WARRANT
GSE SYSTEMS, INC.
WARRANT TO PURCHASE COMMON STOCK
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM
REASONABLY ACCEPTABLE TO GSE SYSTEMS, INC., THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES. THE NUMBER OF SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT
TO SECTION 1(f) OF THIS SECURITY.
Warrant No.: 1 Number of Shares of Common Stock: 380,952
Date of Issuance: May 26, 2005 ("Issuance Date")
GSE Systems, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Dolphin Direct Equity Partners, LP, the registered
holder hereof or its assigns (the "Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the "Warrant"), at any time or times on or after the
Issuance Date, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), the number of fully paid and non-assessable shares (the
"Warrant Shares") of Common Stock (as defined below) set forth above. Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 17. This Warrant is issued pursuant that certain
Senior Subordinated Secured Convertible Note and Warrant Purchase Agreement,
dated May 26, 2005 (the "Subscription Date"), by and among the Company and the
Holder (the "Securities Purchase Agreement"). References herein to the Warrant
or the Note (as defined in the Securities Purchase Agreement), mean all of such
Warrants or Notes to the extent it, any or all of them are reissued, subdivided,
transferred, substituted, combined or otherwise restructured in any way, and
references to the Holder include all holders of all outstanding such Warrants.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, this
Warrant may be exercised by the Holder at any time, in whole or in part, by (i)
delivery of a written notice, in the form attached hereto as Exhibit A (the
"Exercise Notice"), of the Holder's election to exercise this Warrant and (ii)
(A) payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (the "Aggregate Exercise Price") in cash or wire transfer of
immediately available funds to an account designated by the Company or (B) if
eligible to do so pursuant to the terms hereof, by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice with respect to less than all of the Warrant Shares shall have the same
effect as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares. On or
before the first Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice
of a Cashless Exercise) (the "Exercise Delivery Documents"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"Transfer Agent"). On or before the third Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the
"Share Delivery Date"), the Company shall issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee and bearing a legend restricting transfer without compliance with
applicable securities laws , for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the Holder shall be deemed for all corporate purposes to have become the holder
of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares. If this Warrant is submitted in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three Business Days after any exercise
and at its own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be rounded up to
the nearest whole number. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issue or delivery of shares of Common Stock in a name other than that of
the Holder and no such issue or delivery to a Person other than the Holder shall
be made unless and until the Person requesting such issue and delivery has paid
to the Company the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid.
(b) Exercise Price. For purposes of this Warrant, "Exercise Price" means US
$2.22, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Business Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this
Warrant, then, in addition to all other remedies available to the Holder, the
Company shall pay in cash to the Holder on each day after such third Business
Day that the issuance of such shares of Common Stock is not timely effected an
amount equal to 1.0% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis and to which the Holder
is entitled and (B) the Closing Sale Price of the shares of Common Stock on the
Trading Day immediately preceding the last possible date which the Company could
have issued such shares of Common Stock to the Holder without violating Section
1(a). In addition to the foregoing, if within three (3) Trading Days after the
Company's receipt of the facsimile copy of a Exercise Notice the Company shall
fail to issue and deliver a certificate to the Holder and register such shares
of Common Stock on the Company's share register or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company shall, within three Business
Days after the Holder's request and in the Holder's discretion, either (i) pay
cash to the Holder in an amount equal to the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the "Buy-In Price"), at which point the Company's obligation to
deliver such certificate (and to issue such shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, multiplied by (B)
the Closing Bid Price on the date of exercise.
(d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if a Registration Statement (as defined in the Securities Purchase
Agreement) covering the Warrant Shares that are the subject of the Exercise
Notice (the "Unavailable Warrant Shares") is not available for the resale of
such Unavailable Warrant Shares, the Holder may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this Warrant is then
being exercised.
B = the Closing Sale Price of the shares of Common Stock (as reported by
Bloomberg) on the date immediately preceding the date of the Exercise
Notice.
C = the Exercise Price then in effect for the applicable Warrant Shares at
the time of such exercise.
(e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Adjustment upon Issuance of Shares of Common Stock. If and whenever on
or after the Subscription Date (as defined in the Securities Purchase Agreement)
the Company issues or sells, or in accordance with this Section 2 is deemed to
have issued or sold, except such issuances or sales or deemed issuances or sales
to Dolphin Direct Equity Partners, LP, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock issued or sold or deemed to
have been issued by the Company in connection with any Excluded Securities) for
a consideration per share (the "New Securities Issuance Price") less than a
price (the "Applicable Price") equal to the Exercise Price in effect immediately
prior to such issue or sale or deemed issuance or sale (the foregoing a
"Dilutive Issuance"), then immediately after such Dilutive Issuance, the
Exercise Price then in effect shall be reduced to an amount equal to the New
Securities Issuance Price. For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise
of any such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for
such price per share. For purposes of this Section 2(a)(i), the "lowest
price per share for which one share of Common Stock is issuable upon
exercise of such Options or upon conversion, exercise or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect
to any one share Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or exchange of a ny
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall be made
upon the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(a)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon the conversion, exercise or exchange" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon
the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further adjustment of
the Exercise Price or number of Warrant Shares shall be made up on the
actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise
Price or number of Warrant Shares shall be made by reason of such issue or
sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible
into or exercisable or exchangeable for shares of Common Stock increases or
decreases at any time, the Exercise Price and the number of Warrant Shares
in effect at the time of such increase or decrease shall be adjusted to the
Exercise Price and the number of Warrant Shares which would have been in
effect at such time had such Options or Convertible Securities provided for
such increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2(a)(iii),
if the terms of any Option or Convertible Security that was outstanding as
of the date of issuance of this Warrant are increase d or decreased in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such increase or decrease. No adjustment pursuant
to this Section 2(a) shall be made if such adjustment would result in an
increase of the Exercise Price then in effect or a decrease in the number
of Warrant Shares.
(iv) Calculation of Consideration Received. In case any Option is
issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of
$0.01. If any shares of Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net amount
received by the Company therefor. If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than
cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by the
Company will be the Closing Sale Price of such security on the date of
receipt. If any shares of Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other
than cash or securities will be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation
Event"), the fair value of such consideration will be determined within
five (5) Business Days after the tenth day following the Valuation Event by
an independent, reputable appraiser jointly selected by the Company and the
Holder. The determination of such appraiser shall be final and binding upon
all parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.
(v) Record Date. If the Company takes a record of the holders of
shares of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options
or in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(b) Adjustment upon Subdivision or Combination of shares of Common Stock.
If the Company at any time on or after the Subscription Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features, other than pursuant
to an Approved Stock Plan), then the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares so
as to protect the rights of the Holder; provided that no such adjustment
pursuant to this Section 2(c) will increase the Exercise Price or decrease the
number of Warrant Shares as otherwise determined pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the issuance of this
Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of shares of
Common Stock, and (ii) the denominator shall be the Closing Bid Price of the
shares of Common Stock on the Trading Day immediately preceding such record
date; and
(b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of shares of Class A Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately
preceding paragraph (a); provided that in the event that the Distribution is of
shares of Common Stock or common stock ("Other Shares of Common Stock") of a
company whose common shares are traded on a national securities exchange or a
national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to t he Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares in effect immediately
prior to the close of business on the record date fixed for the determination of
holders of shares of Common Stock entitled to receive the Distribution.
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant in accordance with the
provisions of this Section (4)(b) and each other Transaction Document (as
defined in the Securities Purchase Agreement) pursuant to written agreements in
form and substance reasonably satisfactory to the Holder and approved as such by
the Holder prior to such Fundamental Transaction (at each time that there is
more than one Holder, such satisfaction or approval to be by the holders of
Warrants representing the right to purchase at such time a majority of all
Warrant Shares then purchasable pursuant to all outstanding Warrants), and (ii)
the Successor Entity is a publicly traded corporation whose common stock is
quoted on or listed for trading on an Eligible Market. Upon the occurrence of
any Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Warrant with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other securities,
cash, assets or other property) purchasable upon the exercise of the Warrant
prior to such Fundamental Transaction, such shares of stock, securities, cash,
assets or any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Fundamental Transaction had this Warrant been exercised
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.
5. NONCIRCUMVENTION.
(a) The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation, By-laws or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant. The
Company shall, so long as any of the Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
Warrant, 130% of the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of the Warrant then outstanding.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, the Holder, solely in such Person's capacity as a holder of
this Warrant, shall not be entitled to vote or receive dividends or be deemed
the holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person's capacity as the Holder of this Warrant, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
shareholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the shareholders of the Company generally, contemporaneously with the
giving thereof to the shareholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d) and representing the right to purchase such number
of Warrant Shares equal to at least 2% of all Warrant Shares then purchasable
under all outstanding Warrants), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred; provided, however, that no transfer
shall be permitted of Warrants representing the right to purchase less than 2%
of all Warrant Shares then purchasable under all outstanding Warrants or if the
transferor, after such transfer, would own Warrants representing the right to
purchase less than 2% of all Warrant Shares then purchasable under all
outstanding Warrants.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company reasonably
satisfactory to the Company but in no event requiring the posting of any bond or
similar security and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock, and no Warrants representing the right to purchase less than 2% of
all Warrant Shares then purchasable under all outstanding Warrants, shall be
given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.
Notwithstanding anything to the contrary contained herein, the Company shall not
be required to effect any transfer of this Warrant unless the transferee
delivers to the Company an undertaking to comply with the covenant contained
in Section 7(n) of the Securities Purchase Agreement.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with the
Securities Purchase Agreement. The Company will give written notice to the
Holder (i) as soon as practicable and in no event later than two Business Days
following any adjustment of the Exercise Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least ten
Business Days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the shares of
Common Stock, (B) with respect to any grants, issuances or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Holder or, if more
than one, the holders of Warrants representing the right to purchase at any time
a majority of all Warrant Shares then issuable thereunder.
10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
11. JURISDICTION. The Company hereby irrevocably consents and submits to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York in connection with any dispute arising out of or relating
to this Warrant or the transactions contemplated hereby or by any other
Transaction Document, waives any objection to venue in such District (unless
such court lacks jurisdiction with respect to such dispute, in which case, the
Company irrevocably consents to the jurisdiction of the courts of the State of
New York located in New York County in connection with such dispute and waives
any objection to venue in the County of New York), and agrees that service of
any summons, complaint, notice or other process relating to such dispute may be
effected in the manner provided by Section 7(f) of the Securities Purchase
Agreement.
12. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY ACTION OR PROCEEDING RELATING TO THIS WARRANT OR ANY
AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH
OR THEREWITH, INCLUDING THE TRANSACTION DOCUMENTS.
13. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant.
14. DISPUTE RESOLUTION. If the Holders of Warrants representing the right to
purchase such number of Warrant Shares equal to more than 50% of all Warrant
Shares then purchasable under all outstanding Warrants dispute the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, such
Holders may give the Company written notice of such dispute (a "Dispute
Notice"). The Company shall submit its determinations, arithmetic calculations
and other information relating thereto to the Holders via facsimile within one
Business Day of receipt of the Dispute Notice. If such notifying Holders and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within one Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall within one Business Day thereafter submit via facsimile (a) the
disputed determination of the Exercise Price to an independent, reputable
investment bank selected by such notifying Holders and subject to approval by
the Company or (b) the disputed arithmetic calculation of the Warrant Shares to
an independent accounting firm selected by such notifying Holders and subject to
approval by the Company. The Company shall cause at its expense the investment
bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
five Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.
15. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and the other Transaction Documents, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
16. TRANSFER. Subject to the provisions of the legend on the first page of this
Warrant, this Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company, except as may otherwise be required by the
Securities Purchase Agreement.
17. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:
(a) "Approved Stock Plan" means any employee benefit plan that has been or
is approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant for bona fide services actually provided to the Company.
(b) "Bloomberg" means Bloomberg Financial Markets.
(c) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(d) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(e) "Common Stock" means (i) the Company's shares of Common Stock, par
value $0.01 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.
(f) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
(g) "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., or The Nasdaq Stock Market (including the Nasdaq SmallCap
Market).
(h) "Expiration Date" means the seventh anniversary of the original issue
date hereof or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "Holiday"), the
next date that is not a Holiday.
(i) "Excluded Securities" means any shares of Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon exercise of
the Warrants or the conversion of the Notes; or (iii) upon conversion of any
Options or Convertible Securities outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date in any respect adverse to the Holder.
(j) "Fundamental Transaction" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase offer, tender offer or exchange
offer that is accepted by the holders of more than the 50% of the Company's
outstanding voting securities (but excluding any voting securities held by the
Person or Persons making or party to, or any Person(s) associated or affiliated
with such Person or Persons making or party to, such purchase offer, tender
offer or exchange offer), or (iv) enter into a stock purchase agreement or other
agreement to effect any other business combination (including, without
limitation, a reorganization, recapitalization or spin-off) with another Person
or Persons , whereby more than 50% of the Company's outstanding voting
securities are acquired by such Person or Persons (excluding any voting
securities of the Company held by such Person or Persons making or party to, or
any Person(s) associated or affiliated with such Person or Persons making or
party to, such stock purchase agreement or other agreement to effect such other
business combination), or (v) changed the members constituting its Board of
Directors such that the individuals who constituted the Board of Directors on
the Subscription Date or other governing body of the Company (together with any
new directors whose election to such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66-2/3% of
the directors then still in office who were either directors on the Subscription
Date or whose election or nomination for election was previously so approved),
cease for any reason to constitute a majority of such Board of Directors then in
office, or (vi) reorganize, recapitalize or reclassify its Common Stock.
(k) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(l) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(m) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(n) "Principal Market" means the American Stock Exchange.
(o) "Registration Rights Agreement" means those certain registration rights
provisions by and among the Company and the Holder as contained in the
Securities Purchase Agreement.
(p) "Successor Entity" means the Person, which may be the Company, formed
by, resulting from or surviving any Fundamental Transaction or the Person with
which such Fundamental Transaction shall have been made, provided that if such
Person is not a publicly traded entity whose common stock or equivalent equity
security is quoted or listed for trading on an Eligible Market, Successor Entity
shall mean such Person's Parent Entity.
(q) "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00 p.m., New York Time).
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
GSE SYSTEMS, INC.
By:________________________
Name: Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
GSE SYSTEMS, INC.
The undersigned holder hereby exercises the right to purchase ________ of the
shares of Common Stock ("Warrant Shares") of GSE Systems, Inc., a Delaware
corporation (the "Company"), evidenced by the attached Warrant to Purchase
Common Stock (the "Warrant"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as: a "Cash Exercise" with respect to ________ Warrant Shares;
and/or a "Cashless Exercise" with respect to ________ Warrant Shares.
2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder Warrant
Shares in accordance with the terms of the Warrant.
Dated:________ Name of Registered Holder
_________________________
By:
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs its
transfer agent to issue the number of shares of Common Stock indicated above in
accordance with the Transfer Agent Instructions dated ______ from the Company
and acknowledged and agreed to by such transfer agent.
GSE SYSTEMS, INC.
By:________________________
Name:
Title: