Document:

exh10-2.htm

    Exhibit
10.2

    SECOND
AMENDMENT TO LOAN AGREEMENT

    (Domestic
Revolving Line of Credit)

    

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

    

    BACKGROUND

    

    
      	
              A.  

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

            

    

    

    
      	
              B.  

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

            

    

    

    AGREEMENT

    

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

    

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

    

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

    

    (A)           The
following definitions in Section 1.1 of the Original Loan Agreement are hereby
amended and restated in their entirety to read as follows:

    

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

    

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

    

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

    

    (C)           Subsection
(b) of Section 2.5 of the Original Loan Agreement is hereby amended and restated
in its entirety to read as follows:

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “(b)           Notwithstanding
anything to the contrary in this Section 2.5, any letter of credit issued within the final 60 days
of the Domestic Line Expiration Date shall expire no later than the Domestic
Line Expiration Date unless otherwise agreed by the
Bank.  Notwithstanding anything to the contrary in this Section 2.5,
if, as of the Domestic Line Expiration Date, any letter of credit for any reason
remains outstanding, the Borrower shall immediately Cash Collateralize the
Letter of Credit Obligations underlying, and any Disbursements to fund drawings
under, such letter of credit.  For purposes hereof, “Cash Collateralize” means to
pledge and deposit with or deliver to the Bank, for the benefit of the Bank,
cash or deposit account balances pursuant to documentation in form and substance
acceptable to the Bank in its sole and absolute discretion.  Cash
collateral shall be maintained in a blocked, interest bearing deposit account at
the Bank. The Borrower hereby grants to the Bank a security interest in all such
deposit accounts and all balances therein and all proceeds
thereof.  All interest on such cash collateral shall be paid to the
Borrower upon the Borrower’s request, provided that such interest shall be first
applied to any outstanding obligations of the Borrower to the
Bank.”

    

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

    

    “6.1           Disbursements and
Payments.

    

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

    

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

    

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

    

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

    

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

    

    “6.3           Telephone and Telefax
Authorization.

    

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

    

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

    

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

    

    
      
        
        

      

      
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    “6.4           Direct
Debit.

    

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

    

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

    

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

    

    “9.5           Debt Service Coverage
Ratio.

    

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

    

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

    

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

    

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

    

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

    

    “9.6           Funded Debt to EBITDA
Ratio.

    

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

     

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

     

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

    

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

    

    “12.23           Set-Off.

     
 

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    

    [Signatures on next
page]

    
      
         

      

      
        5

        
          

        

      

       

    

     

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

    

    

    

    
      	
              The
      “Bank”:

               

              BANK
      OF AMERICA, N.A.

               

               

              By:           /s/ Kevin
      Mahon                                                      

                    
      Kevin Mahon

                  
      Senior Vice President

            	
              The
      “Borrower”:

               

              GSE
      SYSTEMS, INC.

               

               

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

                Jeffery G.
      Hough

              Chief Financial
      Officer

               

            
	 
      	
              GSE
      POWER SYSTEMS, INC.

               

               

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

                Jeffery G.
      Hough

              Chief Financial
      Officer

               

               

            

    

    

    

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

    

    6exh10-3.htm

    Exhibit
10.3

    RATIFICATION
OF GUARANTY

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

    

    THIS RATIFICATION OF GUARANTY (this
“Ratification”), dated
as of March 29, 2010, is made by each of the undersigned guarantors (each, a
“Guarantor” and,
collectively, the “Guarantors”) in favor of BANK
OF AMERICA, N.A., its successors and assigns (“Bank”).

    

    RECITALS

    

    A.           Each
Guarantor executed a separate Continuing and Unconditional Guaranty (Ex-Im
Bank-Guaranteed Transaction Specific Revolving Line of Credit) dated as of March
28, 2008, (each, a “Guaranty”) in favor of Bank in
connection with that certain Loan Agreement (Ex-Im Bank-Guaranteed Transaction
Specific Revolving Line of Credit) dated as of March 28, 2008, as amended by
that certain First Amendment to Loan Agreement (Ex-Im Bank-Guaranteed
Transaction Specific Revolving Line of Credit) dated as of May 5, 2009 (the
“Loan Agreement”) by and
among GSE Systems, Inc., a Delaware corporation, GSE Power Systems, Inc., a
Delaware corporation (collectively, “Borrower”), and
Bank.

    

    B.           Borrower
has requested that Bank amend the Loan Agreement to increase, from $3,500,000 to
$5,000,000, and renew the revolving line of credit established by the Loan
Agreement.  Bank has agreed to so amend the Loan Agreement, subject
to, among other things, Guarantors providing to Bank the representations,
assurances and other agreements hereinafter set forth.

    

    C.           In
connection with the foregoing, Bank and Borrower shall execute a Second
Amendment to Loan Agreement (Ex-Im Bank-Guaranteed Transaction Specific
Revolving Line of Credit) of even date herewith (the “Second Amendment”) to evidence
the modification of the revolving line of credit.

    

    AGREEMENT

    

    NOW, THEREFORE, for Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and because the Guarantors will benefit from
some of the changes to the Loan Agreement, each Guarantor does hereby agree as
follows:

    

    1.           The
Recitals hereinabove contained are true and correct and are made a part
hereof.

    

    2.           Guarantor
acknowledges receipt of the Second Amendment and agrees,
ratifies and confirms that such Guarantor’s Guaranty remains in full force and
effect with respect to the Loan Agreement, as amended by the Second
Amendment.

    

    3.           Guarantor
represents and warrants unto Bank that (i) such Guarantor’s Guaranty and all
other documents executed by Guarantor in connection therewith are valid and
binding obligations of Guarantor, enforceable in accordance with their terms;
(ii) all of the terms, covenants, conditions, representations, warranties and
agreements contained in such Guarantor’s Guaranty are hereby ratified and
confirmed in all respects; and (iii) no oral representations, statements, or
inducements have been made by Bank with respect to the Second Amendment, this
Ratification or such Guarantor’s  Guaranty.

    

    
      
        
        

      

      
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    4.           Guarantor
does not now have, nor had at any prior time, any defenses (including, without
limitation, the defense of usury), claims, counterclaims, cross-actions or
equities or rights of rescission, setoff, abatement or diminution, with respect
to the Loan Agreement, such Guarantor’s Guaranty or any other document executed
in connection therewith, or the enforcement of Bank's rights thereunder, and
Guarantor further waives and releases any and all such defenses, claims,
counterclaims, cross-actions and equities, and rights of rescission, set-off,
abatement and diminution with respect thereto.

    

    IN WITNESS WHEREOF, each of the
undersigned Guarantors has caused this Ratification to be made as of the date
first written above.

    

    
      	 
      	 
      	
              “GUARANTOR”

            
	 
      	 
      	 
      
	 
      	 
      	
              MSHI,
      INC.

               

               

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

              Jeffery G. Hough

              Chief Financial
      Officer

               

            
	 
      	 
      	 
      
	 
      	 
      	
              GSE
      PROCESS SOLUTIONS, INC.

               

               

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

              Jeffery G. Hough

              Chief Financial
      Officer

               

            
	 
      	 
      	 
      

    

    

    

     

    2

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