EXHIBIT 10.21
GSE SYSTEMS, INC.
FORM 10-K
For the Year Ended December 31, 1997
AMENDMENT NUMBER TWO TO AMENDED AND
RESTATED LETTER OF CREDIT, LOAN AND SECURITY AGREEMENT
AND PROMISSORY NOTE
This AMENDMENT NUMBER TWO ("Amendment Two") to Amended and Restated
Letter of Credit, Loan and Security Agreement and Promissory Note is made and
effective as of this 11th day of November, 1997 by and between GSE Process
Solutions, Inc., a Delaware Corporation (the "Borrower") and CoreStates Bank,
N.A. (the "Bank").
BACKGROUND
WHEREAS, the Borrower and the Bank entered into an Amended and Restated
Letter of Credit, Loan and Security Agreement dated as of October 13, 1995
pursuant to which the Bank agreed to lend up to $7,000,000 to the Borrower for
the purposes set forth in Section 11.2 thereof (the Amended and Restated Letter
of Credit, Loan and Security Agreement is herein referred to as the "Loan
Agreement") and as amended by Amendment Number One to the Loan Agreement dated
February 23, 1996 ("Amendment One"); as used hereinafter the term "Loan
Agreement" shall mean the Loan Agreement as amended by Amendment One. In
connection with Amendment One, the Borrower and the Bank amended the $7,000,000
Promissory Note dated as of October 13, 1995, (the "Note").
WHEREAS, the Borrower has requested that the Bank further amend the Loan
Agreement to permit the Borrower to advance funds to another subsidiary of its
parent company, GSE, for the purpose of furnishing working capital to such
subsidiary, GSE Erudite Software, Inc. ("Erudite").
WHEREAS, the Bank is agreeable to such an amendment on the conditions
that the advances do not exceed the amount of the Commitment, are evidenced by a
Master Note in the amount of Commitment, which Master Note is duly pledged to
the Bank, and Erudite becomes fully liable to the Bank for all amounts due under
the Loan Agreement and the Note and such liability is secured by a first lien on
the assets of Erudite. The Bank will, if such conditions are met, add the
collateral so provided by Erudite to the Collateral Value for purposes of
determining Available Commitment; and
WHEREAS, the Borrower has requested and the Bank is agreeable, to add a
LIBO Rate interest rate option for advances under the Loan.
WHEREAS the Borrower and the Bank have agreed to amend the Loan
Agreement on the terms, and subject to the conditions set forth herein.
NOW THEREFORE, the Borrower and the Bank, in consideration of the mutual
agreements herein and other good and valuable consideration, intending to be
legally bound, hereby agree as follows:
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I. DEFINED TERMS
1. All capitalized words used herein shall have the meaning ascribed to
them in the Loan Agreement, unless such terms are defined herein, in which case
they shall have the meaning ascribed to them herein.
II. DEFINITIONS
2. The following Defined Terms in Section 1.1 of the Loan Agreement are
hereby added to the Loan Agreement or, if presently in the Loan Agreement are
hereby deleted and replaced with the following:
"Application and Agreement for Standby Letter of Credit" shall
mean an Application and Agreement for a Standby Letter of Credit in
substantially the form attached hereto as Exhibit A and made a part
hereof, or in such other form which is provided by the Bank to the
Borrower or Erudite as the form of Application and Agreement which is
then in use by the Bank in connection with the issuance of its Standby
Letters of Credit, which is executed by the Borrower or Erudite and
delivered to the Bank in connection with a request for the issuance of a
Standby Letter of Credit.
"Base Receivables" shall mean the aggregate face amount of
Receivables, excluding General Intangibles, as to which the Borrower or
Erudite has acquired title, the Bank has acquired a first priority,
perfected security interest, and the Borrower or Erudite has invoiced
the Account Debtor in accordance with the terms of the relevant contract
which provides for billing on the basis of Milestone Payments and
furnished the Bank with information deemed by the Bank in the Bank's
sole discretion adequate for the purpose of evaluating whether or not
such Base Receivables are Eligible Receivables hereunder.
"Borrowing Certificate" shall mean a Certificate containing all
of the information contemplated by the form attached hereto as Exhibit
AA and made a part hereof.
"Borrower's Obligations" shall mean, collectively, the Loan
Obligations and the Letter of Credit Obligations, together with all
other sums due from the Borrower to the Bank under the terms of the
Financing Documents and the Erudite Obligations.
"Eligible Receivable" and "Eligible Receivables" shall mean, at
any time of determination thereof, the collective reference to each Base
Receivable which conforms and continues to conform to the following
criteria to the satisfaction of the Bank: (a) the account arose in the
ordinary course of the Borrower's or Erudite's respective businesses
from a bona fide outright sale or lease of goods by the Borrower, or
from services performed by the Borrower or Erudite, respectively; (b)
the account is based upon an enforceable written order or contract for
goods delivered or for services performed; (c) the respective title of
the Borrower or Erudite to the account is absolute and is not subject to
any prior assignment, claim, lien, or security interest, except
Permitted Liens or liens permitted under the Erudite Security Agreement,
and the Borrower or Erudite otherwise has the full and unqualified
respective right and power to assign and grant a security interest in it
to the Bank as security and collateral for the payment of the Borrower's
Obligations; (d) the amount shown on the respective books of the
Borrower or Erudite and on any invoice, certificate, schedule or
statement delivered to the Bank is owing to the Borrower or Erudite and
no partial payment has been received unless reflected with the delivery
of such invoice, certificate, schedule or statement; (e) the amount of
the account has been reduced by the amount of any claim of reduction,
counterclaim, setoff, recoupment, or other defense in law or equity, or
any claim for credits, allowances, or adjustments by the Account Debtor
because of returned, refused, inferior, or damaged goods or
unsatisfactory services, or for any other reason; (f) the account is not
outstanding more than 90 calendar days from the original date of the
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original invoice therefor or more than 60 calendar days from the
original due date therefor; (g) the account does not arise out of a
contract with, or order from, an Account Debtor that, by its terms,
forbids or makes void or unenforceable the assignment by the Borrower or
Erudite to the Bank of the account arising with respect thereto; (h) the
Account Debtor is not a Subsidiary or other Affiliate of the Borrower or
Erudite, without the prior written consent of the Bank; (i) neither the
Borrower nor Erudite is indebted in any manner to the Account Debtor,
with the exception of customary credits, adjustments and/or discounts
given to an Account Debtor by the Borrower or Erudite respectively in
the ordinary course of its business; (j) no part of the account
represents a retainage; (k) the Account is owed in U.S. Dollars or in
major foreign currency where an appropriate hedging transaction is in
place; (l) the account is not owing by any Account Debtor for which
fifty percent (50%) or more of such Account Debtor's total accounts due
to the Borrower or to Erudite respectively, are non-Eligible
Receivables; (m) the account is not an International Receivable, unless
the entire amount of the payment obligation represented by the account
is secured by (1) an irrevocable commercial letter of credit denominated
in Dollars (or such foreign currency as the Bank and the Borrower may
agree) in form and substance satisfactory to the Bank issued or
confirmed by a financial institution acceptable to the Bank, the
proceeds of which letter of credit have been assigned to the Bank or
which letter of credit shall specifically provide that payment
thereunder shall be negotiated only at the Bank's counters or,
alternatively, made solely and directly to a Restricted Account or (2)
foreign credit insurance in form and substance satisfactory to the Bank,
issued by the Export-Import Bank of the United States, the proceeds of
which insurance have been assigned to the Bank; (n) no notice of the
bankruptcy, receivership, reorganization or insolvency of the Account
Debtor owing such account has been received by the Bank or the Borrower
or Erudite; (o) the Account Debtor is not the federal government or any
federal governmental agency except to the extent that such agency and
the subject account are subject to the Federal Assignment of Claims Act
or the Federal Assignment of Contracts Act and the provisions of such
Acts have been fully complied with; (p) the Account Debtor is not a
state or a local government or a state or local governmental agency
unless any provision of state or local law equivalent to the Federal
Assignment of Claims Act or the Federal Assignment of Contracts Act has
been fully complied with; and (q) the Bank in the exercise of its
reasonable discretion has not deemed the account ineligible because of
uncertainty as to the creditworthiness of the Account Debtor or because
the Bank otherwise considers the collateral value thereof to the Bank to
be impaired or its ability to realize such value to be insecure. In the
event of any dispute under the foregoing criteria, as to whether an
account is, or has ceased to be, an Eligible Receivable, the decision of
the Bank in the exercise of its sole and absolute discretion shall
control.
"Erudite's Account" shall mean an account entitled "GSE Erudite
Software, Inc. Cash Collateral Account" #00000-00000 with Bank.
"Erudite's Guaranty" shall mean a Guaranty Agreement, in form
and substance satisfactory to the Bank, dated the same date as the
Amendment Two, executed and delivered by Erudite in favor of the Bank
assuring and guarantying the repayment of the Borrower's Obligations
(and thereby becoming part of Borrower's Obligations) as the same may be
amended, supplemented or otherwise modified, in accordance with the
terms thereof and the Loan Agreement.
"Erudite Master Note" shall mean the Master Note described in
the Background section hereof and in form and substance as attached
hereto as Exhibit BB and pledged to Bank.
"Erudite Master Letter of Credit" means a Master Letter Credit
Agreement executed by Erudite prior to the issuance of any Standby
Letter Credit for the account of Erudite, which shall be in form
substantially similar to the Master Letter of Credit Agreement.
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"Erudite's Obligations" shall mean Erudite's obligations to pay
the Borrower's Obligations by virtue of Xxxxxxx's Guaranty from the
proceeds of the collateral pledged to the Bank by Erudite for the
Borrower's Obligations or otherwise arising by contract or operation of
law.
"Erudite Security Agreement" shall mean that certain Security
Agreement of Erudite of even date with and in form and substance as
attached as Exhibit CC to Amendment Two.
"Eurocurrency Reserve Requirement" means for any day as applied
to a Eurodollar Loan, the aggregate of the rates (such aggregate being
expressed as a decimal) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of
the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto, as now and from time to time
hereafter in effect) for eurocurrency funding (currently referred to as
"eurocurrency liabilities" in Regulation D of such Board) maintained by
a member bank of the Federal Reserve System, without benefit of credit
for proration, exceptions or offsets otherwise available from time to
time under such regulations.
"Eurodollar Loan" means any advance under the Loan or portion
thereof when and to the extent the interest rate thereof is determined
by reference to the LIBO rate.
"Financing Documents" shall mean, collectively, this Agreement,
the Master Letter of Credit Agreement, all Applications and Agreements
for Standby Letters of Credit and Standby Letters of Credit issued
pursuant thereto, the Promissory Note, the GSE Guaranty, the Erudite
Guaranty, the Erudite Security Agreement and any other documents,
instruments, certificates and agreements which have been, are or are
hereafter executed and delivered by the Borrower or any other Person in
connection with any of the Borrower's Obligations.
"General Intangibles" shall mean all general intangibles of
every nature, whether presently existing or hereafter acquired or
created, including without limitation all books and records, claims
(including without limitation all claims for income tax and other
refunds), choses in action, contract rights, judgments, patents, patent
licenses, trademarks, trademark licenses, licensing agreements, rights
in intellectual property, goodwill (including goodwill of the Borrower's
or Erudite's respective business symbolized by and associated with any
and all trademarks, trademark licenses, copyrights and/or service
marks), royalty payments, licenses, contractual rights, rights as lessee
under any lease of real or personal property, literary rights,
copyrights, service names, service marks, logos, trade secrets, amounts
received as an award in or settlement of a suit in damages, deposit
accounts, interests in joint ventures or general or limited
partnerships, rights in applications for any of the foregoing, books and
records in whatever media (paper, electronic or otherwise) recorded or
stored, with respect to any or all of the foregoing and all equipment
and general intangibles necessary or beneficial or desirable to retain,
access and/or process the information contained in those books and
records, and all proceeds (cash and non-cash) of the foregoing.
"Governmental Authority or Authorities" shall mean any nation or
government, any state or other political subdivision thereof, any
governmental or quasi-governmental entity, court or tribunal including,
without limitation, any department, commission, board, bureau, agency,
administration, service or other instrumentality of any foreign or
domestic governmental entity, exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
"Instrument" shall mean a negotiable instrument (as defined
under Article 3 of the Uniform Commercial Code), a "certificated
security" (as defined under Article 8 of the Uniform Commercial Code)
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other than any certificated security evidencing ownership in the
Borrower or Erudite or any Subsidiary of either, or any other writing
which evidences a right to payment of money and is not itself a security
agreement or lease and is of a type which is in the ordinary course of
business transferred by delivery with any necessary indorsement.
"Interest Payment Date" means (A) as to any Prime Rate Loan, the
first day of each calendar month commencing on the first of such days to
occur after such Prime Rate Loan is made and (B) as to any Eurodollar
Loan, the last day of the Interest Period pertaining to such Eurodollar
Loan.
"Interest Period" means with respect to any Eurodollar Loan: (1)
initially, the period commencing on the borrowing or conversion date, as
the case may be, with respect to such Eurodollar Loan and ending one,
two or three months thereafter as selected by the Borrower in their
notice of borrowing, and (2) thereafter, each period commencing on the
last day of the immediately preceding Interest Period applicable to such
Eurodollar Loan and ending one, two or three months thereafter as
selected by the Borrower, provided that the Borrower has given its
notice of continuation; provided that, all of the foregoing provisions
relating to Interest Period are subject to the following: (a) if any
Interest Period pertaining to a Eurodollar Loan would otherwise end on a
day which is not a Working Day, such Interest Period shall be extended
to the next succeeding Working Day unless the result of such extension
would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding
Working Day; and (b) if any Interest Period pertaining to a Eurodollar
Loan begins on the last Working Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at
the end of such Interest Period), such Interest Period shall end on the
last Working Day of a calendar month.
"International Receivable" means an account which arises out of
a transaction between the Borrower or Erudite and an Account Debtor who
meets at least one of the following criteria: (A) the Account Debtor is
a non-United States (i) government, (ii) government-controlled business
or (iii) governmental agency, (B) the Account Debtor is not subject to
the jurisdictions of the court systems of the United States and any
state of the United States and/or (C) the Account Debtor does not
maintain in the United States an office to which such account is
invoiced and tangible assets with a book value equal to at least five
(5) times the aggregate accounts owed by such Account Debtor.
"Inventory" shall mean all of the respective inventory of the
Borrower or Erudite and all respective right, title and interest of the
Borrower or Erudite in and to all of its now owned and hereafter
acquired goods, merchandise and other personal property furnished under
any contract of service or intended for sale or lease, including,
without limitation, all raw materials, inventory related
work-in-progress, finished goods and materials and supplies of any kind,
nature or description which are used or consumed in its business or are
or might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise and other
licenses, warranties, franchises, general intangibles, personal property
and all documents of title or documents relating to the same and all
proceeds (cash and non-cash) of the foregoing.
"Laws" means all ordinances, statutes, rules, regulations,
orders, injunctions, writs or decreed of any federal, state or local
government or political subdivision or agency thereof, or any court or
similar entity established by any of the foregoing.
"Letter of Credit Obligations" shall mean, in respect of each
Standby Letter of Credit, the obligation of the Borrower or Erudite to
pay to the Bank all sums required to be paid by the terms of the Master
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Letter of Credit Agreement and the Erudite Master Letter of Credit
Agreement and the related Application and Agreement for Standby Letter
of Credit and any Borrower's Obligations related to the Letters of
Credit which are described by the terms of this Agreement.
"LIBO Rate" means, with respect to each Interest Period
pertaining to a Eurodollar Loan, the rate per annum equal to the
quotient of (1) the rate (expressed as a decimal) at which the Bank is
offered Dollar deposits two Working Days prior to the beginning of such
Interest Period in the London Interbank Market at 11:00 a.m., London
time, for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount equal to the amount of
such Eurodollar Loan divided by (2) a number equal to 1.00 minus the
Eurocurrency Reserve Requirement on the day which is two Working Days
prior to the beginning of such Interest Period (such LIBO Rate to be
rounded upward to the nearest 1/16 of 1%).
"Milestone Payment" shall mean a payment made pursuant to and in
accordance with the terms of a written contract between the Borrower or
Erudite, respectively, and an Account Debtor which provides for payments
to the Borrower or Erudite, respectively, in respect of materials
supplied or to be supplied and/or services rendered or to be rendered
under such contract in amounts and at times which are readily calculated
and/or determinable by reference to facts, dates or events such that a
reasonably informed third party could identify appropriate invoice dates
and calculate the amounts of such invoices under the contract. Without
limiting the generality of the foregoing, a Milestone Payment shall not
include any payment made on a percentage of completion basis, unless the
Account Debtor has acknowledged in writing that an invoice issued for a
particular percentage of completion is presently due and owing in
accordance with the terms of the invoice.
"Prime Rate Loan" means any advance under the Loan or portion
thereof when and to the interest rate thereof is determined by reference
to the Prime Rate.
"Qualified Inventory" shall mean the aggregate value (lower of
cost, as determined by the average cost method, or market), determined
in accordance with United States generally accepted accounting
principles, of the Inventory consisting of parts and service parts used
by the Borrower to conduct its business as described in Section 7.20, or
used by Erudite to conduct its business as described in the Security
Agreement in all cases as to which the Borrower or Erudite has acquired
respective title and the Bank has acquired a first priority, perfected
security interest.
"Restricted Account" shall mean Erudite's Account over which
Restricted Account the Bank shall have sole power of withdrawal until
all of the Erudite's Obligations and the Borrower's Obligations have
been repaid and satisfied in full.
"Utilized Portion of the Commitment" shall mean the sum of (a)
all outstanding advances of the Loan with respect to which the Borrower
has not satisfied in full its Loan Obligations, and (b) all amounts
which have been drawn and not reimbursed or are then available to be
drawn by the beneficiaries of all Standby Letters of Credit with respect
to which the Borrower or Erudite has not satisfied in full its Letter of
Credit Obligations.
"Working Day" means any Business Day on which dealings in
foreign currencies and exchange between banks may be carried on in
London, England and in Philadelphia, Pennsylvania.
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3. The following term defined in Section 1.2 of the Loan Agreement is
hereby deleted and replaced with the following:
"Receivables" shall mean, collectively, the Borrower's or
Erudite's now owned or hereafter acquired or created respective
Accounts, Chattel Paper, Contract Rights, General Intangibles and
Instruments related thereto, and all cash and non-cash proceeds thereof.
III. LETTER OF CREDIT
4. Provided that all of the conditions of Erudite Security Agreement,
this Amendment Two, each other Financing Document and any other conditions
imposed by any document required or contemplated by such are met, Letters of
Credit may be issued under Article III of the Loan Agreement for which Erudite
is the account party. All reimbursement obligations as to such letters of credit
shall remain Borrower's Obligations and Letter of Credit Obligations.
IV. NEGATIVE COVENANTS
5. Section 11.2 of the Loan Agreement (Use of Loan Proceeds and Letters
of Credit) is hereby amended to read as follows:
"Use of Loan Proceeds and Letters of Credit". The Borrower will
not use the Loan proceeds or the Letters of Credit for any purposes
other than (1) to repay to Texas Instruments Incorporated the principal
outstanding under the $2,000,000 note dated December 30, 1994, which
repayment was made on January 31, 1995; (2) to repay to GSE Systems,
Inc. $1,250,000 under its $2,000,000 note dated December 30, 1994 (the
"GSE Note"), which repayment was made on January 31, 1995; and (3) to
meet working capital needs, including, without limitation, to make
advances under the Loan to fund Letter of Credit reimbursement
obligations and to make or repay its intercompany borrowings permitted
under Section 11.18 and the investment in existing Subsidiaries
permitted under Section 11.8 so long as there exists no Default or Event
of Default at the time of such repayment and such repayment would not
create a Default or an Event of Default.
6. Section 11.18 of the Loan Agreement is hereby amended to delete the
word "and" prior to clause (e) thereof and insert the following phrase at the
end of such Section:
"and (f) loans and advances to Erudite, from time to time, not
to exceed at any one time outstanding the amount of the Commitment."
V. CONDITIONS PRECEDENT
7. As conditions to the Bank's execution of this Amendment Two, the Bank
shall have received all of the following, in form and substance satisfactory to
the Bank in all respects:
(a) Copies of resolutions of the Board of Directors of each of
the Borrower and Erudite authorizing the execution, delivery and
performance of this Amendment Two, the Erudite Security Agreement, the
Erudite Guaranty and any other agreements, documents and instruments
delivered in connection therewith to which either is a party (the "Loan
Documents") certified by the Secretary or Assistant Secretary of the
Borrower or Erudite, as appropriate.
(b) A certificate of the Secretary or Assistant Secretary of
each of the Borrower and Xxxxxxx as to the incumbency and specimen
signatures of the officers of the Borrower and Xxxxxxx signing the Loan
Documents.
(c) This Amendment Two.
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(d) The Erudite Guaranty.
(e) A favorable opinion of counsel for each of the Borrower and
Erudite in form and substance satisfactory to the Bank.
(f) The Erudite Security Agreement and each document required
thereby.
(g) The Erudite Master Note.
(h) UCC financing statements.
(i) Such other agreements, documents, instruments and the like
as the Bank may request.
VI. REPRESENTATIONS AND WARRANTIES
8. The Borrower hereby represents and warrants that, as of the date
hereof and after giving effect to this Amendment Two:
(a) The Borrower is in compliance with all terms and provisions
of the Loan Agreement and the other Financing Documents.
(b) The representations and warranties set forth in the Loan
Agreement and in the other Financing Documents are true and correct in
all material respects (references to financial statements of the
Borrower and GSE shall be deemed to be references to the latest
financial statements of the Borrower and GSE) with the same effect as
though made on and as of the date thereof, except to the extent that
such representations and warranties expressly relate to an earlier date.
(c) No Default or Event of Default under the Loan Agreement, as
amended, has occurred as of this date other than in connection with
loans or advances to Erudite.
(d) This Amendment Two has been duly authorized by all requisite
action on behalf of the Borrower and constitutes the legal, valid and
binding obligation of the Borrower enforceable in accordance with its
terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and general principles of equity.
(e) The execution, delivery and performance of this Amendment
Two will not violate any applicable provision of law or judgment, order
or regulation of any court or of any public or governmental agency or
authority nor conflict with or constitute a breach of or a default under
any instrument to which the Borrower is a party or by which the Borrower
or any of the Borrower's properties is bound.
(f) No approval, consent or authorization of, or registration,
declaration or filing with, any governmental or public body or
authority, or any trustee or holder of any indebtedness, is required in
connection with the valid execution, delivery and performance by the
Borrower of this Amendment Two, except such as have been obtained.
(g) There has been no material adverse change in the financial
condition, business or prospects of the Borrower since the date of the
Loan Agreement.
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(h) The GSE Guaranty and the Subsidiary Guaranty remain in full
force and effect and are binding, valid and enforceable in accordance
with their terms.
All of the above representations and warranties shall survive the making of this
Amendment Two.
VII. WAIVER
9. The Bank hereby waives any Default or Event of Default under the Loan
Agreement arising solely from the Borrower making loans or advances to Erudite.
Nothing contained herein shall constitute a waiver of any other Default or Event
of Default whether now existing or hereafter arising and the Bank expressly
reserves all of its rights and remedies with respect to any such Default or
Event of Default.
VIII. LIBOR PROVISIONS
10. Article II of the Loan Agreement (THE LOAN) is hereby deleted and
replaced with the following:
"2.1 Advances of the Loan. Subject to the provisions of this
Agreement, including the satisfaction of the conditions precedent
described in Article VIII hereof, the Bank agrees to make advances of
the Loan in Dollars to the Borrower's Account as requested by the
Borrower from time to time during the Commitment Period, provided that
after giving effect to the Borrower's request the outstanding principal
balances of the Loan Obligations and the Letter of Credit Obligations
would not exceed the lesser of the Commitment and the Collateral Value
as reflected on the applicable Borrowing Certificate.
2.2 Procedure for Making Advances Under the Loan; Bank
Protection Advances. The Borrower may request a Prime Rate Loan to be
made on any Business Day and may request a Eurodollar Loan to be made on
any Working Day. Each such request shall be in writing and delivered to
the Bank not later than 1:00 P.M., Philadelphia time (a) at least two
Working Days prior to the date on which a Eurodollar Loan is to be made
and (b) on the Business Day on which a Prime Rate Loan is to be made,
specifying (i) the amount to be borrowed, (ii) the requested borrowing
date, (iii) whether the advance is to be a Prime Rate Loan or a
Eurodollar Loan and (iv) the length of the Interest Period for any
Eurodollar Loan (such request may be made by telephone if immediately
followed by telecopy confirmation thereof). The request for such advance
shall be irrevocable. Advances under the Loan shall be deposited to the
Borrower's Account. In addition, the Borrowers hereby irrevocably
authorize the Bank, which shall have the right, but not the obligation,
at any time and from time to time, without further request from or
notice to the Borrower, to make advances under the Loan which the Bank,
in its reasonable discretion, deems necessary or appropriate to protect
the Bank's interest under this Agreement, including, without limitation,
advances under the Loan made to cover any Borrower's Obligations,
including, without limitation, Expense Payments, prior to, on, or after
the termination of other advances under this Agreement, regardless of
whether at such time there shall exist Available Commitment or whether
the conditions precedent described in Article VIII hereof shall be
satisfied; all such advances shall constitute Prime Rate Loans.
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2.3 Interest.
(a) Subject to the terms of subsection 2.3(d) below,
each Prime Rate Loan shall bear interest for the period from and
including the date such advance is made until repayment in full
of the principal amount thereof or conversion of such advance to
a Eurodollar Loan pursuant to Section 2.4 on the unpaid
principal balance thereof at the Prime Rate, such rate to change
at the opening of business on the day of each change in the
Prime Rate.
(b) Each Eurodollar Loan shall bear interest during each
Interest Period applicable thereto on the unpaid principal
balance thereof at a rate per annum equal to the LIBO Rate
determined for such Interest Period plus 1.00%.
(c) Interest on each Prime Rate Loan and Eurodollar Loan
shall be payable on the Interest Payment Dates applicable
thereto.
(d) Any principal amount or other amounts (other than
interest) payable hereunder not paid when due (upon demand by
the Bank, if applicable, on default, or otherwise, whether or
not the Bank shall have accelerated the Borrower's Obligations)
shall bear interest thereafter until paid in full, payable on
demand, at an annual rate equal to:
(i) For each Prime Rate Loan at a rate three
percentage points in excess of the Prime Rate; and
(ii) For each Eurodollar Loan, at a rate equal
to the then applicable rate as determined under Section
2.3(b) above plus three percent from the time of default
in payment of principal until the end of the then
current Interest Period therefor, and thereafter at a
rate three percentage points in excess of the Prime
Rate.
2.4 Interest Rate Conversion/Continuation. (a) The Borrower may
elect from time to time to convert all or a part of a Prime Rate Loan or
Eurodollar Loan into the other type of loan or to continue all or part
of a Prime Rate Loan or a Eurodollar Loan for a new Interest Period by
giving the Bank written or telegraphic Notice (effective upon receipt)
not later than 1:00 P.M., Philadelphia time, on a Business Day for
conversion into a Prime Rate Loan on such day, or at least two Working
Days before a conversion into or continuation of a Eurodollar Loan,
specifying: (1) the conversion or continuation date; (2) the amount to
be converted or continued; (3) in the case of conversions, the type of
loan to be converted into; and (4) in the case of continuations of or a
conversion into Eurodollar Loans, the duration of the Interest Period
applicable thereto provided that (a) Eurodollar Loans can only be
converted on the last day of the Interest Period for such loan; (b) no
loan may be converted or continued as a Eurodollar Loan when any Default
or Event of Default has occurred and is continuing. All notices given
under this Section 2.4 shall be irrevocable and shall be given not later
than 1:00 P.M. Philadelphia time on the day which is not less than the
number of Business or Working Days specified above for such notice. If
the Borrower shall fail to give the Bank the notice as specified above
for the continuation or conversion of a Eurodollar Loan prior to the end
of the Interest Period applicable thereto, such Eurodollar Loan shall
automatically be converted into a Prime Rate Loan on the last day of the
Interest Period for such loan.
10
2.5 Inability to Determine Interest Rate. In the event that the
Bank shall have determined (which determination shall be conclusive and
binding upon the Borrower) that, by reason of circumstances affecting
the London Interbank Market, adequate and reasonable means do not exist
for ascertaining the LIBO Rate for any proposed Interest Period
pertaining to any requested funding or continuation of or conversion to
a Eurodollar Loan, or if the Bank shall have determined (which
determination shall be conclusive and binding upon the Borrower) prior
to such funding, continuation, or conversion that the LIBO Rate
determined by the Bank for such Interest Period shall not adequately and
fairly reflect the cost of maintaining or funding such Eurodollar Loan
for such Interest Period, the Bank shall forthwith give notice of such
determination to the Borrower. If such notice is given, such loan shall
be funded or continued as or converted to a Prime Rate Loan. Until such
notice has been withdrawn, no further Eurodollar Loans shall be made nor
shall the Borrower have the right to convert a Prime Rate Loan to a
Eurodollar Loan.
2.6 Illegality. If, after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change
therein or in any currently applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Bank
with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency
shall make it unlawful or impossible for the Bank to make, maintain or
fund any loan at the LIBO Rate, the Bank shall so notify the Borrower.
Upon receipt of notice pursuant to this Section 2.6 from the Bank, every
Eurodollar Loan then outstanding shall automatically and without any
requirement of additional notice to the Borrower be converted to a Prime
Rate Loan, on either (a) the last day of the then current Interest
Period with respect to such loan, if the Bank may lawfully continue to
maintain and fund the loan at the rate then in effect to such day or (b)
immediately, if the Bank may not lawfully continue to fund and maintain
the loan at the rate then in effect to such day. Until the notice given
pursuant to this Section 2.6 is withdrawn by the Bank, no further
Eurodollar Loans shall be made nor shall the Borrower have the right to
convert a loan to a Eurodollar Loan.
2.7 Additional Costs. The Borrower will pay to the Bank such
amounts relating to increased costs as provided in Section 5.3(a).
2.8 Funding Loss Indemnification. The Borrower shall pay to the
Bank, upon the request of the Bank, such amount or amounts as shall be
sufficient (in the reasonable opinion of the Bank) to compensate it for
any loss, cost, or expense incurred as a result of:
(a) Any payment of a Eurodollar Loan on a date other
than the last day of the Interest Period pertaining to such loan
including, but not limited to, any such payment made as a result
of any voluntary prepayment or of acceleration by the Bank after
default; or
(b) Any failure by the Borrower to borrow or convert, as
the case may be, a Eurodollar Loan on the date for borrowing or
conversion, as the case may be, specified in the relevant
notice.
2.9 Calculations. Interest on the advances under the Loan shall
be calculated on the basis of a year of 360 days for the actual number
of days elapsed.
2.10 Other Provisions Regarding Eurodollar Loans.
(a) At no time shall there be more than six different
Interest Periods pertaining to Eurodollar Loans.
11
(b) Each Eurodollar Loan shall be in an original
principal amount of $500,000, or an integral multiple of
$100,000 in excess thereof.
2.11 Payment Due on Non-Business Days. Whenever any payment to
be made hereunder or under any other Financing Document (other than
interest on a Eurodollar Loan) shall be stated to be due on a day which
is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included
in the calculation of interest payable hereunder or under any other
Financing Document, as the case may be.
2.12 Repayment of Advances of the Loan. Each advance of the
Loan, together with interest thereon, shall be repaid, and may be
prepaid, in accordance with the provisions hereof and of the Promissory
Note; provided, however, that the Borrower's Loan Obligations must be
repaid to the extent that the Borrower or the Bank receive any Proceeds
of the Collateral.
For purposes of this Section, Proceeds of the Collateral
shall not be deemed to include the Proceeds of any intercompany
Receivables which are collected by the Borrower in the ordinary
course of business until the occurrence of an Event of Default.
Intercompany Receivables constitute Collateral for the
Borrower's Obligations to the Bank; however, intercompany
Receivables do not qualify as Eligible Receivables for purposes
of determining the amount of Available Commitment from time to
time. Accordingly, until the occurrence of an Event of Default,
the Borrower shall be entitled to collect and utilize Proceeds
of any intercompany Receivables for any purposes within the
ordinary course of business.
Amounts which are advanced under the Loan and repaid by
the Borrower shall thereafter be available to be readvanced to
the Borrower under the Loan, in accordance with the terms of
this Agreement, at any time prior to the Termination Date, on
which date the entire balance of principal, all accrued and
unpaid interest and all other amounts owing hereunder or under
any other Financing Document shall be due and payable."
11. Section 3.2 (Reimbursement of Drawings under the Letters of Credit)
and Section 5.1(b) (Payments) are each hereby amended to add at the end thereof
the following phrase:
"; all such advances shall constitute Prime Rate Loans."
12. Section 5.3(a)(iii) (Increased Costs and Reduced Return) is hereby
deleted and replaced with the following:
(iii) does or shall impose on the Bank or any Parent any other
condition (including without limitation a condition affecting a loan or
a note or the cost of Dollar deposits obtained by the Bank in the London
Interbank Market or other applicable markets);
IX(A) ERISA PROVISIONS
12A. Section 7.15 of the Loan Agreement is hereby deleted and replaced
with the following:
7.15 ERISA and Code. Neither the Borrower nor any Commonly
Controlled Entity maintains and/or contributes to, or has ever
maintained or contributed to, any Defined Benefit Plan other than the
Simulation, Systems & Services Technologies Company Union Pension Plan
(the "Union Plan"), which was terminated effective August 4, 1996. All
assets of the Union Plan were distributed on or before September 3,
12
1994. Except as specifically disclosed to the Bank in writing prior to
the date of this Agreement:
(a) no Reportable Event has occurred with respect to the
Union Plan;
(b) [intentionally omitted]
(c) no liability (whether or not such liability is being
litigated) has been asserted against the Borrower or any
Commonly Controlled Entity in connection with the Union Plan by
the PBGC or by a trustee appointed pursuant to Section 4042(b)
or (c) of ERISA, and no lien has been attached and no person has
threatened to attach a lien to any property of the Borrower or
any Commonly Controlled Entity as a result of any failure of the
Union Plan to comply with the Code or ERISA;
(d) neither the Borrower nor any Commonly Controlled
Entity maintains any employee welfare benefit plan providing for
retiree health and/or life benefits other than (i) such
continuation of benefit coverage as is required by law, (ii)
coverage for a closed group of four retired former employees
(and their families, if any) under the health benefit program
for active employees, which coverage will continue only until
each retiree attains age 65 (at which time, such persons shall
become eligible for benefits under the Medicare supplemental
program referred to in subparagraph (iii) below), (iii) a
Medicare supplemental program for a present group of seven
retirees (and a maximum group of 11 retirees) with a lifetime
claim maximum of $15,000 per retiree; and (iv) a death benefit
for each retiree described in subparagraphs (ii) and (iii) above
not to exceed $10,000 per retiree, except for one retiree having
a death benefit not to exceed $30,000; and
(e) neither the Borrower nor any Commonly Controlled
Entity maintains or makes contributions to, or has ever been
required to make contributions to, any Multiemployer Plan.
12B. Section 9.13 of the Loan Agreement is hereby deleted and replaced
with the following:
9.17 Pension Matters. The Borrower and each Commonly Controlled
Entity will comply in all material respects with the provisions of ERISA
and the Code with respect to any "employee benefit plan," as defined in
Section 3(3) of ERISA. Neither the Borrower nor any Commonly Controlled
Entity will adopt any employee pension benefit plan subject to the
minimum funding standards of ERISA and the Code or become obligated to
contribute to any Multiemployer Plan. Neither the Borrower nor any
Commonly Controlled Entity will adopt any employee welfare benefit plan
that provides for post-employment life and/or health benefits (other
than such continuation of benefit coverage as is required by law and the
plan described in Section 7.15). The Borrower will not acquire or permit
the acquisition by any Commonly Controlled Entity of any trade or
business which maintains or contributes to any plan described above.
12C. Section 11.1 of the Loan Agreement is hereby replaced with the
following:
11.1 ERISA Compliance. Neither the Borrower nor any Commonly
Controlled Entity shall fail to maintain at all times such bonding as is
required by ERISA.
13
IX. AMENDMENT TO NOTE
13. Paragraph (a) of the Promissory Note is hereby deleted and replaced
with the following:
"(a) interest on the unpaid principal balance at the rates
provided in the Loan Agreement (the interest rate options are set forth
in Article II of the Loan Agreement), shall be due and payable at the
time provided in the Loan Agreement, until the principal sum is paid in
full; and"
X. MISCELLANEOUS
14. Upon the effectiveness of this Amendment Two, on and after the date
hereof, each reference in the Loan Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each reference in the Financing
Documents shall mean and be a reference to the Loan Agreement as amended hereby.
15. The execution, delivery and effectiveness of this Amendment Two
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Bank under any of the Financing Documents, nor
constitute a waiver of any provision of any of the Financing Documents.
16. The Borrower agrees to pay on demand all costs and expenses of the
Bank in connection with the preparation, reproduction, execution and delivery of
this Amendment Two and the other instruments and documents to be delivered
hereunder, including the fees and out-of-pocket expenses of counsel for the Bank
with respect thereto.
17. Recognizing and in consideration of the Bank's agreement to consent
to the amendments set forth herein, the Borrower hereby waives and releases the
Bank and its officers, attorneys, agents, and employees from any liability,
suit, damage, claim, loss or expense of any kind or nature whatsoever and
howsoever arising that it ever had or now has against the Bank arising out of or
relating to the Bank's acts or omissions with respect to this Amendment Two, the
Loan Agreement, the Loan, the Letters of Credit, the Note, the Erudite Security
Agreement, the Erudite Guaranty, the Erudite Master Note and any other Financing
Document or any other matters described or referred to herein.
18. All of the terms, conditions, provisions (including, without
limitation, provisions relating to Events of Default) and covenants in the Loan
Agreement, the Note, and all other Financing Documents and obligations secured
thereby shall remain unaltered and in full force and effect without defense,
counterclaim or offset by the Borrower, except as specifically modified by this
Amendment Two.
19. The headings of any paragraph of this Amendment Two are for
convenience only and shall not be used to interpret any provision hereof.
20. This Amendment Two, the Loan Agreement, the Note and each document
incident thereto shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania.
14
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Amendment Two as of the day and year first above
written.
Attest: GSE PROCESS SOLUTIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx By /s/ Xxxxxx X. Xxxxxx
----------------------------- --------------------------------
Title: Assistant Secretary Title: Executive Vice President
CORESTATES BANK, N.A.
By /s/ Xxxxxxx Xxxxx
-----------------------------------
Title: Vice President
15
GSE SYSTEMS, INC.
FORM 10-K
For the Year Ended December 31, 1997
SECURITY AGREEMENT
THIS (this "Agreement") is made as of this 11th day of November, 1997,
between GSE Erudite Software, Inc., a Delaware corporation (the "Debtor") and
CORESTATES BANK, N.A., a national banking association (the "Bank").
BACKGROUND
WHEREAS, the GSE Process Solutions, Inc. ("Borrower") and the Bank
entered into an Amended and Restated Letter of Credit, Loan and Security
Agreement dated as of October 13, 1995 pursuant to which the Bank agreed to lend
up to $7,000,000 to the Borrower for the purposes set forth in Section 11.2
thereof (the "Loan Agreement") and amended the Loan Agreement by Amendment
Number One to the Loan Agreement dated February 23, 1996 ("Amendment One"); as
used hereinafter the term "Loan Agreement" shall mean the Loan Agreement as
amended by Amendment One. In connection with Amendment One, the Borrower and the
Bank amended the $7,000,000 Promissory Note dated as of October 13, 1995, (the
"Promissory Note").
WHEREAS, the Borrower has requested that the Bank further amend the Loan
Agreement to permit the Borrower to advance funds to the Debtor for the purpose
of furnishing working capital to the Debtor.
WHEREAS, the Bank is agreeable to such an amendment on the conditions
that the advances do not exceed the amount of the Commitment, are evidenced by a
Master Note in the amount of Commitment, which Master Note is duly pledged to
the Bank, and the Debtor becomes fully liable to the Bank for all amounts due
under the Loan Agreement and the Promissory Note and such advances secured by a
first lien on the assets of the Debtor. The Bank will, if such conditions are
met, add the collateral so provided by the Debtor to the Collateral Value for
purposes of determining Available Commitment; and
WHEREAS the Debtor and the Bank have agreed to the grant of the first
lien on the Debtor's assets pursuant to this Security Agreement set forth
herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual agreements herein and
other good and valuable consideration, the Debtor and the Bank hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Account" individually and "Accounts" collectively shall mean
all presently existing or hereafter acquired or created accounts,
accounts receivable, contract rights, notes, drafts, instruments,
acceptances, chattel paper, leases and writings evidencing a monetary
obligation or a security interest in or a lease of goods, all rights to
receive the payment of money or other consideration under present or
future contracts (including, without limitation, all rights to receive
payments under presently existing or hereafter acquired or created
letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or
set forth in or arising out of any present or future chattel paper,
note, draft, lease, acceptance, writing, bond, insurance proceeds from
claims, instrument or document, and all extensions and renewals of any
thereof, all rights under or arising out of present or future contracts,
16
agreements or general interest in merchandise which gave rise to any or
all of the foregoing, including all goods, all claims or causes of
action now existing or hereafter arising in connection with or under any
agreement or document or by operation of law or otherwise, all
collateral security of any kind (including real property mortgages)
given by any person with respect to any of the foregoing, all books and
records in whatever media (paper, electronic or otherwise) recorded or
stored, with respect to any or all of the foregoing and all equipment
necessary or beneficial or desirable to retain, access and/or process
the information contained in those books and records, and all proceeds
(cash and non-cash) of the foregoing.
"Account Debtor" shall mean any Person who is obligated on a
Receivable and "Account Debtors" shall mean all Persons who are
obligated on the Receivables.
"Affiliate" shall mean, with respect to the Debtor, any Person,
directly or indirectly controlling, directly or indirectly controlled
by, or under direct or indirect common control with the Debtor or any
Subsidiary. Without in any way limiting the generality of the foregoing,
"Affiliate" includes the Borrower, GSE Systems, Inc. and each of the
following shareholders of GSE Systems, Inc.: ManTech International
Corporation, SGLG, Inc. (formerly GPS Technologies, Inc.), General
Physics Corporation and Vattenfall AB.
"Application and Agreement for Standby Letter of Credit" shall
mean an Application and Agreement for Standby Letter of Credit in
substantially the form attached hereto as Exhibit A and made a part
hereof, or in such other form which is provided by the Bank to the
Debtor as the form of Application and Agreement which is then in use by
the Bank in connection with the issuance of its Standby Letters of
Credit, which is executed by the Debtor and delivered to the Bank in
connection with a request for the issuance of a Standby Letter of
Credit.
"Borrower's Obligations" shall mean, collectively, the Loan
Obligations and the Letter of Credit Obligations, together with all
other sums due from the Borrower to the Bank under the terms of the
Financing Documents.
"Business Day" shall mean a day on which commercial banking
institutions are open for business in Philadelphia, Pennsylvania.
"Chattel Paper" shall mean a writing or writings which evidence
both a monetary obligation and a security interest in or lease of
specific goods; any returned, rejected or repossessed goods covered by
any such writing or writings and all proceeds (in any form including,
without limitation, accounts, contract rights, documents, chattel paper,
instruments and general intangibles) of such returned, rejected or
repossessed goods; and all proceeds (cash and non-cash) of the
foregoing.
"Collateral" shall mean the collateral for the Debtor's
Obligations and the Borrower's Obligations which is described in Section
3.1 of this Agreement or otherwise.
"Debtor's Account" shall mean GSE Erudite Software, Inc.'s Cash
Collateral Account #00000-00000 with the Bank.
"Debtor's Guaranty" shall mean a Guaranty Agreement, in form and
substance satisfactory to the Bank, dated the same date as the Amendment
Two, executed and delivered by Debtor in favor of the Bank assuring and
17
guarantying the repayment of the Borrower's Obligations (and thereby
becoming part of Debtor's Obligations) as the same may be amended,
supplemented or otherwise modified, in accordance with the terms thereof
and the Loan Agreement.
"Debtor's Master Note" shall mean the Master Note described in
the Background section hereof and in form and substance as attached
hereto as Exhibit B and pledged to Bank.
"Debtor's Master Letter of Credit" means a Master Letter of
Credit Agreement executed by Debtor prior to the issuance of any Standby
Letter of Credit for the account of Debtor, which shall be in form
substantially similar to the Master of Letter of Credit Agreement.
"Debtor's Obligations" shall mean Xxxxxx's obligations to pay
the Borrower's Obligations by virtue of Xxxxxx's Guaranty from the
proceeds of the collateral pledged to the Bank by Debtor for the
Borrower's Obligations or otherwise arising by contract or operation of
law.
"Default" shall mean any of the events specified in Section 8.1
hereof, whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied.
"Dollars" and the sign "$" shall mean dollars in lawful money of
the United States of America.
"Environmental Laws" shall mean any federal, state or local
statute, law, rule, ordinance, regulation, standard, permit or
requirement concerning or relating to the protection of health and the
environment.
"Event of Default" shall mean any of the events specified in
Section 8.1 hereof, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been
satisfied.
"Expense Payments" shall have the meaning given to such term in
Section 8.2(f) of this Agreement.
"Financing Documents" shall mean, collectively, this Agreement,
the Master Letter of Credit Agreement, all Applications and Agreements
for Standby Letters of Credit and Standby Letters of Credit issued
pursuant thereto, the Promissory Note, the GSE Guaranty, the Debtor's
Guaranty, this Security Agreement, Debtor's Master Note and any other
documents, instruments, certificates and agreements which have been, are
or are hereafter executed and delivered by the Borrower or the Debtor or
any other Person in connection with any of the Borrower's or Debtor's
Obligations.
"GSE" means GSE Systems, Inc.
"Letter of Credit" shall mean a Standby Letter of Credit.
"Letter of Credit Obligations" shall mean, in respect of each
Standby Letter of Credit, the obligation of the Debtor to pay to the
Bank all sums required to be paid by the terms of the Master Letter of
Credit Agreement and the related Application and Agreement for Standby
Letter of Credit and any Borrower's or Debtor's Obligations related to
the Letters of Credit which are described by the terms of the Loan
Agreement.
"Loan" shall mean the direct loan advances to be made available
by the Bank to the Borrower in accordance with the provisions of Article
II of the Loan Agreement.
18
"Loan Obligations" shall mean the obligation of the Borrower to
repay to the Bank the principal amount of the Loan, together with
interest thereon, in accordance with the terms of the Promissory Note,
and any Borrower's Obligations related to the Loan which are described
by the terms of the Loan Agreement and the Promissory Note.
"Master Letter of Credit Agreement" shall mean the Master Letter
of Credit Agreement in substantially the form attached hereto as Exhibit
C and made a part hereof.
"Permitted Liens" means (a) liens in connection with workers'
compensation, unemployment insurance or other social security or similar
obligations arising in the ordinary course of business; (b) deposits or
pledges securing the performance of bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations,
surety and appeal bonds and other obligations of like nature made in the
ordinary course of business and not affecting the Collateral; (c)
mechanics', carriers', landlords', warehousemen's, workers',
materialmen's or other like liens arising in the ordinary course of
business with respect to obligations which shall not at the time be due
or payable and the validity of which is being contested in good faith,
by appropriate proceedings, and without a materially adverse effect on
the Debtor or on the Collateral; (d) liens for taxes imposed upon the
Debtor or any of its properties, operations, income, products or
profits, which shall not at the time be due or payable and the validity
of which is being contested in good faith, by appropriate proceedings,
and without a materially adverse effect on the Debtor or on the
Collateral; (e) reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, and other similar
title exceptions or encumbrances affecting real property which do not
have a materially adverse effect on the Debtor or on the Collateral; (f)
attachment, judgment and other similar liens not affecting the
Collateral which arise in connection with court proceedings, as to which
the execution or other enforcement thereof is effectively stayed, or
which are fully covered by applicable insurance (which shall not include
any bonding or other arrangement in connection with which the Debtor may
be liable to any extent); (g) liens in favor of the Bank; (h) purchase
money security interests as provided for in Section 7.4(b) of this
Agreement; and (i) liens, if any, consented to by the Bank in writing.
"Person" shall mean an individual, a partnership, a corporation,
a trust, any other organization or entity or any government or
governmental body or authority.
"Proceeds" or "proceeds" means, when used with respect to any of
the Collateral, all cash and non-cash proceeds within the meaning of the
Uniform Commercial Code and shall include the proceeds of any and all
insurance policies.
"Promissory Note" shall mean the Promissory Note of October 13,
1995 executed by the Borrower in favor of the Bank and containing the
terms and conditions under which the principal amount of the Loan,
together with interest thereon, will be repaid, as the same may from
time to time be amended, supplemented or otherwise modified in
accordance with the terms thereof and of the Loan Agreement.
"Registered Properties" shall have the meaning given to such
term in Section 3.1 of this Agreement.
"Restricted Account" shall mean the Debtor's Account
#14190-06553 over which Restricted Account the Bank shall have sole
power of withdrawal until all of the Debtor's Obligations and the
Borrower's Obligations have been repaid and satisfied in full.
19
"Security Agreement" shall mean this Security Agreement, as it
may from time to time be amended, supplemented or otherwise modified in
accordance with the terms hereof.
"Standby Letter of Credit" shall mean a Standby Letter of Credit
issued by the Bank (in accordance with the provisions of Uniform Customs
and Practice for Documentary Credits, 1993 Revision, ICC Publication No.
500, or such subsequent revisions as may be adopted by the International
Chamber of Commerce Executive Board from time to time) to a designated
beneficiary for the account of the Debtor, upon receipt of an executed
Application and Agreement for Standby Letter of Credit, which Standby
Letter of Credit will be in form and content satisfactory to the Bank in
all respects.
"Subsidiary" shall mean any present or future corporation at
least a majority of whose outstanding Voting Stock shall at the time be
owned by the applicable Person; or by one or more Subsidiaries of the
applicable Person; or by the applicable Person and one or more of its
respective Subsidiaries.
1.2 Uniform Commercial Code Terms.
"Accounts," "Chattel Paper," "Contract Rights," "Documents,"
"Equipment," "General Intangibles," "Instruments" and "Inventory" shall,
in addition to any meaning given to such term in this Security
Agreement, have the respective meanings as are given to those terms in
the Uniform Commercial Code as presently adopted and in effect in the
Commonwealth of Pennsylvania and in any other states in which any
portion of the Collateral may be located, and shall also cover, without
limitation, (a) any property specifically included in those respective
terms in this Security Agreement or in the other Financing Documents
executed in connection with this Security Agreement, (b) all property
included in these respective terms, whether now owned or existing or
hereafter acquired or created and wherever located, and (c) all proceeds
(cash and non-cash) and products of the foregoing.
"Receivables" shall mean, collectively, the Debtor's now owned
or hereafter acquired or created Accounts, Chattel Paper, Contract
Rights, General Intangibles and Instruments related thereto, and all
cash and non-cash proceeds thereof.
1.3 Certain Terms Defined in Loan Agreement. All capitalized words used
herein shall have the meaning ascribed to them in the Loan Agreement, unless
there are defined herein, in which case they shall have the meaning ascribed to
them herein.
1.4 ERISA Terms. Certain terms used in this Agreement are defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or are
otherwise defined in the Internal Revenue Code of 1986, as amended (the "Code").
When and if used in this Agreement, such terms shall have the meanings given
them in ERISA or the Code. Specifically, the following terms shall have the
following meanings:
"Commonly Controlled Entity" means any Subsidiary or any other
trade or business (whether or not incorporated) which is part of a group
of trades or businesses under "common control" (as defined in Code
414(c)) and of which GSE, the Borrower, the Debtor or any of their
Subsidiaries is a part.
"Defined Benefit Plan" means an employee pension benefit plan
(as defined in Section 3(2) of ERISA) covered by Title IV of ERISA
(other than a Muliemployer Plan), as provided in Section 4021 of ERISA,
and maintained by the Debtor, the Borrower, GSE and/or by any Commonly
Controlled Entity.
20
"Multiemployer Plan" means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA), to which GSE, the Borrower or the Debtor
or any Commonly Controlled Entity, as appropriate, has or had an
obligation to contribute.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Reportable Event" means a "reportable event" as defined in
Section 4043(c) of ERISA.
"Responsible Officer" means the chief executive officer of the
Debtor, the president of the Debtor, the executive vice president of the
Debtor, or, with respect to financial matters, the vice president of
finance of the Debtor.
1.5 Other Definitional Provisions.
(a) All terms defined in this Security Agreement shall have
their defined meanings when used in any certificate or other document
made or delivered pursuant hereto.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import, when used in this Security Agreement shall refer to this
Security Agreement as a whole and not to any particular provision of
this Security Agreement, and section, subsection, schedule and exhibit
references are to this Security Agreement unless otherwise specified.
(c) In the event of any conflict between the meanings given to
"Accounts," "Chattel Paper," "Contract Rights," "Documents,"
"Equipment," "General Intangibles," "Instruments," and "Inventory" in
the Uniform Commercial Code and as otherwise set forth in this Security
Agreement, the respective meanings given to such terms in the Uniform
Commercial Code shall prevail with respect to all matters relating to
the grant, existence and perfection of security interests in the
Collateral; for all other purposes, the respective meanings shall be as
otherwise set forth in this Security Agreement.
21
ARTICLE II
LOCKBOX, ETC.
2.1 Lockbox. While any of the Borrower's Obligations or the Debtor's
Obligations remain outstanding, or the Bank has any obligation under the Loan
Agreement, the Debtor shall maintain a post office box which will be under the
exclusive control of the Bank (the "Lockbox") into which the Debtor shall cause
all payments of any of the Debtor's Receivables (other than intercompany
Receivables prior to the occurrence of an Event of Default) and Documents to be
made, and the Debtor shall indicate on all invoices and other correspondence
with Account Debtors (other than intercompany Account Debtors) to make all
payments to the Debtor in care of the Lockbox and hereby appoints the Bank, as
the Debtor's true and lawful attorney-in-fact to receive all incoming mail, open
all such mail, remove all collections and remittances therefrom in payment of or
on account of any of the Debtor's Receivables and Documents and use the Bank's
reasonable efforts to forward all other mail so received to the Debtor's place
of business. Any Proceeds of Collateral received by the Debtor, including,
without limitation, payments on Receivables (other than intercompany Receivables
so long as there exists no Event of Default, it being understood and agreed that
any such payments on intercompany Receivables will be treated as any other
Receivable after the occurrence of an Event of Default) and Documents and other
payments from sales or leases of Inventory, shall be held by the Debtor in trust
for the Bank in the same medium in which received, shall not be commingled with
any assets of the Debtor, and shall be delivered immediately to the Bank. The
Debtor agrees to pay to the Bank promptly when billed the Bank's standard fees
for operating the Lockbox. The Debtor hereby grants, bargains, conveys and sets
over to the Bank a security interest in and lien upon the Lockbox, the
Restricted Account, the Debtor's Account and any other account established by
the Debtor with the Bank or any affiliate thereof, and all cash and any other
assets at any time hereafter contained therein. Amounts received in the Lockbox
shall be deposited upon collection into the Restricted Account, and the Bank
will apply all amounts so received against the Borrower's Obligations or the
Debtor's Obligations on a daily basis, as collected.
22
ARTICLE III
SECURITY
3.1 Collateral. As security and collateral for the repayment of the
Debtor's Obligations and the Borrower's Obligations and the payment of all other
liabilities of the Debtor or the Borrower to the Bank, whether absolute or
contingent, matured or unmatured, direct or indirect, similar or dissimilar, due
or to become due or heretofore or hereafter contracted or acquired, however and
wherever arising and whether or not arising hereunder, under any of the other
Financing Documents, or in connection with any of the transactions described
herein or therein or under any other documents, instruments or agreements, the
Debtor hereby assigns, pledges and grants to the Bank, and agrees that the Bank
shall have a perfected (except as the Bank's remedies may be limited at any time
by the absence of full compliance with the Federal Assignment of Claims Act, the
Federal Assignment of Contracts Act, any state or local law equivalent of either
of the foregoing, and as a result of matters relating to copyrights, trademarks
and patents set forth in the next paragraph) and a continuing security interest
in, and lien on, all of the following (collectively, the "Collateral"): (a) all
of the Debtor's Accounts, Inventory, Chattel Paper, Documents, Instruments,
General Intangibles, and Equipment (whether or not fixtures), whether now owned
or existing or hereafter acquired or arising, other than vehicle leases and
equipment leases, (b) all returned, rejected or repossessed goods, the sale or
lease of which shall have given or shall give rise to an Account or Chattel
Paper, (c) all insurance policies relating to the foregoing, (d) all books and
records in whatever media (paper, electronic or otherwise) recorded or stored,
with respect to the foregoing and all equipment and general intangibles
necessary or beneficial to retain, access and/or process the information
contained in those books and records, (e) the Lockbox, the Debtor's Account, the
Restricted Account and any other account maintained by the Debtor with the Bank
and all cash held therein; and (f) all cash and non-cash proceeds and products
of the foregoing.
Except as set forth in Schedule 3.1, the Debtor has no ownership
interest in any of the following (hereinafter collectively referred to as
"Registered Properties"): (i) any patent issued by, or any invention for which a
patent application is pending in, the U.S. Patent and Trademark Office; (ii) any
trademark registered by, or for which an application for registration is pending
in, the U.S. Patent and Trademark Office; or (iii) any copyright registered by,
or for which an application for registration is pending in, the U.S. Copyright
Office. If any inventions, trademarks or copyrights of the Debtor hereafter
become Registered Properties or if the Debtor hereafter obtains an ownership
interest in any Registered Properties, the Debtor will immediately notify the
Bank in writing. If the Bank requests, the Debtor will cause the Bank's first
priority security interest in any or all such Registered Properties to be
appropriately recorded in the appropriate office pursuant to documentation in
form and substance satisfactory to the Bank in its sole and absolute discretion.
The Debtor further agrees that the Bank shall have in respect of the
Collateral all of the rights and remedies of a secured party under the Uniform
Commercial Code of Pennsylvania and of all other states in which any portion of
the Collateral may be located, as well as those provided in this Security
Agreement, under each of the other Financing Documents and under applicable
laws.
3.2 Location of Collateral; Principal Place of Debtor's Business. The
Debtor agrees to keep the Bank informed as to the location of the Collateral and
the address of its principal place of business (which are, and will be, as set
forth on Schedule 4.12, subject to the provisions of this section all allowing
for changes in certain circumstances), give the Bank prior notice of any
contemplated change of location or the address of its principal place of
business, and not change the location of any of the Collateral or the address of
its principal place of business, without, in the case of a change to another
location in the continental United States, 30 days' prior written notice to the
Bank and, in the case of a change to another location outside the continental
United States, 30 days' prior written notice to and the prior written consent of
the Bank. Without limiting the generality of the foregoing, (a) the Debtor's
23
principal place of business and chief executive office shall at all times be
within the State of Utah and (b) the Debtor shall notify the Bank in writing
immediately (i) if and when the aggregate value (as determined in accordance
with United States generally accepted accounting principles) of Collateral (in
the case of Inventory, the lower of cost, as determined by the average cost
method, or market) in any state of the United States equals or exceeds $500,000
(other than Tempe, Arizona, where the Debtor now maintains assets); and (ii) if
and when the aggregate value (as determined in accordance with United States
generally accepted accounting principles) of assets (in the case of inventory,
the lower of cost, as determined by the average cost method, or market) of its
Subsidiaries exceeds $1,500,000.
3.3 Loss of Collateral. The Bank shall not be liable for any loss of any
Collateral in its possession, nor shall such loss diminish the debt due, except
to the extent such loss is caused by the Bank's willful misconduct or gross
negligence.
3.4 Filing of Financing Statements; Perfection of Security Interest in
Collateral. The security interest created by this Security Agreement shall be
perfected by the filing of financing statements which fully comply with Article
9 of the Uniform Commercial Code, as adopted by each of the states in which the
Collateral may be located, in such form and in such offices as may be required
by the Bank. The parties agree that:
(a) with respect to any such financing statement, a carbon,
photographic or other reproduction of a security agreement or a
financing statement is sufficient as a financing statement for purposes
of Section 9-402 of the Uniform Commercial Code;
(b) if at any time any of the information contained in any
financing statement filed in connection with the security interests
created by this Security Agreement, including without limitation, the
location or description of the Collateral or the Debtor's name or
address of its principal place of business, or chief executive office
shall change in such manner as to cause such financing statement to
become misleading in any material respect or as may impair the
perfection of the security interests intended to be created by this
Security Agreement, then the Debtor will cooperate with the Bank in
promptly preparing and executing an amendment to such financing
statement, or a new financing statement, as may be necessary to continue
the perfection of the security interest intended to be created by this
Security Agreement which amendment or new financing statement will be
filed in any office where such amendment or financing statement is
required to be filed to continue the perfection of the security
interests created by this Security Agreement;
(c) upon the request of the Bank, the Debtor shall prepare, have
executed and file any amendments to the financing statements filed with
respect to the security interests created by this Security Agreement in
such form as the Bank may require;
(d) the Bank may, and the Debtor hereby irrevocably appoints the
Bank as the Debtor's attorney-in-fact to, take any action the Bank deems
necessary to perfect or maintain perfection of any security interest
granted to the Bank herein or in connection herewith (but only to the
extent that the perfection is contemplated hereunder), including the
execution of any document on the Debtor's behalf, granting unto the
Debtor's said attorney full power to do any and all things necessary to
be done with respect to the above transactions as fully and effectually
as the Debtor might or could do, and hereby ratifying all that said
attorney shall lawfully do or cause to be done by virtue hereof; this
power of attorney is coupled with an interest and irrevocable until all
of the Debtor's Obligations and Xxxxxxxx's Obligations are paid in full
and the Bank has no further obligation under the Loan Agreement;
24
(e) the Debtor shall bear all costs, fees and expenses of or
relating to any and all of the filings described in this Section 3.4,
including any recordation taxes payable as a result of such filings; and
(f) upon request by the Bank, the Debtor shall provide, at its
expense, an opinion of counsel as to the effectiveness and perfection of
the Bank's lien on the Collateral or any portion thereof.
3.5 Waivers. If any of the Collateral or any of the books and records
relating thereto are at any time to be located on premises leased by the Debtor
or on premises owned by the Debtor subject to a mortgage or other lien in favor
of a Person other than the Bank, the Debtor shall use its best efforts in good
faith to obtain and deliver to the Bank, prior to the delivery of any Collateral
or books and records to said premises, or as soon thereafter as possible, an
agreement in form satisfactory to the Bank, waiving the landlord's or
mortgagee's or lienholder's rights to enforce any claim against the Debtor for
moneys due under the lease, mortgage or other lien by xxxx of distraint or other
similar proceeding against the Collateral or the books and records relating
thereto and assuring the Bank's ability to have access to the Collateral and the
books and records relating thereto to exercise its rights hereunder to take
possession thereof.
3.6 Bank's Rights with Respect to Accounts, Chattel Paper, General
Intangibles and Instruments. (a) With respect to any Accounts, Chattel Paper,
General Intangibles and Instruments, the Bank shall have the right at any time
and from time to time, whether or not there then exists a Default or Event of
Default: (i) to endorse in the name of the Debtor all proceeds of the Accounts,
Chattel Paper, Instruments and General Intangibles payable to the Debtor that
may come to the Bank and (ii) to take control of any cash or noncash proceeds of
any Account, Chattel Paper, Instrument, and/or General Intangibles for the
purpose of application to pay down the Debtor's Obligations or the Borrower's
Obligations.
(a) With respect to any Accounts, Chattel Paper, General Intangibles and
Instruments, the Bank shall have the right at any time and from time to time,
after an Event of Default: (i) to compromise, extend or renew any Account,
Chattel Paper, Instrument, or General Intangible or deal with the Debtor's
Accounts, Chattel Paper, Instruments and General Intangibles as the Bank may
deem advisable; (ii) to make exchanges, substitutions, or surrenders of
collateral; (iii) to communicate with Account Debtors and the Debtor's
accountant to verify account balances and any information provided by the
Debtor; and (iv) to notify an Account Debtor that the Account or General
Intangible payable by such Account Debtor has been assigned to the Bank and is
to be paid directly and solely to the Bank.
3.7 Accounts. (a) With respect to each Account, the Debtor represents
that: (i) such Account is not evidenced by a judgment, an Instrument or Chattel
Paper or secured by a letter of credit (except (A) such judgment as has been
assigned to the Bank, or (A) such Instrument or Chattel Paper as has been
endorsed and delivered to the Bank or (C) such letter of credit as provides for
payment to be negotiated only at the Bank's counters, or, alternatively,
provides that payment be made solely to the Restricted Account) and represents a
bona fide transaction; (ii) the amount thereof shown on the Debtor's books and
records and on any list, invoice or statement furnished to the Bank is owing to
the Debtor; (iii) the title of the Debtor to the Account and, except as against
the Account Debtor, to any goods represented thereby is absolute; (iv) the
Account has not been transferred to any other Person, and no Person except the
Debtor has any claim thereto or, with the sole exception of the Account Debtor
therefor, to the goods represented thereby; (v) except as previously disclosed
to the Bank and/or stated on the Debtor's financial statements previously
delivered to the Bank, no partial payment against any Account has been made by
anyone; (vi) except as previously disclosed to the Bank and/or stated on the
Debtor's financial statements previously delivered to the Bank, no set-off or
counter-claim in a material amount to such Account exists, and no agreement has
25
been made with any Person under which any deduction or discount in a material
amount may be claimed; and (vii) the Debtor has notified and shall notify all
Account Debtors and has indicated and shall indicate on all xxxxxxxx and
statements to Account Debtors that payments thereon are to be made solely to the
Lockbox. All invoices shall direct payment to the address set forth in the
Lockbox Agreement.
(a) The Debtor will (i) furnish to the Bank, upon the Bank's request,
copies, with such duplicate copies as the Bank may request, of any invoice
applicable to each of its Accounts; (ii) make no material change in the payment
terms of any Account, Chattel Paper or Instrument in an amount or evidencing an
obligation equal to $250,000 or more without notifying the Bank of the change in
writing; (iii) furnish the Bank upon the Bank's request with all information
received by the Borrower affecting the financial standing of any Account Debtor;
(iv) if requested by the Bank, mark the Debtor's records concerning each of its
Accounts, Chattel Paper, Instruments, or General Intangibles in a manner
satisfactory to the Bank so as to show that each Account, Chattel Paper,
Instrument or General Intangible has been assigned to the Bank; (v) if requested
by the Bank, furnish the Bank with evidence satisfactory to the Bank of the
shipment and receipt of any goods and the performance of any services
represented by any Accounts; and (vi) inform the Bank immediately of any default
by any Account Debtor in connection with any Account, Chattel Paper, Instrument,
or General Intangible.
3.8 Chattel Paper; Letters of Credit and Instruments. The Debtor
represents and warrants to the Bank that it has delivered to the Bank and
covenants that it will deliver to the Bank promptly on receipt all originals of
(a) letters of credit securing Accounts, (b) Chattel Paper and (c) Instruments
now in its possession or hereafter acquired, each properly assigned and/or
endorsed over to the Bank, which letters of credit, Chattel Paper and
Instruments shall be held by the Bank as security hereunder, or, at the Bank's
option, endorsed for payment. The Debtor shall remain solely responsible for the
observance and performance of all of the Debtor's covenants and obligations
under all Chattel Paper and Instruments, and the Bank shall not be required to
observe or perform any such covenants or obligations.
3.9 Equipment and Inventory. The Debtor represents, warrants and agrees
that (a) the Debtor is the absolute owner of its Inventory, Equipment and
Documents, subject only to the security interests created hereby and Permitted
Liens; (b) the Debtor will sell its Inventory only in the ordinary course of
business and as otherwise permitted hereunder; (c) after the occurrence of an
Event of Default, the Bank shall have the right to take possession of Inventory
and the Debtor hereby assigns to the Bank its right of stoppage in transit with
respect to such Inventory; the Debtor will repay the Bank promptly for all
reasonable costs of transportation, packing, storage and insurance of any such
possession, together with interest at the highest rate payable hereunder, at the
time the Bank pays such costs; and the Debtor's liability to the Bank for such
repayment with interest shall be included in the Debtor's Obligations and the
Borrower's Obligations; (d) if any such Inventory is or becomes represented by a
Document, the Bank may require that such Document be in such form as to permit
the Bank or anyone to whom the Bank may negotiate the same to obtain delivery to
it of the Inventory represented thereby; and (e) all of the Debtor's Equipment
as of the date hereof is set forth on Schedule 3.9 attached hereto and is of a
type in which a security interest is to be perfected solely by filing a
financing statement under the Uniform Commercial Code, as adopted in the various
states, except for motor vehicles owned by the Debtor, and if in the future the
Debtor acquires any equipment of a type in which a security interest is to be
perfected in a manner other than by or in addition to filing a financing
statement under the Uniform Commercial Code, as adopted in the various states,
the Debtor shall promptly notify the Bank thereof and take such steps as are
necessary to perfect the Bank's security interest therein.
3.10 Condition of Inventory and Equipment. The Debtor will promptly
notify the Bank of any casualty or similar event which results in a material
decline in the value of any substantial portion of its Inventory or Equipment
and the amount of such decline in value.
26
3.11 Notices. If notice of sale, disposition or other intended action by
the Bank with respect to the Collateral is required by the Uniform Commercial
Code or other applicable law, any notice thereof sent to the Debtor at the
address listed in Section 9.1 or such other address of the Debtor as may from
time to time be shown on the records of the Bank, at least five Business Days
prior to such action, shall constitute reasonable notice to the Debtor.
3.12 Discharge of Taxes, Etc. The Bank shall have the right, at any time
and from time to time, without notice to the Debtor to (a) discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
any of the Collateral, and (b) pay for the maintenance and preservation of any
of the Collateral. The Debtor will reimburse the Bank, on demand, with interest
thereon at the highest rate payable under the Loan Agreement, for any payment
the Bank makes, or any expense the Bank incurs, under this authorization.
3.13 Waiver and Release by the Debtor. The Debtor (a) waives protest of
all commercial paper at any time held by the Bank on which the Debtor is in any
way liable, notice of nonpayment at maturity of any and all Accounts,
Instruments, Chattel Paper or General Intangibles of the Debtor and, except
where required hereby or by law, notice of action taken by the Bank, and (b)
releases the Bank from all claims for loss or damage caused by any failure to
collect any Account, Instrument, Chattel Paper or General Intangible or by any
act or omission on the part of the Bank or its officers, agents and employees,
except for gross negligence and willful misconduct.
3.14 Custody of Inventory and Equipment. Upon demand by the Bank after
the occurrence of an Event of Default, the Debtor shall assemble its Inventory
and Equipment and make it available to the Bank at the Debtor's place of
business. At the request of the Bank, after the occurrence of an Event of
Default, the Debtor shall provide warehousing space in its own premises to the
Bank for the purpose of taking Inventory and Equipment into the custody of the
Bank without removal thereof from such premises and will post such signs as the
Bank may reasonably require to place such Inventory and Equipment under the
exclusive control of the Bank.
3.15 Records and Reports. The Debtor shall keep accurate and complete
records of its Accounts (and the collection thereof), Chattel Paper,
Instruments, Documents, Equipment, Inventory, and General Intangibles
(including, without limitation, making all necessary entries therein to reflect
the quantities, costs, values and location of its Inventory, and the
transactions and facts giving rise to its Accounts, General Intangibles, Chattel
Paper, Instruments and Documents and payments, credits and adjustments
applicable thereto), and furnish the Bank such information about the Debtor's
Accounts, Chattel Paper, Instruments, Documents, Equipment, Inventory and
General Intangibles, as the Bank may reasonably request.
3.16 Application of Proceeds of Collateral. After an Event of Default,
all proceeds of Collateral shall be applied (a) to the costs of preservation and
liquidation of such Collateral and the Bank's exercise of its rights hereunder,
then (b) to principal, interest and other amounts owing hereunder or in
connection herewith in such order as the Bank, in its sole discretion, shall
determine, then (c) into the Debtor's Account.
3.17 Continuing Collateral. The Bank shall be under no obligation to
proceed first against any part of the Collateral before proceeding against any
other part of the Collateral. It is expressly agreed that all of the Collateral
stands as equal security for all Debtor's Obligations and Xxxxxxxx's Obligations
and the Bank shall have the right to proceed against or sell any and/or all of
the Collateral in any order, or simultaneously, as it, in its sole discretion,
shall determine.
27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into the amendment to the Loan Agreement
described in the Background section hereof and to allow advances by the Borrower
to the Debtor, the Debtor represents and warrants to the Bank as follows:
4.1 Ownership; Subsidiaries; etc. (a) Schedule 4.1 attached hereto
states as of the date hereof the authorized capitalization of the Debtor and
each of its Subsidiaries (including capital stock of the Debtor and each
Subsidiary held in Treasury), the number of shares of each class of capital
stock issued and outstanding of the Debtor and each Subsidiary and the number
and percentage of outstanding shares of each such class of capital stock and the
names of the record and beneficial owners of such shares. The outstanding shares
have been duly authorized and validly issued and are fully paid and
nonassessable. Schedule 4.1 to this Security Agreement describes as of the date
hereof all outstanding options, rights and warrants issued by the Debtor and
each Subsidiary for the acquisition of shares of the capital stock of the Debtor
or such Subsidiary, as the case may be, all outstanding securities or
obligations convertible into such shares and all agreements by the Debtor or
such Subsidiary, as the case may be, to issue or sell such shares. Schedule 4.1
to this Security Agreement describes as of the date hereof all options, sale
agreements, pledges, proxies, voting trusts, powers of attorney and other
agreements or instruments binding upon the Debtor's and/or each Subsidiary's
shareholders with respect to beneficial or record ownership of or voting rights
with respect to shares of the capital stock of the Debtor and each Subsidiary.
(a) The Debtor has no Subsidiaries other than as set forth on Schedule
4.1.
4.2 Good Standing. The Debtor (a) is a corporation duly organized and
existing, in good standing, under the laws of the jurisdiction of its
incorporation, (b) has the corporate power to own its property and to carry on
its business as now being conducted, and (c) is duly qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it therein or in which the transaction of its business makes
such qualification necessary.
4.3 Corporate Authority. The Debtor has full corporate power and
authority to enter into and execute and deliver this Security Agreement and each
of the other Financing Documents executed and delivered by the Debtor, and to
incur and perform the Debtor's Obligations and the Borrower's Obligations
provided for herein and therein, all of which have been duly authorized by all
proper and necessary corporate action and all material governmental licenses,
authorizations, consents and approvals required. No consent or approval of
stockholders or of any other person or public authority or regulatory body is
required as a condition to the validity or enforceability of this Security
Agreement or any of the other Financing Documents, or if required the same has
been duly obtained.
4.4 Binding Obligations. This Security Agreement and each of the other
Financing Documents executed and delivered by the Debtor have been properly
executed by the Debtor, constitute valid and legally binding obligations of the
Debtor, and are fully enforceable against the Debtor in accordance with their
respective terms, subject only to the effect upon enforceability of applicable
bankruptcy, insolvency, and other similar laws affecting the rights of creditors
generally and the exercise of judicial discretion in accordance with general
principles of equity.
4.5 Litigation. There is no litigation or proceeding pending or, so far
as the Debtor knows, threatened before any court or administrative agency which,
in the opinion of the officers of the Debtor, will materially adversely affect
the financial condition or operations of the Debtor, or the ability of the
28
Debtor to pay and perform in full the Debtor's Obligations or the Borrower's
Obligations or the authority of the Debtor to enter into, or the validity or
enforceability of, this Security Agreement or any of the other Financing
Documents executed and delivered by the Debtor.
4.6 No Conflicting Agreements. There is (a) no charter, bylaw or
preference stock provision of the Debtor and no provision of any existing
contract or agreement binding on the Debtor or affecting its properties, and (b)
to the knowledge of the Debtor, no law binding upon the Debtor or affecting any
of its property, which would conflict with or in any way prevent the execution,
delivery or performance of the terms of this Agreement or of any of the other
Financing Documents executed and delivered by the Debtor, or which would be in
default or violated as a result of such execution, delivery or performance.
4.7 Financial Condition. (a) The audited consolidated and consolidating
financial statements of GSE and its Subsidiaries as of December 31, 1996, and
the interim, management-prepared consolidated and consolidating financial
statements of GSE and its Subsidiaries as of March 31, 1997, and (b) the
financial statements of the Debtor, as of March 31, 1997, together with
statements of profit and loss and of surplus for the periods then ended, all of
which have been delivered to the Bank, are complete and correct and fairly
present the financial position of the Debtor and GSE and the results of their
operations and transactions in their equity account(s) as of the dates and for
the periods referred to and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period involved except as previously disclosed to the Bank. There are no
liabilities (of the type required to be reflected on balance sheets prepared in
accordance with generally accepted accounting principles), direct or indirect,
fixed or contingent, of the Debtor or GSE as of the dates of such balance sheets
which are not reflected therein or in the notes thereto, except as previously
disclosed to the Bank in writing. There has been no material adverse change in
the financial condition or operations of the Debtor or GSE since the date of the
financial statements referenced above (and to the Debtor's knowledge no such
material adverse change is pending or threatened) except as previously disclosed
to the Bank in writing, and neither the Debtor nor GSE has guaranteed the
obligations of, or made any investment in or loans to, any Person except as
disclosed in such balance sheets. Each of the Debtor and GSE have good and
marketable title to all of their properties and assets, and all of such
properties and assets are free and clear of encumbrances, except as reflected on
such balance sheets or in the notes thereto.
4.8 Tax Returns. The Debtor has filed or caused to be filed all required
federal, state and local tax returns and has paid all taxes as shown on such
returns to the extent that such taxes have become due or has obtained valid
extensions of time in which to file such federal, state or local tax returns. No
claims have been assessed and are unpaid with respect to such taxes except as
shown in the financial statements referred to in Section 4.7 above.
4.9 Compliance with Laws Generally. The Debtor is not in violation of
any law, ordinance, governmental rule or regulation to which the Debtor is
subject (including, without limitation, any laws relating to employment
practices or to environmental, occupational and health standards and controls)
and the violation of which would have a material adverse effect on the conduct
of the Debtor's business, and the Debtor has obtained any and all licenses,
permits, franchises and other governmental authorizations necessary for the
ownership and operation of its properties and business.
4.10 Licenses. The Debtor has obtained all necessary licenses, permits
and authorizations required for the conduct of its business.
4.11 Liens on Collateral. Other than the Permitted Liens, the Collateral
and the other assets of the Debtor are free and clear of mortgages, pledges,
liens, charges and other encumbrances.
29
4.12 Names under which Debtor Does Business; Principal Place of
Business. The Debtor has never done business under any other name. The principal
place of business of the Debtor, within the meaning of the Uniform Commercial
Code, which is its chief executive office and the office in which it keeps all
of its records concerning Receivables and Inventory, is located at Salt Lake
City, Utah. The Debtor maintains no other place of business except as set forth
on Schedule 4.12.
4.13 Real Property. The Debtor owns no real estate.
4.14 Margin Stock. None of the proceeds of the Loan or the Letters of
Credit will be used, directly or indirectly, by the Debtor for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any "margin
security" within the meaning of Regulation G (12 CFR Part 207), or "margin
stock" within the meaning of Regulation U (12 CFR Part 221), of the board of
Governors of the Federal Reserve System (herein called "margin security" and
"margin stock") or for any other purpose which might make the transactions
contemplated herein a "purpose credit" within the meaning of said Regulation G
or Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.
4.15 ERISA and Code. Neither the Debtor nor any Commonly Controlled
Entity maintains and/or contributes to, or has ever maintained or contributed
to, any Defined Benefit Plan other than the Simulation, Systems & Services
Technologies Company Union Pension Plan (the "Union Plan"), which was terminated
effective August 4, 1996. All assets of the Union Plan were distributed on or
before September 3, 1994. Except as specifically disclosed to the Bank in
writing prior to the date of this Agreement:
(a) no Reportable Event has occurred with respect to the Union
Plan;
(b) [intentionally omitted]
(c) no liability (whether or not such liability is being
litigated) has been asserted against the Debtor or any Commonly
Controlled Entity in connection with the Union Plan by the PBGC or by a
trustee appointed pursuant to Section 4042(b) or (c) of ERISA, and no
lien has been attached and no person has threatened to attach a lien to
any property of the Debtor or any Commonly Controlled Entity as a result
of any failure of the Union Plan to comply with the Code or ERISA;
(d) neither the Debtor nor any Commonly Controlled Entity
maintains any employee welfare benefit plan providing for retiree health
and/or life benefits other than (i) such continuation of benefit
coverage as is required by law, (ii) coverage for a closed group of four
retired former employees (and their families, if any) under the health
benefit program for active employees, which coverage will continue only
until each retiree attains age 65 (at which time, such persons shall
become eligible for benefits under the Medicare supplemental program
referred to in subparagraph (iii) below), (iii) a Medicare supplemental
program for a present group of seven retirees (and a maximum group of 11
retirees) with a lifetime claim maximum of $15,000 per retiree; and (iv)
a death benefit for each retiree described in subparagraphs (ii) and
(iii) above not to exceed $10,000 per retiree, except for one retiree
having a death benefit not to exceed $30,000; and
(e) neither the Debtor nor any Commonly Controlled Entity
maintains or makes contributions to, or has ever been required to make
contributions to, any Multiemployer Plan.
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4.16 Governmental Consents. Neither the nature of the Debtor's business
or properties, nor any relationship between the Debtor and any other entity or
person, nor any circumstance in connection with the extension of the Loan,
advances to the Debtor by the Borrower or the issuance of the Letters of Credit
is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Authority, on the part of
the Debtor, as a condition to the execution and delivery of this Security
Agreement or any of the other Financing Documents.
4.17 No Default or Event of Default. No event has occurred which would
constitute a Default or an Event of Default under this Security Agreement or any
of the other Financing Documents. The Debtor is not in default under the terms
of any other agreement or instrument to which the Debtor may be a party or by
which any of the Collateral may be bound or subject and which would have a
material adverse effect on the Debtor's ability to pay or perform its
obligations under this Security Agreement or any of the other Financing
Documents.
4.18 Full Disclosure. To the best of the Debtor's knowledge, no
representation or warranty by the Debtor in this Security Agreement and no
information in any other Financing Document or any statement, certificate,
schedule or other document furnished or to be furnished to the Bank pursuant
hereto, or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact or fails or will fail to
state a material fact necessary to make the statements contained herein or
therein not misleading. Except as disclosed in this Security Agreement, there is
no fact known to the Debtor which the Debtor has not disclosed to the Bank in
writing which materially adversely affects, or, so far as the Debtor can now
foresee, may materially adversely affect, the business, financial condition or
results of operations of the Debtor.
4.19 Officers and Directors of the Debtor. Schedule 4.19 attached hereto
states as of the date hereof the officers and directors of the Debtor.
4.20 Business. The business of the Debtor as presently conducted and
presently planned to be conducted is (i) technical training for professional and
continuing education students which includes Novell, Microsoft and other similar
types of database and computer tool training; (ii) computer hardware sales,
including mid-range computer, workstations and network computing; (iii) computer
software sales ranging from the complete line of Microsoft products to Sybase,
Oracle and other computer database and tool producers; (iv) client/server,
Internet, and database software consulting and development, including the
creation of custom applications, custom upgrades and professional testing
services; and (v) staff augmentation, where consultants are sent to a client
site under the client's supervision.
4.21 Employee Controversies. There are no material controversies pending
or, to the knowledge of the Debtor, threatened or anticipated between the Debtor
and any of its employees, and there are no labor disputes, grievances,
arbitration proceedings or any strike, work stoppages or slow downs pending or,
to the Debtor's knowledge, threatened between the Debtor and its employees and
representatives which could impair the ability of the Debtor to perform its
obligations hereunder or under any other Financing Document, or which has had,
or is likely to have, a material adverse effect on the financial condition of
the Debtor.
4.22 Environmental Matters.
(a) The Debtor and all of its operations are in material compliance with
all of the Environmental Laws. To the extent necessary for the conduct of its
business, the Debtor is in possession of, and in material compliance with, all
permits, licenses, registrations, and authorizations required under the
31
Environmental Laws. All such permits, licenses, registrations, and
authorizations are currently in effect; no proceeding is pending or, to the best
of the Debtor's knowledge, threatened to modify, suspend, revoke, withdraw, or
otherwise limit such permits, licenses, registrations, and authorizations; and
no administrative or governmental action has been taken or, to the best of the
Debtor's knowledge, threatened in connection with the expiration or renewal of
such permits, licenses, registrations or authorizations. The Debtor has not
received any notice of violation, citation, complaint, request for information,
order, directive, compliance schedule, notice of claim, proceeding, or
litigation, from any party, relating to its compliance with the Environmental
Laws.
(b) The Debtor does not generate, store, recycle, process, transport,
dispose of or release any "Hazardous Substances," as defined herein, except in
compliance with the Environmental Laws. To the best of the Debtor's knowledge,
there are no conditions on, about or arising from any properties where the
Debtor conducts business which may give rise to liability, the imposition of a
statutory lien, or require "Response," "Removal" or "Remedial Action," as
defined herein, under any of the Environmental Laws which would have a material
adverse effect on the Debtor, its business or its properties.
(c) The Debtor has not received any request for information, claim,
demand, or other notification that it is or may be potentially responsible or
liable for any Response, Removal or Remedial Action at any site, including
properties not owned, operated or leased by or to the Debtor. Hazardous
Substances generated by the Debtor have never, directly or indirectly, to the
best of the Debtor's knowledge, been sent, transferred, or transported to, or
treated, stored or disposed of at any site listed or formally proposed for
listing on the National Priorities List promulgated pursuant to CERCLA.
(d) There are no pending, or, to the best of the Debtor's knowledge,
past or threatened investigations, actions, claims and proceedings of any nature
whatsoever against the Debtor, including third party claims based upon
negligence, trespass, strict liability, nuisance or toxic tort, arising out of
or in any way related to any Hazardous Substance or any alleged violation of the
Environmental Laws.
ARTICLE V
CONDITIONS PRECEDENT
5.1 General Conditions Precedent. It is a condition to the effectiveness
of this Security Agreement that the Borrower and the Bank shall have entered
into the amendment to the Loan Agreement described in the Background section
hereof that the Bank shall have received all of the following, in form and
substance satisfactory to the Bank:
(a) A copy, certified in writing by the Secretary or an
Assistant Secretary of the Debtor, of (1) resolutions of the Board of
Directors of the Debtor evidencing approval of the Financing Documents
by the Debtor and the matters contemplated thereby, and (2) each
document evidencing other necessary corporate action and governmental
approvals, if any, with respect to the Financing Documents;
(b) A favorable opinion of counsel for the Debtor and its
Subsidiaries covering such matters as the Bank shall reasonably require;
(c) A written certificate by the Secretary or an Assistant
Secretary of the Debtor as to the names and signatures of the officers
of the Debtor authorized to sign the Financing Documents to which the
Debtor is a party and the other documents or certificates of the Debtor
to be executed and delivered pursuant thereto;
32
(d) Recent certificates, issued by the Secretary of State of
each jurisdiction where the Debtor is incorporated or is, or is required
to be, authorized to do business, stating that the Debtor is a
corporation duly incorporated or authorized to do business (as the case
may be) and in good standing under the laws of such jurisdictions;
(e) This Security Agreement executed by the Debtor;
(f) The Debtor's Master Note executed by the Debtor;
(g) Confirming letter re: Master Letter of Credit Agreement
executed by the Debtor;
(h) Confirming letter re: Lockbox Agreement in the form attached
hereto as Exhibit 5.1(H);
(i) The Debtor's Guaranty;
(j) Payment by the Debtor of the fees referred to in Section 9.3
hereof;
(k) Certificates of insurance issued in the name of the Bank,
showing the Bank as a lender loss payee and/or additional insured, as
the case may be, evidencing all insurance coverage as required hereunder
together with copies of the underlying policies (each policy of
insurance must be issued by an insurance company satisfactory to the
Bank, must have premiums therefor prepaid through the first quarter
ending after the date of this Security Agreement, and must provide that
it will not be terminated or otherwise modified adversely to the Bank
without at least 30 days' prior written notice to the Bank) and an
assignment of the proceeds of the business interruption insurance;
(l) A certificate of the Debtor (with supporting evidence if
reasonably required by the Bank) representing to the Bank that (1) the
Debtor has fully complied with all applicable federal, state and local
laws and regulations, including without limitation all Environmental
Laws where failure to so comply could have a material and adverse effect
on the Debtor, its business or its properties; (2) there is no pending
or threatened litigation which, if adversely decided against the Debtor,
could result in a material adverse change in the financial condition or
operations of the Debtor; (3) the representations and warranties
contained herein are true and correct as of the date of this Security
Agreement; (4) no material adverse change has occurred since the date of
the most recent financial statements reviewed by the Bank; (5) no
Default or Event of Default has occurred; (6) no casualty or
condemnation has occurred which affects the Debtor's property; (7) the
Debtor has no Subsidiaries other than as set forth in Section 4.1; and
(8) the Bank has received true and correct copies of all documents
evidencing, executed in connection with, or, in any way, related to the
Debtor's Obligations or Xxxxxxxx's Obligations;
(m) Each other document required by Article III hereof as to the
Collateral and any other documents or condition which the Bank may
reasonably request, including without limitation, a comprehensive list
of all of the Debtor's Inventory and Equipment, its fair market value
and location, and any other document for filing or otherwise in order to
perfect the Bank's security interest in the Collateral as determined by
the Bank in its sole and absolute discretion;
(n) If Collateral is located at a facility that is not owned by
the Debtor, or owned by the Debtor subject to a mortgage or other lien
in favor of a Person other than the Bank, (1) copies of all leases,
33
mortgages or other similar agreements relating to such facility; and (2)
a lien waiver executed by the landlord, mortgagee or other lienholder of
each such facility (provided that such lien waivers will be delivered on
a best efforts in good faith basis);
(o) Satisfactory results of Uniform Commercial Code, judgment
and lien searches, trade checkings and bank audits; and
(p) Such other documents and information as the Bank may
reasonably request.
5.2 Continuing Conditions Precedent. The obligation of the Bank to make
any advance under the Loan Agreement or issue any Letter of Credit, is subject
to the further conditions precedent that:
(a) the representations and warranties contained in this
Security Agreement and in the other Financing Documents shall be correct
and accurate on and as of that date unless the Bank shall otherwise
agree;
(b) no Default or Event of Default shall have occurred; and
(c) no event shall have occurred which, in the Bank's reasonable
opinion, impairs the financial responsibility of the Debtor such that a
material adverse change in the financial condition or operations of the
Debtor could result and there shall not have occurred any material
adverse change in the financial condition or operations of the Debtor.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until payment and performance in full of the Debtor's Obligations and
the Borrower's Obligations, and until the Bank has no further obligation under
the Loan Agreement, the Debtor will perform each of the covenants contained in
this Article VI:
6.1 Financial Statements. The Debtor shall cause to be provided to the
Bank the following financial information, all of which must contain detail
reasonably satisfactory to the Bank:
(a) as soon as available but in no event more than 120 days
after the end of each fiscal year, consolidated balance sheets and
income and expense statements of GSE together with its Subsidiaries
(including, without limitation, the Borrower, the Debtor and their
Subsidiaries), examined and unqualifiedly certified by such independent
accountant as may be satisfactory to the Bank, and consolidating
management- prepared balance sheets and income and expense statements of
GSE and its Subsidiaries (including the Borrower, the Debtor and their
Subsidiaries), prepared in accordance with United States generally
accepted accounting principles consistently applied and certified by the
principal financial officer of GSE and accompanied by a certificate of
that officer stating whether any Default or Event of Default has
occurred under this Security Agreement or any of the other Financing
Documents, and, if so, stating the facts with respect thereto; and
(b) as soon as available but in no event more than 45 days after
the end of each fiscal quarter, consolidated balance sheets of GSE
together with its Subsidiaries (including, without limitation, the
Borrower, the Debtor and their Subsidiaries) and consolidating balance
sheets of all of its Subsidiaries (including, without limitation, the
Borrower, the Debtor and their Subsidiaries), as of the close of such
period and income and expense statements for such period, prepared in
34
accordance with United States generally accepted accounting principles
consistently applied and certified by the principal financial officer of
GSE, and accompanied by a certificate of that officer stating whether
any Default or Event of Default has occurred under this Security
Agreement or any of the other Financing Documents, and, if so, stating
the facts with respect thereto; and
(c) such additional information, reports or statements as the
Bank may from time to time reasonably request.
6.2 Taxes and Claims. The Debtor shall pay and discharge all taxes and
assessments, whether general or special, ordinary or extraordinary, due and
owing by the Debtor to all Governmental Authorities in respect to the Debtor,
any of its properties or assets, franchises, businesses, income or profit, prior
to the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or encumbrance upon any of its properties, other
than those taxes and assessments which are being contested in good faith and for
which adequate reserves in accordance with generally accepted accounting
principles have been set aside.
6.3 Insurance. The Debtor shall provide or cause to be provided to the
Bank, and shall maintain, or cause to be maintained, in full force and effect at
all times prior to the payment and performance in full of the Debtor's
Obligations and the Borrower's Obligations and until the Bank has no further
obligations under the Loan Agreement, such policies of insurance as are normally
maintained by similar businesses operating in the same vicinity as the Debtor,
which are underwritten by a company or companies and are in form and amounts
satisfactory to the Bank, including, by way of example and not by way of
limitation, at least the following:
(a) permanent fire and hazard insurance or property damage
insurance covering any real property improvements owned by the Debtor
and all Equipment and Inventory and other personal property of the
Debtor wherever located, affording protection against at least loss or
damage by fire or other hazards covered by the standard all-risk
"extended coverage" endorsement (non-reporting form), including
vandalism and malicious mischief and such other risks as shall be
customarily covered with respect to similar property or as the Bank may
from time to time otherwise require, in amounts not less than the lesser
of (i) the aggregate principal amount of the Commitment (whether or not
the entire amount of the Commitment is fully utilized by the Borrower
from time to time) and (ii) the maximum amount of such insurance which
is available to the Debtor, containing a standard noncontributing,
non-reporting mortgagee or loss payee clause naming the Bank as
mortgagee and loss payee, as its interest may appear and specifying that
"such policy will not be cancelled without 30 days' prior written notice
to the Bank";
(b) public liability and property damage insurance for the
Debtor to afford protection in amounts of not less than (i) $500,000 per
occurrence and $1,000,000 for all annual occurrences in respect of
bodily injury, and (ii) $250,000 per occurrence and $500,000 for all
annual occurrences in respect of property damage, together with an
endorsement naming the Bank as an additional insured;
(c) business interruption insurance for the Debtor to afford
protection against such events as are customarily covered by such
insurance issued with respect to businesses similar to those conducted
by the Debtor; and
(d) workers' compensation insurance of the Debtor with coverage
limits in accordance with the requirements of applicable laws or
regulations.
35
All of such insurance shall be evidenced by binders or properly endorsed
policies and not merely by certificates.
6.4 Corporate Existence. The Debtor shall maintain in good standing its
existence as a corporation under the laws of the jurisdiction of its
incorporation and its qualification to do business in each jurisdiction in which
such qualification is necessary for the conduct of its business in such
jurisdiction, including, without limitation, the State of Utah.
6.5 Maintenance of Properties. The Debtor shall maintain all of its
properties (including Inventory and Equipment) in good working order and
condition and cause replacements and repairs to be made when necessary for the
proper and advantageous conduct of its business.
6.6 Compliance With Laws Generally. The Debtor shall comply with all
applicable laws, ordinances, governmental rules or regulations to which the
Debtor is or becomes subject (including, without limitation, any laws relating
to employment practices or to environmental, occupational and health standards
and controls).
6.7 Maintenance of Licenses. The Debtor will take all steps necessary to
maintain all licenses, permits, franchises and other governmental authorizations
required for the operation of its business, including but not limited to
validated licenses or permits in connection with its export operations.
6.8 Books and Records; Inspection. (a) The Debtor will keep adequate
records and books of account with respect to its business, in accordance with
generally accepted accounting principles; and permit the Bank, by any of its
respective accountants, attorneys, officers or other agents, to examine such
records and books of account and to discuss the affairs, finances and accounts
relating thereto with officers of the Debtor at its offices at any time during
normal business hours. As part of this requirement, the Debtor will keep such
records as may be necessary to track its working capital needs, by any
appropriate measure as may be approved by the Bank.
(b) The Debtor will permit representatives of the Bank to inspect,
examine and/or audit the Collateral, any of its other property and/or its books
and records and to make extracts therefrom at all reasonable times for purposes
of examination, verification, inspection and appraisal thereof. The Debtor will
permit representatives of the Bank to conduct field examinations of the
Collateral at any time and from time to time during normal business hours. The
Debtor agrees to reimburse the Bank for the cost of such inspections,
examinations and/or audits; provided, however, that prior to an Event of Default
such reimbursed inspections, examinations or audits by representatives of the
Bank shall not occur more frequently than twice annually.
6.9 Notification of Certain Events; Events of Default and Adverse
Developments. The Debtor shall promptly (and in any event within five Business
Days of obtaining knowledge thereof) notify the Bank in writing of the
occurrence of any of the following (in each case describing in detail
satisfactory to the Bank the nature thereof and the action the Debtor proposes
to take with respect thereto):
(a) any Default or Event of Default under this Security
Agreement or any of the other Financing Documents;
(b) litigation or other actions, suits or proceedings before any
court or any governmental or regulatory agency, domestic or foreign,
affecting the Debtor which, if adversely decided, would materially
adversely affect the conduct of its business, the Collateral, its
ability to perform its obligations under any of the Financing Documents,
36
its financial condition, or in any manner impair or affect the security
for the Debtor's Obligations or the Borrower's Obligations or the
ability of the Debtor to pay or perform in full the Debtor's Obligations
or the Borrower's Obligations;
(c) any notice, claim or demand from any Governmental Authority
which alleges that the Debtor is in violation of any of the terms of, or
has failed to comply with, any applicable order issued pursuant to any
federal or state statute regulating its operation of business,
including, but not limited to, the Occupational Safety and Health Act
and the Environmental Protection Act;
(d) the occurrence of any event which the Debtor reasonably
believes may adversely affect the collectibility of any Receivable in
the amount of or evidencing an obligation equal to $250,000 or more,
including (without limitation) the occurrence of an event under any
accounts receivable insurance maintained by the Debtor with respect to
any of the Receivables or the deterioration of the financial condition
of any bank issuing a letter of credit to secure any of the Receivables;
and
(e) any other development in the business or affairs of the
Debtor which could have a material adverse effect on the Debtor or could
adversely affect the security for the Debtor's Obligations or the
Borrower's Obligations or the ability of the Borrower to pay or perform
in full the Debtor's Obligations or the Borrower's Obligations.
6.10 Performance of All Contracts. The Debtor shall perform all of its
obligations under all purchase orders and contracts substantially in accordance
with their terms, as they may be modified from time to time.
6.11 Conditions Precedent to Right to Receive Payment under Purchase
Orders and Contracts. The Debtor shall, as soon as possible, take all actions
necessary to entitle the Debtor to receive any payments due in respect of all
purchase orders and contracts, including (without limitation) the timely drawing
of drafts under any letters of credit issued for the benefit of the Debtor in
connection therewith.
6.12 Further Assurances and Corrective Instruments. The Debtor shall
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, from time to time, such supplements hereto and such further
instruments as may reasonably be required by the Bank for carrying out the
intention of the parties to, or facilitating the performance of, this Security
Agreement or any of the other Financing Documents.
6.13 Lockbox Notices. The Debtor shall from time to time at the request
of the Bank deliver to the Bank evidence satisfactory to the Bank in its sole
and absolute discretion that the Debtor has notified all Account Debtors (other
than intercompany Account Debtors) that all payments are to be made to the
Lockbox and evidence that the Debtor has indicated on all xxxxxxxx and
statements (other than those provided to intercompany Account Debtors) that
payments are to be made solely to the Lockbox.
6.14 Equal Employment. The Debtor shall prohibit discrimination on the
basis of (i) political or religious opinion or affiliation, marital status,
race, color, creed, or national origin, or (ii) sex or age, except where sex or
age constitutes a bona fide occupational qualification, or (iii) the physical or
mental disability of a qualified individual with a disability.
6.15 Management. The Debtor shall notify the Bank promptly and in any
event within two Business Days if there shall occur any change in the identity
of the persons occupying the offices of chief executive officer, president or
executive vice president (or their equivalents).
37
6.16 Environmental Matters.
(a) The Debtor shall comply with all Environmental Laws and, to the
extent necessary for the conduct of its business, shall obtain, maintain, and
comply with all permits, licenses, registrations and authorizations required
under the Environmental Laws. The Debtor shall comply with all governmental
orders, directives, judgments, decrees, awards, administrative consent orders,
settlement agreements, or other settlement documents entered into with any
administrative or governmental agency or entity concerning compliance with the
Environmental Laws.
(b) The Debtor shall not generate, store, recycle, process, transport,
dispose of or release any Hazardous Substances, except in compliance with the
Environmental Laws. The Debtor shall not operate its business in a manner which
may give rise to liability, the imposition of a statutory lien, or require any
Response, Removal or Remedial Action under any of the Environmental Laws. In the
event that conditions are discovered in connection with the operation of the
Debtor's business which may give rise to liability, the imposition of a
statutory lien, or require Response, Removal or Remedial Action under any of the
Environmental Laws, the Debtor shall promptly take all actions, required under
the Environmental Laws. The requirements of this Section and Section 6.16(a) do
not affect the Debtor's rights to defend or take any other action relative to
any claims of any kind instituted against it.
(c) The Debtor shall immediately notify the Bank, in writing, of its
receipt, knowledge or discovery of: (i) any notice of violation, citation,
complaint, request for information, order, directive, compliance schedule,
notice of claim, proceeding, or litigation, from any party, relating to its
compliance with the Environmental Laws; (ii) any request for information, claim,
demand, or notification that it is or may be potentially responsible or liable
for any Response, Removal or Remedial Action at any site, including properties
not owned, operated or leased by or to the Debtor; (iii) any notice of claim,
action, or proceeding of any nature whatsoever against the Debtor, including
third-party claims based upon negligence, trespass, strict liability, nuisance
or toxic tort, arising out of or in any way related to any Hazardous Substance
or any alleged violation of the Environmental Laws and; (iv) any other
information which may give rise to liability of the Debtor, the imposition of a
statutory lien against the Debtor, or require Response, Removal or Remedial
Action by the Debtor under any of the Environmental Laws.
(d) The Debtor indemnifies, defends and holds harmless the Bank, its
parents, subsidiaries, successors, assigns, officers, directors, shareholders,
employees, and agents (the "Bank Parties"), from and against any and all claims,
liabilities, penalties, fines, damages, judgments, losses, suits, actions, legal
or administrative proceedings, interest, costs (including without limitation,
all costs of any required Response, Removal or Remedial Action) and expenses
(including attorneys' fees, consultants fees and expert fees) arising out of or
in any way relating to: (i) the presence of Hazardous Substances on, about,
beneath or arising from any properties where the Debtor conducts its business;
(ii) the failure of the Debtor or any of its Subsidiaries to comply with the
Environmental Laws; and (iii) the Debtor's breach of any of the representations,
warranties and covenants contained herein. The Debtor's Obligations under this
Section shall not include claims arising solely out of the actions of the Bank
Parties. The indemnities contained in this Section shall survive the discharge
of the Borrower's Obligations, foreclosure, or deed in lieu of foreclosure.
6.17 Pension Matters. The Debtor and each Commonly Controlled Entity
will comply in all material respects with the provisions of ERISA and the Code
with respect to any "employee benefit plan," as defined in Section 3(3) of
ERISA. Neither the Debtor nor any Commonly Controlled Entity will adopt any
employee pension benefit plan subject to the minimum funding standards of ERISA
and the Code or become obligated to contribute to any Multiemployer Plan.
Neither the Debtor nor any Commonly Controlled Entity will adopt any employee
welfare benefit plan that provides for post-employment life and/or health
38
benefits (other than such continuation of benefit coverage as is required by law
and the plan described in Section 4.15). The Debtor will not acquire or permit
the acquisition by any Commonly Controlled Entity of any trade or business which
maintains or contributes to any plan described above.
ARTICLE VII
NEGATIVE COVENANTS
Until payment and performance in full of all of the Debtor's Obligations
and the Borrower's Obligations, and until the Bank has no further obligation
under the Loan Agreement, the Debtor agrees that it will not fail to comply with
any of the following covenants:
7.1 ERISA Compliance. Neither the Debtor nor any Commonly Controlled
Entity shall fail to maintain at all times such bonding as is required by ERISA.
7.2 Use of Certain Funds and Letters of Credit. The Debtor will not use
the proceeds of any advances from the Borrower or the Letters of Credit on which
the Debtor is the account party for any purposes other than to meet working
capital needs, including, without limitation, funding to meet reimbursement
obligations under such Letters of Credit.
7.3 Borrowings. The Debtor will not create, incur, assume or suffer to
exist any liability for borrowed money, except:
(a) indebtedness to GSE, Borrower or to any of the stockholders
of GSE, which is created in the normal course of business, subject to
the provisions of Section 7.10; and
(b) indebtedness of the Debtor secured by any purchase money,
lien or permitted by subsection (h) of the definition of "Permitted
Lien".
7.4 Collateral. The Debtor will not sell, transfer or otherwise dispose
of any portion of the Collateral, other than inventory in the ordinary course of
business and as otherwise permitted hereunder, or create, incur, assume or
suffer to exist any mortgage, pledge, lien or encumbrance of any kind upon the
Collateral or any of its other property or assets, whether now owned or
hereafter acquired, except:
(a) Permitted Liens; and
(b) any lien on any property, or interest therein, hereafter
acquired by the Debtor, which is created contemporaneously with such
acquisition to secure or provide for the payment or financing of any
part of the purchase price thereof, and which liens do not, in the
aggregate together with similar liens on such property or interest of
the Borrower, secure indebtedness exceeding $500,000.
7.5 Merger, Acquisition, Dissolution or Sale of Assets. The Debtor will
not, and will not permit any Subsidiary to (a) enter into any merger or
consolidation or dissolution, or (b) acquire, directly or indirectly, any of the
assets (other than inventory, equipment and real estate in the ordinary course
as permitted by the Financing Documents to conduct its business as conducted on
the date of this Security Agreement) of any Person (including without limitation
any division or other operating unit of any Person), (c) sell, lease, or
otherwise dispose of any of its assets, as identified in accordance with United
States generally accepted accounting principles (except inventory and equipment
disposed of in the ordinary course of business, except for obsolete inventory as
39
determined by the board of directors of the Debtor and except for inventory with
a fair market value of no more than $250,000 in the aggregate), (d) make any
material change in its corporate structure or identity, or (e) enter into any
agreement to do any of the foregoing without the prior written consent of the
Bank.
7.6 Change in Nature of Business. The Debtor will not make any material
changes in the basic nature of its business.
7.7 Additional Stock. The Debtor will not issue any additional stock of
any class (except to its existing stockholder as a stock dividend).
7.8 Subsidiaries. The Debtor will not create any Subsidiaries other than
those set forth on Schedule 4.1. The Bank may, in its sole and absolute
discretion, require at any time, or from time to time, that the assets of one or
more of the Subsidiaries become part of the Collateral for the Borrower's
Obligations or the Debtor's Obligations pursuant to documentation that shall be
in form and substance satisfactory to the Bank in its sole and absolute
discretion. The Debtor's aggregate investment in its Subsidiaries shall not
exceed $50,000, provided that for purposes of this Section 7.8 only "investment"
shall not include intercompany Accounts arising from transactions for the
delivery of goods and services with any of its Subsidiaries in the ordinary
course on terms no less favorable to the Debtor or such Subsidiary than would be
obtainable from a Person not an Affiliate (and in any event payment for goods or
services arising from the lending of personnel, selling of merchandise, or
otherwise performing services shall be made on a timely basis (120 days
maximum)), as permitted by Section 7.16(b).
7.9 Contingent Liabilities. Except as specifically permitted by the
terms of this Security Agreement, the Debtor will not assume, guarantee,
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
7.10 Subordination of Amounts Owing to GSE, Subsidiaries or Affiliates.
(a) In the event that the Debtor incurs any obligations to GSE, a
Subsidiary or an Affiliate other than the Borrower (and the Debtor shall incur
no such obligations other than those permitted in Section 7.16), no payments
shall be made in respect to such obligations during any period of time in which
any Debtor's Obligations or Borrower's Obligations remain outstanding, except as
provided in this Section 7.10; and
(b) In the event that the Debtor incurs any obligations to GSE, a
Subsidiary or an Affiliate other than the Borrower as permitted by Section 7.16
(and the Debtor shall incur no such obligations other than those permitted in
Section 7.16), payments may be made in respect of any such obligations, provided
that no Default or Event of Default shall have occurred and the making of any
such payment does not create a Default or Event of Default; no payments shall be
made in respect of any such obligations after the occurrence of a Default or an
Event of Default; and
(c) The Debtor may declare and pay dividends permitted under Section
7.13, provided that no Default or Event of Default shall have occurred and the
declaring or paying of any such dividend does not create a Default or Event of
Default; no dividends shall be declared or paid after the occurrence of a
Default or an Event of Default; and
40
(d) In the event the Debtor has incurred, or in the future incurs, any
obligation to GSE, GSE shall subordinate such obligation as provided as to the
Borrower in Section 1.8 of the GSE Guaranty, in form and substance satisfactory
to the Bank, subject to the provisions hereof.
7.11 Loans. The Debtor will not make loans or advances to any Person,
except for reasonable travel advances to officers and employees made in the
ordinary course of business.
7.12 Investments. The Debtor will not purchase or acquire the
obligations or stock of, or any other or additional interest in, any Person,
except (a) general obligations of, or obligations unconditionally guaranteed as
to principal and interest by, the United States of America, (b) bonds,
debentures, participation certificates or notes issued by any agency or
corporation which is or may hereafter be created by Act of the Congress of the
United States as an agency or instrumentality thereof, (c) public housing bonds,
temporary notes or preliminary loan notes, fully secured by contracts with the
United States, (d) certificates of deposit issued by the Bank, (e) its
Subsidiaries in existence on the date of this Security Agreement, as such levels
may change as a result of stock dividends permitted under the Financing
Documents and (f) any other investments as permitted by the Bank.
7.13 Dividends and Purchase of Stock. The Debtor may declare dividends
on any shares of any class of its stock, or set apart any sum for the payment of
dividends on any shares of any class of capital stock, provided that any amounts
payable as a result thereof shall be subject to Section 7.10 and shall be
treated as subordinated indebtedness under Section 1.8 of the GSE Guaranty as if
the dividends were declared by the Borrower. The Debtor shall obtain GSE's
acknowledgement of such subordination in such event in form and substance
satisfactory to the Bank. The Debtor shall not apply any of its property or
assets to the purchase, redemption, or other retirement of, or set apart any sum
for the purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of any shares of
its capital stock.
7.14 Sale and Leaseback. The Debtor will not directly or indirectly
enter into any arrangement whereby the Debtor shall sell or transfer all or any
substantial part of its fixed assets then owned by it and shall thereupon or
within one year thereafter rent or lease the assets so sold or transferred.
7.15 Sale of Accounts Receivable. The Debtor will not sell, discount,
transfer, assign, or otherwise dispose of any of its Receivables or any other
rights to receive income, revenues or moneys, however evidenced, except in
connection with currently existing extensions of credit by the Bank.
7.16 Transactions with Affiliates and Subsidiaries. The Debtor will not
use any of the proceeds of any advances from the Borrower or the Letters of
Credit on which it is the account party for the benefit of any Subsidiary or
Affiliate except as permitted by the use of proceeds set forth in Section 7.2.
The Debtor will not, and will not permit any of its Subsidiaries to, engage in
any transaction with any Affiliate or Subsidiary of the Debtor unless such
transaction is made on substantially same terms and conditions as the Debtor
would have required in a substantially similar arms length transaction.
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ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
8.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) Failure to Pay Borrower's Obligations or Debtor's
Obligations. (i) The Debtor shall fail to pay the amount of any of the
Borrower's Obligations as and when the same are due and payable in
accordance with the terms of the Loan Agreement or (ii) fail to pay the
Borrower's Obligations or the Debtor's Obligations as and when the same
are due and payable under the other Financing Documents.
(b) Breach of Representations and Warranties. Any representation
or warranty made herein or in any of the Financing Documents, or in any
report, certificate, opinion (including any opinion of counsel for the
Debtor), financial statement or other instrument delivered in connection
with this Security Agreement or any of the other Financing Documents
shall prove to be false or misleading in any material respect when made
(or deemed made) with respect to the Debtor.
(c) Failure to Comply with Covenants. Default shall be made in
the due observance or performance of any covenant, conditions or
agreement contained in Section 6.2, Section 6.3, Section 6.13 (unless
such Default is capable of being cured by a capital contribution or by a
borrowing permitted under Section 7.3 and such Default is so cured
within thirty (30) days after the earlier to occur of (i) a Responsible
Officer shall have become aware of such default or (ii) written notice
of such default shall have been given to the Debtor by the Bank), or
Article VI hereof or there shall exist an Event of Default under and as
defined in the GSE Guaranty or Subsidiary Guaranty.
(d) Other Defaults. Either (i) default shall be made in the due
observance or performance of any other term, covenant or agreement
contained in this Security Agreement and such default shall have
continued unremedied for a period of thirty (30) days after the earlier
to occur of (A) a Responsible Officer shall have become aware of such
default or (B) written notice of such default shall have been given to
the Debtor by the Bank, or (ii) an event of default shall occur under
any of the other Financing Documents.
(e) Default Under Other Indebtedness. Default shall be made with
respect to any other evidence of indebtedness or liability for borrowed
money of the Debtor (i) to the Bank, or any financial institution into
which the Bank is merged or to which it is related or affiliated by
direct or indirect common ownership, or (ii) to any other Person if the
effect of such default is to accelerate the maturity of such evidence of
indebtedness or liability or to permit the holder or obligee thereof to
cause any indebtedness to become due prior to its stated maturity, or
any such indebtedness shall not be paid as and when due and payable.
(f) Receiver; Bankruptcy. The Debtor or the Borrower, GSE or any
Subsidiary of any of such Persons or any Subsidiary shall (i) apply for
or consent to the appointment of a receiver, trustee or liquidator of
itself or any of its property, (ii) admit in writing its inability to
pay its debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated as bankrupt or insolvent, or
(v) file a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution or liquidation law or statute, or an answer admitting
the material allegations of a petition filed against it in any
proceeding under any such law, or if corporate action shall be taken by
any of them for the purposes of effecting any of the foregoing, or (vi)
by any act indicate its consent to, approval or acquiescence in any such
proceeding or the appointment of any receiver of or trustee for it or
any substantial part of its property, or suffers any such receivership,
trusteeship or proceeding to continue undischarged for a period of 30
days.
42
(g) Involuntary Receiver; Bankruptcy. An order, judgment or
decree shall be entered, without the application, approval or consent of
the Debtor or the Borrower, GSE or any Subsidiary of any of such
Persons, as the case may be, by any court of competent jurisdiction,
approving a petition seeking reorganization of such entity, or of all or
a substantial part of its assets or appointing a receiver, trustee or
liquidator of such entity, and such order, judgment or decree shall
continue unstayed and in effect for a period of 30 days.
(h) Judgments. Judgments in excess of $250,000 in the aggregate,
or any attachment or other levy against the property of the Debtor with
respect to a claim, remains unpaid, unstayed on appeal, undischarged,
unbonded, or undismissed for a period of 30 days.
(i) Execution; Attachment. Any execution on a judgment or
attachment in respect of a judgment shall be levied against any of the
Collateral, and such judgment, either alone or when aggregated with any
other such judgments, shall exceed $100,000 in amount and such
executions or attachments shall not be set aside, discharged or stayed
within thirty (30) days after the same shall have been levied.
(j) Transfers of Stock. Any shares, or interests in the shares,
of the capital stock of the Debtor are sold, encumbered, purchased,
redeemed or otherwise transferred.
(k) Liquidation; Dissolution. The Debtor shall begin any
procedure for its liquidation or dissolution or any such procedure is
commenced against it.
(l) Change of Control. There shall occur a Change of Control.
8.2 Remedies. Notwithstanding any provision to the contrary contained in
this Agreement, upon the occurrence of a Default or any Event of Default or upon
receipt by the Bank of any notice which the Debtor is required to give under
Section 6.9 of this Agreement, the Bank may discontinue making advances of the
Loan (except to fund reimbursement obligations under issued and outstanding
Letters of Credit as they arise) and issuing Letters of Credit under the Loan
Agreement in its sole and absolute discretion and will automatically discontinue
making advances of the Loan (except to fund reimbursement obligations under
issued and outstanding Letters of Credit as they arise) and issuing Letters of
Credit under the Loan Agreement if the Default or Event of Default is under
Sections 8.1(f) or (g) of this Agreement.
In addition, upon the occurrence of any Event of Default, and in every
such Event of Default and at any time thereafter, unless such Event of Default
shall be cured to the satisfaction of the Bank, the Bank may exercise any one or
more of the following remedies and will be deemed to exercise the remedies under
Sections 8.2(a) and (b) of this Agreement automatically upon an Event of Default
under Sections 8.1(f) or (g) of this Agreement.
(a) Accelerate Termination Date. Accelerate the Termination Date,
whereupon the Commitment shall terminate as of the accelerated Termination Date,
and all Letters of Credit shall be prefunded as required by Section 3.4(c) of
the Loan Agreement.
(b) Accelerate the Debtor's Obligations. Demand immediate payment in
full of all of the Debtor's Obligations under this Security Agreement and the
other Financing Documents and the Borrower's Obligations under the Loan
Agreement and the other Financing Documents, including (without limitation) all
accrued and unpaid interest thereon, whether or not (i) the Loan has become due
and payable, or (ii) the Standby Letters of Credit may remain outstanding
following repayment of the Borrower's Obligations or the Debtor's Obligations
relating thereto, whereupon all outstanding Debtor's Obligations and Xxxxxxxx's
Obligations shall become immediately due and payable without presentment,
demand, protest, or any other notice of any kind, all of which are hereby
expressly waived, anything contained in this Security Agreement or in the other
Financing Documents to the contrary notwithstanding. In addition, all Letters of
Credit shall be prefunded as required by Section 3.4(c) of the Loan Agreement.
43
The occurrence or non-occurrence of an Event of Default under this Security
Agreement shall in no way affect or condition the right of the Bank to demand
payment at any time of any of the Debtor's Obligations or the Borrower's
Obligations which are payable on demand regardless of whether or not an Event of
Default has occurred.
(c) Liquidation of Security Interest in Collateral. Upon the occurrence
of any Event of Default, and at any time during the continuance thereof, the
Bank shall have, in addition to all other rights and remedies, the remedies of a
secured party under the Uniform Commercial Code, or under any other governing
laws, including, without limitation, the right to take possession of the
Collateral (to which the Debtor hereby specifically consents), and for that
purpose the Bank may, so far as the Debtor can give authority therefor, enter
upon any premises on which the Collateral may be situated and remove the same
therefrom. Upon request of the Bank, the Debtor shall assemble and make the
Collateral available to the Bank at a place to be designated by the Bank. Unless
the Collateral is perishable or threatens to rapidly decline in value, or is of
a type customarily sold on a recognized market, the Bank shall give the Debtor
at least five (5) days' prior notice of the time and place of any public sale or
the time after which any private sale or any other intended disposition is to be
made. The Bank may at any time in its discretion transfer any securities (i.e.,
stock or bonds) or other property constituting the Collateral into its own name
or that of its nominee and receive the income thereon and hold the same as
collateral for Debtor's Obligations and the Borrower's Obligations or apply it
to principal, or interest or other costs, fees or charges due on, or with
respect to, Debtor's Obligations and the Borrower's Obligations. The Debtor
hereby irrevocably constitutes and appoints the Bank as the Debtor's true and
lawful attorney in fact, with full power of substitution, at the sole cost and
expense of the Debtor, but for the sole benefit of the Bank, to convert the
Collateral to cash, including without limitation, completing the manufacturing
process of work in process, and the sale (either public or private) of all or
any portion of the Collateral, to enforce collection of the Collateral, either
in its own name or in the name of the Debtor, compromising or settling with any
account debtors and prosecuting, defending, compromising or releasing any action
relating to the Collateral; to receive, open and dispose of all mail addressed
to the Debtor and to take therefrom any remittances on or proceeds of the
Collateral in which Bank has a security interest; to notify United States Post
Office authorities to change the address for delivery of mail addressed to the
Debtor to such address as the Bank may designate; to indorse the name of the
Debtor in favor of the Bank upon any and all checks, drafts, money orders,
notes, acceptances or other instruments of the same or different nature; to sign
and indorse the name of the Debtor on and to receive as secured party any of the
Collateral, any invoices, schedules of collateral, freight or express receipts
and/or other documents of title of the same or different nature relating to the
Collateral; to sign the name of the Debtor on any notice to the account debtors
or on verification of the Collateral; and to sign and file or record on behalf
of the Debtor any financing or continuation statements or other statements in
order to perfect, keep perfected or protect the Bank's security interest in the
Collateral. The Bank shall not be obliged to do any of the acts or exercise any
of the powers hereinabove authorized, but if the Bank elects to do any such act
or exercise any such power, it shall not be responsible to the Debtor except for
the Bank's own willful misconduct or gross negligence. All powers conferred upon
the Bank by this Security Agreement, being coupled with an interest, shall be
irrevocable as long as any of the Debtor's Obligations or the Borrower's
Obligations to the Bank shall remain unpaid or the Bank shall have any
obligations under the Loan Agreement.
(d) Setoff. Without limiting any other right of the Bank, whenever the
Bank has the right to declare any of the Debtor's Obligations to be immediately
due and payable (whether or not it has so declared), the Bank at its sole
election may setoff against the Debtor's Obligations any and all monies then or
thereafter owed to the Debtor by the Bank in any capacity, whether or not the
Debtor's Obligations have been declared due, or the obligation to pay such
monies owed by the Bank is then due, and the Bank shall be deemed to have
exercised such right of setoff immediately at the time of such election even
though any charge therefor is made or entered on the Bank's records subsequent
thereto.
44
(e) Other Rights and Remedies. In addition to any other rights or
remedies specifically set forth herein, the Bank shall have available to it all
rights and remedies under any other of the Financing Documents and any other
rights and remedies afforded to it at law or in equity.
(f) Performance by Bank. If the Debtor shall fail to pay any of the
Debtor's Obligations or the Borrower's Obligations or the Debtor shall otherwise
fail to perform, observe or comply with any of the conditions, covenants, terms,
stipulations or agreements contained in this Security Agreement or any of the
other Financing Documents, the Bank, without notice to or demand upon the
Debtor, and without waiving or releasing any of the Debtor's Obligations or the
Borrower's Obligations or any Event of Default, and in addition to any rights or
remedies available to it under any of the other Financing Documents, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of the Debtor, and may, to
the extent permitted by law, enter upon the premises of the Debtor for that
purpose and take all such action thereon as the Bank may consider necessary or
appropriate for such purpose. All sums so paid or advanced by the Bank and all
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses) incurred in connection therewith (the "Expense Payments") together
with interest thereon from the date of payment of the advance or the date on
which the expense was incurred until paid in full at the rate of three percent
(3%) per annum in excess of the rate of interest otherwise payable on the
Borrower's Obligations shall be paid by the Debtor to the Bank on demand and
shall constitute and become a part of the Debtor's Obligations and the
Borrower's Obligations.
(g) No Conditions Precedent to Exercise of Remedies. The Debtor shall
not be relieved of any obligation by reason of the failure of the Bank to comply
with any request of the Debtor or of any other Person, to sell any portion of
the Collateral, or otherwise to enforce any provision of the Financing
Documents, or by reason of the release, regardless of consideration, of all or
any part of the Collateral, or other security for the Debtor's Obligations or
the Borrower's Obligations, or by reason of any agreement or stipulation between
any subsequent owner of the Collateral or other security for the Debtor's
Obligations or the Borrower's Obligations, or the Bank extending the time of
payment or modifying the terms of the Financing Documents without first having
obtained the consent of the Debtor; and in the latter event, the Debtor shall
continue to be liable to make payments according to the terms of any such
extension or modification agreement, unless expressly released and discharged in
writing by the Bank.
(h) Remedies Cumulative and Concurrent. No remedy herein conferred upon
or reserved to the Bank is intended to be exclusive of any other remedies
provided for in the Financing Documents, and each and every such remedy shall be
cumulative, and shall be in addition to every other remedy given hereunder, or
under the Financing Documents, or now or hereafter existing at law or in equity
or by statute. Every right, power and remedy given by the Financing Documents to
the Bank shall be concurrent and may be pursued separately, successively or
together against the Debtor or the Collateral or other security for the Debtor's
Obligations or the Borrower's Obligations or any part thereof, and every right,
power and remedy given by the Financing Documents may be exercised from time to
time as often as may be deemed expedient by the Bank.
(i) No Waiver. No delay or omission of the Bank to exercise any right,
power or remedy accruing upon the happening of an Event of Default shall impair
any such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or any acquiescence therein. No delay or omission on the part
of the Bank to exercise any remedy hereunder, or acceptance by the Bank of any
partial payment on account of the Debtor's Obligations or Xxxxxxxx's Obligations
shall constitute a waiver of any such Event of Default and each of the remedies
herein provided shall remain continuously available to the Bank.
45
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All communications between the parties or notices in
connection with this Agreement and any of the other Financing Documents shall be
in writing (unless otherwise specified herein), hand delivered or sent by
registered airmail, postage prepaid, or by telex, telecopy or other electronic
transmission, or by reliable overnight service, addressed to the intended
recipient at the address therefor set forth below. All such communications and
notices shall be effective upon delivery. Any party may change its address or
other information for notices by giving notice to the other parties in
accordance with the provisions of this Section.
(a) if to the Debtor:
GSE Erudite Software, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
with copies to:
Xxxxxx X. Xxxxxxxxx, Esquire
Corporate Counsel
GSE Systems, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Telephone: 000-000-0000
Telecopy: 000-000-0000
(b) if to the Bank:
CoreStates Bank, N.A.
0000 Xxxxxxxx Xxxxxx
0xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxx
Telephone: 000-000-0000
Telecopy: 000-000-0000
46
with a copy to:
Drinker Xxxxxx & Xxxxx
0000 Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxxx, Esq.
Telephone: 000-000-0000
Telecopy: 000-000-0000
9.2 Survival of Agreement; Successors and Assigns.
(a) All covenants, agreements, representations and warranties made
herein and in the certificates delivered pursuant hereto shall survive the
making of the Loan and the issuance of any Letters of Credit, and the execution
and delivery to the Bank of this Security Agreement and all of the other
Financing Documents and shall continue in full force and effect until all of the
Debtor's Obligations have been paid and performed in full and the Bank shall
have no further obligation under the Loan Agreement.
(b) Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of the Debtor
which are contained in this Agreement or in the other Financing Documents shall
inure to the benefit of the successors and assigns of the Bank.
9.3 Payment of Fees and Expenses. The Debtor will pay on demand all
costs and expenses (including the reasonable fees and out-of-pocket expenses of
the Bank's counsel and the Bank's auditors and consultants) incurred by the Bank
in connection with (i) audits and Collateral review, (ii) the preparation and
negotiation of this Security Agreement and any other Financing Documents or any
other documents contemplated, required or necessary in connection therewith, and
any amendments or modifications thereof, (iii) the taking, perfection,
preservation and protection of the Collateral and any other security for the
repayment of the Debtor's Obligations or the Borrower's Obligations, and (iv)
the enforcement and protection of the rights of the Bank in connection with this
Security Agreement or any of the other Financing Documents.
9.4 Applicable Law; Jurisdiction, Consent to Service of Process. This
Agreement and all of the other Financing Documents (except where expressly
indicated therein to the contrary) shall be construed in accordance with and
governed by the laws of the the State of Maryland. The Bank and the Debtor
hereby submit to the nonexclusive jurisdiction of any Pennsylvania court or
federal court sitting in Philadelphia over any suit, action or proceeding
arising out of or relating to this Agreement. The Debtor hereby submits to the
nonexclusive jurisdiction of any Utah court or federal court sitting in Utah
over any suit, action or proceeding arising out of or relating to this Security
Agreement. The Debtor hereby agrees that it may be served with process at the
address for notices provided in Section 9.1 of this Security Agreement.
9.5 Waiver of Trial by Jury. The Debtor and the Bank hereby waive trial
by jury in any action or proceeding to which the Debtor and the Bank may be
parties, arising out of or in any way pertaining to this Security Agreement or
any of the other Financing Documents. It is agreed and understood that this
waiver constitutes a waiver of trial by jury of all claims against all parties
to such actions or proceedings, including claims against parties who are not
parties to this Security Agreement.
This waiver is knowingly, willingly and voluntarily made by the Debtor
and the Bank, and the Debtor hereby represents that no representations of fact
or opinion have been made by any individual to induce this waiver of trial by
jury or to in any way modify or nullify its effect. The Debtor further
47
represents that it has had the opportunity to be represented in the signing of
this Security Agreement and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss the waiver with counsel.
9.6 Modifications. No modification or waiver of any provision of this
Agreement or of any of the other Financing Documents, nor consent to any
departure by the Debtor therefrom, shall be effective unless the same shall be
in writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which it is given. No notice to or
demand on the Debtor in any case shall entitle the Debtor to any other or
further notice or demand in the same, similar or other circumstances.
9.7 No Waiver of Rights by Bank. Neither any failure nor any delay on
the part of the Bank in exercising any right, power or privilege hereunder or
under this Security Agreement or any of the other Financing Documents shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise or the exercise of any other right, power
or privilege.
9.8 No Liability of Bank. The Bank shall not be liable for any act or
omission by it pursuant to the provisions of this Agreement, in the absence of
fraud or gross negligence. The Debtor hereby agrees that the Bank shall not be
chargeable for any negligence, mistake, act or omission of any accountant,
examiner, agency or attorney employed by them in making examinations,
investigations or collections, or otherwise perfecting, maintaining, protecting
or realizing upon any lien or security interest in the Collateral or any other
interest in security for the Debtor's Obligations or the Borrower's Obligations.
The Bank shall not incur any liability to the Debtor or to any other Person in
connection with the acts or omissions of the Bank in reliance upon any
certificate or other paper believed by the Bank to be genuine or with respect to
any other thing which the Bank may do or refrain from doing, unless such act or
omission amounts to fraud or gross negligence.
By accepting or approving anything required to be observed performed or
fulfilled by the Debtor or to be given to the Bank pursuant to this Agreement,
including, without limitation, any certificate, balance sheet, statement of
profit and loss or other financial statement, survey, receipt, appraisal or
insurance policy, the Bank shall not be deemed to have warranted or represented
the sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof and any such acceptance or approval thereof
shall not be or constitute any warranty or representation with respect thereto.
9.9 Indemnification. All acts, including any failure to act, relating to
the Collateral and any other security for the Debtor's Obligations or the
Borrower's Obligations by any agent, representative or designee of the Bank are
performed solely for the benefit of the Bank to assure repayment of the Debtor's
Obligations or the Borrower's Obligations and are not for the benefit of the
Debtor, or for the benefit of any other Person, including without limitation,
purchasers, tenants or other occupants. The Debtor agrees to indemnify the Bank
and to hold the Bank harmless against any loss or expense (including reasonable
attorneys' fees) resulting from any and all claims, actions, settlements, or
liability for acts or failure to act in connection with the Collateral and any
other security for the Debtor's Obligations or the Borrower's Obligations. In
addition to all amounts payable hereunder, the Debtor hereby protects,
indemnifies and holds harmless the Bank from and against, and hereby agrees to
defend the Bank against, any and all claims, damages, losses, liabilities, costs
or expenses whatsoever which the Bank may, at any time, sustain or incur by
reason of or in consequence of or arising out of the making of the Loan or the
issuance of the Letters of Credit, it being the intention of the parties that
this Security Agreement shall be construed and applied to protect and indemnify
the Bank against any and all risks involved in the transactions contemplated by
this Security Agreement and the other Financing Documents, all of which risks
are hereby assumed by the Debtor. The provisions of this Section shall survive
the expiration of this Security Agreement and the other Financing Documents.
Notwithstanding the foregoing, the Debtor shall have no obligation to indemnify
the Bank for the Bank's own gross negligence or willful misconduct.
48
9.10 No Partnership. Nothing contained in this Security Agreement shall
be construed in a manner to create any relationship among the Debtor and the
Bank other than the relationship of obligor and lender, and the Debtor and the
Bank shall not be considered partners or co-venturers for any purpose on account
of this Security Agreement or the Financing Documents.
9.11 Time of Essence. Time shall be of the essence for each and every
provision of this Agreement of which time is an element.
9.12 Illegality. If fulfillment of any provision hereof or any
transaction related hereto or to any of the other Financing Documents, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity; and if any clause or
provisions herein contained other than the provisions hereof pertaining to
repayment of the Debtor's Obligations operates or would prospectively operate to
invalidate this Security Agreement in whole or in part, then such clause or
provision only shall be void, as though not herein contained, and the remainder
of this Security Agreement shall remain operative and in full force and effect;
and if such provision pertains to repayment of the Debtor's Obligations, then,
at the option of the Bank, all of the Debtor's Obligations to the Bank shall
become immediately due and payable.
9.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
9.14 Captions and Headings. The captions and headings contained in this
Agreement are included herein for convenience of reference only and shall not be
considered a part hereof and are not in any way intended to limit or enlarge the
terms hereof.
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9.15 Xxxxxx's Obligations Absolute and Unconditional. All of the
Debtor's Obligations shall be absolute and unconditional, irrespective of any
set-off or counterclaim or the genuineness, validity, priority or enforceability
of this Security Agreement or any of the other Financing Documents or any other
circumstance which might otherwise constitute a legal or equitable discharge.
IN WITNESS WHEREOF, the Debtor and the Bank have caused this Security
Agreement to be duly executed, sealed and delivered by their duly authorized
officers, all as of the day and year first above written.
ATTEST/WITNESS: GSE ERUDITE SOFTWARE, INC.
/S/ Xxxxxx X. Xxxxxxxxx By: /S/ Xxxxxx X. Xxxxxxxxx
------------------------ -----------------------------
CORESTATES BANK, N.A.
By: /S/ Xxxxxxx Xxxxx
-----------------------------
Title: Vice President
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