James R. Hagerty 888 17th Street NW, Suite 1000
jhagerty@kalbianhagerty.com Washington, DC 20006
(202) 223-5600 Telephone
(202) 223-6625 Facsimile
March 1, 2006
Northeast Securities, Inc.
100 Wall Street, 8th Floor
New York, New York 10005
Re: GSE Systems, Inc., a Delaware Corporation
Ladies and Gentlemen:
This firm has acted as counsel to GSE Systems, Inc., a Delaware Corporation
(the "Company") in connection with the offering of units consisting of up to
$4,250,000 of 8% Cumulative Convertible Preferred Stock and Warrants to Purchase
Shares of Common Stock (the "Private Placement").
For purposes of this opinion letter, we have examined copies of the
following documents (the "Documents"):
1. Executed copy of the confirmation letter from Northeast Securities,
Inc. ("NESC") and the Company confirming the Company's engagement of
NESC as financial advisor and syndicate placement agent in connection
with the Private Placement (the "Placement Agreement");
2. Certificate of Incorporation of the Company, as amended through the
date hereof;
3. Bylaws of the Company as amended through the date hereof;
4. Certificate of Good Standing for the Company issued by the State of
Delaware;
5. Certificate of Good Standing for the Company issued by the State of
Maryland;
6. Resolutions of the Board of Directors of the Company with respect to
the transactions referred to herein;
7. The stock ledger and minute book of the Company as certified by the
Secretary of the Company as complete, accurate and in effect as of the
date hereof;
8. A certificate of the Secretary of the Company, dated March 1, 2006, as
to the incumbency and signatures of certain officers of the Company;
9. A certificate of a certain officer of the Company, dated March 1, 2006
as to certain facts relating to the Company;
10. Executed copy of the Amended Private Placement Memorandum, dated
February 27, 2006 (the "PPM");
11. Executed copy of the Certificate of Designation, Preferences and
Rights of Series A Cumulative Convertible Preferred Stock by
Resolution of the Board of Directors of the Company (the "Certificate
of Designation");
12. Executed copy of the Subscription Agreement by and between the Company
and each individual investor in the units offered in the Private
Placement (the "Subscription Agreement");
13. Executed copy of the Subscription Documents Booklet by and between the
Company and each individual investor in the units offered in the
Private Placement (the "Subscription Booklet");
14. Executed copy of the Registration Rights Agreement by and between the
Company and each investor, who has executed a Subscription Agreement
with the Company (the "Registration Rights Agreement");
15. Executed copy of the additional letter agreement by and between the
Company and NESC in which the Company provides certain representations
and warranties to NES (the "NESC Letter Agreement");
16. Executed copy of the Warrant to Purchase Shares of Common Stock by and
between the Company and each investor in the units offered in the
Private Placement (the "Warrant"); and
17. Executed copy of the Warrant to Purchase Share of Common Stock by and
between the Company and NESC (the "NESC Warrant" and together with the
warrant described above in Paragraph 15 and any warrants issuable by
the Company if its misses two consecutive dividend payments, the
"Warrants");
The PPM, the Placement Agreement, the Certificate of Designation, the
Subscription Agreement, the Subscription Booklet, the Registration Rights
Agreement, the NESC Letter Agreement, the Warrant and the NESC Warrant are
hereinafter referred to individually as a "Transaction Document" and
collectively as the "Transaction Documents."
In our examination of the Transaction Documents and the other Documents, we
have assumed the genuineness of all signatures, the legal capacity of all
natural persons, the accuracy and completeness of all of the Documents, the
authenticity of all originals of the Documents and the conformity to authentic
originals of all of the Documents submitted to us as copies (including
telecopies). As to matters of fact relevant to the opinions expressed herein, we
have relied on the representations and statements of fact made in the Documents,
we have not independently established the facts so relied on, and we have not
made any investigation or inquiry other than our examination of the Documents.
The opinion letter is given, and all statements herein are made, in the context
of the foregoing.
In addition to the above stated assumptions and limitations, the opinions
which follow are subject to the following additional assumptions and
limitations:
1. The undersigned has assumed the organization, existence, good
standing, qualification (to do business) and capacity of NESC, and
that the NESC has the right, power and authority to enter into this
transaction;
2. The undersigned has assumed that all documents executed by NESC and
each individual investors in the units, have, in fact, been executed
by such party or its duly authorized representatives and that each
natural person signing one or more of the Documents is competent;
3. The undersigned has assumed that there has been no mutual mistake of
fact or misunderstanding or fraud, duress or undue influence, in
connection with the negotiation, execution or delivery of the
Transaction Documents, and the conduct of all parties to the
Transaction Documents has complied with any requirements of good
faith, fair dealing and conscionability;
4. There are and have been no agreements or understandings among the
parties, written or oral, and there is and has been no usage of trade
or course of prior dealings among the parties to the Transaction
Documents that would, in either case, define, supplement or qualify
the terms of the Transaction Documents; and
5. This opinion letter is based as to matters of law solely on applicable
provisions of the following, as currently in effect: (i) United States
Federal Law; (ii) the General Corporation Law of the State of
Maryland; and (iii) the General Corporation Law of the State of
Delaware.
Based upon such examinations and the assumptions and limitations stated
above, and in the undersigned's capacity as counsel for the Company, the
undersigned is of the opinion that:
1. The Company is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Delaware, and possess all
requisite power and authority to own property and to carry on its
respective businesses;
2. The Company is duly qualified and in good standing to do business as a
foreign corporation in Maryland;
3. The Company has full and requisite corporate power and authority to
execute, deliver and perform its obligations under the Transaction
Documents, including the power and authority to issue the Convertible
Preferred Stock (as that term is defined in the Transaction
Documents), the Warrants, and the common stock issuable upon exercise
of the Warrants (collectively, the "Warrant Shares");
4. The Company has the corporate power to execute, deliver and perform
each of the Transaction Documents. The execution, delivery and
performance by the Company of each of the Transaction Documents have
been duly authorized by all necessary corporate action of the Company;
5. Each of the Transaction Documents has been duly executed and delivered
on behalf of the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms. Neither the execution of the Transaction
Documents nor the issuance of the Convertible Preferred Stock, the
Warrants or the Warrant Shares will be subject to contractual
preemptive rights. The Preferred Stock and the Warrants are, and when
issued the Warrant Shares will be, duly and validly issued, fully paid
and non-assessable, and free of any liens, encumbrances and similar
rights. The Preferred Stock, Warrants and Warrant Shares have been
duly authorized and reserved for issuance by all necessary corporate
action on the part of the Company;
6. Based solely upon the officer's certificate identified in Paragraph 9
of the Document listings above, there are, to our knowledge and except
as set forth in the Transaction Documents no actions, suits or
proceedings pending or threatened against the Company before any court
or administrative agency where such action, suit or proceeding: (a)
either individually or in the aggregate would have material adverse
effect on the business, assets, liabilities, financial condition, or
results of the operations of the Company; (b) calls into question the
validity of any of the Transaction Documents or any action taken or to
be taken pursuant thereto; or (c) seeks to prevent the consummation of
the transactions contemplated by the Transaction Documents;
7. No approval or consent of, or registration, filing or other action
with any state or federal governmental authority, is required to be
obtained or made by the Company under applicable federal law or
applicable state law in connection with the execution, delivery and
performance on the date hereof by the Company of each of the
Transaction Documents, except for (a) the authorizations which have
previously been obtained, taken or made and (b) filings such as may be
required to be filed pursuant to applicable federal and state
securities laws subsequent to the consummation of the transactions
contemplated by the Transaction Documents;
8. Neither the execution and delivery of, nor the performance by the
Company of its obligations under the Transactions Documents, including
without limitation, the Company's issuance and delivery of the
Convertible Preferred Stock, Warrants and Warrant Shares: (a)
violates, conflicts with, or results in a breach or default under any
provision of the Certificate of Incorporation, as amended through the
date hereof, or Bylaws of the Company, (b) violates any judgment,
decree, governmental order, statute, law, rule or regulations to which
the Company is subject (other than ordinances and regulations, or
counties, and political subdivisions thereof), including without
limitation, any applicable state law pertaining to permissible
interest rates, or (c) results in a violation, breach or default by
the Company (or gives rise to any right of termination, cancellation
or acceleration) under conditions or provisions of any material
agreement;
9. No taxes, fees or other charges, including without limitation,
intangible, documentary, stamp, mortgage, transfer or recording taxes
or similar charges are payable to any governmental or regulatory body
on account of the execution, delivery or ownership of the Preferred
Stock, the Warrants or the Warrant Shares;
10. The offering, issuance and sale of the Preferred Stock, Warrants and
Warrant Shares under the circumstances contemplated by the Transaction
Documents are exempt from all registration or qualification
requirements of applicable Federal and state securities laws;
11. The Company is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended;
12. The authorized capital stock of the Company is as described in the
Transaction Documents. All issued and outstanding shares of Common
Stock of the Company have been duly authorized and validly issued, and
are fully paid and nonassessable and free of any preemptive or similar
rights. To our knowledge, except for rights described in the PPM or
the incorporated SEC filings, there are no other options, warrants,
conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of
capital stock or other securities of the Company, or any other
agreements to issue any such securities of the Company, or any other
agreements to issue any such securities or rights; and
13. Nothing has come to our attention that has caused us to believe that
the PPM, at the date thereof, or any of the Company's public filings
with the Securities and Exchange Commission (the "SEC"), at the date
they were filed with the SEC, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the PPM or such filings with the SEC, at the date
thereof or at the date of closing of the Private Placement, included
or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
The foregoing opinions are limited in all respects and for all purposes to
applicable federal and state laws (excluding the principles of conflict-of-laws
or choice-of-laws) as presently in effect. To the extent the matters covered
hereby relate to the laws of any other jurisdiction, the undersigned has not
consulted with legal counsel who are experts with respect to such laws and the
undersigned expresses no opinion on the laws of such jurisdiction(s) might
affect the opinions expressed in this opinion letter.
The undersigned assumes no obligation to supplement this opinion letter if
any of the applicable laws (statutory, decisional or other) or any of the
underlying facts or circumstances changes in any way. This opinion is based upon
and relies upon the current status of law and in all respects is subject to, and
may be limited by, future legislation as well as by developing case laws,
statutes, ordinances, rules and regulations and facts, all as in existence on
this date, and the undersigned expresses no opinion as to the effect which any
future amendments, changes, additions, or modifications thereof may have upon
the future performance or enforceability of the Loan.
While this opinion letter is given as of the date hereof, it is based upon
certifications of various facts as of the dates referenced herein, and does not
cover any matters arising at any time subsequent thereto, unless otherwise
expressly stated herein. Nothing has come to the undersigned's attention
subsequent to the date hereof which should cause the undersigned to doubt the
continued state of facts as therein certified.
The foregoing opinions are limited to matters expressly set forth herein,
and no opinions are to be implied or may be inferred beyond the opinions
expressly so stated. The foregoing opinions are legal opinions only and do not
constitute a guaranty or warranty of matters discussed therein.
In addition to the qualifications, exceptions and limitations elsewhere set
forth in this opinion letter, our opinions expressed above are also subject to
the effect of: (1) bankruptcy, insolvency, reorganization, receivership,
moratorium and other laws affecting creditors' rights (including, without
limitation, the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers); and (2) the
exercise of judicial discretion and the application of principles of equity,
good faith, fair dealing, reasonableness, conscionability and materiality
(regardless of whether the applicable agreements are considered in a proceeding
in equity or at law). We assume no obligation to advise you of any changes in
the foregoing subsequent to the delivery of this opinion letter.
This opinion shall run solely to Northeast Securities, Inc, its counsel,
and the investors in the units described in the Transaction Documents. This
opinion letter may not be quoted or relied on (or claim of reliance) by, nor
copies delivered to, any other person or used for any other purpose without the
express prior written consent of the undersigned in each instance.
KALBIAN HAGERTY, LLP
By:/s/ James R. Hagerty, Esq.
_____________________________
Name: James R. Hagerty, Esq.