exh10-1.htm


    Exhibit
10.1

    SECOND
AMENDMENT TO LOAN AGREEMENT

    (Ex-Im
Bank-Guaranteed Transaction Specific Revolving Line of Credit)

    


    This Second Amendment to Loan Agreement
(this “Amendment”) dated
as of March 29, 2010 is between Bank of America, N.A. (the
“Bank”) and GSE Systems, Inc., a Delaware corporation
(“GSE”), and GSE Power Systems, Inc., a
Delaware corporation (“Power”), as co-borrowers (GSE and Power are
referred to individually and collectively as, the “Borrower”).

    


    BACKGROUND

    


    
      	
              A.  

            	
              The
      Borrower and the Bank entered into that certain Loan Agreement (Ex-Im
      Bank-Guaranteed Transaction Specific Revolving Line of Credit) dated as of
      March 28, 2008, as amended by that certain First Amendment to Loan
      Agreement (Ex-Im Bank-Guaranteed Transaction Specific Revolving Line of
      Credit) dated as of May 5, 2009 ( the “Original Loan
      Agreement”).

            


    

    


    
      	
              B.  

            	
              The
      Borrower has requested that the Bank modify and renew the revolving line
      of credit established by the Original Loan Agreement, and the Bank has
      agreed to do so, upon the terms and conditions set forth in this
      Amendment.

            


    

    


    
      	
              C.  

            	
              The
      purpose of the modification is to, among other things, increase from
      $3,500,000 to $5,000,000 the revolving line of credit established by the
      Original Loan Agreement.

            


    

    


    AGREEMENT

    


    Now, therefore, in consideration of the
premises and the mutual agreements contained herein, the parties hereby amend
the Original Loan Agreement on the following terms and conditions:

    


    SECTION
1.                      DEFINITIONS.  All
capitalized terms used herein that are not defined herein shall have the
meanings ascribed to them in the Original Loan Agreement, unless the context
specifically requires otherwise.

    


    SECTION
2.                      AMENDMENTS TO ORIGINAL LOAN
AGREEMENT.  The following amendments are hereby made to the
Original Loan Agreement:

    


    (A)           The
following definition in Section 1.1 of the Original Loan Agreement is hereby
amended and restated in its entirety to read as follows:

    


    “Final Disbursement Date” means May 31, 2012, or,
if such date is not a Business Day, the next succeeding banking day; provided, however, with respect
to Letter of Credit Obligations outstanding on the Final Disbursement Date, the
Final Disbursement Date with respect to an advance to fund a drawing under such
Letter of Credit shall be the date of the advance, which in no event shall be
later than the expiry date of such Letter of Credit.

    


    “Maximum
Amount”  means the amount of Five Million U.S. Dollars
($5,000,000.00).

    


    (B)           Subsection
(a) of Section 2.3 of the Original Loan Agreement is hereby amended and restated
in its entirety to read as follows:

    


    “(a)           The
Borrower will pay interest on the first (1st) day of each calendar month until
payment in full of any principal outstanding under the Ex-Im Line.”

    


    
      
        
        

      

      
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    (C)           Section
2.6 of the Original Loan Agreement is hereby amended and restated in its
entirety to read as follows:

    


    “2.6           Unconditional Promise to
Pay.

    


    For value received, the Borrower hereby
unconditionally promises to pay to the order of the Bank, in lawful money of the
United States, the principal sum of Five Million U.S. Dollars ($5,000,000.00),
or so much thereof, if any, as may be disbursed pursuant to this Agreement, with
interest thereon from the date hereof (or the date of disbursement if different
from such date) at the interest rate or rates stated herein, interest and
principal to be paid as set forth herein and all other sums payable pursuant to
this Agreement, including, but not limited to, any late charges.  The
Borrower hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate and all other notices and formalities in connection with this Section
2.6 of this Agreement.

    


    (D)           Section
6.1 of the Original Loan Agreement is hereby amended and restated in its
entirety to read as follows:

    


    “6.1           Disbursements and
Payments.

    


    (a)           Each
payment by the Borrower will be made in U.S. Dollars and immediately available
funds by direct debit to a deposit account as described in this
Agreement.

    


    (b)           The
Bank may honor instructions for advances or repayments given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower, or any
other individual designated by any one of such authorized signers (each an
“Authorized
Individual”).

    


    (c)           Advances
will be deposited in and repayments will be withdrawn from the Designated
Account (defined below).

    


    (d)           Each
disbursement by the Bank and each payment by the Borrower will be evidenced by
records kept by the Bank.  In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory
notes.”

    


    (E)           Section
6.3 of the Original Loan Agreement is hereby amended and restated in its
entirety to read as follows:

    


    “6.3           Telephone and Telefax
Authorization.

    


    (a)           The
Bank may honor telephone or telefax instructions for advances or repayments or
for designation of optional interest rates and telefax requests for the issuance
of letters of credit given, or purported to be given, by any one of the
Authorized Individuals.

    


    (b)           The
Borrower will indemnify and hold the Bank harmless from all liability, loss, and
costs in connection with any act resulting from telephone or telefax
instructions the Bank reasonably believes are made by any Authorized
Individual.  This paragraph will survive this Agreement's termination,
and will benefit the Bank and its officers, employees, and agents.”

    


    (F)           Section
6.4 is of the Original Loan Agreement hereby amended and restated in its
entirety to read as follows:

    


    
      
        
        

      

      
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    “6.4           Direct
Debit.

    


    (a)           The
Borrower agrees that on the date each payment of principal or interest or any
fees from the Borrower under this Agreement becomes due the Bank will
automatically debit such amounts from deposit account number 003927991969 owned
by the Borrower, or such other of the Borrower’s accounts with the Bank as
designated in writing by the Borrower (the “Designated
Account”).

    


    (b)           For
any payment under this Agreement made by debit to the Designated Account, the
Borrower will maintain sufficient immediately available funds in the Designated
Account to cover each debit.  If there are insufficient immediately
available funds in the Designated Account on the date the Bank enters any such
debit authorized by this Agreement, the Bank may reverse the
debit.”

    


    (G)           Section
9.5 of the Original Loan Agreement is hereby amended and restated in its
entirety to read as follows:

    


    “9.5           Debt Service Coverage
Ratio.

    


    To maintain, with respect to GSE on a
consolidated basis, a Debt Service Coverage Ratio of at least
1.25:1.00.  For purposes of calculation of the Debt Service Coverage
Ratio through and including the quarter ending September 30, 2010, the effects
of the write-down associated with the Emirates Simulation Agency receivables and
loan guarantee, as reflected in the audited financial statements of the Borrower
for the year ended December 31, 2010 (which write-down is approximately $2.988
million in aggregate), shall be disregarded.

    


    “Debt Service Coverage Ratio”
means the ratio of Cash Flow to Debt Service. This ratio will be calculated at
the end of each reporting period for which the Bank requires financial
statements, using the results of the twelve-month period ending with that
reporting period.

    


    “Cash Flow” is defined as (a)
net income, after income tax, (b) less income or plus loss from discontinued
operations and extraordinary items, (c) plus depreciation, depletion,
amortization, (d) plus interest expense on all obligations, (e) plus non-cash
charges related to foreign exchange, (f) minus dividends, withdrawals, and other
distributions, and (g) minus any unfinanced capital expenditures.

    


    “Debt Service” is defined as
all regularly scheduled principal and interest payments, during the twelve-month
period ending with the last day of the calculation period, on all
indebtedness.”

    


    (H)           Section
9.6 of the Original Loan Agreement is hereby amended and restated in its
entirety to read as follows:

    


    “9.6           Funded Debt to EBITDA
Ratio.

    


    To
maintain, with respect to GSE on a consolidated basis, a ratio of Funded Debt to
EBITDA not exceeding 2.50:1.00.  For purposes of calculation of the
Funded Debt to EBITDA ratio through and including the quarter ending September
30, 2010, the effects of the write-down associated with the Emirates Simulation
Agency receivables and loan guarantee, as reflected in the audited financial
statements of the Borrower for the year ended December 31, 2010 (which
write-down is approximately $2.988 million in aggregate), shall be
disregarded.

     

    
      
        
        

      

      
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    “Funded Debt” means all
outstanding liabilities for borrowed money and other interest-bearing
liabilities, including current and long term debt, and including the stated
amount of any Letter of Credit (other than a Letter of Credit that is
cash-secured) issued for the account
of the Borrower or any reimbursement obligation owing by the Borrower with
respect to any Letter of Credit (other than a Letter of Credit that is
cash-secured).

     

    “EBITDA” means net income, less
income or plus loss from discontinued operations and extraordinary items, plus
income taxes, plus interest expense, plus depreciation, depletion, and
amortization.

     

    This
ratio will be calculated at the end of each reporting period for which the Bank
requires financial statements, using the results of the twelve-month period
ending with that reporting period.”

    


    (I)           A
new Section 12.23 is hereby added to the Original Loan Agreement that reads as
follows:

    


    “12.23           Set-Off.

    


    (a)           In
addition to any rights and remedies of the Bank provided by law, upon the
occurrence and during the continuance of any event of default under this
Agreement, the Bank is authorized, at any time, to set off and apply any and all
Deposits of the Borrower or any Obligor held by the Bank against any and all
Obligations owing to the Bank.  The set-off may be made irrespective
of whether or not the Bank shall have made demand under this Agreement or any
guaranty, and although such Obligations may be contingent or unmatured or
denominated in a currency different from that of the applicable
Deposits.

    


    (b)           The
set-off may be made without prior notice to the Borrower or any other party, any
such notice being waived by the Borrower (on its own behalf and on behalf of
each Obligor) to the fullest extent permitted by law.  The Bank agrees
promptly to notify the Borrower after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application.

    


    (c)           For
the purposes of this paragraph, “Deposits” means any deposits
(general or special, time or demand, provisional or final, individual or joint)
and any instruments owned by the Borrower or any Obligor which come into the
possession or custody or under the control of the Bank.  “Obligations” means all
obligations, now or hereafter existing, of the Borrower to the Bank under this
Agreement and under any other agreement or instrument executed in connection
with this Agreement, and the obligations to the Bank of any
Obligor.”

    


    SECTION
3.                      CONDITIONS
PRECEDENT.                                                      This
Amendment shall become effective upon (a) the execution and delivery of (i) this
Amendment by the Borrower and the Bank and (ii) a Ratification of Guaranty of
even date herewith, by each of MSHI, Inc. and GSE Process Solutions, Inc. in
favor of the Bank; (b) the Bank's receipt from the Borrower of (i) the Ex-Im
Bank Guarantee fee in the amount of $75,000 and (ii) the Ex-Im Bank application
fee in the amount of $100; (c) the Bank’s receipt from the Borrower of the
reasonable fees and expenses of the Bank's counsel; and (d) all proceedings
required to be taken by the Borrower in connection with the transactions
contemplated by this Amendment having been taken in form and substance
satisfactory to the Bank and its counsel, and the Bank having received all such
counterpart originals of this Amendment executed by all parties listed on the
signature page(s) and originals, certified or other copies of such other
documents as the Bank may reasonably request.

    


    
      
        
        

      

      
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    SECTION
4.                      REAFFIRMATION.  Except
as modified hereby, all of the terms, covenants and conditions of the Original
Loan Agreement, are ratified, reaffirmed and confirmed and shall continue in
full force and effect as therein written.  In addition, all
representations and warranties made in the Original Loan Agreement are true and
correct in all material respects as of the date hereof and are hereby
reaffirmed.  Nothing hereunder is intended, or shall be construed, to
be a novation or an accord and satisfaction of any other obligation or liability
of the Borrower to the Bank.  The Borrower and any Guarantor do not
now have, nor had at any prior time, any defenses (including, without
limitation, the defense of usury), claims, counterclaims, cross-actions or
equities or rights of rescission, setoff, abatement or diminution, with respect
to the Original Loan Agreement or any other document executed in connection
therewith, or the enforcement of Bank's rights thereunder, and the Borrower and
any Guarantor further waive and release any and all such defenses, claims,
counterclaims, cross-actions and equities, and rights of rescission, set-off,
abatement and diminution with respect thereto.

    


    SECTION
5.                      REPRESENTATIONS AND
WARRANTIES; NO DEFAULT. The Borrower represents and warrants to, and
agrees with the Bank, that this Amendment (and any other document executed by
the Borrower in connection with this Amendment) has been duly authorized by all
necessary company action on the part of the Borrower, has been duly executed by
a duly authorized officer (or officers) of the Borrower and constitutes the
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with the terms hereof (and thereof).  The Borrower
hereby certifies that the representations and warranties contained in the
Original Loan Agreement continue to be true and correct and that no event of
default and no event has occurred that with notice, lapse of time or both would
become an event of default.   The Borrower further certifies that
the financial statements supplied to the Bank truly and completely disclose the
Borrower's financial condition as of the date of the statement, and there has
been no material adverse change in the Borrower's financial condition except as
disclosed in such financial statements.

    


    SECTION
6.                      BINDING
EFFECT.  This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns.

    


    SECTION
7.                      COUNTERPARTS.  This
Amendment may be executed in any number of counterparts and by the different
parties on separate counterparts.  Each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same agreement.

    


    SECTION
8.                      AMENDMENT AND
WAIVER.  No amendment of this Amendment, and no waiver of any
one or more of the provisions hereof shall be effective unless set forth in a
writing and signed by the parties hereto.

    


    SECTION
9.                      GOVERNING
LAW.  This Amendment and the rights and obligations of the
Borrower and the Bank shall be governed by and construed according to the laws
of the State of Maryland without regard to conflicts of laws principles and the
laws of the United States as the same may be applicable.

    


    SECTION
10.                   SEVERABILITY.  Any
provision of this Amendment that is held to be inoperative, unenforceable,
voidable or invalid in any jurisdiction shall, as to that jurisdiction, be
ineffective, unenforceable, void or invalid without affecting the remaining
provisions in that or any other jurisdiction, and to this end the provisions of
this Amendment are declared to be severable.

    


    [Signatures on next
page]


    
      
         


      

      
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    IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers on the date
first above written, intending to create an
instrument executed under seal.

    


    


    
      	
              The
      “Bank”:

               

              BANK
      OF AMERICA, N.A.

               

               

              By:      /s/ Kevin
      Mahon                                                      

                Kevin
Mahon

              Senior
      Vice President

            	
              The
      “Borrower”:

               

              GSE
      SYSTEMS, INC.

               

               

              By:           /s/ Jeffery G.
      Hough                                                      (Seal)

               Jeffery G.
      Hough

              Chief Financial
      Officer

               

            
	 
      	
              GSE
      POWER SYSTEMS, INC.

               

               

              By:           /s/ Jeffery G.
      Hough                                                      (Seal)

               Jeffery G.
      Hough

              Chief Financial
      Officer

               

               

            


    

    


    


    Federal
law requires all financial institutions to obtain, verify and record information
that identifies each person who opens an account or obtains a
loan.  The Bank will ask for the Borrower’s legal name, address, tax
ID number or social security number and other identifying
information.  The Bank may also ask for additional information or
documentation or take other actions reasonably necessary to verify the identity
of the Borrower, guarantors or other related persons.

    


    


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