Document:

exh10_1.htm

    Exhibit 10.1

      Bank
of America

       

      to

       

      GSE
Systems, Inc.

      and

      GSE
Power Systems, Inc.

       

      

       

      $3,500,000
Ex-Im Bank-Guaranteed

      Transaction
Specific

      Revolving
Line of Credit

       

      

       

      March
28, 2008

       

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      TABLE
OF CONTENTS

       

       

      

        
          	
                  Section

                	
                   

                	 
      Page
	
                  1.

                	
                  DEFINITIONS

                	
                  1

                
	
                  1.1

                	
                  Defined Terms.

                	
                  1

                
	
                  1.2

                	
                  Terms Defined in the Borrower
      Agreement.

                	
                  4

                
	
                  2.

                	
                  EX-IM
      LINE:  EX-IM BANK-GUARANTEED TRANSACTION SPECIFIC REVOLVING LINE
      OF CREDIT AMOUNT AND TERMS

                	
                  4

                
	
                  2.1

                	
                  Line of Credit Amount.

                	
                  4

                
	
                  2.2

                	
                  Availability Period.

                	
                  5

                
	
                  2.3

                	
                  Repayment Terms.

                	
                  5

                
	
                  2.4

                	
                  Interest Rate.

                	
                  6

                
	
                  2.5

                	
                  Letters of Credit.

                	
                  6

                
	
                  2.6

                	
                  Unconditional Promise to Pay.

                	
                  7

                
	
                  3.

                	
                  [INTENTIONALLY
      OMITTED]

                	
                  7

                
	
                  4.

                	
                  FEES
      AND EXPENSES

                	
                  7

                
	
                  4.1

                	
                  Fees.

                	
                  7

                
	
                  4.2

                	
                  Expenses.

                	
                  8

                
	
                  4.3

                	
                  Reimbursement Costs.

                	
                  8

                
	
                  5.

                	
                  COLLATERAL

                	
                  8

                
	
                  5.1

                	
                  Personal Property.

                	
                  8

                
	
                  6.

                	
                  DISBURSEMENTS,
      PAYMENTS AND COSTS

                	
                  9

                
	
                  6.1

                	
                  Disbursements and Payments.

                	
                  9

                
	
                  6.2

                	
                  Requests for Credit; Equal Access by all
      Borrowers.

                	
                  9

                
	
                  6.3

                	
                  Telephone and Telefax
      Authorization.

                	
                  9

                
	
                  6.4

                	
                  Direct Debit.

                	
                  10

                
	
                  6.5

                	
                  Banking Days.

                	
                  10

                
	
                  6.6

                	
                  Interest Calculation.

                	
                  10

                
	
                  6.7

                	
                  Default Rate.

                	
                  10

                
	
                  6.8

                	
                  Taxes.

                	
                  10

                
	
                  6.9

                	
                  Payments in Kind.

                	
                  11

                
	
                  7.

                	
                  CONDITIONS

                	
                  11

                
	
                  7.1

                	
                  Authorizations.

                	
                  11

                
	
                  7.2

                	
                  Governing Documents.

                	
                  11

                
	
                  7.3

                	
                  Security Agreements.

                	
                  11

                
	
                  7.4

                	
                  Guaranties.

                	
                  11

                
	
                  7.5

                	
                  Perfection and Evidence of
      Priority.

                	
                  11

                
	
                  7.6

                	
                  Payment of Fees.

                	
                  11

                
	
                  7.7

                	
                  Repayment of Other Credit
      Agreement.

                	
                  11

                
	
                  7.8

                	
                  Good Standing.

                	
                  12

                
	
                  7.9

                	
                  [Intentionally Omitted].

                	
                  12

                
	
                  7.10

                	
                  Landlord Agreement.

                	
                  12

                
	
                  7.11

                	
                  Insurance.

                	
                  12

                
	
                  7.12

                	
                  Other Required
    Documentation.

                	
                  12

                
	
                  7.13

                	
                  Conditions to Each Extension of Credit under Ex-Im
      Line.

                	
                  12

                
	
                  7.14

                	
                  Post-Closing Conditions.

                	
                  12

                

        

         

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

        
          	
                  8.

                	
                  REPRESENTATIONS
      AND WARRANTIES

                	
                  13

                
	
                  8.1

                	
                  Formation, Etc.

                	
                  13

                
	
                  8.2

                	
                  Authorization.

                	
                  13

                
	
                  8.3

                	
                  Enforceable Agreement.

                	
                  13

                
	
                  8.4

                	
                  Good Standing.

                	
                  13

                
	
                  8.5

                	
                  No Conflicts.

                	
                  13

                
	
                  8.6

                	
                  Financial Information.

                	
                  13

                
	
                  8.7

                	
                  Lawsuits.

                	
                  13

                
	
                  8.8

                	
                  Collateral.

                	
                  14

                
	
                  8.9

                	
                  Permits, Franchises.

                	
                  14

                
	
                  8.10

                	
                  Other Obligations.

                	
                  14

                
	
                  8.11

                	
                  Tax Matters.

                	
                  14

                
	
                  8.12

                	
                  No Event of Default.

                	
                  14

                
	
                  8.13

                	
                  Insurance.

                	
                  14

                
	
                  8.14

                	
                  ERISA Plans.

                	
                  14

                
	
                  8.15

                	
                  Location of Borrower.

                	
                  15

                
	
                  8.16

                	
                  Merchantable Inventory; Compliance with
      FLSA.

                	
                  15

                
	
                  8.17

                	
                  Trading With the Enemy.

                	
                  15

                
	
                  8.18

                	
                  Controlling Affiliate List.

                	
                  15

                
	
                  8.19

                	
                  Economic Impact Statement.

                	
                  15

                
	
                  8.20

                	
                  Location of Inventory.

                	
                  15

                
	
                  9.

                	
                  COVENANTS

                	
                  16

                
	
                  9.1

                	
                  Use of Proceeds.

                	
                  16

                
	
                  9.2

                	
                  Compliance with Borrower
      Agreement.

                	
                  16

                
	
                  9.3

                	
                  Financial Information.

                	
                  16

                
	
                  9.4

                	
                  Tangible Net Worth.

                	
                  17

                
	
                  9.5

                	
                  Debt Service Coverage
Ratio.

                	
                  17

                
	
                  9.6

                	
                  Funded Debt to EBITDA
Ratio.

                	
                  18

                
	
                  9.7

                	
                  Bank as Principal
    Depository.

                	
                  18

                
	
                  9.8

                	
                  Other Debts.

                	
                  18

                
	
                  9.9

                	
                  Other Liens.

                	
                  18

                
	
                  9.10

                	
                  Maintenance of Assets.

                	
                  19

                
	
                  9.11

                	
                  Investments.

                	
                  19

                
	
                  9.12

                	
                  Loans.

                	
                  19

                
	
                  9.13

                	
                  Change of Management.

                	
                  20

                
	
                  9.14

                	
                  Controlling Affiliate.

                	
                  20

                
	
                  9.15

                	
                  Additional Negative
    Covenants.

                	
                  20

                
	
                  9.16

                	
                  Notices to Bank.

                	
                  20

                
	
                  9.17

                	
                  Insurance.

                	
                  21

                
	
                  9.18

                	
                  Compliance with Laws.

                	
                  21

                
	
                  9.19

                	
                  ERISA Plans.

                	
                  21

                
	
                  9.20

                	
                  Books and Records.

                	
                  21

                
	
                  9.21

                	
                  Audits.

                	
                  21

                
	
                  9.22

                	
                  Perfection of Liens.

                	
                  22

                
	
                  9.23

                	
                  Cooperation.

                	
                  22

                
	
                  9.24

                	
                  Mandatory Prepayment; Early
      Termination.

                	
                  22

                
	
                  9.25

                	
                  Field Exams.

                	
                  22

                
	
                  9.26

                	
                  Continued Security
Interest.

                	
                  22

                

        

         

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

        
          	
                  9.27

                	
                  Terms of Sale of Items.

                	
                  22

                
	
                  10.

                	
                  HAZARDOUS
      SUBSTANCES

                	
                  22

                
	
                  10.1

                	
                  Indemnity Regarding Hazardous
      Substances.

                	
                  22

                
	
                  10.2

                	
                  Compliance Regarding Hazardous
      Substances.

                	
                  23

                
	
                  10.3

                	
                  Notices Regarding Hazardous
      Substances.

                	
                  23

                
	
                  10.4

                	
                  Site Visits, Observations and
      Testing.

                	
                  23

                
	
                  10.5

                	
                  Definition of Hazardous
      Substances.

                	
                  23

                
	
                  10.6

                	
                  Continuing Obligation.

                	
                  23

                
	
                  11.

                	
                  DEFAULT
      AND REMEDIES

                	
                  23

                
	
                  11.1

                	
                  Failure to Pay.

                	
                  24

                
	
                  11.2

                	
                  Other Bank Agreements.

                	
                  24

                
	
                  11.3

                	
                  Cross-default.

                	
                  24

                
	
                  11.4

                	
                  False Information.

                	
                  24

                
	
                  11.5

                	
                  Bankruptcy.

                	
                  24

                
	
                  11.6

                	
                  Receivers.

                	
                  24

                
	
                  11.7

                	
                  Lien Priority.

                	
                  24

                
	
                  11.8

                	
                  Lawsuits.

                	
                  24

                
	
                  11.9

                	
                  Judgments.

                	
                  25

                
	
                  11.10

                	
                  Material Adverse Change.

                	
                  25

                
	
                  11.11

                	
                  Government Action.

                	
                  25

                
	
                  11.12

                	
                  Default under Related
      Documents.

                	
                  25

                
	
                  11.13

                	
                  ERISA Plans.

                	
                  25

                
	
                  11.14

                	
                  Other Breach Under
    Agreement.

                	
                  25

                
	
                  11.15

                	
                  Breach Under Borrower
      Agreement.

                	
                  25

                
	
                  12.

                	
                  ENFORCING
      THIS AGREEMENT; MISCELLANEOUS

                	
                  25

                
	
                  12.1

                	
                  GAAP.

                	
                  25

                
	
                  12.2

                	
                  Disposition of Schedules and
      Reports.

                	
                  26

                
	
                  12.3

                	
                  Returned Merchandise.

                	
                  26

                
	
                  12.4

                	
                  Release of Information to Ex-Im
      Bank.

                	
                  26

                
	
                  12.5

                	
                  Verification of
Receivables.

                	
                  26

                
	
                  12.6

                	
                  Waiver of Confidentiality.

                	
                  26

                
	
                  12.7

                	
                  Indemnification.

                	
                  26

                
	
                  12.8

                	
                  Governing Law.

                	
                  26

                
	
                  12.9

                	
                  Consent to Jurisdiction.

                	
                  27

                
	
                  12.10

                	
                  Waiver of Jury Trial.

                	
                  27

                
	
                  12.11

                	
                  CONFESSION OF JUDGMENT.

                	
                  27

                
	
                  12.12

                	
                  Successors and Assigns.

                	
                  28

                
	
                  12.13

                	
                  Severability; Waivers.

                	
                  28

                
	
                  12.14

                	
                  Attorneys’ Fees.

                	
                  28

                
	
                  12.15

                	
                  Joint and Several
Liability.

                	
                  28

                
	
                  12.16

                	
                  One Agreement.

                	
                  29

                
	
                  12.17

                	
                  Notices.

                	
                  29

                
	
                  12.18

                	
                  Headings.

                	
                  30

                
	
                  12.19

                	
                  Counterparts.

                	
                  30

                
	
                  12.20

                	
                  Borrower Information; Reporting to Credit
      Bureaus.

                	
                  30

                
	
                  12.21

                	
                  Document Receipt Cut-Off
    Date.

                	
                  30

                
	
                  12.22

                	
                  USA Patriot Act Notice.

                	
                  30

                

        

      

      
        
          
             

             

          

           

        

        
          iii

          
            

          

        

        
           

        

      

      

      Table of Exhibits to Loan
Agreement

      A           -           Economic
Impact Certification

      B           -           Items

      C           -           Permitted
Liens

      D           -           Controlling
Affiliate List

      E           -           Inventory
Locations

      F           -           Export-Related
Borrowing Base Certificate

      G           -           Terms
of Sale

      
        
          
             

             

          

           

        

        
          iv

          
            

          

        

        
           

        

      

      LOAN
AGREEMENT

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

       

       

      This Loan
Agreement (this “Agreement”) dated as of March
28, 2008, is by and between Bank of America, N.A., a national banking
association (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 sometimes referred to collectively as the “Borrowers” and individually as
the “Borrower”).

       

      
        	
                1.  

              	
                DEFINITIONS

              

      

       

      1.1 Defined
Terms.

       

      In
addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this
Agreement:

       

      “Accounts Receivable” shall
mean all of Borrower’s now owned or hereafter acquired (a) “accounts” (as such
term is defined in the UCC), other receivables, book debts and other forms of
obligations, whether arising out of goods sold or services rendered or from any
other transaction; (b) rights in, to and under all purchase orders or receipts
for goods or services; (c) rights to any goods represented or purported to be
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclaimation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) moneys due or to become due to
such Borrower under all purchase orders and contracts (which includes Export
Orders) for the sale of goods or the performance of services or both by Borrower
(whether or not yet earned by performance on the part of Borrower), including
the proceeds of the foregoing; (e) any notes, drafts, letters of credit,
insurance proceeds or other instruments, documents and writings evidencing or
supporting the foregoing; and (f) all collateral security and guarantees of any
kind given by any other Person with respect to any of the
foregoing.

       

      “Accounts Receivable Aging
Report”  means a report detailing all Export-Related Accounts
Receivable, and the applicable terms for the relevant time period.

       

      “Bailee” means a third party to
whom is delivered Export-Related Inventory of the Borrower for some particular
use, on mere deposit or upon a contract, express or implied, that after the
purpose has been fulfilled such inventory shall be redelivered to the person who
delivered it, or otherwise dealt with according to instructions or kept until
reclaimed by the person who delivered it, as the case may be, including, but not
limited to, a carrier, common carrier, warehouseman or processor.

       

      “Borrower Agreement” means that
certain Borrower Agreement entered into by the Borrower in favor of the Bank and
Ex-Im Bank with reference to this credit transaction under the Export-Import
Bank of the United States Working Capital Guarantee Program as modified by any
waiver or side letters from Ex-Im Bank to the Bank that are applicable to this
Ex-Im Bank-guaranteed transaction specific revolving line of
credit.

       

      "Buyer" means a Person that
has entered into one or more Export Orders with the Borrower or who is an
obligor on Export-Related Accounts Receivable.

       

      “Controlling Affiliate” means
each person, company or other entity owning or otherwise controlling more than
20% of the voting share capital (or equivalent right of ownership) of the
Borrower, or having the power to direct the Borrower's policies or management
whether by contract or otherwise.

       

      “Disbursement” means,
collectively, (a) an advance of a working capital loan from the Bank to the
Borrower under the Ex-Im Line, and (b) an advance to fund a drawing under a
Letter of Credit issued or caused to be issued by the Bank for the account of
the Borrower under the Ex-Im Line.

       

      “Domestic Line” means that
certain Domestic Revolving Line of Credit under that certain Loan Agreement
(Domestic Revolving Line of Credit) entered into as of even date herewith,
between the Borrower and the Bank, as now in effect or as hereafter
renewed, amended or restated.

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      “Economic Impact Certification”
means a certificate in the form of Exhibit A attached
hereto.

       

      “Eligible Person” means a sole
proprietorship, partnership, limited liability partnership, corporation or
limited liability company which (a) is domiciled, organized or formed, as the
case may be, in the United States, whether or not such entity is owned by a
foreign national or foreign entity; (b) is in good standing in the state of its
formation or otherwise authorized to conduct business in the United States; (c)
is not currently suspended or debarred from doing business with the United
States government or any instrumentality, division, agency or department
thereof; (d) exports or plans to export Items; (e) operates and has operated as
a going concern for at least one year; (f) has a positive tangible net worth
determined in accordance with GAAP; and (g) has revenue generating operations
relating to its core business activities for at least one year.

       

      “Eligible Export-Related Accounts
Receivable” means all Export-Related Accounts Receivable permitted to be
included in the Export-Related Borrowing Base pursuant to the Borrower
Agreement; provided that “Eligible Export-Related Accounts Receivable” shall not
include any Account Receivable that (i) is not covered by the Ex-Im Bank
Guarantee, (ii) is due from any guarantor or company affiliated with the
Borrower or any guarantor, or (iii) the Bank may from time to time deem to be
ineligible.

       

      “Eligible Export-Related Inventory”
means all Export-Related Inventory, including Unbilled Export-Related Costs,
that is permitted to be included in the Export-Related Borrowing Base pursuant
to the Borrower Agreement; provided that “Eligible Export-Related Inventory”
shall not include any Export-Related Inventory that:  (i) is not
covered by the Ex-Im Bank Guarantee; (ii) is not located in the United States;
(iii) is located at or in the possession of a processor or Bailee, or located on
premises leased or subleased to the Borrower, or on premises subject to a
mortgage in favor of a person other than the Bank, unless such processor or
Bailee or mortgagee or the lessor or sublessor of such premises, as the case may
be, has executed and delivered all documentation which the Bank shall require,
if any, in its sole discretion to evidence the subordination or other limitation
or extinguishment of such person’s rights with respect to such Inventory and the
Bank’s right to gain access thereto; (iv) is covered by a negotiable document of
title (such as a warehouse receipt, bill of lading or mate’s receipt) unless
such document has been delivered to the Bank; (v) is owned by any guarantor or a
company affiliated with the Borrower or any guarantor; or (vi) the Bank may from
time to time deem to be ineligible; provided further that “Eligible
Export-Related Inventory” shall not include any Unbilled Export-Related Costs
that, if billed pursuant to the terms and conditions of the applicable Specific
Export Order, would not qualify as Eligible Export-Related Accounts
Receivable.

       

      “Ex-Im Bank” means the
Export-Import Bank of the United States.

       

      “Ex-Im Bank Guarantee” means
the Guarantee issued by Ex-Im Bank in favor of the Bank under Ex-Im Bank's
United States Working Capital Guarantee Program.

       

      “Export Order” means a
documented purchase order or contract evidencing a Buyer’s agreement to purchase
the Items from Borrower for export from the United States, which documentation
shall include written information that is necessary to confirm such purchase
order or contract, including identification of the Items, the name of the Buyer,
the country of destination, terms of sale, contact information for the Buyer and
the total amount of the purchase order or contract.

       

      “Export-Related Accounts
Receivable”  means those Accounts Receivable arising from the
sale of Items which are due and payable to Borrower in the United
States.

       

      “Export-Related Accounts Receivable
Value”  means at the date of determination thereof, the
aggregate face amount of Eligible Export-Related Accounts Receivable less taxes,
discounts, credits, allowances and Retainages, except to the extent otherwise
permitted in writing by the Bank.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      “Export-Related Borrowing Base”
means at the date of determination thereof, the sum of (a) 75% of the
Export-Related Inventory Value, plus (b) 90% of the
Export-Related Accounts Receivable Value and plus (c) 100% of the
cash collateral pledged to the Bank in connection with the issuance of Warranty
Letters of Credit.   After calculating the Export-Related
Borrowing Base as provided above, the Bank may deduct such reserves as the Bank
may establish from time to time in its reasonable credit judgment, including,
without limitation, reserves for Letters of Credit, rent at leased locations
subject to statutory or contractual landlord’s liens, inventory shrinkage,
dilution, customs charges, warehousemen’s or Bailees’ charges, and the amount of
estimated maximum exposure, as determined by the Bank from time to time, under
any interest rate contracts which the Borrower enters into with the Bank
(including interest rate swaps, caps, floors, options thereon, combinations
thereof, or similar contracts).  The Export-Related Borrowing Base is
also subject to certain specific reserves and limitations set forth in Section
2.1 of this Agreement.

       

       “Export-Related
Inventory”  means the Inventory of the Borrower located in the
United States that has been purchased, manufactured or otherwise acquired by
Borrower for sale or resale as Items, or to be incorporated into Items to be
sold or resold pursuant to Specific Export Orders; and Unbilled Export-Related
Costs.

       

      “Export-Related Inventory
Value”  means, at the date of determination thereof, the lowest
of (i) the cost of Eligible Exported-Related Inventory as determined in
accordance with GAAP, or (ii) the market value of Eligible Export-Related
Inventory as determined in accordance with GAAP or (iii) the lower of the
appraised market value or orderly liquidation value of the Eligible
Export-Related Inventory, if the Bank has other loans and financial
accommodations to a Borrower for which it conducts (or contracts for the
performance of) such an appraised or orderly liquidation value.

       

      “Final Disbursement Date” means
March 28, 2010, 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.

       

      “GAAP” means the generally
accepted accounting principles issued in the United States.

       

      “Guarantor” means each
Controlling Affiliate and any other person, company or other entity that
executes a Guaranty.

       

      “Guaranty” means a guaranty in
favor of the Bank, in form and substance satisfactory to the Bank.

       

      “Items”  means those
finished goods or services identified on Exhibit B attached
hereto, which are intended for export from the United States, and meet the U.S.
Content requirements in accordance with Section 2.01(b)(ii) of the Borrower
Agreement and for which the Borrower has duly executed and delivered to the Bank
an Economic Impact Certification.

       

       “Letter of Credit Obligations”
means all undrawn amounts of outstanding obligations incurred by the Bank,
whether direct or indirect, contingent or otherwise, due or not due, in
connection with the issuance or guarantee by the Bank or Issuing Bank of Letters
of Credit under the Ex-Im Line.

       

      “Loan Documents” means this
Agreement, each promissory note (if any) executed in connection herewith, the
Security Agreement, each stock pledge agreement, each Guaranty and all other
documents or instruments executed and delivered by the parties hereto or
thereto, as the case may be.

       

      “Maximum Amount” means the
amount of Three Million Five Hundred
Thousand U.S. Dollars ($3,500,000.00).

       

      “Permitted Liens” means (a)
Liens for taxes, assessments or other governmental charges or levies not
delinquent, or, being contested in good faith by appropriate proceedings and
with respect to which proper reserves have been taken by Borrower; provided, that, the Lien shall
have no effect on the priority of the Liens in favor of the Bank or the value of
the assets in which the Bank has such a Lien and a stay of enforcement of any
such Lien shall be in effect; (b) deposits or pledges securing obligations under
worker’s compensation, unemployment insurance, social security or public
liability laws or similar legislation; (c) deposits or pledges securing bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligation of like
nature arising in the ordinary course of the Borrower’s business; (d) judgment
Liens that have been stayed or bonded; (e) mechanics’, workers’, materialmen’s
or other like Liens arising in the ordinary course of Borrower’s business with
respect to obligations which are not due; (f) Liens placed upon fixed assets
hereafter acquired to secure a portion of the purchase price thereof, provided,
that, any such Lien shall not encumber any other property of Borrower; (g)
security interests being terminated concurrently with the execution of the Loan
Documents; and (h) such other Liens set forth on Exhibit C attached
hereto.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      “Specific Export Orders” means those
Export Orders disclosed in writing to the Bank for a Transaction Specific
Revolving Loan Facility.

       

      "Unbilled Export-Related Costs"
means, at the time of determination thereof, the amount of costs incurred by the
Borrower in connection with a Specific Export Order which costs are in excess of
costs billed by the Borrower to the Buyer pursuant to such Specific Export
Order.  For purposes of calculating the amount of costs billed by the
Borrower to the Buyer pursuant to a Specific Export Order, where the amount
billed by the Borrower to the Buyer includes both a cost and a profit component,
the amount of costs billed shall not include the profit component.

       

      “U.S. Content” means with
respect to any Item, all the costs, including labor, materials, services and
overhead, but not markup or profit margin, which are of U.S. origin or
manufacture, and which are incorporated into an Item in the United
States.

       

      “Warranty Letter of
Credit”  means a Standby Letter of Credit which is issued or
cased to be issued by the Bank to support the obligations of Borrower with
respect to a Warranty or a Standby Letter of Credit which by its terms becomes a
Warranty Letter of Credit.

       

      1.2 Terms Defined in the
Borrower Agreement.

       

      Capitalized
terms not otherwise defined herein shall have the meanings given to them in the
Borrower Agreement.

       

      
        	
                2.  

              	
                EX-IM
      LINE:  EX-IM BANK-GUARANTEED TRANSACTION SPECIFIC REVOLVING LINE
      OF CREDIT AMOUNT AND TERMS

              

      

       

      2.1 Line of Credit
Amount. 

       

      (a)           During
the availability period described below, the Bank will provide an Ex-Im
Bank-Guaranteed revolving line of credit to the Borrower (the “Ex-Im Line”).  The
Ex-Im Line is a transaction specific revolving line of credit providing for cash
advances and Standby
and Warranty Letters of Credit in connection with Specific Export Orders as they
arise from time to time, subject to the terms and conditions of this
Agreement.  During the availability period, the Borrower may repay
principal amounts and reborrow them.

       

      (b)           The
amount of the Ex-Im Line (the “Ex-Im Line Commitment”) is
equal to the lesser of (i) the Maximum Amount or (ii) the Export-Related
Borrowing Base.  The Borrower agrees not to permit the principal
balance outstanding to exceed the Ex-Im Line Commitment.  If the
Borrower exceeds this limit, the Borrower will immediately pay the excess to the
Bank upon the Bank's demand.

       

      (c)           In
addition to the limitation set forth in Section 2.1(b), the following limitations will also apply to
the Ex-Im Line:

       

      (i)           The
aggregate amount of outstanding Disbursements under the Ex-Im Line plus the aggregate
amount of Letter of Credit Obligations may not exceed at any one time the
Maximum Amount.

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      (ii)           The
aggregate amount of outstanding Disbursements under the Ex-Im Line plus twenty-five
percent (25%) of the aggregate amount of Letter of Credit Obligations may not
exceed at any one time the Export-Related Borrowing Base.

       

      (iii)           Twenty-five
percent (25%) of the aggregate amount of Letter of Credit Obligations for
Warranty Letters of Credit may not exceed the amount of cash collateral pledged
to the Bank to secure such Warranty Letters of Credit.

       

      (iv)           Any
reserve for Warranty Letters of Credit established by the Bank from the
Export-Related Borrowing Base plus­ the cash
collateral pledged to the Bank to secure Warranty Letters of Credit may not be
less than one hundred percent (100%) of the aggregate amount of Letter of Credit
Obligations for Warranty Letters of Credit.

       

      2.2 Availability
Period.

       

      The Ex-Im
Line is available between the date of this Agreement and the Final Disbursement
Date, or such earlier date as the availability may terminate as provided in this
Agreement (the “Ex-Im Line
Expiration Date”); provided, however, if an
Eligible Export-Related Account Receivable arising from a Specific Export Order
remains outstanding as of the Final Disbursement Date and is due and payable
after such date, the Ex-Im Line Expiration Date with respect to such Eligible
Export-Related Accounts Receivable may be extended by written notice from the
Bank until on or before the first banking day after such Export-Related Account
Receivable is due and payable; further provided,
however, in the
event that the Final Disbursement Date is extended with respect to a Letter of
Credit outstanding as of the Final Disbursement Date (as provided in the
definition of “Final
Disbursement Date” above), the Ex-Im Line Expiration Date with respect to
such Letter of Credit may be extended by written notice from the Bank until on
or before the first banking day after such extended Final Disbursement
Date.

       

      2.3 Repayment
Terms.

       

      (a)           The
Borrower will pay interest on April 28, 2008, and then on the same day of each
month thereafter until payment in full of any principal outstanding under the
Ex-Im Line.

       

      (b)           Within two (2) days of the
receipt thereof, the Borrower shall pay to the Bank (for application to the
Ex-Im Line) all checks, drafts, cash and other remittances the Borrower may
receive in payment or on account of the Export-Related Accounts Receivable or
any other Collateral, in precisely the form received (except for the endorsement
of the Borrower where necessary).  The Borrower will repay in full any
remaining principal, interest or other charges outstanding under this facility
no later than the Ex-Im Line Expiration Date.

       

      (c)           The
Borrower may prepay the loan in full or in part at any time.  The
prepayment will be applied to the most remote payment of principal due under
this Agreement.

       

      (d)           If
at any time and for any reason the Export-Related Borrowing Base is less than
the aggregate outstanding amount of Disbursements, the Borrower shall, upon the
Bank's election and demand, (i) furnish additional Collateral to the Bank of a
type and in an amount satisfactory to the Bank and Ex-Im Bank or (ii) pay to the
Bank an amount equal to the difference between the aggregate outstanding amount
of Disbursements and the Export-Related Borrowing Base.

       

      (e)           Payments
under this Section 2.3 may be applied to the
obligations of the Borrower to the Bank in the order and manner as the Bank in
its discretion may determine.  Payments to be applied to outstanding
Letters of Credit and drafts accepted under Letters of Credit may, at the Bank's
option, be used to prepay, or held as cash collateral to secure, the Borrower's
obligations to the Bank with respect thereto.

       

      
        
          
             

             

          

           

        

        
          5

          
            

          

        

        
           

        

      

      2.4 Interest
Rate.

       

      (a)           The
interest rate is a rate per year equal to the BBA LIBOR Daily Floating Rate plus
one and one-half (1.50) percentage point(s).

       

      (b)           The
BBA LIBOR Daily Floating Rate is a fluctuating rate of interest equal to the
rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by
Reuters (or other commercially available source providing quotations of BBA
LIBOR as selected by the Bank from time to time) as determined for each banking
day at approximately 11:00 a.m. London time two (2) London Banking Days prior to
the date in question, for U.S. Dollar deposits (for delivery on the first day of
such interest period) with a one month term, as adjusted from time to time in
the Bank’s sole discretion for reserve requirements, deposit insurance
assessment rates and other regulatory costs.  If such rate is not
available at such time for any reason, then the rate for that interest period
will be determined by such alternate method as reasonably selected by the
Bank.  A “London Banking Day” is a day on which banks in London are
open for business and dealing in offshore dollars.

       

      2.5 Letters of
Credit.

       

      (a)           During
the availability period, at the request of the Borrower, the Bank will
issue:

       

      (i)           Subject
to Ex-Im Bank's written consent, Standby Letters of Credit with a maximum
maturity not to extend more than 24 months (24)  beyond the date of
issuance of such Letter of Credit.

       

      (ii)           Subject
to Ex-Im Bank's written consent, Warranty Letters of Credit, which shall have a
maximum maturity not to extend more than three hundred sixty-five (365) days
beyond the date of issuance of such Letter of Credit.

       

      (b)           Notwithstanding
anything to the contrary in this Section 2.5, any
Letter of Credit issued within the final sixty (60) days of the Ex-Im Line
Expiration Date shall expire no later than the Ex-Im Line Expiration Date unless
otherwise agreed by the Bank and Ex-Im Bank.

       

      (c)           The
aggregate amount of Letter of Credit Obligations supporting, and Disbursements
to fund drawings under, Warranty Letters of Credit outstanding at any one time
may not exceed the lesser of (i) twenty percent (20%) of the Maximum Amount or
(ii) Five Hundred Thousand U.S. Dollars ($500,000).

       

      (d)           In
calculating the principal amount outstanding under the Ex-Im Line Commitment,
the calculation shall include the amount of any Letters of Credit
outstanding, including amounts drawn on any Letters of Credit and not yet
reimbursed.  For the avoidance of doubt, the amount of Letter of Credit
Obligations shall not bear interest until such amounts are drawn
upon.

       

      (e)           The
following Letters of Credit are outstanding from the Bank for the account of the
Borrower:

       

      Letter of Credit
Number                                                      Amount

       

      3082184                                                      $157,055.00

      

      3082285                                                      $2,110,831.00

      

      3084035                                                      $23,026.80

      

      3089063                                                      $43,760.00

      

      3090338                                                      $410,000.00

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

      3091318                                                      $178,580.00

      

      3091664                                                      $73,819.90

      

      As of the
date of this Agreement, these Letters of Credit shall be deemed to be
outstanding under this Agreement, and shall be subject to all the terms and
conditions stated in this Agreement.

       

      (f)           The
Borrower agrees:

       

      (i)           Any
sum drawn under a Letter of Credit  may, at the option of the Bank, be
added to the principal amount outstanding under this Agreement.  The
amount will bear interest and be due as described elsewhere in this
Agreement.

       

      (ii)           If
there is a default under this Agreement, to immediately prepay and make the Bank
whole for any outstanding Letters of Credit.

       

      (iii)           The
issuance of any Letter of Credit and any amendment to a Letter of Credit is
subject to the Bank's written approval and must be in form and content
satisfactory to the Bank and in favor of a beneficiary acceptable to the
Bank.

       

      (iv)           To
sign the Bank's form Application and Agreement for Standby Letter of Credit, as
applicable.

       

      (v)           To
pay any issuance and/or other fees that the Bank notifies the Borrower will be
charged for issuing and processing Letters of Credit for the
Borrower.

       

      (vi)           To
allow the Bank to automatically charge its checking account for applicable fees,
discounts, and other charges.

       

      (vii)           To
pay the Bank a non-refundable fee equal to the greater of Three Hundred U.S.
Dollars ($300) or one and one-half percent (1.5%) per annum of the outstanding
undrawn amount of each Standby Letter of Credit, payable quarterly in arrears,
calculated on the basis of the face amount outstanding on the day the fee is
calculated.

       

      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 Three
Million Five Hundred Thousand U.S. Dollars ($3,500,000.00), 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.

       

      
        	
                3.  

              	
                [INTENTIONALLY
      OMITTED]

              

      

       

       

      
        	
                4.  

              	
                FEES
      AND EXPENSES

              

      

       

      4.1 Fees.

       

      (a)           Ex-Im Bank
Fee.  The Borrower agrees to pay the Bank (i) an annual fee
equal to one and one-half percent (1.5%) of the Maximum Amount and (ii) the
Ex-Im Bank application fee in the amount of One Hundred U.S. Dollars
($100.00).  These fees are due on or before the date of this
Agreement, and the annual fee is also due on the same day of each year
thereafter until the Ex-Im Line Expiration Date.

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (b)           Waiver
Fee.  If the Bank, at its discretion, agrees to waive or amend
any terms of this Agreement, the Borrower will, at the Bank's option, pay the
Bank a fee for each waiver or amendment in an amount advised by the Bank at the
time the Borrower requests the waiver or amendment.  Nothing in this
paragraph shall imply that the Bank is obligated to agree to any waiver or
amendment requested by the Borrower.  The Bank may impose additional
requirements as a condition to any waiver or amendment.

       

      (c)           Late
Fee.  To the extent permitted by law, the Borrower agrees to
pay a late fee in an amount not to exceed four percent (4%) of any payment that
is more than fifteen (15) days late.  The imposition and payment of a
late fee shall not constitute a waiver of the Bank’s rights with respect to the
default.

       

      4.2 Expenses.

       

      The
Borrower agrees to immediately repay the Bank for expenses that include, but are
not limited to, filing, recording and search fees, appraisal fees, title report
fees, and documentation fees.

       

      4.3 Reimbursement
Costs.

       

      (a)           The
Borrower agrees to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by this
Agreement.  Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house counsel to
the extent permitted by applicable law.

       

      (b)           The
Borrower agrees to reimburse the Bank for the cost of periodic field
examinations of the Borrower’s books, records and collateral, and appraisals of
the collateral, at such intervals as the Bank may reasonably
require.  The actions described in this paragraph may be performed by
employees of the Bank or by independent appraisers.

       

      
        	
                5.  

              	
                COLLATERAL

              

      

       

      5.1 Personal
Property.

       

      The
personal property listed below now owned or owned in the future by the parties
listed below will secure the Borrower’s obligations to the Bank under this
Agreement.  The collateral is further defined in security agreement(s)
executed by the owners of the collateral. In addition, any other personal
property collateral (the “Additional Collateral”)
securing any other present or future obligations of the Borrower to the Bank
that are not guaranteed under the Ex-Im Bank Guarantee (the “Non-Ex-Im Bank Indebtedness”)
shall also secure the Borrower’s obligations under this Agreement; provided, however, that the
Additional Collateral shall be applied first to the satisfaction of the
Non-Ex-Im Bank Indebtedness and the balance, if any, to the Borrower's
obligations under the Ex-Im Line.

       

      (a)           Equipment
and fixtures owned by the Borrower.

       

      (b)           Inventory
owned by the Borrower.

       

      (c)           Accounts
Receivables owned by the Borrower.

       

      (d)           Patents,
trademarks and other general intangibles owned by the Borrower.

       

      (e)           Securities
and other investment property owned by GSE and by Power as described in a pledge
agreement required by the Bank.

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      
        	
                6.  

              	
                DISBURSEMENTS,
      PAYMENTS AND COSTS

              

      

       

      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 or
otherwise authorized by the Borrower.  For payments not made by direct
debit, payments will be made by mail to the address shown on the Borrower’s
statement or at one of the Bank’s banking centers in the United States, or by
such other method as may be permitted by the Bank.

       

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

       

      (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)           Prior
to the date each payment of principal and interest and any fees from the
Borrower becomes due (the “Due
Date”), the Bank will mail to the Borrower a statement of the amounts
that will be due on that Due Date (the “Billed
Amount”).  The calculations in the bill will be made on the
assumption that no new extensions of credit or payments will be made between the
date of the billing statement and the Due Date, and that there will be no
changes in the applicable interest rate.  If the Billed Amount differs
from the actual amount due on the Due Date (the “Accrued Amount”), the
discrepancy will be treated as follows:

       

      (i)           If
the Billed Amount is less than the Accrued Amount, the Billed Amount for the
following Due Date will be increased by the amount of the
discrepancy.  The Borrower will not be in default by reason of any
such discrepancy.

       

      (ii)           If
the Billed Amount is more than the Accrued Amount, the Billed Amount for the
following Due Date will be decreased by the amount of the
discrepancy.

       

      Regardless
of any such discrepancy, interest will continue to accrue based on the actual
amount of principal outstanding without compounding.  The Bank will
not pay the Borrower interest on any overpayment.

       

      6.2 Requests for Credit; Equal
Access by all Borrowers.

       

      Any
Borrower (or a person or persons authorized by any one of the Borrowers), acting
alone, can borrow up to the full amount of credit provided under this
Agreement.  Each Borrower will be liable for all extensions of credit
made under this Agreement to any other Borrower.

       

      6.3 Telephone and Telefax
Authorization.

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (b)           Advances
will be deposited in and repayments will be withdrawn from 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.

       

      (c)           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.

       

      6.4 Direct
Debit.

       

      The
Borrower agrees that on the Due Date the Bank will debit the Billed Amount 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”).

       

      6.5 Banking
Days.

       

      Unless
otherwise provided in this Agreement, a banking day is a day other than a
Saturday, Sunday or other day on which commercial banks are authorized to close,
or are in fact closed, in the state where the Bank's lending office is located,
and, if such day relates to amounts bearing interest at an offshore rate (if
any), means any such day on which dealings in dollar deposits are conducted
among banks in the offshore dollar interbank market.  All payments and
disbursements which would be due on a day which is not a banking day will be due
on the next banking day.  All payments received on a day which is not
a banking day will be applied to the credit on the next banking
day.

       

      6.6 Interest
Calculation.

       

      Except as
otherwise stated in this Agreement, all interest and fees, if any, will be
computed on the basis of a 360-day year and the actual number of days
elapsed.  This results in more interest or a higher fee than if a
365-day year is used.  Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until
paid.  As used in this paragraph, “principal” shall not include
undrawn amounts under a Letter of Credit.

       

      6.7 Default
Rate.

       

      Upon the
occurrence of any default or after maturity or after judgment has been rendered
on any obligation under this Agreement, all amounts outstanding under this
Agreement, including any interest, fees, or costs which are not paid when due,
will at the option of the Bank bear interest at a rate which is 4.0 percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement.  This may result in compounding of
interest.  This will not constitute a waiver of any
default.

       

      6.8 Taxes.

       

      (a)           If
any payments to the Bank under this Agreement are made from outside the United
States, the Borrower will not deduct any foreign taxes from any payments it
makes to the Bank unless required to do so by applicable law.  If any
such taxes are imposed on any payments made by the Borrower (including payments
under this paragraph), the Borrower will pay the taxes and will also pay to the
Bank, at the time interest is paid, any additional amount which the Bank
specifies as necessary to preserve the after-tax yield the Bank would have
received if such taxes had not been imposed.  The Borrower will
confirm that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within thirty (30) days after the due date.

       

      (b)           Payments
made by the Borrower to the Bank will be made without deduction of United States
withholding or similar taxes.  If the Borrower is required to pay U.S.
withholding taxes, the Borrower will pay such taxes in addition to the amounts
due to the Bank under this Agreement.  If the Borrower fails to make
such tax payments when due, the Borrower indemnifies the Bank against any
liability for such taxes, as well as for any related interest, expenses,
additions to tax, or penalties asserted against or suffered by the Bank with
respect to such taxes.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      6.9 Payments in
Kind.

       

      If the
Bank requires delivery in kind of the proceeds of collection of the Borrower's
accounts receivable, such proceeds shall be credited to interest, principal, and
other sums owed to the Bank under this Agreement in the order and proportion
determined by the Bank in its sole discretion.  All such credits will
be conditioned upon collection and any returned items may, at the Bank's option,
be charged to the Borrower.

       

      
        	
                7.  

              	
                CONDITIONS

              

      

       

      Before
the Bank is required to extend any credit to the Borrower under this Agreement,
it must receive any documents and other items it may reasonably require, in form
and content acceptable to the Bank, including any items specifically listed
below.

       

      7.1 Authorizations.

       

      Evidence
that the execution, delivery and performance by the Borrower of this Agreement
and any instrument or agreement required under this Agreement have been duly
authorized.

       

      7.2 Governing
Documents.

       

      A copy of
the Borrower's organizational documents.

       

      7.3 Security
Agreements.

       

      Signed
original security agreements covering the personal property collateral which the
Bank requires.

       

      7.4 Guaranties.

       

      Guaranties
signed by each Guarantor.

       

      7.5 Perfection and Evidence of
Priority.

       

      Evidence
that the security interests and liens in favor of the Bank are valid,
enforceable, properly perfected in a manner acceptable to the Bank and prior to
all others' rights and interests, except those the Bank consents to in
writing.

       

      7.6 Payment of
Fees.

       

      Payment
of all fees and other amounts due and owing to the Bank, including without
limitation the Ex-Im Bank Guarantee fee, the Ex-Im Bank Application fee as
required by the paragraph entitled “Fees” and payment of all
accrued and unpaid expenses incurred by the Bank as required by the paragraph
entitled “Reimbursement
Costs.”

       

      7.7 Repayment of Other Credit
Agreement.

       

      Evidence
that the existing Five Million U.S. Dollar ($5,000,000) revolving line of credit
with Laurus Master Fund Ltd. has been or will be repaid and cancelled on or
before the first extension of credit under this Agreement.

       

      
        
          
             

             

          

           

        

        
          11

          
            

          

        

        
           

        

      

      7.8 Good
Standing.

       

      Certificates
of good standing for the Borrower from its state of formation and from any other
state in which the Borrower is required to qualify to conduct its
business.

       

      7.9 [Intentionally
Omitted].

       

      

       

      7.10 Landlord
Agreement.

       

      For any
personal property collateral located on real property which is subject to a
mortgage or deed of trust or which is not owned by the Borrower (or the grantor
of the security interest), an agreement from the owner of the real property and
the holder of any such mortgage or deed of trust.

       

      7.11 Insurance.

       

      Evidence
of insurance coverage, as required in the “Covenants” Article of this
Agreement.

       

      7.12 Other Required
Documentation.

       

      The Ex-Im
Guarantee, signed by Ex-Im Bank.  All of the following documents
signed by the Borrower:  Security Agreement Questionnaire, Ex-Im Bank
Application, Borrower Agreement, and Economic Impact
Certification.  Any other items required by Ex-Im Bank in connection
with the Ex-Im Bank Guarantee or which the Bank may reasonably
require.

       

      7.13 Conditions to Each Extension
of Credit under Ex-Im Line.

       

      Before
each extension of credit under Ex-Im Line, including the first:

       

      (a)           A
copy of the Specific Export Order(s) being financed with the extension of
credit.  Specific Export Orders may be in the form of a letter of
credit from the Buyer, but must be advised or confirmed by the Bank, or assigned
to the Bank by an institution advising or confirming such letter of credit
acceptable to the Bank.

       

      (b)           If
requested by the Bank, an Export-Related Borrowing Base Certificate which shall
be current within five (5) banking days of the date of the request.

       

      (c)           Such
other documents, instruments and things as may be necessary or desirable in the
discretion of the Bank to perfect its security interest in the Collateral and to
protect its rights with respect to the Collateral.

       

      7.14 Post-Closing
Conditions.

       

      The Borrower agrees to, promptly upon
closing on the Ex-Im Line (i) take all action necessary (or cause Laurus Master
Fund Ltd.) to file not later than twenty (20) calendar days after closing all
necessary UCC Termination Statements terminating the liens of Laurus Master Fund
Ltd. on any of the Borrower’s assets, including, but not limited to, making
demand upon Laurus Master Fund Ltd. pursuant to UCC Section 9-513 and (ii) for
any personal property collateral located on real property currently leased by
the Borrower, deliver to the Bank, not later than thirty (30) calendar days
after closing, landlord subordination agreements in favor of the Bank signed by
the lessors of such real property.   Any breach of the
obligations or the failure to occur of the items described above in this Section
7.14 will constitute at the Bank’s option an event of default under this
Agreement.  The Borrower understands that it is executing this
Agreement at this time and is closing the Ex-Im Line, without the prior
termination of the liens of Laurus Master Fund Ltd. on any of the Borrower’s
assets and without the landlord subordination agreements referenced above, and
neither the execution of the this Agreement or any related document, the closing
of the Ex-Im Line, nor any advance of funds thereunder will constitute any
admission by the Bank that all of the closing requirements have been
met.  The Borrower acknowledges and agrees that while the Bank may
advance certain funds to or for the account of the Borrower at the time of
closing, the Bank will not be obligated to advance any additional funds to the
Borrower (although the Bank may do so in its sole discretion) at any time if the
Borrower has not timely and fully provided each of the post-closing items set
forth above to the Bank, all in form and substance satisfactory to the Bank in
its sole discretion.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      
        	
                8.  

              	
                REPRESENTATIONS
      AND WARRANTIES

              

      

       

      When the
Borrower signs this Agreement, and until the Bank is repaid in full, the
Borrower makes the following representations and warranties.  Each
request for an extension of credit constitutes a renewal of these
representations and warranties as of the date of the request:

       

      8.1 Formation,
Etc.

       

      The
Borrower is duly formed and existing under the laws of the state or other
jurisdiction where organized.  The Borrower is an Eligible
Person.

       

      8.2 Authorization.

       

      This
Agreement, and any instrument or agreement required hereunder, are within the
Borrower's powers, have been duly authorized, and do not conflict with any of
its organizational papers.

       

      8.3 Enforceable
Agreement.

       

      This
Agreement is a legal, valid and binding agreement of the Borrower, enforceable
against the Borrower in accordance with its terms, and any instrument or
agreement required hereunder, when executed and delivered, will be similarly
legal, valid, binding and enforceable.

       

      8.4 Good
Standing.

       

      In each
state in which the Borrower does business, it is properly licensed, in good
standing, and, where required, in compliance with fictitious name
statutes.

       

      8.5 No
Conflicts.

       

      This
Agreement does not conflict with any law, agreement, or obligation by which the
Borrower is bound.

       

      8.6 Financial
Information.

       

      All
financial and other information that has been or will be supplied to the Bank is
sufficiently complete to give the Bank accurate knowledge of the Borrower's (and
any guarantor's) financial condition, including all material contingent
liabilities.  Since the date of the most recent financial statement
provided to the Bank, there has been no material adverse change in the business
condition (financial or otherwise), operations, properties or prospects of the
Borrower (or any guarantor).  If the Borrower is comprised of the
trustees of a trust, the foregoing representations shall also pertain to the
trustor(s) of the trust.  Any account receivable and inventory
balances set forth on any borrowing base certificate delivered to the Bank has
been or shall have been, as applicable, reconciled by the Borrower with its
general ledger, account receivables aging report and inventory
report.

       

      8.7 Lawsuits.

       

      There is
no lawsuit, tax claim or other dispute pending or threatened against the
Borrower which, if lost, would impair the Borrower's financial condition or
ability to repay the loan, except as have been disclosed in writing to the
Bank.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      8.8 Collateral.

       

      All
collateral required in this Agreement is owned by the grantor of the security
interest free of any title defects or any liens or interests of others, except
for Permitted Liens.

       

      8.9 Permits,
Franchises.

       

      The
Borrower possesses all permits, memberships, franchises, contracts and licenses
required and all trademark rights, trade name rights, patent rights, copyrights,
and fictitious name rights necessary to enable it to conduct the business in
which it is now engaged.

       

      8.10 Other
Obligations.

       

      The
Borrower is not in default on any obligation for borrowed money, any purchase
money obligation or any other material lease, commitment, contract, instrument
or obligation, except as have been disclosed in writing to the
Bank.

       

      8.11 Tax
Matters.

       

      The
Borrower is not subject to limitations on its entitlement to deduct interest for
federal income tax purposes under Section 163(j) of the Internal Revenue Code of
1986 (known as the “earnings stripping” provisions) and has no knowledge of any
pending assessments or adjustments of its income tax for any year and all taxes
due have been paid, except as have been disclosed in writing to the
Bank.

       

      8.12 No Event of
Default.

       

      There is
no event which is, or with notice or lapse of time or both would be, a default
under this Agreement.

       

      8.13 Insurance.

       

      The
Borrower has obtained, and maintained in effect, the insurance coverage required
in the “Covenants”
Article of this Agreement.

       

      8.14 ERISA
Plans.

       

      (a)           Each
Plan (other than a multiemployer plan) is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law.  Each Plan has received a favorable determination letter from the
IRS and to the best knowledge of the Borrower, nothing has occurred which would
cause the loss of such qualification.  The Borrower has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and the Code
with respect to each Plan, and has not incurred any liability with respect to
any Plan under Title IV of ERISA.

       

      (b)           There
are no claims, lawsuits or actions (including by any governmental authority),
and there has been no prohibited transaction or violation of the fiduciary
responsibility rules, with respect to any Plan which has resulted or could
reasonably be expected to result in a material adverse effect.

       

      (c)           With
respect to any Plan subject to Title IV of ERISA:

       

      (i)           No
reportable event has occurred under Section 4043(c) of ERISA for which the PBGC
requires 30-day notice.

       

      (ii)           No
action by the Borrower or any ERISA Affiliate to terminate or withdraw from any
Plan has been taken and no notice of intent to terminate a Plan has been filed
under Section 4041 of ERISA.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      (iii)           No
termination proceeding has been commenced with respect to a Plan under Section
4042 of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.

       

      (d)           The
following terms have the meanings indicated for purposes of this
Agreement:

       

      (i)           “Code” means the Internal
Revenue Code of 1986, as amended from time to time.

       

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

       

      (iii)           “ERISA Affiliate” means any
trade or business (whether or not incorporated) under common control with the
Borrower within the meaning of Section 414(b) or (c) of the
Code.

       

      (iv)           “PBGC” means the Pension
Benefit Guaranty Corporation.

       

      (v)           “Plan” means a pension,
profit-sharing, or stock bonus plan intended to qualify under Section 401(a) of
the Code, maintained or contributed to by the Borrower or any ERISA Affiliate,
including any multiemployer plan within the meaning of Section 4001(a)(3) of
ERISA.

       

      8.15 Location of
Borrower.

       

      The place
of business of the Borrower (or, if the Borrower has more than one place of
business, its chief executive office) is located at the address listed on the
signature page of this Agreement.

       

      8.16 Merchantable Inventory;
Compliance with FLSA.

       

      All
inventory which is included in the Export-Related Borrowing Base is of good and
merchantable quality and free from defects, and has been produced in compliance
with the requirements of the U.S. Fair Labor Standards Act (29 U.S.C. §§201 et
seq.).

       

      8.17 Trading With the
Enemy.

       

      Neither
the execution of this Agreement nor the use of proceeds thereof violates the
Trading With the Enemy Act of 1917, as amended, nor any of the foreign assets
control regulations promulgated thereunder or under the International Emergency
Economic Powers Act or the U.N. Participation Act of 1945.

       

      8.18 Controlling Affiliate
List.

       

      Exhibit D attached
hereto is a true, correct and complete list as of the date hereof of each
Controlling Affiliate of the Borrower and their respective ownership
interests.

       

      8.19 Economic Impact
Statement.

       

      Each
Economic Impact Certification executed and delivered to the Bank by the Borrower
is and true, complete and correct.

       

      8.20 Location of
Inventory.

       

      All
Export-Related Inventory shall be located at one or more of the addresses set
forth on Exhibit
E attached hereto, and such other addresses as the Borrower may disclose
from time to time by prior written notice to the Bank.

       

      
        
          
          

        

        
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                9.  

              	
                COVENANTS

              

      

       

      The
Borrower agrees, so long as credit is available under this Agreement and until
the Bank is repaid in full:

       

      9.1 Use of
Proceeds.

       

      To use
the proceeds of the Ex-Im Line only for the purposes permitted under Section
2.01 of the Borrower Agreement and not in violation of the Acts referred to in
Section 8.17 hereof.

       

      9.2 Compliance with Borrower
Agreement.

       

      With
respect to the Ex-Im Line, to comply with each of the terms, covenants and
provisions of the Borrower Agreement.  In the event of any conflict
between any provision of this Agreement and a comparable provision in the
Borrower Agreement, the Borrower shall comply with whichever provision is more
restrictive or imposes a greater burden or obligation on the
Borrower.

       

      9.3 Financial
Information.

       

      To
provide the following financial information and statements in form and content
acceptable to the Bank, and such additional information as requested by the Bank
from time to time:  The Bank reserves the right, upon written notice
to the Borrower, to require the Borrower to deliver financial information and
statements to the Bank more frequently than otherwise provided below, and to use
such additional information and statements to measure any applicable financial
covenants in this Agreement.

       

      (a) Within
one hundred twenty (120) days of the fiscal year end, the annual financial
statements of GSE, certified and dated by an authorized financial
officer.  These financial statements must be audited (with an opinion
satisfactory to the Bank) by an independent registered public accounting firm
acceptable to the Bank.  The statements shall be prepared on a
consolidated basis.

       

      (b) Within
forty-five (45) days of the period's end, quarterly financial statements of GSE,
certified and dated by an authorized financial officer.  These
financial statements must be reviewed by an independent
registered public accounting firm acceptable to the Bank.  The
statements shall be prepared on a consolidated basis.

       

      (c) Promptly,
upon sending or receipt, copies of any management letters and correspondence
relating to management letters, sent or received by the Borrower to or from the
Borrower's auditor.  If no management letter is prepared, the Bank
may, in its discretion, request a letter from such auditor stating that no
deficiencies were noted that would otherwise be addressed in a management
letter.

       

      (d) Copies of
the federal income tax return of the Borrower, within twenty (20) days of
filing, and, if requested by the Bank, copies of any extensions of the filing
date.

       

      (e) Copies of
the Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current
Report for GSE concurrent with the date of filing with the Securities and
Exchange Commission.

       

      (f) Within
one hundred twenty (120) days of the end of each fiscal year and within
forty-five (45) days of the end of each quarter, a compliance certificate
of the Borrower, signed by an authorized financial officer and setting forth (i)
the information and computations (in sufficient detail) to establish that the
Borrower is in compliance with all financial covenants at the end of the period
covered by the financial statements then being furnished and (ii) whether there
existed as of the date of such financial statements and whether there exists as
of the date of the certificate, any default under this Agreement and, if any
such default exists, specifying the nature thereof and the action the Borrower
is taking and proposes to take with respect thereto.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      (g) An
Export-Related Borrowing Base Certificate in the form of Exhibit F attached
hereto setting forth the Export-Related Borrowing Base as of the last day of
each month, within twenty (20) days after the end of each month (or more
frequently if required by the Bank), with copies of the Export Orders, relating
to the Export-Related Accounts Receivable and Export-Related Inventory to the
extent included in the Export-Related Borrowing Base.  Any account
receivable and inventory balances that support the Borrowing Base Certificate
shall be reconciled with the Borrower’s general ledger, Accounts Receivable
Aging Report, inventory schedule and Unbilled Export-Related Costs
schedule.

       

      (h) An
Accounts Receivable Aging Report aged from the invoice due date detailing the
terms of the amounts due from each Buyer as of the last day of each month,
within twenty (20) days after the end of each month.

       

      (i) A summary
aging by vendor of accounts payable within twenty (20) days after the end of
each month.

       

      (j) If the
Bank requires the Borrower to deliver the proceeds of accounts receivable to the
Bank upon collection by the Borrower, a schedule of the amounts so collected and
delivered to the Bank.

       

      (k) An
inventory listing within twenty (20) days after the end of
each month.  The listing must include a description of the inventory,
its location and cost, and such other information as the Bank may
require.

       

      (l) A
schedule of Unbilled Export-Related Costs within twenty (20) days after the end of
each month.

       

      (m) Copies of
all letters of credit issued in support of the Borrower’s accounts
receivable.

       

      (n) Promptly
upon the Bank's request, such other books, records, statements, lists of
property and accounts, budgets, forecasts or reports as to the Borrower and as
to each guarantor of the Borrower's obligations to the Bank, or other data
concerning the Collateral, as the Bank may request.

       

      9.4 Tangible Net
Worth.

       

      To
maintain, with respect to GSE on a consolidated basis, Tangible Net Worth equal
to at least Fifteen
Million U.S. Dollars ($15,000,000.00).

       

      “Tangible Net Worth” means the
value of total assets (including leaseholds and leasehold improvements and
reserves against assets but excluding goodwill, patents, trademarks, trade
names, organization expense, unamortized debt discount and expense, capitalized
or deferred research and development costs, deferred marketing expenses, and
other like intangibles, and monies due from affiliates, officers, directors,
employees, shareholders, members or managers) less total liabilities, including
but not limited to accrued and deferred income taxes, but excluding the
non-current portion of Subordinated Liabilities.

       

      “Subordinated Liabilities”
means liabilities subordinated to the Borrower’s obligations to the Bank in a
manner acceptable to the Bank in its sole discretion.

       

      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.

       

      “Debt Service Coverage Ratio”
means the ratio of Cash Flow to Debt Service.

       

      “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, and
amortization, (d) plus interest expense on all obligations, (e) minus dividends,
withdrawals, and other distributions, and (f) minus any unfinanced capital
expenditures.  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.

       

      “Debt Service” is defined as
all regularly scheduled principal and interest payments on all
indebtedness.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      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.

       

      “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 issued for the account of the Borrower or any
reimbursement obligation owing by the Borrower with respect to any Letter of
Credit.

       

      “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.

       

      9.7 Bank as Principal
Depository.

       

      To
maintain the Bank as its principal depository bank, including for the
maintenance of business, cash management, operating and administrative deposit
accounts.

       

      9.8 Other
Debts.

       

      Not to
have outstanding or incur any direct or contingent liabilities or lease
obligations (other than those to the Bank), or become liable for the liabilities
of others, without the Bank's written consent.  This does not
prohibit:

       

      (a)           Acquiring
goods, supplies, or merchandise on normal trade credit.

       

      (b)           Endorsing
negotiable instruments received in the usual course of business.

       

      (c)           Obtaining
surety bonds in the usual course of business.

       

      (d)           Liabilities,
lines of credit and leases in existence on the date of this Agreement disclosed
in writing to the Bank in the Borrower's most recent financial
statements.

       

      (e)           Additional
debts and lease obligations for the acquisition of fixed assets, to the extent
permitted elsewhere in this Agreement.

       

      (f)           The
Company’s partial guarantee for the credit facility of its affiliate Emirates
Simulation Academy.

       

      (g)           The
Company’s obligation under a certain Office Lease Agreement between Red Branch
Road LLC and GSE Systems, Inc.

       

      9.9 Other
Liens.

       

      Not to
create, assume, or allow any security interest or lien (including judicial
liens) on property the Borrower now or later owns, except:

       

      (a)           Liens
and security interests in favor of the Bank.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      (b)           Permitted
Liens.

       

      (c)           Additional
purchase money security interests in assets acquired after the date of this
Agreement, if the total principal amount of debts secured by such liens does not
exceed One Hundred Thousand U.S. Dollars ($100,000) at any one
time.

       

      (d)           Liens
with respect to certain equipment purchased by the Borrower for British Energy
Generation Ltd. under
contract 40135378.

       

      9.10 Maintenance of
Assets.

       

      (a)           Not
to sell, assign, lease, transfer or otherwise dispose of any part of the
Borrower's business or the Borrower's assets except in the ordinary course of
the Borrower's business.

       

      (b)           Not
to sell, assign, lease, transfer or otherwise dispose of any assets for less
than fair market value, or enter into any agreement to do so.

       

      (c)           Not
to enter into any sale and leaseback agreement covering any of its fixed
assets.

       

      (d)           To
maintain and preserve all rights, privileges, and franchises the Borrower now
has.

       

      (e)           To
make any repairs, renewals, or replacements to keep the Borrower's properties in
good working condition.

       

      9.11 Investments.

       

      Not to
have any existing, or make any new, investments in any individual or entity, or
make any capital contributions or other transfers of assets to any individual or
entity without the Bank's written consent, except for:

       

      (a)           Existing
investments disclosed to the Bank in writing.

       

      (b)           Investments
in the Borrower’s current subsidiaries.

       

      (c)           Investments
in any of the following:

       

      (i)           certificates
of deposit;

       

      (ii)           U.S.
treasury bills and other obligations of the federal government;

       

      (iii)           readily
marketable securities (including commercial paper, but excluding restricted
stock and stock subject to the provisions of Rule 144 of the Securities and
Exchange Commission).

       

      (d)           Requirements
for Investments in Emirates Simulation Academy, LLC as required from time to
time.

       

      (e)           Minority
interests held in Advantium Holding, B.V. and Red Storm Scientific,
Inc.

       

      9.12 Loans.

       

      Not to
make any loans, advances or other extensions of credit to any individual or
entity, except for:

       

      (a)           Existing
extensions of credit disclosed to the Bank in writing.

       

      (b)           Extensions
of credit to the Borrower’s current subsidiaries.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      (c)           Extensions
of credit in the nature of accounts receivable or notes receivable arising from
the sale or lease of goods or services in the ordinary course of business to
non-affiliated entities.

       

      9.13 Change of
Management.

       

      Not to
make any substantial change in the present executive or management personnel of
the Borrower.

       

      9.14 Controlling
Affiliate.

       

      The
Borrower agrees every Controlling Affiliate as of the date hereof shall be a
Guarantor, and if a person, company or other entity becomes a Controlling
Affiliate after the date hereof, the Borrower shall cause such Controlling
Affiliate to become a Guarantor unless otherwise agreed to in writing by the
Bank and Ex-Im Bank.

       

      9.15 Additional Negative
Covenants.

       

      Not to,
without the Bank's written consent (which consent shall not be unreasonably
withheld):

       

      (a)             Enter
into any consolidation, merger, or other combination, or become a partner in a
partnership, a member of a joint venture, or a member of a limited liability
company.

       

      (b)             Acquire
or purchase a business or its assets for consideration in excess of Five Hundred
Thousand U.S. Dollars ($500,000).

       

      (c)             Engage
in any business activities substantially different from the Borrower's present
business.

       

      (d)             Liquidate
or dissolve the Borrower's business.

       

      (e)             Voluntarily
suspend its business for more than fourteen (14) days in any three hundred
sixty-five (365) day period.

       

      9.16 Notices to
Bank.

       

      To
promptly notify the Bank in writing of:

       

      (a)           Any
lawsuit over Two Hundred Fifty Thousand U.S. Dollars ($250,000) against the
Borrower or any Obligor.

       

      (b)           Any
substantial dispute between any governmental authority and the Borrower or any
Obligor.

       

      (c)           Any
event of default under this Agreement, or any event which, with notice or lapse
of time or both, would constitute an event of default.

       

      (d)           Any
material adverse change in the Borrower's or any Obligor’s business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the credit.

       

      (e)           Any
change in the Borrower's or any Obligor’s name, legal structure, place of
business, or chief executive office if the Borrower or any Obligor has more than
one place of business.

       

      (f)           Any
actual contingent liabilities of the Borrower or any Obligor, and any such
contingent liabilities which are reasonably foreseeable.

       

      For
purposes of this Agreement, “Obligor” shall mean any
guarantor, any party pledging collateral to the Bank, or, if the Borrower is
comprised of the trustees of a trust, any trustor.

       

      
        
          
          

        

        
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      9.17 Insurance.

       

      (a)           General Business
Insurance.  To maintain insurance satisfactory to the Bank as
to amount, nature and carrier covering property damage (including loss of use
and occupancy) to any of the Borrower's properties, business interruption
insurance, public liability insurance including coverage for contractual
liability, product liability and workers' compensation, and any other insurance
which is usual for the Borrower's business.  The insurance must
include a lender’s additional insured endorsement naming the Bank as its
interest appears in a form acceptable to the Bank. Each policy shall provide for
at least thirty (30) days prior notice to the Bank of any cancellation
thereof.

       

      (b)           Insurance Covering
Collateral.  To maintain all risk property damage insurance
policies (including without limitation windstorm coverage, and hurricane
coverage as applicable) covering the tangible property comprising the
collateral.  Each insurance policy must be in an amount acceptable to
the Bank.  The insurance must be issued by an insurance company
acceptable to the Bank and must include a lender's loss payable endorsement in
favor of the Bank in a form acceptable to the Bank. Each policy shall provide
for at least thirty (30) days prior notice to the Bank of any cancellation
thereof.

       

      (c)           Export Credit
Insurance.  If the Borrower obtains export credit insurance,
such insurance policy shall be assigned to the Bank and the Bank shall be
designated in such insurance as loss payee.

       

      (d)           Evidence of
Insurance.  Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.

       

      9.18 Compliance with
Laws.

       

      To comply
with the laws (including any fictitious or trade name statute), regulations, and
orders of any government body with authority over the Borrower's
business.  The Bank shall have no obligation to make any advance to
the Borrower except in compliance with all applicable laws and regulations and
the Borrower shall fully cooperate with the Bank in complying with all such
applicable laws and regulations.

       

      9.19 ERISA
Plans.

       

      Promptly
during each year, to pay and cause any subsidiaries to pay contributions
adequate to meet at least the minimum funding standards under ERISA with respect
to each and every Plan; file each annual report required to be filed pursuant to
ERISA in connection with each Plan for each year; and notify the Bank within ten
(10) business days of the occurrence of any Reportable Event that might
constitute grounds for termination of any capital Plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any Plan.  “ERISA” means the Employee
Retirement Income Security Act of 1974, as amended from time to
time.  Capitalized terms in this paragraph shall have the meanings
defined within ERISA.

       

      9.20 Books and
Records.

       

      To
maintain adequate books and records.

       

      9.21 Audits.

       

      To allow
the Bank and its agents to inspect the Borrower's properties and examine, audit,
and make copies of books and records at any reasonable time.  If any
of the Borrower's properties, books or records are in the possession of a third
party, the Borrower authorizes that third party to permit the Bank or its agents
to have access to perform inspections or audits and to respond to the Bank's
requests for information concerning such properties, books and
records.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      9.22 Perfection of
Liens.

       

      To help
the Bank perfect and protect its security interests and liens, and reimburse it
for related costs it incurs to protect its security interests and
liens.

       

      9.23 Cooperation.

       

      To take
any action reasonably requested by the Bank to carry out the intent of this
Agreement.

       

      9.24 Mandatory Prepayment; Early
Termination.

       

      If
requested by the Bank, to immediately repay the entire principal balance of the
Ex-Im Line, together with interest within a reasonable time, any fees (including
any prepayment fees) and any other amounts due thereunder, and not obtain any
further credit thereunder, upon the occurrence of the following
event:  the Domestic Line terminates for any reason, including,
without limitation, termination of the Domestic Line at the request of the
Borrower, termination resulting from failure by the Bank to renew the Domestic
Line, or termination as otherwise provided under the Domestic Line.

       

      9.25 Field
Exams.

       

      To allow
the Bank and its agents, at the Bank's discretion, to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time.  If any of the Borrower's properties, books or
records are in the possession of a third party, the Borrower authorizes that
third party to permit the Bank or its agents to have access to perform
inspections or audits and to respond to the Bank's requests for information
concerning such properties, books and records.  The Borrower shall pay
for the cost of semi-annual field exams and for any audits or exams after an
event of default has occurred hereunder.

       

      9.26 Continued Security
Interest.

       

      The
Borrower shall not change (a) its name or identity in any manner, (b) the
location of its principal place of business or its jurisdiction of organization
or formation, (c) the location of any Collateral or (d) the location of any of
the books or records related to the Collateral, in each instance without giving
thirty (30) days prior written notice thereof to the Bank and taking all actions
deemed necessary or appropriate by the Bank to continuously protect and perfect
the Bank's liens upon the Collateral.

       

      9.27 Terms of Sale of
Items.

       

      The
Borrower agrees that the terms of sale for Items shall be typical for the
industry but in no event shall allow for payment more than one hundred eighty
(180) days following the original invoice date, and the terms of sale may
include those terms set forth on Exhibit G attached
hereto.

       

      
        	
                10.  

              	
                HAZARDOUS
      SUBSTANCES

              

      

       

      10.1 Indemnity Regarding
Hazardous Substances.

       

      The
Borrower will indemnify and hold harmless the Bank from any loss or liability
the Bank incurs in connection with or as a result of this Agreement, which
directly or indirectly arises out of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance.  This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower.  The indemnity includes
but is not limited to attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff).  The indemnity extends
to the Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys and assigns.

       

      
        
          
             

             

          

           

        

        
          22

          
            

          

        

        
           

        

      

      10.2 Compliance Regarding
Hazardous Substances.

       

      The
Borrower represents and warrants that the Borrower has complied with all current
and future laws, regulations and ordinances or other requirements of any
governmental authority relating to or imposing liability or standards of conduct
concerning protection of health or the environment or hazardous
substances.

       

      10.3 Notices Regarding Hazardous
Substances.

       

      Until
full repayment of the loan, the Borrower will promptly notify the Bank in
writing of any threatened or pending investigation of the Borrower or its
operations by any governmental agency under any current or future law,
regulation or ordinance pertaining to any hazardous substance.

       

      10.4 Site Visits, Observations
and Testing.

       

      The Bank
and its agents and representatives will have the right at any reasonable time,
after giving reasonable notice to the Borrower, to enter and visit any locations
where the collateral securing this Agreement (the “Collateral”) is located for
the purposes of observing the Collateral, taking and removing environmental
samples, and conducting tests.  The Borrower shall reimburse the Bank
on demand for the costs of any such environmental investigation and
testing.  The Bank will make reasonable efforts during any site visit,
observation or testing conducted pursuant this paragraph to avoid interfering
with the Borrower’s use of the Collateral.  The Bank is under no duty
to observe the Collateral or to conduct tests, and any such acts by the Bank
will be solely for the purposes of protecting the Bank's security and preserving
the Bank's rights under this Agreement.  No site visit, observation or
testing or any report or findings made as a result thereof (“Environmental Report”) (i)
will result in a waiver of any default of the Borrower; (ii) impose any
liability on the Bank; or (iii) be a representation or warranty of any kind
regarding the Collateral (including its condition or value or compliance with
any laws) or the Environmental Report (including its accuracy or
completeness).  In the event the Bank has a duty or obligation under
applicable laws, regulations or other requirements to disclose an Environmental
Report to the Borrower or any other party, the Borrower authorizes the Bank to
make such a disclosure.  The Bank may also disclose an Environmental
Report to any regulatory authority, and to any other parties as necessary or
appropriate in the Bank’s judgment.  The Borrower further understands
and agrees that any Environmental Report or other information regarding a site
visit, observation or testing that is disclosed to the Borrower by the Bank or
its agents and representatives is to be evaluated (including any reporting or
other disclosure obligations of the Borrower) by the Borrower without advice or
assistance from the Bank.

       

      10.5 Definition of Hazardous
Substances.

       

      “Hazardous substances” means
any substance, material or waste that is or becomes designated or regulated as
“toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or
regulation under any current or future federal, state or local law (whether
under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum or
natural gas.

       

      10.6 Continuing
Obligation.

       

      The
Borrower's obligations to the Bank under this Article, except the obligation to
give notices to the Bank, shall survive termination of this Agreement and
repayment of the Borrower's obligations to the Bank under this
Agreement.

       

      
        	
                11.  

              	
                DEFAULT
      AND REMEDIES

              

      

       

      If any of
the following events of default occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice.  If an event which, with notice
or the passage of time, will constitute an event of default has occurred and is
continuing, the Bank has no obligation to make advances or extend additional
credit under this Agreement.  In addition, if any event of default
occurs, the Bank shall have all rights, powers and remedies available under any
instruments and agreements required by or executed in connection with this
Agreement, as well as all rights and remedies available at law or in
equity.  If an event of default occurs under the paragraph entitled
“Bankruptcy,” below,
with respect to the Borrower, then the entire debt outstanding under this
Agreement will automatically be due immediately.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

      11.1 Failure to
Pay.

       

      The
Borrower fails to make a payment under this Agreement when due.

       

      11.2 Other Bank
Agreements.

       

      Any
default occurs under any other agreement the Borrower (or any Obligor) or any of
the Borrower's related entities or affiliates has with the Bank or any affiliate
of the Bank.

       

      11.3 Cross-default.

       

      Any
default occurs under any agreement in connection with any credit the Borrower
(or any Obligor) or any of the Borrower's related entities or affiliates has
obtained from anyone else or which the Borrower (or any Obligor) or any of the
Borrower's related entities or affiliates has guaranteed.

       

      11.4 False
Information.

       

      The
Borrower or any Obligor has given the Bank materially false or misleading
information or representations.

       

      11.5 Bankruptcy.

       

      The
Borrower, any Obligor, or any general partner of the Borrower or of any Obligor
files a bankruptcy petition, a bankruptcy petition is filed against any of the
foregoing parties, or the Borrower, any Obligor, or any general partner of the
Borrower or of any Obligor makes a general assignment for the benefit of
creditors.  The default will be deemed cured if any bankruptcy
petition filed against the Borrower, any Obligor, or any general partner of the
Borrower or of any Obligor is dismissed within a period of thirty (30) days
after the filing; provided, however, that such cure opportunity will be
terminated upon the entry of an order for relief in any bankruptcy case arising
from such a petition.

       

      11.6 Receivers.

       

      A
receiver or similar official is appointed for a substantial portion of the
Borrower's or any Obligor's business, or the business is terminated, or, if any
Obligor is anything other than a natural person, such Obligor is liquidated or
dissolved.

       

      11.7 Lien
Priority.

       

      The Bank
fails to have an enforceable first lien (except for Permitted Liens or any other
prior liens to which the Bank has consented in writing) on or security interest
in any property given as security for this Agreement (or any
guaranty).

       

      11.8 Lawsuits.

       

      Any
lawsuit or lawsuits are filed on behalf of one or more trade creditors against
the Borrower or any Obligor in an aggregate amount of Two Hundred Fifty Thousand
U.S. Dollars ($250,000.00) or more in excess of any insurance
coverage.

       

      
        
          
             

             

          

           

        

        
          24

          
            

          

        

        
           

        

      

      11.9 Judgments.

       

      Any
judgments or arbitration awards are entered against the Borrower or any Obligor,
or the Borrower or any Obligor enters into any settlement agreements with
respect to any litigation or arbitration, in an aggregate amount of Two Hundred
Fifty Thousand U.S. Dollars ($250,000.00) or more in excess of any insurance
coverage.

       

      11.10 Material Adverse
Change.

       

      A
material adverse change occurs, or is reasonably likely to occur, in the
Borrower's (or any Obligor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit; or the Bank
determines that it is insecure for any other reason.

       

      11.11 Government
Action.

       

      Any
government authority takes action that the Bank believes materially adversely
affects the Borrower's or any Obligor's financial condition or ability to
repay.

       

      11.12 Default under Related
Documents.

       

      Any
default occurs under any guaranty, subordination agreement, security agreement,
deed of trust, mortgage, or other document required by or delivered in
connection with this Agreement or any such document is no longer in effect, or
any guarantor purports to revoke or disavow the guaranty.

       

      11.13 ERISA
Plans.

       

      Any one
or more of the following events occurs with respect to a Plan of the Borrower
subject to Title IV of ERISA, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower:

       

      (a)           A
reportable event shall occur under Section 4043(c) of ERISA with respect to a
Plan.

       

      (b)           Any
Plan termination (or commencement of proceedings to terminate a Plan) or the
full or partial withdrawal from a Plan by the Borrower or any ERISA
Affiliate.

       

      11.14 Other Breach Under
Agreement.

       

      A default
occurs under any other term or condition of this Agreement not specifically
referred to in this Article.  This includes without limitation (i) any
borrowing base requirements, (ii) line of credit amount limitations, and (iii)
any failure or anticipated failure by the Borrower (or any other party named in
the Covenants Article of this Agreement) to comply with any financial covenants
set forth in this Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the Borrower or the
Bank.

       

      11.15 Breach Under Borrower
Agreement.

       

      The
Borrower breaches or defaults under any term, condition or provision of the
Borrower Agreement.

       

      
        	
                12.  

              	
                ENFORCING
      THIS AGREEMENT; MISCELLANEOUS

              

      

       

      12.1 GAAP.

       

      Except as
otherwise stated in this Agreement, all financial information provided to the
Bank and all financial covenants will be made under GAAP, consistently
applied.

       

      
        
          
             

             

          

           

        

        
          25

          
            

          

        

        
           

        

      

      12.2 Disposition of Schedules and
Reports.

       

      The Bank
will not be obligated to return any schedules, invoices, statements, budgets,
forecasts, reports or other papers delivered by the Borrower.  The
Bank will destroy or otherwise dispose of such materials at such time as the
Bank, in its discretion, deems appropriate.

       

      12.3 Returned
Merchandise.

       

      Until the
Bank exercises its rights to collect the accounts receivable as provided under
any security agreement required under this Agreement, the Borrower may continue
its present policies for returned merchandise and adjustments.  Credit
adjustments with respect to returned merchandise shall be made immediately upon
receipt of the merchandise by the Borrower or upon such other disposition of the
merchandise by the debtor in accordance with the Borrower's
instructions.  If a credit adjustment is made with respect to any
Export-Related Accounts Receivable, the amount of such adjustment shall no
longer be included in the amount of such Export-Related Accounts Receivable in
computing the Export-Related Borrowing Base.

       

      12.4 Release of Information to
Ex-Im Bank.

       

      The
Borrower authorizes the Bank to release to Ex-Im Bank such information and
records as Ex-Im Bank may from time to time request concerning matters relating
to this Agreement, the Ex-Im Line and any other loans or extensions of credit
provided by the Bank to the Borrower.

       

      12.5 Verification of
Receivables.

       

      The Bank
may at any time, either orally or in writing, request confirmation from any
debtor of the current amount and status of the accounts receivable upon which
such debtor is obligated.

       

      12.6 Waiver of
Confidentiality.

       

      The
Borrower authorizes the Bank to discuss the Borrower's financial affairs and
business operations with any accountants, auditors, business consultants, or
other professional advisors employed by the Borrower, and authorizes such
parties to disclose to the Bank such financial and business information or
reports (including management letters) concerning the Borrower as the Bank may
request.

       

      12.7 Indemnification.

       

      The
Borrower will indemnify and hold the Bank harmless from any loss, liability,
damages, judgments, and costs of any kind relating to or arising directly or
indirectly out of (a) this Agreement or any document required hereunder, (b) any
credit extended or committed by the Bank to the Borrower hereunder, (c) any
claim, whether well-founded or otherwise, that there has been a failure to
comply with any law regulating the Borrower's sales or leases to or performance
of services for debtors obligated upon the Borrower's accounts receivable and
disclosures in connection therewith, and (d) any litigation or proceeding
related to or arising out of this Agreement, any such document, any such credit,
or any such claim.  This indemnity includes but is not limited to
attorneys' fees (including the allocated cost of in-house
counsel).  This indemnity extends to the Bank, its parent,
subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns.  This indemnity will survive
repayment of the Borrower's obligations to the Bank.  All sums due to
the Bank hereunder shall be obligations of the Borrower, due and payable
immediately without demand.

       

      12.8 Governing
Law.

       

      This
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland.  The Ex-Im Line is a "commercial loan" within the
meaning of such term as it is defined in Section 12-101(c) and 12-103(e) of the
Commercial Law Article, Annotated Code of Maryland.  To the extent
that the Bank has greater rights or remedies under federal law, whether as a
national bank or otherwise, this paragraph shall not be deemed to deprive the
Bank of such rights and remedies as may be available under federal
law.

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

      12.9 Consent to
Jurisdiction.

       

      TO
INDUCE THE BANK TO ACCEPT THIS AGREEMENT, THE BORROWER IRREVOCABLY AGREES THAT,
SUBJECT TO THE BANK’S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN
ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT WILL BE LITIGATED IN STATE
OR FEDERAL COURTS HAVING SITUS IN BALTIMORE, MARYLAND.  THE BORROWER
HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN BALTIMORE, MARYLAND, WAIVES PERSONAL SERVICE OF PROCESS UPON THE
BORROWER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL
RECEIPT.  IN ADDITION, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE
FULLEST EXTENT PERMITTED BY LAW ANY DEFENSE ASSERTING AN INCONVENIENT FORUM IN
CONNECTION THEREWITH.

       

      12.10 Waiver of Jury
Trial.

       

      THE
BORROWER AND THE BANK EACH WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS AGREEMENT OR ANY
RELATED AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THIS
AGREEMENT OR (B) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.  THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE.  THE BORROWER AGREES THAT IT WILL NOT
ASSERT ANY CLAIM AGAINST THE BANK OR ANY OTHER PERSON INDEMNIFIED UNDER THIS
AGREEMENT ON ANY THEORY OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL OR PUNITIVE DAMAGES.

       

      12.11 CONFESSION
OF JUDGMENT.

       

      THE
BORROWER AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD
IN THE UNITED STATES TO APPEAR ON BEHALF OF THE BORROWER IN ANY COURT IN ONE OR
MORE PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OR PROTHONOTARY OR OTHER COURT
OFFICIAL, AND TO CONFESS JUDGMENT AGAINST THE BORROWER IN FAVOR OF THE HOLDER OF
THIS AGREEMENT IN THE FULL AMOUNT DUE UNDER THIS AGREEMENT (INCLUDING PRINCIPAL,
ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES
EQUAL TO FIFTEEN PERCENT (15%) OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT
PRIOR NOTICE OR OPPORTUNITY OF THE BORROWER FOR PRIOR HEARING.  THE
BORROWER AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE
CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY,
MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MARYLAND.  THE BORROWER WAIVES THE BENEFIT OF ANY AND EVERY STATUTE,
ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON THE
BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF
EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR
IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A
JUDGMENT.  THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT
AGAINST THE BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR
BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT
ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR
MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS
OFTEN AS THE HOLDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER.

       

      
        
          
             

             

          

           

        

        
          27

          
            

          

        

        
           

        

      

      12.12 Successors and
Assigns.

       

      This
Agreement is binding on the Borrower's and the Bank's successors and
assignees.  The Borrower agrees that it may not assign this Agreement
without the Bank's prior consent.  The Bank may sell participations in
or assign this loan and any credit facilities hereunder, and may exchange
information about the Borrower (including, without limitation, any information
regarding any hazardous substances) with actual or potential participants or
assignees, including without limitation Ex-Im Bank.  If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.

       

      12.13 Severability;
Waivers.

       

      If any
part of this Agreement is not enforceable, the rest of the Agreement may be
enforced.  The Bank retains all rights, even if it makes a loan after
default.  If the Bank waives a default, it may enforce a later
default.  Any consent or waiver under this Agreement must be in
writing.

       

      12.14 Attorneys’
Fees.

       

      The
Borrower shall reimburse the Bank for any reasonable costs and attorneys' fees
incurred by the Bank in connection with the enforcement or preservation of any
rights or remedies under this Agreement and any other documents executed in
connection with this Agreement, and in connection with any amendment, waiver,
“workout” or restructuring under this Agreement.  In the event of a
lawsuit or arbitration proceeding, the prevailing party is entitled to recover
costs and reasonable attorneys' fees incurred in connection with the lawsuit or
arbitration proceeding, as determined by the court or arbitrator.  In
the event that any case is commenced by or against the Borrower under the
Bankruptcy Code (Title 11, United States Code) or any similar or successor
statute, the Bank is entitled to recover costs and reasonable attorneys' fees
incurred by the Bank related to the preservation, protection, or enforcement of
any rights of the Bank in such a case.  As used in this paragraph,
“attorneys' fees” includes the allocated costs of the Bank's in-house
counsel.

       

      12.15 Joint and Several
Liability.

       

      (a)           Each
Borrower agrees that it is jointly and severally liable to the Bank for the
payment of all obligations arising under this Agreement, and that such liability
is independent of the obligations of the other Borrower(s).  Each
obligation, promise, covenant, representation and warranty in this Agreement
shall be deemed to have been made by, and be binding upon, each Borrower, unless
this Agreement expressly provides otherwise.  The Bank may bring an
action against any Borrower, whether an action is brought against the other
Borrower(s).

       

      (b)           Each
Borrower agrees that any release which may be given by the Bank to the other
Borrower(s) or any guarantor will not release such Borrower from its obligations
under this Agreement.

       

      (c)           Each
Borrower waives any right to assert against the Bank any defense, setoff,
counterclaim, or claims which such Borrower may have against the other
Borrower(s) or any other party liable to the Bank for the obligations of the
Borrowers under this Agreement.

       

      (d)           Each
Borrower waives any defense by reason of any other Borrower’s or any other
person's defense, disability, or release from liability.  The Bank can
exercise its rights against each Borrower even if any other Borrower or any
other person no longer is liable because of a statute of limitations or for
other reasons.

       

      (e)           Each
Borrower agrees that it is solely responsible for keeping itself informed as to
the financial condition of the other Borrower(s) and of all circumstances which
bear upon the risk of nonpayment.  Each Borrower waives any right it
may have to require the Bank to disclose to such Borrower any information which
the Bank may now or hereafter acquire concerning the financial condition of the
other Borrower(s).

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

      (f)           Each
Borrower waives all rights to notices of default or nonperformance by any other
Borrower under this Agreement.  Each Borrower further waives all
rights to notices of the existence or the creation of new indebtedness by any
other Borrower and all rights to any other notices to any party liable on any of
the credit extended under this Agreement.

       

      (g)           The
Borrowers represent and warrant to the Bank that each will derive benefit,
directly and indirectly, from the collective administration and availability of
credit under this Agreement.  The Borrowers agree that the Bank will
not be required to inquire as to the disposition by any Borrower of funds
disbursed in accordance with the terms of this Agreement.

       

      (h)           Until
all obligations of the Borrowers to the Bank under this Agreement have been paid
in full and any commitments of the Bank or facilities provided by the Bank under
this Agreement have been terminated, each Borrower (a) waives any right of
subrogation, reimbursement, indemnification and contribution (contractual,
statutory or otherwise), including without limitation, any claim or right of
subrogation under the Bankruptcy Code (Title 11, United States Code) or any
successor statute, which such Borrower may now or hereafter have against any
other Borrower with respect to the indebtedness incurred under this Agreement;
and (b) waives any right to enforce any remedy which the Bank now has or may
hereafter have against any other Borrower, and waives any benefit of, and any
right to participate in, any security now or hereafter held by the
Bank.

       

      (i)           Each
Borrower waives any right to require the Bank to proceed against any other
Borrower or any other person; proceed against or exhaust any security; or pursue
any other remedy.  Further, each Borrower consents to the taking of,
or failure to take, any action which might in any manner or to any extent vary
the risks of the Borrowers under this Agreement or which, but for this
provision, might operate as a discharge of the Borrowers.

       

      12.16 One
Agreement.

       

      This
Agreement and any related security or other agreements required by this
Agreement, collectively:

       

      (a)           represent
the sum of the understandings and agreements between the Bank and the Borrower
concerning this credit;

       

      (b)           replace
any prior oral or written agreements between the Bank and the Borrower
concerning this credit; and

       

      (c)           are
intended by the Bank and the Borrower as the final, complete and exclusive
statement of the terms agreed to by them.

       

      In the
event of any conflict between this Agreement and any other agreements required
by this Agreement, this Agreement will prevail.  Any reference in any
related document to a “promissory note” or a “note” executed by the Borrower and
dated as of the date of this Agreement shall be deemed to refer to this
Agreement, as now in effect or as hereafter amended, renewed, or
restated.

       

      12.17 Notices.

       

      Unless
otherwise provided in this Agreement or in another agreement between the Bank
and the Borrower, all notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, or by overnight courier,
to the addresses on the signature page of this Agreement, or sent by facsimile
to the fax numbers listed on the signature page, or to such other addresses as
the Bank and the Borrower may specify from time to time in
writing.  Notices and other communications shall be effective (i) if
mailed, upon the earlier of receipt or five (5) days after deposit in the U.S.
mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or
(iii) if hand-delivered, by courier or otherwise (including telegram, lettergram
or mailgram), when delivered.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      12.18 Headings.

       

      Article
and paragraph headings are for reference only and shall not affect the
interpretation or meaning of any provisions of this Agreement.

       

      12.19 Counterparts.

       

      This
Agreement may be executed in as many counterparts as necessary or convenient,
and by the different parties on separate counterparts each of which, when so
executed, shall be deemed an original but all such counterparts shall constitute
but one and the same agreement.

       

      12.20 Borrower Information;
Reporting to Credit Bureaus.

       

      The
Borrower authorizes the Bank at any time to verify or check any information
given by the Borrower to the Bank, check the Borrower’s credit references,
verify employment, and obtain credit reports.  The Borrower agrees
that the Bank shall have the right at all times to disclose and report to credit
reporting agencies and credit rating agencies such information pertaining to the
Borrower and/or all guarantors as is consistent with the Bank’s policies and
practices from time to time in effect.

       

      12.21 Document Receipt Cut-Off
Date.

       

      Unless
this Agreement and any documents required by this Agreement have been signed and
returned to the Bank within thirty (30) days after the date of this Agreement
(the “Document Receipt Cut-Off
Date”), the Bank shall have the right to notify the Borrower in writing
that the Bank’s commitment to extend credit under this Agreement has
expired.  If the executed Agreement and accompanying loan documents
are received after the Document Receipt Cut-Off Date, the Bank shall have a
reasonable period of time after receipt of the executed Agreement and
accompanying loan documents to provide such notice.

       

      12.22 USA Patriot Act
Notice.

       

      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.

       

      [Signatures on next page.]

       

      
        
          
             

             

          

           

        

        
          30

          
            

          

        

        
           

        

      

      

      The Borrower executed this Agreement as
of the date stated at the top of the first page, intending to create an
instrument executed under seal.

      

      

      
        	
                Bank
      of America, N.A.

                 

              	 
      	
                GSE
      Systems, Inc.

                 

              
	
                By:           /s/ Kevin
      Mahon

                Kevin Mahon

                Senior Vice
    President

              	 
      	
                By:           /s/ Jeffery
      Hough                                                      (Seal)

                Jeffery Hough

                Chief Financial
      Officer

              
	 
      	 
      	 
      
	 
      	 
      	
                GSE
      Power Systems, Inc.

                 

              
	 
      	 
      	
                By:           /s/ Jeffery
      Hough                                                      (Seal)

                Jeffery Hough

                Chief Financial
      Officer

              

      

      

      

      
        	
                Address
      where notices to

                the
      Bank are to be sent:

                 

              	 
      	
                Address
      where notices to

                the
      Borrower are to be sent:

                 

              
	
                100
      South Charles Street, 2nd Floor

                Baltimore,
      Maryland 21201

                Facsimile:                                           

              	 
      	
                7133
      Rutherford Road, Suite 200

                Baltimore,
      Maryland 21244

                Telephone:

                Facsimile:                                           

              

      

      

      

       

      

      

      
        
          
             

             

          

           

        

        
          31

          
            

          

        

        
           

        

      

      Exhibit
A

      Economic
Impact Certification

      

      

       

      I am
making this Economic Impact Certification on behalf of ___________________ (the
“Borrower”) pursuant to Section 2.14(b) of the Borrower Agreement applicable to
the Borrower’s Loan Facility.  All capitalized terms not otherwise
defined in this Certification are as defined in the Borrower
Agreement.

       

      I hereby
certify that (please mark only
one):

       

      No Items listed in Section 4.A.(1.) of
the Loan Authorization Agreement applicable to the Borrower’s Loan Facility are
Capital Goods.

       

      No Items being added to Section
4.A.(1.) of the Loan Authorization Agreement in amending such document are
Capital Goods.

       

      The Items listed below are Capital
Goods.  In accordance with Section 2.14(a) of the Borrower Agreement,
the Borrower has either conducted its own analysis or obtained an Economic
Impact Approval concluding that such Items do not require any
restrictions.  The Economic Impact Approval or Borrower’s analysis
supporting this conclusion is attached.

       

      
        	
                 
      

              	
                __________________________________

              

      

       

      
        	
                 
      

              	
                __________________________________

              

      

       

      
        	
                 
      

              	
                __________________________________

              

      

       

      The Items listed below are Capital
Goods.  In accordance with Section 2.14(a) of the Borrower Agreement,
the Borrower has either conducted its own analysis or obtained an Economic
Impact Approval that identifies certain restrictions.  The Borrower
shall abide by the terms of such restrictions throughout the term of the Loan
Facility.  The Economic Impact Approval or Borrower’s analysis
enumerating the restrictions is attached.

       

      
        	
                 
      

              	
                __________________________________

              

      

       

      
        	
                 
      

              	
                __________________________________

              

      

       

      
        	
                 
      

              	
                __________________________________

              

      

       

      I certify
that I am authorized to sign this Certification on behalf of the
Borrower.

       

      [Borrower]

       

      By:                                                      

      Name:                                                                Date

      Title:                                                      

       

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit
B

      Items

      

      

      Simulation
and services for nuclear and fossil electric utility industries; process
industries such as oil and gas production facilities, oil refining plants,
chemical plants and petro-chemical facilities and; universities, technical
colleges and other educational institutions

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit
C

      Permitted
Liens

      

      

      Debtor:  GSE
Systems, Inc.

       

      

       

      
        	
                Financing
      Statement #

              	
                Filing
      Date

              	
                Maturity
      Date

              	
                Secured
      Party

              
	
                31048175

              	
                04/23/2003

              	
                04/23/2008

              	
                OCE-USA,
      Inc.

              

      

      

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit
D

       

      Controlling
Affiliate List

       

      

       

      
        	
                Borrower

              	
                Controlling
      Affiliate

              	
                Percentage
      Interest

              
	
                GSE
      Systems, Inc.

              	
                None

              	
                N/A

              
	
                GSE
      Power Systems, Inc.

              	
                MSHI,
      Inc.

              	
                100%

              
	 
      	 
      	 
      
	 
      	 
      	 
      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit
E

      Inventory
Locations

      

      

      7133
Rutherford Road, Suite 200

      Baltimore,
Maryland 21244

      

      

      

      2300 St.
Marys Road, Suite 2

      St.
Marys, Georgia 31558

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit
F

      Export-Related
Borrowing Base Certificate

      

      

        
          	
                  GSC
      Systems, Inc. & GSC Power Systems, Inc.

                	 	 
	
                  MONTH-END
      COLLATERAL REPORT & BORROWING CERTIFICATE

                	 
	
                  WORKING
      CAPITAL GUARANTEE PROGRAM

                	 	 
	
                  (
      Transaction Specific Only)

                	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	
                  BBC
      #

                	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	
                  For
      the Period

                	 	 	 	 
	
                  Foreign
      Accounts Receivable

                	 	 	 	 	 	 	 	 	 	 
	
                  1. Beginning
      Gross A/R (line 5 previous BBC)

                	 	 	 	 	 	 	-	 
	
                  2. Add:
      Export Sales since last certificate (P.O. or Summary Report
      attached)

                	 
	
                  3. Less:
      Payments Received

                	 	 	 	 	 	 	 	 	 	 	 
	
                  4. Credit
      Memos/other Adjustments

                	 	 	 	 	 	 	 	 	 	-	 
	
                  5. Ending
      Gross A/R (carry to line 1, next BBC)

                	 	 	 	 	 	 	-	 
	
                  6.   Less:

                	
                  A/R
      Ineligibles per attached schedule A

                	 	 	 	 	 	 	 	 
	
                  7.   Net  Eligible  A/R

                	 	 	 	 	 	 	 	 	 	 	 	-	 
	 
      	
                  Advance
      Rate

                	 	 	 	 	 	 	 	 	90	%	 	 	-	 
	
                        Net
      Eligible Retention A/R

                	 	
                  (Cap
      $500,000.00)

                	 	 	
                  (if
      applicable)

                	 	 	 	 	 	 	 	-	 
	 
      	
                  Advance
      Rate

                	 	 	 	 	 	 	 	 	25	%	 	 	-	 
	
                  8.  Borrowing
      Base - A/R

                	 	 	 	 	 	 	 	 	 	 	 	 	-	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Exportable
      Inventory

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  9. Beginning
      Inventory (line 12, previous BBC)

                	 	 	 	 	 	 	 	-	 
	
                  10. Add:
      Additions since last certificate (P.O. or Summary Report
      Attached)

                	 	 	-	 
	
                  10a
      Add: Costs in Excess of Billings

                	 	 	 	 	 	 	 	 	 	 	 	 
	
                  11. Less: Reductions
      since last certificate

                	 	 	 	 	 	 	 	-	 
	
                  12. Ending
      Inventory (carry to line 9, next BBC)

                	 	 	 	 	 	 	 	-	 
	
                  13.  Less:

                	
                  Inventory
      Ineligibles per attached schedule A

                	 	 	 	 	 	 	 	 	 
	
                  14.  Net
      Eligible Inventory

                	 	 	 	 	 	 	 	 	 	 	 	 	-	 
	 
      	
                  Advance
      Rate

                	 	 	 	 	 	 	 	 	 	 	 	 	75	%
	
                  15. Borrowing
      Base - Inventory

                	 	 	 	 	 	 	 	 	 	 	-	 
	
                  16.  Other
      collateral

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	
                  CLC

                	 	 	
                  SBLC

                	 	 	 	 	 	 	 	 	 
	
                  17.   Less:

                	
                  Letters
      of Credit

                	 	$	-	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                  Plus
      L/C Requested

                	 	$	-	 	 	 	-	 	 	 	 	 	 	 	 	 
	 
      	
                  Total
      L/C's

                	 	$	-	 	 	$	-	 	 	
                  25%
      Reserve

                	 	 	-	 
	 
      	
                  L/C
      Sub-Limit

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	
                  L/C
      Available to Issue

                	 	$	-	 	 	 	0.00	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  18. Total
      Borrowing Base (lines 8 + 15 + 16 - 17)

                	 	 	 	 	 	 	 	-	 
	
                  19.  Credit
      Limit

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  20. Lesser
      of Borrowing Base Availability (line 18 or Credit Limit (line
      19)

                	 	 	-	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  21. Beginning
      Loan Balance (line 25 previous BBC)

                	 	 	 	-	 	 	 	 	 
	
                  22.  Less:

                	
                  Payments
      Received

                	 	 	 	 	 	 	 	-	 	 	 	 	 
	
                  23.  Plus:

                	
                  Advances

                	 	 	 	 	 	 	 	 	 	 	-	 	 	 	 	 
	
                  24. Ending
      Loan Balance (carry to line 21 next BBC)

                	 	 	 	-	 
	
                  25. 100%
      of Face Amount of L/C's Issued

                	 	 	 	 	 	 	 	-	 
	
                  26.  Less:  Reserves

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  27. Net
      Remaining Line Availability

                	 	 	 	 	 	 	 	 	 	 	 	-	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  28. Net
      Remaining Borrowing Base Availability

                	 	 	 	 	 	 	 	-	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  The
      Undersigned hereby represents and warrants that the information contained
      in the

                	 
	
                  Borrower
      Base Certificate dated:

                	 	 	
                  is
      true, complete and correct and that the

                	 
	
                  collateral
      values reflected herein comply with the conditions, terms, warranties,
      representations

                	 
	
                  and
      covenants set forth in the Loan Agreement and the Borrower Agreement under
      the Working Capital Guarantee

                	 
	
                  Program
      of the Export Import Bank of the United States (Eximbank) between (GSC
      Systems, Inc. & GSC Power Systems, Inc.)

                	 
	
                  and
      Bank of America, N.A.

                	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  GSC
      Systems, Inc. & GSC Power Systems, Inc.

                	 	 	 	 	 	 	 	 	 
	
                  Ex-Im
      Bank Working Capital Guarantee Loan #

                	 	 	 	 	 	 	 	 	 
	
                  Authorized
      Signature:

                	 	 	 	 	 	 	 	 	 	
                  Date:

                	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Title:

                	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

        

       

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit
G

      Terms
of Sale

      

      

      Irrevocable
letters of credit

      

      Open
account insuredexh10_2.htm

    Exhibit 10.2

      SECURITY
AGREEMENT

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

       

      1. THE
SECURITY.  The undersigned GSE Systems, Inc. and GSE Power Systems,
Inc. (collectively, the "Pledgor") hereby assign and
grant to Bank of America, N.A. (the "Bank") a security interest in
their respective property described as follows, whether now owned or hereafter
acquired ("Collateral"):

       

      (a) All
accounts, contract rights, chattel paper, instruments, deposit accounts, letter
of credit rights, payment intangibles and general intangibles, including all
amounts due to the Pledgor from a factor; rights to payment of money from the
Bank under any Swap Contract (as defined in Paragraph 2 below); and all returned
or repossessed goods which, on sale or lease, resulted in an account or chattel
paper.

       

      (b) All
inventory, including all materials, work in process and finished
goods.

       

      (c) All
machinery, furniture, fixtures and other equipment of every type now owned or
hereafter acquired by the Pledgor.

       

      (d) All of
the Pledgor’s deposit accounts with the Bank. The Collateral shall include any
renewals or rollovers of the deposit accounts, any successor accounts, and any
general intangibles and choses in action arising therefrom or related
thereto.

       

      (e) All
instruments, notes, chattel paper, documents, certificates of deposit,
securities and investment property of every type.  The Collateral
shall include all liens, security agreements, leases and other contracts
securing or otherwise relating to the foregoing.

       

      (f) All
general intangibles, including, but not limited to, (i) all patents, and all
unpatented or unpatentable inventions; (ii) all trademarks, service marks, and
trade names; (iii) all copyrights and literary rights; (iv) all computer
software programs; (v) all mask works of semiconductor chip products; (vi) all
trade secrets, proprietary information, customer lists, manufacturing,
engineering and production plans, drawings, specifications, processes and
systems.  The Collateral shall include all goodwill connected with or
symbolized by any of such general intangibles; all contract rights, documents,
applications, licenses, materials and other matters related to such general
intangibles; all tangible property embodying or incorporating any such general
intangibles; and all chattel paper and instruments relating to such general
intangibles.

       

      (g) All
negotiable and nonnegotiable documents of title covering any
Collateral.

       

      (h) All
accessions, attachments and other additions to the Collateral, and all tools,
parts and equipment used in connection with the Collateral.

       

      (i) All
substitutes or replacements for any Collateral, all cash or non-cash proceeds,
product, rents and profits of any Collateral, all income, benefits and property
receivable on account of the Collateral, all rights under warranties and
insurance contracts, letters of credit, guaranties or other supporting
obligations covering the Collateral, and any causes of action relating to the
Collateral.

       

      (j) All books
and records pertaining to any Collateral, including but not limited to any
computer-readable memory and any computer hardware or software necessary to
process such memory ("Books and
Records").

       

      (k) All
present and future property encompassed by the category described as commercial
tort claims, as defined in the Uniform Commercial Code (“Commercial Tort
Claims”).

       

      

       

      
        
          
             

             

          

           

        

        
          1

          
            

          

        

        
           

        

      

      2. INDEBTEDNESS.

       

      (a)  The
Collateral secures all Indebtedness of the Pledgor to the Bank.  Each
party obligated under any Indebtedness is referred to in this Agreement as a
“Debtor.” "Indebtedness" means, with
respect to that certain $3,500,000 Ex-Im Bank guaranteed transaction specific
revolving line of credit arising under that certain Loan Agreement (Ex-Im Bank
Guaranteed Transaction Specific Revolving Line of Credit) (the “Loan Agreement”) and related
agreements, documents and instruments entered into between Bank and Pledgor as
of even date herewith, as now in effect and as amended, renewed or restated in
the future, all debts, obligations or liabilities now or hereafter existing,
absolute or contingent of the Debtor or any one or more of them to the Bank,
whether voluntary or involuntary, whether due or not due, or whether incurred
directly or indirectly or acquired by the Bank by assignment or
otherwise.  Indebtedness shall include, without limitation, all
obligations of the Debtor arising under any Swap Contract. “Swap Contract” means any
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, securities puts, calls, collars, options or forwards or any combination
of, or option with respect to, these or similar transactions now or hereafter
entered into between the Debtor and the Bank.

       

      (b)  In
addition to the Collateral described above, any other personal property
collateral described in any security agreement now or hereafter entered into
between Debtor and Bank (the “Additional Collateral”) shall
also secure the Indebtedness; provided, however, that to the extent the
Additional Collateral secures any present or future obligations of Debtor to
Bank that are not guaranteed by the Export-Import Bank of the United States
under its Working Capital Guarantee Program (the “Non-Ex-Im Bank Obligations”),
the Additional Collateral shall be applied first to the satisfaction of the
Non-Ex-Im Bank Obligations and the balance, if any, to the
Indebtedness.

       

      3. PLEDGOR'S
COVENANTS.  The Pledgor represents, covenants and warrants that unless
compliance is waived by the Bank in writing:

       

      (a) Pledgor
shall execute any and all such documents as the Bank may request, including
without limitation, financing statements pursuant to the Uniform Commercial Code
in the jurisdiction in which the Collateral is located or in which Borrower
resides or is formed or organized, as applicable (the “Uniform Commercial Code”) to
preserve and maintain the priority of the lien created hereby on the Collateral,
and shall pay to the Bank on demand any expenses incurred by the Bank in
connection with the preparation, execution and filing of any such
documents.  Said financing statements shall be filed in such offices
as the Bank deems advisable under the Uniform Commercial
Code.  Pledgor hereby authorizes the Bank to file all financing
statements, refilings, continuations and amendments thereof as the Bank deems
necessary or advisable to create, preserve and protect said lien and security
interest.  Pledgor shall cooperate with the Bank in obtaining control
of deposit accounts, letter of credit rights and any other Collateral for which
control is necessary for perfection under the Uniform Commercial
Code.

       

      (b) The
Pledgor will properly preserve the Collateral; defend the Collateral against any
adverse claims and demands; and keep accurate Books and Records.

       

      (c) The
Pledgor's chief executive office is located, in the state specified on the
signature page hereof.  In addition, the Pledgor is incorporated in or
organized under the laws of the state specified on such signature
page.  The Pledgor shall give the Bank at least thirty (30) days
notice before changing its chief executive office or state of incorporation or
organization.  The Pledgor will notify the Bank in writing prior to
any change in the location of any Collateral, including the Books and
Records.

       

      (d) The
Pledgor will notify the Bank in writing prior to any change in the Pledgor's
name, identity or business structure.

       

      (e) Unless
otherwise agreed, the Pledgor has not granted and will not grant any security
interest in any of the Collateral except to the Bank, and will keep the
Collateral free of all liens, claims, security interests and encumbrances of any
kind or nature except the security interest of the Bank.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      (f) The
Pledgor will promptly notify the Bank in writing of any event which affects the
value of the Collateral, the ability of the Pledgor or the Bank to dispose of
the Collateral, or the rights and remedies of the Bank in relation thereto,
including, but not limited to, the levy of any legal process against any
Collateral and the adoption of any marketing order, arrangement or procedure
affecting the Collateral, whether governmental or otherwise.

       

      (g) The
Pledgor shall pay all costs necessary to preserve, defend, enforce and collect
the Collateral, including but not limited to taxes, assessments, insurance
premiums, repairs, rent, storage costs and expenses of sales, and any costs to
perfect the Bank’s security interest (collectively, the “Collateral
Costs”).  Without waiving the Pledgor's default for failure to
make any such payment, the Bank at its option may pay any such Collateral Costs,
and discharge encumbrances on the Collateral, and such Collateral Costs payments
shall be a part of the Indebtedness and bear interest at the rate set out in the
Indebtedness.  The Pledgor agrees to reimburse the Bank on demand for
any Collateral Costs so incurred.

       

      (h) Until the
Bank exercises its rights to make collection, the Pledgor will diligently
collect all Collateral.

       

      (i) If any
Collateral is or becomes the subject of any registration certificate,
certificate of deposit or negotiable document of title, including any warehouse
receipt or bill of lading, the Pledgor shall immediately deliver such document
to the Bank, together with any necessary endorsements.

       

      (j) The
Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose of
any Collateral except with the prior written consent of the Bank; provided,
however, that the Pledgor may sell inventory in the ordinary course of
business.

       

      (k) The
Pledgor will maintain and keep in force insurance covering the Collateral
against fire and extended coverages (including without limitation windstorm
coverage, and hurricane coverage as applicable), to the extent that any
Collateral is of a type which can be so insured.  Such insurance shall
require losses to be paid on a replacement cost basis, be issued by insurance
companies acceptable to the Bank and include a loss payable endorsement in favor
of the Bank in a form acceptable to the Bank.  Upon the request of the
Bank, the Pledgor will deliver to the bank a copy of each insurance policy, or,
if permitted by the Bank, a certificate of insurance listing all insurance in
force.

       

      (l) The
Pledgor will not attach any Collateral to any real property or fixture in a
manner which might cause such Collateral to become a part thereof unless the
Pledgor first obtains the written consent of any owner, holder of any lien on
the real property or fixture, or other person having an interest in such
property to the removal by the Bank of the Collateral from such real property or
fixture.  Such written consent shall be in form and substance
acceptable to the Bank and shall provide that the Bank has no liability to such
owner, holder of any lien, or any other person.

       

      (m) The
Pledgor shall not withdraw funds from any deposit account which is part of the
Collateral without the Bank's prior written consent.  The Pledgor
agrees that, upon maturity of any deposit account with a maturity date, such
deposit account shall be renewed at the Bank’s then prevailing rate of interest
for successive ninety (90) day periods (or such other time period as may be
agreed by the Bank and the Pledgor).  Notwithstanding the Bank's
security interest in the proceeds of the deposit accounts, the Bank will
continue to pay to the Pledgor interest accruing thereunder until the occurrence
of a default under this Agreement.

       

      (n) Exhibit A to this
Agreement is a complete list of all patents, trademark and service mark
registrations, copyright registrations, mask work registrations, and all
applications therefor, in which the Pledgor has any right, title, or interest,
throughout the world.  To the extent required by the Bank in its
discretion, the Pledgor will promptly notify the Bank of any acquisition (by
adoption and use, purchase, license or otherwise) of any patent, trademark or
service mark registration, copyright registration, mask work registration, and
applications therefor, and unregistered trademarks and service marks and
copyrights, throughout the world, which are granted or filed or acquired after
the date hereof or which are not listed on the Exhibit.  The Pledgor
authorizes the Bank, without notice to the Pledgor, to modify this Agreement by
amending the Exhibit to include any such Collateral.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (o) The
Pledgor will, at its expense, diligently prosecute all patent, trademark or
service mark or copyright applications pending on or after the date hereof, will
maintain in effect all issued patents and will renew all trademark and service
mark registrations, including payment of any and all maintenance and renewal
fees relating thereto, except for such patents, service marks and trademarks
that are being sold, donated or abandoned by the Pledgor pursuant to the terms
of its intellectual property management program.  The Pledgor also
will promptly make application on any patentable but unpatented inventions,
registerable but unregistered trademarks and service marks, and copyrightable
but uncopyrighted works.  The Pledgor will at its expense protect and
defend all rights in the Collateral against any material claims and demands of
all persons other than the Bank and will, at its expense, enforce all rights in
the Collateral against any and all infringers of the Collateral where such
infringement would materially impair the value or use of the Collateral to the
Pledgor or the Bank.  The Pledgor will not license or transfer any of
the Collateral, except for such licenses as are customary in the ordinary course
of the Pledgor's business, or except with the Bank's prior written
consent.

       

      4. ADDITIONAL
OPTIONAL REQUIREMENTS.  The Pledgor agrees that the Bank may at its
option at any time, whether or not the Pledgor is in default:

       

      (a) Require
the Pledgor to deliver to the Bank (i) copies of or extracts from the Books and
Records, and (ii) information on any contracts or other matters affecting the
Collateral.

       

      (b) Examine
the Collateral, including the Books and Records, and make copies of or extracts
from the Books and Records, and for such purposes enter at any reasonable time
upon the property where any Collateral or any Books and Records are
located.

       

      (c) Require
the Pledgor to deliver to the Bank any instruments, chattel paper or letters of
credit which are part of the Collateral, and to assign to the Bank the proceeds
of any such letters of credit.

       

      (d) Notify
any account debtors, any buyers of the Collateral, or any other persons of the
Bank's interest in the Collateral.

       

      5. DEFAULTS.  Any
one or more of the following shall be a default hereunder:

       

      (a) Any
Indebtedness is not paid when due, or any default occurs under any agreement
relating to the Indebtedness, after giving effect to any applicable grace or
cure periods.

       

      (b) The
Pledgor breaches any term, provision, warranty or representation under this
Agreement, or under any other obligation of the Pledgor to the Bank, and such
breach remains uncured after any applicable cure period.

       

      (c) The Bank
fails to have an enforceable first lien (except for any prior liens to which the
Bank has consented in writing) on or security interest in the
Collateral.

       

      (d) Any
custodian, receiver or trustee is appointed to take possession, custody or
control of all or a substantial portion of the property of the Pledgor or of any
guarantor or other party obligated under any Indebtedness.

       

      (e) The
Pledgor or any guarantor or other party obligated under any Indebtedness becomes
insolvent, or is generally not paying or admits in writing its inability to pay
its debts as they become due, fails in business, makes a general assignment for
the benefit of creditors, dies, or commences any case, proceeding or other
action under any bankruptcy or other law for the relief of, or relating to,
debtors.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (f) Any case,
proceeding or other action is commenced against the Pledgor or any guarantor or
other party obligated under any Indebtedness under any bankruptcy or other law
for the relief of, or relating to, debtors.

       

      (g) Any
involuntary lien of any kind or character attaches to any Collateral, except for
liens for taxes not yet due.

       

      (h) The
Pledgor has given the Bank any false or misleading information or
representations.

       

      6. BANK'S
REMEDIES AFTER DEFAULT.  In the event of any default, the Bank may do
any one or more of the following, to the extent permitted by law:

       

      (a) Declare
any Indebtedness immediately due and payable, without notice or
demand.

       

      (b) Enforce
the security interest given hereunder pursuant to the Uniform Commercial Code
and any other applicable law.

       

      (c) Enforce
the security interest of the Bank in any deposit account of the Pledgor
maintained with the Bank by applying such account to the
Indebtedness.

       

      (d) Require
the Pledgor to obtain the Bank's prior written consent to any sale, lease,
agreement to sell or lease, or other disposition of any Collateral consisting of
inventory.

       

      (e) Require
the Pledgor to segregate all collections and proceeds of the Collateral so that
they are capable of identification and deliver daily such collections and
proceeds to the Bank in kind.

       

      (f) Require
the Pledgor to direct all account debtors to forward all payments and proceeds
of the Collateral to a post office box under the Bank's exclusive
control.

       

      (g) Require
the Pledgor to assemble the Collateral, including the Books and Records, and
make them available to the Bank at a place designated by the Bank.

       

      (h) Enter
upon the property where any Collateral, including any Books and Records, are
located and take possession of such Collateral and such Books and Records, and
use such property (including any buildings and facilities) and any of the
Pledgor's equipment, if the Bank deems such use necessary or advisable in order
to take possession of, hold, preserve, process, assemble, prepare for sale or
lease, market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral.

       

      (i) Demand
and collect any payments on and proceeds of the Collateral.  In
connection therewith the Pledgor irrevocably authorizes the Bank to endorse or
sign the Pledgor's name on all checks, drafts, collections, receipts and other
documents, and to take possession of and open the mail addressed to the Pledgor
and remove therefrom any payments and proceeds of the Collateral.

       

      (j) Grant
extensions and compromise or settle claims with respect to the Collateral for
less than face value, all without prior notice to the Pledgor.

       

      (k) Use or
transfer any of the Pledgor's rights and interests in any Intellectual Property
now owned or hereafter acquired by the Pledgor, if the Bank deems such use or
transfer necessary or advisable in order to take possession of, hold, preserve,
process, assemble, prepare for sale or lease, market for sale or lease, sell or
lease, or otherwise dispose of, any Collateral.  The Pledgor agrees
that any such use or transfer shall be without any additional consideration to
the Pledgor.  As used in this paragraph, "Intellectual Property"
includes, but is not limited to, all trade secrets, computer software, service
marks, trademarks, trade names, trade styles, copyrights, patents, applications
for any of the foregoing, customer lists, working drawings, instructional
manuals, and rights in processes for technical manufacturing, packaging and
labeling, in which the Pledgor has any right or interest, whether by ownership,
license, contract or otherwise.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (l) Have a
receiver appointed by any court of competent jurisdiction to take possession of
the Collateral.  The Pledgor hereby consents to the appointment of
such a receiver and agrees not to oppose any such appointment.

       

      (m) Take such
measures as the Bank may deem necessary or advisable to take possession of,
hold, preserve, process, assemble, insure, prepare for sale or lease, market for
sale or lease, sell or lease, or otherwise dispose of, any Collateral, and the
Pledgor hereby irrevocably constitutes and appoints the Bank as the Pledgor's
attorney-in-fact to perform all acts and execute all documents in connection
therewith.

       

      (n) Without
notice or demand to the Pledgor, set off and apply against any and all of the
Indebtedness any and all deposits (general or special, time or demand,
provisional or final) and any other indebtedness, at any time held or owing by
the Bank or any of the Bank's agents or affiliates to or for the credit of the
account of the Pledgor or any guarantor or endorser of the Pledgor's
Indebtedness.

       

      (o) Exercise
any other remedies available to the Bank at law or in equity.

       

      7. Consent
to Jurisdiction.  TO INDUCE THE BANK TO ACCEPT THIS
AGREEMENT, THE PLEDGOR IRREVOCABLY AGREES THAT, SUBJECT TO THE BANK’S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT WILL BE LITIGATED IN STATE OR FEDERAL COURT HAVING
SITUS IN BALTIMORE, MARYLAND.  THE PLEDGOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN BALTIMORE, MARYLAND, WAIVES PERSONAL SERVICE OF PROCESS
UPON THE PLEDGOR, AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO THE PLEDGOR AT THE ADDRESS STATED ON THE
SIGNATURE PAGE HEREOF AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT.  IN ADDITION, THE PLEDGOR HEREBY IRREVOCABLY WAIVES TO THE
FULLEST EXTENT PERMITTED BY LAW ANY DEFENSE ASSERTING AN INCONVENIENT FORUM IN
CONNECTION THEREWITH.

       

      8. Waiver of Jury
Trial.  THE PLEDGOR AND THE BANK EACH WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A)
UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION WITH THIS AGREEMENT OR (B) ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY
MADE.  THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY CLAIM AGAINST
THE BANK OR ANY OTHER PERSON INDEMNIFIED UNDER THIS AGREEMENT ON ANY THEORY OF
LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE
DAMAGES.

       

      9. MISCELLANEOUS.

       

      (a) Any
waiver, express or implied, of any provision hereunder and any delay or failure
by the Bank to enforce any provision shall not preclude the Bank from enforcing
any such provision thereafter.

       

      (b) The
Pledgor shall, at the request of the Bank, execute such other agreements,
documents, instruments, or financing statements in connection with this
Agreement as the Bank may reasonably deem necessary.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      (c) All
notes, security agreements, subordination agreements and other documents
executed by the Pledgor or furnished to the Bank in connection with this
Agreement must be in form and substance satisfactory to the Bank.

       

      (d) This
Agreement shall be governed by and construed in accordance with the laws of the
State of Maryland.  To the extent that the Bank has greater rights or
remedies under federal law, whether as a national bank or otherwise, this
paragraph shall not be deemed to deprive the Bank of such rights and remedies as
may be available under federal law.

       

      (e) All
rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies otherwise provided by law.  Any single or partial
exercise of any right or remedy shall not preclude the further exercise thereof
or the exercise of any other right or remedy.

       

      (f) All terms
not defined herein are used as set forth in the Uniform Commercial
Code.

       

      (g) In the
event of any action by the Bank to enforce this Agreement or to protect the
security interest of the Bank in the Collateral, or to take possession of, hold,
preserve, process, assemble, insure, prepare for sale or lease, market for sale
or lease, sell or lease, or otherwise dispose of, any Collateral, the Pledgor
agrees to pay immediately the costs and expenses thereof, together with
reasonable attorneys' fees and allocated costs for in-house legal services to
the extent permitted by law.

       

      (h) In the
event the Bank seeks to take possession of any or all of the Collateral by
judicial process, the Pledgor hereby irrevocably waives any bonds and any surety
or security relating thereto that may be required by applicable law as an
incident to such possession, and waives any demand for possession prior to the
commencement of any such suit or action.

       

      (i) This
Agreement shall constitute a continuing agreement, applying to all future as
well as existing transactions, whether or not of the character contemplated at
the date of this Agreement, and if all transactions between the Bank and the
Pledgor shall be closed at any time, shall be equally applicable to any new
transactions thereafter.

       

      (j) The
Bank's rights hereunder shall inure to the benefit of its successors and
assigns.  In the event of any assignment or transfer by the Bank of
any of the Indebtedness or the Collateral, the Bank thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but the Bank shall retain all rights and powers hereby given with
respect to any of the Indebtedness or the Collateral not so assigned or
transferred.  All representations, warranties and agreements of the
Pledgor if more than one are joint and several and all shall be binding upon the
personal representatives, heirs, successors and assigns of the
Pledgor.

       

      10. FINAL
AGREEMENT.  BY SIGNING THIS DOCUMENT
EACH PARTY REPRESENTS AND AGREES THAT:  (A) THIS DOCUMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER
HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER
WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF,
UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND
CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY
EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
UNDERSTANDINGS OF THE PARTIES.

       

      [Signatures on next
page.]

       

      
        
          
             

             

          

           

        

        
          7

          
            

          

        

        
           

        

      

      The parties executed this Agreement as
of March 28, 2008, intending to create an instrument executed under
seal.

       

      

      
        	
                Bank
      of America, N.A.

                 

              	 
      	
                GSE
      Systems, Inc.

                 

              
	
                By:           /s/ Kevin
      Mahon

                Kevin
      Mahon

                Senior Vice
    President

              	 
      	
                By:           /s/ Jeffery
      Hough                                                      (Seal)

                Jeffery
      Hough

                Chief
      Financial Officer

              
	 
      	 
      	 
      
	 
      	 
      	
                GSE
      Power Systems, Inc.

                 

              
	 
      	 
      	
                By:           /s/ Jeffery
      Hough                                                      (Seal)

                Jeffery
      Hough

                Chief
      Financial Officer

              

      

      

      

      

      
        	
                Address
      where notices to

                the
      Bank are to be sent:

                 

              	 
      	
                Address
      where notices to

                the
      Borrower are to be sent:

                 

              
	
                100
      South Charles Street, 2nd Floor

                Baltimore,
      Maryland 21201

                Facsimile:                                           

              	 
      	
                7133
      Rutherford Road, Suite 200

                Baltimore,
      Maryland 21244

                Telephone:                                           

                Facsimile:                                           

              

      

      

      

      GSE
Systems, Inc. and GSE Power Systems, Inc. 

      Chief
executive office:

      7133
Rutherford Rd., Suite 200

      Baltimore,
MD 21244

      

      GSE
Systems, Inc. and GSE Power Systems, Inc. 

      State of
incorporation or organization:

      

      Delaware

      

      

      

      

       

       

      

      
        
          
             

             

          

           

        

        
          8

          
            

          

        

        
           

        

      

      

       

      Exhibit
A

       

      Intellectual
Property

      

      

        
          	 
      	
                  TRADEMARKS

                	 
      
	
                  Trademark

                	
                  Registration
      Number

                	
                  Owner

                
	
                  Registration

                	 
      	 
      
	
                  D/3

                	
                  2,436,421

                	
                  GSE
      Systems, Inc.

                
	
                  D/3
      Manager Stylized

                	
                  2,803,881

                	
                  GSE
      Systems, Inc.

                
	
                  ESMART

                	
                  2,784,856

                	
                  GSE
      Systems, Inc.

                
	
                  Facets
      GSE Systems

                	
                  2,4
      72,790

                	
                  GSE
      Systems, Inc.

                
	
                  Services
      & Support & Design

                	 
      	 
      
	
                  GAARDS

                	
                  2,789,627

                	
                  GSE
      Systems, Inc.

                
	
                  GSE
      Systems

                	
                  2,220,635

                	
                  GSE
      Systems, Inc.

                
	
                  GSE
      Systems

                	
                  2,124,458

                	
                  GSE
      Systems, Inc.

                
	
                  GSE
      Systems & Designs

                	
                  2,145,529

                	
                  GSE
      Systems, Inc.

                
	
                  SABL

                	
                  2,438,096

                	
                  GSE
      Systems, Inc.

                
	
                  Simsuite
      Pro

                	
                  2,777,658

                	
                  GSE
      Systems, Inc.

                
	
                  Smarttutor

                	
                  2,776,533

                	
                  GSE
      Systems, Inc.

                
	
                  Strata

                	
                  2,472,791

                	
                  GSE
      Systems, Inc.

                
	
                  Totalvision

                	
                  2,430,921

                	
                  GSE
      Systems, Inc.

                
	
                  Remits-Real-Time

                	
                  3,182,498

                	
                  GSE
      Systems, Inc.

                
	
                  Emergency
      management

                	 
      	 
      
	
                  Interactive
      Training System

                	 
      	 
      
	
                  Opensim

                	
                  2,723,506

                	
                  GSE
      Power Systems, Inc.

                
	
                  Retact

                	
                  1,671,660

                	
                  GSE
      Power Systems, Inc.

                
	
                  Thor

                	
                  2,709,265

                	
                  GSE
      Power Systems, Inc.

                
	
                  Openexec

                	
                  3,195,315

                	
                  GSE
      Power Systems, Inc.

                
	
                  Simexec

                	
                  3,216,973

                	
                  GSE
      Power Systems, Inc.

                

        

        

        
 

        
          	 
      	 
      	
                  PATENTS

                	 
      
	
                  Patent
      Title

                	
                  Patent
      Number

                	
                  Owner
      Name

                	
                  Inventor
      Name

                
	
                  Real
      Time Analysis

                	
                  5,225,147

                	
                  General
      Physics International

                	
                  Lin,
      Eric K.; Lin, James

                
	
                  Of
      Light Water Core

                	 
      	
                  Engineering
      & Simulation, Inc.

                	 
      
	
                  Neutronics

                	 
      	 
      	 
      
	
                  Real-Time
      Analysis

                	
                  5,619,433

                	
                  General
      Physics International

                	
                  Wang,
      Guan-Hwa;

                
	
                  Of
      Power Plant

                	 
      	
                  Engineering
      & Simulation, Inc

                	
                  Zen-Yow;
      Lein,

                
	
                  Thennohydraulic
      Phenomena

                	 
      	 
      	
                  Horngshyang

                
	
                  Computer
      Implemented

                	
                  5,726,914

                	
                  GSE
      Systems, Inc.

                	
                  Janovski,
      Joseph;

                
	
                  Process
      And Computer

                	 
      	 
      	
                  Offutt,
      Pamela Y.;

                
	
                  Architecture
      For

                	 
      	 
      	
                  Manthey;
      Bruce E.;

                
	
                  Perfonnance
      Analysis

                	 
      	 
      	
                  Huff,
      Wayne L.;

                
	 
      	 
      	 
      	
                  Biggs,
      Philip A.

                
	
                  System
      And A Method

                	
                  4,568,288

                	
                  The
      Singer Company

                	
                  Patteson,
      Michael W.

                
	
                  To
      Visually Simulate

                	 
      	 
      	 
      
	
                  Subsystems
      In A Fossil

                	 
      	 
      	 
      
	
                  Fuel
      Power Plant Simulator

                	 
      	 
      	 
      
	
                  Digital
      Display Data

                	
                  4,120,028

                	
                  The
      Singer Company

                	
                  Membrino,
      Robert J.; Gaughan,

                
	
                  Processor

                	 
      	 
      	
                  John
      C.

                

        

      

      

       

      

1

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