Document:

exv10w3

 

Exhibit 10.3

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is made and entered into as of this 16th day of
March 2007 (the “Effective Date”), by and among JMAR Technologies, Inc., a company organized and
existing under the laws of the State of Delaware (the “Seller”), and Gatan, Inc., a company
organized and existing under the laws of the State of Pennsylvania (the “Buyer”) (Seller and Buyer
are together referred to herein as the “Parties”).

WITNESSETH:

WHEREAS, Seller owns or is in lawful possession of property, fixed assets, inventories,
work-in-progress, spare parts, records, goodwill, know-how, intellectual property, and other
interests used by Seller in, and associated with, the activities and operations of manufacturing,
sales and services of the x-ray microscopy business (collectively, “Assets”); and

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to buy from Seller, all such Assets
owned by Seller and identified herein in Exhibit A (“Purchased Assets”) and in Exhibit C
(“Patents”); and

WHEREAS, Seller desires to confer to Buyer, and Buyer desires to accept from Seller, all such
Assets loaned to Seller and identified in Exhibit B (“Loaned Assets”);

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to buy from Seller, all patent material
related to the x-ray microscopy (“XRM”), including but not limited to issued patents, patent
applications, and provision applications, as further described in Exhibit C (“Patents”);

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, agreements
and other good and valuable consideration of the Parties hereinafter set forth, the Parties hereto,
intending to be legally bound, do hereby agree as follows:

Assets

	 	1.	 	Seller hereby grants to Buyer all of Seller’s right, title, and interest in the Assets.
	 
	 	2.	 	In the event that the consent or approval of a third party is required for such
transfer of Assets, or to complete patent applications for such Assets, Seller agrees to
use its best efforts to obtain the requisite consent or approval.
	 
	 	3.	 	All costs associated with applying for and maintaining patents shall hereinafter be at
Buyer’s expense.
	 
	 	4.	 	Buyer and Seller agree and acknowledge that the Loaned Assets are the property of the
federal government, and were lawfully loaned to Seller. If the Loaned Assets are
required to be returned to the federal government within three (3) years of the Effective
Date, Buyer may deduct the depreciated replacement value from monies owed to Seller. Such
depreciated replacement value shall be calculated by determining the fair market value of a
similar replacement product, and linearly depreciating the product beginning on the
Effective Date and ending five (5) years thereafter.
	 
	 	5.	 	Seller agrees to assist Buyer in obtaining inventor rights and signatures required for
transfer of intellectual property and completing patent applications. For work amounting
to less than four (4) hours per calendar quarter, no compensation will be due Seller.
Seller shall be entitled to reimbursement of reasonable wages and administrative fees for
work in excess of four (4) hours that is commissioned or requested by Buyer.

 

 

Payments

	 	1.	 	Within five (5) business days of execution of the Agreement, Buyer shall pay to Seller
$100,000.00.
	 
	 	2.	 	Buyer agrees to pay to ship the Assets, plus the reasonable cost of Seller’s employees
working on the Assets from the Effective Date until receipt and acceptance of the Assets by
Buyer. The following conditions shall apply:

	 	a.	 	Seller shall submit invoices to Buyer detailing the reasonable costs
associated with the packing and shipment of the Assets, employee wages, and employee
travel expenses. No overhead charges of Seller shall be reimbursed by Buyer. Buyer
will reimburse Seller up to two (2) weeks of employee wages for packing and shipment
work performed prior to the signing of the Agreement.
	 
	 	b.	 	Buyer shall reimburse Seller for such reasonable expenses within
twenty-one (21) days following receipt of invoices from Seller.
	 
	 	c.	 	In no such event shall Buyer be obligated to reimburse Seller or pay any
amount in excess of $50,000.00 for the costs and expenses described herein.
	 
	 	d.	 	Seller shall use its best efforts to deliver the Assets, including all
documentation, drawings, control software and related materials, to Buyer
immediately following the Effective Date.

	 	3.	 	Buyer shall pay to Seller $500,000.00 following the installation and successful
operation of the XRM. The following conditions shall apply:

	 	a.	 	The criteria for “successful operation” shall be deemed to occur when the
microscope acquires an image with at least 80nm resolution for five (5) consecutive
business days.
	 
	 	b.	 	Seller shall be responsible for establishing successful operation of the
XRM at Buyer’s chosen place of business, and Buyer shall cooperate fully in this
regard.
	 
	 	c.	 	Buyer shall make such payment to Seller following successful operation
and within twenty-one (21) days of receipt of Seller’s invoice.

	 	4.	 	Buyer shall pay to Seller $100,000.00 if and when the XRM reaches the flux and
resolution target. The flux and resolution target shall be deemed reached when the XRM can
acquire an image with spatial resolution of at least 40nm, and in a separate experiment,
demonstrate an average flux of 5 detected soft-x-ray photons/s/pixel, assuming 20um pixels,
1000X magnification and no sample present.

Royalties

	 	1.	 	Buyer shall pay to Seller five percent (5%) of the revenue received by Buyer pursuant
to completed sales of x-ray microscopes (“Royalties”) for four (4) years (“Royalty Period”)
following Buyer’s first sale of an x-ray microscope derived from
the Assets to a third-party.
	 
	 	2.	 	Buyer shall have no obligation to pay Royalties upon the conclusion of the Royalty
Period.
	 
	 	3.	 	Buyer shall pay Royalties to Seller annually, in arrears, in January of each year along
with supporting documentation.
	 
	 	4.	 	Buyer and Seller agree and acknowledge that the intent hereunder is for Seller to earn
Royalties for technologies developed to feasibility by Seller. This includes the complete
x-ray microscope (source, room temperature stage, microscope optics, camera,
acquisition software) sufficient to produce single images, a soft x-ray microscope source
based on laser plasma x-ray sources, or a soft x-ray microscope without the source.

 

 

	 	5.	 	Royalties shall not be due on any existing product or product lines of Buyer or its
affiliates. Any revenue derived from the products of Buyer that are sold into or included
in x-ray microscopy or electron microscopes shall not be subject to Royalties. This
includes cryotransfer holders and stages, tomography acquisition software, analysis and
visualization software, x-ray cameras sold separately from the original x-ray microscope
sale, and specimen preparation products.
	 
	 	6.	 	Revenues derived from service, spares, and installations are not subject to Royalties.
	 
	 	7.	 	Seller agrees not to produce x-ray microscopes or sources for x-ray microscopes, nor
enable or assist others to do so, for the duration of the Royalty Period, provided that
Buyer launches or intends to launch a commercial soft-x-ray microscope product within four
(4) years after execution of this Agreement.
	 
	 	8.	 	In the event of any transfer or assignment by Buyer of any technology subject to
Royalties hereunder, Seller shall be entitled to the Royalties that Seller would have
received had the sales been made by Buyer.

Supplier Arrangement

	 	1.	 	Seller shall serve as the exclusive laser supplier for Buyer’s soft x-ray nCT product
line during the Royalty Period.
	 
	 	2.	 	Seller shall supply such lasers to Buyer at a price discounted from that which Seller
routinely offers in the marketplace, and in no such event shall the annual average gross
margin of the laser system on sales to Buyer exceed forty percent (40%).
	 
	 	3.	 	In the event that Seller is not able to match the technical or commercial
specifications required by Buyer within thirty (30) days following notice by Buyer of a
commercial alternative meeting such specifications, then the exclusivity described herein
shall terminate.
	 
	 	4.	 	In the event that Seller is unable to manufacture the laser described herein, Seller
shall provide Buyer with access to the Seller’s design and manufacturing information, and
shall cooperate fully with Buyer’s efforts related to obtaining a replacement. Seller shall
grant to or obtain for Buyer, at no cost to Buyer, any license necessary for the supply of
such laser to Buyer.
	 
	 	5.	 	Buyer shall pay to Seller $318,750.00, or an OEM discount of fifteen percent (15%),
whichever is less, for the first laser system purchased from Seller. Buyer shall place
such order in 2007, and may change the specifications of the required laser while
preserving the discount rate of fifteen percent (15%).
	 
	 	6.	 	Buyer and Seller agree and acknowledge that this laser is not a complete Brightlight 75
system and will not achieve similar performance. This shall be a prototype system capable
of supplying approximately 50W of power. Seller shall not be responsible for upgrading
this system beyond its existing capabilities (i.e., those demonstrated and discussed during
the due-diligence period), but shall remain responsible for servicing the laser to maintain
current capability. Seller shall provide warranty service on the laser supplied with the
prototype provided for a period of two (2) years following the Effective Date. This
warranty service will cover parts and shipping costs.
	 
	 	7.	 	Buyer acknowledges that, following demonstration of successful operation, the Seller
provides the system in “As-Is” condition. No warranty is provided by the Seller on any
parts of the system except the laser.

 

 

Governing Law: This Agreement shall be governed by, construed, and enforced in accordance with the
laws of the State of California. Any legal suit, action or proceeding shall be brought in Alameda
County, California.

Indemnifications: Each party (“Indemnifying Party”) shall indemnify the other (“Indemnified Party”)
against any claim, liability, or loss (including reasonable attorney’s fees and court costs)
resulting from injury to or death of any person, any damage to property, or loss of revenues due to
(i) the acts or omissions of Indemnifying Party, its contractors, subcontractors, agents or
representatives; (ii) any breach of this Agreement by Indemnifying Party, its contractors,
subcontractors, agents or representatives; or (iii) the negligence or willful misconduct of
Indemnifying Party or its contractors, subcontractors, agents, or representatives. In the event
that Indemnified Party seeks indemnification hereunder, Indemnifying Party shall have no obligation
to indemnify as provided herein unless Indemnified Party provides prompt written notice to
Indemnifying Party of any such claims and allows Indemnifying Party the right (but not the
obligation) to control the defense, negotiations, and/or settlement of such claim. Indemnified
Party and its counsel may participate in such proceedings at it own expense but not control such
proceedings, negotiations, or defense as counsel of record if Indemnifying Party chooses to control
the defense. In such event that Indemnifying Party chooses to control the defense, Indemnified
Party shall not admit any liability, settle, compromise, pay, or discharge any such claim, demand,
suit or proceeding without the prior written consent of Indemnifying Party, which will not be
unreasonably delayed, conditioned, or withheld.

Press Releases: Seller will not include direct or indirect references to Buyer in public forums
without written authorization, except for Seller’s disclosure obligations under federal securities
laws which may require disclosure of Buyer’s name.

 

 

Exhibit A

Purchased Assets

The functional x-ray microscope shall include the following materials:

	 	 	 	 	 	 	 	 	 
	Item	 	 	 	 	 	 	 	 
	#	 	Description	 	Model	 	Use	 	Manual / Software
	1

	 	Small chiller
	 	Merlin m33
	 	cools pumps, power

meter
	 	no
	 
	 	 	 	 	 	 	 	 
	2

	 	Small breadboard
	 	Newport 1x4x2”
	 	hold scrolls
	 	no
	 
	 	 	 	 	 	 	 	 
	3

	 	Dustfilter x2
	 	Edwards a4421500
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	4

	 	XRM vacuum / gas system
	 	 	 	 	 	custom software
	 
	 	 	 	 	 	 	 	 
	5

	 	XRM laser optics spares
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	6

	 	XRM laser beam delivery

system
	 	Assorted

optomechanics + CVI

optics
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	7

	 	YAG Laser
	 	BriteLight 75
	 	Currently only ~50W

output power
	 	manual
	 
	 	 	 	 	 	 	 	 
	8

	 	Laser control computer +

beam viewer
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	9

	 	Laser electronics rack
	 	JMAR
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	10

	 	Laser oscilloscope
	 	Tektronix TDS694C
	 	x-ray diode

monitoring
	 	no
	 
	 	 	 	 	 	 	 	 
	11

	 	Laser optical table
	 	3x4x2” Newport + legs
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	12

	 	HeNe Laser + mount
	 	Melles Griot 05lhr111
	 	rough alignment tool
	 	no
	 
	 	 	 	 	 	 	 	 
	13

	 	Power meter
	 	Gentec PS-300V3,

serial 153293
	 	main dump
	 	no
	 
	 	 	 	 	 	 	 	 
	14

	 	IR viewer
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	15

	 	Monitor + 2 cameras
	 	Wat-137lh, IAE,

AN064pn/pp
	 	alignment tools
	 	no
	 
	 	 	 	 	 	 	 	 
	16

	 	Stage encoder readouts x8
	 	Renishaw
	 	sample chamber
	 	manuals
	 
	 	 	 	 	 	 	 	 
	17

	 	Stage driver box
	 	Nanomotion
	 	sample chamber
	 	manuals, software
	 
	 	 	 	 	 	 	 	 
	18

	 	Fiber light illuminator
	 	X-Cite 120
	 	for integrated VLM
	 	manual
	 
	 	 	 	 	 	 	 	 
	19

	 	VLM camera
	 	Coolsnap ES,

A05K877004
	 	 	 	manual, software
	 
	 	 	 	 	 	 	 	 
	20

	 	Microscope “top”
	 	Nikon, MBE74100
	 	 	 	manual
	 
	 	 	 	 	 	 	 	 
	21

	 	Sample vacuum chamber +

flanges + 2x cube
	 	Lesker
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	22

	 	Source vacuum chamber
	 	Lesker
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	23

	 	Vacuum bellows
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	24

	 	Nozzle xyz stage
	 	Newfocus 9041
	 	in source chamber
	 	manuals
	 
	 	 	 	 	 	 	 	 
	25

	 	3x pico motors
	 	Serial 1181
	 	in source chamber
	 	manuals

 

 

	 	 	 	 	 	 	 	 	 
	Item	 	 	 	 	 	 	 	 
	#	 	Description	 	Model	 	Use	 	Manual / Software
	26

	 	2x CCD
	 	Prosilica
	 	in source chamber
	 	manuals, software
	 
	 	 	 	 	 	 	 	 
	27

	 	CCD microscope objective
	 	Edmund optics
	 	in source chamber
	 	no
	 
	 	 	 	 	 	 	 	 
	28

	 	Custom in vacuum sample /optics

positioning
	 	8x nanomotion

motors, 4 PI stages
	 	in source chamber
	 	manuals, software
	 
	 	 	 	 	 	 	 	 
	29

	 	Custom x-ray camera

positioning system
	 	 	 	on optical table
	 	no
	 
	 	 	 	 	 	 	 	 
	30

	 	Optical table + feet
	 	4x8x1, Newport,

Melles Legs
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	31

	 	4x newfocus pico motor

ethernet controllers
	 	Model 8752
	 	 	 	manuals
	 
	 	 	 	 	 	 	 	 
	32

	 	newfocus picomotor joystick x2
	 	Model 8754
	 	 	 	manuals
	 
	 	 	 	 	 	 	 	 
	33

	 	Tektronix scope
	 	TDS1012
	 	shutter

synchronization
	 	no
	 
	 	 	 	 	 	 	 	 
	34

	 	Datalogger
	 	Agilent 34970A
	 	temperature

monitoring
	 	manuals, software
	 
	 	 	 	 	 	 	 	 
	35

	 	Delay generator x4
	 	SRS DG535
	 	synchronization
	 	no
	 
	 	 	 	 	 	 	 	 
	36

	 	XRM control computer
	 	ATC
	 	runs xrm vacuum

system sample

stages
	 	no
	 
	 	 	 	 	 	 	 	 
	37

	 	XRM imaging computer
	 	 	 	runs x-ray ccd +

VLM ccd
	 	no
	 
	 	 	 	 	 	 	 	 
	38

	 	Hp ethernet switch
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	39

	 	Jet viewing computer
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	40

	 	2x UPS
	 	 	 	 	 	manuals
	 
	 	 	 	 	 	 	 	 
	41

	 	Custom shutter control box
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	42

	 	Custom XRM electronics box
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	43

	 	Digital laser power readout
	 	Gentec duo, 151161
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	44

	 	Analog laser power readout
	 	Gentec, TPM-300
	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	45

	 	X-ray objective zone plate x2
	 	Xradia
	 	 	 	specs
	 
	 	 	 	 	 	 	 	 
	46

	 	X-Ray condenser zone plate
	 	Xradia
	 	 	 	specs
	 
	 	 	 	 	 	 	 	 
	47

	 	Partial x-ray condenser zone

plate x2
	 	Xradia
	 	 	 	specs
	 
	 	 	 	 	 	 	 	 
	48

	 	Spare nozzles
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	49

	 	Spare x-ray windows
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	50

	 	table top mini clean room
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	51

	 	Desiccator
	 	 	 	 	 	no
	 
	 	 	 	 	 	 	 	 
	52

	 	Chiller	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	53

	 	X-ray metrology equipment	 	 	 	 	 	 

 

 

Additionally, the following spare optics will be transferred:

Lenses

QTY3 LAP-75 0-15-1064

QTY4 LAPQ-75.0-15-1064

QTY1 PLCX-25.4-3683-UV-1064

QTY1 PLCC-25.4-51.5-C-1064/532

QTY1 PLCC-25.4-360.6-UV-1064

QTY2 PLCC-25.4-77.3-UV-1064

QTY1 PLCX-25.4-77.3-C-1064/532

Windows

QTY 2 W2-PW1-1025-1064-0

QTY 3 PW1-1025UV-1064-0

Mirrors

QTY 4 Y1-2037-60-S

QTY 2 Y1-2037-45-P

QTY 2 Y1-1025-0

QTY 2 Y1-2037-45-UNP

QTY 1 Y1-1064-2025-45-UNP

QTY 4 Y1-1025-45-UNP

Beam Splitter

QTY 1 BS1-1064-70-1025-45UNP

QTY 2 BS1-1064-50-1025-45P

 

 

Exhibit B

Loaned Assets

	 	 	 	 	 	 	 	 	 
	Item #	 	Description	 	Model #	 	Use	 	Manual/ Software
	1

	 	Scroll pump
	 	Varian pts06001univ
	 	pumps source
	 	no
	2

	 	Scroll pump
	 	Varian pts03001univ
	 	pumps sample
	 	manual
	3

	 	Turbo pump
	 	Varian tv1001
	 	pumps source
	 	manual + software
	4

	 	Oscilloscope
	 	Lecroy waverunner 6KAA
	 	 	 	manual
	5

	 	X-Ray camera
	 	Princeton Instruments
	 	 	 	manual
	 

	 	 	 	1300x1340 soft x-ray CCD,	 	 	 	 
	 

	 	 	 	J010022, property of JMAR	 	 	 	 
	 

	 	 	 	stickers + controller +	 	 	 	 
	 

	 	 	 	interface card	 	 	 	 
	6

	 	CCD microscope objective
	 	Melles Griot 59lgn705
	 	 	 	manual
	7

	 	Laser power meter
	 	Gentech, up55N, serial 167563
	 	 	 	manual + software
	8

	 	Laser beam profiler
	 	Photon Inc, USBPro
	 	 	 	manual
	9

	 	Focusing lens xyz stage
	 	Newfocus encoded staged +

picomotors
	 	on optical table	 	 

 

 

 

			
	*	 	Seller grants to Buyer a license to use all intellectual property related to the “Rotating
Shutter for Laser-Produced Plasma Debris Mitigation”, reference #11/161,237, for non-x-ray
microscopy applications.

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date indicated below:

Gatan, Inc

	 	 	 	 	 
	By:

	 	/s/ THOMAS G. CONNELLY
 

	 	 
	 	 	Printed Name: THOMAS G. CONNELLY	 	 
	 	 	Title: PRESIDENT	 	 
	 	 	Date: March 16, 2007	 	 

JMAR Technologies, Inc

	 	 	 	 	 
	By:

	 	/s/ C. NEIL BEER
 

	 	 
	 	 	Printed Name: C. NEIL BEER	 	 
	 	 	Title: PRESIDENT & CEO
	 	 
	 	 	Date: 3/16/2007Exhibit 4.1 Warrant ManTech

    Exhibit
      4.1

    
 

    THE
      WARRANTS REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER NAMED HEREON FOR
      ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE
      MADE
      ANY PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF; NEITHER THIS SECURITY
      NOR
      THE UNDERLYING SECURITIES HA VE BEEN REGISTERED UNDER THE SECURITIES ACT OF
      1933
      (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
      OR
      OTHERWISE DISPOSED OF UNLESS SO REGISTERED UNDER THE ACT AND SUCH LAWS OR (1)
      REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT
      REQUIRED AND (2) AN OPINION OF COUNSEL SA TISF ACTOR Y TO THE COMPANY IS
      FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT AND
      THE
      APPLICABLE STATE LAWS IS NOT REQUIRED. 

    

    WARRANT
      TO PURCHASE COMMON STOCK OF

    GSE
      SYSTEMS, INC.

    

    

     

    WARRANT
      NO.2         100,000
      SHARES

    

    This
      certifies that, for value received, ManTech International Corporation (the
      "Holder")
      is
      entitled to subscribe for and purchase up to 100,000 shares (subject to
      adjustment from time to time pursuant to the provisions of Section 5 hereof)
      of
      fully paid and nonassessable Common Stock of GSE
      SYSTEMS, INC.,
      a
      Delaware corporation (the-"Company"),
      at
      the Warrant Price (as defined in Section 2 hereof), subject to the provisions
      and upon the terms and conditions hereinafter set forth. 

     

    As
      used
      herein, the term "Common
      Stock"
      shall
      mean the Company's authorized common stock, $.01 par value per share.

     

    1.
      Term
      of Warrant. The
      purchase right represented by this Warrant is exercisable, in whole or in part,
      at any time during the period beginning on July 9, 2003 (the "Initial
      Exercise Date")
      and
      ending on July 8, 2008. 

     

    2.
      Warrant
      Price.
      The
      exercise price of this Warrant is $1.33 per share, subject to adjustment from
      time to time pursuant to the provisions of Section 5 hereof (the "Warrant
      Price").
      

     

    3.
      Method
      of Exercise; Payment; Issuance of New Warrant. Subject
      to Section 1 hereof, the purchase right represented by this Warrant may be
      exercised by the Holder, in whole or in part, by the surrender of this Warrant
      (with the notice of exercise form attached hereto as Exhibit
      1 duly
      executed) at the principal office of the Company and by the payment to the
      Company, by check or wire transfer, of an amount equal to the Warrant Price
      per
      share multiplied by the number of shares then being purchased. The Company
      agrees that the shares so purchased shall be deemed to be issued to the Holder
      as the record owner of such shares as of the close of business on the date
      on
      which this Warrant shall have been surrendered and payment made for such shares
      as aforesaid. In 

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    the
      event
      of any exercise of this Warrant, certificates for the shares of stock so
      purchased shall be delivered to the Holder within 15 days thereafter and, unless
      this Warrant has been fully exercised or expired, a new Warrant representing
      the
      portion of the shares, if any, with respect to which this Warrant shall not
      then
      have been exercised, shall also be issued to the Holder within such 15 day
      period. The issuance of any shares or other securities upon the exercise of
      this
      Warrant and the delivery of certificates or other instruments representing
      such
      shares or other securities shall be made without charge to the Holder for any
      tax or other charge (other than payment of the Warrant Price) in respect of
      such
      issuance. The Company shall not, however, be required to pay any tax that may
      be
      payable in respect of any transfer involved in the issue and delivery of any
      certificate in a name other than that of the Holder, and the Company shall
      not
      be required to issue or deliver any such certificate w1less and until the person
      or persons requesting the issue thereof shall have paid to the Company the
      amount of such tax or shall have established to the satisfaction of the Company
      that such tax has been paid. 

     

    4.
      Stock
      Fully Paid; Reservation of Shares.
      All
      Common Stock which may be issued upon the exercise or conversion of this Warrant
      will, upon issuance, be fully paid and nonassessable, and free from all taxes,
      liens and charges with respect to the issue thereof. During the period within
      which the rights represented by this Warrant may be exercised, the Company
      will
      at all times have authorized, and reserved for the purpose of the issuance
      upon
      exercise of the purchase rights evidenced by this Warrant, a sufficient number
      of shares of its Comri1on Stock to provide for the exercise of the rights
      represented by this Warrant. 

     

    5.
      Adjustments.
      

     

    (a)
       Reclassification,
      Consolidation or Merger. In
      case
      of any reorganization, 

    reclassification
      or change of outstanding securities of the class issuable upon exercise of
      this
      Warrant (other than a change in par value, or from par value to no par value,
      or
      from no par value to par value, or as a result of a subdivision or combination),
      or in case of any consolidation or merger of the Company with or into another
      corporation, other than a reorganization or merger with another corporation
      in
      which the Company is a continuing corporation and which does not result in
      any
      reclassification or change of outstanding securities issuable upon exercise
      of
      this Warrant, or in case of any sale of all or substantially all of the assets
      of the Company, there shall thereafter be deliverable upon exercise of this
      Warrant, in lieu of each share of Common Stock theretofore issuable upon
      exercise of this Warrant, the kind and amount of shares of stock, other
      securities, money and property receivable upon such reorganization,
      reclassification, change, consolidation, merger or sale by a holder of one
      share
      of Common Stock. The Company shall not effect any such reorganization,
      reclassification, change, consolidation, merger or sale unless upon or before
      the consummation thereof the successor corporation (or if the Company shall
      be
      the surviving corporation in any such reorganization or merger and is not the
      issuer of the shares of stock or other securities or property to be delivered
      to
      holders of shares of the Common Stock outstanding at the effective time thereof,
      then such issuer) shall assume by written instrument the obligation to deliver
      to the Holder such shares of stock, securities, cash or other property as the
      Holder shall be entitled to purchase in accordance with the foregoing
      provisions. The provisions of this subsection (a) shall similarly apply to
      successive reclassification, changes, consolidations, mergers and transfers.
      

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (b)
       Subdivision
      or Combination of Shares. If the Company at any time while this Warrant remains
      outstanding and unexpired shall subdivide or combine its Common Stock, the
      Warrant Price shall be proportionately decreased in the case of a subdivision
      or
      increased in the case of a combination. 

     

    (c)
       Dividends
      in Cash or Property.
      If the
      Company shall distribute to holders of Common Stock (including any such
      distribution made to the shareholders of the Company in connection with a
      consolidation or merger in which the Company is the continuing corporation)
      (i)
      evidences of its indebtedness, cash or assets (other than ordinary cash
      dividends paid out of the net profits of the Company for its most recent fiscal
      year), (ii) rights, options or warrants to subscribe for or purchase Common
      Stock, or (iii) any equity securities of the Company (other than Common Stock),
      including any securities convertible into or exchangeable for shares of Common
      Stock, then, in each case, the Warrant Price shall be adjusted by multiplying
      the Warrant Price in effect immediately before the record date for the
      determination of shareholders entitled to receive such distribution by a
      fraction, the numerator of which shall be the Current Market Price (as
      determined below) per share of Common Stock on such record date, less the fair
      market value (as determined in good faith by the board of directors of the
      Company, whose determination shall be conclusive absent manifest error) of
      the
      portion of the evidences of indebtedness or assets so to be distributed, or
      of
      such securities, rights, options, or warrants, or the amount of such cash,
      applicable to one share, and the denominator of which shall be such Current
      Market Price per share of Common Stock. Such adjustment shall become effective
      at the close of business on such record date. The Current Market Price per
      share
      of Common Stock as of any date shall be the average of the daily closing prices
      for the 20 consecutive trading days immediately preceding the date in question.
      The closing price for each day shall be the last reported sales price regular
      way or, in case no such reported sale takes place on such date, the closing
      bid
      price regular way, in either case on the principal national securities exchange
      (including, for purposes hereof, the Nasdaq National Market) on which the Common
      Stock is listed or admitted to trading or, if the Common Stock is not listed
      or
      admitted to trading on any national securities exchange, the highest reported
      bid price of the Common Stock as furnished by the National Association of
      Securities Dealers, Inc. through Nasdaq, or a similar organization if Nasdaq
      is
      no longer reporting such information. If on any such date the Common Stock
      is
      not listed or admitted to trading on any national securities exchange and is
      not
      quoted by Nasdaq or any similar organization, the fair value of a share of
      Common Stock on such date, as determined in good faith by the board of directors
      of the Company, whose determination shall be conclusive absent manifest error,
      shall be used. 

     

    (d)
       Stock
      Dividends.
      If the
      Company at any time while this Warrant is outstanding and unexpired shall pay
      a
      dividend with respect to Common Stock payable in, or make any other distribution
      with respect to, Common Stock [except any distribution specifically provided
      for
      in the foregoing subparagraphs (a) or (b)], then the Warrant Price shall be
      adjusted, from and after the record date of determination of shareholders
      entitled to receive such dividend or distribution, to that price determined
      by
      multiplying the Warrant Price in effect immediately prior to such date of
      determination by a fraction (a) the numerator of which shall be the total number
      of shares of Common Stock outstanding immediately prior to such dividend or
      distribution and (b) the 

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    denominator
      of which shall be the total number of shares of Common Stock outstanding
      immediately after such dividend or distribution. 

     

    (e)
       No
      Adjustment. No
      adjustment in the Warrant Price pursuant to Section 

    5(a),
      (b), (c) or (d) shall be required unless such adjustment would require an
      increase or a decrease of at least $0.01 per share of Common Stock; provided,
      however,
      that
      any adjustments that by reason of this Section 5(e) are not required to be
      made
      shall be carried forward and taken into account in any subsequent adjustment.
      

     

    (f)
       Adjustment
      of Number of Shares.
      Upon
      each adjustment in the Warrant 

    Price
      pursuant to Section Sea), (b), (c) or (d), the number of shares of Common Stock
      purchasable hereunder shall be adjusted, to the nearest whole share, to the
      product obtained by multiplying the number of shares purchasable immediately
      prior to such adjustment in the Warrant Price by a fraction, the numerator
      of
      which shall be the Warrant Price immediately prior to such adjustment and the
      denominator of which shall be the Warrant Price immediately thereafter.

     

    6.
      Notice
      of Adjustments.
      Whenever any Warrant Price shall be adjusted pursuant to Section 5 hereof,
      the
      Company shall prepare a certificate signed by its chief financial officer
      setting forth, in reasonable detail, the event requiring the adjustment, the
      amount of the adjustment, the method by which such adjustment was calculated,
      the Warrant Price after giving effect to such adjustment and the number of
      shares then purchasable upon exercise of this Warrant, and shall cause copies
      of
      such certificate to be mailed (by first class mail, postage prepaid) to the
      holder of this Warrant at the address specified in Section I O( d) hereof,
      or at
      such otRer address as may be provided to the Company in writing by the holder
      of
      this Warrant. 

     

    7.
      Fractional
      Shares.
      No
      fractional shares of Common Stock will be issued in connection with any exercise
      hereunder, but in lieu of such fractional shares the Company shall make a cash
      payment therefor upon the basis of the Warrant Price then in effect.

     

    8.
      Compliance
      with the Act. 

     

    (a)
       Compliance
      with the Act. The
      holder of this Warrant, by acceptance hereof, agrees that this Warrant and
      the
      shares of Common Stock to be issued upon exercise hereof are being acquired
      for
      such holder's own account for investment with no intention of making or causing
      to be made any public distribution of all or any portion thereof; and such
      securities may not be pledged, sold or in any other way transferred in the
      absence of an effective registration statement for such securities under the
      Act
      and registration of such securities under applicable state securities laws
      or
      (i) registration under applicable state securities laws is not required and
      (ii)
      an opinion of counsel reasonably satisfactory to the Company (which may be
      either in-house counsel at Holder or Holder's outside counsel, at Holder's
      option) is furnished to the Company to the effect that registration under the
      Act is not required. 

     

    (b)
       Restrictive
      Legend.
      The
      Warrants and each certificate representing (i) shares 

    of
      the
      Company's Common Stock issuable upon exercise of the Warrants, or (ii) any
      other
      securities 

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    issued
      in
      respect of the Warrants or the Common Stock issued upon exercise of the
      Warrants, upon any stock split, stock dividend, recapitalization, merger,
      consolidation or similar event, shall (unless otherwise permitted or unless
      the
      securities evidenced by such certificate shall have been registered under the
      Act) be stamped or otherwise imprinted with a legend in such form as counsel
      for
      the Company may deem necessary reflecting the provisions of Section 8(a). Upon
      request of a holder of such a certificate, the Company shall remove the
      foregoing legend from the certificate or issue to such holder a new certificate
      therefor free of any transfer, legend, if, with such request, the Company shall
      have received the opinion referred to in Section 8(a) to the effect that any
      transfer by such holder or the securities evidenced by such certificate will
      not
      violate the Act. 

     

    9.
      Transfer
      and Exchange of Warrant. 

     

    (a)
       Transfer.
      Subject
      to Section 8 above, this Warrant may be transferred or succeeded to by any
      person; provided,
      however,
      that
      the Company is given written notice by the transferee at the time of such
      transfer stating the name and address of the transferee and identifying the
      securities with respect to which such rights are being assigned. 

     

    (b)
       Exchange.
      Subject
      to compliance with the terms hereof, this Warrant and all 

    rights
      hereunder are transferable, in whole or in part, at the office of the Company
      by
      the Holder in person or by duly authorized attorney, upon surrender of this
      Warrant properly endorsed. Each taker and holder of this Warrant, by taking
      or
      holding the same, consents and agrees that this Warrant, when endorsed in blank,
      shall be deemed negotiable; provided, that the last holder of this Warrant
      as
      registered on the books of the Company may be treated by the Company and all
      persons dealing with this Warrant as the absolute owner hereof for any purposes
      and as the person entitled to exercise the rights represented by this Warrant
      or
      to transfer hereof on the books of the Company, any notice to the contrary
      notwithstanding, unless and until such holder seeks to transfer registered
      ownership of this Warrant on the books of the Company and such transfer is
      effected. 

     

    10.
      Miscellaneous.
      

     

    (a)
       No
      Rights as Shareholder. No
      holder
      of the Warrant or Warrants shall be 

    entitled
      to vote or receive dividends or be deemed the holder of Common Stock or any
      other securities of the Company which may at any time be issuable on the
      exercise hereof for any purpose, nor shall anything contained herein be
      construed to confer upon the holder of this Warrant, as such, any of the rights
      of a shareholder of the Company or any right to vote for the election of
      directors or upon any matter submitted to shareholders at any meeting thereof,
      or to give or withhold consent to any corporate action (whether upon any
      recapitalization, issuance of stock, reclassification of stock, change of par
      value or change of stock to no par value, consolidation, merger, conveyance
      or
      otherwise) or to receive notice of meetings, or to receive dividends or
      subscription rights or otherwise until the Warrant or Warrants shall have been
      exercised and the shares purchasable upon the exercise hereof shall have become
      deliverable, as provided herein. 

     

    (b)
       Replacement.  On
      receipt of evidence reasonably satisfactory to the 

    Company
      of the loss, theft, destruction or mutilation of this Warrant and, in the case
      of loss, theft, or 

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    destruction,
      on delivery of an indemnity agreement, or bond reasonably satisfactory in form
      and amount to the Company or, in the case of mutilation, on surrender and
      cancellation of this Warrant, the Company, at its expense, will execute and
      deliver, in lieu of this Warrant, a new Warrant of like tenor. 

     

    (c)
       Notice
      of Capital Changes.
      In
      case: 

     

    (i)
       the
      Company shall declare any dividend or distribution payable to the holders of
      its
      Common Stock; 

     

    (ii)
       there
      shall be any capital reorganization, reclassification or change of outstanding
      securities of the class issuable upon exercise of this Warrant (other than
      a
      change in par value, or from par value to no par value, or 1Tom no par value
      to
      par value, or as a result of a subdivision or combination) of the Company,
      or
      consolidation or merger of the Company with, or sale of all or substantially
      all
      of its assets to, another corporation or business organization; or 

     

    (iii)
       there
      shall be a voluntary or involuntary dissolution, liquidation or winding up
      of
      the Company; 

     

    then,
      in
      anyone or more of said cases, the Company shall give the holder of this Warrant
      written notice, in the manner set forth in subparagraph (d) below, of the date
      on which a record shall be taken for such dividend, or distribution or for
      determining shareholders entitled to vote upon such reorganization,
      reclassification, change, consolidation, merger, sale, dissolution, liquidation
      or winding up and of the date when any such transaction shall take place, as
      the
      case may be. Such written notice shall be given at least 30 days prior to the
      transaction in question and not less than 20 days prior to the record date
      in
      respect thereof. 

     

    (d)
       Notice.
      Any
      notice given to either party under this Warrant shall be in 

    writing,
      and any notice hereunder shall be deemed to have been given upon the earlier
      of
      delivery thereof by hand delivery, by courier, or by standard form of
      telecommunication or three (3) business days after the mailing thereof if sent
      by nationally recognized overnight carrier, addressed to the Company at its
      principal executive offices and to the holder at its address set forth in the
      Company's books and records or at such other address as the holder may have
      provided to the Company in writing. 

     

    (e)
       No
      Impairment. The
      Company will not, by amendment of its Restated 

    Certificate
      of Incorporation or through any reorganization, transfer of assets,
      consolidation, merger, dissolution, issue or sale of securities or any other
      voluntary action, avoid or seek to avoid the observance or performance of any
      of
      the terms to be observed or perfonned hereunder by the Company, but will at
      all
      times in good faith assist in the carrying out of all the provisions in the
      Warrant. 

     

    (f)
       Registration
      Rights.
      The
      Common Stock issued upon exercise of this 

    Warrant
      shall be entitled to registration under the Act. 

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    (g)
       Governing
      Law.
      This
      Warrant shall be governed by and construed under the 

    laws
      of
      the State of Delaware, excluding its conflict of laws principles. 

     

    IN
      WITNESS WHEREOF, this
      Warrant is executed as of this 9th day of July 2003. 

     

    GSE
      SYSTEMS, INC. 

    

    

    

    

    

    By:
      /s/
      Chin-our Jerry Jen_________________

    Title:
      President & COO

    

    

    
      
        
           

        

        
        

      

      
        7

        
          

        

      

      
        
        

        
        

      

    

    

    

    EXHIBIT
      1 

     

    NOTICE
      OF EXERCISE 

     

    TO:
       GSE
      SYSTEMS, INC. 

     

    1.
      The
      undersigned hereby elects to purchase ______ shares of Common Stock of GSE
      SYSTEMS, INC. pursuant to the terms of the attached Warrant, and tenders
      herewith payment of the purchase price of such shares in full. 

     

    2.
      Please
      issue a certificate or certificates representing said shares of Common Stock
      in
      the name of the undersigned or in such other name as is specified below:

    

    

    

    ___________________________________

    (Name)

    

    ___________________________________

    

    

    ___________________________________

    (Address)

     

    3.
      THE
      UNDERSIGNED REPRESENTS THAT THE AFORESAID SHARES OF COMMON STOCK ARE BEING
      ACQUIRED FOR THE ACCOUNT OF THE UNDERSIGNED FOR INVESTMENT AND NOT WITH A VIEW
      TO, OR FOR RESALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF AND THAT THE
      UNDERSIGNED HAS NO PRESENT INTENTION OF DISTRIBUTING OR RESELLING SUCH SHARES
      EXCEPT AS PERMITTED BY THE TERMS OF SUCH WARRANT. 

    

    

    

    

    

    _______________________________

    Signature
      

     

    8

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