Document:

Exhibit 10.1 Securities Purchase Agreement

    

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of June 15, 2007, by and among GSE Systems, Inc., a Delaware
      corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively, the “Purchasers”).

     

    RECITALS

     

    A. The
      Company and each Purchaser is executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by Section
      4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“Commission”)
      under
      the Securities Act.

    

    B. Each
      Purchaser, severally and not jointly, wishes to purchase, and the Company wishes
      to sell, upon the terms and conditions stated in this Agreement, (i) that
      aggregate number of shares of the common stock, par value $0.01 per share (the
      “Common
      Stock”),
      of
      the Company, set forth below such Purchaser’s name on the signature page of this
      Agreement (which aggregate amount for all Purchasers together shall be 1,666,667
      shares of Common Stock and shall be collectively referred to herein as the
      “Shares”)
      and
      (ii) warrants, in substantially the form attached hereto as Exhibit
      A
      (the
“Warrants”),
      to
      acquire up to that number of additional shares of Common Stock equal to 10.0%
      of
      the number of Shares purchased by such Purchaser (rounded up to the nearest
      whole share) (the shares of Common Stock issuable upon exercise of or otherwise
      pursuant to the Warrants collectively are referred to herein as the
“Warrant
      Shares”).

    

    C. The
      Shares, the Warrants and the Warrant Shares collectively are referred to herein
      as the “Securities”.

    

    D. The
      Company has engaged Roth Capital Partners, LLC as its placement agent (the
      “Placement
      Agent”)
      for
      the offering of the Securities on a “best efforts” basis.

    

    E. Contemporaneously
      with the execution and delivery of this Agreement, the parties hereto are
      executing and delivering a Registration Rights Agreement, substantially in
      the
      form attached hereto as Exhibit
      B
      (the
“Registration
      Rights Agreement”),
      pursuant to which, among other things, the Company will agree to provide certain
      registration rights with respect to the Shares and the Warrant Shares under
      the
      Securities Act and the rules and regulations promulgated thereunder and
      applicable state securities laws.

    

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration, the receipt and adequacy of
      which
      are hereby acknowledged, the Company and the Purchasers hereby agree as
      follows:

     

    ARTICLE
      I  

     

    DEFINITIONS

     

    1.1  Definitions.
      In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms shall have the meanings indicated in this
      Section 1.1:

     

    “Action”
means
      any action, suit, inquiry, notice of violation, proceeding (including any
      partial proceeding such as a deposition) or investigation, to the Company’s
      Knowledge, pending or threatened in writing (or otherwise) against the Company,
      any Subsidiary or any of their respective properties before or by any federal,
      state, county, local or foreign court, arbitrator, governmental or
      administrative agency, regulatory authority, stock market, stock exchange or
      trading facility.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Affiliate”
means,
      with respect to any Person, any other Person that, directly or indirectly
      through one or more intermediaries, Controls, is controlled by or is under
      common control with such Person, as such terms are used in and construed under
      Rule 144. With respect to a Purchaser, any investment fund or managed account
      that is managed on a discretionary basis by the same investment manager as
      such
      Purchaser will be deemed to be an Affiliate of such Purchaser.

     

    “Agreement”
has
      the
      meaning ascribed to such term in the Preamble.

     

    “Business
      Day”
means
      a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Buy-In”
has
      the
      meaning set forth in Section 4.1(f).

     

    “Buy-In
      Price”
has
      the
      meaning set forth in Section 4.1(f).

     

    “Closing”
means
      the closing of the purchase and sale of the Shares and the Warrants pursuant
      to
      this Agreement.

     

    “Closing
      Sales Price”
      means,
      for any security as of any date, the last trade price for such security on
      the
      Principal Trading Market, as reported by Bloomberg Financial Markets, or, if
      the
      Principal Trading Market begins to operate on an extended hours basis and does
      not designate the last trade price then the last trade price of such security
      prior to 4:00:00 p.m., New York City Time, as reported by Bloomberg,
      Financial Markets, or if the foregoing do not apply, the last trade price of
      such security in the over-the-counter market on the electronic bulletin board
      for such security as reported by Bloomberg Financial Markets, or, if no closing
      bid price is reported for such security by Bloomberg Financial Markets, the
      average of the bid prices and asked prices of any market makers for such
      security as reported in the “pink sheets” by Pink Sheets LLC. If the Closing
      Sales Price cannot be calculated for a security on a particular date on any
      of
      the foregoing bases, the Closing Sales Price of such security on such date
      shall
      be the fair market value as mutually determined by the Company and the holder.
      If the Company and the holder are unable to agree upon the fair market value
      of
      such security, then such dispute shall be resolved pursuant to Section 10
      of the Warrants. All such determinations shall be appropriately adjusted for
      any
      stock dividend, stock split, stock combination or other similar transaction
      during the applicable calculation period. 

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all of the conditions set
      forth
      in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied, or such other date
      as
      the parties may agree.

     

    “Commission”
has
      the
      meaning set forth in the Recitals.

     

    “Common
      Stock”
has
      the
      meaning set forth in the Recitals, and also includes any securities into which
      the Common Stock may hereafter be reclassified or changed. 

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or any Subsidiary which would entitle the holder
      thereof to acquire at any time Common Stock, including, without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock or other securities that entitle the holder
      to
      receive, directly or indirectly, Common Stock.

     

    “Company”
has
      the
      meaning ascribed to such term in the Preamble

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Company
      Counsel”
means
      Duane Morris LLP.

    

    “Company
      Deliverables”
has
      the
      meaning set forth in Section 2.2(a). 

     

    “Company
      Party”
has
      the
      meaning set forth in Section 4.11(b).

     

       “Company’s
      Knowledge”
means
      with respect to any statement made to the knowledge of the Company, that the
      statement is based upon the actual knowledge of the officers of the Company
      having responsibility for the matter or matters that are the subject of the
      statement.

    

    “Control”
      (including the terms “controlling”, “controlled by” or “under common control
      with”) means the possession, direct or indirect, of the power to direct or cause
      the direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise.

     

    “Deadline
      Date”
has
      the
      meaning set forth in Section 4.1(f).

     

    “Disclosure
      Materials”
has
      the
      meaning set forth in Section 3.1(h).

     

    “DTC”
has
      the
      meaning set forth in Section 4.1(c).

     

    “Effective
      Date”
means
      the date on which the initial Registration Statement required by Section 2(a)
      of
      the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Effectiveness
      Deadline”
means
      the date on which the initial Registration Statement is required to be declared
      effective by the Commission under the terms of the Registration Rights
      Agreement. 

     

    “Engagement
      Letter”
has
      the
      meaning set forth in Section 6.1.

     

    “Environmental
      Laws”
has
      the
      meaning set forth in Section 3.1(l).

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, or any successor statute,
      and
      the rules and regulations promulgated thereunder.

     

    “GAAP”
means
      U.S. generally accepted accounting principles, as applied by the
      Company.

     

    “Indemnified
      Person”
has
      the
      meaning set forth in Section 4.11(c). 

     

    “Indemnifying
      Person”
has
      the
      meaning set forth in Section 4.11(c).

     

    “Intellectual
      Property”
has
      the
      meaning set forth in Section 3.1(r).

     

    “Irrevocable
      Transfer Agent Instructions”
has
      the
      meaning set forth in Section 4.1(d).

     

    “Legend
      Removal Date” has
      the
      meaning set forth in Section 4.1(c).

     

    “Lien”
means
      any lien, charge, claim, encumbrance, security interest, right of first refusal,
      preemptive right or other restrictions of any kind. 

     

    “Losses”
      has
      the
      meaning set forth in Section 4.11(a).

     

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Material
      Adverse Effect”
means
      any of (i) a material and adverse effect on the legality, validity or
      enforceability of any Transaction Document, (ii) a material and adverse effect
      on the results of operations, assets, business or financial condition of the
      Company and the Subsidiaries, taken as a whole, or (iii) any material adverse
      impairment to the Company's ability to perform in any material respect on a
      timely basis its obligations under any Transaction Document.

     

    “Material
      Contract”
means
      any contract of the Company that was filed (or should have been filed) as an
      exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10) of
      Regulation S-K.

    

    “Material
      Permits”
has
      the
      meaning set forth in Section 3.1(p).

     

    “New
      York Courts”
means
      the state and federal courts sitting in the City of New York, Borough of
      Manhattan.

     

    “Outside
      Date”
means
      July 14, 2007. 

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, sole
      proprietorship, unincorporated organization, governmental authority or any
      other
      form of entity not specifically listed herein.

     

    “Placement
      Agent”
has
      the
      meaning set forth in the Recitals.

     

    “Press
      Release” has
      the
      meaning set forth in Section 4.9.

     

    “Principal
      Trading Market”
means
      the Trading Market on which the Common Stock is primarily listed on and quoted
      for trading, which, as of the date of this Agreement and the Closing Date,
      shall
      be the American Stock Exchange.

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    “Purchaser”
      has the
      meaning set forth in the Recitals.

     

    “Purchase
      Price”
means
      $6.00 per Share.

     

    “Purchaser
      Deliverables”
has
      the
      meaning set forth in Section 2.2(b).

     

    “Purchaser
      Party”
has
      the
      meaning set forth in Section 4.11(a).

     

    “Registration
      Rights Agreement”
has
      the
      meaning set forth in the Recitals.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Purchasers of the Registrable
      Securities (as defined in the Registration Rights Agreement).

     

    “Regulation
      D”
has
      the
      meaning set forth in the Recitals.

     

    “Required
      Approvals”
has
      the
      meaning set forth in Section 3.1(e).

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “SEC
      Reports”
has
      the meaning set forth in Section 3.1(h).

     

    “Secretary’s
      Certificate”
has
      the
      meaning set forth in Section 2.2(a)(vii).

     

    “Securities”
has
      the
      meaning set forth in the Recitals.

     

    “Securities
      Act”
      has the
      meaning set forth in the Recitals.

     

    “Shares”
      has the
      meaning set forth in the Recitals.

     

    “Short
      Sales”
      include, without limitation, all “short sales” as defined in Rule 200
      promulgated under Regulation SHO under the Exchange Act, whether or not against
      the box, and all types of direct and indirect stock pledges, forward sale
      contracts, options, puts, calls, short sales, swaps, “put equivalent positions”
(as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements
      (including on a total return basis), and sales and other transactions through
      non-U.S. broker dealers or foreign regulated brokers.

     

    “Subscription
      Amount”
means
      with respect to each Purchaser, the aggregate amount to be paid for the Shares
      and the related Warrants purchased hereunder as indicated on such Purchaser’s
      signature page to this Agreement next to the heading “Aggregate Purchase Price
      (Subscription Amount)”. For the avoidance of doubt, the Subscription Amount for
      each Purchaser shall equal: (i) the Purchase Price; multiplied
      by
      (ii) the
      number of Shares to be purchased at the Closing by such Purchaser. 

     

    “Subsidiary”
means
      any
      “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X
      promulgated by the Commission under the Exchange Act and any other entity
      required to be disclosed in the SEC Reports pursuant to Item 601(b)(21) of
      Regulation S-K.

     

    “Trading
      Affiliate”
has
      the
      meaning set forth in Section 3.2(h).

     

    “Trading
      Day”
means
      (i) a day on which the Common Stock is listed or quoted and traded on its
      Principal Trading Market (other than the OTC Bulletin Board), or (ii) if the
      Common Stock is not listed on a Trading Market (other than the OTC Bulletin
      Board), a day on which the Common Stock is traded in the over-the-counter
      market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock
      is
      not quoted on any Trading Market, a day on which the Common Stock is quoted
      in
      the over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC
      (or any similar organization or agency succeeding to its functions of reporting
      prices); provided,
      that in
      the event that the Common Stock is not listed or quoted as set forth in (i),
      (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

     

    “Trading
      Market”
means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
      or the OTC Bulletin Board on which the Common Stock is listed or quoted for
      trading on the date in question.

     

    “Transaction
      Documents”
means
      this Agreement, the schedules and exhibits attached hereto, the Warrants, the
      Registration Rights Agreement, the Irrevocable Transfer Agent Instructions
      and
      any other documents or agreements executed in connection with the transactions
      contemplated hereunder.

     

    “Transfer
      Agent”
means
      Continental Stock Transfer & Trust Company, or any successor transfer agent
      for the Company.

     

    “Warrants”
has
      the
      meaning set forth in the Recitals to this Agreement; provided,
      however
      that the
      term “Warrants” shall be deemed to include any Liquidated Damages Warrants (as
      such term is defined in the Registration Rights Agreement) issued under the
      Registration Rights Agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “Warrant
      Shares”
has
      the
      meaning set forth in the Recitals to this Agreement; provided,
      however
      that the
      term “Warrant Shares” shall be deemed to include the any shares of Common Stock
      issuable upon exercise of any Liquidated Damages Warrants issued under the
      Registration Rights Agreement.

     

    ARTICLE
      II 

    PURCHASE
      AND SALE

     

    2.1  Closing.
      

     

    (a)  Amount.
      Subject
      to the terms and conditions set forth in this Agreement, at the Closing, the
      Company shall issue and sell to each Purchaser, and each Purchaser shall,
      severally and not jointly, purchase from the Company, such number of shares
      of
      Common Stock for the aggregate purchase price, as indicated below such
      Purchaser’s name on the signature page of this Agreement (the “Subscription
      Amount”).
      In
      addition, each Purchaser shall receive a Warrant to purchase a number of Warrant
      Shares equal to 10.0% of the number of Shares purchased by such Purchaser,
      as
      indicated below such Purchaser’s name on the signature page to this Agreement.
      The Warrants shall have an exercise price equal to $6.00 per Warrant
      Share.

     

    (b)  Closing.
      The
      Closing of the purchase and sale of the Shares and Warrants shall take place
      at
      the offices of Lowenstein Sandler PC, 1251 Avenue of the Americas, New York,
      New
      York on the Closing Date or at such other locations or remotely by facsimile
      transmission or other electronic means as the parties may mutually
      agree.

     

    (c)  Form
      of Payment.
      On the
      Closing Date, (i) each Purchaser shall pay its respective Subscription Amount
      to
      the Company for the Shares and the Warrants to be issued and sold to such
      Purchaser at the Closing, by wire transfer of immediately available funds in
      accordance with the Company's written wire instructions as previously provided
      by the Company, (ii)
      the
      Company shall irrevocably instruct the Transfer Agent to deliver to each
      Purchaser by delivery of one or more stock certificates, free and clear of
      all
      restrictive and other legends (except as expressly provided in Section 4.1(b)
      hereof) evidencing, the number of Shares such Purchaser is purchasing as is
      set
      forth
      on such
      Purchaser’s signature page to this Agreement next to the heading “Number of
      Shares to be Acquired”,
      within
      three (3) calendar days after the Closing and (iii) the Company shall issue
      to each Purchaser a Warrant pursuant to which such Purchaser shall have the
      right to acquire such number of Warrant Shares as is set forth on such
      Purchaser’s signature page to this Agreement next to the heading “Underlying
      Shares Subject to Warrant”, in the case of clauses (ii) and (iii), duly executed
      on behalf of the Company and registered in the name of such
      Purchaser.
      

     

    2.2  Closing
      Deliveries.
        (a) On or prior to the Closing, the Company shall issue, deliver or
      cause to be delivered to each Purchaser the following (the “Company
      Deliverables”):

     

    (i)  this
      Agreement, duly executed by the Company;

     

    (ii)  a
      copy of
      a duly executed instructions to the Transfer Agent instructing it to issue
      one
      or more stock certificates, free and clear of all restrictive and other legends
      (except as provided in Section 4.1(b) hereof), evidencing the Shares subscribed
      for by Purchaser hereunder, as indicated below such Purchaser’s name on the
      applicable signature page hereto, registered in the name of such Purchaser
      as
      set forth on the Stock Certificate Questionnaire included as Exhibit
      C-2
      hereto;

     

    (iii)  a
      Warrant, executed by the Company and registered in the name of such Purchaser
      as
      set forth on the Stock Certificate Questionnaire included as Exhibit
      C-2
      hereto,
      pursuant to which such Purchaser shall have the right to acquire such number
      of
      Warrant Shares, as indicated below such Purchaser’s name on the applicable
      signature page hereto, on the terms set forth therein;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (iv)  a
      legal
      opinion of Company Counsel, in the form attached hereto as Exhibit
      D,
      executed by such counsel and addressed to the Purchasers and the Placement
      Agent; 

     

    (v)  the
      Registration Rights Agreement, duly executed by the Company; 

     

    (vi)  duly
      executed Irrevocable Transfer Agent Instructions acknowledged in writing by
      the
      Transfer Agent;

     

    (vii)  a
      certificate of the Secretary of the Company (the “Secretary’s
      Certificate”),
      dated
      as of the Closing Date, (a) certifying the resolutions adopted by the Board
      of
      Directors of the Company approving the transactions contemplated by this
      Agreement and the other Transaction Documents and the issuance of the
      Securities, (b) certifying the current versions of the certificate or articles
      of incorporation, as amended, and by-laws of the Company and (c) certifying
      as
      to the signatures and authority of persons signing the Transaction Documents
      and
      related documents on behalf of the Company, in the form attached hereto as
      Exhibit
      F;
      

     

    (viii)  the
      Compliance Certificate referred to in Section 5.1(h); 

     

    (ix)  a
      certificate evidencing the formation and good standing of the Company in such
      entity’s jurisdiction of formation issued by the Secretary of State (or
      comparable office) of such jurisdiction, as of a date within thirty (30) days
      of
      the Closing Date; 

     

    (x)  a
      certificate evidencing the Company’s qualification as a foreign corporation and
      good standing issued by the Secretary of State (or comparable office) of each
      jurisdiction in which the Company is qualified to do business as a foreign
      corporation, as of a date within thirty (30) days of the Closing Date; and
      

     

    (xi)  a
      certified copy of the Certificate of Incorporation of the Company, as certified
      by the Secretary of State of the State (or comparable office) of such entity’s
      jurisdiction of formation, as of a date within thirty (30) days of the Closing
      Date.

     

    (b)  On
      or
      prior to the Closing, each Purchaser shall deliver or cause to be delivered
      to
      the Company the following (the “Purchaser
      Deliverables”):

     

    (i)  this
      Agreement, duly executed by such Purchaser;

     

    (ii)  its
      Subscription Amount, in United States dollars and in immediately available
      funds, in the amount set forth as the “Purchase Price (Subscription Amount)”
indicated below such Purchaser’s name on the applicable signature page hereto by
      wire transfer to an account previously designated in writing by the Company
      for
      such purpose;

     

    (iii)  the
      Registration Rights Agreement, duly executed by such Purchaser; 

     

    (iv)  a
      fully
      completed and duly executed Selling Stockholder Questionnaire in the form
      attached as Annex B to the Registration Rights Agreement; and

     

    (v)  a
      fully
      completed and duly executed Accredited Investor Questionnaire and Stock
      Certificate Questionnaire in the forms attached hereto as Exhibits
      C-1
      and
C-2,
      respectively.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    ARTICLE
      III  

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants as of the date hereof and the Closing
      Date (except for the representations and warranties that speak as of a specific
      date, which shall be made as of such date), to each of the Purchasers and to
      the
      Placement Agent that, except as set forth in the Schedules delivered
      herewith:

     

    (a)  Subsidiaries.
      The
      Company has no direct or indirect Subsidiaries other than those listed in the
      SEC Reports. Except as disclosed in the SEC Reports or Schedule
      3.1(a)
      hereto,
      the Company owns, directly or indirectly, all of the capital stock or comparable
      equity interests of each Subsidiary free and clear of any and all Liens, and
      all
      the issued and outstanding shares of capital stock or comparable equity interest
      of each Subsidiary are validly issued and are fully paid, non-assessable and
      free of preemptive and similar rights to subscribe for or purchase securities.
      

     

    (b)  Organization
      and Qualification.
      The
      Company and each of its Subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own or lease and use its properties and assets
      and to carry on its business as currently conducted. Neither the Company nor
      any
      Subsidiary is in violation of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. The Company and each of its Subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to have, individually or in the aggregate, a
      Material Adverse Effect, and, to the Company’s Knowledge no Proceeding has been
      instituted, is pending, or, is threatened in any such jurisdiction revoking,
      limiting or curtailing or seeking to revoke, limit or curtail such power and
      authority or qualification. 

     

    (c)  Authorization;
      Enforcement; Validity.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      to
      which it is a party and otherwise to carry out its obligations hereunder and
      thereunder. The execution and delivery by the Company of each of the Transaction
      Documents to which it is a party and the consummation by it of the transactions
      contemplated hereby and thereby (including, but not limited to, the sale and
      delivery of the Shares and the Warrants and the reservation for issuance and
      the
      subsequent issuance of the Warrant Shares upon exercise of the Warrants) have
      been duly authorized by all necessary corporate action on the part of the
      Company, and no further corporate action is required by the Company, its Board
      of Directors or its shareholders in connection therewith other than in
      connection with the Required Approvals. Each of the Transaction Documents to
      which it is a party has been (or upon delivery will have been) duly executed
      by
      the Company and is, or when delivered in accordance with the terms hereof,
      will
      constitute the legal, valid and binding obligation of the Company enforceable
      against the Company in accordance with its terms, except as such enforceability
      may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
      liquidation or similar laws relating to, or affecting generally the enforcement
      of, creditors’ rights and remedies or by other equitable principles of general
      application. There are no shareholder agreements, voting agreements, or other
      similar arrangements with respect to the Company’s capital stock to which the
      Company is a party or, to the Company’s Knowledge, between or among any of the
      Company’s shareholders.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (d)  No
      Conflicts.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      to which it is a party and the consummation by the Company of the transactions
      contemplated hereby or thereby (including, without limitation, the issuance
      of
      the Shares and Warrants and the reservation for issuance and issuance of the
      Warrant Shares) do not and will not (i) conflict with or violate any provision
      of the Company’s or any Subsidiary’s certificate or articles of incorporation,
      bylaws or other organizational or charter documents, (ii) except as set forth
      on
Schedule
      3.1(d),
      conflict with, or constitute a default (or an event that with notice or lapse
      of
      time or both would become a default) under, result in the creation of any Lien
      upon any of the properties or assets of the Company or any Subsidiary or give
      to
      others any rights of termination, amendment, acceleration or cancellation (with
      or without notice, lapse of time or both) of, any agreement, credit facility,
      debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
      or other understanding to which the Company or any Subsidiary is a party or
      by
      which any property or asset of the Company or any Subsidiary is bound, or
      affected, or (iii) subject to the Required Approvals, conflict with or result
      in
      a violation of any law, rule, regulation, order, judgment, injunction, decree
      or
      other restriction of any court or governmental authority to which the Company
      or
      a Subsidiary is subject (including federal and state securities laws and
      regulations and the rules and regulations, assuming the correctness of the
      representations and warranties made by the Purchasers herein, of any
      self-regulatory organization to which the Company or its securities are subject,
      including all applicable Trading Markets), or by which any property or asset
      of
      the Company or a Subsidiary is bound or affected, except in the case of clauses
      (ii) and (iii) such as would not, individually or in the aggregate, have or
      reasonably be expected to have a Material Adverse Effect.

     

    (e)  Filings,
      Consents and Approvals.
      Neither
      the Company nor any of its Subsidiaries is required to obtain any consent,
      waiver, authorization or order of, give any notice to, or make any filing or
      registration with, any court or other federal, state, local or other
      governmental authority or other Person in connection with the execution,
      delivery and performance by the Company of the Transaction Documents (including
      the issuance of the Securities), other than (i) the filing with the Commission
      of one or more Registration Statements in accordance with the requirements
      of
      the Registration Rights Agreement, (ii) filings required by applicable state
      securities laws, (iii) the filing of a Notice of Sale of Securities on Form
      D
      with the Commission under Regulation D of the Securities Act, (iv) the filing
      of
      any requisite notices and/or application(s) to the Principal Trading Market
      for
      the issuance and sale of the Common Stock and the Warrants and the listing
      of
      the Common Stock for trading or quotation, as the case may be, thereon in the
      time and manner required thereby, (v) the filings required in accordance with
      Section 4.9 of this Agreement and (vi) those that have been made or obtained
      prior to the date of this Agreement (collectively, the “Required
      Approvals”).
      

     

    (f)  Issuance
      of the Securities.
      The
      Shares have been duly authorized and, when issued and paid for in accordance
      with the terms of the Transaction Documents, will be duly and validly issued,
      fully paid and nonassessable and free and clear of all Liens, other than
      restrictions on transfer provided for in the Transaction Documents or imposed
      by
      applicable securities laws, and shall not be subject to preemptive or similar
      rights. The Warrants have been duly authorized and, when issued and paid for
      in
      accordance with the terms of the Transaction Documents, will be duly and validly
      issued, free and clear of all Liens, other than restrictions on transfer
      provided for in the Transaction Documents or imposed by applicable securities
      laws, and shall not be subject to preemptive or similar rights of shareholders.
      The Warrant Shares issuable upon exercise of the Warrants have been duly
      authorized and, when issued and paid for in accordance with the terms of the
      Transaction Documents and the Warrants will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens, other than restrictions
      on
      transfer provided for in the Transaction Documents or imposed by applicable
      securities laws, and shall not be subject to preemptive or similar rights of
      shareholders. Assuming the accuracy of the representations and warranties of
      the
      Purchasers in this Agreement, the Shares and the Warrant Shares will be issued
      in compliance with all applicable federal and state securities laws. As of
      the
      Closing Date, the Company shall have reserved from its duly authorized capital
      stock not less than 100% of the maximum number of shares of Common Stock
      issuable upon exercise of the Warrants (without taking into account any
      limitations on the exercise of the Warrants set forth in the Warrants). The
      Company shall, so long as any of the Warrants are outstanding, take all action
      necessary to reserve and keep available out of its authorized and unissued
      capital stock, solely for the purpose of effecting the exercise of the Warrants,
      100% of the number of shares of Common Stock issuable upon exercise of the
      Warrants (without taking into account any limitations on the exercise of the
      Warrants set forth in the Warrants).

     

    
      
        
        

      

      
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    (g)  Capitalization.
      The
      number of shares and type of all authorized, issued and outstanding capital
      stock, options and other securities of the Company (whether or not presently
      convertible into or exercisable or exchangeable for shares of capital stock
      of
      the Company) has been set forth in the SEC Reports and has changed since the
      date of such SEC Reports only to reflect stock option and warrant exercises
      that
      do not, individually or in the aggregate, have a material affect on the issued
      and outstanding capital stock, options and other securities. All of the
      outstanding shares of capital stock of the Company are duly authorized, validly
      issued, fully paid and non-assessable, have been issued in compliance in all
      material respects with all applicable federal and state securities laws, and
      none of such outstanding shares was issued in violation of any preemptive rights
      or similar rights to subscribe for or purchase any capital stock of the Company.
      Except as specified in the SEC Reports or Schedule
      3.1(g):
      (i) no
      shares of the Company's capital stock are subject to preemptive rights or any
      other similar rights or any liens or encumbrances suffered or permitted by
      the
      Company; (ii) there are no outstanding options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, or exercisable or exchangeable for,
      any
      shares of capital stock of the Company, or contracts, commitments,
      understandings or arrangements by which the Company is or may become bound
      to
      issue additional shares of capital stock of the Company or options, warrants,
      scrip, rights to subscribe to, calls or commitments of any character whatsoever
      relating to, or securities or rights convertible into, or exercisable or
      exchangeable for, any shares of capital stock of the Company; (iii) there are
      no
      outstanding debt securities, notes, credit agreements, credit facilities or
      other agreements, documents or instruments evidencing indebtedness of the
      Company or by which the Company is or may become bound; (iv) there are no
      financing statements securing obligations in any material amounts, either singly
      or in the aggregate, filed in connection with the Company; (v) there are no
      agreements or arrangements under which the Company is obligated to register
      the
      sale of any of their securities under the Securities Act (except the
      Registration Rights Agreement); (vi) there are no outstanding securities or
      instruments of the Company or which contain any redemption or similar
      provisions, and there are no contracts, commitments, understandings or
      arrangements by which the Company is or may become bound to redeem a security
      of
      the Company; (vii) there are no securities or instruments containing
      anti-dilution or similar provisions that will be triggered by the issuance
      of
      the Securities; (viii) the Company does not have any stock appreciation rights
      or “phantom stock” plans or agreements or any similar plan or agreement; and
      (ix) the Company has no liabilities or obligations required to be disclosed
      in
      the SEC Reports (as defined herein) but not so disclosed in the SEC Reports,
      other than those incurred in the ordinary course of the Company's businesses
      and
      which, individually or in the aggregate, do not or could not have or reasonably
      be expected to have a Material Adverse Effect. 

     

    (h)  SEC
      Reports.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it under the Exchange Act, including pursuant to Section
      13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
      shorter period as the Company was required by law or regulation to file such
      material) (the foregoing materials, including the exhibits thereto and documents
      incorporated by reference therein, being collectively referred to herein as
      the
“SEC
      Reports”
and
      together with this Agreement and the Schedules to this Agreement (if any),
      the
“Disclosure
      Materials”),
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      the date hereof, the Company is not aware of any event occurring on or prior
      to
      the Closing Date (other than the transactions contemplated by the Transaction
      Documents) that requires the filing of a Form 8-K after the Closing. As of
      their
      respective dates, or to the extent corrected by a subsequent restatement, the
      SEC Reports complied in all material respects with the requirements of the
      Securities Act and the Exchange Act and the rules and regulations of the
      Commission promulgated thereunder, and none of the SEC Reports, when filed,
      contained any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading. All material Contracts to which the Company or any Subsidiary is
      a
      party or to which the property or assets of the Company or any of its
      Subsidiaries are subject are included as part of or specifically identified
      in
      the SEC Reports.

     

    
      
        
        

      

      
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    (i)  Financial
      Statements.The
      financial statements of the Company included in the SEC Reports comply in all
      material respects with applicable accounting requirements and the rules and
      regulations of the Commission with respect thereto as in effect at the time
      of
      filing (or to the extent corrected by a subsequent restatement). Such financial
      statements have been prepared in accordance with GAAP applied on a consistent
      basis during the periods involved, except as may be otherwise specified in
      such
      financial statements or the notes thereto and except that unaudited financial
      statements may not contain all footnotes required by GAAP, and fairly present
      in
      all material respects the financial position of the Company and its consolidated
      subsidiaries taken as a whole as of and for the dates thereof and the results
      of
      operations and cash flows for the periods then ended, subject, in the case
      of
      unaudited statements, to normal, year-end audit adjustments. 

     

    (j)  Tax
      Matters.
      The
      Company and each of its Subsidiaries (i) has accurately and timely prepared
      and
      filed all foreign, federal and state income and all other tax returns, reports
      and declarations required by any jurisdiction to which it is subject, (ii)
      has
      paid all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith, with respect to which
      adequate reserves have been set aside on the books of the Company and (iii)
      has
      set aside on its books provisions reasonably adequate for the payment of all
      taxes for periods subsequent to the periods to which such returns, reports
      or
      declarations apply, except, in the case of clauses (i) and (ii) above, where
      the
      failure to so pay or file any such tax, assessment, charge or return would
      not
      have a Material Adverse Effect. There are no unpaid taxes in any material amount
      claimed to be due by the Company or any of its Subsidiaries by the taxing
      authority of any jurisdiction. 

     

    (k)  Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in the SEC Reports or as set forth
      in
Schedule
      3.1(k)
      hereto,
      (i) there have been no events, occurrences or developments that have had or
      could reasonably be expected to have, either individually or in the aggregate,
      a
      Material Adverse Effect, (ii) the Company has not incurred any material
      liabilities (contingent or otherwise) other than (A) trade payables, accrued
      expenses and other liabilities incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company's financial statements pursuant to GAAP or required to be
      disclosed in filings made with the Commission, (iii) the Company has not altered
      its method of accounting or the manner in which it keeps its accounting books
      and records, (iv) the Company has not declared or made any dividend or
      distribution of cash or other property to its shareholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock (other than in connection with repurchases of unvested stock issued to
      employees of the Company), (v) the Company has not issued any equity securities
      to any officer, director or Affiliate, except Common Stock issued in the
      ordinary course as dividends on outstanding preferred stock or pursuant to
      existing Company stock option or stock purchase plans or executive and director
      corporate arrangements disclosed in the SEC Reports and (vi) there has not
      been
      any material change or amendment to, or any waiver of any material right under,
      any Material Contract under which the Company, any of its Subsidiaries, or
      any
      of their respective assets is bound or subject. Except for the issuance of
      the
      Securities contemplated by this Agreement or as set forth in Schedule
      3.1(k)
      hereto,
      no event, liability or development has occurred or exists with respect to the
      Company or its Subsidiaries or their respective business, properties, operations
      or financial condition that would be required to be disclosed by the Company
      under applicable securities laws at the time this representation is made that
      has not been publicly disclosed at least one Trading Day prior to the date
      that
      this representation is made.

     

    
      
        
        

      

      
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    (l)  Environmental
      Matters.
      To the
      Company’s Knowledge, neither the Company nor any of its Subsidiaries (i) is in
      violation of any statute, rule, regulation, decision or order of any
      governmental agency or body or any court, domestic or foreign, relating to
      the
      use, disposal or release of hazardous or toxic substances or relating to the
      protection or restoration of the environment or human exposure to hazardous
      or
      toxic substances (collectively, “Environmental
      Laws”),
      (ii)
      owns or operates any real property contaminated with any substance that is
      in
      violation of any Environmental Laws, (iii) is liable for any off-site disposal
      or contamination pursuant to any Environmental Laws, or (iv) is subject to
      any
      claim relating to any Environmental Laws; which violation, contamination,
      liability or claim has had or could reasonably be expected to have, individually
      or in the aggregate, a Material Adverse Effect; and, to the Company’s Knowledge,
      there is no pending or threatened investigation that might lead to such a
      claim.

     

    (m)  Litigation.
      There
      is no Action which (i) adversely affects or challenges the legality, validity
      or
      enforceability of any of the Transaction Documents or the Securities or (ii)
      except as specifically disclosed in the SEC Reports, could, if there were an
      unfavorable decision, individually or in the aggregate, reasonably be expected
      to have a Material Adverse Effect. Neither the Company nor any of its
      Subsidiaries, nor, to the Company’s Knowledge, any current director or officer
      thereof (in his or her capacity thereof), is or has been during the five-year
      period prior to the Closing Date the subject of any Action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. To the Company’s Knowledge, there has not been, there
      is not pending or there is not contemplated, any investigation by the Commission
      involving the Company or, to the Company’s Knowledge, any current or former
      director or officer of the Company (in his or her capacity as such). The
      Commission has not issued any stop order or other order suspending the
      effectiveness of any registration statement filed by the Company or any of
      its
      Subsidiaries under the Exchange Act or the Securities Act.

     

    (n)  Employment
      Matters.
      No
      material labor dispute exists or, to the Company’s Knowledge, is imminent with
      respect to any of the employees of the Company which could reasonably be
      expected to have a Material Adverse Effect. Except as set forth on Schedule
      3.1(n),
      none of
      the Company’s or any Subsidiary’s employees is a member of a union that relates
      to such employee’s relationship with the Company, and neither the Company nor
      any of its Subsidiaries is a party to a collective bargaining agreement, and
      the
      Company and each Subsidiary believes that its relationship with its employees
      is
      good. No executive officer of the Company (as defined in Rule 501(f) of the
      1933
      Act) has notified the Company or any Subsidiary that such officer intends to
      leave the Company or any such Subsidiary or otherwise terminate such officer's
      employment with the Company or any such Subsidiary. No executive officer, to
      the
      Company’s Knowledge, is in violation of any material term of any employment
      contract, confidentiality, disclosure or proprietary information agreement
      or
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company or any Subsidiary to any liability with respect to any
      of
      the foregoing matters. The Company and its Subsidiaries are in compliance with
      all U.S. federal, state, local and foreign laws and regulations relating to
      employment and employment practices, terms and conditions of employment and
      wages and hours, except where the failure to be in compliance would not,
      individually or in the aggregate, have or reasonably be expected to have a
      Material Adverse Effect. 

     

    (o)  Compliance.
      Neither
      the Company nor any of its Subsidiaries (i) is in default under or in violation
      of (and no event has occurred that has not been waived that, with notice or
      lapse of time or both, would result in a default by the Company or any of its
      Subsidiaries under), nor has the Company or any of its Subsidiaries received
      notice of a claim that it is in default under or that it is in violation of,
      any
      indenture, loan or credit agreement or any other agreement or instrument to
      which it is a party or by which it or any of its properties is bound (whether
      or
      not such default or violation has been waived), (ii) is in violation of any
      order of any court, arbitrator or governmental body having jurisdiction over
      the
      Company or its properties or assets, or (iii) is or has been in violation of,
      or
      in receipt of notice that it is in violation of, any statute, rule or regulation
      of any governmental authority applicable to the Company, except in each case
      as
      would not, individually or in the aggregate, have or reasonably be expected
      to
      have a Material Adverse Effect. 

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (p)  Regulatory
      Permits.
      The
      Company and each of its Subsidiaries possess all certificates, authorizations
      and permits issued by the appropriate federal, state, local or foreign
      regulatory authorities necessary to conduct its respective business as described
      in the SEC Reports, except where the failure to possess such permits,
      individually or in the aggregate, has not and could not reasonably be expected
      to have a Material Adverse Effect (“Material
      Permits”),
      and
      (i) neither the Company nor any of its Subsidiaries has received any notice
      of
      proceedings relating to the revocation or modification of any such Material
      Permits and (ii) the Company is unaware of any facts or circumstances that
      the
      Company would reasonably expect to give rise to the revocation or modification
      of any Material Permits.

     

    (q)  Title
      to Assets.
      Neither
      the Company nor any of its Subsidiaries owns any real property. The Company
      and
      its Subsidiaries have good and marketable title to all personal property owned
      by them which is material to the business of the Company and its Subsidiaries,
      taken as whole, in each case free and clear of all Liens, except as disclosed
      in
      the SEC Reports or Schedule
      3.1q
      or such
      as do not materially affect the value of such property and do not interfere
      with
      the use made and proposed to be made of such property by the Company and any
      of
      its Subsidiaries. Any real property and facilities held under lease by the
      Company and any of its Subsidiaries are held by them under valid, subsisting
      and
      enforceable leases with such exceptions as are not material and do not interfere
      with the use made and proposed to be made of such property and buildings by
      the
      Company and its Subsidiaries. 

     

    (r)  Patents
      and Trademarks.
      The
      Company and its Subsidiaries own, possess, license or have other rights to
      use
      all foreign and domestic patents, patent applications, trade and service marks,
      trade and service mark registrations, trade names, copyrights, licenses,
      inventions, trade secrets, technology, Internet domain names, know-how and
      other
      intellectual property (collectively, the “Intellectual
      Property”)
      necessary for the conduct of their respective businesses as now conducted.
      Except as set forth in the SEC Reports and except where such violations or
      infringements could not reasonably be expected to have, either individually
      or
      in the aggregate, a Material Adverse Effect, (a) there are no rights of
      third parties to any such Intellectual Property; (b) to the Company’s Knowledge,
      there is no infringement by third parties of any such Intellectual Property;
      (c)
      to the Company’s Knowledge, there is no pending or threatened action, suit,
      proceeding or claim by others challenging the Company’s and its Subsidiaries’
rights in or to any such Intellectual Property, and the Company is unaware
      of
      any facts which would form a reasonable basis for any such claim; (d) to the
      Company’s Knowledge, there is no pending or threatened action, suit, proceeding
      or claim by others challenging the validity or scope of any such Intellectual
      Property; and (e) to the Company’s Knowledge, there is no pending or threatened
      action, suit, proceeding or claim by others that the Company and/or any
      Subsidiary infringes or otherwise violates any patent, trademark, copyright,
      trade secret or other proprietary rights of others, and the Company is unaware
      of any other fact which would form a reasonable basis for any such
      claim.

     

    (s)  Insurance.
      The
      Company and each of the Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      the Company believes to be prudent and customary in the businesses and locations
      in which the Company and such Subsidiaries are engaged. Neither the Company
      nor
      any of its Subsidiaries has received any notice of cancellation of any such
      insurance, nor does the Company or any Subsidiary have any knowledge that it
      will be unable to renew its existing insurance coverage for the Company and
      such
      Subsidiaries as and when such coverage expires or to obtain similar coverage
      from similar insurers as may be necessary to continue its business without
      a
      significant increase in cost.

     

    (t)  Transactions
      With Affiliates and Employees.
      Except
      as set forth in the SEC Reports on on Schedule 3(t), none of the officers or
      directors of the Company and, to the Company’s Knowledge, none of the employees
      of the Company is presently a party to any transaction with the Company or
      to a
      presently contemplated transaction (other than for services as employees,
      officers and directors) that would be required to be disclosed pursuant to
      Item
      404 of Regulation S-K promulgated under the Securities Act.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (u)  Internal
      Accounting Controls.
      The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management's general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset and liability
      accountability, (iii) access to assets or incurrence of liabilities is permitted
      only in accordance with management's general or specific authorization, and
      (iv)
      the recorded accountability for assets and liabilities is compared with the
      existing assets and liabilities at reasonable intervals and appropriate action
      is taken with respect to any differences. 

     

    (v)  Sarbanes-Oxley;
      Disclosure Controls.
      The
      Company is in compliance in all material respects with all of the provisions
      of
      the Sarbanes-Oxley Act of 2002 which are applicable to it, except where such
      noncompliance has not had and could not reasonably be expected to have,
      individually or in the aggregate, a Material Adverse Effect. The Company
      maintains disclosure controls and procedures (as such term is defined in Rule
      13a-15(e) and 15d-15(e) under the Exchange Act) that are effective in ensuring
      that information required to be disclosed by the Company in the reports that
      it
      files or submits under the Exchange Act is recorded, processed, summarized
      and
      reported, within the time periods specified in the rules and forms of the
      Commission, including, without limitation, controls and procedures designed
      in
      to ensure that information required to be disclosed by the Company in the
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the Company's management, including its principal executive
      officer or officers and its principal financial officer or officers, as
      appropriate, to allow timely decisions regarding required disclosure.

     

    (w)  Certain
      Fees.
      No
      person
      or entity will have, as a result of the transactions contemplated by this
      Agreement, any valid right, interest or claim against or upon the Company or
      a
      Purchaser for any commission, fee or other compensation pursuant to any
      agreement, arrangement or understanding entered into by or on behalf of the
      Company, other than the Placement Agent with respect to the offer and sale
      of
      the Securities (which placement agent fees are being paid by the Company).
      The
      Company shall indemnify, pay, and hold each Purchaser harmless against, any
      liability, loss or expense (including, without limitation, attorneys’ fees and
      out-of-pocket expenses) arising in connection with any such right, interest
      or
      claim.

     

    (x)  Private
      Placement.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2 of this Agreement, no registration under the Securities Act is
      required for the offer and sale of the Securities by the Company to the
      Purchasers under the Transaction Documents. 

     

    (y)  Registration
      Rights.Other
      than each of the Purchasers or as set forth in Schedule
      3.1(y)
      hereto,
      no Person has any right to cause the Company to effect the registration under
      the Securities Act of any securities of the Company other than those securities
      which are currently registered on an effective registration statement on file
      with the Commission. 

     

    (z)  No
      Directed Selling Efforts or General Solicitation.
      Neither
      the Company, nor any of its Affiliates, nor any Person acting on its or their
      behalf has conducted any “general solicitation” or “general advertising” (as
      those terms are used in Regulation D) in connection with the offer or sale
      of
      any of the Securities.

     

    (aa)  No
      Integrated Offering.
      Assuming the accuracy of the Purchasers’ representations and warranties set
      forth in Section 3.2, none of the Company, its Subsidiaries nor any of their
      Affiliates, nor any Person acting on its or their behalf has, directly or
      indirectly, at any time within the past six months, made any offers or sales
      of
      any Company security or solicited any offers to buy any security under
      circumstances that would (i) eliminate the availability of the exemption from
      registration under Regulation D under the Securities Act in connection with
      the
      offer and sale by the Company of the Securities as contemplated hereby or (ii)
      cause the offering of the Securities pursuant to the Transaction Documents
      to be
      integrated with prior offerings by the Company for purposes of any applicable
      law, regulation or shareholder approval provisions, including, without
      limitation, under the rules and regulations of any Trading Market on which
      any
      of the securities of the Company are listed or designated.

     

    
      
        
        

      

      
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    (bb)  Listing
      and Maintenance Requirements.
      The
      Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
      Act, and the Company has taken no action designed to terminate (or which would
      reasonably be expected to have the effect of terminating) the registration
      of
      the Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      Except as specified in the SEC Reports, the Company has not, in the 12 months
      preceding the date hereof, received written notice from any Trading Market
      on
      which the Common Stock is or has been listed or quoted to the effect that the
      Company is not in compliance with the listing or maintenance requirements of
      such Trading Market. The Company is, and has no reason to believe that it will
      not in the foreseeable future continue to be, in compliance in all material
      respects with the listing and maintenance requirements for continued trading
      of
      the Common Stock on the Principal Trading Market. 

     

    (cc)  Investment
      Company.
      Neither
      the Company nor any of its Subsidiaries is required to be registered as, and
      is
      not an Affiliate of, and immediately following the Closing will not be required
      to register as, an “investment company” within the meaning of the Investment
      Company Act of 1940, as amended.

     

    (dd)  Questionable
      Payments. Neither
      the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge, any
      directors, officers, employees, agents or other Persons acting on behalf of
      the
      Company or any of its Subsidiaries has, in the course of its actions for, or
      on
      behalf of, the Company: (a) directly or indirectly, used any corporate funds
      for
      unlawful contributions, gifts, entertainment or other unlawful expenses relating
      to foreign or domestic political activity; (b) made any direct or indirect
      unlawful payments to any foreign or domestic governmental officials or employees
      or to any foreign or domestic political parties or campaigns from corporate
      funds; (c) violated in any material respect any provision of the Foreign Corrupt
      Practices Act of 1977, as amended, or (d) made any other unlawful bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    (ee)  Application
      of Takeover Protections; Rights Agreements.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Company's charter documents
      or the laws of its state of incorporation that is or could reasonably be
      expected to become applicable to any of the Purchasers as a result of the
      Purchasers and the Company fulfilling their obligations or exercising their
      rights under the Transaction Documents, including, without limitation, the
      Company's issuance of the Securities and the Purchasers' ownership of the
      Securities. The Company has not adopted a stockholder rights plan or similar
      arrangement relating to accumulations of beneficial ownership of Common Stock
      or
      a change in control of the Company.

     

    (ff)  Disclosure.
      The
      Company confirms that neither it nor any of its officers or directors nor any
      other Person acting on its or their behalf has provided, and it has not
      authorized the Placement Agent to provide, any Purchaser or its respective
      agents or counsel with any information that it believes constitutes or could
      reasonably be expected to constitute material, non-public information except
      insofar as the existence, provisions and terms of the Transaction Documents
      and
      the proposed transactions hereunder may constitute such information, all of
      which will be disclosed by the Company in the Form 8-K as contemplated by
      Section 4.9 hereof. The Company understands and confirms that the Purchasers
      will rely on the foregoing representations in effecting transactions in
      securities of the Company. All disclosure provided to the Purchasers regarding
      the Company, its business and the transactions contemplated hereby furnished
      by
      the Company or authorized by the Company and furnished by the Placement Agent
      on
      behalf of the Company prior to the date hereof 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (including
      the Company’s representations and warranties set forth in this Agreement) are
      true and correct in all material respects and do not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in light of the circumstances under
      which they were made, not misleading. No event or circumstance has occurred
      or
      information exists with respect to the Company or any of its Subsidiaries or
      its
      or their business, properties, operations or financial conditions, which, under
      applicable law, rule or regulation, requires public disclosure or announcement
      by the Company but which has not been so publicly announced or disclosed
      (assuming for this purpose that the Company’s reports filed under the Exchange
      Act are being incorporated into an effective registration statement filed by
      the
      Company under the Securities Act), except for the announcement of this Agreement
      and related transactions.

     

    (gg)  Off
      Balance Sheet Arrangements.
      There
      is no transaction, arrangement, or other relationship between the Company (or
      any Subsidiary) and an unconsolidated or other off balance sheet entity that
      is
      required to be disclosed by the Company in its Exchange Act filings and is
      not
      so disclosed or that otherwise would be reasonably be likely to have a Material
      Adverse Effect.

     

    (hh)  Acknowledgment
      Regarding Purchasers’ Purchase of Securities. 
      The Company acknowledges and agrees that each of the Purchasers is acting solely
      in the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated hereby and thereby.  The
      Company further acknowledges that no Purchaser is acting as a financial advisor
      or fiduciary of the Company (or in any similar capacity) with respect to the
      Transaction Documents and the transactions contemplated thereby and any advice
      given by any Purchaser or any of their respective representatives or agents
      in
      connection with the Transaction Documents and the transactions contemplated
      thereby is merely incidental to the Purchasers’ purchase of the
      Securities.  The Company further represents to each Purchaser that the
      Company’s decision to enter into this Agreement and the other Transaction
      Documents has been based solely on the independent evaluation of the
      transactions contemplated hereby by the Company and its
      representatives.

     

    (ii)  Regulation
      M Compliance. 
      The Company has not, and to the Company’s Knowledge no one acting on its behalf
      has, (i) taken, directly or indirectly, any action designed to cause or to
      result in the stabilization or manipulation of the price of any security of
      the
      Company to facilitate the sale or resale of any of the Securities, (ii) sold,
      bid for, purchased, or paid any compensation for soliciting purchases of, any
      of
      the securities of the Company or (iii) paid or agreed to pay to any Person
      any
      compensation for soliciting another to purchase any other securities of the
      Company, other than, in the case of clauses (ii) and (iii), compensation paid
      to
      the Placement Agent in connection with the placement of the
      Securities

     

    (jj)  No
      Additional Agreements.The
      Company does not have any agreement or understanding with any Purchaser with
      respect to the transactions contemplated by the Transaction Documents other
      than
      as specified in the Transaction Documents.

     

    (kk)  Form
      S-3 Eligibility.
      As of
      the date hereof, the Company meets the eligibility requirements contained in
      Section I.A. and in Section I.B.3 of the General Instructions to Form S-3 to
      register the resale of its securities by selling securityholders with the
      Commission on a registration statement on Form S-3 under the Securities Act,
      subject to any limitations or restrictions that may be imposed by the Commission
      on the Company’s use of a registration statement on Form S-3 as a result of its
      interpretation of Rule 415 under the Securities Act.

     

    3.2  Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      as of the date hereof and as of the Closing Date to the Company as
      follows:

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (a)  Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with the requisite
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the applicable Transaction Documents and otherwise
      to carry out its obligations hereunder and thereunder. The execution, delivery
      and performance by such Purchaser of the transactions contemplated by this
      Agreement have been duly authorized by all necessary corporate or, if such
      Purchaser is not a corporation, such partnership, limited liability company
      or
      other applicable like action, on the part of such Purchaser. Each of this
      Agreement and the Registration Rights Agreement has been duly executed by such
      Purchaser, and when delivered by such Purchaser in accordance with the terms
      hereof, will constitute the valid and legally binding obligation of such
      Purchaser, enforceable against it in accordance with its terms, except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally the enforcement of, creditors’ rights and remedies or by
      other equitable principles of general application.

     

    (b)  No
      Conflicts.
      The
      execution, delivery and performance by such Purchaser of this Agreement and
      the
      Registration Rights Agreement and the consummation by such Purchaser of the
      transactions contemplated hereby and thereby will not (i) result in a violation
      of the organizational documents of such Purchaser, (ii) conflict with, or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, indenture or
      instrument to which such Purchaser is a party, or (iii) result in a violation
      of
      any law, rule, regulation, order, judgment or decree (including federal and
      state securities laws) applicable to such Purchaser, except in the case of
      clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations
      which would not, individually or in the aggregate, reasonably be expected to
      have a material adverse effect on the ability of such Purchaser to perform
      its
      obligations hereunder.

     

    (c)  Investment
      Intent.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities and, upon exercise of the Warrants, will
      acquire the Warrant Shares issuable upon exercise thereof as principal for
      its
      own account and not with a view to, or for distributing or reselling such
      Securities or any part thereof in violation of the Securities Act or any
      applicable state securities laws; provided,
      however,
      that by
      making the representations herein, such Purchaser does not agree to hold any
      of
      the Securities for any minimum period of time and reserves the right, subject
      to
      the provisions of this Agreement and the Registration Rights Agreement, at
      all
      times to sell or otherwise dispose of all or any part of such Securities or
      Warrant Shares pursuant to an effective registration statement under the
      Securities Act or under an exemption from such registration and in compliance
      with applicable federal and state securities laws. Such Purchaser is acquiring
      the Securities hereunder in the ordinary course of its business. Such Purchaser
      does not presently have any agreement, plan or understanding, directly or
      indirectly, with any Person to distribute or effect any distribution of any
      of
      the Securities (or any securities which are derivatives thereof) to or through
      any person or entity; such Purchaser is not a registered broker-dealer under
      Section 15 of the Exchange Act or an entity engaged in a business that would
      require it to be so registered as a broker-dealer.

     

    (d)  Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it exercises the Warrants it will be, an
“accredited investor” as defined in Rule 501(a) under the Securities Act.

     

    (e)  Residency.
      Such
      Purchaser has, if an entity, its principal place of business or, if an
      individual, its primary residence in the jurisdiction set forth immediately
      below such Purchaser’s name on the signature pages hereto

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (f)  General
      Solicitation.Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general advertisement.

     

    (g)  Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    (h)  Access
      to Information.
      Such
      Purchaser acknowledges that it has had the opportunity to review the Disclosure
      Materials and has been afforded (i) the opportunity to ask such questions as
      it
      has deemed necessary of, and to receive answers from, representatives of the
      Company concerning the terms and conditions of the offering of the Securities
      and the merits and risks of investing in the Securities; (ii) access to
      information about the Company and the Subsidiaries and their respective
      financial condition, results of operations, business, properties, management
      and
      prospects (other than material non-public information) sufficient to enable
      it
      to evaluate its investment; and (iii) the opportunity to obtain such additional
      information that the Company possesses or can acquire without unreasonable
      effort or expense that is necessary to make an informed investment decision
      with
      respect to the investment. Neither such inquiries nor any other investigation
      conducted by or on behalf of such Purchaser or its representatives or counsel
      shall modify, amend or affect such Purchaser's right to rely on the truth,
      accuracy and completeness of the Disclosure Materials and the Company's
      representations and warranties contained in the Transaction Documents. Such
      Purchaser has sought such accounting, legal and tax advice as it has considered
      necessary to make an informed decision with respect to its acquisition of the
      Securities.

     

    (i)  Certain
      Trading Activities.
      Other
      than with respect to the transactions contemplated herein, since the earlier
      to
      occur of (1) the time that such Purchaser was first contacted by the Company,
      the Placement Agent or any other Person regarding the transactions contemplated
      hereby and (2) the tenth (10th)
      day
      prior to the date of this Agreement, neither the Purchaser nor any Affiliate
      of
      such Purchaser which (x) had knowledge of the transactions contemplated hereby,
      (y) has or shares discretion relating to such Purchaser’s investments or trading
      or information concerning such Purchaser’s investments, including in respect of
      the Securities, and (z) is subject to such Purchaser’s review or input
      concerning such Affiliate’s investments or trading (collectively, “Trading
      Affiliates”)
      has
      directly or indirectly, nor has any Person acting on behalf of or pursuant
      to
      any understanding with such Purchaser or Trading Affiliate, effected or agreed
      to effect any transactions in the securities of the Company (including, without
      limitation, any Short Sales involving the Company’s securities). Notwithstanding
      the foregoing, in the case of a Purchaser and/or Trading Affiliate that is,
      individually or collectively, a multi-managed investment vehicle whereby
      separate portfolio managers manage separate portions of such Purchaser's or
      Trading Affiliate’s assets and the portfolio managers have no direct knowledge
      of the investment decisions made by the portfolio managers managing other
      portions of such Purchaser's or Trading Affiliate’s assets, the representation
      set forth above shall apply only with respect to the portion of assets managed
      by the portfolio manager that have knowledge about the financing transaction
      contemplated by this Agreement. Other than to other Persons party to this
      Agreement, such Purchaser has maintained the confidentiality of all disclosures
      made to it in connection with this transaction (including the existence and
      terms of this transaction). Notwithstanding the foregoing, no Purchaser makes
      any representation, warranty or covenant hereby that it will not engage in
      Short
      Sales in the securities of the Company after the earlier to occur of (i) sixty
      (60) days following the Closing Date and (ii) the Effective Date.

     

    
      
        
        

      

      
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    (j)  Brokers
      and Finders.
      No
      Person (other than the Placement Agent) will have, as a result of the
      transactions contemplated by this Agreement, any valid right, interest or claim
      against or upon the Company or any Purchaser for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of the Purchaser.

     

    (k)  Independent
      Investment Decision.
      Such
      Purchaser has independently evaluated the merits of its decision to purchase
      Securities pursuant to the Transaction Documents, and such Purchaser confirms
      that it has not relied on the advice of any other Purchaser’s business and/or
      legal counsel in making such decision. Such Purchaser understands that nothing
      in this Agreement or any other materials presented by or on behalf of the
      Company to the Purchaser in connection with the purchase of the Securities
      constitutes legal, tax or investment advice. Such Purchaser has consulted such
      legal, tax and investment advisors as it, in its sole discretion, has deemed
      necessary or appropriate in connection with its purchase of the Securities.
      Such
      Purchaser understands that the Placement Agent has acted solely as the agent
      of
      the Company in this placement of the Securities and such Purchaser has not
      relied on the business or legal advice of the Placement Agent or any of its
      agents, counsel or Affiliates in making its investment decision hereunder,
      and
      confirms that none of such Persons has made any representations or warranties
      to
      such Purchaser in connection with the transactions contemplated by the
      Transaction Documents.

     

    (l)  Reliance
      on Exemptions.
      Such
      Purchaser understands that the Securities being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and such Purchaser’s compliance with, the
      representations, warranties, agreements, acknowledgements and understandings
      of
      such Purchaser set forth herein in order to determine the availability of such
      exemptions and the eligibility of such Purchaser to acquire the
      Securities.

     

    (m)  No
      Governmental Review.Such
      Purchaser understands that no United States federal or state agency or any
      other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    (n)  Regulation
      M.Such
      Purchaser is aware that the anti-manipulation rules of Regulation M under the
      Exchange Act may apply to sales of Common Stock and other activities with
      respect to the Common Stock by the Purchasers.

     

    (o)  Beneficial
      Ownership.
      Such
      Purchaser shall not, by reason of its purchase of the Shares, become a
      beneficial owner (as defined under the Section 13(d) of the Exchange Act) of
      20%
      or more of the Common Stock.

     

    The
      Company and each of the Purchasers acknowledge and agree that no party to this
      Agreement has made or makes any representations or warranties with respect
      to
      the transactions contemplated hereby other than those specifically set forth
      in
      this Article III and the other Transaction Documents.

     

    ARTICLE
      IV  

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

    (a)  Compliance
      with Laws.
      Notwithstanding any other provision of this Article IV, each Purchaser covenants
      that the Securities may be disposed of only pursuant to an effective
      registration statement under, and in compliance with the requirements of, the
      Securities Act, or pursuant to an available exemption from, or in a transaction
      not subject to, the registration requirements of the Securities Act, and in
      compliance with any applicable state and federal securities laws. In connection
      with any transfer of the Securities other than (i) pursuant to an effective
      registration statement, (ii) to the Company, (iii) pursuant to Rule 144(k)
      following the applicable holding period or (iv) in connection with a bona fide
      pledge as contemplated in Section 4.1(b), the Company may require the transferor
      thereof to provide to the Company an opinion of counsel selected by the
      transferor and reasonably acceptable to the Company, the form and substance
      of
      which opinion shall be reasonably satisfactory to the Company, to the effect
      that such transfer does not require registration of such transferred Securities
      under the Securities Act. As a condition of transfer, any such transferee shall
      agree in writing to be bound by the terms of this Agreement and shall have
      the
      rights of a Purchaser under this Agreement and the Registration Rights
      Agreement. 

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (b) Legends.
      Certificates evidencing the Securities shall bear any legend as required by
      the
“blue sky” laws of any state and a restrictive legend in substantially the
      following form, until such time as they are not required under Section
      4.1(c):

     

    [NEITHER
      THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
      HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
      SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
      OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
      THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM,
      OR
      IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
      ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS
      AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
      OR
      (II)
      UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
      

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge,
      and/or grant a security interest in, some or all of the legended Securities
      in
      connection with applicable securities laws, pursuant to a bona fide margin
      agreement in compliance with a bona fide margin loan. Such a pledge would not
      be
      subject to approval or consent of the Company and no legal opinion of legal
      counsel to the pledgee, secured party or pledgor shall be required in connection
      with the pledge, but such legal opinion shall be required in connection with
      a
      subsequent transfer or foreclosure following default by the Purchaser transferee
      of the pledge. No notice shall be required of such pledge, but Purchaser’s
      transferee shall promptly notify the Company of any such subsequent transfer
      or
      foreclosure. Each Purchaser acknowledges that the Company shall not be
      responsible for any pledges relating to, or the grant of any security interest
      in, any of the Securities or for any agreement, understanding or arrangement
      between any Purchaser and its pledgee or secured party. At the appropriate
      Purchaser’s expense, the Company will execute and deliver such reasonable
      documentation as a pledgee or secured party of Shares may reasonably request
      in
      connection with a pledge or transfer of the Shares, including the preparation
      and filing of any required prospectus supplement under Rule 424(b)(3) of the
      Securities Act or other applicable provision of the Securities Act to
      appropriately amend the list of Selling Stockholders thereunder. Each Purchaser
      acknowledges and agrees that, except as otherwise provided in Section 4.1(c),
      any Shares subject to a pledge or security interest as contemplated by this
      Section 4.1(b) shall continue to bear the legend set forth in this Section
      4.1(b) and be subject to the restrictions on transfer set forth in Section
      4.1(a).

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (c) Removal
      of Legends.
      The
      legend set forth in Section 4.1(b) above shall be removed and the Company shall
      issue a certificate without such legend or any other “restrictive” legend to the
      holder of the applicable Securities upon which it is stamped or issue to such
      holder by electronic delivery at the applicable balance account at the
      Depository Trust Company (“DTC”),
      if
      (i) such Securities are registered for resale under the Securities Act pursuant
      to an effective registration statement, (ii) such Securities are sold or
      transferred pursuant to Rule 144 (assuming the transferor is not an Affiliate
      of
      the Company), or (iii) such Securities are eligible for sale under Rule 144(k).
      The Company shall cause Company Counsel to issue the legal opinion referred
      to
      in the Irrevocable Transfer Agent Instructions to the Company’s transfer agent
      on the Effective Date. Any fees (with respect to the Transfer Agent, Company
      Counsel or otherwise) associated with the issuance of such opinion or the
      removal of such legend shall be borne by the Company. If any portion of the
      Warrant is exercised at a time when there is an effective registration statement
      to cover the resale of the Warrant Shares, or if such Warrant Shares may be
      sold
      under Rule 144(k), then such Warrant Shares shall be issued free of all legends.
      Following the Effective Date, or at such earlier time as a legend is no longer
      required for certain Securities, the Company will no later than three (3)
      Trading Days following the delivery by a Purchaser to the Company or the
      Transfer Agent (with notice to the Company) of (i) a legended certificate
      representing such Shares or Warrant Shares (endorsed or with stock powers
      attached, signatures guaranteed, and otherwise in form necessary to affect the
      reissuance and/or transfer or (ii) an Exercise Notice in the manner stated
      in
      the Warrants to effect the exercise of such Warrant in accordance with its
      terms
      and an opinion of counsel to the extent required by Section 4.1(a), (such third
      Trading Day, the “Legend
      Removal Date”),
      to
      deliver or cause to be delivered to such Purchaser a certificate representing
      such Securities that is free from all restrictive and other legends. The Company
      may not make any notation on its records or give instructions to the Transfer
      Agent that enlarge the restrictions on transfer set forth in this Section.
      Certificates for Shares or Warrant Shares subject to legend removal hereunder
      shall be transmitted by the Transfer Agent to the Purchasers by crediting the
      account of the Purchaser’s prime broker with DTC.

    

    (d) Irrevocable
      Transfer Agent Instructions. 
      The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, to issue certificates or credit shares to the
      applicable balance accounts at DTC, registered in the name of each Purchaser
      or
      its respective nominee(s), for the Shares and the Warrant Shares in such amounts
      as specified from time to time by each Purchaser to the Company in the form
      of
Exhibit
      E
      attached
      hereto (the “Irrevocable
      Transfer Agent Instructions”).
      The
      Company represents and warrants that no instruction other than the Irrevocable
      Transfer Agent Instructions referred to in this Section 4.1(d) will be given
      by
      the Company to its transfer agent in connection with this Agreement, and that
      the Securities shall otherwise be freely transferable on the books and records
      of the Company as and to the extent provided in this Agreement and the other
      Transaction Documents. The Company acknowledges that a breach by it of its
      obligations under this Section 4.1(d) will cause irreparable harm to a
      Purchaser. Accordingly, the Company acknowledges that the remedy at law for
      a
      breach of its obligations under this Section 4.1(d) will be inadequate and
      agrees, in the event of a breach or threatened breach by the Company of the
      provisions of this Section 4.1(d), that a Purchaser shall be entitled, in
      addition to all other available remedies, to an order and/or injunction
      restraining any breach and requiring immediate issuance and transfer, without
      the necessity of showing economic loss and without any bond or other security
      being required.

    

    (e) Acknowledgement.
      Each
      Purchaser hereunder acknowledges (i) that the Company’s agreement hereunder to
      remove any legends from the Shares or the Warrant Shares is not an affirmative
      statement or representation that such Shares or the Warrant Shares are freely
      tradable and (ii) its primary responsibilities under the Securities Act and
      accordingly will not sell the Shares, the Warrant Shares or any interest therein
      without complying with the requirements of the Securities Act. While the
      above-referenced registration statement remains effective, each Purchaser
      hereunder may sell the shares in accordance with the plan of distribution
      contained in the registration statement and if it does so it will comply
      therewith and with the related prospectus delivery requirements unless an
      exemption therefrom is available. Each Purchaser, severally and not jointly
      with
      the other Purchasers, agrees that if it is notified by the Company in writing
      at
      any time after the date any legend is removed pursuant to Section
      4.1(c)
      hereof
      that the registration statement registering the resale of the Shares or the
      Warrant Shares is not effective or that the prospectus included in such
      registration statement no longer complies with the requirements of Section
      10 of
      the Securities Act, the Purchaser will refrain from selling such Shares and
      Warrant Shares until such time as the Purchaser is notified by the Company
      that
      such registration statement is effective or such prospectus is compliant with
      Section 10 of the Exchange Act, unless such Purchaser is able to, and does,
      sell
      such Shares or Warrant Shares pursuant to an available exemption from the
      registration requirements of Section 5 of the Securities Act. Both the Company
      and its Transfer Agent, and their respective directors, officers, employees
      and
      agents, may rely on this subsection (e) and each Purchaser hereunder will
      indemnify and hold harmless each of such persons from any breaches or violations
      of this paragraph.

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (f) Buy-In.
      If the
      Company shall fail for any reason or for no reason to issue to a Purchaser
      unlegended certificates within three (3) Trading Days of receipt of documents
      necessary for the removal of the legend set forth above (the “Deadline
      Date”),
      then,
      in addition to all other remedies available to such Purchaser, if on or after
      the Trading Day immediately following such three (3) Trading Day period, such
      Purchaser purchases (in an open market transaction or otherwise) shares of
      Common Stock to deliver in satisfaction of a sale by the holder of shares of
      Common Stock that such Purchaser anticipated receiving from the Company without
      any restrictive legend (a “Buy-In”),
      then
      the Company shall, within three (3) Trading Days after such Purchaser’s request
      and in such Purchaser’s sole discretion, either (i) pay cash to the Purchaser in
      an amount equal to such Purchaser’s total purchase price (including brokerage
      commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such shares of Common Stock) shall terminate, or (ii) promptly honor its
      obligation to deliver to such Purchaser a certificate or certificates
      representing such shares of Common Stock and pay cash to the Purchaser in an
      amount equal to the excess (if any) of the Buy-In Price over the product of
      (a)
      such number of shares of Common Stock, times (b) the Closing Sales Price on
      the
      Deadline Date.

    

    4.2  Acknowledgment
      of Dilution. 
      The Company acknowledges that the issuance of the Securities may result in
      dilution of the outstanding shares of Common Stock, which dilution may be
      substantial under certain market conditions.  The Company further
      acknowledges that its obligations under the Transaction Documents, including
      without limitation its obligation to issue the Shares and the Warrant Shares
      pursuant to the Transaction Documents, are unconditional and absolute and not
      subject to any right of set off, counterclaim, delay or reduction, regardless
      of
      the effect of any such dilution or any claim the Company may have against any
      Purchaser and regardless of the dilutive effect that such issuance may have
      on
      the ownership of the other shareholders of the Company. 

     

    4.3  Reservation
      of Common Stock.
      The
      Company shall take all action necessary to at all times have authorized, and
      reserved for the purpose of issuance from and after the Closing Date, no less
      than 100% of the maximum number of shares of Common Stock issuable upon exercise
      of the Warrants issued at the Closing (without taking into account any
      limitations on exercise of the Warrants set forth in the Warrants).

     

    4.4  Furnishing
      of Information.
      In
      order to enable the Purchasers to sell the Securities under Rule 144 of the
      Securities Act, for a period of two years from the Closing (or such shorter
      period that the Purchaser can sell under Rule 144 without regard to volume
      limitations), the Company shall use its commercially reasonable efforts to
      timely file (or obtain extensions in respect thereof and file within the
      applicable grace period) all reports required to be filed by the Company after
      the date hereof pursuant to the Exchange Act. During such period, if the Company
      is not required to file reports pursuant to such laws, it will prepare and
      furnish to the Purchasers and make publicly available in accordance with Rule
      144(c) such information as is required for the Purchasers to sell the Shares
      and
      Warrant Shares under Rule 144. The Company further covenants that it will take
      such further action as any holder of Securities may reasonably request, all
      to
      the extent required from time to time to enable such Person to sell the Shares
      and Warrant Shares without registration under the Securities Act within the
      limitation of the exemptions provided by Rule 144. 

     

    
      
        
        

      

      
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    4.5  Reporting
      Status.
      Other
      than in connection with a Fundamental Transaction (as such term is defined
      in
      the Warrant), during the two year period from and after the Effective Date,
      the
      Company shall not terminate its status as an issuer required to file reports
      under the Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would otherwise permit such termination. 

     

    4.6  Form
      D
      and Blue Sky.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D. The Company shall take such action and make all
      filings and reports relating to the offer and sale of the Securities as the
      Company shall reasonably determine is necessary in order to obtain an exemption
      for or to qualify the Securities for sale to the Purchasers at the Closing
      pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
      states of the United States (or to obtain an exemption from such
      qualification).

     

    4.7  No
      Integration.
      The
      Company shall not, and shall use its best efforts to ensure that no Affiliate
      of
      the Company shall, sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that will be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers, or that will be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market such that it would require shareholder approval prior to the
      closing of such other transaction unless shareholder approval is obtained before
      the closing of such subsequent transaction.

     

    4.8  Subsequent
      Registrations.
      Other
      than pursuant to the Registration Statement, prior to the date that is 60 days
      after the Effective Date, the Company shall not file any registration statement
      (other than on Form S-8 or, in connection with an acquisition, on Form S-4)
      with
      the Commission with respect to any securities of the Company.

     

    4.9  Securities
      Laws Disclosure; Publicity.
      By 9:00
      a.m., New York City time, on the Trading Day immediately following the execution
      of this Agreement, the Company shall issue a press release (the “Press
      Release”)
      reasonably acceptable to the Placement Agent. On or before 9:00 a.m., New York
      City time, on the second Trading Day following the execution of this Agreement
      (or such earlier time as required by law), the Company will file a Current
      Report on Form 8-K with the Commission describing the terms of the Transaction
      Documents (and including as exhibits to such Current Report on Form 8-K the
      material Transaction Documents (including, without limitation, this Agreement,
      the form of Warrant and the Registration Rights Agreement)). Notwithstanding
      the
      foregoing, the Company shall not publicly disclose the name of any Purchaser
      or
      an Affiliate of any Purchaser, or include the name of any Purchaser or an
      Affiliate of any Purchaser in any press release or filing with the Commission
      (other than the Registration Statement or the Form 8-K) or any regulatory agency
      or Trading Market, without the prior written consent of such Purchaser, except
      (i) as required by federal securities law in connection with (A) any
      registration statement contemplated by the Registration Rights Agreement and
      (B)
      the filing of final Transaction Documents (including signature pages thereto)
      with the Commission and (ii) to the extent such disclosure is required by law,
      request of the Staff of the Commission or Trading Market regulations, in which
      case the Company shall provide the Purchasers with prior written notice of
      such
      disclosure permitted under this subclause (ii). Each Purchaser, severally and
      not jointly with the other Purchasers, covenants that until such time as the
      transactions contemplated by this Agreement are publicly disclosed by the
      Company as described in this Section 4.9, such Purchaser will maintain the
      confidentiality of all disclosures made to it in connection with this
      transaction (including the existence and terms of this transaction).

     

    4.10  Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company shall not, and shall
      cause each Subsidiary and each of their respective officers, directors,
      employees and agents, not to, provide any Purchaser with any material,
      non-public information regarding the Company or any of its Subsidiaries from
      and
      after the filing of the Press Release without the express written consent of
      such Purchaser, unless prior thereto such Purchaser shall have executed a
      written agreement regarding the confidentiality and use of such information.
      

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    4.11  Indemnification.

     

    (a)  Indemnification
      of Purchasers.
      In
      addition to the indemnity provided in the Registration Rights Agreement, the
      Company will indemnify and hold each Purchaser and its directors, officers,
      shareholders, members, partners, employees and agents (and any other Persons
      with a functionally equivalent role of a Person holding such titles
      notwithstanding a lack of such title or any other title), each Person who
      controls such Purchaser (within the meaning of Section 15 of the Securities
      Act
      and Section 20 of the Exchange Act), and the directors, officers, shareholders,
      agents, members, partners or employees (and any other Persons with a
      functionally equivalent role of a Person holding such titles notwithstanding
      a
      lack of such title or any other title) of such controlling person (each, a
      “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation (collectively, “Losses”)
      that
      any such Purchaser Party may suffer or incur as a result of or relating to
      third
      party claims against such Purchaser relating to any breach of any of the
      representations, warranties, covenants or agreements made by the Company in
      this
      Agreement or in the other Transaction Documents.  The Company will not be
      liable to any Purchaser Party under this Agreement to the extent, but only
      to
      the extent that the Loss is attributable to any Purchaser Party’s breach of any
      of the representations, warranties, covenants or agreements made by such
      Purchaser Party in this Agreement or in the other Transaction
      Documents.

     

    (b)  Conduct
      of Indemnification Proceedings.
      Promptly
      after receipt by any Person (the “Indemnified
      Person”)
      of
      notice of any demand, claim or circumstances which would or might give rise
      to a
      claim or the commencement of any action, proceeding or investigation in respect
      of which indemnity may be sought pursuant to Section
      4.11(a),
      such
      Indemnified Person shall promptly notify the Company in writing and the Company
      shall assume the defense thereof, including the employment of counsel reasonably
      satisfactory to such Indemnified Person, and shall assume the payment of all
      fees and expenses; provided,
      however, that
      the
      failure of any Indemnified Person so to notify the Company shall not relieve
      the
      Company of its obligations hereunder except to the extent that the Company
      is
      actually and materially prejudiced by such failure to notify. In any such
      proceeding, any Indemnified Person shall have the right to retain its own
      counsel, but the fees and expenses of such counsel shall be at the expense
      of
      such Indemnified Person unless: (i) the Company and the Indemnified Person
      shall
      have mutually agreed to the retention of such counsel; (ii) the Company shall
      have failed promptly to assume the defense of such proceeding and to employ
      counsel reasonably satisfactory to such Indemnified Person in such proceeding;
      or (iii) in the reasonable judgment of counsel to such Indemnified Person,
      representation of both parties by the same counsel would be inappropriate due
      to
      actual or potential differing interests between them. The Company shall not
      be
      liable for any settlement of any proceeding effected without its written
      consent, which consent shall not be unreasonably withheld, delayed or
      conditioned. Without the prior written consent of the Indemnified Person, which
      consent shall not be unreasonably withheld, delayed or conditioned, the Company
      shall not effect any settlement of any pending or threatened proceeding in
      respect of which any Indemnified Person is or could have been a party and
      indemnity could have been sought hereunder by such Indemnified Party, unless
      such settlement includes an unconditional release of such Indemnified Person
      from all liability arising out of such proceeding.

     

    4.12  Listing
      of Securities.
      Prior
      to the execution of this Agreement or promptly following the date hereof, the
      Company shall have taken or shall take all necessary action to cause the Shares
      and the Warrant Shares to be listed upon the Principal Trading Market, if any,
      upon which shares of Common Stock are then listed (subject to official notice
      of
      issuance) and shall maintain, so long as any other shares of Common Stock shall
      be so listed, such listing. Further, if the Company applies to have its Common
      Stock or other securities listed on any other Trading Market, it shall include
      in such application the Shares and the Warrant Shares and will take such other
      action as is necessary to cause the Shares, and the Warrant Shares to be listed
      on such other Trading Market as promptly as practicable. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    4.13  Use
      of
      Proceeds.
      The
      Company intends to use the net proceeds from the sale of the Securities
      hereunder for working capital and general corporate purposes and not to redeem
      any Common Stock or Common Stock Equivalents or to settle any outstanding
      Action.

     

    4.14  Short
      Sales After The Date Hereof.
      Such
      Purchaser shall not, and shall cause its Trading Affiliates not to, engage,
      directly or indirectly, in any Short Sales involving the Company’s securities
      during the period from the date hereof until the earlier to occur of (i) sixty
      (60) days following the Closing Date and (ii) the Effective Date.
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the representation set
      forth
      above shall apply only with respect to the portion of assets managed by the
      portfolio manager that have knowledge about the financing transaction
      contemplated by this Agreement. Each Purchaser understands and acknowledges,
      severally and not jointly with any other Purchaser, that the Commission
      currently takes the position that covering a short position established prior
      to
      effectiveness of a resale registration statement with shares included in such
      registration statement would be a violation of Section 5 of the Securities
      Act,
      as set forth in Item 65, Section 5 under Section A, of the Manual of Publicly
      Available Telephone Interpretations, dated July 1997, compiled by the Office
      of
      Chief Counsel, Division of Corporation Finance.

     

    ARTICLE
      V  

    CONDITIONS
      PRECEDENT TO CLOSING

    

    5.1  Conditions
      Precedent to the Obligations of the Purchasers to Purchase
      Securities.
      The
      obligation of each Purchaser to acquire Securities at the Closing is subject
      to
      the fulfillment to such Purchaser’s satisfaction, on or prior to the Closing
      Date, of each of the following conditions, any of which may be waived by such
      Purchaser (as to itself only):

     

    (a)  Representations
      and Warranties.
      The
      representations and warranties of the Company contained herein shall be true
      and
      correct in all material respects (except for those representations and
      warranties which are qualified as to materiality, in which case such
      representations and warranties shall be true and correct in all respects) as
      of
      the date when made and as of the Closing Date, as though made on and as of
      such
      date, except for such representations and warranties that speak as of a specific
      date. 

     

    (b)  Performance.
      The
      Company shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by it at or prior to
      the
      Closing.

     

    (c)  No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents.

     

    (d)  Consents.The
      Company shall have obtained in a timely fashion any and all consents, permits,
      approvals, registrations and waivers necessary or appropriate for consummation
      of the purchase and sale of the Securities at the Closing (including all
      Required Approvals), all of which shall be and remain so long as necessary
      in
      full force and effect.

     

    (e)  Adverse
      Changes.
      Since
      the date of execution of this Agreement, no event or series of events shall
      have
      occurred that has had or would reasonably be expected to have a Material Adverse
      Effect.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    (f)  No
      Suspensions of Trading in Common Stock; Listing.
      Trading
      in the Common Stock shall not have been suspended by the Commission or the
      Principal Trading Market (except for any suspensions of trading of not more
      than
      one Trading Day solely to permit dissemination of material information regarding
      the Company) at any time since the date of execution of this
      Agreement.

     

    (g)  Company
      Deliverables.
      The
      Company shall have delivered the Company Deliverables in accordance with Section
      2.2(a). 

     

    (h)  Compliance
      Certificate.
      The
      Company shall have delivered to each Purchaser a certificate, dated as of the
      Closing Date and signed by its Chief Executive Officer or its Chief Financial
      Officer, dated as of the Closing Date, certifying to the fulfillment of the
      conditions specified in Sections 5.1(a) and (b) in the form attached hereto
      as
Exhibit
      G.

     

    (i)  Termination.This
      Agreement shall not have been terminated as to such Purchaser in accordance
      with
      Section 6.17 herein.

     

    5.2  Conditions
      Precedent to the Obligations of the Company to sell Securities.
      The
      Company's obligation to sell and issue the Securities at the Closing is subject
      to the fulfillment to the satisfaction of the Company on or prior to the Closing
      Date of the following conditions, any of which may be waived by the
      Company:

     

    (a)  Representations
      and Warranties.
      The
      representations and warranties made by the Purchasers in Section 3.2 hereof
      shall be true and correct in all material respects as of the date when made,
      and
      as of the Closing Date as though made on and as of such date, except for
      representations and warranties that speak as of a specific date.

     

    (b)  Performance.
      The
      Purchasers shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by the Purchasers at
      or
      prior to the Closing Date.

     

    (c)  No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents.

     

    (d)  Consents.
      The
      Company shall have obtained in a timely fashion any and all consents, permits,
      approvals, registrations and waivers necessary or appropriate for consummation
      of the purchase and sale of the Securities, all of which shall be and remain
      so
      long as necessary in full force and effect. 

     

    (e)  Purchasers
      Deliverables.
      Each
      Purchaser shall have delivered its Purchaser Deliverables in accordance with
      Section 2.2(b).

     

    (f)  Termination.This
      Agreement shall not have been terminated as to such Purchaser in accordance
      with
      Section 6.17 herein.

     

    ARTICLE
      VI  

    MISCELLANEOUS

     

    6.1  Fees
      and Expenses.
      At
      Closing, the Company shall reimburse the Placement Agent for the reasonable
      fees
      and expenses in connection with the transactions contemplated by this Agreement
      pursuant to its obligations under its engagement letter with the Placement
      Agent
      (the “Engagement
      Letter”),
      which
      the Company agrees shall include the reasonable fees and expenses of counsel
      to
      the Placement Agent (which fees shall include, without limitation, the fees
      and
      expenses associated with the negotiation, preparation and execution and delivery
      of this Agreement and the other Transaction Documents and any amendments,
      modifications or waivers thereto), subject to the consent of the Company for
      fees and expenses in excess of $35,000. The Company and the Purchasers shall
      each pay the fees and expenses of their respective advisers, counsel,
      accountants and other experts, if any, and all other expenses incurred by such
      party in connection with the negotiation, preparation, execution, delivery
      and
      performance of this Agreement. The Company shall pay all Transfer Agent fees,
      stamp taxes and other taxes and duties levied in connection with the sale and
      issuance of the Securities to the Purchasers. Each party acknowledges that
      Lowenstein Sandler PC has rendered legal advice to the Placement Agent and
      not
      to such party in connection with the transactions contemplated hereby, and
      that
      such party has relied for such matters on the advice of its own respective
      counsel.

     

    
      
        
        

      

      
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    6.2  Entire
      Agreement.
      The
      Transaction Documents, together with the Exhibits and Schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements, understandings, discussions and
      representations, oral or written, with respect to such matters, which the
      parties acknowledge have been merged into such documents, exhibits and
      schedules. At or after the Closing, and without further consideration, the
      Company and the Purchasers will execute and deliver to the other such further
      documents as may be reasonably requested in order to give practical effect
      to
      the intention of the parties under the Transaction Documents.

     

    6.3  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile (provided the sender receives a machine-generated
      confirmation of successful transmission) at the facsimile number specified
      in
      this Section prior to 5:00 p.m., New York City time, on a Trading Day, (b)
      the
      next Trading Day after the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified in this Section
      on
      a day that is not a Trading Day or later than 5:00 p.m., New York City time,
      on
      any Trading Day, (c) the Trading Day following the date of mailing, if sent
      by
      U.S. nationally recognized overnight courier service with next day delivery
      specified, or (d) upon actual receipt by the party to whom such notice is
      required to be given. The address for such notices and communications shall
      be
      as follows:

     

    If
      to the
      Company: GSE
      Systems, Inc.

    7133
      Rutherford Rd, Suite 200

    Baltimore,
      Maryland 21244

    Telephone
      No.: (410) 277-3740

    Facsimile
      No.: (410) 277-5287

    Attention:
      Chief Financial Officer

    

    With
      a
      copy to:  Duane
      Morris LLP

    1540
      Broadway 

    New
      York,
      NY 10036-4086

    Telephone
      No.: (212) 692-1000

    Facsimile
      No.: (212) 692-1020

    Attention:
      Robert J. Hasday, Esq.

    

    
      	 	
              If
                to a Purchaser: 

            	
              
              

            

    

    

    or
      such
      other address as may be designated in writing hereafter, in the same manner,
      by
      such Person.

    

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    6.4  Amendments;
      Waivers; No Additional Consideration.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed, in the case of an amendment, by the Company and each of
      the
      Purchasers holding or having the right to acquire a majority of the Shares
      and
      the Warrant Shares on a fully-diluted basis at the time of such amendment or,
      in
      the case of a waiver, by the party against whom enforcement of any such waiver
      is sought. No waiver of any default with respect to any provision, condition
      or
      requirement of this Agreement shall be deemed to be a continuing waiver in
      the
      future or a waiver of any subsequent default or a waiver of any other provision,
      condition or requirement hereof, nor shall any delay or omission of either
      party
      to exercise any right hereunder in any manner impair the exercise of any such
      right. No consideration shall be offered or paid to any Purchaser to amend
      or
      consent to a waiver or modification of any provision of any Transaction Document
      unless the same consideration is also offered to all Purchasers who then hold
      Securities.

     

    6.5  Construction.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party. This Agreement shall be
      construed as if drafted jointly by the parties, and no presumption or burden
      of
      proof shall arise favoring or disfavoring any party by virtue of the authorship
      of any provisions of this Agreement or any of the Transaction
      Documents.

     

    6.6  Successors
      and Assigns.
      The
      provisions of this Agreement shall inure to the benefit of and be binding upon
      the parties and their successors and permitted assigns. This Agreement, or
      any
      rights or obligations hereunder, may not be assigned by the Company without
      the
      prior written consent of the Purchasers. Any Purchaser may assign its rights
      hereunder in whole or in part to any Person to whom such Purchaser assigns
      or
      transfers any Securities in compliance with the Transaction Documents and
      applicable law, provided such transferee shall agree in writing to be bound,
      with respect to the transferred Securities, by the terms and conditions of
      this
      Agreement that apply to the “Purchasers”.

     

    6.7   No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except (i) each Purchaser
      Party is an intended third party beneficiary of Section 4.11, and (ii) the
      Placement Agent is an intended third party beneficiary of Article III hereof,
      and each Purchaser Party or the Placement Agent, as the case may be, may enforce
      the provisions of such Sections directly against the parties with obligations
      thereunder.

     

    6.8  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each party agrees that all Proceedings
      concerning the interpretations, enforcement and defense of the transactions
      contemplated by this Agreement and any other Transaction Documents (whether
      brought against a party hereto or its respective Affiliates, employees or
      agents) shall be commenced exclusively in the New York Courts. Each party hereto
      hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein (including with respect
      to the enforcement of any of the Transaction Documents), and hereby irrevocably
      waives, and agrees not to assert in any Proceeding, any claim that it is not
      personally subject to the jurisdiction of any such New York Court, or that
      such
      Proceeding has been commenced in an improper or inconvenient forum. Each party
      hereto hereby irrevocably waives personal service of process and consents to
      process being served in any such Proceeding by mailing a copy thereof via
      registered or certified mail or overnight delivery (with evidence of delivery)
      to such party at the address in effect for notices to it under this Agreement
      and agrees that such service shall constitute good and sufficient service of
      process and notice thereof. Nothing contained herein shall be deemed to limit
      in
      any way any right to serve process in any manner permitted by law. EACH
      PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
      APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
      ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
      HEREBY. 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    6.9  Survival.
      Subject
      to applicable statute of limitations, the representations, warranties,
      agreements and covenants contained herein shall survive the Closing and the
      delivery of the Securities.

     

    6.10  Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission, or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile signature page were an original thereof.

     

    6.11  Severability.
      If any
      provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    6.12  Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof, or in lieu of and substitution
      therefor, a new certificate or instrument, but only upon receipt of evidence
      reasonably satisfactory to the Company and the Transfer Agent of such loss,
      theft or destruction and the execution by the holder thereof of a customary
      lost
      certificate affidavit of that fact and an agreement to indemnify and hold
      harmless the Company and the Transfer Agent for any losses in connection
      therewith or, if required by the Company or the Transfer Agent, a bond in such
      form and amount as is reasonably required by the Company or the Transfer Agent.
      The applicants for a new certificate or instrument under such circumstances
      shall also pay any reasonable third-party costs associated with the issuance
      of
      such replacement Securities. If a replacement certificate or instrument
      evidencing any Securities is requested due to a mutilation thereof, the Company
      may require delivery of such mutilated certificate or instrument as a condition
      precedent to any issuance of a replacement.

     

    6.13  Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations described in the foregoing
      sentence and hereby agree to waive in any action for specific performance of
      any
      such obligation (other than in connection with any action for a temporary
      restraining order) the defense that a remedy at law would be
      adequate.

     

    6.14  Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred. 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    6.15  Adjustments
      in Share Numbers and Prices.
      In the
      event of any stock split, subdivision, dividend or distribution payable in
      shares of Common Stock (or other securities or rights convertible into, or
      entitling the holder thereof to receive directly or indirectly shares of Common
      Stock), combination or other similar recapitalization or event occurring after
      the date hereof, each reference in any Transaction Document to a number of
      shares or a price per share shall be deemed to be amended to appropriately
      account for such event. 

     

    6.16  Independent
      Nature of Purchasers' Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance of the obligations of any other
      Purchaser under any Transaction Document. The decision of each Purchaser to
      purchase Securities pursuant to the Transaction Documents has been made by
      such
      Purchaser independently of any other Purchaser and independently of any
      information, materials, statements or opinions as to the business, affairs,
      operations, assets, properties, liabilities, results of operations, condition
      (financial or otherwise) or prospects of the Company or any Subsidiary which
      may
      have been made or given by any other Purchaser or by any agent or employee
      of
      any other Purchaser, and no Purchaser and any of its agents or employees shall
      have any liability to any other Purchaser (or any other Person) relating to
      or
      arising from any such information, materials, statement or opinions. Nothing
      contained herein or in any Transaction Document, and no action taken by any
      Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
      a
      partnership, an association, a joint venture or any other kind of entity, or
      create a presumption that the Purchasers are in any way acting in concert or
      as
      a group with respect to such obligations or the transactions contemplated by
      the
      Transaction Documents. Each Purchaser acknowledges that no other Purchaser
      has
      acted as agent for such Purchaser in connection with making its investment
      hereunder and that no Purchaser will be acting as agent of such Purchaser in
      connection with monitoring its investment in the Securities or enforcing its
      rights under the Transaction Documents. Each Purchaser shall be entitled to
      independently protect and enforce its rights, including without limitation
      the
      rights arising out of this Agreement or out of the other Transaction Documents,
      and it shall not be necessary for any other Purchaser to be joined as an
      additional party in any proceeding for such purpose. The Company acknowledges
      that each of the Purchasers has been provided with the same Transaction
      Documents for the purpose of closing a transaction with multiple Purchasers
      and
      not because it was required or requested to do so by any Purchaser. The
      Company’s obligations to each Purchaser under this Agreement are identical to
      its obligations to each other Purchaser other than such differences resulting
      solely from the number of Securities purchased by such Purchaser, but regardless
      of whether such obligations are memorialized herein or in another agreement
      between the Company and a Purchaser.

     

    6.17  Termination.
      This
      Agreement may be terminated and the sale and purchase of the Shares and the
      Warrants abandoned at any time prior to the Closing by either the Company or
      any
      Purchaser (with respect to itself only) upon written notice to the other, if
      the
      Closing has not been consummated on or prior to 5:00 p.m., New York City time,
      on the Outside Date; provided,
      however,
      that
      the right to terminate this Agreement under this Section 6.17 shall not be
      available to any Person whose failure to comply with its obligations under
      this
      Agreement has been the cause of or resulted in the failure of the Closing to
      occur on or before such time. Nothing in this Section 6.17 shall be deemed
      to
      release any party from any liability for any breach by such party of the terms
      and provisions of this Agreement or the other Transaction Documents or to impair
      the right of any party to compel specific performance by any other party of
      its
      obligations under this Agreement or the other Transaction Documents. In the
      event of a termination pursuant to this Section, the Company shall promptly
      notify all non-terminating Purchasers. Upon a termination in accordance with
      this Section, the Company and the terminating Purchaser(s) shall not have any
      further obligation or liability (including arising from such termination) to
      the
      other, and no Purchaser will have any liability to any other Purchaser under
      the
      Transaction Documents as a result therefrom.

    
 

    
      
        
           

        

        
        

      

      
        30

        
          

        

      

      
        
        

        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
      Agreement to be duly executed by their respective authorized signatories as
      of
      the date first indicated above.

     

    GSE
      SYSTEMS, INC.

     

    By:_/s/
      John V. Moran______________________________ 

                                          
       Name:  John V. Moran

                                           
      Title:  Chief Executive Officer 

     

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    [SIGNATURE
      PAGES FOR PURCHASERS FOLLOW]

     

    

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    

    

    NAME
      OF
      PURCHASER: ____________________________

     

    

    By: 

    Name:

    Title:

    

     

    Aggregate
      Purchase Price (Subscription Amount): $_____________

     

    

     

    Number
      of
      Shares to be Acquired: ______________________

     

    

     

    Underlying
      Shares Subject to Warrant: ________________

     

    (10.0%
      of
      the number of Shares to be acquired) 

     

     

    Tax
      ID
      No.: ____________________

     

    Address
      (Primary Residence, if individual or Principal Place of Business, if
      entity)

     

    __________________________________

     

    __________________________________

     

    __________________________________

     

    

     

    Address
      for Notice (if different than above): 

     

    __________________________________

                           
      __________________________________

                           
      __________________________________

     

    Telephone
      No.: _______________________

     

    Facsimile
      No.: ________________________ 

     

    Attention:
      _______________________

    

    

    Delivery
      Instructions:

    (if
      different than above)

    

    c/o
      _______________________________

    

    Street:
      ____________________________

    

    City/State/Zip:
      ______________________

    

    Attention:
      __________________________

    

    Telephone
      No.: ____________________________

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    EXHIBITS:

     

    A:
       Form
      of
      Warrant 

    B:
       Form
      of
      Registration Rights Agreement

    C-1:
       Accredited
      Investor Questionnaire

    C-2: Stock
      Certificate Questionnaire

    D:
       Form
      of
      Opinion of Company Counsel

    E:
       Irrevocable
      Transfer
      Agent Instructions

    F: Form
      of
      Secretary’s Certificate

    G: Form
      of
      Officer’s Certificate

    

     

    SCHEDULES:

     

    3.1(a)
      Subsidiaries 

    3.1(d)
      Consents

    3.1(g)
      Capitalization

    3.1(k)
      Material Changes 

    3.1(n)
      Employment Matters

    3.1(q)
      Title to Assets

    3.1(t)
      Transactions with Affiliates and Employees

    3.1(y)
      Registration Rights 

    

     

    

    33Exhibit 10.2 Form of Warrant

    NEITHER
      THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
      HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
      BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
      AN
      EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
      OR
      (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY OR (II) UNLESS SOLD
      PURSUANT TO RULE 144 UNDER SAID ACT. 

     

    GSE
      SYSTEMS, INC.

     

    WARRANT
      TO PURCHASE COMMON STOCK

     

    
      	 	 	 
	
              Warrant
                No. ____

            	
                

            	
              Original
                Issue Date: June __, 2007

            

    

     

    GSE
      SYSTEMS, INC.,
      a
      Delaware corporation (the “Company”),
      hereby certifies that, for value received, _________________ or its permitted
      registered assigns (the “Holder”),
      is
      entitled to purchase from the Company up to a total of _____________ shares
      of
      common stock, $0.01 par value per share (the “Common
      Stock”),
      of
      the Company (each such share, a “Warrant
      Share”
and
      all
      such shares, the “Warrant
      Shares”)
      at an
      exercise price per share equal to $6.00 (as adjusted from time to time as
      provided in Section 9 herein, the “Exercise
      Price”),
      at
      any time and from time to time on or after the Original Issue Date and through
      and including 5:00 P.M., New York City time, on the fifth anniversary of the
      Original Issue Date (the “Expiration
      Date”),
      subject to the following terms and conditions: 

    

    This
      Warrant (this “Warrant”)
      is one
      of a series of similar warrants issued pursuant to that certain Securities
      Purchase Agreement, dated June 15, 2007, by and among the Company and the
      Purchasers identified therein (the “Purchase
      Agreement”).
      All
      such warrants are referred to herein, collectively, as the “Warrants.”

     

    1.
       Definitions.
      In
      addition to the terms defined elsewhere in this Warrant, capitalized terms
      that
      are not otherwise defined herein have the meanings given to such terms in the
      Purchase Agreement. 

      

    2.  Registration
      of Warrants.
      The
      Company shall register this Warrant, upon records to be maintained by the
      Company for that purpose (the “Warrant
      Register”),
      in
      the name of the record Holder (which shall include the initial Holder or, as
      the
      case may be, any registered assignee to which this Warrant is permissibly
      assigned hereunder) from time to time. The Company may deem and treat the
      registered Holder of this Warrant as the absolute owner hereof for the purpose
      of any exercise hereof or any distribution to the Holder, and for all other
      purposes, absent actual notice to the contrary. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    3.
       Registration
      of Transfers.
      Subject
      to the restrictions on transfer set forth in Section 4.1 of the Purchase
      Agreement and compliance with all applicable securities laws, the Company shall
      register the transfer of all or any portion of this Warrant in the Warrant
      Register, upon (i) surrender of this Warrant, with the Form of Assignment
      attached as Schedule
      2
      hereto
      duly completed and signed, to the Company at its address specified in the
      Purchase Agreement and (ii) if the Registration Statement is not effective,
      (x)
      delivery, at the request of the Company, of an opinion of counsel reasonably
      satisfactory to the Company to the effect that the transfer of such portion
      of
      this Warrant may be made pursuant to an available exemption from the
      registration requirements of the Securities Act and all applicable state
      securities or blue sky laws and (y) delivery by the transferee of a written
      statement to the Company certifying that the transferee is an “accredited
      investor” as defined in Rule 501(a) under the Securities Act and making the
      representations and certifications set forth in Section 3.2(b), (c) and (d)
      of
      the Purchase Agreement, to the Company at its address specified in the Purchase
      Agreement. Upon any such registration or transfer, a new warrant to purchase
      Common Stock in substantially the form of this Warrant (any such new warrant,
      a
“New
      Warrant”)
      evidencing the portion of this Warrant so transferred shall be issued to the
      transferee, and a New Warrant evidencing the remaining portion of this Warrant
      not so transferred, if any, shall be issued to the transferring Holder. The
      acceptance of the New Warrant by the transferee thereof shall be deemed the
      acceptance by such transferee of all of the rights and obligations of a Holder
      of a Warrant. Notwithstanding the foregoing, this Warrant may not be transferred
      in increments of less than 10,000 Warrant Shares unless the entire remaining
      Warrant is transferred.

     

    4.
       Exercise
      and Duration of Warrants.
      

     

    (a)
       All
      or
      any part of this Warrant shall be exercisable, in whole or in part, by the
      registered Holder at any time and from time to time on or after the Original
      Issue Date and through and including 5:00 P.M., New York City time, on the
      Expiration Date. At 5:00 P.M., New York City time, on the Expiration Date,
      the
      portion of this Warrant not exercised prior thereto shall be and become void
      and
      of no value and this Warrant shall be terminated and no longer outstanding.
      

    

    (b) The
      Holder may exercise this Warrant by delivering to the Company (i) an exercise
      notice, in the form attached as Schedule
      1
      hereto
      (the “Exercise
      Notice”),
      appropriately completed and duly signed and (ii) payment of the Exercise Price
      for the number of Warrant Shares as to which this Warrant is being exercised
      (which may take the form of a “cashless exercise” if so indicated in the
      Exercise Notice and if a “cashless exercise” may occur at such time pursuant to
      Section 10 below), and the date such items are delivered to the Company (as
      determined in accordance with the notice provisions hereof) is an “Exercise
      Date.”
The
      delivery by (or on behalf of) the Holder of the Exercise Notice and the
      applicable Exercise Price as provided above shall constitute the Holder’s
      certification to the Company that its representations contained in Section
      3.2(b), (c) and (d) of the Purchase Agreement are true and correct as of the
      Exercise Date as if remade in their entirety (or, in the case of any transferee
      Holder that is not a party to the Purchase Agreement, such transferee Holder’s
      certification to the Company that such representations are true and correct
      as
      to such assignee Holder as of the Exercise Date). The Holder shall not be
      required to deliver the original Warrant in order to effect an exercise
      hereunder. Execution and delivery of the Exercise Notice shall have the same
      effect as cancellation of the original Warrant and issuance of a New Warrant
      evidencing the right to purchase the remaining number of Warrant
      Shares.

     

     5.
       Delivery
      of Warrant Shares.
      

     

    (a)
       Upon
      exercise of this Warrant, the Company shall promptly (but in no event later
      than
      three Trading Days after the Exercise Date) issue or cause to be issued and
      cause to be delivered to or upon the written order of the Holder and in such
      name or names as the Holder may designate (provided that, if the Registration
      Statement is not effective and the Holder directs the Company to register the
      Warrant Shares in a name other than that of the Holder, it shall deliver to
      the
      Company on the Exercise Date an opinion of counsel reasonably satisfactory
      to
      the Company to the effect that the issuance of such Warrant Shares in such
      other
      name may be made pursuant to an available exemption from the registration
      requirements of the Securities Act and all applicable state securities or blue
      sky laws), a certificate for the Warrant Shares issuable upon such exercise,
      free of restrictive legends, unless a registration statement covering the resale
      of the Warrant Shares and naming the Holder as a selling stockholder thereunder
      is not then effective or the Warrant Shares are not freely transferable without
      volume restrictions pursuant to Rule 144(k) under the Securities Act. The
      Holder, or any Person permissibly so designated by the Holder to receive Warrant
      Shares, shall be deemed to have become the holder of record of such Warrant
      Shares as of the Exercise Date. If the Warrant Shares are to be issued free
      of
      all restrictive legends, the Company shall, upon the written request of the
      Holder, use its commercially reasonable efforts to deliver, or cause to be
      delivered, Warrant Shares hereunder electronically through The Depository Trust
      Company or another established clearing corporation performing similar
      functions, if available; provided, that, the Company may, but will not be
      required to, change its transfer agent if its current transfer agent cannot
      deliver Warrant Shares electronically through such a clearing
      corporation.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (b)
       If
      by the
      close of the third Trading Day after delivery of a properly completed Exercise
      Notice (and any other documents required pursuant to Section 5(a)), the Company
      fails to deliver to the Holder the required number of Warrant Shares in the
      manner required pursuant to Section 5(a), and if on or after the Trading Day
      immediately following such third Trading Day and prior to the receipt of such
      Warrant Shares, the Holder purchases (in an open market transaction or
      otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
      Holder of the Warrant Shares which the Holder anticipated receiving upon such
      exercise (a “Buy-In”),
      then
      the Company shall, within three Trading Days after the Holder’s request and in
      the Holder’s sole discretion, either (1) pay in cash to the Holder an amount
      equal to the Holder’s total purchase price (including brokerage commissions, if
      any) for the shares of Common Stock so purchased (the “Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such Warrant Shares) shall terminate or (2) promptly honor its obligation to
      deliver to the Holder Warrant Shares and pay cash to the Holder in an amount
      equal to the excess (if any) of the Buy-In Price over the product of (A) such
      number of Warrant Shares, times (B) the Closing Sales Price (as defined below)
      on the date of receipt of a properly completed Exercise Notice. 

     

    (c)
       To
      the
      extent permitted by law, the Company’s obligations to issue and deliver Warrant
      Shares in accordance with the terms hereof are absolute and unconditional,
      irrespective of any action or inaction by the Holder to enforce the same, any
      waiver or consent with respect to any provision hereof, the recovery of any
      judgment against any Person or any action to enforce the same, or any setoff,
      counterclaim, recoupment, limitation or termination, or any breach or alleged
      breach by the Holder or any other Person of any obligation to the Company or
      any
      violation or alleged violation of law by the Holder or any other Person, and
      irrespective of any other circumstance which might otherwise limit such
      obligation of the Company to the Holder in connection with the issuance of
      Warrant Shares. Nothing herein shall limit the Holder’s right to pursue any
      other remedies available to it hereunder, at law or in equity including, without
      limitation, a decree of specific performance and/or injunctive relief with
      respect to the Company’s failure to timely deliver Common Stock upon exercise of
      this Warrant as required pursuant to the terms hereof. 

     

    6.
       Charges,
      Taxes and Expenses.
      Issuance and delivery of certificates for shares of Common Stock upon exercise
      of this Warrant shall be made without charge to the Holder for any issue or
      transfer tax, transfer agent fee or other incidental tax or expense in respect
      of the issuance of such certificates, all of which taxes and expenses shall
      be
      paid by the Company; provided,
      however,
      that
      the Company shall not be required to pay any tax which may be payable in respect
      of any transfer involved in the registration of any certificates for Warrant
      Shares or Warrants in a name other than that of the Holder or an Affiliate
      thereof. The Holder shall be responsible for all other tax liability that may
      arise as a result of holding or transferring this Warrant or receiving Warrant
      Shares upon exercise hereof. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    7.
       Replacement
      of Warrant.
      If this
      Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
      cause to be issued in exchange and substitution for and upon cancellation
      hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction (in such case) and, in each case, a customary and
      reasonable indemnity (which shall not include a surety bond), if requested.
      Applicants for a New Warrant under such circumstances shall also comply with
      such other reasonable regulations and procedures and pay such other reasonable
      third-party costs as the Company may prescribe. If a New Warrant is requested
      as
      a result of a mutilation of this Warrant, then the Holder shall deliver such
      mutilated Warrant to the Company as a condition precedent to the Company’s
      obligation to issue the New Warrant. 

     

    8.
       Reservation
      of Warrant Shares.
      The
      Company covenants that it will reserve and keep available out of the aggregate
      of its authorized but unissued and otherwise unreserved Common Stock, solely
      for
      the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant
      as herein provided, one hundred percent (100%) of the number of Warrant Shares
      which are initially issuable and deliverable upon the exercise of this entire
      Warrant, free from preemptive rights or any other contingent purchase rights
      of
      persons other than the Holder (taking into account the adjustments and
      restrictions of Section 9). The Company covenants that all Warrant Shares so
      issuable and deliverable shall, upon issuance and the payment of the applicable
      Exercise Price in accordance with the terms hereof, be duly and validly
      authorized, issued and fully paid and nonassessable. The Company will take
      all
      such action as may be necessary to assure that such shares of Common Stock
      may
      be issued as provided herein without violation of any applicable law or
      regulation, or of any requirements of any securities exchange or automated
      quotation system upon which the Common Stock may be listed.

     

    9.
       Certain
      Adjustments.
      The
      Exercise Price and number of Warrant Shares issuable upon exercise of this
      Warrant are subject to adjustment from time to time as set forth in this Section
      9. 

     

    (a)  Stock
      Dividends and Splits.
      If the
      Company, at any time while this Warrant is outstanding, (i) pays a stock
      dividend on its Common Stock or otherwise makes a distribution on any class
      of
      capital stock that is payable in shares of Common Stock, (ii) subdivides its
      outstanding shares of Common Stock into a larger number of shares, or (iii)
      combines its outstanding shares of Common Stock into a smaller number of shares,
      then in each such case the Exercise Price shall be multiplied by a fraction,
      the
      numerator of which shall be the number of shares of Common Stock outstanding
      immediately before such event and the denominator of which shall be the number
      of shares of Common Stock outstanding immediately after such event. Any
      adjustment made pursuant to clause (i) of this paragraph shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution, and any adjustment pursuant to clause
      (ii) or (iii) of this paragraph shall become effective immediately after the
      effective date of such subdivision or combination. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (b)
       Pro
      Rata Distributions.
      If the
      Company, at any time while this Warrant is outstanding, distributes to all
      holders of Common Stock (i) evidences of its indebtedness, (ii) any security
      (other than a distribution of Common Stock covered by the preceding paragraph),
      (iii) rights or warrants to subscribe for or purchase any security, or (iv)
      any
      other asset (in each case, “Distributed
      Property”),
      then,
      upon any exercise of this Warrant that occurs after the record date fixed for
      determination of stockholders entitled to receive such distribution, the Holder
      shall be entitled to receive, in addition to the Warrant Shares otherwise
      issuable upon such exercise (if applicable), the Distributed Property that
      such
      Holder would have been entitled to receive in respect of such number of Warrant
      Shares had the Holder been the record holder of such Warrant Shares immediately
      prior to such record date.

    

    (c) Fundamental
      Transactions.
      If, at
      any time while this Warrant is outstanding (i) the Company effects any merger
      or
      consolidation of the Company with or into another Person, in which the Company
      is not the survivor and the stockholders of the Company immediately prior to
      such merger or consolidation do not own, directly or indirectly, at least fifty
      percent (50%) of the voting securities of the surviving entity, (ii) the Company
      effects any sale of all or substantially all of its assets or a majority of
      its
      Common Stock is acquired by a third party, in each case, in one or a series
      of
      related transactions, (iii) any tender offer or exchange offer (whether by
      the
      Company or another Person) is completed pursuant to which all or substantially
      all of the holders of Common Stock are permitted to tender or exchange their
      shares for other securities, cash or property, or (iv) the Company effects
      any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (other than as a result of a subdivision or
      combination of shares of Common Stock covered by Section 9(a) above) (in any
      such case, a “Fundamental
      Transaction”),
      then
      the Holder shall thereafter receive, upon exercise of this Warrant, in lieu
      of
      any Warrant Shares, the same amount and kind of securities, cash or property
      as
      it would have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the holder of the number of Warrant Shares then issuable upon exercise in full
      of this Warrant without regard to any limitations on exercise contained herein
      (the “Alternate
      Consideration”).
      The
      Company shall not effect any such Fundamental Transaction unless prior to or
      simultaneously with the consummation thereof, any successor to the Company,
      surviving entity or the corporation purchasing or otherwise acquiring such
      assets or other appropriate corporation or entity shall assume the obligation
      to
      deliver to the Holder, such Alternate Consideration as, in accordance with
      the
      foregoing provisions, the Holder may be entitled to purchase and/or receive
      (as
      the case may be), and the other obligations under this Warrant. The provisions
      of this paragraph (c) shall similarly apply to subsequent transactions analogous
      to a Fundamental Transaction. 

    

      (d)
       Number
      of Warrant Shares.
      Simultaneously with any adjustment to the Exercise Price pursuant to paragraph
      (a) and (e) of this Section, the number of Warrant Shares that may be purchased
      upon exercise of this Warrant shall be increased or decreased proportionately,
      so that after such adjustment the aggregate Exercise Price payable hereunder
      for
      the increased or decreased number of Warrant Shares shall be the same as the
      aggregate Exercise Price in effect immediately prior to such adjustment.

     

    (e)
       Calculations.
      All
      calculations under this Section 9 shall be made to the nearest cent or the
      nearest share,
      as
      applicable. The number of shares of Common Stock outstanding at any given time
      shall not include shares owned or held by or for the account of the Company,
      and
      the sale or issuance of any such shares shall be considered an issue or sale
      of
      Common Stock. 

     

    (f)
       Notice
      of Adjustments.
      Upon
      the occurrence of each adjustment pursuant to this Section 9, the Company at
      its
      expense will, at the written request of the Holder, promptly compute such
      adjustment, in good faith, in accordance with the terms of this Warrant and
      prepare a certificate setting forth such adjustment, including a statement
      of
      the adjusted Exercise Price and adjusted number or type of Warrant Shares or
      other securities issuable upon exercise of this Warrant (as applicable),
      describing the transactions giving rise to such adjustments and showing in
      detail the facts upon which such adjustment is based. Upon written request,
      the
      Company will promptly deliver a copy of each such certificate to the Holder
      and
      to the Company’s transfer agent. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (g)
       Notice
      of Corporate Events.
      If,
      while this Warrant is outstanding, the Company (i) declares a dividend or any
      other distribution of cash, securities or other property in respect of its
      Common Stock, including, without limitation, any granting of rights or warrants
      to subscribe for or purchase any capital stock of the Company or any subsidiary,
      (ii) authorizes or approves, enters into any agreement contemplating or solicits
      stockholder approval for any Fundamental Transaction or (iii) authorizes the
      voluntary dissolution, liquidation or winding up of the affairs of the Company,
      then, except if such notice and the contents thereof shall be deemed to
      constitute material non-public information, the Company shall deliver to the
      Holder a notice describing the material terms and conditions of such transaction
      at least ten (10) Trading Days prior to the applicable record or effective
      date
      on which a Person would need to hold Common Stock in order to participate in
      or
      vote with respect to such transaction, and the Company will take all steps
      reasonably necessary in order to ensure that the Holder is given the practical
      opportunity to exercise this Warrant prior to such time so as to participate
      in
      or vote with respect to such transaction; provided,
      however,
      that
      the failure to deliver such notice or any defect therein shall not affect the
      validity of the corporate action required to be described in such notice.

     

    10.
       Payment
      of Exercise Price.
      The
      Holder shall pay the Exercise Price in immediately available funds; provided,
      however,
      that
      the Holder may, in its sole discretion, satisfy its obligation to pay the
      Exercise Price through a “cashless exercise”, in which event the Company shall
      issue to the Holder the number of Warrant Shares determined as follows:

     

    X
      = Y
      [(A-B)/A] 

     

    where:
      

     

    X
      = the
      number of Warrant Shares to be issued to the Holder. 

     

    Y
      = the
      total number of Warrant Shares with respect to which this Warrant is being
      exercised. 

     

    A
      = the
      average of the Closing Sale Prices of the shares of Common Stock (as reported
      by
      Bloomberg Financial Markets) for the five Trading Days ending on the date
      immediately preceding the Exercise Date. 

     

    B
      = the
      Exercise Price then in effect for the applicable Warrant Shares at the time
      of
      such exercise. 

     

    For
      purposes of this Warrant, “Closing
      Sale Price”
means,
      for any security as of any date, the last trade price for such security on
      the
      Principal Trading Market, as reported by Bloomberg Financial Markets, or, if
      the
      Principal Trading Market begins to operate on an extended hours basis and does
      not designate the last trade price then the last trade price of such security
      prior to 4:00:00 p.m., New York City Time, as reported by Bloomberg,
      Financial Markets, or if the foregoing do not apply, the last trade price of
      such security in the over-the-counter market on the electronic bulletin board
      for such security as reported by Bloomberg Financial Markets, or, if no closing
      bid price is reported for such security by Bloomberg Financial Markets, the
      average of the bid prices and asked prices of any market makers for such
      security as reported in the “pink sheets” by Pink Sheets LLC. If the Closing
      Sale Price 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    cannot
      be
      calculated for a security on a particular date on any of the foregoing bases,
      the Closing Sale Price of such security on such date shall be the fair market
      value as mutually determined by the Company and the Holder. If the Company
      and
      the Holder are unable to agree upon the fair market value of such security,
      then
      the Company shall, within two business days submit via facsimile (a) the
      disputed determination of the Exercise Price to an independent, reputable
      investment bank selected by the Company and approved by the Holder (which
      approval shall not be unreasonably withheld, conditioned or delayed) or (b)
      the
      disputed arithmetic calculation of the Warrant Shares to the Company's
      independent, outside accountant. The Company shall cause at its expense the
      investment bank or the accountant, as the case may be, to perform the
      determinations or calculations and notify the Company and the Holder of the
      results no later than ten business days from the time it receives the disputed
      determinations or calculations. Such investment bank's or accountant's
      determination or calculation, as the case may be, shall be binding upon all
      parties absent demonstrable error. All such determinations shall be
      appropriately adjusted for any stock dividend, stock split, stock combination
      or
      other similar transaction during the applicable calculation period.

    

    For
      purposes of Rule 144 promulgated under the Securities Act, it is intended,
      understood and acknowledged that the Warrant Shares issued in a cashless
      exercise transaction shall be deemed to have been acquired by the Holder, and
      the holding period for the Warrant Shares shall be deemed to have commenced,
      on
      the date this Warrant was originally issued pursuant to the Purchase Agreement
      (provided that the Commission continues to take the position that such treatment
      is proper at the time of such exercise). 

     

    11.
       No
      Fractional Shares.
      No
      fractional Warrant Shares will be issued in connection with any exercise of
      this
      Warrant. In lieu of any fractional shares which would, otherwise be issuable,
      the number of Warrant Shares to be issued shall be rounded down to the next
      whole number and the Company shall pay the Holder in cash the fair market value
      (based on the Closing Sale Price) for any such fractional shares. 

     

    12.
       Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder (including, without limitation, any Exercise Notice) shall
      be
      in writing and shall be deemed given and effective on the earliest of (i) the
      date of transmission, if such notice or communication is delivered via facsimile
      (provided the sender receives a machine-generated confirmation of successful
      transmission) at the facsimile number specified in the Purchase Agreement prior
      to 5:00 P.M., New York City time, on a Trading Day, (ii) the next Trading Day
      after the date of transmission, if such notice or communication is delivered
      via
      facsimile at the facsimile number specified in the Purchase Agreement on a
      day
      that is not a Trading Day or later than 5:00 P.M., New York City time, on any
      Trading Day, (iii) the Trading Day following the date of mailing, if sent by
      nationally recognized overnight courier service specifying next business day
      delivery, or (iv) upon actual receipt by the party to whom such notice is
      required to be given, if by hand delivery. The address and facsimile number
      of a
      party for such notices or communications shall be as set forth in the Purchase
      Agreement unless changed by such party by two Trading Days’ prior notice to the
      other party in accordance with this Section 12. 

     

    13.
       Warrant
      Agent.
      The
      Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’
notice to the Holder, the Company may appoint a new warrant agent. Any
      corporation into which the Company or any new warrant agent may be merged or
      any
      corporation resulting from any consolidation to which the Company or any new
      warrant agent shall be a party or any corporation to which the Company or any
      new warrant agent transfers substantially all of its corporate trust or
      shareholders services business shall be a successor warrant agent under this
      Warrant without any further act. Any such successor warrant agent shall promptly
      cause notice of its succession as warrant agent to be mailed (by first class
      mail, postage prepaid) to the Holder at the Holder’s last address as shown on
      the Warrant Register. 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    14.
       Miscellaneous.
      

     

    (a)  No
      Rights as a Shareholder.The
      Holder, solely in such Person's capacity as a holder of this Warrant, shall
      not
      be entitled to vote or receive dividends or be deemed the holder of share
      capital of the Company for any purpose, nor shall anything contained in this
      Warrant be construed to confer upon the Holder, solely in such Person's capacity
      as the Holder of this Warrant, any of the rights of a stockholder of the Company
      or any right to vote, give or withhold consent to any corporate action (whether
      any reorganization, issue of stock, reclassification of stock, consolidation,
      merger, amalgamation, conveyance or otherwise), receive notice of meetings,
      receive dividends or subscription rights, or otherwise, prior to the issuance
      to
      the Holder of the Warrant Shares which such Person is then entitled to receive
      upon the due exercise of this Warrant. In addition, nothing contained in this
      Warrant shall be construed as imposing any liabilities on the Holder to purchase
      any securities (upon exercise of this Warrant or otherwise) or as a stockholder
      of the Company, whether such liabilities are asserted by the Company or by
      creditors of the Company. Notwithstanding this Section 14(a), the Company shall
      provide the Holder with copies of the same notices and other information given
      to the shareholders of the Company, contemporaneously with the giving thereof
      to
      the shareholders.

     

    (b)  Successors
      and Assigns.
      Subject
      to the restrictions on transfer set forth in this Warrant and in Section 4.1
      of
      the Purchase Agreement, and compliance with applicable securities laws, this
      Warrant may be assigned by the Holder. This Warrant may not be assigned by
      the
      Company except to a successor in the event of a Fundamental Transaction. This
      Warrant shall be binding on and inure to the benefit of the parties hereto
      and
      their respective successors and assigns. Subject to the preceding sentence,
      nothing in this Warrant shall be construed to give to any Person other than
      the
      Company and the Holder any legal or equitable right, remedy or cause of action
      under this Warrant. This Warrant may be amended only in writing signed by the
      Company and the Holder, or their successors and assigns. 

     

    (c)  Governing
      Law; Jurisdiction.ALL
      QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
      OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
      WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
      CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
      JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
      BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
      HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
      DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
      SUIT,
      ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
      JURISDICTION OF ANY SUCH COURT. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
      SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
      OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
      OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS
      IN
      EFFECT FOR NOTICES TO IT UNDER THE PURCHASE AGREEMENT AND AGREES THAT SUCH
      SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
      THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
      TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. EACH PARTY HEREBY WAIVES ALL
      RIGHTS TO A TRIAL BY JURY. 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (d)
       Headings.
       The
      headings herein are for convenience only, do not constitute a part of this
      Warrant and shall not be deemed to limit or affect any of the provisions hereof.
      

     

    (e)
       Severability. In
      case
      any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceability of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby, and the parties will attempt in good faith to agree upon
      a
      valid and enforceable provision which shall be a commercially reasonable
      substitute therefor, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant. 

     

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK, 

    SIGNATURE
      PAGE FOLLOWS] 

     

    

    
      
        
           

        

        
        

      

      
        9

        
          

        

      

      
        
        

        
        

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
      its
      authorized officer as of the date first indicated above. 

     

    
      	 	 	 
	
              GSE
                SYSTEMS, INC.

            
	 	 
	
               

              By:

            	
               

            	
               

            
	
              Name:

            	
               

            	
               

            
	
              Title:

            	
               

            	
               

            

    

     

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1

    FORM
      OF
      EXERCISE NOTICE 

    

    (To
      be
      executed by the Holder to purchase shares of Common Stock under the foregoing
      Warrant)

     

    Ladies
      and Gentlemen:

    

    (1) The
      undersigned is the Holder of Warrant No. __________ (the “Warrant”) issued by
      GSE Systems, Inc., a Delaware corporation (the “Company”). Capitalized terms
      used herein and not otherwise defined herein have the respective meanings set
      forth in the Warrant. 

    

    (2) The
      undersigned hereby exercises its right to purchase __________ Warrant Shares
      pursuant to the Warrant.

      

    (3) The
      Holder intends that payment of the Exercise Price shall be made as (check
      one):

    

      Cash
      Exercise 

    

      “Cashless
      Exercise” under Section 10

    

    (4) If
      the
      Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______
      in
      immediately available funds to the Company in accordance with the terms of
      the
      Warrant.

    

    (5) Pursuant
      to this Exercise Notice, the Company shall deliver to the Holder _____________
      Warrant Shares in accordance with the terms of the Warrant.

     

     

    Dated:_______________,
      _____ 

     

    Name
      of
      Holder: ___________________________

     

    By:__________________________________

     

    Name:
      _______________________________ 

     

    Title:
      _______________________________

    (Signature
      must conform in all respects to name of Holder as specified on the face of
      the
      Warrant)

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2

    

    GSE
      SYSTEMS, INC.

    

    FORM
      OF
      ASSIGNMENT 

     

    [To
      be
      completed and signed only upon transfer of Warrant]

     

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns and transfers unto                             
      (the
“Transferee”) the right represented by the within Warrant to purchase
                
      shares
      of Common Stock of GSE Systems, Inc. (the “Company”) to which the within Warrant
      relates and appoints                             
      attorney
      to transfer said right on the books of the Company with full power of
      substitution in the premises. In connection therewith, the undersigned
      represents, warrants, covenants and agrees to and with the Company
      that:

    

    
      	
              (a)

            	
              the
                offer and sale of the Warrant contemplated hereby is being made in
                compliance with Section 4(1) of the United States Securities Act
                of 1933,
                as amended (the “Securities Act”) or another valid exemption from the
                registration requirements of Section 5 of the Securities Act and
                in
                compliance with all applicable securities laws of the states of the
                United
                States;

            

    

     

    
      	
              (b)

            	
              the
                undersigned has not offered to sell the Warrant by any form of general
                solicitation or general advertising, including, but not limited to,
                any
                advertisement, article, notice or other communication published in
                any
                newspaper, magazine or similar media or broadcast over television
                or
                radio, and any seminar or meeting whose attendees have been invited
                by any
                general solicitation or general
                advertising;

            

    

     

    
      	
              (c)

            	
              the
                undersigned has read the Transferee’s investment letter included herewith,
                and to its actual knowledge, the statements made therein are true
                and
                correct; and

            

    

     

    
      	
              (d)

            	
              the
                undersigned understands that the Company may condition the transfer
                of the
                Warrant contemplated hereby upon the delivery to the Company by the
                undersigned or the Transferee, as the case may be, of a written opinion
                of
                counsel (which opinion shall be in form, substance and scope customary
                for
                opinions of counsel in comparable transactions) to the effect that
                such
                transfer may be made without registration under the Securities Act
                and
                under applicable securities laws of the states of the United
                States.

            

    

     

    
      	
              Dated:
                 ___________ ,
                ________     

            	
               

            	
               

               

            
	
               

            	
               

            	
              (Signature
                must conform in all respects to name of holder as specified on the
                face of
                the Warrant)

            
	
               

            	
               

            	
               

               

            
	
               

            	
               

            	
              Address
                of Transferee

            
	
               

            	
               

            	
               

               

            
	
              In
                the presence of:

            
	
               

               

            

    

    
12

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