GVP GSE Systems Incorporated

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

August 7, 2024

Date of Report (Date of earliest event reported)

GSE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

(Address of principal executive offices and zip code)

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2 below):

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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None of the Company’s outstanding RSU or PRSUs granted pursuant to the Company’s Long-Term Incentive Plan (as amended and restated) (the “LTIP”) will be continued or replaced in connection with the Merger. At the Effective Time:

Pursuant to the terms of the Merger Agreement, the Company does not believe that any PRSUs will vest and receive Merger Consideration. The Company believes that 22,857 RSUs will either vest prior to the closing of the Merger or be accelerated and vest upon the closing of the Merger and result in the issuance of a commensurate number of shares of Company Common Stock.

The foregoing description of the Merger Agreement, and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which is included in this Current Report as Exhibit 2.1 and is incorporated herein by reference.

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Some of the statements contained in this Current Report on Form 8-K constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this Current Report on Form 8-K reflect the Company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances, many of which are beyond the control of the Company, that may cause actual results and future events to differ significantly from those expressed in any forward-looking statement, which risks and uncertainties include, but are not limited to: the ability to complete the Merger on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary stockholder approval and satisfaction of other closing conditions to consummate the Merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; risks that the Merger disrupts the Company’s current plans and operations or diverts the attention of the Company’s management or employees from ongoing business operations; the risk of potential difficulties with the Company’s ability to retain and hire key personnel and maintain relationships with customers and other third parties as a result of the Merger; the risk that the Merger may involve unexpected costs and/or unknown or inestimable liabilities; the risk that the Company’s business may suffer as a result of uncertainty surrounding the Merger; the risk that stockholder litigation in connection with the Merger may affect the timing or occurrence of the Merger or result in significant costs of defense, indemnification and liability; effects relating to the announcement of the Merger or any further announcements or the consummation of the Merger on the market price of the Company’s Common Stock.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

August 8, 2024

ARTICLE I THE MERGER		5
Section 1.1	The Merger	5
Section 1.2	Closing.	5
Section 1.3	Effective Time.	6
Section 1.4	Effects of the Merger.	6
Section 1.5	Charter; Bylaws.	6
Section 1.6	Directors and Officers of the Surviving Corporation.	6
ARTICLE II EFFECT OF THE MERGER; EXCHANGE OF CERTIFICATES		7
Section 2.1	Effect on Securities of the Company and Merger Sub.	7
Section 2.2	Certain Adjustments.	7
Section 2.3	Appraisal Rights.	8
Section 2.4	Exchange of Company Common Stock.	9
Section 2.5	Treatment of Company RSUs and Company PSUs.	11
Section 2.6	Treatment of Warrants.	12
Section 2.7	Further Assurances.	13
Section 2.8	Company Indebtedness and Transaction Expenses.	13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY		13
Section 3.1	Organization and Corporate Power.	13
Section 3.2	Capitalization.	15
Section 3.3	Authority; Execution and Delivery; Enforceability; State Takeover Statutes.	17
Section 3.4	Consents and Approvals; No Conflicts.	17
Section 3.5	SEC Documents; Financial Statements; Undisclosed Liabilities.	18
Section 3.6	Absence of Certain Changes or Events.	21
Section 3.7	Information Supplied.	21
Section 3.8	Legal Proceedings.	21
Section 3.9	Compliance with Laws.	22
Section 3.10	Privacy and Data Protection.	23
Section 3.11	Permits.	24
Section 3.12	Company Benefit Plans.	24
Section 3.13	Employee and Labor Matters.	26
Section 3.14	Environmental Matters.	28
Section 3.15	Real Property; Assets.	29
Section 3.16	Taxes.	30
Section 3.17	Company Material Contracts.	33
Section 3.18	Intellectual Property.	35
Section 3.19	Transactions With Affiliates.	37
Section 3.20	Insurance.	38
Section 3.21	Customers and Suppliers.	38
Section 3.22	Government Contracts.	38

Section 3.23	Section 203 of the DGCL.	39
Section 3.24	Broker’s Fees.	39
Section 3.25	Opinion of Financial Advisors.	40
Section 3.26	No Other Representations or Warranties.	40
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB		40
Section 4.1	Organization and Corporate Power.	40
Section 4.2	Capitalization of Merger Sub.	40
Section 4.3	Authority; Execution and Delivery; Enforceability; State Takeover Statutes.	41
Section 4.4	Consents and Approvals; No Conflicts.	41
Section 4.5	Information Supplied.	42
Section 4.6	Legal Proceedings.	42
Section 4.7	Financial Capability; Financing.	42
Section 4.8	Company Capital Stock.	43
Section 4.9	No Foreign Control.	43
Section 4.10	Broker’s Fees.	44
Section 4.11	Independent Investigation; Non-Reliance.	44
Section 4.12	No Other Representations or Warranties.	45
ARTICLE V COVENANTS		45
Section 5.1	Company Conduct of Business Prior to the Effective Time	45
Section 5.2	No Solicitation.	49
Section 5.3	Proxy Statement	52
Section 5.4	Company Stockholders’ Meeting	54
Section 5.5	Publicity	54
Section 5.6	Notification of Certain Matters	55
Section 5.7	Access to Information	55
Section 5.8	Efforts; Cooperation	56
Section 5.9	Indemnification	56
Section 5.10	Employee Matters	57
Section 5.11	Section 16 Matters	58
Section 5.12	Security Holder Litigation	58
Section 5.13	NASDAQ Delisting; Deregistration	59
Section 5.14	Merger Sub; Consent of Sole Member of Merger Sub	59
Section 5.15	Financing	59
Section 5.16	Treatment of Indebtedness; Lien Releases; Transaction Expenses	60
Section 5.17	R&W Insurance Policy; Data Room	60
ARTICLE VI CONDITIONS TO THE MERGER		60
Section 6.1	Conditions to Obligations of Each Party	60
Section 6.2	Conditions to Obligations of the Company to Effect the Merger	61
Section 6.3	Conditions to Obligations of Parent and Merger Sub to Effect the Merger	61
Section 6.4	Frustration of Closing Conditions	63

ARTICLE VII TERMINATION		63
Section 7.1	Termination	63
Section 7.2	Effect of Termination	64
Section 7.3	Termination Fee; Expenses	65
ARTICLE VIII MISCELLANEOUS		66
Section 8.1	Amendment and Modification	66
Section 8.2	Expenses; Transfer Taxes.	66
Section 8.3	Extension; Waiver	66
Section 8.4	No Survival of Representations and Warranties	67
Section 8.5	Notices	67
Section 8.6	Counterparts	68
Section 8.7	Entire Agreement; Third Party Beneficiaries	68
Section 8.8	Severability	68
Section 8.9	Assignment	69
Section 8.10	Headings	69
Section 8.11	Governing Law	69
Section 8.12	Enforcement; Exclusive Jurisdiction	69
Section 8.13	WAIVER OF JURY TRIAL	70
Section 8.14	Interpretation	71
Section 8.15	Non-Recourse.	71
Section 8.16	Definitions.	71

Exhibit 10.1

THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO MAKER. THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

GSE SYSTEMS, INC.

 

Senior Secured Promissory Note

due August 6, 2025

 

 

For value received, GSE Systems, Inc., a Delaware corporation (the “Maker” or the “Company”), hereby promises to pay to the order of Nuclear Engineering Holdings LLC, a Delaware limited liability company (together with its successors and representatives, the “Holder”), in accordance with the terms hereinafter provided, the principal amount of ONE MILLION THREE HUNDRED NINETY-EIGHT THOUSAND FOUR HUNDRED FORTY-SEVEN DOLLARS AND FIFTY CENTS ($1,398,447.50) (the “Principal Amount”).

All payments under or pursuant to this Senior Secured Promissory Note (this “Note”) shall be made in United States Dollars in immediately available funds to the Holder at the address of the Holder set forth in Section 5.1 or at such other place as the Holder may designate from time to time in writing to the Maker or by wire transfer of funds to the Holder’s account, instructions for which are attached hereto as Exhibit A. The outstanding principal balance of this Note shall be due and payable on the earlier to occur of (x) August 6, 2025 and (y) the occurrence of a Change of Control (the “Maturity Date”) or at such earlier time as provided herein.  In the event that the Maturity Date shall fall on Saturday or Sunday, such Maturity Date shall be the next succeeding Business Day. All calculations made pursuant to this Note shall be rounded down to three decimal places.

 

ARTICLE 1

 

1.1         Representations and Warranties.  The Maker hereby makes to the Holder the representations and warranties set forth on Schedule 1 hereto.

 

1.2         Interest. Interest shall accrue, commencing as of the date hereof, on the Outstanding Principal Amount. Interest payments under this Note shall be due and payable on the last Business Day of each calendar month and on the Maturity Date (or such earlier date in the event the obligations under this Note are accelerated in accordance herewith). Interest shall be paid, at the option of Maker, (x) in kind by capitalizing such interest and adding the unpaid amount thereof on each such payment date to the Outstanding Principal Amount, which amount shall include any previously capitalized interest payments, or (y) in cash. The Outstanding Principal Amount shall bear interest at a rate per annum equal to 12.50%, calculated on the basis of the actual days elapsed days in a year consisting of 365 or 366 days, as applicable; provided that, at any time an Event of Default has occurred and is continuing, the Outstanding Principal Amount shall bear interest at a rate that is 2.00% per annum higher than the rate otherwise applicable hereunder. Notwithstanding the foregoing, in no event shall interest to be paid hereunder exceed the maximum amount permissible under applicable Law, and if interest would be payable hereunder in excess of the maximum amount permissible under applicable Law, the amount of such interest shall be reduced to the maximum amount permitted under applicable Law.

 

1.3         Prepayment.          

 

(a)          Voluntary Prepayments.  The Maker may prepay all or any part of the then Outstanding Principal Amount upon delivering written notice to Holder (a “Prepayment Notice”) not less than five (5) Business Days prior to the date of such prepayment. If Maker prepays all or any part of the then Outstanding Principal Amount pursuant to this Section 1.3(a) prior to the Maturity Date, then the Maker shall concurrently pay to the Holder a prepayment premium in an amount equal to the amount of interest which would accrue pursuant to Section 1.2 of this Note from the date of such prepayment through the Maturity Date on the principal amount so prepaid (the “Prepayment Premium”). Upon delivery of a Prepayment Notice, the Maker irrevocably and unconditionally agrees to repay the amount of the Outstanding Principal Amount specified in such Prepayment Notice plus the Prepayment Premium with respect thereto, in each case on the specified prepayment date.

 

(i)           If (1) Maker or any of its Subsidiaries Disposes of any property or assets (other than any Disposition of inventory in the ordinary course of business) or (2) any Casualty Event occurs, in each case which results in the realization or receipt by Maker or any of its Subsidiaries of Net Cash Proceeds, then Maker shall prepay on or prior to the date which is five (5) Business Days after the date of the realization or receipt by Maker or any of its Subsidiaries of such Net Cash Proceeds, the then Outstanding Principal Amount in an amount (together with the amount of interest and other amounts required to be paid in connection therewith) equal to 100% of all such Net Cash Proceeds; provided that, at the option of the Maker and upon prior written notice to the Holder, the Maker may use all or any portion of such proceeds to acquire, maintain, develop, construct, improve, upgrade or repair, or otherwise reinvest in, assets of the Maker or any of its Subsidiaries, in each case within twelve (12) months of such receipt.

 

(ii)          If Maker, without prior written consent of the Holder, issues any debt, including any subordinated debt or convertible debt (other than this Note or any Permitted Indebtedness), Maker shall notify the Holder within two (2) Business Days of such issuance and, unless otherwise waived in writing by and at the discretion of the Holder, no later than five (5) Business Days after issuing such debt, Maker will direct one hundred percent (100%) of the proceeds from the issuance of such debt to repay this Note.

 

1.4         Payment on Non-Business Days.  Whenever any payment to be made shall be due on a day which is not a Business Day, such payment may be due on the next succeeding Business Day.

 

1.5         Replacement.  Upon receipt of a duly executed and notarized written statement from the Holder with respect to the loss, theft or destruction of this Note (or any replacement hereof), or, in the case of a mutilation of this Note, upon surrender and cancellation of such Note, the Maker shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note.

 

1.6         Use of Proceeds.  The Maker shall use the proceeds of this Note for general working capital purposes and other corporate purposes.

 

1.7         Status of Note. The obligations of the Maker under this Note shall be senior to all other existing Indebtedness and equity of Maker. Upon any Liquidation Event (as hereinafter defined), the Holder will be entitled to receive, before any distribution or payment is made upon, or set apart with respect to, any Indebtedness of the Maker or any class of Capital Stock of the Maker, an amount equal to the Outstanding Principal Amount. For purposes of this Note, “Liquidation Event” means a liquidation pursuant to a filing of a petition for bankruptcy under applicable law or any other insolvency or debtor’s relief, an assignment for the benefit of creditors, or a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Maker. The obligations of Maker under this Note are secured by the Collateral Documents and guaranteed by certain Subsidiaries of Maker pursuant to the Guaranty Agreement.

 

1.8         Fees. Sixth (6) months following the date hereof, Maker shall pay to Holder a deferred fee in an amount that is equal to two percent (2.00%) of the Principal Amount (the “Deferred Fee”). The Deferred Fee shall be payable in cash.

 

ARTICLE 2

 

2.1         Events of Default.  An “Event of Default” under this Note shall mean the occurrence of any of the events described below:

 

For the avoidance of doubt, any default pursuant to clause (d) above shall not be subject to any cure periods pursuant to the instrument governing such Indebtedness or this Note.

 

2.2         Remedies Upon an Event of Default.

 

ARTICLE 3

 

[Reserved.]

 

ARTICLE 4

 

4.1         Covenants.  For so long as any amount under this Note is outstanding, unless the Holder shall otherwise consent in writing:

 

4.2         Set-Off.

 

ARTICLE 5

 

5.1         Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via email at the email address specified in this Section prior to 5:00 p.m. (New York time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via email at the email address specified in this Section on a day that is not a Business Day or later than 5:00 p.m. (New York time) on any date and earlier than 11:59 p.m. (New York time) on such date, (c) the Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The addresses for such notices and communications shall be as follows:

 

If to the Maker:

GSE Systems, Inc.

940 Columbia Gateway Drive

Suite 470

Columbia, Maryland 21046

Attention: Emmett Pepe

Email: Emmett.Pepe@gses.com

If to the Holder:

Pelican Energy Partners LP

2050 W Sam Houston Pkwy S #1550

Houston, TX 77042

Attention: Sam Veselka

Email: sveselka@pep-lp.com

5.2         Governing Law.  This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without reference to principles of conflict of laws or choice of laws.

 

5.3         Headings.  The headings herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Note will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Note shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Note.

 

5.4         Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Holder’s right to pursue actual damages for any failure by the Maker to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Maker (or the performance thereof). The Maker acknowledges that a breach by it of its obligations hereunder will cause irreparable and material harm to the Holder and that the remedy at law for any such breach would be inadequate. Therefore, the Maker agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available rights and remedies, at law or in equity, to equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity of showing economic loss and without any bond or other security being required.

 

5.5         Enforcement Expenses.  The Maker agrees to pay all costs and expenses of enforcement of this Note, including, without limitation, reasonable attorneys’ fees and expenses.

 

5.6         Binding Effect.  The obligations of the Maker and the Holder set forth herein shall be binding upon the successors and assigns of each such party, whether or not such successors or assigns are permitted by the terms herein.

 

5.7         Amendments; Waivers.  No provision of this Note may be waived or amended except in a written instrument signed by Maker and the Holder. No waiver of any default with respect to any provision, condition or requirement of this Note shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.8         Compliance with Securities Laws.  The Holder of this Note acknowledges that this Note is being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder shall not offer, sell or otherwise dispose of this Note in violation of securities laws. This Note and any Note issued in substitution or replacement therefor shall be stamped or imprinted with a legend in substantially the following form:

 

“THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO MAKER.”

 

5.9         Jurisdiction; Venue.  Any action, proceeding or claim arising out of, or relating in any way to this Note shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York.  Maker and the Holder irrevocably submit to the jurisdiction of such courts, which jurisdiction shall be exclusive, and hereby waive any objection to such exclusive jurisdiction or that such courts represent an inconvenient forum.  The prevailing party in any such action shall be entitled to recover its reasonable and documented attorneys’ fees and out-of-pocket expenses relating to such action or proceeding.

 

5.10       Parties in Interest.  This Note shall be binding upon, inure to the benefit of and be enforceable by the Maker, the Holder and their respective successors and permitted assigns; provided that, in no event shall Maker be permitted to assign this Note without the prior written consent of the Holder.

 

5.11       Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

 

5.12       Maker Waivers.  Except as otherwise specifically provided herein, the Maker and all others that may become liable for all or any part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their liability herein and do further consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or Maker liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

 

5.13       Definitions. For the purposes hereof, the following terms shall have the following meanings:

 

(i)           a change in the composition of the board of directors of Maker at a single shareholder meeting where a majority of the individuals that were directors of Maker immediately prior to the start of such shareholder meeting are no longer directors at the conclusion of such meeting, without the written consent of the Holder (which consent shall not be unreasonably withheld);

 

(ii)          a change, without the prior written consent of the Holder, in the composition of the board of directors of Maker prior to the termination of this Note where a majority of the individuals that were directors as of the date of this Note cease to be directors of Maker prior to the termination of this Note; provided that any individual who is nominated by the board of directors (or a duly authorized committee thereof) as of the date of this Note and is elected or appointed as a director of Maker after the date of this Note shall be deemed a member of the board of directors of Maker as of the date of this Note for all purposes;

 

(iii)         other than a shareholder that holds such position at the date of this Note, if a Person comes to have beneficial ownership, control or direction over more than fifty percent (50%) of the Common Stock of Maker; or

 

[Signature Pages Follow]

 

IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed by its duly authorized officer as of the date first above indicated.

 

 

EXHIBIT A

 

WIRE INSTRUCTIONS

SCHEDULE 1

 

REPRESENTATIONS AND WARRANTIES

A.           Organization and Qualification. Maker is a corporation duly organized and validly existing in good standing under the Laws of the State of Delaware and has the requisite corporate power and authority to own its properties and to carry on its business as now being conducted. Maker is duly qualified to do business and is in good standing in every jurisdiction in which the ownership of its property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

 

B.           Authorization; Enforcement; Compliance with Other Instruments. Maker has the requisite corporate power and authority to execute the Transaction Documents and to perform its obligations under the Transaction Documents. The execution and delivery of the Transaction Documents has been duly and validly authorized by Maker’s board of directors and no further consent or authorization is required by Maker, its board of directors, its shareholders or any other Person in connection therewith. The Transaction Documents have been duly and validly executed and delivered by Maker and constitute valid and binding obligations of Maker, enforceable against Maker in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar Laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

 

C.           No Conflicts. The execution, delivery and performance of the Transaction Documents by Maker will not (a) conflict with or result in a violation of the certificate of incorporation or by-laws or (b) conflict with, or constitute a material default (or an event which, with notice or lapse of time or both, would become a material default) under, or give to others any right of termination, amendment, acceleration or cancellation of, any material agreement to which Maker or any of the Subsidiaries is a party.

 

D.           Litigation and Regulatory Proceedings. There are no material actions, causes of action, suits, claims, proceedings, inquiries or investigations (collectively, “Proceedings”) before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of Company or any of the Subsidiaries, threatened against or affecting Maker or any of the Subsidiaries or any of Maker’s or the Subsidiaries’ officers or directors in their capacities as such.

 

E.           No Undisclosed Events, Liabilities or Developments. No event, development or circumstance has occurred or exists, or to the knowledge of the executive officers of Maker is reasonably anticipated to occur or exist that (a) would reasonably be anticipated to have a Material Adverse Effect or (b) would be required to be disclosed by Maker under applicable securities Laws on a registration statement filed with the United States Securities and Exchange Commission relating to an issuance and sale by Maker of its Common Stock and which has not been publicly announced.

 

F.           Compliance with Law. Maker and each of the Subsidiaries have conducted and are conducting their respective businesses in compliance in all material respects with all applicable Laws.

 

G.          Employee Relations. Neither Maker nor any Subsidiary is involved in any union labor dispute nor, to the knowledge of Maker, is any such dispute threatened. Neither Maker nor any Subsidiary is a party to any collective bargaining agreement. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified Maker that such officer intends to leave Maker’s employ or otherwise terminate such officer’s employment with Maker.

 

H.          Intellectual Property Rights. Maker and each Subsidiary owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights (collectively, “IP Rights”) necessary to conduct their respective businesses as now conducted. None of the material IP Rights of Maker or any of the Subsidiaries are expected to expire or terminate within three (3) years from the date of this Note and which expiration or termination would reasonably be expected to result in a Material Adverse Effect. Neither Maker nor any Subsidiary is infringing, misappropriating or otherwise violating any IP Rights of any other Person. No claim has been asserted, and no Proceeding is pending, against Maker or any Subsidiary alleging that Maker or any Subsidiary is infringing, misappropriating or otherwise violating the IP Rights of any other Person, and, to Maker’s knowledge no such claim or Proceeding is threatened, and Maker is not aware of any facts or circumstances which might give rise to any such claim or Proceeding. Maker and the Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their material IP Rights.

 

I.           Environmental Laws. Except, in each case, as would not be reasonably anticipated to have a Material Adverse Effect, Maker and the Subsidiaries (a) are in compliance with any and all applicable Laws relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants, (b) have received and hold all permits, licenses or other approvals required of them under all such Laws to conduct their respective businesses and (c) are in compliance with all terms and conditions of any such permit, license or approval.

 

J.          Title to Assets. Maker and the Subsidiaries have good and marketable title to all personal property owned by them which is material to their respective businesses, in each case free and clear of all liens, encumbrances and defects. Any real property and facilities held under lease by Maker or any Subsidiary are held under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by Maker and the Subsidiaries.

 

K.          Insurance. Maker and each of the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of Maker reasonably believes to be prudent and customary in the businesses in which Maker and the Subsidiaries are engaged. Neither Maker nor any of the Subsidiaries has been refused any insurance coverage sought or applied for, and Maker has no reason to believe that it will not be able to renew all existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers.

 

L.          Regulatory Permits. Maker and the Subsidiaries have in full force and effect all certificates, approvals, authorizations and permits from all regulatory authorities and agencies necessary to own, lease or operate their respective properties and assets and conduct their respective businesses, and neither Maker nor any Subsidiary has received any notice of Proceedings relating to the revocation or modification of any such certificate, approval, authorization or permit, except for such certificates, approvals, authorizations or permits with respect to which the failure to hold would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

M.          No Materially Adverse Contracts, Etc. Neither Maker nor any of the Subsidiaries is (a) subject to any charter, corporate or other legal restriction, or any judgment, decree or order which in the judgment of Maker’s officers has or is reasonably expected to have a Material Adverse Effect or (b) a party to any contract or agreement which in the judgment of Maker’s management has or would reasonably be expected to have a Material Adverse Effect.

 

N.          Taxes. Maker and the Subsidiaries each has made or filed, or caused to be made or filed, all United States federal and other material tax returns, reports and declarations required by any jurisdiction to which it is subject and has paid all taxes and other governmental assessments and charges that are material in amount, required to be paid by it, regardless of whether such amounts are shown or determined to be due on such returns, reports and declarations, except those being contested in good faith by appropriate proceedings and for which it has set aside on its books reserves in accordance with GAAP. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction.

 

O.          Solvency. After giving effect to the receipt by Maker of the proceeds from the transactions contemplated by this Note (a) Maker’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of Maker’s existing debts and other liabilities (including known contingent liabilities) as they mature; and (b) the current cash flow of Maker, together with the proceeds Maker would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. Maker does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). Maker has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction.

 

P.           Investment Company. Maker is not, and is not an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

Q.          OFAC. None of Maker nor any of the Subsidiaries nor, to the knowledge of Maker, any director, officer, agent, employee, affiliate or person acting on behalf of Maker and/or any Subsidiary has been or is currently subject to any United States sanctions administered by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”); and Maker will not directly or indirectly use any proceeds received from the Holder, or lend, contribute or otherwise make available such proceeds to its Subsidiaries or to any affiliated entity, joint venture partner or other person or entity, to finance any investments in, or make any payments to, any country or person currently subject to any of the sanctions of the United States administered by OFAC.

 

R.          No Foreign Corrupt Practices. None of Maker or any of the Subsidiaries has, directly or indirectly: (a) made or authorized any contribution, payment or gift of funds or property to any official, employee or agent of any governmental authority of any jurisdiction except as otherwise permitted under applicable Law; or (b) made any contribution to any candidate for public office, in either case, where either the payment or the purpose of such contribution, payment or gift was, is, or would be prohibited under the Foreign Corrupt Practices Act or the rules and regulations promulgated thereunder or under any other legislation of any relevant jurisdiction covering a similar subject matter applicable to Maker or its Subsidiaries and their respective operations and Maker has instituted and maintained policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance with such legislation.

 

S.           Anti-Money Laundering. The operations of each of Maker and the Subsidiaries are and have been conducted at all times in compliance with all applicable anti-money laundering laws, regulations, rules and guidelines in its jurisdiction of incorporation and in each other jurisdiction in which such entity, as the case may be, conducts business (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental authority involving Maker or its Subsidiaries with respect to any of the Money Laundering Laws is, to the knowledge of Maker, pending, threatened or contemplated.

 SCHEDULE 2

 

COVENANTS

A.           Notification of Certain Events.  Maker shall give prompt written notice to the Holder of (a) the occurrence or non-occurrence of any Event, the occurrence or non-occurrence of which would render any representation or warranty of Maker contained in this Note, if made on or immediately following the date of such Event, untrue or inaccurate in any material respect, (b) the occurrence of any Event that, individually or in combination with any other Events, has had or could reasonably be expected to have a Material Adverse Effect, (c) any failure of Maker to comply with or satisfy any covenant or agreement to be complied with or satisfied by it hereunder or any Event that would otherwise result in the nonfulfillment of any of the conditions to the Holder’s obligations hereunder, (d) any written notice or other written communication from any Person alleging that the consent of such Person is or may be required in connection with the consummation of the transactions contemplated by this Note, or (e) any Proceeding pending or, to Maker’s knowledge threatened in writing against a party relating to the transactions contemplated by this Note.

 

B.          Intercreditor Agreement.  In the event that Maker or any Subsidiary incurs debt to a seller as partial consideration paid to such seller in connection with an Acquisition, unless otherwise waived in writing by the Holder, as a condition to consummation of such Acquisition, the holder of such debt shall enter into an intercreditor agreement with Maker and the Holder on terms reasonably satisfactory to the Holder.

 

C.          Indemnification of the Holder.

 

(a)          Maker will indemnify and hold the Holder, its Affiliates and their respective directors, officers, managers, shareholders, members, partners, employees and agents and permitted successors and assigns (each, a “Holder Party”) harmless from any and all damages, losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and actual, reasonable and documented attorneys’ fees and costs of investigation and defense (collectively, “Losses”) that any such Holder Party may suffer or incur as a result of or relating to:

 

(b)          in addition to the indemnity contained herein, Maker will reimburse the Holder for its actual, reasonable and documented legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection with the preparation of this Note and the other Transaction Documents, the administration thereof, any amendment, modification or waiver thereto, and any enforcement thereof or exercise of remedies thereunder.

 

(c)          the provisions of this Section (C) shall survive the termination or expiration of this Note.

 

D.          Information Rights. The Maker shall deliver to the Holder:

 

(a)          as soon as available, but in any event within 120 days after the end of each fiscal year of the Maker (commencing with the fiscal year ended December 31, 2024), a consolidated balance sheet of the Maker and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income or operations, changes in shareholders’ equity, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, commencing with the first fiscal year for which such corresponding figures are available, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Holder, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit.

 

(b)          as soon as available, but in any event within 90 days after the end of each of the first three fiscal quarters of each fiscal year of the Maker (commencing with the fiscal quarter ended September 30, 2024), a consolidated balance sheet of the Maker and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income or operations, changes in shareholders’ equity, and cash flows for the portion of the Maker’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding portion of the previous fiscal year, commencing with the first fiscal quarter for which such corresponding figures are available, all in reasonable detail, such consolidated statements to be certified by an appropriate officer of the Maker as fairly presenting, in all material respects, the financial condition, results of operations, shareholders’ equity and cash flows of the Maker and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.

 

(c)          as soon as available, but in any event within 30 days after the end of each fiscal month of each fiscal year of the Maker (commencing with the fiscal month ended August 31, 2024), revenue statements of the Maker and its Subsidiaries.

 

E.           Indebtedness. Neither Maker nor any of its Subsidiaries shall incur, create, assume or permit to exist any Indebtedness except (i) Indebtedness arising under this Note and (ii) Permitted Indebtedness.

 

F.           Liens. Neither Maker nor any of its Subsidiaries shall create, incur or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of any of its assets, whether now owned or hereafter acquired, to secure any Indebtedness other than liens and security interests created pursuant to the Transaction Documents.

 

G.          Asset Sales. Neither Maker nor any of its Subsidiaries shall sell, transfer, assign or otherwise dispose of any of its property or assets, other than (i) inventory in the ordinary course of business, (ii) sales of worn-out, obsolete or surplus assets in the ordinary course of business and (iii) the wind-down or sale of all or any part of Maker’s workforce solutions business line.

 

H.          Restricted Payments. Neither Maker nor any of its Subsidiaries shall declare or pay any dividends on any class of its equity or make any payment on account of the purchase, redemption, cancellation or other retirement of any shares of such equity or any options or warrants to purchase such equity or make any distribution in respect thereof, either directly or indirectly; provided that, notwithstanding the foregoing, any Subsidiary of Maker may make any such payment to Maker.

 

I.            Affiliate Transactions. Neither Maker nor any of its Subsidiaries shall enter into any contract, agreement or business arrangement with any Person (other than Maker or any of its Subsidiaries) controlled by, controlling or under common control with Maker or such Subsidiary on terms and conditions that are less favorable to Maker or such Subsidiary than would be usual and customary in similar contracts, agreements or business arrangements between Persons not affiliated with each other.

 

J.           Investments. Neither Maker nor any of its Subsidiaries shall, after the date hereof, (i) form or acquire any Subsidiaries or (ii) make any Investment in another Person.

Exhibit 10.2

Execution Version

SECURITY AGREEMENT

This Security Agreement (this “Agreement”), dated as of August 7, 2024, by and among GSE Systems, Inc., a Delaware corporation (the “Borrower”) and the other entities listed on the signature pages hereto (each, a “Grantor” and together with the Borrower, the “Grantors”), and Nuclear Engineering Holdings LLC, a Delaware limited liability company (the “Secured Party”).

WHEREAS, the Grantors (other than the Borrower) have delivered to the Secured Party that certain Guaranty Agreement dated as of the date hereof (as amended and in effect from time to time, the “Guaranty”) pursuant to which such Grantors have jointly and severally guaranteed the obligations of the Borrower owing to the Secured Party pursuant to the Notes and this Agreement;

1.           Definitions.  All capitalized terms used herein without definitions shall have the respective meanings provided therefor in the Note.  All terms defined in the Uniform Commercial Code of the State (as hereinafter defined) and used herein shall have the same definitions herein as specified therein, however, if a term is defined in Article 9 of the Uniform Commercial Code of the State differently than in another Article of the Uniform Commercial Code of the State, the term has the meaning specified in Article 9, and the following terms shall have the following meanings:

“Excluded Account” means, collectively: (a) any tax, trust, escrow, custodian, fiduciary, or payroll account (including, without limitation, accounts used for payroll, payroll taxes, workers’ compensation or unemployment compensation premiums or benefits and other employee wage and benefit payments to or for the benefit of any Grantor’s employees or for other trust or fiduciary purposes of any Grantor or accounts of any Grantor used specifically and exclusively for withholding any other taxes required to be collected or withheld by any Grantor (including, without limitation, federal and state sales, use and excise taxes, customs duties, import duties and independent customs brokers’ charges) for which any Grantor is or may reasonably be expected to be liable), so long as such deposit account contains only funds to be used exclusively for taxes, trust obligations and payroll obligations; (b) zero balance accounts; (c) accounts used exclusively for cash collateral as permitted by the terms of the Transaction Documents, (other than with respect to cash collateral securing the Obligations); and (d) other deposit accounts, so long as at any time the balance in all such accounts does not exceed $100,000 in the aggregate.

“Excluded Property” means, collectively, with respect to each Grantor: (a) any owned or leased real property; (b) any trademarks, patents, copyrights, domain names, intellectual property license rights and intellectual property record and other IP Rights for which a Lien thereon is not perfected either by filing of a Uniform Commercial Code financing statement or by appropriate evidence of such Lien being filed in either the United States Copyright Office or the United States Patent and Trademark Office; (c) unless requested by the Secured Party, any personal property (other than personal property described in clause (b) above) for which the attachment or perfection of a Lien thereon is not governed by the Uniform Commercial Code; (d) any property which is subject to a Lien in connection with purchase money financing, capital lease, equipment lease or similar financing or purchase terms that is permitted by the Transaction Documents and, pursuant to documents evidencing such permitted Lien, prohibits Grantor from granting any other Liens in such property; (e) Excluded Accounts; (f) any contract, lease, permit, license or any contractual obligation entered into by Grantor (i) that prohibits or requires the consent of any Person other than Grantor and its Affiliates (which consent has not been obtained) as a condition to the creation by Grantor of a Lien on any right, title or interest in such permit, license or contractual obligation or any equity interest related thereto or that would be breached or give the other party to the right to terminate such permit, license or contractual obligation as a result thereof or (ii) to the extent that any requirement of law applicable thereto prohibits the creation of a Lien thereon, but only, with respect to the prohibition or requirement for consent in clauses (i) and (ii), to the extent, and for as long as, such prohibition or requirement for consent (y) was not entered into in contemplation of the Note or this Agreement and (z) is not terminated or rendered unenforceable or otherwise deemed ineffective by the Uniform Commercial Code or any other requirement of law or by the receipt of the applicable Person whose consent is required; (g) any “intent to use” trademark application for registration of a trademark filed pursuant to Section 1(b) of the Lanham Act, 15 U.S.C. § 1051, prior to the filing of a “Statement of Use” pursuant to Section 1(d) of the Lanham Act or an “Amendment to Allege Use” pursuant to Section 1(c) of the Lanham Act with respect thereto; (h) “margin stock” to the extent the creation of a security interest therein in favor of Secured Party will result in a violation of Regulation U issued by the Board of Governors of the Federal Reserve System of the United States; (i) any governmental licenses or state or local franchises, charters, and authorizations to the extent a security interest therein is prohibited or restricted by Law, other than proceeds and receivables therefrom; (j) pledges and security interests prohibited or restricted by Law (no requirement to obtain the consent of any governmental authority or third party, including, without limitation, no requirement to comply with the Federal Assignment of Claims Act or any similar statute), other than proceeds and receivables therefrom; (k) interests in joint ventures and non-wholly-owned subsidiaries that cannot be pledged without the consent of third parties, to the extent such joint ventures and non-wholly- owned subsidiaries are permitted by the terms of the Transaction Documents or otherwise approved by the Secured Party; and (l) any voting stock of any Subsidiary of any Grantor that is a controlled foreign corporation (as defined in Section 957 of the Code (a “CFC”)), any Subsidiary substantially all of the assets of which constitute the Equity Interests of CFCs (an “FSHCO”) or a Subsidiary that is held directly or indirectly by a CFC or an FSHCO in excess of 65% of the total combined voting power of all classes of stock of first tier CFCs and FSHCOs of Grantor that are entitled to vote (within the meaning of Section 1.956-2(c)(2) of the United States Treasury Regulations).

“Event of Default” means the occurrence of any “Event of Default” under and as defined in the Note, or the failure of any Grantor to comply with any term or covenant of any Transaction Document (including this Agreement) to which it is a party.

“Guarantors” means, collectively, each subsidiary of the Borrower which provides a guarantee of all or any portion of the Obligations of the Borrower to the Secured Party, including, without limitation, GSE Performance Solutions, Inc., Hyperspring, LLC, Absolute Consulting, Inc., GSE True North Consulting, LLC, and GSE Design & Analysis, LLC.

“Lien” means any mortgage, charge, pledge, hypothecation, security interest, assignment by way of security, lien (statutory or otherwise), encumbrance, conditional sale agreement, capital lease, financing lease, deposit arrangement, title retention agreement, and any other agreement, trust or arrangement that in substantial substance secures payment or performance of an obligation.

“Obligations” means, collectively, (a) all debts, liabilities and obligations, present or future, direct or indirect, absolute or contingent, matured or unmatured, at any time or from time to time due or accruing due and owing by or otherwise payable by the Borrower or any Guarantor (including, without limitation, any Grantor) to the Secured Party in any currency, under, in connection with or pursuant to any Transaction Document (including, without limitation, this Agreement) and related transaction documents, and whether incurred by the Borrower or any Guarantor (including, without limitation, any Grantor) alone or jointly with another or others and whether as principal, guarantor or surety and in whatever name or style and (b) all reasonable and documented expenses, costs and charges incurred by or on behalf of the Secured Party in connection with any Transaction Document (including this Agreement), any transaction document related thereto or the Collateral, including all legal fees, court costs, receiver’s or agent’s remuneration and other expenses of taking possession of, repairing, protecting, insuring, preparing for disposition, realizing, collecting, selling, transferring, delivering or obtaining payment for the Collateral, and of taking, defending or participating in any action or proceeding in connection with any of the foregoing matters or otherwise in connection with the Secured Party’s interest in any Collateral, whether or not directly relating to the enforcement of this Agreement, the Note, any other Transaction Document and any transaction document related thereto.

“Permitted Lien” means any of the following: (a) mechanics and materialman Liens and other statutory Liens (including Liens for taxes, fees, assessments and other governmental charges or levies; Liens for workers’ compensation, unemployment insurance, old age benefit and other types of social security) in respect of any amount (i) which is not at the time overdue or (ii) which may be overdue but the validity of which is being contested at the time in good faith by appropriate proceedings, in each case so long as the holder of such Lien has not taken any action to foreclose or otherwise exercise any remedies with respect to such Lien; (b) Liens in favor of Secured Party; (c) Liens existing on the date of this Agreement and listed on Schedule I attached hereto and any renewals or extensions thereof; provided that (i) no additional property shall be covered thereby, and (ii) the amount secured or benefited thereby is not increased except as permitted by the Transaction Documents; (d) Liens to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases, performance bonds, purchase, construction or sales contracts and other similar obligations; provided, that in each such case such Liens (i) were not incurred or made in connection with the incurrence or maintenance of the borrowing of money or the obtaining of advances or credit, and (ii) do not, in the aggregate, materially detract from the value of the property or assets so encumbered or materially impair the use thereof in the operation of the business of any Grantor; (e) leases or subleases granted to others, easements, rights-of-way, restrictions (including zoning restrictions), covenants, encroachments, minor title defects or irregularities in title and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of any Grantor, provided that such Liens do not, in the aggregate, materially detract from the value of the property or assets so encumbered or materially impair the use thereof in the operation of the business of Grantor; (f) any attachment or judgment Liens not constituting an Event of Default under the Transaction Documents; (g) Liens securing purchase money debt permitted by the Transaction Documents, provided that (i) any such Lien shall extend solely to the item or items of such property (or improvement thereon) so acquired or constructed, (ii) the principal amount secured by any such Lien shall at no time exceed an amount equal to the lesser of (1) the cost to the applicable Grantor of the property (or improvement thereon) so acquired or constructed and (2) the fair market value (as determined in good faith by the board of directors of GSE Systems, Inc.) of such property (or improvement thereon) at the time of such acquisition or construction, and (iii) any such Lien shall be created contemporaneously with, or within 90 days after, the acquisition or construction of such property; (h) Liens securing capital leases permitted by the terms of the Transaction Documents; (i) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into any Grantor or becoming a Subsidiary of any Grantor, or any Lien existing on any property acquired by any Grantor at the time such property is so acquired (whether or not the indebtedness secured thereby shall have been assumed), provided that (i) no such Lien shall have been incurred, created or assumed in contemplation of such consolidation or merger or such Person’s becoming a Subsidiary or such acquisition of property, and (ii) each such Lien shall extend solely to the item or items of property so acquired; (j) any interest or title of a lessor or sublessor under any lease and any interest of a licensor under a license, in each case to the extent the foregoing does not materially detract from or interfere with the use of such lease or license by any Grantor and not prohibited by the Transaction Documents; (k) Liens arising from the filing of precautionary Uniform Commercial Code financing statements with respect to any lease permitted by the Transaction Documents; (l) non-exclusive licenses and sublicenses granted by any Grantor and leases and subleases to third parties in the ordinary course of business, provided that such licenses or subleases do not, in the aggregate, materially detract from the value of the property or assets so encumbered or materially impair the use thereof in the operation of, or interfere with the business of, such Grantor; (m) Liens in favor of collecting banks arising by operation of law under Section 4-210 of the Uniform Commercial Code or, with respect to collecting banks located in the State of New York, under Section 4-208 of the Uniform Commercial Code; (n) Liens (including the right of set-off) in favor of a bank or other depository institution arising as a matter of law encumbering deposits; (o) Liens in favor of customs and revenue authorities arising as a matter of law which secure payment of customs duties in connection with the importation of goods in the ordinary course of business; (p) Liens on unearned insurance premiums securing the financing thereof to the extent such financing is permitted under the terms of the Transaction Documents; (q) Liens solely on any cash earnest money deposits in connection with any letter of intent or purchase agreement with respect to an Acquisition that is permitted by the Transaction Documents or otherwise approved by Secured Party; (r) Liens on cash collateral securing letters of credit, purchase cards and similar obligations, treasury obligations, hedging obligations (entered into in the ordinary course of business for bona fide hedging purposes relating to cash-flow currency risks and not for speculation) and similar obligations permitted by the terms of the Transaction Documents; (s) Liens securing commercial revolving lines of credit permitted by the terms of the Transaction Documents; (t) other Liens not described above securing obligations other than indebtedness for borrowed money; provided that the aggregate outstanding amount of the obligations secured thereby does not exceed $100,000 at any time; and (u) Liens which are permitted in writing by the Secured Party in its sole and absolute discretion.

“State” means the State of Delaware.

“Transaction Documents” has the meaning given in the Note.

2.            Grant of Security Interest.

3.           Authorization to File Financing Statements.  Each Grantor hereby irrevocably authorizes the Secured Party at any time and from time to time to file in the proper filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including whether such Grantor is an organization, the type of organization and any organizational identification number issued to such Grantor.  Each Grantor agrees to furnish any such information to the Secured Party promptly upon the Secured Party’s reasonable request.

4.          Other Actions.  Further to ensure the attachment, perfection and first priority of, and the ability of the Secured Party to enforce, the Secured Party’s security interest in the Collateral, each the Grantor agrees, in each case at such Grantor’s expense, to take the following actions with respect to the following Collateral and without limitation on the Grantor’s other obligations contained in this Agreement:

5.           Representations and Warranties Concerning a Grantor’s Legal Status.  Each Grantor has, on the date hereof, delivered to the Secured Party a certificate signed by such Grantor and entitled “Perfection Certificate” (each, a “Perfection Certificate”).  Each Grantor represents and warrants to the Secured Party as follows: as of the date hereof (a) such Grantor’s exact legal name is that indicated on its Perfection Certificate and on the signature page hereof, (b) such Grantor is an organization of the type, and is organized in the jurisdiction, set forth in its Perfection Certificate, (c) its Perfection Certificate accurately sets forth such Grantor’s organizational identification number or accurately states that such Grantor has none, (d) its Perfection Certificate accurately sets forth such Grantor’s place of business or, if more than one, its chief executive office, as well as such Grantor’s mailing address, if different, (e) all other information set forth on its Perfection Certificate pertaining to such Grantor is accurate and complete, and (f) there has been no change in any of such information since the date on which its Perfection Certificate was signed by such Grantor.

6.           Covenants Concerning Grantor’s Legal Status.  Each Grantor covenants with the Secured Party as follows: (a) without providing at least ten days prior written notice to the Secured Party, such Grantor will not change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, (b) if such Grantor does not have an organizational identification number and later obtains one, such Grantor will forthwith notify the Secured Party of such organizational identification number, and (c) without providing at least ten days prior written notice to the Secured Party, such Grantor will not change its type of organization, jurisdiction of organization or other legal structure.

7.           Representations and Warranties Concerning Collateral, Etc.  Each Grantor further represents and warrants to the Secured Party as follows: (a) such Grantor is the owner of or has other rights in or power to transfer the Collateral of such Grantor, free from any right or claim of any Person or any adverse lien, except for the security interest created by this Agreement and the Permitted Liens, (b) [reserved], (c) such Grantor holds no commercial tort claim except as indicated on such Grantor’s Perfection Certificate, (d) all other information set forth on such Grantor’s Perfection Certificate pertaining to the Collateral is accurate and complete, and (e) there has been no material change in any of such information since the date on which such Grantor’s Perfection Certificate was signed by such Grantor.

8.           Covenants Concerning Collateral, Etc.  Each Grantor further covenants with the Secured Party as follows: (a) other than inventory sold in the ordinary course of business consistent with past practices and other dispositions of property permitted by the terms of this Agreement and the Transaction Documents, the Collateral, to the extent not delivered to the Secured Party pursuant to §4, will be kept at those locations listed on such Grantor’s Perfection Certificate and such Grantor will not remove the Collateral from such locations, without providing at least ten Business Days prior written notice to the Secured Party, (b) except for the security interest herein granted, such Grantor shall be the owner of or have other rights in the Collateral free from any right or claim of any other Person or any Lien (other than Permitted Liens), and such Grantor shall defend the same against all claims and demands of all Persons at any time claiming the same or any interests therein adverse to the Secured Party (other than Permitted Liens), (c) other than in favor of the Secured Party or with respect to any Permitted Lien, such Grantor shall not pledge, mortgage or create, or suffer to exist any right of any Person in or claim by any Person to the Collateral, or any Lien in the Collateral in favor of any Person, or become bound (as provided in Section 9-203(d) of the Uniform Commercial Code of the State or any other relevant jurisdiction or otherwise) by a security agreement in favor of any Person as secured party, (d) the Grantor will permit the Secured Party, or its designee, upon advance written notice to the Grantor, to inspect the Collateral during normal business hours, wherever located, (e) such Grantor will pay promptly when due all taxes, assessments, governmental charges and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement, except as may be contested in good faith by appropriate proceedings, (f) such Grantor will not sell or otherwise dispose, or offer to sell or otherwise dispose, of the Collateral, or any interest therein except for, so long as no Event of Default has occurred and is continuing, dispositions of obsolete or worn-out property, the granting of non-exclusive licenses in the ordinary course of business, the sale of inventory in the ordinary course of business consistent with past practices and other dispositions of property not to exceed $500,000 in any fiscal year of Grantor; and (g) upon the occurrence and during the continuance of an Event of Default, the Grantor will promptly upon Secured Party’s request, take all steps necessary to protect Secured Party’s interest in the Collateral under the Federal Assignment of Claims Act, including making direct assignment to Secured Party under the Federal Assignment of Claims Act of the payments due or to become due under any contract between Grantor and the United States or any department or agency thereof.

9.            Collateral Protection Expenses; Preservation of Collateral.

10.         Securities and Deposits. The Secured Party may at any time following and during the continuance of an Event of Default, at its option, transfer to itself or any nominee any securities constituting Collateral, receive any income thereon and hold such income as additional Collateral or apply it to the Obligations.  Whether or not any Obligations are due, the Secured Party may, following and during the continuance of an Event of Default demand, sue for, collect, or make any settlement or compromise which it deems desirable with respect to the Collateral.  Regardless of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums at any time credited by or due from the Secured Party to the Grantor may at any time be applied to or set off against any of the Obligations then due and owing.

11.          Notification to Account Debtors and Other Persons Obligated on Collateral.  If an Event of Default shall have occurred and be continuing:

(a)          each Grantor shall, at the request and option of the Secured Party, notify account debtors and other Persons obligated on any of the Collateral of the security interest of the Secured Party in any account, chattel paper, general intangible, instrument or other Collateral and that payment thereof is to be made directly to the Secured Party or to any financial institution designated by the Secured Party as the Secured Party’s agent therefor;

(b)          the Secured Party may itself, without notice to or demand upon any Grantor, so notify account debtors and other Persons obligated on Collateral;

(c)           after the making of such a request or the giving of any such notification, each Grantor shall hold any proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by such Grantor as trustee for the Secured Party, for the benefit of the Secured Party, without commingling the same with other funds of such Grantor and shall turn the same over to the Secured Party in the identical form received, together with any necessary endorsements or assignments; and

(d)           the Secured Party shall apply the proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral and received by the Secured Party to the payment of the Obligations, such proceeds to be immediately credited after final payment in cash or other immediately available funds of the items giving rise to them.

12.          Power of Attorney.

(a)          upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise dispose of or deal with any of the Collateral in such manner as is consistent with the Uniform Commercial Code of the State or any other relevant jurisdiction and as fully and completely as though the Secured Party were the absolute owner thereof for all purposes, and to do, at such Grantor’s expense, at any time, or from time to time, all acts and things which the Secured Party deems necessary or useful to protect, preserve or realize upon the Collateral and the Secured Party’s security interest therein, in order to effect the intent of this Agreement, all no less fully and effectively as such Grantor might do, including (i) upon written notice to such Grantor, the exercise of voting rights with respect to voting securities, which rights may be exercised, if the Secured Party so elects, with a view to causing the liquidation of assets of the issuer of any such securities and (ii) the execution, delivery and recording, in connection with any sale or other disposition of any Collateral, of the endorsements, assignments or other instruments of conveyance or transfer with respect to such Collateral; and

(b)          to the extent that such Grantor’s authorization given in §3 is not sufficient, to file such financing statements with respect hereto, with or without such Grantor’s signature, or a photocopy of this Agreement in substitution for a financing statement, as the Secured Party may deem appropriate and to execute in such Grantor’s name such financing statements and amendments thereto and continuation statements which may require such Grantor’s signature.

13.          Rights and Remedies.

14.         Standards for Exercising Rights and Remedies.  To the extent that applicable law imposes duties on the Secured Party to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is not commercially unreasonable for the Secured Party (a) to fail to incur expenses reasonably deemed significant by the Secured Party to prepare Collateral for disposition or otherwise to fail to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other Persons obligated on Collateral or to fail to remove Liens on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other Persons obligated on the Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of the Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other Persons, whether or not in the same business as the Grantor, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of the Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of the Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the Secured Party against risks of loss, collection or disposition of the Collateral or to provide to the Secured Party a guaranteed return from the collection or disposition of such Collateral, or (l) to the extent deemed appropriate by the Secured Party, to obtain the services of brokers, investment bankers, consultants and other professionals to assist the Secured Party in the collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of this §14 is to provide non-exhaustive indications of what actions or omissions by the Secured Party would fulfill the Secured Party’s duties under the Uniform Commercial Code of the State or any other relevant jurisdiction in the Secured Party’s exercise of remedies against the Collateral and that other actions or omissions by the Secured Party shall not be deemed to fail to fulfill such duties solely on account of not being indicated in this §14.  Without limitation upon the foregoing, nothing contained in this §14 shall be construed to grant any rights to any Grantor or to impose any duties on the Secured Party that would not have been granted or imposed by this Agreement or by applicable law in the absence of this §14.

15.         No Waiver by Secured Party, etc.  The Secured Party shall not be deemed to have waived any of its rights and remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by the Secured Party.  No delay or omission on the part of the Secured Party in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy.  A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.  All rights and remedies of the Secured Party with respect to the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as the Secured Party deems expedient.

16.         Suretyship Waivers by Grantor. Each Grantor waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description.  With respect to both the Obligations and the Collateral, each Grantor assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of or failure to perfect any security interest in any such Collateral, to the addition or release of any party or Person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Secured Party may deem advisable.  The Secured Party shall have no duty as to the collection or protection of the Collateral or any income therefrom, the preservation of rights against prior parties, or the preservation of any rights pertaining thereto beyond the safe custody thereof as set forth in §9.2.  Each Grantor further waives any and all other suretyship defenses.

17.        Marshaling. The Secured Party shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the rights and remedies of the Secured Party hereunder and of the Secured Party in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Secured Party’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

18.          Proceeds of Dispositions; Expenses.  The Grantor shall pay to the Secured Party on demand any and all reasonable and documented expenses, including reasonable attorneys’ fees and disbursements, actually incurred or paid by the Secured Party in protecting or preserving the Secured Party’s rights and remedies under or in respect of any of the Obligations or any of the Collateral and any such expenses actually incurred in releasing any security interest granted hereunder and, in addition, the Grantor shall pay to the Secured Party on demand any and all documented expenses, including reasonable attorneys’ fees and disbursements, actually incurred or paid by the Secured Party in enforcing the Secured Party’s rights and remedies under or in respect of any of the Obligations or any of the Collateral.  After deducting all of said expenses, the residue of any proceeds of collection or sale or other disposition of Collateral shall, to the extent actually received in cash, be applied to the payment of the Obligations in such order or preference as is provided in the SPA, proper allowance and provision being made for any Obligations not then due.  Upon the final payment and satisfaction in full of all of the Obligations and after making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the State, any excess shall be returned to the Grantor.  In the absence of final payment and satisfaction in full of all of the Obligations, the Grantor shall remain liable for any deficiency.

19.          Overdue Amounts.  Until paid, all amounts due and payable by a Grantor hereunder shall be a debt secured by the Collateral and shall bear, whether before or after judgment, interest at the rate of interest for overdue principal set forth in the Transaction Documents.

20.       Governing Law; Consent to Jurisdiction.  THIS AGREEMENT IS A CONTRACT UNDER THE LAWS OF THE STATE OF DELAWARE AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE OF DELAWARE.  EACH COMPANY AND THE SECURED PARTY EACH AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER ACTION BROUGHT BY SUCH PERSON ARISING HEREUNDER OR IN ANY WAY RELATED TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE BOROUGH OF MANHATTAN OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON SUCH PERSON BY MAIL AT THE ADDRESS SPECIFIED ON THE SIGNATURE PAGE OF EACH PARTY HERETO.  EACH COMPANY AND THE SECURED PARTY EACH HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUIT BROUGHT IN THE STATE OF NEW YORK OR ANY COURT SITTING THEREIN OR THAT A SUIT BROUGHT THEREIN IS BROUGHT IN AN INCONVENIENT COURT.

21.       Waiver of Jury Trial.  EACH COMPANY AND THE SECURED PARTY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OR ENFORCEMENT OF ANY SUCH RIGHTS OR OBLIGATIONS.  Except as prohibited by law, each Grantor and the Secured Party each waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages.  Each Grantor (a) certifies that neither the Secured Party nor any representative, agent or attorney of the Secured Party has represented, expressly or otherwise, that the Secured Party would not, in the event of litigation, seek to enforce the foregoing waivers or other waivers contained in this Agreement and (b) acknowledges that, in entering into this Agreement and any other Transaction Document to which the Secured Party is a party, the Secured Party is relying upon, among other things, the waivers and certifications contained in this §21.

22.          Notices.  All notices, requests and other communications hereunder shall be made in the manner set forth in the SPA.

23.       Amendment and Restatement.  Notwithstanding this amendment and restatement of the Original Security Agreement, (i) all of the indebtedness, liabilities and obligations owing by the Grantor or any other person under the Original Security Agreement shall continue as obligations hereunder, as amended hereby, and shall be and remain secured by this Agreement, (ii) the security interest granted by the Grantor to the Secured Party, in all of the Grantor’s rights, title and interests in, to and under the assets and properties of the Grantor pursuant to the Original Security Agreement (the “Existing Security Interest”) shall continue as a security interest hereunder, as amended hereby, and (iii) this Agreement is given as a substitution of, and not as a payment of the indebtedness, liabilities and obligations of the Grantor under the Original Security Agreement and neither the execution and deliver of this Agreement nor the consummation of any other transaction contemplated hereunder is intended to constitute a novation of the Original Security Agreement or the Existing Security Interest created thereunder.

24.         Miscellaneous.  The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof.  This Agreement and all rights and obligations hereunder shall be binding upon each Grantor and its successors and assigns, and shall inure to the benefit of the Secured Party and its successors and assigns.  If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein.  Each Grantor acknowledges receipt of a copy of this Agreement.

25.        Release of Collateral.  Upon a sale, transfer or other disposition of any Collateral permitted by the Documents, such Collateral shall automatically be released from the Liens created hereby, and all rights to such Collateral shall automatically revert to the applicable Grantor; and Secured Party, at the required and sole expense of such Grantor, shall promptly execute and deliver to the Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral.  Secured Party agrees that upon payment in full of all Obligations (other than contingent obligations not due and owing), whether as a result of Conversion or repayment of the Obligations in accordance with the terms of the Transaction Documents, and the termination of any applicable commitments pursuant to the terms of the Transaction Documents, the security interests granted hereby shall, subject to the Secured Party’s rights of reinstatement set forth in any Transaction Documents, automatically terminate and all rights to the Collateral shall automatically revert to the applicable Grantor without further action from any Person.  Secured Party further agrees that upon any time following such termination of the security interests or release of any Collateral, Secured Party shall, at the expense of the Grantors, execute and deliver to the Grantors such documents as the Loan Parties shall reasonably request to evidence the termination of the security interests or the release of such Collateral, as the case may be.

26.        Termination.  Upon indefeasible payment in cash or as a result of Conversion in accordance with the Transaction Documents and satisfaction in full of the Obligations (other than contingent obligations not due and owing) and termination of all commitments relating thereto, Secured Party shall reassign, redeliver and release (or cause to be so reassigned, redelivered and released), without recourse upon or warranty by Secured Party, and at the sole expense of the Grantors, to the Grantors, against receipt therefor, such of the Collateral (if any) as shall not have been sold or otherwise applied by Secured Party pursuant to the terms hereof and not theretofore reassigned, redelivered and released to the Grantors, together with appropriate instruments of reassignment and release.

[Signature pages to follow]

IN WITNESS WHEREOF, intending to be legally bound, each Grantor has caused this Agreement to be duly executed as of the date first above written.

[Signature Page to Security Agreement]

Accepted:
NUCLEAR ENGINEERING HOLDINGS LLC
By:	/s/ Sam Veselka
Name:	Sam Veselka
Title:	Managing Director

[Signature Page to Security Agreement]

Liens

None.

---

Exhibit 10.3

Execution Version

	GSE SYSTEMS, INC.
	By:	/s/ Emmett Pepe
		Name: Emmett Pepe
		Title: Treasurer and Chief Financial Officer

	GSE PERFORMANCE SOLUTIONS, INC.
	By:	/s/ Emmett Pepe
		Name: Emmett Pepe
		Title: Secretary and Treasurer

	NUCLEAR ENGINEERING HOLDINGS LLC
	By:	/s/ Sam Veselka
		Name: Sam Veselka
		Title: Managing Director

	HYPERSPRING, LLC
	By:	/s/ Emmett Pepe
		Name: Emmett Pepe
		Title: Secretary and Treasurer

	ABSOLUTE CONSULTING INC.
	By:	/s/ Emmett Pepe
		Name: Emmett Pepe
		Title: Secretary and Treasurer

	GSE TRUE NORTH CONSULTING, LLC
	By:	/s/ Emmett Pepe
		Name: Emmett Pepe
		Title: Secretary and Treasurer

	GSE DESIGN & ANALYSIS, LLC
	By:	/s/ Emmett Pepe
		Name: Emmett Pepe
		Title: Secretary and Treasurer

	Issuer		Record Owner		Class of Shares		Percentage Ownership
	GSE Performance Solutions, Inc.		GSE Systems, Inc.		Common stock		100%
	Hyperspring, LLC		GSE Performance Solutions, Inc.		Membership interests		100%
	Absolute Consulting, Inc.		GSE Performance Solutions, Inc.		Common stock		100%
	GSE True North Consulting, LLC		GSE Performance Solutions, Inc.		Membership interests		100%
	GSE Design & Analysis, LLC		GSE Performance Solutions, Inc.		Membership interests		100%

	GSE PERFORMANCE SOLUTIONS, INC.
	By:	/s/ Emmett Pepe
		Name:  Emmett Pepe
		Title:  Secretary and Treasurer
	HYPERSPRING, LLC
	By:	/s/ Emmett Pepe
		Name:  Emmett Pepe
		Title:  Secretary and Treasurer
	ABSOLUTE CONSULTING INC.
	By:	/s/ Emmett Pepe
		Name:  Emmett Pepe
		Title:  Secretary and Treasurer
	GSE TRUE NORTH CONSULTING, LLC
	By:	/s/ Emmett Pepe
		Name:  Emmett Pepe
		Title:  Secretary and Treasurer
	GSE DESIGN & ANALYSIS, LLC
	By:	/s/ Emmett Pepe
		Name:  Emmett Pepe
		Title:  Secretary and Treasurer