FIFTH MODIFICATION AGREEMENT
THIS FIFTH MODIFICATION AGREEMENT ("MODIFICATION") is made as of the 21st
day of March 2003, by and among GSE SYSTEMS, INC., a Delaware corporation ("GSE
SYSTEMS"), GSE PROCESS SOLUTIONS, INC., a Delaware corporation ("GSE PROCESS"),
and GSE POWER SYSTEMS, INC., a Delaware corporation ("GSE POWER," and together
with GSE SYSTEMS and GSE PROCESS, collectively, "BORROWERS"), MSHI, INC., a
Virginia corporation ("MSHI"), GSE ERUDITE SOFTWARE, INC., a Delaware
corporation ("ERUDITE"), GSE SERVICES COMPANY L.L.C., a Delaware limited
liability company ("SERVICES"), GP INTERNATIONAL ENGINEERING & SIMULATION, INC.,
a Delaware corporation ("GP ENGINEERING"), GP STRATEGIES CORPORATION, a Delaware
corporation ("GP STRATEGIES"), MANTECH INTERNATIONAL CORPORATION, a New Jersey
corporation ("MANTECH") and PNC BANK, NATIONAL ASSOCIATION ("LENDER"). MSHI,
ERUDITE, SERVICES, and GP ENGINEERING are referred to collectively as the
"GUARANTORS."
RECITALS
Pursuant to the terms of a Loan and Security Agreement dated as of March
23, 2000, as Amended pursuant to a First Modification Agreement dated as of May
30, 2000, a Second Modification Agreement dated as of July 20, 2000, a Third
Modification Agreement dated as of March 20, 2001, a Fourth Modification
Agreement dated as of January 14, 2002, and various letter agreements executed
from time to time (the aforesaid Loan and Security Agreement, as amended from
time to time, "LOAN AGREEMENT") by and between the BORROWERS and the NATIONAL
BANK OF CANADA ("NBOC"), NBOC provided a credit facility to the BORROWERS in the
originally stated maximum principal amount of Ten Million Dollars
($10,000,000.00). On or about January 15, 20002, NBOC transferred to the LENDER
all of its right, title, and interest in, to and under the LOAN AGREEMENT and
the credit facility extended to the BORROWERS pursuant thereto.
All capitalized terms used herein and not otherwise defined shall have the
same meaning herein as in the LOAN AGREEMENT.
The GUARANTORS have guaranteed all of the BORROWERS' obligations to the
LENDER pursuant to Guaranty Agreements dated as of March 23, 2000.
GP STRATEGIES has guaranteed all of the BORROWERS' obligations to the
LENDER (subject to certain limitations set forth therein) pursuant to a Limited
Guaranty Agreement dated as of March 23, 2000.
MANTECH presently provides certain subordinated loans to GSE SYSTEMS as set
forth in the Subordination and Intercreditor Agreement dated as of June 25, 2001
between MANTECH and the LENDER.
The CREDIT FACILITY is secured by, among other things, the security
interests and liens granted by the BORROWERS and the GUARANTORS to the LENDER
pursuant to the LOAN AGREEMENT and the other LOAN DOCUMENTS.
The BORROWERS are in default under the LOAN AGREEMENT as a result of
violations of Sections 6.21, 6.22 and 6.24 of the LOAN AGREEMENT as of their
FISCAL YEAR ending December 31, 2002 ("EXISTING DEFAULTS"). As a result of the
occurrence of the EXISTING DEFAULTS, the LENDER may terminate the CREDIT
FACILITY and accelerate the time for payment of the OBLIGATIONS and exercise its
rights and remedies upon default. Notwithstanding the EXISTING DEFAULTS, the
LENDER is continuing to provide advances under the LOAN and has not, as of the
date hereof, demanded repayment of any sums under the CREDIT FACILITY.
The BORROWERS have requested that the LENDER extend the TERMINATION DATE
under the LOAN AGREEMENT to March 31, 2004 and to otherwise modify certain terms
of the LOAN AGREEMENT. The BORROWERS have also requested that the LENDER waive
the EXISTING DEFAULTS.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
Section 1. Recitals. The parties acknowledge the accuracy of the above
Recitals and hereby incorporate the Recitals into this MODIFICATION.
Section 2. LIBOR Borrowing under the Loan Agreement. The BORROWERS agree
that, notwithstanding anything to the contrary set forth in the LOAN AGREEMENT,
henceforth the BORROWERS shall not make elections for LIBOR BORROWINGS or
otherwise elect to accrue interest at the ADJUSTED LIBOR RATE, and the LENDER
shall have no obligation to make any advances under the CREDIT FACILITY as LIBOR
BORROWINGS.
Section 3. Amendment To Loan Agreement. The LOAN AGREEMENT is hereby
amended and modified as follows:
a. Section 1.11 of the LOAN AGREEMENT captioned "Applicable Margin" is
hereby amended by deleting the percentage "0.75%" appearing under the
heading "BASE RATE" and inserting in lieu thereof the percentage
"1.00%."
b. Section 1.12 of the LOAN AGREEMENT captioned "Base Rate is hereby
amended and restated in its entirety as follows:
Section 1.12. Base Rate. The term "BASE RATE" means the base
commercial lending rate of the LENDER as publicly announced to be in
effect from time to time, such rate to be adjusted automatically,
without notice, on the effective date of any change in such rate. This
rate of interest is determined from time to time by the LENDER as a
means of pricing some loans to its customers and is neither tied to
any external rate of interest or index nor does it necessarily reflect
the lowest rate of interest actually charged by the LENDER to any
particular class or category of customers of the LENDER.
c. Section 1.31. of the LOAN AGREEMENT captioned "Dollar Cap" is hereby
amended and restated in its entirety as follows:
Section 1.31. DollarCap. The term "DOLLAR CAP" means: (a) from March
23, 2003 through September 30, 2003, Six Million Five Hundred Thousand
Dollars ($6,500,000.00); (b) from October 1, 2003 through December 31,
2003, Five Million Five Hundred Thousand Dollars ($5,500,000.00); and
(c) from January 1, 2004 through the TERMINATION DATE, Five Million
Dollars ($5,000,000.00).
d. Section 1.101 of the LOAN AGREEMENT captioned "Termination Date" is
hereby amended and restated in its entirety as follows:
Section 1.101. Termination Date. The term "TERMINATION DATE" means
March 31, 2004.
e. Section 2.1 of the LOAN AGREEMENT captioned "Agreement to Extend the
Loan" is hereby further amended by amending and restating the fifth
sentence thereof in its entirety as follows:
In the event that the principal balance outstanding under the LOAN,
plus the L/C EXPOSURE less the aggregate STATED AMOUNT of LETTERS OF
CREDIT permitted and outstanding under the CASH SECURED L/C FACILITY,
ever exceeds the MAXIMUM CREDIT AMOUNT (or any of the percentages or
sublimits set forth therein) the BORROWERS shall immediately upon
demand of the LENDER (and on March 23, 2003, October 1, 2003, January
1, 2004, without demand of the LENDER), pay to the LENDER in case the
amount of such excess and all accrued interest thereon and, in
addition to any other rights and remedies of the LENDER hereunder,
prior to such repayment such over advances shall bear interest at the
highest rate provided under this AGREEMENT.
f. Sections 6.21 and 6.22 of the LOAN AGREEMENT captioned "Minimum
EBITDA" and "Minimum Tangible Net Worth Plus Subordinated Debt"
respectively, are hereby amended and restated in their entirety as
follows:
Section 6.21. Minimum EBITDA. The EBITDA of the BORROWERS and their
respective consolidated SUBSIDIARIES measured on a consolidated basis,
measured at the end of each QUARTER, shall be:
(a) for the QUARTER ending March 31, 2003, not less than Three Hundred
Thousand Dollars ($300,000.00);
(b) for the QUARTER ending June 30, 2003, not less than Eight Hundred
Seventy-Five Thousand Dollars ($875,000.00);
(c) for the QUARTER ending September 30, 2003, not less than One Million
Five Hundred Seventy-Five Thousand Dollars ($1,575,000.00); and
(d) for the QUARTER ending December 31, 2003, not less than One Million
One Hundred Thousand Dollars ($1,100,000.00).
Section 6.22. Minimum Tangible Net Worth Plus Subordinated Debt. As of
the end of each QUARTER set forth below of the BORROWERS and their
respective consolidated SUBSIDIARIES, the sum of TANGIBLE NET WORTH plus
SUBORDINATED DEBT of the BORROWERS and their respective consolidated
SUBSIDIARIES on a consolidated basis shall be not less than the respective
amount set forth for such QUARTER:
(a) for the QUARTER ending March 31, 2003: Two Million Six Hundred
Thousand Dollars ($2,600,000.00);
(b) for the QUARTER ending June 30, 2003: Two Million Eight Hundred
Thousand Dollars ($2,800,000.00);
(c) for the QUARTER ending September 30, 2003: Three Million Three Hundred
Fifty Thousand Dollars ($3,350,000.00); and
(d) for the QUARTER ending December 31, 2003: Three Million Seven Hundred
Fifty Thousand Dollars ($3,750,000.00).
g. Section 6.23 of the LOAN AGREEMENT captioned "Minimum Current Ratio"
is hereby deleted.
h. Section 6.24 of the LOAN AGREEMENT captioned "Ratio of Total
Liabilities to Tangible Net Worth Plus Subordinated Debt" is hereby
deleted.
i. Section 7.5 of the LOAN AGREEMENT is hereby amended and restated in
its entirety as follows:
Section 7.5. Restricted Payments. None of the BORROWERS shall make any
RESTRICTED PAYMENTS, except that provided no DEFAULT or EVENT OF
DEFAULT shall have occurred or shall occur after giving effect to such
RESTRICTED PAYMENT and provided the total amount of such RESTRICTED
PAYMENTS in any given FISCAL YEAR do not exceed fifty percent (50%) of
its NET PROFIT AFTER TAX for such FISCAL YEAR: (a) With respect to the
GSE POWER SYSTEMS AB NOTE, GSE SYSTEMS may permit GSE Power Systems AB
to offset dividends due GSE SYSTEMS to repay regularly scheduled
payments of interest in accordance with the stated terms of such note
or payments of principal in accordance with the stated terms of such
note, when and as any of the same become due (but without giving
effect to any acceleration or any amendment which would have the
effect of increasing such payments) under such note; (b) the other
BORROWERS may pay cash dividends to GSE SYSTEMS; and (c) a BORROWER
may make payments to other BORROWERS.
Section 4. Amendment Fee. In consideration of the agreements of the
LENDER hereunder, the BORROWERS shall pay to the LENDER an unconditional and
non-refundable fee equal to Seventy-Five Thousand Dollars ($75,000.00) which
shall be due and payable on the date hereof. In addition, so long as there are
any OBLIGATIONS which remain outstanding as of such dates, the following
non-refundable and unconditional fees: (a) Fifty Thousand Dollars ($50,000.00)
which shall be due and payable on October 1, 2003; and (b) Fifty Thousand
Dollars ($50,000.00) which shall be due and payable on January 1, 2004. The fees
shall not be considered to be payment of any of the LENDER's expenses incurred
in connection with the CREDIT FACILITY or this MODIFICATION, nor shall it be
considered to modify or limit the ability of the LENDER to terminate in
accordance with the provisions of the LOAN AGREEMENT and the other LOAN
DOCUMENTS, the ability of the BORROWERS to borrow under the LOAN, or obtain
LETTERS OF CREDIT. The fees are, instead, intended as part of the compensation
which is earned by the LENDER for agreeing to provide the CREDIT FACILITY in
accordance with the terms of the LOAN DOCUMENTS.
Section 5. Waiver of Existing Defaults. Subject to the terms and
conditions of this MODIFICATION, the LENDER hereby waives the EXISTING DEFAULTS.
The contrary notwithstanding, the waiver granted herein shall not constitute a
waiver of any other violation, DEFAULT, or EVENT OF DEFAULT which may exist
under the LOAN AGREEMENT or any other LOAN DOCUMENT, whether or not known to the
LENDER, nor shall it constitute a waiver of any future violation, DEFAULT, or
EVENT OF DEFAULT occurring under the LOAN AGREEMENT or other LOAN DOCUMENT,
including without limitation, any future or additional violation of Sections
6.21 and/or 6.22 of the LOAN AGREEMENT.
Section 6. Acknowledgement of Guarantors, GP Strategies and Mantech.
Each of the GUARANTORS, GP STRATEGIES and MANTECH hereby acknowledges the
modifications and other terms set forth herein and, except as specifically
modified hereby, ratifies and confirms all of its respective obligations under
the LOAN DOCUMENTS to which it is a party.
Section 7. Other Terms. Except as specifically modified herein, all
other terms and provisions of the LOAN DOCUMENTS remain in full force and effect
and are hereby ratified and confirmed.
Section 8. Additional Representation and Warranties. As an inducement
to the LENDER to enter into this MODIFICATION, the BORROWERS, the GUARANTORS, GP
STRATEGIES and MANTECH here by make the following additional representations and
warranties to the LENDER:
a. Each of them: (i) has the power to enter into this MODIFICATION and
any related documents, and to perform all of its obligations hereunder
and there under; (ii) has duly authorized the entry into and
performance of this MODIFICATION and all related documents and agrees
to deliver to the LENDER a certificate of corporate resolutions
evidencing same; and (iii) is in good standing in the state of its
incorporation (or formation) and in all other states in which it
transacts business, except where the failure to be in good standing
would not materially affect performance under the LOAN DOCUMENTS.
b. None of them is in default of any of its respective duties or
obligations of the LOAN DOCUMENTS (other than the EXISTING DEFAULTS).
c. No event exists which constitutes, or which with the passage of time,
the giving of notice, or both, would constitute a default under the
LOAN AGREEMENT or any of the LOAN DOCUMENTS (other than the EXISTING
DEFAULTS).
d. None of them is in default under any other contract, agreement or
instrument to which it is party or under which it or any of its
property is bound.
e. The execution, delivery and performance of this MODIFICATION will not
immediately, or with the passage of time, the giving of notice, or
both violate any laws or result in a default under any contract,
agreement, or instrument to which any of them is a party or by which
any of them or any of their property is bound.
f. All warranties and representations previously made to the LENDER by
the each of them in connection with the LOAN DOCUMENTS remain true,
accurate and complete, except to the extent that the LENDER has
previously been notified.
g. There are no outstanding judgements, tax liens, or pending litigation
against any of them, and there are no actions, suits, investigations
or proceedings pending or, to the knowledge of any of them, threatened
against any of them or against any of the COLLATERAL, except as
disclosed on a schedule to the LOAN DOCUMENTS or Schedule A attached
hereto.
h. No material adverse change has occurred in the financial condition of
any of the BORROWERS or any of the GUARANTORS, as indicated on their
financial statement most recently submitted to and reviewed by the
LENDER, and no event has occurred or circumstance exists which may
cause such a material adverse change.
i. This MODIFICATION and all of the LOAN DOCUMENTS, as modified and
amended in accordance herewith, are the valid and binding obligations
of each of them and are fully enforceable in accordance with all
stated terms.
Section 9. No Intended Novation Or Refinancing. All parties hereto
expressly acknowledge that no novation of the CREDIT FACILITY, the LOAN or the
LOAN DOCUMENTS is intended by the parties, and that the modifications,
amendments, and restatements contemplated by this AGREEMENT are not intended to
evidence or to be construed as a refinancing of the LOAN or the CREDIT FACILITY.
Section 10. Confirmation of Liens. Each of the BORROWERS and GUARANTORS
ratifies and confirms that all existing liens, security interests, and other
pledges and grants of collateral which have been previously granted or conveyed
by the BORROWERS and the GUARANTORS with respect to the CREDIT FACILITY are
intended to remain in full force and effect, without any loss or reduction in
the priority or enforceability of any liens, security interests, or pledges.
Section 11. Final Agreement. This MODIFICATION and the other LOAN
DOCUMENTS, as modified herein, constitute the entire agreement between the
parties hereto with respect to the CREDIT FACILITY, and may not be altered,
modified or amended except by writing executed by the LENDER and any other party
against whom any such modification or amendment is to be enforced.
Section 12. Fees and Expenses. The BORROWERS, jointly and severally,
agree to promptly pay all costs and expenses incurred by the LENDER in
connection with this MODIFICATION, including, but not limited to, all attorneys'
fees.
Section 13. Binding Effect. This MODIFICATION shall inure to the
benefit of the parties hereto, and shall be binding upon, their respective
personal representatives, successors and assigns.
Section 14. Choice Of Law. The laws of the State of New York
(excluding, however, conflicts of law principles) shall govern and be applied to
determine all issues related to this MODIFICATION and the right and obligations
of the parties hereto, including the validity, construction, interpretation, and
enforceability of this MODIFICATION and its various provisions and the
consequences and legal effect of all transactions and events which resulted in
the execution of this MODIFICATION or which occurred or were to occur as a
direct or indirect result of this MODIFICATION having been executed.
Section 15. Tense, Gender, Defined Terms, Captions. As used herein, the
plural shall refer to and include the singular, and the singular shall refer to
and include the plural. The use of any gender shall include and refer to any
other gender. All defined terms are completely capitalized throughout this
MODIFICATION. All captions are for the purpose of convenience only.
Section 16. Time. Time is of the essence with respect to this
MODIFICATION and all terms and conditions described herein.
Section 17. No Defenses; Release Of Claims. As of the date of this
AGREEMENT, none of the BORROWERS has any offsets, defenses, counterclaims, or
other claims or defenses which would lessen, delay, or mitigate against its
duties and obligations to repay and perform the OBLIGATIONS in accordance with
all stated terms of the LOAN DOCUMENTS, as amended. As of the date of this
AGREEMENT, none of the GUARANTORS or GP STRATEGIES has any offsets, defenses,
counterclaims, or other claims or defenses which would lessen, delay, or
mitigate against its duties and obligations to repay and perform its
"OBLIGATIONS," as such term is defined in its respective Guaranty Agreement, in
accordance with all stated terms of the LOAN DOCUMENTS, as amended, to which it
is a party. Each of the BORROWERS, GUARANTORS, GP STRATEGIES and MANTECH hereby
releases, waives, discharges and agrees to hold the LENDER and its officers,
directors, agents, attorneys, and employees harmless from any and all claims,
known or unknown, which such BORROWER, GUARANTORS, GP STRATEGIES or MANTECH
might have against the LENDER or its officers, directors, agents, attorneys, or
employees which in any way relate, pertain, or arise, directly or indirectly,
from the CREDIT FACILITY, the LOAN DOCUMENTS, this MODIFICATION, or which
otherwise relate or pertain to the collateral securing the obligations of the
BORROWERS (or any of them) to the LENDER, the transactions described in this
MODIFICATION, or conduct of the parties with respect thereto.
Section 18. No Waiver. The LENDER, at any time or from time to time,
may waive all or any rights under this MODIFICATION or the other LOAN DOCUMENTS,
as amended, but any such waiver or indulgence by the LENDER at any time or from
time to time shall not constitute a future waiver of performance or exact
performance by the BORROWERS.
Section 19. Waiver of Trial by Jury. Each party to this MODIFICATION
agrees that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by any party hereto or any successor or assign of the
party on or with respect to this MODIFICATION or any other LOAN DOCUMENT or
which in any way related, directly or indirectly, to the OBLIGATIONS or any
event, transaction, or occurrence arising out of or in any way connected with
any of the OBLIGATIONS, or the dealings of the parties with respect thereto,
shall be tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.
IN WITNESS WHEREOF, the parties hereto have executed this MODIFICATION
under seal as of the date first above written. This MODIFICATION may be executed
in counterparts and may be delivered via facsimile.
WITNESS/ATTEST: BORROWERS:
GSE SYSTEMS, INC.
___________________ By: /s/Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
GSE PROCESS SOLUTIONS, INC.
___________________ By: /s/ Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
GSE POWER SYSTEMS, INC.
___________________ By: /s/ Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
GUARANTORS:
MSHI, INC.
___________________ By: /s/ Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
WITNESS/ATTEST: GSE ERUDITE SOFTWARE, INC.
___________________ By: /s/ Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
GSE SERVICES COMPANY L.L.C.
___________________ By: /s/ Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
GP INTERNATIONAL ENGINEERING &
SIMULATION, INC.
___________________ By:/s/ Jeffery G. Hough (SEAL)
Name: Jeffery G. Hough
Title: Senior Vice President
GP STRATEGIES:
GP STRATEGIES CORPORATION
__________________ By:/s/ Scott N. Greenberg (Seal)
Name: Scott N. Greenberg
Title: President
MANTECH:
MANTECH INTERNATIONAL CORPORATION
___________________ By:/s/ Matthew P. Galaski (SEAL)
Name: Matthew P. Galaski
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
___________________ By: /s/ Craig T. Sheetz (SEAL)
Name: Craig T. Sheetz
Title: Vice President
Schedule A
Third Party Claim of Defendant and Third Party Plaintiff Western Services
Corporation v. GSE Systems, Inc., in the United States District Court for the
District of Maryland, Case Number AMD 02-3878, filed February 10, 2003.