monetary liability of the GUARANTOR with respect to the
OBLIGATIONS shall not include nor be deemed a limit upon the LENDERS
right pursuant to any other Section of this GUARANTY (including,
without limitation, Section 19 hereof) to recover from the GUARANTOR
costs and expenses, including reasonable attorneys fees, in enforcing
or realizing upon this GUARANTY. The GUARANTY MONETARY AMOUNT may be
reduced at each fiscal year-end date (beginning with the BORROWERS
fiscal year ending December 31, 1999) upon the determination by the
LENDER, in each instance, that the BORROWERS have achieved and
satisfied the following conditions precedent: (a) no EVENT OF DEFAULT
(as defined below and as defined in the LOAN AGREEMENT) shall have
occurred hereunder or under the LOAN AGREEMENT during the fiscal year
of the BORROWERS ending on such fiscal year-end date; (b) no DEFAULT
(as defined in the LOAN AGREEMENT) shall have occurred and be
continuing on such fiscal year end date; (c) no default (defined for
purposes of this clause (c) to mean any event, occurrence or
omission which, with the giving of notice, the passage of time, or
both, would constitute an EVENT OF DEFAULT) under this GUARANTY shall
have occurred and be continuing on such fiscal year-end date; (d)
EBITDA (as defined in the LOAN AGREEMENT) of the BORROWERS and their
consolidated subsidiaries for the fiscal year of the BORROWERS ending
on such fiscal year-end date, and reported to the LENDER by the
BORROWERS in their audited annual financial statements for such fiscal
year, shall have been equal to at least Five Million Five Hundred
Thousand Dollars ($5,500,000.00); and (e) NET PROFIT AFTER TAX (as
defined in the LOAN AGREEMENT) of the BORROWERS and their consolidated
subsidiaries for the fiscal year of the BORROWERS ending on such
fiscal year-end date, and reported to the LENDER by the BORROWERS in
their audited annual financial statements for such fiscal year, shall
have been equal to at least One Million Three Hundred Thousand Dollars
($1,300,000.00). On the first fiscal year-end date as of which all of
the foregoing conditions precedent are achieved and satisfied, the
GUARANTY MONETARY AMOUNT under this GUARANTY shall be the sum of
Nine Hundred Thousand Dollars ($900,000.00). On the second fiscal
year-end date as of which all of the foregoing conditions precedent
are achieved and satisfied, this GUARANTY shall be released. As used
in this Section 2, the term fiscal year shall mean the FISCAL YEAR
of the BORROWERS as defined in the LOAN AGREEMENT.
Section 3. Letter of Credit. (a) The GUARANTOR has agreed to deliver
to the LENDER an irrevocable standby letter of credit having an
original undrawn face amount of Nine Hundred Thousand Dollars
($900,000.00) naming the LENDER as beneficiary, issued by Mellon Bank,
First Union National Bank or another bank acceptable to the LENDER, on
terms and provisions acceptable to the LENDER and having an expiration
date not less than one (1) year from the date of issuance (ManTech
L/C). The ManTech L/C will serve as part of the BORROWING BASE for
the LOAN to the BORROWERS.
(b) Effective upon the due delivery to the LENDER of the original
fully executed, issued and effective ManTech L/C satisfying all of the
conditions set forth above, and so long as the ManTech L/C shall be
effective, the provisions of Section 2 of this GUARANTY shall be
deemed amended to the effect that the GUARANTY MONETARY AMOUNT set
forth in Section 2 shall be reduced by an amount equal to the original
undrawn face amount of the ManTech L/C. Upon expiration of the ManTech
L/C, the amendments to the GUARANTY MONETARY AMOUNT set forth in this
clause (b) shall immediately and without further notice be void and of
no further force and effect and the provisions of Section 2 shall be
as stated in Section 2.
Section 4. Nature Of Guaranty. This GUARANTY: (a) is (i) irrevocable,
(ii) absolute and unconditional, (iii) direct, immediate, and primary,
and (iv) one of payment and not just collection; and (b) makes the
GUARANTOR a surety to the LENDER with respect to the OBLIGATIONS and
the equivalent of a co-obligor with the BORROWERS. Without limiting
the foregoing, it is specifically understood that any modification,
limitation or discharge of any of the liabilities or obligations of
the BORROWERS (or any of them), any other guarantor or any other
obligor under any of the LOAN 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 the BORROWERS (or any of them), any other guarantor or any
obligor under any of the LOAN DOCUMENTS shall not modify, limit,
lessen, reduce, impair, discharge, or otherwise affect the liability
of the GUARANTOR hereunder in any manner whatsoever, and this GUARANTY
shall remain and continue in full force and effect.
Section 5. Accuracy Of Representations. The GUARANTOR guaranties that
all representations and warranties made by the GUARANTOR to the LENDER
prior to or after the date of this GUARANTY are and will continue to
be true, correct, accurate, and complete and not knowingly misleading,
and, subject to the limitations set forth in Section 2 hereof, the
GUARANTOR agrees to indemnify and hold the LENDER harmless from any
loss, cost, or expense which the LENDER may suffer, sustain or incur
as a result of any representation or statement of the BORROWERS (or
any of them) or of the GUARANTOR being materially false, incorrect,
inaccurate, incomplete, or knowingly misleading.
Section 6. Representations And Warranties Of Guarantor. To induce the
LENDER to accept this GUARANTY for the purposes for which it is given,
the GUARANTOR represents and warrants to the LENDER as follows:
(a) The GUARANTOR is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation.
The GUARANTOR has the lawful power to own its properties and to engage
in the businesses it conducts, and is duly qualified and in good
standing as a foreign corporation in the jurisdictions wherein the
nature of the business transacted by it or property owned by it makes
such qualification necessary and the failure to so qualify would have
a material adverse effect on the ability of the GUARANTOR to perform
its OBLIGATIONS hereunder.
(b) Any financial statements submitted by the GUARANTOR to the LENDER,
including any schedules and notes pertaining thereto, have been
prepared in accordance with G.A.A.P. (as defined below), and fully and
fairly present the financial condition of the GUARANTOR at the dates
thereof and the results of operations for the periods covered thereby,
and there has been no material adverse change in the financial
condition or businesses of the GUARANTOR from the dates thereof to the
date hereof, other than as disclosed to the LENDER. All information
submitted by or on behalf of the GUARANTOR in connection with any of
the OBLIGATIONS is true, accurate and complete in all material
respects as of the date made and contains no knowingly false,
incomplete or misleading statements.
(c) There are no material actions, suits, investigations, or
proceedings pending, or to the knowledge of the GUARANTOR, threatened
against the GUARANTOR or the assets of the GUARANTOR, except as
specifically disclosed on Schedule 5(c) attached hereto. The GUARANTOR
has no material direct or contingent liability known to the GUARANTOR
and not previously disclosed to the LENDER, nor does the GUARANTOR
know of or have any reason to expect any material adverse change in
the GUARANTORS assets, liabilities, properties, business, or
condition, financial or otherwise.
(d) The GUARANTOR is not in default with respect to any of its
existing indebtedness, and the making and performance of this GUARANTY
will not (immediately, with the passage of time, the giving of
notices, or both), (i) violate the charter or by-laws of the
GUARANTOR, (ii) violate any laws, (iii) result in a default under any
material contract, agreement, or instrument to which the GUARANTOR is
a party or by which the GUARANTOR or its property is bound, or (iv)
result in the creation or imposition of any security interest in, or
lien or encumbrance upon, any of the assets of the GUARANTOR. No
approval, consent, order, authorization or license by, or giving
notice to, or taking any other action with respect to, any
governmental or regulatory authority or agency is required for the
execution and delivery by the GUARANTOR of this GUARANTY or for the
performance by the GUARANTOR of any of the agreements and obligations
hereunder.
(e) The GUARANTOR has the power and legal authority to enter into and
perform this GUARANTY, to incur the OBLIGATIONS, and to perform,
observe and comply with all of the GUARANTORS agreements and
obligations hereunder. The GUARANTOR has taken all corporate action
necessary to authorize the execution, delivery, and performance of
this GUARANTY.
(f) This GUARANTY, when delivered, will be valid, binding, and
enforceable in accordance with its terms.
(g) The incurring or satisfaction of the OBLIGATIONS has not left and
will not leave the GUARANTOR insolvent, with an unreasonably small
capital, or unable to pay existing or future debts as they mature
Section 7. Reporting Requirements. The GUARANTOR shall submit the
following items to the LENDER:
(a) As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters
of each fiscal year of the GUARANTOR, the GUARANTOR shall submit to
the LENDER a statement of income and retained earnings of the
GUARANTOR for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter and a statement of cash
flow for the GUARANTOR for the portion of the fiscal year ended with
the last day of such quarter, and a balance sheet of the GUARANTOR as
of the end of such fiscal quarter, all in reasonable detail and
stating in comparative form the respective figures for the
corresponding date and period in the previous fiscal year and all
prepared in accordance with G.A.A.P., and certified by an officer of
the GUARANTOR familiar with the financial operations of the GUARANTOR
(subject to year-end adjustments).
(b) As soon as available and in any event within one hundred twenty
(120) calendar days after the end of each fiscal year of the
GUARANTOR, the GUARANTOR shall submit to the LENDER annual audited and
unqualified consolidated financial statements, which shall be
accompanied by management letters (if issued) and certified by a
nationally recognized independent certified public accountant.
(c) All financial statements shall be in reasonable detail, including
all supporting schedules and comments necessary to verify or confirm
entries in the financial statements. All financial statements shall be
prepared in accordance with G.A.A.P. As used in this GUARANTY, the
term G.A.A.P. means, with respect to any date of determination,
generally accepted accounting principles as used by the Financial
Accounting Standards Board and/or the American Institute of
Certificate Public Accountants, consistently applied and maintained
throughout the periods indicated. The costs of supplying the financial
statements shall be paid by the GUARANTOR.
Section 8. Lender Need Not Pursue Other Rights. The LENDER shall be
under no obligation to pursue any of the LENDERS rights and remedies
against any BORROWER or any of the collateral of any BORROWER securing
the obligations of the BORROWERS (or any of them) to the LENDER or
against any other guarantor or any collateral of any other guarantor
before pursuing the LENDERS rights and remedies against the
GUARANTOR.
Section 9. Certain Rights Of Lender. The GUARANTOR hereby assents to
any and all terms and agreements between the LENDER and the BORROWERS
(or any of them) or between the LENDER and any other guarantor, and
all amendments and modifications thereof, whether presently existing
or hereafter made and whether oral or in writing. The LENDER may,
without compromising, impairing, diminishing, or in any way releasing
the GUARANTOR from the OBLIGATIONS and without notifying or obtaining
the prior approval of the GUARANTOR, at any time or from time to time:
(a) waive or excuse a default by the BORROWERS (or any of them) or any
other guarantor, or delay in the exercise by the LENDER of any or all
of the LENDERS rights or remedies with respect to such default or
defaults; (b) grant extensions of time for payment or performance by
the BORROWERS or any other guarantor; (c) release, substitute,
exchange, surrender, or add collateral of any BORROWER or of any other
guarantor, or waive, release, or subordinate, in whole or in part, any
lien or security interest held by the LENDER on any real or personal
property securing payment or performance, in whole or in part, of the
obligations of the BORROWERS (or any of them) to the LENDER or of any
other guarantor; (d) release the BORROWERS (or any of them) or any
other guarantor; (e) apply payments made by the BORROWERS or by any
other guarantor to any sums owed by the BORROWERS to the LENDER, in
any order or manner, or to any specific account or accounts, as the
LENDER may elect; and (f) modify, change, renew, extend, or amend in
any respect the LENDERS agreement with the BORROWERS (or any of them)
or any other guarantor, or any document, instrument, or writing
embodying or reflecting the same, including without limitation
modifications which increase the amount of the obligations of the
BORROWERS under the LOAN DOCUMENTS or extend the maturity of the
obligations of the BORROWERS under the LOAN DOCUMENTS.
Section 10. Waivers By Guarantor. The GUARANTOR waives: (a) any and
all notices whatsoever with respect to this GUARANTY or with respect
to any of the obligations of the BORROWERS (or any of them) to the
LENDER, including, but not limited to, notice of (i) the LENDERS
acceptance hereof or the LENDERS intention to act, or the LENDERS
action, in reliance hereon, (ii) the present existence or future
incurring of any of the obligations of the BORROWERS (or any of them)
to the LENDER or any terms or amounts thereof or any change therein,
(iii) any default by the BORROWERS (or any of them) or any surety,
pledgor, grantor of security, guarantor or any person who has
guarantied or secured in whole or in part the obligations of the
BORROWERS (or any of them) to the LENDER, and (iv) the obtaining or
release of any guaranty or surety agreement, pledge, assignment, or
other security for any of the obligations of the BORROWERS (or any of
them) to the LENDER; (b) presentment and demand for payment of any sum
due from the BORROWERS (or any of them) or any other guarantor and
protest of nonpayment; (c) demand for performance by the BORROWERS (or
any of them) or any other guarantor; and (d) any and all defenses
based on suretyship or impairment of collateral.
Section 11. Unenforceability Of Obligations Of Borrowers. This
GUARANTY shall be valid, binding, and enforceable even if the
obligations of the BORROWERS to the LENDER which are guarantied hereby
are now or hereafter become invalid or unenforceable for any reason.
Section 12. No Conditions Precedent. This GUARANTY shall be effective
and enforceable immediately upon its execution. The GUARANTOR
acknowledges that no unsatisfied conditions precedent to the
effectiveness and enforceability of this GUARANTY exist as of the date
of its execution and that the effectiveness and enforceability of this
GUARANTY is not in any way conditioned or contingent upon any event,
occurrence, or happening, or upon any condition existing or coming
into existence either before or after the execution of this GUARANTY.
Section 13. No Duty To Disclose. The LENDER shall have no present or
future duty or obligation to discover or to disclose to the GUARANTOR
any information, financial or otherwise, concerning any BORROWER, any
other guarantor, or any collateral securing either the obligations of
any BORROWER to the LENDER or of any other person who may have
guarantied in whole or in part the obligations of the BORROWERS to the
LENDER. The GUARANTOR waives any right to claim or assert any such
duty or obligation on the part of the LENDER. The GUARANTOR agrees to
obtain all information which the GUARANTOR considers
either appropriate or relevant to this GUARANTY from sources other
than the LENDER and to become and remain at all times current and
continuously apprised of all information concerning the BORROWERS,
other guarantors, and any collateral which is material and relevant to
the obligations of the GUARANTOR under this GUARANTY.
Section 14. Existing Or Future Guaranties. The execution of this
GUARANTY shall not discharge, terminate or in any way impair or
adversely affect the validity or enforceability of any other guaranty
given by the GUARANTOR to the LENDER. The execution and delivery by
the GUARANTOR of any future guaranty for the benefit of the LENDER
shall not discharge, terminate, or in any way impair or adversely
affect the validity or enforceability of this GUARANTY. All guaranties
provided by the GUARANTOR to the LENDER are intended to be cumulative
and shall remain in full force and effect unless and until discharged
and terminated in accordance with any expressly stated termination
provisions set forth therein.
Section 15. Cumulative Liability. The liability of the GUARANTOR under
this GUARANTY shall be cumulative to, and not in lieu of, the
GUARANTORS liability under any other LOAN DOCUMENT or in any capacity
other than as GUARANTOR hereunder
Section 16. Obligations Are Unconditional. The payment and performance
of the OBLIGATIONS shall be the absolute and unconditional duty and
obligation of the GUARANTOR, and shall be independent of any defense
or any rights of setoff, recoupment or counterclaim which the
GUARANTOR might otherwise have against the LENDER, and the GUARANTOR
shall pay and perform these OBLIGATIONS, free of any deductions and
without abatement, diminution or setoff. Until such time as the
OBLIGATIONS have been fully paid and performed, the GUARANTOR: (a)
shall not suspend or discontinue any payments provided for herein; (b)
shall perform and observe all of the covenants and agreements
contained in this GUARANTY; and (c) shall not terminate or attempt to
terminate this GUARANTY for any reason. No delay by the LENDER in
making demand on the GUARANTOR for satisfaction of the OBLIGATIONS
shall prejudice or in any way impair the LENDERS ability to enforce
this GUARANTY.
Section 17. Defenses Against Borrowers. The GUARANTOR waives any right
to assert against the LENDER any defense (whether legal or equitable),
claim, counterclaim, or right of setoff or recoupment which the
GUARANTOR may now or hereafter have against the BORROWERS (or any of
them) or any other guarantor.
Section 18. Events Authorizing Acceleration Of The Obligations. The
occurrence of any of the following (each an EVENT OF DEFAULT) shall
entitle the LENDER, without notice or demand, to accelerate and call
due the OBLIGATIONS, even if the LENDER has not accelerated and called
due the sums owed to the LENDER by the BORROWERS: (a) the commencement
by any of the BORROWERS or the GUARANTOR of a voluntary case or
proceeding under any federal or state bankruptcy, insolvency or
similar law; (b) the commencement of an involuntary case or proceeding
against any of the BORROWERS or the GUARANTOR under any federal or
state bankruptcy, insolvency, or similar law, and either (i) such case
or proceeding is not dismissed within ninety (90) calendar days after
commencement, or (ii) an order for relief is entered in such case; (c)
the appointment of a receiver, assignee, custodian, trustee or similar
official under any federal or state insolvency or creditors rights
law for any property of any BORROWER or the GUARANTOR; (d) the
GUARANTOR shall suffer final judgments for the payment of money
aggregating in excess of Two Hundred Fifty Thousand Dollars ($250,000)
and shall not discharge the same within a period of thirty (30) days
unless, pending further proceedings, execution has not been commenced
or if commenced has been effectively stayed; (e) the occurrence of any
EVENT OF DEFAULT as such term is defined in the LOAN AGREEMENT; (f)
a failure of the GUARANTOR to perform any covenant or agreement
contained in this GUARANTY or in any other agreement between the
GUARANTOR and the LENDER; (g) any representation or warranty made in
this GUARANTY or in any report or financial statement furnished in
connection with this GUARANTY, shall prove to have been false or
misleading when made; (h) the LENDER in the good faith reasonable
exercise of the LENDERS discretion determines that a material adverse
change has occurred in the financial condition of the GUARANTOR; (i)
the liquidation or dissolution of any of the BORROWERS or of the
GUARANTOR; or (j) a failure of the GUARANTOR to satisfy any of the
obligations of the GUARANTOR to the LENDER with respect to any loan or
extension of credit by the LENDER to the GUARANTOR or under any other
guaranty given by the GUARANTOR to the LENDER.
Section 19. Expenses Of Collection And Attorneys Fees. Should this
GUARANTY be referred to an attorney for collection, the GUARANTOR
shall pay all of the holders reasonable costs, fees and expenses
resulting from such referral, including reasonable attorneys fees,
which the holder may incur, even though suit has not been filed.
Section 20. Interest Rate After Judgment. If judgment is e ntered
against the GUARANTOR on this GUARANTY, the amount of the judgment
entered (which, unless applicable law specifically provides to the
contrary, and subject to the limitations set forth in Section 2
hereof, includes all principal, prejudgment interest, late charges,
prepayment charges if any are provided for, collection expenses,
attorneys fees, and court costs) shall bear interest at the highest
rate after default authorized by the LOAN DOCUMENTS as of the date of
entry of the judgment to the extent permitted by applicable law. In
the event any statute or rule of court specifies the rate of interest
which a judgment on this GUARANTY may bear or the amount on which such
interest rate may apply and such rate or amount is less than that
called for in the preceding sentence absent a restriction under
applicable law, the GUARANTOR agrees to pay to the order of the LENDER
an amount as will equal the interest computed at the highest rate
after default provided for in the LOAN DOCUMENTS which would be due on
the judgment amount (which, for this purpose, but subject to the
limitations set forth in Section 2 hereof, shall be considered to
include all principal, prejudgment interest, late charges, prepayment
charges if any are provided for, collection expense fees, attorneys
fees, and court costs) less the interest due on the amount of the
judgment which bears judgment interest.
Section 21. Enforcement During Bankruptcy. Enforcement of this
GUARANTY shall not be stayed or in any way delayed as a result of the
filing of a petition under the United States Bankruptcy Code, as
amended, by or against any or all of the BORROWERS. Should the LENDER
be required to obtain an order of the United States Bankruptcy Court
to begin enforcement of this GUARANTY after the filing of a petition
under the United States Bankruptcy Code, as amended, by or against any
or all of the BORROWERS, the GUARANTOR hereby consents to this relief
and agrees to file or cause to be filed all appropriate pleadings to
evidence and effectuate such consent and to enable the LENDER to
obtain the relief requested.
Section 22. Remedies Cumulative. All of the LENDERS rights and
remedies shall be cumulative and any failure of the LENDER to exercise
any right hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any time, and from time to
time, thereafter.
Section 23. Continuing Guaranty. This GUARANTY is a continuing
guaranty of all existing and future obligations of the BORROWERS (or
any of them) to the LENDER arising out of, related to, as a result of,
or in connection with the LOAN, the LETTERS OF CREDIT, the CREDIT
FACILITY, the LOAN AGREEMENT, or any of the transactions contemplated
by the LOAN DOCUMENTS. Except as provided in Section 2 hereof, this
GUARANTY may not be terminated by the GUARANTOR until after the
termination of the LOAN DOCUMENTS, in accordance with the provisions
thereof, and the payment (which payment shall not be subject to
challenge or contest) in full of all of the OBLIGATIONS and all of the
BORROWERS obligations and liabilities to the LENDER under the LOAN
DOCUMENTS.
Section 24. Reinstatement. If at any time any payment, or portion
thereof, made by, or for the account of, any BORROWER or the GUARANTOR
on account of any of the obligations and liabilities under any of the
LOAN DOCUMENTS is set aside by any court or trustee having
jurisdiction as a voidable preference, or fraudulent conveyance or
must otherwise be restored or returned by the LENDER to a BORROWER or
any other person or entity under any insolvency, bankruptcy or other
federal and/or state laws or as a result of any dissolution,
liquidation or reorganization of any BORROWER or any other person or
entity, or for any other reason, the GUARANTOR hereby agrees that this
GUARANTY shall continue and remain in full force and effect or be
reinstated, as the case may be, all as though such payment(s) had not
been made.
Section 25. Rights Of Subrogation, Etc. In the event the GUARANTOR
pays any sum to or for the benefit of the LENDER pursuant to this
GUARANTY, the GUARANTOR may not enforce any right of contribution,
indemnification, exoneration, reimbursement, subrogation or other
right or remedy against any BORROWER, any other guarantor, or any
collateral, whether real, personal, or mixed, securing the obligations
of any BORROWER to the LENDER or the obligations of any other
guarantor to the LENDER until such time as the LENDER has been paid in
full and has no further claim against any of the BORROWERS, any other
guarantor, or any collateral. The GUARANTOR waives and releases any
claim which the GUARANTOR hereafter may have against the LENDER if
some action of the LENDER, whether intentional or negligent, impairs,
destroys, or in any way adversely affects any right of contribution,
indemnification, exoneration, reimbursement, subrogation, or the like
which the GUARANTOR may have upon the payment of any sum to or for the
benefit of the LENDER pursuant to this GUARANTY.
Section 26. Subordination Of Certain Indebtedness. If the GUARANTOR
advances any sums to any BORROWER or its successors or assigns, or if
any BORROWER or its successors or assigns shall hereafter become
indebted to the GUARANTOR, such sums and indebtedness shall be
subordinate in all respects to the amounts then or thereafter due and
owing to the LENDER by such BORROWER.
Section 27. Renewals, Etc. This GUARANTY shall apply to all sums now
or hereafter owed by any of the BORROWERS to the LENDER and to all
extensions, modifications, amendments, renewals, substitutions, and
refinancings thereof.
Section 28. Choice Of Law. The laws of the State of New York
(excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this GUARANTY and the
rights and obligations of the parties hereto, including the validity,
construction, interpretation, and enforceability of this GUARANTY and
its various provisions and the consequences and legal effect of all
transactions and events which resulted in the issuance of this
GUARANTY or which occurred or were to occur as a direct or indirect
result of this GUARANTY having been executed.
Section 29. Consent To Jurisdiction; Agreement As To Venue. The
GUARANTOR irrevocably consents to the non-exclusive jurisdiction of
the courts of the State of Maryland and the State of New York and of
the United States District Court for the District of Maryland and for
the Southern District of New York, if a basis for federal jurisdiction
exists. The GUARANTOR agrees that venue shall be proper in any circuit
court of the State of Maryland or the State of New York selected by
the LENDER or in the United States District Court for the District of
Maryland or for the Southern District of New York if a basis for
federal jurisdiction exists and waives any right to object to the
maintenance of a suit in any of the state or federal courts of the
State of Maryland or the State of New York on the basis of improper
venue or of inconvenience of forum.
Section 30. Proofs Of Sums Due On Guaranty. In any action or
proceeding brought by the LENDER to collect the sums owed on this
GUARANTY, a certificate signed by an officer of the LENDER setting
forth the unpaid balances of principal, and any accrued interest,
default interest, attorneys fees, and late charges owed with respect
hereto shall be presumed correct and shall be admissible in evidence
for the purpose of establishing the truth of what it asserts. If the
GUARANTOR wishes to contest the accuracy of the figure set forth in
any such certificate, the GUARANTOR shall have the burden of proving
that the certificate is inaccurate or incorrect.
Section 31. Actions Against Lender. Any action brought by the
GUARANTOR against the LENDER which is based, directly or indirectly,
on this GUARANTY or any matter in or related to this GUARANTY,
including but not limited to the obligations of the BORROWERS to the
LENDER, the administration, collection, or enforcement thereof, shall
be brought only in the courts of the State of New York or, if LENDER
has instituted action against the GUARANTOR in such court, the State
of Maryland. The GUARANTOR agrees that any forum other than the State
of Maryland or the State of New York is an inconvenient forum and that
a suit brought by the GUARANTOR against the LENDER in a court of any
state other than the State of New York or the State of Maryland should
be forthwith dismissed or transferred to a court located in the State
of New York or, if the LENDER has instituted action against the
GUARANTOR in such state, the State of Maryland, by that court.
Section 32. Invalidity Of Any Part. If any provision or part of any
provision of this GUARANTY shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions or the
remaining part of any effective provisions of this GUARANTY, and this
GUARANTY shall be construed as if such invalid, illegal, or
unenforceable provision or part thereof had never been contained
herein, but only to the extent of its invalidity, illegality, or
unenforceability.
Section 33. Amendment Or Waiver. This GUARANTY may be amended only by
a writing duly executed by the GUARANTOR and the LENDER. No waiver by
the LENDER of any of the provisions of this GUARANTY or any of the
rights or remedies of the LENDER with respect hereto shall be
considered effective or enforceable unless in writing.
Section 34. Notices. Any notice required or permitted by or in
connection with this GUARANTY shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the
other methods of giving notice provided for in this Section) or by
hand delivery, by Federal Express, or other similar overnight delivery
service, or by certified mail, unrestricted delivery, return receipt
requested, postage prepaid, addressed to the LENDER or the GUARANTOR
at the appropriate address set forth below or to such other address as
may be hereafter specified by written notice by the LENDER or the
GUARANTOR. Notice shall be considered given as of the date of the
facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3)
calendar days after the date of mailing, independent of the date of
actual delivery or whether delivery is ever in fact made, as the case
may be, provided the giver of notice can establish the fact that
notice was given as provided herein. If notice is tendered pursuant to
the provisions of this Section and is refused by the intended
recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
NATIONAL BANK OF CANADA
125 West 55th Street
New York, New York 10019
And
c/o NATIONAL BANK OF CANADA
401 E. Pratt Street, Suite 631
Baltimore, Maryland 21202
Attn: Robert A. Incorvati, Vice President
Facsimile: (410) 837-8359
If to the GUARANTOR:
MANTECH INTERNATIONAL CORPORATION
12015 Lee Jackson Highway, 8th Floor
Fairfax, Virginia 22033
Attn.: Tracy A. Wilson, Assistant Secretary
Fax No.: (703) 218-8296
With A Courtesy Copy To:
GOLDEN & NELSON, PLLC
8285 Highglade Court
Millersville, Maryland 21108
Attn.: Hedy L. Nelson, Esquire
Facsimile No.: (410) 729-2246
The failure of the LENDER to send the above courtesy copy shall not
impair the effectiveness of notice given to the GUARANTOR in the
manner provided herein.
Section 35. Binding Nature. This GUARANTY shall inure to the benefit
of and be enforceable by the LENDER and the LENDERS successors and
assigns and any other person to whom the LENDER may grant an interest
in the obligations of the BORROWERS to the LENDER, and shall be
binding upon and enforceable against the GUARANTOR and the GUARANTORS
successors, and assigns.
Section 36. Assignability. This GUARANTY or an interest therein may be
assigned by the LENDER, or by any other holder, at any time or from
time to time, without any prior notice to or consent from the
GUARANTOR.
Section 37. Final Agreement. This GUARANTY contains the final and
entire agreement between the LENDER and the GUARANTOR with respect to
the guaranty by the GUARANTOR of the BORROWERS obligations to the
LENDER. There are no separate oral or written understandings between
the LENDER and the GUARANTOR with respect thereto.
Section 38. Tense, Gender, Defined Terms, Captions. As used herein,
the plural includes the singular, and the singular includes the
plural. The use of any gender applies to any other gender. All defined
terms are completely capitalized throughout this GUARANTY. All
captions are for the purpose of convenience only.
Section 39. Seal And Effective Date. This GUARANTY is an instrument
executed under seal and is to be considered effective and enforceable
as of the date set forth on the first page hereof, independent of the
date of actual execution.
Section 40. Waiver Of Trial By Jury. The GUARANTOR and the LENDER, by
their execution and acceptance, respectively, of this GUARANTY, agree
that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this GUARANTY or which in
any way relates, directly or indirectly, to this GUARANTY or any
event, transaction, or occurrence arising out of or in any way
connected with this GUARANTY, or the dealings of the parties with
respect thereto, shall be tried only by a court and not by a jury.
EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
SUCH SUIT, ACTION, OR PROCEEDING.
[Signatures Begin On Next Page]
IN WITNESS WHEREOF, the GUARANTOR has executed this GUARANTY with the
specific intention of creating a document under seal.
ATTEST/WITNESS: GUARANTOR:
MANTECH INTERNATIONAL CORPORATION
_________________________ By: (SEAL)
Name:
Title:
ACKNOWLEDGMENT
COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this ______ day of March, 2000, before me,
the undersigned Notary Public of the Commonwealth of Virginia,
personally appeared __________________________, and acknowledged
himself/herself to be the ___________________________ of MANTECH
INTERNATIONAL CORPORATION, a New Jersey corporation , and that he/she,
as such, being authorized so to do, executed the foregoing instrument
for the purposes therein contained by signing the name of MANTECH
INTERNATIONAL CORPORATION, by himself/herself as
___________________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
______________________
Exhibit 10.5
LIMITED GUARANTY AGREEMENT
THIS LIMITED GUARANTY AGREEMENT (GUARANTY) is given as of March
_____, 2000, by GP STRATEGIES CORPORATION, a Delaware corporation
(GUARANTOR), for the benefit of NATIONAL BANK OF CANADA, a Canadian
chartered bank (LENDER), with respect to the obligations of GSE
SYSTEMS, INC., a Delaware corporation, GSE PROCESS SOLUTIONS, INC., a
Delaware corporation, and GSE POWER SYSTEMS, INC., a Delaware
corporation (individually, a BORROWER and collectively, the
BORROWERS), to the LENDER.
RECITALS
The BORROWERS have requested certain credit accommodations from the
LENDER as set forth in the Loan and Security Agreement of even date
herewith by and between the BORROWERS and the LENDER (as the same may
be amended, modified, extended, renewed, restated, supplemented or
replaced from time to time LOAN AGREEMENT). The LENDER has agreed to
provide the requested credit accommodations to the BORROWERS, but only
if, inter alia, the GUARANTOR provides to the LENDER the guaranties of
payment and performance set forth in this GUARANTY. The GUARANTOR is
willing to provide this GUARANTY to the LENDER in order to induce the
LENDER to provide the requested credit accommodations to the
BORROWERS.
All capitalized terms used in this GUARANTY without definition shall
have the respective meanings given such terms in the LOAN AGREEMENT.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the GUARANTOR hereby agrees to provide to the
LENDER the following guaranties and indemnifications.
Section 1. Guaranty. The GUARANTOR guarantees: (a) the payment of any
and all sums now or hereafter due and owing to the LENDER by the
BORROWERS (or any of them) arising out of, related to, as a result of,
or in connection with the LOAN, the LETTERS OF CREDIT, the CREDIT
FACILITY, or any other existing or future indebtedness, liability, or
obligation of every kind, nature, type, and variety owed by the
BORROWERS (or any of them) to the LENDER from time to time, arising
out of, related to, as a result of, or in connection with the LOAN
AGREEMENT, or any of the transactions contemplated by the LOAN
DOCUMENTS (as defined below), including all renewals, refinancings,
extensions, substitutions, amendments, and modifications thereof, no
matter when or how created, arising, evidenced, or acquired, and
whether or not presently contemplated or anticipated, whether joint or
several, including, but not limited to, all amounts of principal,
interest, charges, reimbursements, advancements, escrows, and fees;
(b) that all sums now or hereafter due and owing by the BORROWERS (or
any of them) to the LENDER arising out of, related to, as a result of,
or in connection with the LOAN, the LETTERS OF CREDIT, the CREDIT
FACILITY, the LOAN AGREEMENT, or any of the transactions contemplated
by the LOAN DOCUMENTS, shall be paid when and as due, whether by
reason of installment, maturity, acceleration or otherwise, time being
of the essence; and (c) the timely, complete, continuous, and strict
performance and observance by the BORROWERS of each of the terms,
covenants, agreements and conditions contained in any and all existing
or future documents, instruments, agreements, and writings of every
kind, nature, type, and variety which evidence, reflect, embody, give
rise to or secure any and all existing and future indebtedness,
liabilities, and obligations of any kind of the BORROWERS (or any of
them) to the LENDER arising out of, related to, as a result of, or in
connection with the LOAN, the LETTERS OF CREDIT, the CREDIT FACILITY,
the LOAN AGREEMENT, or any of the transactions contemplated thereby
(together with the LOAN AGREEMENT, collectively, LOAN DOCUMENTS). As
used in this GUARANTY, the term OBLIGATIONS shall refer to the
obligations of payment, performance, and indemnification which the
GUARANTOR has undertaken and assumed pursuant to this GUARANTY, both
as described in this Section and in other Sections of this GUARANTY.
Section 2. Maximum Amount of Guaranty. The monetary liability of the
GUARANTOR with respect to the OBLIGATIONS hereunder shall be limited
to the sum of One Million Eight Hundred Thousand Dollars
($1,800,000.00) (GUARANTY MONETARY AMOUNT); provided that the
proceeds of the liquidation of any of the collateral securing the
obligations of the BORROWERS (or any of them) to the LENDER and any
payments made by any of the BORROWERS or any other guarantor, and any
other payments obtained from any other source, shall not be applied
to, or be considered a discharge of, the OBLIGATIONS until all
amounts, other than those which have been guaranteed, have been paid
in full. Notwithstanding the immediately preceding sentence, the
GUARANTY MONETARY AMOUNT and the limitation set forth in this Section
on the monetary liability of the GUARANTOR with respect to the
OBLIGATIONS shall not include nor be deemed a limit upon the LENDERS
right pursuant to any other Section of this GUARANTY (including,
without limitation, Section 18 hereof) to recover from the GUARANTOR
costs and expenses, including reasonable attorneys fees, in enforcing
or realizing upon this GUARANTY. The GUARANTY MONETARY AMOUNT may be
reduced at each fiscal year-end date (beginning with the BORROWERS
fiscal year ending December 31, 1999) upon the determination by the
LENDER, in each instance, that the BORROWERS have achieved and
satisfied the following conditions precedent: (a) no EVENT OF DEFAULT
(as defined below and as defined in the LOAN AGREEMENT) shall have
occurred hereunder or under the LOAN AGREEMENT during the fiscal year
of the BORROWERS ending on such fiscal year-end date; (b) no DEFAULT
(as defined in the LOAN AGREEMENT) shall have occurred and be
continuing on such fiscal year end date; (c) no default (defined for
purposes of this clause (c) to mean any event, occurrence or
omission which, with the giving of notice, the passage of time, or
both, would constitute an EVENT OF DEFAULT) under this GUARANTY shall
have occurred and be continuing on such fiscal year-end date; (d)
EBITDA (as defined in the LOAN AGREEMENT) of the BORROWERS and their
consolidated subsidiaries for the fiscal year of the BORROWERS ending
on such fiscal year-end date, and reported to the LENDER by the
BORROWERS in their audited annual financial statements for such fiscal
year, shall have been equal to at least Five Million Five Hundred
Thousand Dollars ($5,500,000.00); and (e) NET PROFIT AFTER TAX (as
defined in the LOAN AGREEMENT) of the BORROWERS and their consolidated
subsidiaries for the fiscal year of the BORROWERS ending on such
fiscal year-end date, and reported to the LENDER by the BORROWERS in
their audited annual financial statements for such fiscal year, shall
have been equal to at least One Million Three Hundred Thousand Dollars
($1,300,000.00). On the first fiscal year-end date as of which all of
the foregoing conditions precedent are achieved and satisfied, the
GUARANTY MONETARY AMOUNT under this GUARANTY shall be the sum of
Nine Hundred Thousand Dollars ($900,000.00). On the second fiscal
year-end date as of which all of the foregoing conditions precedent
are achieved and satisfied, this GUARANTY shall be released. As used
in this Section 2, the term fiscal year shall mean the FISCAL YEAR
of the BORROWERS as defined in the LOAN AGREEMENT.
Section 3. Nature Of Guaranty. This GUARANTY: (a) is (i) irrevocable,
(ii) absolute and unconditional, (iii) direct, immediate, and primary,
and (iv) one of payment and not just collection; and (b) makes the
GUARANTOR a surety to the LENDER with respect to the OBLIGATIONS and
the equivalent of a co-obligor with the BORROWERS. Without limiting
the foregoing, it is specifically understood that any modification,
limitation or discharge of any of the liabilities or obligations of
the BORROWERS (or any of them), any other guarantor or any other
obligor under any of the LOAN 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 the BORROWERS (or any of them), any other guarantor or any
obligor under any of the LOAN DOCUMENTS shall not modify, limit,
lessen, reduce, impair, discharge, or otherwise affect the liability
of the GUARANTOR hereunder in any manner whatsoever, and this GUARANTY
shall remain and continue in full force and effect.
Section 4. Accuracy Of Representations. The GUARANTOR guaranties that
all representations and warranties made by the GUARANTOR to the LENDER
prior to or after the date of this GUARANTY are and will continue to
be true, correct, accurate, and complete and not knowingly misleading,
and, subject to the limitations set forth in Section 2 hereof, the
GUARANTOR agrees to indemnify and hold the LENDER harmless from any
loss, cost, or expense which the LENDER may suffer, sustain or incur
as a result of any representation or statement of the BORROWERS (or
any of them) or of the GUARANTOR being materially false, incorrect,
inaccurate, incomplete, or knowingly misleading.
Section 5. Representations And Warranties Of Guarantor. To induce the
LENDER to accept this GUARANTY for the purposes for which it is given,
the GUARANTOR represents and warrants to the LENDER as follows:
(a) The GUARANTOR is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation.
The GUARANTOR has the lawful power to own its properties and to engage
in the businesses it conducts, and is duly qualified and in good
standing as a foreign corporation in the jurisdictions wherein the
nature of the business transacted by it or property owned by it makes
such qualification necessary and the failure to so qualify would have
a material adverse effect on the ability of the GUARANTOR to perform
its OBLIGATIONS hereunder.
(b) Any financial statements submitted by the GUARANTOR to the LENDER,
including any schedules and notes pertaining thereto, have been
prepared in accordance with G.A.A.P. (as defined below), and fully and
fairly present the financial condition of the GUARANTOR at the dates
thereof and the results of operations for the periods covered thereby,
and there has been no material adverse change in the financial
condition or businesses of the GUARANTOR from the dates thereof to the
date hereof, other than as disclosed to the LENDER or in any other
public document or press releases. All information submitted by or on
behalf of the GUARANTOR in connection with any of the OBLIGATIONS is
true, accurate and complete in all material respects as of the date
made and contains no knowingly false, incomplete or misleading
statements.
(c) There are no material actions, suits, investigations, or
proceedings pending, or to the knowledge of the GUARANTOR, threatened
against the GUARANTOR or the assets of the GUARANTOR, except as
specifically disclosed on Schedule 5(c) attached hereto. The GUARANTOR
has no material direct or contingent liability known to the GUARANTOR
and not previously disclosed to the LENDER except (i) as disclosed in
the financial statements and (ii) for liabilities and obligations (A)
incurred in the ordinary course of business and consistent with past
practices and (B) the restructuring charges and write-offs in the
third and fourth quarters of 1999 disclosed in the press releases
attached hereto or in any other public documents, nor does the
GUARANTOR know of or have any reason to expect any other material
adverse change in the GUARANTORS assets, liabilities, properties,
business, or condition, financial or otherwise.
(d) The GUARANTOR is not in default with respect to any of its
existing indebtedness, except as specifically disclosed on Schedule
5(d) attached hereto, and the making and performance of this GUARANTY
will not (immediately, with the passage of time, the giving of
notices, or both), (i) violate the charter or by-laws of the
GUARANTOR, (ii) violate any laws, (iii) result in a default under
material any contract, agreement, or instrument to which the GUARANTOR
is a party or by which the GUARANTOR or its property is bound, or (iv)
result in the creation or imposition of any security interest in, or
lien or encumbrance upon, any of the assets of the GUARANTOR. No
approval, consent, order, authorization or license by, or giving
notice to, or taking any other action with respect to, any
governmental or regulatory authority or agency is required for the
execution and delivery by the GUARANTOR of this GUARANTY or for the
performance by the GUARANTOR of any of the agreements and obligations
hereunder.
(e) The GUARANTOR has the power and legal authority to enter into and
perform this GUARANTY, to incur the OBLIGATIONS, and to perform,
observe and comply with all of the GUARANTORS agreements and
obligations hereunder. The GUARANTOR has taken all corporate action
necessary to authorize the execution, delivery, and performance of
this GUARANTY.
(f) This GUARANTY, when delivered, will be valid, binding, and
enforceable in accordance with its terms.
(g) The incurring or satisfaction of the OBLIGATIONS has not left and
will not leave the GUARANTOR insolvent, with an unreasonably small
capital, or unable to pay existing or future debts as they mature.
Section 6. Reporting Requirements. The GUARANTOR shall submit the
following items to the LENDER:
(a) As soon as available and in any event within fifty (50) calendar
days after the end of each of the first three fiscal quarters of each
fiscal year of the GUARANTOR, the GUARANTOR shall submit to the LENDER
its quarterly report on Form 10-Q, certified by an officer of the
GUARANTOR familiar with the financial operations of the GUARANTOR
(subject to year-end adjustments).
(b) As soon as available and in any event within one hundred thirty
(130) calendar days after the end of each fiscal year of the
GUARANTOR, the GUARANTOR shall submit to the LENDER its annual report
on Form 10-K.
(c) All financial statements shall be in reasonable detail, including
all supporting schedules and comments necessary to verify or confirm
entries in the financial statements. All financial statements shall be
prepared in accordance with G.A.A.P. As used in this GUARANTY, the
term G.A.A.P means, with respect to any date of determination,
generally accepted accounting principles as used by the Financial
Accounting Standards Board and/or the American Institute of
Certificate Public Accountants, consistently applied and maintained
throughout the periods indicated. The costs of supplying the financial
statements shall be paid by the GUARANTOR.
Section 7. Lender Need Not Pursue Other Rights. The LENDER shall be
under no obligation to pursue any of the LENDERS rights and remedies
against any BORROWER or any of the collateral of any BORROWER securing
the obligations of the BORROWERS (or any of them) to the LENDER or
against any other guarantor or any collateral of any other guarantor
before pursuing the LENDERS rights and remedies against the
GUARANTOR.
Section 8. Certain Rights Of Lender. The GUARANTOR hereby assents to
any and all terms and agreements between the LENDER and the BORROWERS
(or any of them) or between the LENDER and any other guarantor, and
all amendments and modifications thereof, whether presently existing
or hereafter made and whether oral or in writing. The LENDER may,
without compromising, impairing, diminishing, or in any way releasing
the GUARANTOR from the OBLIGATIONS and without notifying or obtaining
the prior approval of the GUARANTOR, at any time or from time to time:
(a) waive or excuse a default by the BORROWERS (or any of them) or any
other guarantor, or delay in the exercise by the LENDER of any or all
of the LENDERS rights or remedies with respect to such default or
defaults; (b) grant extensions of time for payment or performance by
the BORROWERS or any other guarantor; (c) release, substitute,
exchange, surrender, or add collateral of any BORROWER or of any other
guarantor, or waive, release, or subordinate, in whole or in part, any
lien or security interest held by the LENDER on any real or personal
property securing payment or performance, in whole or in part, of the
obligations of the BORROWERS (or any of them) to the LENDER or of any
other guarantor; (d) release the BORROWERS (or any of them) or any
other guarantor; (e) apply payments made by the BORROWERS or by any
other guarantor to any sums owed by the BORROWERS to the LENDER, in
any order or manner, or to any specific account or accounts, as the
LENDER may elect; and (f) modify, change, renew, extend, or amend in
any respect the LENDERS agreement with the BORROWERS (or any of them)
or any other guarantor, or any document, instrument, or writing
embodying or reflecting the same, including without limitation
modifications which increase the amount of the obligations of the
BORROWERS under the LOAN DOCUMENTS or extend the maturity of the
obligations of the BORROWERS under the LOAN DOCUMENTS.
Section 9. Waivers By Guarantor. The GUARANTOR waives: (a) any and all
notices whatsoever with respect to this GUARANTY or with respect to
any of the obligations of the BORROWERS (or any of them) to the
LENDER, including, but not limited to, notice of (i) the LENDERS
acceptance hereof or the LENDERS intention to act, or the LENDERS
action, in reliance hereon, (ii) the present existence or future
incurring of any of the obligations of the BORROWERS (or any of them)
to the LENDER or any terms or amounts thereof or any change therein,
(iii) any default by the BORROWERS (or any of them) or any surety,
pledgor, grantor of security, guarantor or any person who has
guarantied or secured in whole or in part the obligations of the
BORROWERS (or any of them) to the LENDER, and (iv) the obtaining or
release of any guaranty or surety agreement, pledge, assignment, or
other security for any of the obligations of the BORROWERS (or any of
them) to the LENDER; (b) presentment and demand for payment of any sum
due from the BORROWERS (or any of them) or any other guarantor and
protest of nonpayment; (c) demand for performance by the BORROWERS (or
any of them) or any other guarantor; and (d) any and all defenses
based on suretyship or impairment of collateral.
Section 10. Unenforceability Of Obligations Of Borrowers. This
GUARANTY shall be valid, binding, and enforceable even if the
obligations of the BORROWERS to the LENDER which are guarantied hereby
are now or hereafter become invalid or unenforceable for any reason.
Section 11. No Conditions Precedent. This GUARANTY shall be effective
and enforceable immediately upon its execution. The GUARANTOR
acknowledges that no unsatisfied conditions precedent to the
effectiveness and enforceability of this GUARANTY exist as of the date
of its execution and that the effectiveness and enforceability of this
GUARANTY is not in any way conditioned or contingent upon any event,
occurrence, or happening, or upon any condition existing or coming
into existence either before or after the execution of this GUARANTY.
Section 12. No Duty To Disclose. The LENDER shall have no present or
future duty or obligation to discover or to disclose to the GUARANTOR
any information, financial or otherwise, concerning any BORROWER, any
other guarantor, or any collateral securing either the obligations of
any BORROWER to the LENDER or of any other person who may have
guarantied in whole or in part the obligations of the BORROWERS to the
LENDER. The GUARANTOR waives any right to claim or assert any such
duty or obligation on the part of the LENDER. The GUARANTOR agrees to
obtain all information which the GUARANTOR considers
either appropriate or relevant to this GUARANTY from sources other
than the LENDER and to become and remain at all times current and
continuously apprised of all information concerning the BORROWERS,
other guarantors, and any collateral which is material and relevant to
the obligations of the GUARANTOR under this GUARANTY.
Section 13. Existing Or Future Guaranties. The execution of this
GUARANTY shall not discharge, terminate or in any way impair or
adversely affect the validity or enforceability of any other guaranty
given by the GUARANTOR to the LENDER. The execution and delivery by
the GUARANTOR of any future guaranty for the benefit of the LENDER
shall not discharge, terminate, or in any way impair or adversely
affect the validity or enforceability of this GUARANTY. All guaranties
provided by the GUARANTOR to the LENDER are intended to be cumulative
and shall remain in full force and effect unless and until discharged
and terminated in accordance with any expressly stated termination
provisions set forth therein.
Section 14. Cumulative Liability. The liability of the GUARANTOR under
this GUARANTY shall be cumulative to, and not in lieu of, the
GUARANTORS liability under any other LOAN DOCUMENT or in any capacity
other than as GUARANTOR hereunder.
Section 15. Obligations Are Unconditional. The payment and performance
of the OBLIGATIONS shall be the absolute and unconditional duty and
obligation of the GUARANTOR, and shall be independent of any defense
or any rights of setoff, recoupment or counterclaim which the
GUARANTOR might otherwise have against the LENDER, and the GUARANTOR
shall pay and perform these OBLIGATIONS, free of any deductions and
without abatement, diminution or setoff. Until such time as the
OBLIGATIONS have been fully paid and performed, the GUARANTOR: (a)
shall not suspend or discontinue any payments provided for herein; (b)
shall perform and observe all of the covenants and agreements
contained in this GUARANTY; and (c) shall not terminate or attempt to
terminate this GUARANTY for any reason. No delay by the LENDER in
making demand on the GUARANTOR for satisfaction of the OBLIGATIONS
shall prejudice or in any way impair the LENDERS ability to enforce
this GUARANTY.
Section 16. Defenses Against Borrowers. The GUARANTOR waives any right
to assert against the LENDER any defense (whether legal or equitable),
claim, counterclaim, or right of setoff or recoupment which the
GUARANTOR may now or hereafter have against the BORROWERS (or any of
them) or any other guarantor.
Section 17. Events Authorizing Acceleration Of The Obligations. The
occurrence of any of the following (each an EVENT OF DEFAULT) shall
entitle the LENDER, without notice or demand, to accelerate and call
due the OBLIGATIONS, even if the LENDER has not accelerated and called
due the sums owed to the LENDER by the BORROWERS: (a) the commencement
by any of the BORROWERS or the GUARANTOR of a voluntary case or
proceeding under any federal or state bankruptcy, insolvency or
similar law; (b) the commencement of an involuntary case or proceeding
against any of the BORROWERS or the GUARANTOR under any federal or
state bankruptcy, insolvency, or similar law, and either (i) such case
or proceeding is not dismissed within ninety (90) calendar days after
commencement, or (ii) an order for relief is entered in such case; (c)
the appointment of a receiver, assignee, custodian, trustee or similar
official under any federal or state insolvency or creditors rights
law for any property of any BORROWER or the GUARANTOR; (d) the
GUARANTOR shall suffer final judgments for the payment of money
aggregating in excess of Two Hundred Fifty Thousand Dollars ($250,000)
and shall not discharge the same within a period of thirty (30) days
unless, pending further proceedings, execution has not been commenced
or if commenced has been effectively stayed; (e) the occurrence of any
EVENT OF DEFAULT as such term is defined in the LOAN AGREEMENT; (f)
a failure of the GUARANTOR to perform any covenant or agreement
contained in this GUARANTY or in any other agreement between the
GUARANTOR and the LENDER; (g) any representation or warranty made in
this GUARANTY or in any report or financial statement furnished in
connection with this GUARANTY, shall prove to have been false or
misleading when made; (h) the LENDER in the good faith reasonable
exercise of the LENDERS discretion determines that a material adverse
change has occurred in the financial condition of the GUARANTOR; (i)
the liquidation or dissolution of any of the BORROWERS or of the
GUARANTOR; or (j) a failure of the GUARANTOR to satisfy any of the
obligations of the GUARANTOR to the LENDER with respect to any loan or
extension of credit by the LENDER to the GUARANTOR or under any other
guaranty given by the GUARANTOR to the LENDER.
Section 18. Expenses Of Collection And Attorneys Fees. Should this
GUARANTY be referred to an attorney for collection, the GUARANTOR
shall pay all of the holders reasonable costs, fees and expenses
resulting from such referral, including reasonable attorneys fees,
which the holder may incur, even though suit has not been filed.
Section 19. Interest Rate After Judgment. If judgment is entered
against the GUARANTOR on this GUARANTY, the amount of the judgment
entered (which, unless applicable law specifically provides to the
contrary, and subject to the limitations set forth in Section 2
hereof, includes all principal, prejudgment interest, late charges,
prepayment charges if any are provided for, collection expenses,
attorneys fees, and court costs) shall bear interest at the highest
rate after default authorized by the LOAN DOCUMENTS as of the date of
entry of the judgment to the extent permitted by applicable law. In
the event any statute or rule of court specifies the rate of interest
which a judgment on this GUARANTY may bear or the amount on which such
interest rate may apply and such rate or amount is less than that
called for in the preceding sentence absent a restriction under
applicable law, the GUARANTOR agrees to pay to the order of the LENDER
an amount as will equal the interest computed at the highest rate
after default provided for in the LOAN DOCUMENTS which would be due on
the judgment amount (which, for this purpose, but subject to the
limitations set forth in Section 2 hereof, shall be considered to
include all principal, prejudgment interest, late charges, prepayment
charges if any are provided for, collection expense fees, attorneys
fees, and court costs) less the interest due on the amount of the
judgment which bears judgment interest.
Section 20. Enforcement During Bankruptcy. Enforcement of this
GUARANTY shall not be stayed or in any way delayed as a result of the
filing of a petition under the United States Bankruptcy Code, as
amended, by or against any or all of the BORROWERS. Should the LENDER
be required to obtain an order of the United States Bankruptcy Court
to begin enforcement of this GUARANTY after the filing of a petition
under the United States Bankruptcy Code, as amended, by or against any
or all of the BORROWERS, the GUARANTOR hereby consents to this relief
and agrees to file or cause to be filed all appropriate pleadings to
evidence and effectuate such consent and to enable the LENDER to
obtain the relief requested.
Section 21. Remedies Cumulative. All of the LENDERS rights and
remedies shall be cumulative and any failure of the LENDER to exercise
any right hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any time, and from time to
time, thereafter.
Section 22. Continuing Guaranty. This GUARANTY is a continuing
guaranty of all existing and future obligations of the BORROWERS (or
any of them) to the LENDER arising out of, related to, as a result of,
or in connection with the LOAN, the LETTERS OF CREDIT, the CREDIT
FACILITY, the LOAN AGREEMENT, or any of the transactions contemplated
by the LOAN DOCUMENTS. Except as provided in Section 2 hereof, this
GUARANTY may not be terminated by the GUARANTOR until after the
termination of the LOAN DOCUMENTS, in accordance with the provisions
thereof, and the payment (which payment shall not be subject to
challenge or contest) in full of all of the OBLIGATIONS and all of the
BORROWERS obligations and liabilities to the LENDER under the LOAN
DOCUMENTS.
Section 23. Reinstatement. If at any time any payment, or portion
thereof, made by, or for the account of, any BORROWER or the GUARANTOR
on account of any of the obligations and liabilities under any of the
LOAN DOCUMENTS is set aside by any court or trustee having
jurisdiction as a voidable preference, or fraudulent conveyance or
must otherwise be restored or returned by the LENDER to a BORROWER or
any other person or entity under any insolvency, bankruptcy or other
federal and/or state laws or as a result of any dissolution,
liquidation or reorganization of any BORROWER or any other person or
entity, or for any other reason, the GUARANTOR hereby agrees that this
GUARANTY shall continue and remain in full force and effect or be
reinstated, as the case may be, all as though such payment(s) had not
been made.
Section 24. Rights Of Subrogation, Etc. In the event the GUARANTOR
pays any sum to or for the benefit of the LENDER pursuant to this
GUARANTY, the GUARANTOR may not enforce any right of contribution,
indemnification, exoneration, reimbursement, subrogation or other
right or remedy against any BORROWER, any other guarantor, or any
collateral, whether real, personal, or mixed, securing the obligations
of any BORROWER to the LENDER or the obligations of any other
guarantor to the LENDER until such time as the LENDER has been paid in
full and has no further claim against any of the BORROWERS, any other
guarantor, or any collateral. The GUARANTOR waives and releases any
claim which the GUARANTOR hereafter may have against the LENDER if
some action of the LENDER, whether intentional or negligent, impairs,
destroys, or in any way adversely affects any right of contribution,
indemnification, exoneration, reimbursement, subrogation, or the like
which the GUARANTOR may have upon the payment of any sum to or for the
benefit of the LENDER pursuant to this GUARANTY.
Section 25. Subordination Of Certain Indebtedness. If the GUARANTOR
advances any sums to any BORROWER or its successors or assigns, or if
any BORROWER or its successors or assigns shall hereafter become
indebted to the GUARANTOR, such sums and indebtedness shall be
subordinate in all respects to the amounts then or thereafter due and
owing to the LENDER by such BORROWER.
Section 26. Renewals, Etc. This GUARANTY shall apply to all sums now
or hereafter owed by any of the BORROWERS to the LENDER and to all
extensions, modifications, amendments, renewals, substitutions, and
refinancings thereof.
Section 27. Choice Of Law. The laws of the State of New York
(excluding, however, conflict of law principles) shall govern and be
applied to determine all issues relating to this GUARANTY and the
rights and obligations of the parties hereto, including the validity,
construction, interpretation, and enforceability of this GUARANTY and
its various provisions and the consequences and legal effect of all
transactions and events which resulted in the issuance of this
GUARANTY or which occurred or were to occur as a direct or indirect
result of this GUARANTY having been executed.
Section 28. Consent To Jurisdiction; Agreement As To Venue. The
GUARANTOR irrevocably consents to the non-exclusive jurisdiction of
the courts of the State of Maryland and the State of New York and of
the United States District Court for the District of Maryland and for
the Southern District of New York, if a basis for federal jurisdiction
exists. The GUARANTOR agrees that venue shall be proper in any circuit
court of the State of Maryland or the State of New York selected by
the LENDER or in the United States District Court for the District of
Maryland or for the Southern District of New York if a basis for
federal jurisdiction exists and waives any right to object to the
maintenance of a suit in any of the state or federal courts of the
State of Maryland or the State of New York on the basis of improper
venue or of inconvenience of forum.
Section 29. Proofs Of Sums Due On Guaranty. In any action or
proceeding brought by the LENDER to collect the sums owed on this
GUARANTY, a certificate signed by an officer of the LENDER setting
forth the unpaid balances of principal, and any accrued interest,
default interest, attorneys fees, and late charges owed with respect
hereto shall be presumed correct and shall be admissible in evidence
for the purpose of establishing the truth of what it asserts. If the
GUARANTOR wishes to contest the accuracy of the figure set forth in
any such certificate, the GUARANTOR shall have the burden of proving
that the certificate is inaccurate or incorrect.
Section 30. Actions Against Lender. Any action brought by the
GUARANTOR against the LENDER which is based, directly or indirectly,
on this GUARANTY or any matter in or related to this GUARANTY,
including but not limited to the obligations of the BORROWERS to the
LENDER, the administration, collection, or enforcement thereof, shall
be brought only in the courts of the State of New York or, if LENDER
has instituted action against the GUARANTOR in such court, the State
of Maryland. The GUARANTOR agrees that any forum other than the State
of Maryland or the State of New York is an inconvenient forum and that
a suit brought by the GUARANTOR against the LENDER in a court of any
state other than the State of New York or the State of Maryland should
be forthwith dismissed or transferred to a court located in the State
of New York or, if the LENDER has instituted action against the
GUARANTOR in such state, the State of Maryland, by that court.
Section 31. Invalidity Of Any Part. If any provision or part of any
provision of this GUARANTY shall for any reason be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions or the
remaining part of any effective provisions of this GUARANTY, and this
GUARANTY shall be construed as if such invalid, illegal, or
unenforceable provision or part thereof had never been contained
herein, but only to the extent of its invalidity, illegality, or
unenforceability.
Section 32. Amendment Or Waiver. This GUARANTY may be amended only by
a writing duly executed by the GUARANTOR and the LENDER. No waiver by
the LENDER of any of the provisions of this GUARANTY or any of the
rights or remedies of the LENDER with respect hereto shall be
considered effective or enforceable unless in writing.
Section 33. Notices. Any notice required or permitted by or in
connection with this GUARANTY shall be in writing and shall be made by
facsimile (confirmed on the date the facsimile is sent by one of the
other methods of giving notice provided for in this Section) or by
hand delivery, by Federal Express, or other similar overnight delivery
service, or by certified mail, unrestricted delivery, return receipt
requested, postage prepaid, addressed to the LENDER or the GUARANTOR
at the appropriate address set forth below or to such other address as
may be hereafter specified by written notice by the LENDER or the
GUARANTOR. Notice shall be considered given as of the date of the
facsimile or the hand delivery, one (1) calendar day after delivery to
Federal Express or similar overnight delivery service, or three (3)
calendar days after the date of mailing, independent of the date of
actual delivery or whether delivery is ever in fact made, as the case
may be, provided the giver of notice can establish the fact that
notice was given as provided herein. If notice is tendered pursuant to
the provisions of this Section and is refused by the intended
recipient thereof, the notice, nevertheless, shall be considered to
have been given and shall be effective as of the date herein provided.
If to the LENDER:
NATIONAL BANK OF CANADA
125 West 55th Street
New York, New York 10019
And
c/o NATIONAL BANK OF CANADA
401 E. Pratt Street, Suite 631
Baltimore, Maryland 21202
Attn: Robert A. Incorvati, Vice President
Facsimile: (410) 837-8359
If to the GUARANTOR:
GP STRATEGIES CORPORATION 9 West 57th Street New York, New York 10019
Attn.: Andrea D. Kantor, Vice President and Corporate Counsel Fax No.:
(212) 230-9545
Section 34. Binding Nature. This GUARANTY shall inure to the benefit
of and be enforceable by the LENDER and the LENDER successors and
assigns and any other person to whom the LENDER may grant an interest
in the obligations of the BORROWERS to the LENDER, and shall be
binding upon and enforceable against the GUARANTOR and the GUARANTORS
successors, and assigns.
Section 35. Assignability. This GUARANTY or an interest therein may be
assigned by the LENDER, or by any other holder, at any time or from
time to time, without any prior notice to or consent from the
GUARANTOR.
Section 36. Final Agreement. This GUARANTY contains the final and
entire agreement between the LENDER and the GUARANTOR with respect to
the guaranty by the GUARANTOR of the BORROWERS obligations to the
LENDER. There are no separate oral or written understandings between
the LENDER and the GUARANTOR with respect thereto.
Section 37. Tense, Gender, Defined Terms, Captions. As used herein,
the plural includes the singular, and the singular includes the
plural. The use of any gender applies to any other gender. All defined
terms are completely capitalized throughout this GUARANTY. All
captions are for the purpose of convenience only.
Section 38. Seal And Effective Date. This GUARANTY is an instrument
executed under seal and is to be considered effective and enforceable
as of the date set forth on the first page hereof, independent of the
date of actual execution.
Section 39. Waiver Of Trial By Jury. The GUARANTOR and the LENDER, by
their execution and acceptance, respectively, of this GUARANTY, agree
that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by either party hereto or any successor or
assign of any party on or with respect to this GUARANTY or which in
any way relates, directly or indirectly, to this GUARANTY or any
event, transaction, or occurrence arising out of or in any way
connected with this GUARANTY, or the dealings of the parties with
respect thereto, shall be tried only by a court and not by a jury.
EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
SUCH SUIT, ACTION, OR PROCEEDING.
[Signatures Begin On Next Page]
IN WITNESS WHEREOF, the GUARANTOR has executed this GUARANTY with the
specific intention of creating a document under seal.
ATTEST/WITNESS: GUARANTOR:
GP STRATEGIES CORPORATION
___________________________ By: (SEAL)
Name:
Title:
ACKNOWLEDGMENT
STATE OF ________________, CITY/COUNTY OF _________________, TO WIT: I
HEREBY CERTIFY that on this ______ day of March, 2000, before me, the
undersigned Notary Public of the aforesaid jurisdiction, personally
appeared __________________________, and acknowledged himself/herself
to be the ___________________________ of GP STRATEGIES CORPORATION, a
Delaware corporation, and that he/she, as such, being authorized so to
do, executed the foregoing instrument for the purposes therein
contained by signing the name of GP STRATEGIES CORPORATION, by
himself/herself as ___________________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
______________________
Exhibit 10.6
SUBSCRIPTION AND SHAREHOLDERS AGREEMENT
by and among
AVANTIUM B.V.
(to be renamed AVANTIUM INTERNATIONAL B.V.)
(as the Company)
B.V. LICHT EN KRACHT MAATSCHAPPIJ
(as the Chemical Shareholder)
SMITHKLINE BEECHAM PLC
S.R. ONE, LIMITED
(as the Pharmaceutical Shareholders)
GSE SYSTEMS, INC.
(as the Informatics Shareholder)
DELFT UNIVERSITY OF TECHNOLOGY
UNIVERSITY OF TWENTE
EINDHOVEN UNIVERSITY OF TECHNOLOGY
(as the University Shareholders)
THE GENERICS GROUP LIMITED
ALPINVEST HOLDING NV
(as the Financial Shareholders)
Dated as of February 24, 2000
- --------------------------------------------------------------------------------
CARON & STEVENS/BAKER & McKENZIE
Leidseplein 29
1017 PS Amsterdam
The Netherlands
The shares in the share capital of Avantium B.V. (to be renamed
Avantium International B.V.) to be offered and purchased pursuant to
this Agreement are to be offered, sold, transferred or delivered in or
from the Netherlands as part of their initial distribution only to
individuals or legal entities who or which trade or invest in
securities in the conduct of business or a profession - such as banks,
brokers, dealers, institutional investors and multinationals with a
treasury department - in accordance with Article 2 of the Netherlands
Exemption Regulation to the Act on the Supervision on Securities
Transactions 1995 ("Vrijstellingsregeling Wet toezicht effectenverkeer
1995").
("Vrijstellingsregeling Wet toezicht effectenverkeer 1995").
TABLE OF CONTENTS
Article 1. Definitions and Interpretation 7
Article 2. Company's Articles of Association
Shares and Corporate Governance 10
Article 3. Issue and Subscription 9
Article 4. Conditions Precedent 10
Article 5. Completion 10
Article 6. Decision Procedure within One Group of Shareholders 12
Article 7. Stock Option Plan 12
Article 8. Transfer of Shares 12
Article 9. Preference in Liquidation and Sales Proceeds 13
Article 10. Conversion Right 14
Article 11. Weighted Average Anti-Dilution Adjustment 14
Article 12. Registration Right 20
Article 13. Drag-along Right 15
Article 14. Tag-along Right 16
Article 15. Redemption Right 22
Article 16. Limitation on Shareholding 16
Article 17. Dividends 16
Article 18. Reporting 17
Article 19. Representations and Warranties 17
Article 20. Confidentiality 18
Article 21. Company's Auditors 18
Article 22. Shareholders and Customer Treatment 18
Article 23. Notices 19
Article 24. Expenses 30
Article 25. Governing Law and Jurisdiction 31
Article 26. Counterparts 31
Article 27. General Provisions 31
Exhibits
Exhibit 1 Articles
Exhibit 2 Notarial Deed
Exhibit 3 Business Principles
Exhibit 4 Technology Transfer Agreement Shell
Exhibit 5 Technology Transfer Agreement SmithKline
Exhibit 6 Technology Transfer Agreement GSE
Exhibit 7A Letter of Intent
Exhibit 7B Employment Agreement
Exhibit 8 Secondment Agreement
Schedules
Schedule 1 Business Plan
Schedule 2 Shareholdings
Schedule 3 Resolution Incorporator
Schedule 4 Stock Option Plan
Schedule 5 Deed of Adherence
Schedule 6 Terms of Business
Schedule 7 Terms of Sale and Purchase
Schedule 8 Weighted Average Anti-Dilution Adjustment
THIS SUBSCRIPTION AND SHAREHOLDERS AGREEMENT (the Agreement) is
made and entered into on this 24th day of February, 2000, by and
among:
1. AVANTIUM B.V. (the Company), a private company with limited
liability, with its registered address at Carel van Bylandtlaan 30,
2596 HR The Hague, The Netherlands (to be renamed AVANTIUM
INTERNATIONAL B.V.)
2. B.V. LICHT EN KRACHT MAATSCHAPPIJ "Shel"), a private company with
limited liability, with its registered address at Carel van
Bylandtlaan 30, 2596 HR The Hague, The Netherlands;
3. SMITHKLINE BEECHAM PLC ("SmithKline"), a public company with its
registered address at New Horizons Court, Brentford, Middlesex TW8
9EP, United Kingdom;
4. S.R. ONE, LIMITED ("SRO"), a private company with limited
liability, with its registered address at Four Tower Bridge, 200 Barr
Harbor Drive, Suite 250, West Conshohocken, PA 19428, United States of
America;
5. GSE SYSTEMS, INC. ("GSE"), a Delaware public company, with its
registered address at 9189 Red Branch Road, Columbia, Maryland 21045,
United States of America;
6. DELFT UNIVERSITY OF TECHNOLOGY ("Delft"), a university, with its
registered address at Julianalaan 134, 2628 BL Delft, The Netherlands
7. UNIVERSITY OF TWENTE ("Twente"), a university, with its registered
address at Drienerlaan 5, 7522 NB Enschede, The Netherlands;
8. EINDHOVEN UNIVERSITY OF TECHNOLOGY ("Eindhoven"), a university,
with its registered address at Den Dolech 2, HG 1.03, 5612 AZ
Eindhoven, The Netherlands;
9. THE GENERICS GROUP LIMITED ("Generics"), a private company with
limited liability, with its registered address at Harston Mill,
Harston, Cambridge CB2 5NH, United Kingdom; and
10. ALPINVEST HOLDING NV ("Alpinvest"), a public company with limited
liability, with its registered address at Gooimeer 3, 1411 DC
Naarden-Vesting, The Netherlands;
each of the parties to this Agreement a "Party" and collectively the Parties;
Party 2 the "Chemical Shareholder";
Parties 3 and 4 collectively the "Pharmaceutical Shareholders";
Party 5 the "Informatics Shareholder";
Parties 2 through 5 collectively the "Industry Shareholders";
Parties 6 through 8 collectively the "University Shareholders";
Parties 9 and 10 collectively the "Financial Shareholders"; and
Parties 2 through 10 collectively the "Shareholders";
WHEREAS:
A. The Company is incorporated by Shell ( the "Incorporator") on
January 28, 2000, in order to develop high-speed experimentation and
simulation technologies, also referred to as HSE & S, for application
in new product and process development in the pharmaceutical,
petrochemical and fine chemical, bio technology and polymers
industries (the "Business").
B. The Company has or will have, as soon as possible after the
Completion Date, incorporated as its operating company Avantium
Technologies B.V., a directly wholly-owned subsidiary
C. The Shareholders have agreed to subscribe for shares in the Company
on the terms and conditions of this Agreement so that the Business can
be established.
D. The Company has delivered to the Shareholders a business plan (the
Business Plan), a copy of which is attached hereto as Schedule 1.
E. Each of the Shareholders has conducted and to its satisfaction
finalized its own independent due diligence investigation as to the
viability of the Business Plan.
F. A due diligence investigation as to the viability of the Business
Plan, including but not limited to the Intellectual Property Rights
(as hereinafter defined) and Tangibles (as hereinafter defined), has
been completed and the results of the due diligence exercise are
satisfactory to the Shareholders in their sole and absolute
discretion.
G. A copy of the Business Plan has been submitted to the Securities
Supervision Board (Stichting Toezicht Effectenverke) of the
Netherlands pursuant to article 2 of the Exemption Regulation to the
Act on the Supervision of the Securities Trade Act 1995
(Vrijstellingsregeling Wet Toezicht Effectenverkeer 1995)
H. The Parties hereto wish to have their mutual relations
and their respective rights and obligations in respect of their
investment and their resulting shareholdings in the Company to be
governed by the provisions of this Agreement and the articles of
association of the Company.
DECLARED TO HAVE AGREED AS FOLLOWS
Article 1. Definitions and Interpretation
1.1In this Agreement and all of its schedules (hereinafter individually referred
to as a ("Schedule") and exhibits (hereinafter individually referred to as an
(Exhibit), the following capitalized words shall have the meaning referred to in
the provisions indicated below:
Agreement...........................................................introduction
Alpinvest...........................................................introduction
Articles.............................................................Article 2.1
Board................................................................Article 2.3
Board of Managing Directors..........................................Article 2.3
Business Plan..........................................................recital D
Business Principles..................................................Article 5.3
Business...............................................................recital A
Cash.................................................................Article 3.1
Chemical Shareholder................................................introduction
Common Shares........................................................Article 2.2
Company.............................................................introduction
Completion...........................................................Article 5.1
Completion Date......................................................Article 5.1
Conditions...........................................................Article 4.1
Deed of Adherence....................................................Article 8.3
Delft...............................................................introduction
Documentation........................................................Article 5.3
Eindhoven...........................................................introduction
Exhibit..............................................................Article 1.1
Financial Shareholders..............................................introduction
Foundation...........................................................Article 7.2
Generics............................................................introduction
GMS..................................................................Article 7.1
GSE.................................................................introduction
Incidental Shares...................................................Article 12.2
Incorporator...........................................................recital A
Industry Shareholders...............................................introduction
Informatics Shareholder.............................................introduction
Intellectual Property Rights.........................................Article 3.1
IPO.................................................................Article 12.1
Negotiator..........................................................Article 13.2
Notarial Deed........................................................Article 3.5
Parties.............................................................introduction
Party...............................................................introduction
Pharmaceutical Shareholders.........................................introduction
Preferred Proceeds...................................................Article 9.1
Preferred Shares.....................................................Article 2.2
Registration Shares.................................................Article 12.1
Schedule.............................................................Article 1.1
Shares...............................................................Article 2.2
Shareholders........................................................introduction
Shell...............................................................introduction
SmithKline..........................................................introduction
SRO.................................................................introduction
Stock Option Plan....................................................Article 7.1
Supervisory Board....................................................Article 2.3
Tangibles............................................................Article 3.1
Technology Transfer Agreements.......................................Article 8.1
Twente..............................................................introduction
University Shareholders.............................................introduction
1.2The recitals, the exhibits and the schedules to this Agreement
form an integral part of this Agreement and any reference to this
Agreement includes such recitals, exhibits and schedules. In this
Agreement, reference to a recital, article, exhibit or schedule
is a reference to a recital, article of, or exhibit or schedule
to this Agreement, unless the context requires otherwise.
1.3In this Agreement, unless the context indicates otherwise,
references to the singular shall include references to the plural
and vice versa and references to any pronoun shall include the
corresponding masculine, female or neuter, and references to
persons shall include bodies and corporate and unincorporated
associations of persons.
1.4In this Agreement a reference to a particular agreement,
enactment, regulation or other document shall be construed as a
reference to such agreement, enactment, regulation or document as
it may from time to time be binding, enforceable or in force, as
such agreement, enactment, regulation or document may be novated,
assigned, re-enacted (with or without modification), restated,
consolidated, amended or supplemented from time to time
hereafter.
1.5In this Agreement a reference to a company or other legal
entity shall be construed so as to include any legal entity or
entities into which such company may during the continuance of
this Agreement be merged by means of a statutory merger or into
which it may be split up or demerged.
1.6In this Agreement headings are inserted for convenience only
and shall not affect the construction of this Agreement.
Article 2. Company' Articles of Association, Shares and
Corporate Governance
2.1Upon Completion, the Incorporator shall have incorporated the
Company as a private limited liability company ("besloten
vennootschap met beperkte aansprakelijkheid" under the laws of
the Netherlands. The Company' articles of association (as may be
amended from time to time, the "Articles") are substantially in
the form as attached hereto, as Exhibit 1.
2.2The Company's share capital shall be divided into two types of
shares (collectively the ("Shares"): (i) common shares (the
"Common Shares"), each such share having a nominal value of EUR 1
(one Euro); and (ii) preferred shares (the "Preferred Shares"),
each such share having a nominal value of EUR 1 (one Euro).
2.3 The Company shall have a board (the "Board"), consisting of
(i) a board of managing directors ("statutair bestuur") of the
Company (the "Board of Managing Directors") and (ii) a
supervisory board (the "Supervisory Board").
2.4 In addition to the Articles, the members of the Supervisory
Board shall each serve for a period of 2 (two) years. Each
director may be reappointed.
2.5 In addition to the Articles, the Board shall appoint the
members to the scientific advisory board. Furthermore, any and
all transactions to be entered into between the Company and any
of its Shareholders require the prior written approval of the
Board
2.6 In addition to the Articles, Shareholders who do not have an
employee directly nominated as a member of the Supervisory Board
have observation rights to the Supervisory Board. 2.7 Each group
of Shareholders is required to nominate one supervisory director
("commissaris") of the Company. All Shareholders shall vote their
shares to ensure that the nominees so nominated by the different
groups of Shareholders shall be appointed accordingly.
Article 3. Issue and Subscription
3.1The Incorporator agrees to procure that the Company issues to
each Shareholder appearing in column 1 of Schedule 2 the number
of Preferred Shares and Common Shares as set forth against that
Shareholders name in respectively columns 3(i) and 4(i) of
Schedule 2 in consideration for the payment by such Shareholder
of the amount in cash ("Cash"), and/or intellectual property
rights ("Intellectual Property Rights") and/or tangibles in kind
("Tangibles") as set forth against its name in respectively
columns 5(i), 5(ii) and 5(iv) of Schedule 2 and at such time as
set forth against its name in respectively columns 5(i), 5(ii)
and 5(iv) of Schedule 2, provided, however, that such issue
occurs within two (2) months after the date of this Agreement. To
that effect, the Incorporator shall at the date hereof execute a
shareholders' resolution, substantially in the form as set forth
in Schedule 3, authorizing the Board of Managing Directors to
issue such shares. Furthermore, Schedule 3 sets forth such number
of shares against such share issue price to be issued to such
potential shareholders which the Board is empowered to issue
shares to, such issue referred to in Schedule 2 as the "Second
Closing".
3.2Each of the Shareholders hereby agree to subscribe to the
same, all subject to the terms and conditions of this Agreement.
3.3Each of the Shareholders subscribing to Preferred Shares pays
for a Preferred Share a par value of EUR 1 (one Euro) and a
surplus ("agio") of EUR 9.2167 (nine Euros and twenty-one point
sixty-seven eurocents).
3.4Each of the Shareholders agrees to procure that prior to the
issue, it shall have made the payment of Cash payable by such
Shareholder to the Company as contribution to the shares to be
issued to such Shareholder on each of the dates as set forth
against its name in respectively columns 5(i) and 5(iv) of
Schedule 2 into account number 54.31.72.201 with ABN AMRO Bank in
the name of "Stichting Derdengelden Notariaat Caron & Stevens"
(SWIFT-code ABN-ANL 2A).
3.5The shares will be issued to each of the Shareholders pursuant
to a notarial deed ("Notarial Deed") in the form as attached
hereto as Exhibit
2, which will be executed by one of the civil law notaries of
Caron & Stevens / Baker & McKenzie in Amsterdam, The Netherlands.
3.6Each of the Shareholders may for internal purposes hold its
Shares through an affiliate, whereby such Shareholder controls
such affiliate and whereby "control" means the right or power to
direct or cause the direction of the management and/or policies
of such affiliate whether through the ownership of securities
with the right to vote, under or pursuant to any contract or
voting arrangement, or under or pursuant to any statute or
sovereign power, or otherwise, provided however that the
obligations under this Agreement shall remain vested in such
Shareholder.
Article 4. Conditions Precedent
4.1The obligations of each of the Parties under this Agreement
are conditional upon the following conditions precedent
("opschortende voorwaarden") ("Conditions"):
(a) Parties having reached agreement on the Documentation (as
hereinafter defined in Article 5.3);
(b) all consents and approvals of the Shareholders, the Company,
all government authorities and all third parties that are
required under the laws of the Netherlands in connection with the
transactions as contemplated by this Agreement being obtained and
in full force and effect at the Completion Date (as hereinafter
defined);
(c) the European Commission having been notified and approval or
sufficient comfort obtained; and
(d) the payments of Cash pursuant to Article 3.4 having been
made.
4.2Unless specifically waived by the Shareholders, if any of the
Conditions shall not be fulfilled on or before the Completion
Date (as hereinafter defined), this Agreement shall terminate and
cease to have any effect (unless such date is extended by mutual
written agreement between the Parties), except that the
termination of this Agreement does not affect accrued rights and
obligations of the Parties at the date of termination including
those obligations of confidentiality.
Article 5. Completion
5.1Subject to the provisions of Article 4, completion
("Completion") shall take place on February 24, 2000 or at such
later date as Parties have agreed upon (the "Completion Date") at
the offices of Caron & Stevens / Baker & McKenzie, Leidseplein
29, 1017 PS Amsterdam, The Netherlands or at such other place as
shall be mutually agreed between the Parties.
5.2At Completion, all of the following actions shall be effected:
(a) the Parties shall execute and deliver the Documentation as
hereinafter defined I in Article 5.3;
(b) the Incorporator shall appoint each of (i) Dr. Ian Maxwell
and (ii) Mr. Richard John Artley as a managing director
("statutair bestuurder") of the Company, and shall accept the
resignation of Mr. Maarten Geuze, Mr. Piet Hein Dieters and Mr.
Jan van der Eijk as directors of the Company;
(c) the Company shall provide a duly executed shareholders'
resolution, substantially in the form of Schedule 3, authorizing
the Board of Managing Directors to issue the shares, as further
set forth in Article 3.1;
(d) the Company and each of the Shareholders shall appear before
the civil law notary to execute the Notarial Deed;
(e) the Shareholders shall appoint each of (i) Mr. Maarten Geuze,
as the nominee of the Chemical Shareholder, (ii) Mrs. Elaine V.
Jones, as the nominee of the Pharmaceutical Shareholders, (iii)
Mr. Brian K. Southern, as the nominee of the Informatics
Shareholder, (iv) Prof. dr. ir. David N. Reinhoudt, as the
nominee of the University Shareholders, (v) Mr. Stan Vermeulen,
as the nominee of the Financial Shareholders, and (vi) a nominee
of the Board of Managing Directors, as a supervisory director
(commissari) of the Company;
(f) the Shareholders shall instruct Stichting Derdengelden
Notariaat Caron & Stevens to transfer the amounts of Cash by
telephone transfer to the Companys bank account number
66.83.93.858 with ING Bank in Amsterdam;
(g) the Company shall provide evidence of life insurance cover
having been obtained in favor of the Company and on terms
reasonably satisfactory to the Parties, on the life and possible
permanent disability of Dr Ian Maxwell in the amount of EUR
500,000 (five hundred thousand Euros);
(h) the Parties shall do all such further acts and execute all
such further documents as shall be appropriate to fully effect
the transactions contemplated in this Agreement.
5.3At Completion, all of the following documents shall be
executed and/or delivered, or in the case of the employment
agreement agreed upon (collectively, the Documentation):
(a) this Agreement;
(b) the Company's business principles, substantially in the form
as attached hereto as Exhibit 3 (Business Principles);
(c) the technology transfer agreements (Technology Transfer
Agreements) between the Company and respectively Shell
International Chemicals B.V., SmithKline and GSE, substantially
in the form as attached hereto as respectively Exhibit 4, Exhibit
5 and Exhibit 6;
(d) the letter of intent between the Company, Shell International
Chemicals B.V. and Dr. I.E. Maxwell, substantially in the form as
attached hereto as Exhibit 7A;
(e) the employment agreement between the Company and Dr. I.E.
Maxwell, substantially in the form as attached hereto as Exhibit
7B; and
(f) the secondment agreement between the Company and Generics
substantially in the form as attached hereto as Exhibit 8.
Article 6. Decision Procedure within One Group of Shareholders
Where each of the different groups of shareholders is required to
nominate or appoint a nominee or reach a decision, such
nomination or decision needs to be approved by the shareholders
representing at least 51 % (fifty one percent) of the voting
rights within each such group of shareholders, unless such group
of shareholders has adopted an alternative procedure, provided,
however, that the general rule as stated above shall prevail in
the event the alternative procedure does not properly result in a
nomination or decision.
Article 7. Stock Option Plan
7.1As soon as possible after Completion, the Shareholders will
ensure that the Company adopts a stock option plan for the
Companys management, employees and/or advisors (Stock Option
Plan), substantially in the form as attached hereto as Schedule
4, equal to an amount of 20% (twenty percent) of such number of
common shares as is equal to the sum of the numbers of all issued
and outstanding Preferred Shares and Common Shares at September
30, 2000. The Stock Option Plan shall be administered by the
Board. Upon a refinancing round and upon the recommendation of
the Board, the general meeting of shareholders of the Company
(GMS) shall take into consideration increasing the number of
stock options.
7.2The Shareholders will ensure that under the Stock Option Plan,
any shares to be issued in connection with the exercise of any
option granted under the Stock Option Plan shall be held in trust
by a Stichting Administratiekantoor (the Foundatio) which for
that purpose will be incorporated, and that the Foundation, for
each of the shares it holds, will issue a depository receipt
certificaat van aandeel) to the holder of the option so
exercised, through which depository receipt the relevant
individual will hold economic ownership of the relevant share
without being a shareholder of the Company (and without having a
right to vote).
Article 8. Transfer of Shares
8.1The Shareholders acknowledge and agree that a Shareholder may
transfer, sell, assign, exchange or otherwise dispose of all or
any portion of its shares or any interest therein (each a
("Transfer")only upon and subject to the terms and conditions set
forth in the Articles and this Article 8. Any attempted Transfer
that does not comply with the terms and conditions of this
Article 8 and the Articles shall be null and void (nietig). The
Shareholders shall cause the Company to comply with the
requirements of this Article 8 and not to register any Transfer
of shares unless the provisions of this Article 8 have been fully
complied with, provided, however, that the pledge of shares in
connection with a loan document entered into by a Shareholder
shall not be considered a Transfer. Notwithstanding, in the event
that any such pledge results in a forfeiture, such lender shall
be bound by the terms of this Article 8.
8.2The Shareholders agree that in the event a Shareholder wishes
to Transfer some or all of its shares to a transferee who is an
affiliate (as defined in article 2:24(b) Netherlands Civil Code)
of the transferor, the other Shareholders shall waive their
pre-emptive rights set forth in the Articles in respect of such
Transfer, provided, however, that:
(a) the transferor shall procure that the shares so transferred
will be re-transferred to the transferor immediately upon such
transferee (i) ceasing to be an affiliate of the transferor
and/or (ii) being declared bankrupt or suspending all payments;
and(b) the provisions of Article 8.3 are complied with.
The term affiliate with respect to Shell means: N.V. Koninklijke
Nederlandsche Petroleum Maatschappij, a Netherlands company, the
Shell Transport and Trading Company plc, an English company and
any company (Parent Company as defined hereinafter), which is at
the time in question directly or indirectly affiliated with these
two companies or either of them, whereby for the purpose of this
definition:(a) a particular company is directly affiliated with a
company or companies if the latter holds/hold shares carrying 50%
(fifty percent) or more of the votes exercisable at a general
meeting (or its equivalent) of the particular company; and
(b) a particular company is indirectly affiliated with a company
or companies (the Parent Company or Companie") if a series of
companies can be specified, beginning with the Parent Company or
Companies and ending with a particular company, so related that
each company of the series except the Parent Company or Companies
is directly affiliated with one or more companies earlier in the
series.8.3To effect a Transfer, a transferee of the shares shall
execute and deliver to the non-transferring Shareholders and the
Company a deed of adherence, substantially in the form as
attached hereto as Schedule 5 (Deed of Adherenc) by which the
transferee agrees to become a party to and be bound by the terms
and conditions of this Agreement, as if such transferee is
substituted for the transferring Shareholder as to the shares
transferred, and the transferor Shareholder shall discharge all
its obligations with respect to those shares arising prior to the
date of the Transfer. Upon the execution and delivery of such
instrument and such discharge, the transferee shall, subject to
any applicable legal requirements, become a Shareholder in the
place of the transferor as to the shares transferred and shall
have all the rights, powers, duties and obligations as to the
shares transferred by the transferor under this Agreement. The
transferor shall then cease to be a Shareholder as to those
shares and shall have no further rights, powers, duties and
obligations under this Agreement in regard to them; provided,
however, that the transferor shall remain liable under all of its
confidentiality undertakings to the Company and the other Parties
under this Agreement as if the transferor had continued to own
the shares being transferred with respect to all matters arising
prior to the date of the Transfer.
9.1In the event of any liquidation, dissolution or winding-up of
the Company, either voluntary or involuntary, the holders of the
Preferred Shares, if any, shall rank on a parity with each other
and be entitled to receive, prior and in preference to any
distribution of any of the assets of the Company, whether such
assets are capital surplus or earnings, to the holders of Common
Shares, the amount paid for the subscription of the Preferred
Shares plus any declared but unpaid dividends plus 8% (eight
percent) interest compounded annually on such shares up to the
date fixed for distribution (as adjusted for any stock dividends,
combinations, recapitalizations or splits and the like)
(collectively, the Preferred Proceeds).
9.2In the event the assets and funds that pursuant to this
article should be distributed to the holders of the Preferred
Shares shall be insufficient to fully pay the Preferred Proceeds,
then such assets and funds shall be distributed ratably among the
holders of the Preferred Shares in proportion to the full
preferential amount each such holder is otherwise entitled to
receive.
9.3Any surpluses in assets and funds available for distribution
to the Company's shareholders after distribution of the Preferred
Proceeds to the holders of the Preferred Shares, if any, shall be
distributed among the holders of Common Shares pro rata based on
the number of Common Shares held by each holder.
9.4The Parties hereby agree that in case of a merger,
consolidation, reorganization or sale of all or substantially all
of the Company's assets, all proceeds of such merger,
consolidation, reorganization or sale of all or substantially all
of the Company's assets will be distributed as if such proceeds
were generated from a liquidation of the Company in which case
the provisions of this Article 9 apply mutatis mutandis to such
proceeds.
Article 10. Conversion Right10.1Preferred Shares may be
converted, at any time, into Common Shares at a conversion rate
of 1:1.
10.2Before any holder of Preferred Shares shall be entitled to
convert the same into Common Shares, the holder shall give
written notice to the Company that the holder elects to convert
the same. The Company shall, as soon as practicable thereafter,
issue to such holder of Preferred Shares a notice in writing for
the number of Common Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date
of such surrender of the Preferred Shares to be converted.
Article 11. Weighted Average Anti-Dilution Adjustment11.1In the
event of an issue of new shares each of the Shareholders shall
have such pre-emptive rights as contained in the Articles.
11.2The Shareholders agree not to make use of their right to
limit or suspend the pre-emptive rights of any Shareholder in the
event of an issue of new shares.
11.3In the event of any issue of additional Shares (Common or
Preferred) in the capital of the Company after Completion for a
price per Share less than EUR 10.2167 (ten Euros and twenty-one
point sixty-seven eurocents), then the Company shall be obliged
to issue to the holder of the Preferred Shares such number of
Preferred Shares for a contribution equal to the nominal value of
the Preferred Shares per Share as is necessary to achieve a
situation in which the price per Share paid for the aggregate
number of Shares (including the newly issued Shares) by the
holder of the Preferred Shares is equal to the price per Share
additionally issued multiplied by a fraction, the numerator of
which shall be the number of Shares outstanding after the
issuance of additional Shares (excluding the Shares issued
pursuant to this Article 11.3) plus the number of Shares the
Preferred Shares would purchase if the investment of such holder
of the Preferred Shares would have been made for a price per
Share equal to the price per Share of the Shares additionally
issued to the new shareholder and the denominator shall be the
number of Shares outstanding before the issuance of additional
Shares and the number of Shares additionally issued to the new
shareholder (and excluding the Shares issued pursuant to this
Article 11.3). Attached hereto as Schedule 8 is a numerical
example of the weighted average anti-dilution adjustment. Each of
the Parties hereby irrevocably agrees to such issue of Preferred
Shares and to co-operate in all actions and resolutions required
for the issuance as contemplated by this Article 11.3.
11.4 The beneficiaries of this Article 11 are those parties
having joined this Agreement prior to May 1, 2000. Article 12.
Registration Right.
12.At the request of 51% (fifty-one percent) of the Shares, such
request to be made with the support of the Board and an
internationally recognized underwriter, and for an anticipated
offering price to the public exceeding EUR 100,000,000 (one
hundred million Euros), the Company will apply for all or part of
the Shares (the Registration Shares) to be listed on an
internationally recognized stock exchange or internationally
recognized automated stock quotation system in the European Union
or the United States of America (the IP). Prior to the IPO,
all Preferred Shares shall be converted into Common Shares. At
the IPO, this Agreement shall no longer remain in effect, but the
Stock Option Plan (as attached hereto as Schedule 4) remains
valid.
12.2If, at any time, the Company proposes to register any shares
in the Company for public sale for its own account or for the
account of any shareholder, the Company shall give the
Shareholders notice of such proposed registration statement. Upon
the written request of the Shareholders delivered to the Company
within 30 business days after the receipt of the notice from the
Company, which request shall state the number of shares (the
(Incidental Shares) that the Shareholders wish to sell or
distribute publicly under the registration statement proposed to
be filed by the Company, the Company shall use its best efforts
to register such Incidental Shares, and to cause such
registration to become and remain effective for as long as the
Company keeps such registration effective as to such other
shares. The Shareholders shall be entitled to deliver a request
to register the Incidental Shares to the Company with respect to
every proposed registration of shares by the Company. The
Company's managing underwriter shall have the right to limit, in
whole or in part, the total number of the Incidental Shares to be
registered, so long as such limitation is applied on a pro rata
basis with respect to all other shares proposed or requested to
be registered by other Shareholders.
12.3The Company shall pay all of the expenses in connection with
the registration of the Registration Shares or Incidental Shares,
including the costs of reorganization of the Company if required,
preparing, printing and filing a registration statement in
compliance with any applicable securities laws, qualifying the
offering under such securities laws pursuant to which the
offering is required to be qualified, accounting and auditing
expenses and reasonable fees and expenses of counsel to each
Investor provided, however, that the Company shall not be
required to pay underwriting discounts and commissions applicable
to the Registration Shares and the Incidental Shares.
12.4The Company shall provide each Shareholder with customary
indemnification in connection with any sale by such Shareholder
of shares in a public offering pursuant to this Article 12.
Article 13. Drag-along Right
13.1At the request of the holders of at least 51 % (fifty one
percent) of the voting rights in the Company and until an IPO has
been effected, each of the Shareholders shall be obliged to sell
and transfer all of their shareholding(s) in the Company for such
price per share, and on such other terms as are customary, as may
be agreed between the Shareholders and any reasonable bona fide
third party, who is prepared to buy all of the shares available
for sale.
13.2In the event of such a request, the Shareholders shall
irrevocably appoint a person (the Negotiator) who will be
authorized to negotiate the conditions of sale with the third
party. Subject to the conditions of the preceding subparagraph
13.1, the Negotiator will be deemed authorized by all
Shareholders to negotiate all conditions with the prospective
buyer and conclude the contract with such third party on behalf
of all Shareholders.
Article 14. Tag-along Right
In the event a Shareholder wishes to sell any of its shares in
the Company to a bona fide third party, such Shareholder shall be
obliged to give the other Shareholders at least 30 days prior
written notice of his intention to sell. In such an event the
other Shareholder(s) shall have the right (but not the
obligation) to demand from the selling Shareholder(s) within 15
days of receipt of such notice that the relevant selling
Shareholder also sells the shares held by the other
Shareholder(s) at the same price per share and on such other
terms as are agreed between that selling Shareholder and the
third party. This clause becomes null and void at an IPO or after
5 (five) years after Completion.
Article 15. Redemption Right
15.1 In the event that the Company has not conducted an IPO (or
been purchased) 5 (five) years after Completion, any holder of
Preferred Shares participating in this round of financing shall,
at its option, have its shares redeemed by the Company, for the
greater of (i) the original purchase price (subject to price
adjustment) plus 8% (eight percent) interest compounded annually
plus any accrued and unpaid dividends whether or not declared, or
(ii) the fair market value of the shares on an as if converted
into Common Shares basis plus any accrued and unpaid dividends.
Such amounts may be paid in 4 (four) equal quarterly payments, to
the extent permitted under Netherlands law.
15.2 For a period of 3 (three) years commencing on the fifth
anniversary of the Completion Date, no redemption right may be
exercised to the extent such exercise of redemption right would
result in the Company having less than 35% (thirty-five percent)
of its balance sheet value as at the close of the previous tax
year.
Article 16. Limitation on Shareholding
Notwithstanding anything provided for in this Agreement and/or
the Articles, the Shareholders agree that neither any of the
Shareholders nor any of the group of Shareholders (the Chemical
Shareholder, the Pharmaceutical Shareholders, the Informatics
Shareholder, the University Shareholders or the Financial
Shareholders) shall be allowed to have a direct or indirect
interest in the Company of more than 40% (forty percent) of the
voting rights and that the Industry Shareholders shall not be
allowed to have a direct or indirect interest in the Company of
more than 49% (forty-nine percent).
Article 17. Dividends
The Parties agree that the Company shall not make any
distributions to the Shareholders from profits or reserves until
the net profits after tax exceed the total capital expenditures
and research and development needs at the minimum level, as
contained in the high growth financial plan in the Business Plan,
for a period of 5 (five) years after the date of this Agreement
and if and when such distributions are approved by the
Supervisory Board.
Article 18. Reportin
The Board of Managing Directors shall:
(a) keep books of account and therein make true and complete
entries of all its dealings and transactions of and in relation
to the Business (such books of account and all other records and
documents relating to the business affairs of the Company shall
be open to inspection by each of the Shareholders during normal
business hours and on 2 (two) working days prior notice;
(b) provide each member of the Board within 15 (fifteen) days
from the end of each calendar month with management accounts for
such month in a form acceptable to the Shareholders (such
accounts to include a balance sheet, a profit and loss account of
the prior month and an estimate for the coming month);
(c) provide each Shareholder within 30 (thirty) days from the end
of each quarter with a management report;
(d) provide each Shareholder as soon as the same are available
(and in any event within 3 (three) months after the end of each
financing year) with the audited annual accounts of the Company
for that financial year, each such audited accounts to be
accompanied by an unqualified declaration (verklarin) of the
external auditor as meant in article 2:393(5) of the Netherlands
Civil Code, or in the case of any future subsidiaries established
outside the Netherlands, a comparable unqualified declaration of
an external auditor in the respective jurisdictions where any
such subsidiary is established;
(e) each year prepare an annual business plan and budget no later
than 75 (seventy five) days prior to the beginning of each
financial year;
(f) keep each Shareholder fully informed as to all its financial
and business affairs and in particular shall provide each
Shareholder with full details of any actual or prospective
material change in such affairs as soon as such details are
available; and
(g) provide each Shareholder within 2 (two) weeks of receipt with
copies of all reports and documents drawn up or designated by the
auditor, including in any case the management letter.
Article 19. Representations and Warranties
Each of the Parties hereto represents and warrants to the other
Parties that:
(a) each Party is a company, and in the case of each of the
University Shareholders it is a university under the laws of the
Netherlands, duly organized and validly existing under the laws
of its incorporation, and has all requisite corporate power and
authority to own its property and to conduct its business in the
manner presently conducted;
(b) each Party has full power and authority (corporate or
otherwise) to enter into, execute, deliver and carry out the
terms of this Agreement and to incur the obligations provided for
herein, all of which have been duly authorized by all proper and
necessary corporate action and are not in violation of its
articles of association or governing documents;
(c) except as specifically set forth in this Agreement, no
consent, authorization or approval of, filing with, notice to, or
exemption by, any person or any governmental instrumentality is
required to authorize or is required in connection with the
execution, delivery and performance of this Agreement, or is
required as a condition to the validity or enforceability of this
Agreement;
(d) this Agreement is its legal and binding obligation,
enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors rights generally or by general
principles of equity;
(e) the execution, delivery and carrying out by each Party of the
terms of this Agreement will not constitute a default under,
conflict with, or require any consent under (other than consents
which have been obtained), any mortgage, indenture, contract,
agreement, judgment, decree or order to which it is a party or by
which it or its assets is bound, which defaults, conflicts and
consents, if not obtained, would have a material adverse effect
on the rights or obligations of any of the Parties under this
Agreement, or the ability of it to perform its obligations
hereunder; and
(f) there is no litigation pending or, to the best of its
knowledge, threatened to which any Party is a party and which
affects the rights and obligations of the Parties under this
Agreement.
Article 20. Confidentiality
Each of the Parties agrees to keep secret and confidential and
not to use, disclose or divulge to any third party or to enable
or cause any person to become aware of (except for the purpose of
the Companys business) any confidential information relating to
the Company including but not limited to intellectual property
(whether owned or licensed by the Company), lists of customers,
reports, notes, memoranda and all other documentary records
pertaining to the Company, or its business affairs, finances,
suppliers, customers or contractual or other arrangements but
excluding any information which is in the public domain
(otherwise than through the wrongful disclosure of any party, and
any of their successors and predecessors) or which they are
required to disclose by law or by the rules of any regulatory
body to which the relevant party is subject.
Article 21. Companys Auditors The Shareholders agree to exercise
their voting right in such a manner as is necessary to ensure
that one of the (presently five) leading internationally
recognized audit firms shall be and continue to be appointed as
auditors of the Company. Article 22. Shareholders and Customer
Treatment
Attached hereto as Schedule 6 are the in principle terms of
business, pursuant to which the individual Shareholders may place
R&D orders with the Company. Furthermore, attached hereto as
Schedule 7 are the in principle terms of sale and purchase, on
which individual Shareholders may purchase equipment and software
from the Company.
Article 23. Notices
Any notices given in connection with this Agreement must be in
writing and may be given by fax and registered mail to the
following addresses or, in respect of any of such addresses, to
such other address as the recipient may notify to the other
Parties for such purpose:
the Company: Avantium B.V.
(to be renamed Avantium International B.V.)
Attn: Dr. Ian E. Maxwell
Siriusdreef 17-27,
2132 WT Hoofddorp
The Netherlands
Tel: +31 23 568 9213
Fax: +31 23 568 9111
Shell: B.V. Licht en Kracht Maatschappij
C/o Maarten Geuze
Badhuisweg 3
1031 CM Amsterdam
The Netherlands
Tel: +31 20 630 3883
Fax: +31 20
SmithKline: SmithKline Beecham Pharmaceuticals
Attn. Peter L. Thurlby
New Frontiers Science Park (North)
Third Avenue
Harlow
Essex CM19 5AW
United Kingdom
Tel: +44 1279 622393
Fax: +44 1279 622749
SRO: S.R. One, Ltd.
Attn. Elaine V. Jones, Ph.D
200 Barr Harbor Drive, Suite 250
Four Tower Bridge
West Conshohocken,
PA 19428-2977
United States of America
Tel: +1 610 567 1019
Fax: +1 610 567 1039
GSE: GSE Systems, Inc.
Attn. Mr. Brian K. Southern
9189 Red Branch Road
Columbia
Maryland 21045
United States of America
Tel: +1 410 772 3588
Fax: +1 410 772 3599
Delft: Delft University of Technology
Attn. J. Krul L.L.M.
Postbus 5
2600 AA Delft
The Netherlands
Tel: +31 15 278 2964
Fax: +31 15 278 7749
Twente: University of Twente
Attn. Prof. D.N. Reinhoudt
Drienerlaan 5
7522 NB Enschede
The Netherlands
Tel: +31 53 489 2714
Fax: +31 53 489 2575
Eindhoven: Technische Universiteit Eindhoven Holding B.V.
Attn: Drs. B.P. Hiddinga
Den Dolech 2
HG 0.02
Postbus 513
5600 MB Eindhoven
The Netherlands
Tel: +31 40 247 4949 Fax: +31 40 246 7097
enerics:
The Generics Group Limited
Attn. Chris Coggill
Harston Mill
Harston
Cambridge CB2 5NH
United Kingdom
Tel: +44 122 387 5200
Fax: +44 122 387 7201
Alpinvest: Alpinvest Holding NV
Attn. J.J. de Swart
Gooimeer 3
Postbus 5973
1410 AB Naarden-Vesting
The Netherlands
Tel: +31 35 695 2600
Fax: +31 35 694 7425
Article 24. Expenses
24.1 The Parties agree that each shall bear its own costs and
expenses with respect to the transactions contemplated by this
Agreement, provided, however, that if Completion has been
effected, the Company shall pay within 30 (thirty) days after the
Completion Date the reasonable out-of-pocket costs of: (i) patent
research carried out by Generics; (ii) market research carried
out by PricewaterhouseCoopers; (iii) in kind contribution
research carried out by PricewaterhouseCoopers and Generics; (iv)
incorporation of the Company carried out by the Incorporator; and
(v) start-up expenditures of the Company financed by the
Incorporator as of January 1, 2000, as incurred by the
Incorporator up to and including the Completion Date. The Company
shall also bear the fees and expenses of its advisors, Caron &
Stevens / Baker & McKenzie and KPMG Corporate Finance N.V.
24.2 The Company shall reimburse the directors of the Supervisory
Board for reasonable travel expenses (not including first-class
travel).
Article 25. Governing Law and Jurisdiction 25.1This Agreement
shall be governed by and construed in accordance with the laws of
the Netherlands.
25.2The competent courts of Amsterdam, The Netherlands, shall
have exclusive jurisdiction over any dispute arising out of or in
connection with this Agreement.
Article 26. Counterparts
This Agreement may be executed in two or more counterparts
(whether original or facsimile counterparts), each of which upon
due execution shall be deemed an original and part of the same
document.
Article 27. General Provisions
27.1This Agreement and its annexes set out the entire agreement
and understanding between the Parties with respect to the subject
matter of this Agreement and supersedes all prior discussions,
agreements, including, but not limited to, the agreements on the
term sheet and understandings of every and any nature between the
Parties.
27.2Amendments to this Agreement must be made in writing in order
to be effective and be signed by all Parties to this Agreement.
27.3In the event of any discrepancies or contradictions between
this Agreement and the Articles, this Agreement shall prevail to
the extent permitted under the laws of the Netherlands.
27.4Should any provision of this Agreement be or become partly or
entirely invalid, this shall not affect the validity of any of
the remaining provisions.
IN WITNESS WHEREOF, this Agreement has been signed and executed
by the Parties hereto in Amsterdam, The Netherlands on February
24, 2000.
___________________________
Avantium B.V.
(to be renamed Avantium International B.V.)
By: [ ]
___________________________ ___________________________
B.V. Licht en Kracht Maatschappij B.V. Licht en Kracht Maatschappij
By: [ ] By: [ ]
___________________________
SmithKline Beecham Plc.
By: [ ]
___________________________
S.R. One, Limited
By: Mrs. Elaine V. Jones
___________________________
GSE Systems, Inc.
By: Mr. Brian K. Southern
___________________________
Delft University of Technology
By: [ ]
__________________________
University of Twente
By: [ ]
___________________________
Eindhoven University of Technology
By: [ ]
___________________________
The Generics Group Limited
By: [ ]
___________________________
Alpinvest Holding NV
By: [ ]
Exhibit 10.7
GSE SYSTEMS, INC.
AVANTIUM B. V.
SOFTWARE LICENSE
AND INTELLECTUAL PROPERTY AGREEMENT
This Software License and Intellectual Property Agreement (Agreement) together
with all Exhibits, sets forth all terms and conditions by and between, Avantium
B.V. (Avantium) a Dutch company, and GSE Systems, Inc., (GSE) a corporation
organized under the laws of Delaware in the U.S., (parties), is for the
licensing of GSE's proprietary software, new developments and versions thereof
(including the object and source codes thereof), which may be developed by GSE
during the term of this Agreement, intellectual property and the underlying
intellectual property rights (GSE Products), listed and described in Exhibit A
hereto, to Avantium for its internal use and for research and development (R&D)
on the GSE Products by Avantium and the creation of new, derivative products
(New Software Products) and the use and exploitation thereof by Avantium .
WHEREAS, GSE desires to own an equity interest in Avantium; and,
WHEREAS, Avantium desires to be granted a license with regard to the GSE
Products for its own use and to use for R&D so that the GSE Products become the
basis for New Software Products; and
WHEREAS, GSE will license the GSE Products in Exhibit A to Avantium in exchange
for which Avantium shall convey an equity interest in Avantium to GSE; and,
WHEREAS, any and all New Software Products derived from or arising out of
Avantiu's R&D on the GSE Products shall be the joint intellectual property of
Avantium and GSE, and GSE will have rights to market, distribute and sell the
New Software Products for which GSE shall pay Avantium royalties at a rate(s) to
be determined; and,
WHEREAS, Avantium desires to have GSE provide certain resources for use in the
development and creation of New Software Products for the benefit of Avantium
and GSE.
NOW THEREFORE, in consideration of the mutual covenants and promises set forth
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows and enter into this Agreement on the
day and year entered below.
1. License and Consideration
1.1 GSE License to Avantium. GSE hereby grants to Avantium and
its subsidiaries and Avantium hereby accepts from GSE the
following: (i) a non-transferable, exclusive, irrevocable and
perpetual license in accordance with, and subject to, all of the
provisions of this Agreement throughout the term of this
Agreement to use the source code of the GSE Products; (ii) a
non-transferable, non-exclusive, irrevocable and perpetual
license in accordance with, and subject to, all of the provisions
of this Agreement throughout the term of this Agreement to use
the object code of the GSE Products; for the research and
development (R&D) of a HSE&S informatics system and the
development of New Software Products;
Promptly after the Effective date GSE shall transfer and disclose
to Avantium: the object code(s), the source codes and all other
relevant information, data and documentation of the GSE Products.
Neither Avantium, nor any shareholder, shall have the right to
sell, license or distribute either the GSE Products or the New
Software Products, unless this Agreement provides otherwise.
In the event any Avantium shareholders desire to license any of
the GSE Products or New Software Products, the terms of such
licensing shall be separately agreed between such shareholder and
GSE or Avantium.
2. Remedies in case of Breach, bankruptcy or Liquidation 2.1 This
agreement, the license and rights granted hereunder, shall be
irrevocable and perpetual following the Effective Date hereof,
subject to the provisions of this Agreement.
2.2 In the event of a material breach of this Agreement by a
party, which breach has not been cured to the satisfaction of the
non-breaching party within a period of sixty (60) days after the
breaching party has been requested by written notice to do so,
the non breaching party can only invoke the following remedies (A
or B):
A. the non-breaching party can seek injunctive relief to force
the breaching party to cease and desist its breach immediately;
or
B. (i) Avantium shall only have the right to use the object codes
of the GSE Products in order to exploit the developed New
Software Products at its own discretion against the payment of
one time (lump sum) fee of US$ 965,000.= to GSE;
(ii) Avantium shall return immediately the source codes of the
GSE Products to GSE and delete or destroy all copies thereof;
(iii) GSE and Avantium will grant each other the irrevocable,
perpetual and royalty free right to exploit the New Software
Products (together with the related object- and sources codes) at
their own discretion; (iv) GSE shall assign and transfer
immediately all its preferred and common shares in Avantium to
Avantium; (v) Avantium shall pay to GSE the difference between
the value of these shares at the moment these shares were
conveyed to GSE and the fair market value of the shares at the
moment of the aforementioned assignment and transfer, which fair
market value will be determined in accordance with the
Subscription and Shareholders Agreement, provided and when
sufficient capital is available; (vi) all payments due and owing
either party shall be made immediately; (vii) for a period of one
year, but no longer than one year, after termination of this
Agreement, unless GSE waives such time, Avantium shall offer to
GSE any improved new, updated, upgraded, revised, reformatted,
modified, similar or renamed version of the New Software
Products, pursuant to Section 10.3.; which remedies (i through
vii) can only be invoked together, and not separately or
individually.
2.3 In the event: - an order is made or resolution is passed for
the winding-up of GSE, or a provisional liquidator is appointed
in respect of GSE, or an administration order is made in respect
of GSE, a receiver (which expression shall include an
administrative receiver) is appointed in respect of GSE or all or
any of its assets, and is not discharged within a period of 30
days or any voluntary arrangement is proposed in respect of GSE;
or, - GSE ceases to exist or to carry on (i) the business for
which it was created or incorporated or (ii) the business which
is essential for the purpose of this Agreement; Avantium can only
invoke the following remedies, which remedies only can be invoked
together, and not separately or individually: (i) all the
provisions of the Agreement shall terminate immediately, with
exception of the granted non-transferable, exclusive, perpetual,
irrevocable and perpetual license to Avantium as set forth in
Section 1.1; (ii) Avantium shall be granted an exclusive,
perpetual, irrevocable, royalty free license and right to use and
to exploit the developed New Software Products at its own
discretion; (iii) all payments due and owing either party shall
be made immediately.
2.4 In the event: - an order is made or resolution is passed for
the winding-up of Avantium, or a provisional liquidator is
appointed in respect of Avantium, or an administration order is
made in respect of Avantium, a receiver (which expression shall
include an administrative receiver) is appointed in respect of
Avantium, all or any of its assets, and is not discharged within
a period of 30 days or any voluntary arrangement is proposed in
respect of Avantium; or, - Avantium ceases to exist or to carry
on (i) the business for which it was created or incorporated or
(ii) the business which is essential for the purpose of this
Agreement; - GSE can only invoke the following remedies, which
remedies only can be invoked together, and not separately or
individually: (i) all the provisions of the Agreement shall
terminate immediately; (ii) GSE shall be granted an exclusive,
perpetual, irrevocable, royalty free license and right to use and
to exploit the developed New Software Products at its own
discretion; (iii) all payments due and owing either party shall
be made immediately.
2.5 The above remedies are the sole remedies of parties and each
party hereby waives all its rights to terminate this Agreement,
including its right to terminate under statutory law, article 6:
265 Burgerlijk Wetboek (Dutch Civil Code) and its right to invoke
the obligation to undo and its right to compensation for damage,
other than explicitly set forth in this Agreement.
3. Ownership of New Software Products and Intellectual Property.
3.1 New Software Products. The following are definitions of the
various forms of New Software Products:
3.1.1 HSE&S Modules (HSE Module), The newly developed modules
specifically developed for the purpose of Avantium that are a
derivative of or extension of GSE Products including the object
and source code and all relevant information, data and
documentation, and compensated for as described in the Section
10.1.
3.1.2 HSE&S New Software Products (HSE Product), The newly
developed products specifically developed by Avantium and GSE for
the purpose of Avantium, including the object and source code and
all relevant information, data and documentation, and compensated
for as described in the Section 10.1.
3.2 Underlying Intellectual Property Rights. Without prejudice to
Sections 3.5 and 3.6, all of the underlying intellectual property
rights (such as copyrights, patent rights and trademark rights)
contained in or with respect to the New Software Products shall
be co-owned by and be proprietary to Avantium and GSE together,
and Avantium and GSE shall be acknowledged as the owners of such
Intellectual Property rights. GSE shall have the right to seek
patent, copyright, trademark protection or related notices or
applications anywhere in the world in respect to its co-ownership
of the New Software Products and underlying intellectual property
rights in the joint names of Avantium and GSE. Both parties shall
cooperate fully and completely and do whatever acts are necessary
to aid Avantium and GSE in obtaining full and complete protection
for said proprietary, intellectual property rights in any country
or jurisdiction in the world that Avantium and GSE mutually
select.
3.3 Avantium and GSE agree that both parties will provide the
necessary assistance in obtaining the necessary intellectual
property rights referred to in Section 3.2. GSE shall be solely
responsible for the filing and the costs of filing, application,
registration and maintenance of the intellectual property rights.
3.4 Product Displays and Notices. Neither party shall be
responsible or liable to the other party for damages, payment or
otherwise, if the New Software Products become embedded in or
co-mingled with an operating system resulting in a loss of the
display identifying information about the other party and its
contribution to the New Software Products. Neither party will
remove any copyright, patent right, trademark right and/or
confidentiality notices from, or assert any claim of ownership
to, the New Software Products.
3.5 The ownership of any information, data and software, further
developments and versions thereof (including the underlying
intellectual property rights) which have been solely developed by
Avantium and which do not contain any confidential information
received from GSE under this Agreement remain and shall be
exclusively vested in Avantium.
3.6 The ownership of the GSE Products, any information, data and
software, further developments and versions thereof (including
the underlying intellectual property rights) which have been
solely developed by GSE and which do not contain any confidential
information received from Avantium under this Agreement remain
and shall be exclusively vested in GSE.
4. Relationship of Parties.
4.1 The parties are signatories to a Subscription and
Shareholders' Agreement dated February 24, 2000, which specifies
the respective rights and obligations in regard thereto. In
respect of this Agreement, GSE and Avantium will each act and
take affirmative steps to market and promote each other's
products in accordance with their standard business practices.
Neither party shall misrepresent or make any negative statements
about the other, its products or services and each party shall
indemnify the other with respect to such misrepresentation or
negative statement. Neither party is responsible to any end user
for the quality or services of the other.
4.2 Except as expressly set forth herein, no right, title or
interest in or license to, any patents, trade secrets,
copyrights, other intellectual property rights or rights to the
GSE Products or New Software Products is granted or conveyed to
the other party pursuant to this Agreement.
5. Names and Trademarks.
Nothing in this Agreement grants to either party the right to use
or display the trademarks, trade names, logos or service marks of
the other party, except as provided herein. Avantium agrees to
submit to GSE for written approval, and GSE agrees to submit to
Avantium for written approval, any marketing materials which may
use or display any trademark, trade name, logo or service mark of
Avantium and GSE respectively. Each party at its sole discretion
may accept or reject the other party's use of such marketing
materials. In accordance with this Agreement, each party may make
general reference to the fact the parties hereto have entered
into a cooperative development and business alliance of which GSE
is a member as a shareholder in Avantium.
6. Confidentiality.
6.1 Each party acknowledges that it may receive information
regarding the GSE Products, Avantium products and New Software
Products from the other party that the providing party regards as
confidential and proprietary. To the extent that such
confidential information had been disclosed by the providing
party to the receiving party in writing marked Confidential, or
orally or visually disclosed and summarized in writing and
delivered by the providing party to the receiving party within
thirty (30) days of such disclosure, such information shall be
Confidential for the purpose of this Article.
6.2 Other than as expressly contemplated herein, neither party
shall disclose, provide or otherwise make available to any third
party (including a prospective client) any confidential
information of the other party except to the extent necessary to
exploit its rights granted under this Agreement and provided such
third party has agreed to confidentiality obligations no less
stringent than those assumed by the receiving party hereunder.
Each party agrees that it will protect the confidential
information of the other through the exercise of at least
reasonable care, and in no event less protection and care than is
customarily used in safeguarding its own confidential or
proprietary information of a similar nature.
6.3 In no event shall either party use any confidential
information of the other party except to the extent necessary to
effect the provisions and purposes, as expressly contemplated
under the terms of this Agreement.
6.4 The foregoing shall not prohibit or limit a party's use of
information, including but not limited to ideas, concepts, know
how, techniques and methodologies, which (a) are or become part
of the public domain through no breach of the confidentiality
provisions of this Agreement; (b) are rightfully obtained by the
receiving party from a third party without restriction; (c) are
already and rightfully known to or independently developed by the
receiving party.
7. Limited Warranty.
7.1 GSE represents and warrants that it is the rightful owner of
the GSE Products and that it is allowed to grant the rights
herein to Avantium.
7.2 In accordance with its standard license provisions, GSE will
provide a twelve (12) month warranty on the GSE Products. With
regard to GSE Products and New Software Products, GSE makes no
further warranty, either express or implied, including but not
limited to implied warranties of merchantability or fitness for a
particular purpose, and all other warranties are hereby
disclaimed. Notwithstanding anything contained in this Agreement,
GSE makes no representation, warranty, or guaranty that
Avantium's use of the GSE Products or New Software Products will
be uninterrupted or error free.
7.3 Avantium provides no warranty, either express or implied,
including but not limited to implied warranties of
merchantability or fitness for a particular purpose towards GSE
with regard to any New Software Product, and all other warranties
are hereby disclaimed. Notwithstanding anything contained in this
Agreement, Avantium makes no representation, warranty, or
guaranty that GSEs use of the New Software Products will be
uninterrupted or error free.
8. Limitation of Liability
8.1 Except as otherwise provided in Section 9, GSE's liability,
if any, to Avantium for claimed loss or damage, whether based on
contract, tort, strict liability or any other legal theory, shall
be strictly limited to the payments made by Avantium under this
Agreement.
8.2 Avantium's liability, if any, to GSE for claimed loss or
damage, whether based on contract, tort, strict liability or any
other legal theory, shall be strictly limited to the payments
made by GSE under this Agreement.
8.3 The warranties and commitments expressly set forth in this
agreement are in lieu of all other obligations or liabilities on
the part of each party for damages or other relief, including,
without limitation, special, indirect, incidental, or
consequential damages that in any way arise from or are in
connection with the use and/or performance of the GSE Products or
New Software Products.
9. Intellectual Property Indemnification
9.1 GSE will indemnify Avantium against any loss or liability
awarded by final judgment of a court of competent jurisdiction
based on a suit that the GSE Products infringe or misappropriate
any patent, copyright, trademark, trade secret, or other
proprietary right. Avantium shall promptly notify GSE in writing
of any such suit or threatened suit. Avantium shall provide GSE
all information and reasonable assistance for the defense of the
same. GSE shall have no liability for any such claim of
infringement or misappropriation to the extent that it is based
on the use of services and/ or software not specifically supplied
by GSE, which have been used in combination with a GSE Product or
New Software Products. GSE shall have absolute discretion with
respect to the defense and settlement of any such suit, legal
proceeding, or claim.
9.2 In the event a third party claims that a New Software Product
infringes or misappropriates any patent, copyright, trademark,
trade secret, or other proprietary right, each party will
promptly notify the other party in writing of any such claim.
Each party will provide the other party all information and
reasonable assistance for the defense of the same. Parties will
decide in mutual agreement, how such claim will be dealt with.
Each party will bear 50% of all the (legal) costs and (attorney)
fees as well as the awarded claims. Avantium shall have no
liability for any such costs, fees and claims of infringement to
the extent that it is based on the use of services and/ or
software added, used or supplied by GSE, which have been used in
combination with a New Software Product.
9.3 If a GSE Product becomes, or if in GSE's sole judgment appear
might become subject to a third party infringement claim, GSE in
its sole discretion may: i) procure at no cost to Avantium from
the third party the right to allow Avantium to continue to use
the GSE Product ; ii) modify or replace at GSE's own costs that
portion of the GSE Product which is alleged to be infringing. In
the event the foregoing options are not reasonably practical,
GSE, in its sole judgment, may terminate the license for such GSE
Product and return to Avantium the license valuation for such GSE
Products on the Effective Date of this Agreement, pro rated over
a 5 (five) year period from such date.
9.4 If a New Software Product becomes, or if in both parties
judgment appear might become subject to a third party
infringement claim, both parties shall: i) procure from the third
party the right to allow Avantium and GSE to continue the use,
distribution and sale of that New Software Product; ii) modify or
replace that portion of that New Software Product which is
alleged to be infringing; or iii) in the event that the foregoing
options are not reasonably practical, cease and desist the use,
distribution and sale of that New Software Product.
9.5 The foregoing states the entire liability of each party with
respect to the infringement of any copyrights, patents,
trademarks, trade secrets, or other proprietary rights pertaining
to the GSE Products and any New Software Products.
10. Development costs and Exclusive Distributor of New Software
Products.
10.1 All costs, expenditures (including costs of third parties
involved) with regard to the development of a New Software
Product by Avantium will be borne by both parties equally. Each
party shall appoint a person(s) responsible for determining the
project development, including release date, of any proposed New
Software Product.
10.2 A New Software Product will be deemed to be developed once a
full product acceptance has been made by both GSE and Avantium.
During the first two years after the development of a New
Software Product both parties will decide in mutual agreement
whether the New Software Product will be brought on the market.
It is expressly understood by both parties that each party has a
veto right with regard to the decision to bring a New Software
Product on the market during those first two years. After the
expiration of those two years GSE may decide at its own
discretion whether such New Software Product will be brought on
the market, provided however that GSE accepts the exclusive
distribution license agreement offered by Avantium, as set forth
in Section 10.3. If GSE refuses such exclusive distribution
agreement, Avantium can decide at its own discretion to bring
such New Software Product on the market whether or not by
appointing a third party or parties as its distributor(s), with
GSE being entitled to the same royalty as defined in Section
10.3.
10.3 Avantium hereby grants to GSE the first right of refusal to
be appointed as the sole and exclusive distributor of each such
New Software Product and all upgraded, revised, reformatted,
modified, similar or renamed version and improvement of each such
New Software Product for which distribution license GSE shall pay
to Avantium a royalty of ten per cent (10%) of the revenues
realized by GSE as a result of the distribution of the New
Software Product, which royalty shall increase if the revenues
exceed a certain amount, to be decided by both parties with
regard to each distribution license. Furthermore in such
distribution license agreement standard provisions mutually
agreeable to GSE and Avantium will be inserted.
10.4 Avantium Shareholders will be entitled to acquire licenses
of the HSE Module and HSE Products as developed under this
Agreement at a preferred status for a term; the duration and cost
of which shall be determined at the time by mutual agreement of
the Avantium Board and GSE, but not longer than one year after
completion of each New Software Product.
11. Marketing and Sales.
11.1 Avantium shall advise GSE of potential users of the New
Software Product(s) so that GSE may consider its marketing and
sales activities accordingly.
11.2 Avantium shall furnish information kits for marketing
purposes which shall include GSE overviews, organization and
contact information, New Software Product(s) description and
positioning information and suggested lead qualification
questions. All of the information shall be subject to GSE's
approval and Avantium shall not distribute any information kits
without GSE's prior written approval. All costs, expenditure
(including costs of third parties involved) with regard to the
information kits will be borne by both parties equally.
11.3 The parties agree to inform appropriate personnel in each
company about this Agreement and provide mutually agreed upon
training to personnel needing same to ensure that such personnel
are knowledgeable about the GSE Products and New Software
Products and informed of all improvements, changes, upgrades and
changes to the GSE Products and New Software Products. The
parties shall inform such personnel that they are subject to the
confidentiality provisions set forth in Section 6 hereof.
12. General Provisions.
12.1 The parties agree that in the event of a breach of the
provisions of the Sections on: Names and Trademarks;
Confidentiality and Non-solicitation, money damages alone may not
be an adequate remedy; in such event, the aggrieved party may, in
addition to such other equitable and legal relief which may be
available, seek the entry of injunctive relief by a court of
competent jurisdiction.
12.2 To the extent that GSE Products and New Software Products
are subject to the U.S. Export Administration Regulations,
Avantium will comply with such regulations. To assist Avantium in
such compliance, GSE shall promptly advise Avantium in writing
the Export Control Classification Number (ECCN) of all GSE
Products and New Products.
12.3 For the term of this Agreement and for one (1) year after
its termination, neither party will, without the other's prior
written consent, knowingly employ or independently contract for
Agreement related services of any employee from either party
12.4 This Agreement shall be governed by and construed in
accordance with the laws of The Netherlands without giving effect
to any conflict of laws principles. The competent courts of
Amsterdam, the Netherlands shall have exclusive jurisdiction over
any dispute arising out of or in connection with this Agreement.
.
12.5 This Agreement constitutes the entire agreement between the
parties with respect to the matters set forth herein and shall
supersede all prior endorsements, representations and
understanding pertaining thereto.
12.6 This Agreement may not be modified, except in writing signed
by both parties. If any of the provisions of this Agreement are
held invalid, such provisions shall be deemed severed and the
remaining provisions shall remain in full force and effect.
12.7 This Agreement may not be assigned or transferred, nor may
rights or obligations be delegated, without the prior written
Agreement of the parties. Notwithstanding the foregoing, this
Agreement shall be binding upon and inure to the benefit of the
parties to this Agreement, as well as their respective successors
and assigns.
12.8 Failure of any party to enforce in any one of more
instances, any of the terms or conditions of this Agreement shall
not be construed as a waiver of the future performance of any
such terms or conditions
.
12.9 This Agreement shall come into force on the date on which
the Subscription and Shareholders Agreement comes into full
force, all conditions precedent having been met (the Effective
Date).
12.10 Any notices given in connection with this Agreement must be
in writing and may be given by fax and registered mail to the
following addresses or, in respect of any of such addresses, to
such other address as the recipient may notify to the other Party
for such purpose:
the Company: Avantium B.V.
Attn: Dr. I.E. Maxwell
Siriusdreef 17-27
2132 WT Hoofddorp
The Netherlands
Tel: +31 23 568 9213
Fax: +31 23 568 9111
GSE: GSE Systems, Inc.
Attn: Brian K. Southern
9189 Red Branch Road,
Columbia
Maryland 21045
USA
Tel: +1 410 772 3588
....................................Fax: +1 410 772 3599
IN WITNESS WHEREOF, the parties agree to and accept the terms herein and have
caused this Agreement to be signed by their authorized representatives as of the
Effective Date.
GSE SYSTEMS, INC. AVANTIUM B. V.
Brian K. Southern Dr. Ian Maxwell
Name (typed or printed) Name (typed or printed)
______________________________ _______________________________
Signature Signature
Senior Vice President CEO
Title Title
February 24, 2000 February 24, 2000
Date Date
9189 Red Branch Road Siriusdreef 17-27
Columbia, Maryland 21045 2132 WT Hoofddorp
USA The Netherlands
Address Address
EXHIBIT A
GSE PRODUCTS
A. BatchCAD Version 7.0 or later
B. BatchWizard Version 1.0 or later
C. VPbatch Version 1.3 or later
D. SimSuite Pro Version 3.0 or later
E. TotalVision Version 1.1 or later
Exhibit 16.1
March 30, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by GSE Systems, Inc., which
we understand will be filed with the Commission, pursuant to Item
9 of Form 10-K, as part of the Company's Annual Report on Form
10-K to be filed on March 30, 2000. We agree with the statements
concerning our Firm in such Form 10-K.
Very truly yours,
PricewaterhouseCoopers LLP
McLean, Virginia
X-16.1-1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT AT DECEMBER 31, 1999
The companies listed below are directly or indirectly owned 100% by
GSE Systems, Inc. and are included in its consolidated financial
statements.
o GS Information Systems FSC, Ltd., GSE Systems International Ltd., MSHI,
Inc., GSE Power Systems AB, GSE Process Solutions, Inc., and GSE Erudite
Software, Inc. are wholly owned subsidiaries of GSE Systems, Inc.
o GP International Engineering & Simulation, Inc. and GSE Services Company
L.L.C. are wholly owned subsidiaries of GSE Power Systems, Inc. which is a
wholly owned subsidiary of MSHI, Inc.
o GSE Systems UK, Ltd. and GSE Process Solutions B.V. are wholly owned
subsidiaries of GSE Process Solutions, Inc.
o GSE Process Solutions Belgium N.V. and GSE Process Solutions Singapore
(Pte) Limited are wholly owned subsidiaries of GSE Process Solutions B.V.
o J.L. Ryan, Inc., acquired by GSE Power Systems, Inc. in December 1997, has
been merged with and into GSE Power Systems, Inc. as of February 1998, with
GSE Power Systems, Inc. as of February 1998, with GSE Power Systems, Inc.
being the surviving corporation.
Name Place of Incorporation or Organization
GS Information Systems FSC, Ltd. Barbados
GSE Systems International Ltd. State of Delaware
MSHI, Inc. State of Virginia
GSE Power Systems AB Sweden
GSE Process Solutions, Inc. State of Delaware
GSE Erudite Software, Inc. State of Delaware
GP International Engineering & Simulation, Inc. State of Delaware
GSE Services Company L.L.C. State of Delaware
GSE Power Systems, Inc. State of Delaware
GSE Systems UK, Ltd. United Kingdom
GSE Process Solutions B.V. Netherlands
GSE Process Solutions Belgiuim N.V. Belgium
GSE Process Solutions Singapore (Pte) Limited Singapore
X-21.1-1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement of GSE Systems, Inc. on Form S-8 (No.
333-08805) of our report dated February 29, 2000, except for Note
19, as to which date is March 23, 2000, relating to the financial
statements of GSE Systems, Inc., which are included in this
Annual Report on Form 10-K for the year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
McLean,Virginia
March 30, 2000
X-23.1-1
......... Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Officers
and Directors of GSE Systems, Inc., a Delaware corporation, hereby
constitute and appoint Christopher M. Carnavos and Jeffery G. Hough,
and each of them, the true and lawful agents and attorneys-in-fact of
the undersigned with full power and authority in said agents and
attorneys-in-fact, and in any one or both of them, to sign for the
undersigned and in their respective names as Officers and Directors of
the Corporation, the Annual Report of Form 10-K of the Corporation to
be filed with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, and any
amendment or amendments to such Annual Report, hereby ratifying and
confirming all acts taken by such agents and attorneys-in-fact, or any
one or more of them, as herein authorized.
Dated: March 30, 2000
Name ......... Title
/S/ JEROME I. FELDMAN Chairman of the Board
Jerome I. Feldman
/S/ SCOTT N. GREENBERG Director
Scott N. Greenberg
/S/ JOHN A. MOORE, JR. Director
John A. Moore, Jr.
/S/ GEORGE J. PEDERSEN Director
George J. Pedersen
X-24.1-1
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