Document:

exh10_7.htm

    Exhibit 10.7

      SECURITY
AGREEMENT

      (Domestic
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 $1,500,000 domestic revolving line of credit arising
under that certain Loan Agreement (Domestic 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.

       

      
        
          
          

        

        
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      (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.

       

      
        
          
          

        

        
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      (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.exh10_8.htm

    Exhibit 10.8

      

      

      BORROWER:                                GSE
Systems, Inc.

                        GSE Power Systems,
Inc.

      

      GUARANTOR:         MSHI, Inc.

      

      

      

      CONTINUING AND UNCONDITIONAL
GUARANTY

      (Domestic
Revolving Line of Credit)

      

      To:           Bank
of America, N.A.

      

      

      1.  The
Guaranty.  For valuable consideration, the undersigned
("Guarantor") hereby unconditionally guarantees and promises to pay promptly to
Bank of America, N.A., its subsidiaries and affiliates (collectively, "Bank"),
or order, in lawful money of the United States, any and all Indebtedness of GSE
Systems, Inc. and GSE Power Systems, Inc. (collectively, the "Borrower") to Bank
when due, whether at stated maturity, upon acceleration or otherwise, and at all
times thereafter.  The liability of Guarantor under this Guaranty is
not limited as to the principal amount of the Indebtedness guaranteed and
includes, without limitation, liability for all interest, fees, indemnities
(including, without limitation, hazardous waste indemnities), and other costs
and expenses relating to or arising out of the Indebtedness and for all Swap
Obligations now or hereafter owing from Borrower to Bank.  The
liability of Guarantor is continuing and relates to any Indebtedness, including
that arising under successive transactions which shall either continue the
Indebtedness or from time to time renew it after it has been
satisfied.  This Guaranty is cumulative and does not supersede any
other outstanding guaranties, and the liability of Guarantor under this Guaranty
is exclusive of Guarantor's liability under any other guaranties signed by
Guarantor.  If multiple individuals or entities sign this Guaranty,
their obligations under this Guaranty shall be joint and several.  If
Guarantor is a subsidiary or affiliate of Borrower, Guarantor's liability
hereunder shall not exceed at any one time the largest amount during the period
commencing with Guarantor's execution of this Guaranty and thereafter that would
not render Guarantor's obligations hereunder subject to avoidance under Section
548 of the Bankruptcy Code (Title 11, United States Code) or any comparable
provisions of any applicable state law.

       

      2.  Definitions.

       

      
        	
                 
      

              	
                (a)  "Bank
      Agreements" shall mean all agreements, documents, and instruments
      evidencing any of the Indebtedness, including but not limited to all loan
      agreements between Borrower and Bank and promissory notes from Borrower in
      favor of Bank, and all deeds of trust, mortgages, security agreements, and
      other agreements, documents, and instruments executed by Borrower in
      connection with the Indebtedness, all as now in effect and as hereafter
      amended, restated, renewed, or
superseded.

              

      

       

      
        	
                 
      

              	
                (b)  "Borrower"
      shall mean the individual or the entity named in Paragraph 1 of this
      Guaranty and, if more than one, then any one or more of
    them.

              

      

      

      
        	
                 
      

              	
                (c)  "Guarantor"
      shall mean the individual or the entity signing this Guaranty and, if more
      than one, then any one or more of
them.

              

      

      

      (d)  "Indebtedness"
shall mean, with respect to that certain Domestic Revolving Line of Credit and
related agreements, documents and instruments entered into between Bank and
Borrower as of even date herewith, as now in effect and as amended, renewed or
restated in the future, any and all debts, liabilities, and obligations of
Borrower to Bank, now or hereafter existing, whether voluntary or involuntary
and however arising, whether direct or indirect or acquired by Bank by
assignment, succession, or otherwise, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, held or to
be held by Bank for its own account or as agent for another or others, whether
Borrower may be liable individually or jointly with others, whether recovery
upon such debts, liabilities, and obligations may be or hereafter become barred
by any statute of limitations, and whether such debts, liabilities, and
obligations may be or hereafter become otherwise
unenforceable.  Indebtedness includes, without limitation, any and all
Swap Obligations and any and all obligations of Borrower to Bank for reasonable
attorneys' fees and all other costs and expenses incurred by Bank in the
collection or enforcement of any debts, liabilities, and obligations of Borrower
to Bank.

      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      
        	
                 
      

              	
                (e)  “Swap
      Obligations” shall mean all obligations of Borrower arising under 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 Borrower and
      Bank.

              

      

      

      3.  Obligations
Independent.  The obligations hereunder are independent of the
obligations of Borrower or any other guarantor, and a separate action or actions
may be brought and prosecuted against Guarantor whether action is brought
against Borrower or any other guarantor or whether Borrower or any other
guarantor be joined in any such action or actions.  Anyone executing
this Guaranty shall be bound by its terms without regard to execution by anyone
else.

      

      4.  Rights of
Bank.  Guarantor authorizes Bank, without notice or demand and
without affecting its liability hereunder, from time to time to:

      

      
        	
                 
      

              	
                (a)  renew,
      compromise, extend, accelerate, or otherwise change the time for payment,
      or otherwise change the terms, of the Indebtedness or any part thereof,
      including increase or decrease of the rate of interest thereon, or
      otherwise change the terms of any Bank
  Agreements;

              

      

      

      
        	
                 
      

              	
                (b)  receive
      and hold security for the payment of this Guaranty or any Indebtedness and
      exchange, enforce, waive, release, fail to perfect, sell, or otherwise
      dispose of any such security;

              

      

      

      
        	
                 
      

              	
                (c)  apply
      such security and direct the order or manner of sale thereof as Bank in
      its discretion may determine;

              

      

      

      
        	
                 
      

              	
                (d)  release
      or substitute any Guarantor or any one or more of any endorsers or other
      guarantors of any of the Indebtedness;
and

              

      

      

      
        	
                 
      

              	
                (e)  permit
      the Indebtedness to exceed Guarantor's liability under this Guaranty, and
      Guarantor agrees that any amounts received by Bank from any source other
      than Guarantor shall be deemed to be applied first to any portion of the
      Indebtedness not guaranteed by
Guarantor.

              

      

      

      5.  Guaranty to be
Absolute.  Guarantor agrees that until the Indebtedness has
been paid in full and any commitments of Bank or facilities provided by Bank
with respect to the Indebtedness have been terminated, Guarantor shall not be
released by or because of the taking, or failure to take, any action that might
in any manner or to any extent vary the risks of Guarantor under this Guaranty
or that, but for this paragraph, might discharge or otherwise reduce, limit, or
modify Guarantor's obligations under this Guaranty.  Guarantor waives
and surrenders any defense to any liability under this Guaranty based upon any
such action, including but not limited to any action of Bank described in the
immediately preceding paragraph of this Guaranty.  It is the express
intent of Guarantor that Guarantor’s obligations under this Guaranty are and
shall be absolute and unconditional.

      

      6.  Guarantor's Waivers of
Certain Rights and Certain Defenses.  Guarantor
waives:

      

      (a)  any right to require
Bank to proceed against Borrower, proceed against or exhaust any security for
the Indebtedness, or pursue any other remedy in Bank's power
whatsoever;

      

      
        	
                 
      

              	
                (b)  any
      defense arising by reason of any disability or other defense of Borrower,
      or the cessation from any cause whatsoever of the liability of
      Borrower;

              

      

      

      
        	
                 
      

              	
                (c)  any
      defense based on any claim that Guarantor's obligations exceed or are more
      burdensome than those of Borrower;
and

              

      

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
        	
                 
      

              	
                (d)  the
      benefit of any statute of limitations affecting Guarantor's liability
      hereunder.

              

      

      

      No
provision or waiver in this Guaranty shall be construed as limiting the
generality of any other waiver contained in this Guaranty.

      

      7.  Waiver of
Subrogation.  Until the Indebtedness has been paid in full and
any commitments of Bank or facilities provided by Bank with respect to the
Indebtedness have been terminated, even though the Indebtedness may be in excess
of Guarantor’s liability hereunder, Guarantor waives to the extent permitted by
applicable law 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, arising from the existence or
performance of this Guaranty, and Guarantor waives to the extent permitted by
applicable law any right to enforce any remedy that Bank now has or may
hereafter have against Borrower, and waives any benefit of, and any right to
participate in, any security now or hereafter held by Bank.

      

      8.  Waiver of
Notices.  Guarantor waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, notices of intent to accelerate, notices of acceleration, notices of
any suit or any other action against Borrower or any other person, any other
notices to any party liable on any Bank Agreement (including Guarantor), notices
of acceptance of this Guaranty, notices of the existence, creation, or incurring
of new or additional Indebtedness to which this Guaranty applies or any other
Indebtedness of Borrower to Bank, and notices of any fact that might increase
Guarantor’s risk.

      

      9.  Security.  To
secure all of Guarantor's obligations hereunder, Guarantor assigns and grants to
Bank a security interest in all moneys, securities, and other property of
Guarantor now or hereafter in the possession of Bank, all deposit accounts of
Guarantor maintained with Bank, and all proceeds thereof.  Upon
default or breach of any of Guarantor's obligations to Bank, Bank may apply any
deposit account to reduce the Indebtedness, and may foreclose any collateral as
provided in the Uniform Commercial Code and in any security agreements between
Bank and Guarantor.

      

      10.  Subordination.  Any
obligations of Borrower to Guarantor, now or hereafter existing, including but
not limited to any obligations to Guarantor as subrogee of Bank or resulting
from Guarantor's performance under this Guaranty, are hereby subordinated to the
Indebtedness.  In addition to Guarantor's waiver of any right of
subrogation as set forth in this Guaranty with respect to any obligations of
Borrower to Guarantor as subrogee of Bank, Guarantor agrees that, if Bank so
requests, Guarantor shall not demand, take, or receive from Borrower, by setoff
or in any other manner, payment of any other obligations of Borrower to
Guarantor until the Indebtedness has been paid in full and any commitments of
Bank or facilities provided by Bank with respect to the Indebtedness have been
terminated.  If any payments are received by Guarantor in violation of
such waiver or agreement, such payments shall be received by Guarantor as
trustee for Bank and shall be paid over to Bank on account of the Indebtedness,
but without reducing or affecting in any manner the liability of Guarantor under
the other provisions of this Guaranty.  Any security interest, lien,
or other encumbrance that Guarantor may now or hereafter have on any property of
Borrower is hereby subordinated to any security interest, lien, or other
encumbrance that Bank may have on any such property.

      

      11.  Revocation of
Guaranty.

      

      
        	
                 
      

              	
                (a)  This
      Guaranty may be revoked at any time by Guarantor in respect to future
      transactions, unless there is a continuing consideration as to such
      transactions that Guarantor does not renounce.  Such revocation
      shall be effective upon actual receipt by Bank, at the address shown below
      or at such other address as may have been provided to Guarantor by Bank,
      of written notice of revocation.  Revocation shall not affect
      any of Guarantor's obligations or Bank's rights with respect to
      transactions committed or entered into prior to Bank's receipt of such
      notice, regardless of whether or not the Indebtedness related to such
      transactions, before or after revocation, has been incurred, renewed,
      compromised, extended, accelerated, or otherwise changed as to any of its
      terms, including time for payment or increase or decrease of the rate of
      interest thereon, and regardless of any other act or omission of Bank
      authorized hereunder.  Revocation by Guarantor shall not affect any
      obligations of any other guarantor.

              

      

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      
        	
                 
      

              	
                (b)  In
      the event of the death of a Guarantor, the liability of the estate of the
      deceased Guarantor shall continue in full force and effect as to (i) the
      Indebtedness existing at the date of death, and any renewals or extensions
      thereof, and (ii) loans or advances made to or for the account of Borrower
      after the date of the death of the deceased Guarantor pursuant to a
      commitment made by Bank to Borrower prior to the date of such
      death.  As to all surviving Guarantors, this Guaranty shall
      continue in full force and effect after the death of a Guarantor, not only
      as to the Indebtedness existing at that time, but also as to the
      Indebtedness thereafter incurred by Borrower to
  Bank.

              

      

      

      
        	
                 
      

              	
                (c)  Guarantor
      acknowledges and agrees that this Guaranty may be revoked only in
      accordance with the foregoing provisions of this paragraph and shall not
      be revoked simply as a result of any change in name, location, or
      composition or structure of Borrower, the dissolution of Borrower, or the
      termination, increase, decrease, or other change of any personnel or
      owners of Borrower.

              

      

      

      12.  Reinstatement of
Guaranty.  If this Guaranty is revoked, returned, or canceled,
and subsequently any payment or transfer of any interest in property by Borrower
to Bank is rescinded or must be returned by Bank to Borrower, this Guaranty
shall be reinstated with respect to any such payment or transfer, regardless of
any such prior revocation, return, or cancellation.

      

      13.  Stay of
Acceleration.  In the event that acceleration of the time for
payment of any of the Indebtedness is stayed upon the insolvency, bankruptcy, or
reorganization of Borrower or otherwise, all such Indebtedness guaranteed by
Guarantor shall nonetheless be payable by Guarantor immediately if requested by
Bank.

      

      14.  No Setoff or Deductions;
Taxes.

      

      
        	
                 
      

              	
                (a)  Guarantor
      represents and warrants that it is organized and resident in the United
      States of America.  All payments by Guarantor hereunder shall be
      paid in full, without setoff or counterclaim or any deduction or
      withholding whatsoever, including, without limitation, for any and all
      present and future taxes.  If Guarantor must make a payment
      under this Guaranty, Guarantor represents and warrants that it will make
      the payment from one of its U.S. resident offices to Bank so that no
      withholding tax is imposed on the payment.  Notwithstanding the
      foregoing, if Guarantor makes a payment under this Guaranty to which
      withholding tax applies or if any taxes (other than taxes on net income
      (i) imposed by the country or any subdivision of the country in which
      Bank's principal office or actual lending office is located and (ii)
      measured by the United States taxable income Bank would have received if
      all payments under or in respect of this Guaranty were exempt from taxes
      levied by Guarantor's country) are at any time imposed on any payments
      under or in respect of this Guaranty including, but not limited to,
      payments made pursuant to this paragraph, Guarantor shall pay all such
      taxes to the relevant authority in accordance with applicable law such
      that Bank receives the sum it would have received had no such deduction or
      withholding been made (or, if Guarantor cannot legally comply with the
      foregoing, Guarantor shall pay to Bank such additional amounts as will
      result in Bank receiving the sum it would have received had no such
      deduction or withholding been made).  Further, Guarantor shall
      also pay to Bank, on demand, all additional amounts that Bank specifies as
      necessary to preserve the after-tax yield Bank would have received if such
      taxes had not been imposed.

              

      

      

      
        	
                 
      

              	
                (b)  Guarantor
      shall promptly provide Bank with an original receipt or certified copy
      issued by the relevant authority evidencing the payment of any such amount
      required to be deducted or
withheld.

              

      

      

      15.  Information Relating to
Borrower.  Guarantor acknowledges and agrees that it has made
such independent examination, review, and investigation of the Bank Agreements
as Guarantor deems necessary and appropriate, including, without limitation, any
covenants pertaining to Guarantor contained therein, and shall have sole
responsibility to obtain from Borrower any information required by Guarantor
about any modifications thereto. Guarantor further acknowledges and agrees
that it shall have the sole responsibility for, and has adequate means of,
obtaining from Borrower such information concerning Borrower's financial
condition or business operations as Guarantor may require, and that Bank has no
duty, and Guarantor is not relying on Bank, at any time to disclose to Guarantor
any information relating to the business operations or financial condition of
Borrower.

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      16.  Borrower's
Authorization.  Where Borrower is a corporation, partnership,
or limited liability company, it is not necessary for Bank to inquire into the
powers of Borrower or of the officers, directors, partners, members, managers,
or agents acting or purporting to act on its behalf, and any Indebtedness made
or created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder, subject to any limitations on Guarantor's liability set
forth herein.

      

      17.  Guarantor Information;
Reporting to Credit Bureaus.  Guarantor authorizes Bank to
verify or check any information given by Guarantor to Bank, check Guarantor’s
credit references, verify employment, and obtain credit
reports.  Guarantor agrees that 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 Indebtedness and/or Guarantor as is
consistent with Bank's policies and practices from time to time in
effect.  Guarantor acknowledges and agrees that the authorizations
provided in this paragraph apply to any individual general partner of Guarantor
and to Guarantor’s spouse and any such general partner’s spouse if Guarantor or
such general partner is married and lives in a community property
state.

      

      18.  Change of
Status.  Any Guarantor that is a business entity shall not
enter into any consolidation, merger, or other combination unless Guarantor is
the surviving business entity.  Further, Guarantor shall not change
its legal structure unless (a) Guarantor obtains the prior written consent of
Bank and (b) all Guarantor's obligations under this Guaranty are assumed by the
new business entity.

      

      19.  Remedies.  If
Guarantor fails to fulfill its duty to pay all Indebtedness guaranteed
hereunder, Bank shall have all of the remedies of a creditor and, to the extent
applicable, of a secured party, under all applicable law.  Without
limiting the foregoing
to the extent permitted by law, Bank may, at its option and without
notice or demand:

      

      (a)  declare any
Indebtedness due and payable at once;

      

      
        	
                 
      

              	
                (b)  take
      possession of any collateral pledged by Borrower or Guarantor, wherever
      located, and sell, resell, assign, transfer, and deliver all or any part
      of the collateral at any public or private sale or otherwise dispose of
      any or all of the collateral in its then condition, for cash or on credit
      or for future delivery, and in connection therewith Bank may impose
      reasonable conditions upon any such sale.  Further, Bank, unless
      prohibited by law the provisions of which cannot be waived, may purchase
      all or any part of the collateral to be sold, free from and discharged of
      all trusts, claims, rights of redemption and equities of Borrower or
      Guarantor whatsoever.  Guarantor acknowledges and agrees that
      the sale of any collateral through any nationally recognized
      broker-dealer, investment banker, or any other method common in the
      securities industry shall be deemed a commercially reasonable sale under
      the Uniform Commercial Code or any other equivalent statute or federal
      law, and expressly waives notice thereof except as provided herein;
      and

              

      

      

      
        	
                 
      

              	
                (c)  set
      off against any or all liabilities of Guarantor all money owed by Bank or
      any of its agents or affiliates in any capacity to Guarantor, whether or
      not due, and also set off against all other liabilities of Guarantor to
      Bank all money owed by Bank in any capacity to Guarantor.  If
      exercised by Bank, Bank shall be deemed to have exercised such right of
      setoff and to have made a charge against any such money immediately upon
      the occurrence of such default although made or entered on the books
      subsequent thereto.

              

      

      

      20.  Notices.  All
notices required under this Guaranty 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 Guaranty, or sent by facsimile to the fax numbers
listed on the signature page, or to such other addresses as Bank and Guarantor
may specify from time to time in writing.  Notices sent by (a) first
class mail shall be deemed delivered on the earlier of actual receipt or on the
fourth business day after deposit in the U.S. mail, postage prepaid,
(b) overnight courier shall be deemed delivered on the next business day,
and (c) telecopy shall be deemed delivered when transmitted.

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      21.  Successors and
Assigns.  This Guaranty (a) binds Guarantor and Guarantor's
executors, administrators, successors, and assigns, provided that Guarantor may
not assign its rights or obligations under this Guaranty without the prior
written consent of Bank, and (b) inures to the benefit of Bank and Bank's
indorsees, successors, and assigns.  Bank may, without notice to
Guarantor and without affecting Guarantor's obligations hereunder, sell, assign,
grant participations in, or otherwise transfer to any other person, firm, or
corporation the Indebtedness and this Guaranty, in whole or in
part.  Guarantor agrees that Bank may disclose to any assignee or
purchaser, or any prospective assignee or purchaser, of all or part of the
Indebtedness any and all information in Bank's possession concerning Guarantor,
this Guaranty, and any security for this Guaranty.

      

      22.  Amendments, Waivers, and
Severability.  No provision of this Guaranty may be amended or
waived except in writing.  No failure by Bank to exercise, and no
delay in exercising, any of its rights, remedies, or powers shall operate as a
waiver thereof, and no single or partial exercise of any such right, remedy, or
power shall preclude any other or further exercise thereof or the exercise of
any other right, remedy, or power.  The unenforceability or invalidity
of any provision of this Guaranty shall not affect the enforceability or
validity of any other provision of this Guaranty.

      

      23.  Costs and
Expenses.  Guarantor agrees to pay all reasonable attorneys'
fees, including allocated costs of Bank's in-house counsel to the extent
permitted by applicable law, and all other costs and expenses that may be
incurred by Bank (a) in the enforcement of this Guaranty or (b) in the
preservation, protection, or enforcement of any rights of Bank in any case
commenced by or against Guarantor or Borrower under the Bankruptcy Code (Title
11, United States Code) or any similar or successor statute.

      

      24.  Governing Law and
Jurisdiction.  This Guaranty shall be governed by and construed
and enforced in accordance with the law of the State of Maryland.  To
the extent that Bank has greater rights or remedies under federal law, whether
as a national bank or otherwise, this paragraph shall not be deemed to deprive
Bank of such rights and remedies as may be available under federal
law.

      

      25.  Consent
to Jurisdiction.  TO INDUCE BANK TO ACCEPT THIS
GUARANTY, GUARANTOR IRREVOCABLY AGREES THAT, SUBJECT TO BANK’S SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO
THIS GUARANTY WILL BE LITIGATED IN STATE OR FEDERAL COURTS HAVING SITUS IN
BALTIMORE, MARYLAND.  GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN BALTIMORE, MARYLAND
WAIVES PERSONAL SERVICE OF PROCESS UPON GUARANTOR, AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO GUARANTOR AT THE ADDRESS STATED ON THE
SIGNATURE PAGE HEREOF AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT.

      

      26.  Waiver of Jury
Trial.  GUARANTOR AND BANK EACH WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A) UNDER THIS
GUARANTY 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 GUARANTY OR (B) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS GUARANTY, 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.  GUARANTOR AGREES THAT IT
WILL NOT ASSERT ANY CLAIM AGAINST BANK OR ANY OTHER PERSON INDEMNIFIED UNDER
THIS GUARANTY ON ANY THEORY OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL OR PUNITIVE DAMAGES.

      

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      27.  CONFESSION OF
JUDGMENT.  GUARANTOR AUTHORIZES ANY ATTORNEY ADMITTED TO
PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR ANY CLERK OF ANY
COURT OF RECORD TO APPEAR ON BEHALF OF GUARANTOR IN ANY COURT IN ONE OR MORE
PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OR OTHER COURT OFFICIAL, AND TO CONFESS
JUDGMENT AGAINST GUARANTOR IN FAVOR OF THE HOLDER OF THIS GUARANTY IN THE FULL
AMOUNT DUE ON THIS GUARANTY (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND
ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%)
OF THE TOTAL AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR
OPPORTUNITY OF GUARANTOR FOR PRIOR HEARING.  GUARANTOR 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.  GUARANTOR WAIVES
THE BENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE
LAWFULLY WAIVED CONFERRING UPON GUARANTOR 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 GUARANTOR 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.

      

      28.  FINAL
AGREEMENT.  BY SIGNING THIS DOCUMENT
EACH PARTY REPRESENTS AND AGREES THAT:  (A) THIS DOCUMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN 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.

      

      

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

      

      

      MSHI, Inc.

      

      

      By:           /s/ Jeffery
Hough                                                      
(Seal)

      Jeffery Hough

      Chief Financial Officer

      

      

      Address
for notices to
Bank:                                                             Address
for notices to Guarantor:

      100 South
Charles Street, 2nd
Floor                                                  7133
Rutherford Road, Suite 200

      Baltimore,
Maryland
21201                                                                  Baltimore,
Maryland 21244

      Facsimile:_____________________                                               Facsimile:_____________________

      

      

7

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