Exhibit 10.7
SECURITY AGREEMENT
(Domestic Revolving Line of Credit)
1.
THE
SECURITY. The undersigned GSE Systems, Inc. and GSE
Power Systems, Inc. (collectively, the " Pledgor ") hereby
assign and grant to Bank of America, N.A. (the " Bank ") a security
interest in their respective property described as follows, whether
now owned or hereafter acquired (" Collateral
"):
(a)
All
accounts, contract rights, chattel paper, instruments, deposit
accounts, letter of credit rights, payment intangibles and general
intangibles, including all amounts due to the Pledgor from a
factor; rights to payment of money from the Bank under any Swap
Contract (as defined in Paragraph 2 below); and all returned or
repossessed goods which, on sale or lease, resulted in an account
or chattel paper.
(b)
All
inventory, including all materials, work in process and finished
goods.
(c)
All
machinery, furniture, fixtures and other equipment of every type
now owned or hereafter acquired by the Pledgor.
(d)
All
of the Pledgor’s deposit accounts with the Bank. The
Collateral shall include any renewals or rollovers of the deposit
accounts, any successor accounts, and any general intangibles and
choses in action arising therefrom or related thereto.
(e)
All
instruments, notes, chattel paper, documents, certificates of
deposit, securities and investment property of every
type. The Collateral shall include all liens, security
agreements, leases and other contracts securing or otherwise
relating to the foregoing.
(f)
All
general intangibles, including, but not limited to, (i) all
patents, and all unpatented or unpatentable inventions; (ii) all
trademarks, service marks, and trade names; (iii) all copyrights
and literary rights; (iv) all computer software programs; (v) all
mask works of semiconductor chip products; (vi) all trade secrets,
proprietary information, customer lists, manufacturing, engineering
and production plans, drawings, specifications, processes and
systems. The Collateral shall include all goodwill
connected with or symbolized by any of such general intangibles;
all contract rights, documents, applications, licenses, materials
and other matters related to such general intangibles; all tangible
property embodying or incorporating any such general intangibles;
and all chattel paper and instruments relating to such general
intangibles.
(g)
All
negotiable and nonnegotiable documents of title covering any
Collateral.
(h)
All
accessions, attachments and other additions to the Collateral, and
all tools, parts and equipment used in connection with the
Collateral.
(i)
All
substitutes or replacements for any Collateral, all cash or
non-cash proceeds, product, rents and profits of any Collateral,
all income, benefits and property receivable on account of the
Collateral, all rights under warranties and insurance contracts,
letters of credit, guaranties or other supporting obligations
covering the Collateral, and any causes of action relating to the
Collateral.
(j)
All
books and records pertaining to any Collateral, including but not
limited to any computer-readable memory and any computer hardware
or software necessary to process such memory (" Books and Records
").
(k)
All
present and future property encompassed by the category described
as commercial tort claims, as defined in the Uniform Commercial
Code (“ Commercial Tort Claims
”).
2. INDEBTEDNESS.
(a) The
Collateral secures all Indebtedness of the Pledgor to the
Bank. Each party obligated under any Indebtedness
is referred to in this Agreement as a “ Debtor .” "
Indebtedness "
means, with respect to that certain $1,500,000 domestic
revolving line of credit arising under that certain Loan
Agreement (Domestic Revolving Line of Credit) (the “
Loan
Agreement ”) and related agreements, documents
and instruments entered into between Bank and Pledgor as of
even date herewith, as now in effect and as amended, renewed
or restated in the future, all debts, obligations or
liabilities now or hereafter existing, absolute or contingent
of the Debtor or any one or more of them to the Bank, whether
voluntary or involuntary, whether due or not due, or whether
incurred directly or indirectly or acquired by the Bank by
assignment or otherwise. Indebtedness shall
include, without limitation, all obligations of the Debtor
arising under any Swap Contract. “ Swap Contract
” means any interest rate, credit, commodity or equity
swap, cap, floor, collar, forward foreign exchange
transaction, currency swap, cross currency rate swap, currency
option, securities puts, calls, collars, options or forwards
or any combination of, or option with respect to, these or
similar transactions now or hereafter entered into between the
Debtor and the Bank.
(b) In
addition to the Collateral described above, any other personal
property collateral described in any security agreement now or
hereafter entered into between Debtor and Bank (the “
Additional
Collateral ”) shall also secure the Indebtedness;
provided, however, that to the extent the Additional
Collateral secures any present or future obligations of Debtor
to Bank that are not guaranteed by the Export-Import Bank of
the United States under its Working Capital Guarantee Program
(the “ Non-Ex-Im Bank
Obligations ”), the Additional Collateral shall
be applied first to the satisfaction of the Non-Ex-Im Bank
Obligations and the balance, if any, to the
Indebtedness.
3.
PLEDGOR'S
COVENANTS. The Pledgor represents, covenants and
warrants that unless compliance is waived by the Bank in
writing:
(a)
Pledgor
shall execute any and all such documents as the Bank may request,
including without limitation, financing statements pursuant to the
Uniform Commercial Code in the jurisdiction in which the Collateral
is located or in which Borrower resides or is formed or organized,
as applicable (the “ Uniform Commercial Code
”) to preserve and maintain the priority of the lien created
hereby on the Collateral, and shall pay to the Bank on demand any
expenses incurred by the Bank in connection with the preparation,
execution and filing of any such documents. Said
financing statements shall be filed in such offices as the Bank
deems advisable under the Uniform Commercial
Code. Pledgor hereby authorizes the Bank to file all
financing statements, refilings, continuations and amendments
thereof as the Bank deems necessary or advisable to create,
preserve and protect said lien and security
interest. Pledgor shall cooperate with the Bank in
obtaining control of deposit accounts, letter of credit rights and
any other Collateral for which control is necessary for perfection
under the Uniform Commercial Code.
(b)
The
Pledgor will properly preserve the Collateral; defend the
Collateral against any adverse claims and demands; and keep
accurate Books and Records.
(c)
The
Pledgor's chief executive office is located, in the state specified
on the signature page hereof. In addition, the Pledgor
is incorporated in or organized under the laws of the state
specified on such signature page. The Pledgor shall give
the Bank at least thirty (30) days notice before changing its chief
executive office or state of incorporation or
organization. The Pledgor will notify the Bank in
writing prior to any change in the location of any Collateral,
including the Books and Records.
(d)
The
Pledgor will notify the Bank in writing prior to any change in the
Pledgor's name, identity or business structure.
(e)
Unless
otherwise agreed, the Pledgor has not granted and will not grant
any security interest in any of the Collateral except to the Bank,
and will keep the Collateral free of all liens, claims, security
interests and encumbrances of any kind or nature except the
security interest of the Bank.
(f)
The
Pledgor will promptly notify the Bank in writing of any event which
affects the value of the Collateral, the ability of the Pledgor or
the Bank to dispose of the Collateral, or the rights and remedies
of the Bank in relation thereto, including, but not limited to, the
levy of any legal process against any Collateral and the adoption
of any marketing order, arrangement or procedure affecting the
Collateral, whether governmental or otherwise.
(g)
The
Pledgor shall pay all costs necessary to preserve, defend, enforce
and collect the Collateral, including but not limited to taxes,
assessments, insurance premiums, repairs, rent, storage costs and
expenses of sales, and any costs to perfect the Bank’s
security interest (collectively, the “ Collateral Costs
”). Without waiving the Pledgor's default for
failure to make any such payment, the Bank at its option may pay
any such Collateral Costs, and discharge encumbrances on the
Collateral, and such Collateral Costs payments shall be a part of
the Indebtedness and bear interest at the rate set out in the
Indebtedness. The Pledgor agrees to reimburse the Bank
on demand for any Collateral Costs so incurred.
(h)
Until
the Bank exercises its rights to make collection, the Pledgor will
diligently collect all Collateral.
(i)
If
any Collateral is or becomes the subject of any registration
certificate, certificate of deposit or negotiable document of
title, including any warehouse receipt or bill of lading, the
Pledgor shall immediately deliver such document to the Bank,
together with any necessary endorsements.
(j)
The
Pledgor will not sell, lease, agree to sell or lease, or otherwise
dispose of any Collateral except with the prior written consent of
the Bank; provided, however, that the Pledgor may sell inventory in
the ordinary course of business.
(k)
The
Pledgor will maintain and keep in force insurance covering the
Collateral against fire and extended coverages (including without
limitation windstorm coverage, and hurricane coverage as
applicable), to the extent that any Collateral is of a type which
can be so insured. Such insurance shall require losses
to be paid on a replacement cost basis, be issued by insurance
companies acceptable to the Bank and include a loss payable
endorsement in favor of the Bank in a form acceptable to the
Bank. Upon the request of the Bank, the Pledgor will
deliver to the bank a copy of each insurance policy, or, if
permitted by the Bank, a certificate of insurance listing all
insurance in force.
(l)
The
Pledgor will not attach any Collateral to any real property or
fixture in a manner which might cause such Collateral to become a
part thereof unless the Pledgor first obtains the written consent
of any owner, holder of any lien on the real property or fixture,
or other person having an interest in such property to the removal
by the Bank of the Collateral from such real property or
fixture. Such written consent shall be in form and
substance acceptable to the Bank and shall provide that the Bank
has no liability to such owner, holder of any lien, or any other
person.
(m)
The
Pledgor shall not withdraw funds from any deposit account which is
part of the Collateral without the Bank's prior written
consent. The Pledgor agrees that, upon maturity of any
deposit account with a maturity date, such deposit account shall be
renewed at the Bank’s then prevailing rate of interest for
successive ninety (90) day periods (or such other time period as
may be agreed by the Bank and the
Pledgor). Notwithstanding the Bank's security interest
in the proceeds of the deposit accounts, the Bank will continue to
pay to the Pledgor interest accruing thereunder until the
occurrence of a default under this Agreement.
(n)
Exhibit A to this Agreement is a complete list of all
patents, trademark and service mark registrations, copyright
registrations, mask work registrations, and all a
