GSE SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
(410) 772-3500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of GSE Systems, Inc. (the
"Company") will be held on Wednesday, May 30, 2001, at 10:30 a.m. local time, at
the Sheraton Columbia Hotel, 10207 Wincopin Circle, Columbia, Maryland. The
purposes of the meeting are:
(1) To elect two Directors to serve until the 2004 Annual
Meeting and one Director to serve until the 2002 Annual
Meeting;
(2) To ratify the appointment of KPMG LLP as independent
auditors of the Company to serve for the fiscal year ending
December 31, 2001;
(3) To approve a proposed amendment to the Certificate of
Incorporation increasing GSE's authorized Common Stock from
8,000,000 shares to 18,000,000 shares, as described in the
accompanying Proxy Statement;
(4) To approve a conversion of the debt held by ManTech
International Corporation ("ManTech") into equity in the
form of Convertible Preferred Stock, as described in the
accompanying Proxy Statement; and
(5) To transact such other business as may properly come before
the meeting and at any adjournments or postponements of the
meeting.
The Board of Directors set April 13, 2001 as the record date for the
meeting. This means that owners of Common Stock at the close of business on that
day are entitled to (a) receive this notice of the meeting, and (b) vote at the
meeting and any adjournments or postponements of the meeting.
The list of stockholders as of the record date will be available at the meeting.
If you plan to attend, please mark the appropriate box on the enclosed proxy
card to help us plan for the meeting.
Your vote is important. We encourage you to read the enclosed Proxy
Statement and to sign and return the proxy card so that your shares will be
represented and voted even if you do not attend. If you do attend the meeting,
you may revoke your proxy and vote in person.
By Order of the Board of Directors
Jeffery G. Hough
Secretary
Columbia, Maryland
May 1, 2001
GSE SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
(410) 772-3500
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors is furnishing you this Proxy Statement to
solicit proxies on its behalf to be voted at the 2001 Annual Meeting of the
Stockholders of GSE Systems, Inc. (the "Company"). The meeting will be held at
10:30 a.m. local time, on Wednesday, May 30, 2001 at the Sheraton Columbia
Hotel, 10207 Wincopin Circle, Columbia, Maryland. The proxies may also be voted
at any adjournments or postponements of the meeting.
The address of the Company's principal executive offices is 9189 Red
Branch Road, Columbia, Maryland, 21045. The proxy materials and the Company's
2000 Annual Report are first being sent to stockholders on or about May 1, 2001.
All properly executed written proxies that are delivered pursuant to
this solicitation will be voted at the meeting in accordance with the directions
given in the proxy unless the proxy is revoked before the meeting. You can
revoke your proxy by
(a) giving written notice to the Secretary of the Company,
(b) delivering a later dated proxy, or
(c) voting in person at the meeting.
As a stockholder, you should specify your choice for each matter on the
enclosed form of proxy. If no instructions are given, proxies that are signed
and returned will be voted FOR the election of all Director nominees, FOR the
proposal to ratify the appointment of KPMG LLP, FOR the proposal to amend the
Certificate of Incorporation increasing GSE's authorized Common Stock from
8,000,000 shares to 18,000,000 shares, and FOR the proposal authorizing ManTech
to convert its debt into equity in the form of Convertible Preferred Stock.
Other matters that properly come before the meeting will be voted upon by the
persons named in the enclosed proxy in accordance with their best judgment.
The Company will continue its long-standing practice of holding the
votes of all stockholders in confidence from Directors, officers and employees
except: (a) as necessary to meet applicable legal requirements and to assert and
defend claims for or against the Company; (b) in case of a contested proxy
solicitation; or (c) if a stockholder makes a written comment on the proxy card
or otherwise communicates his/her vote to management. The Company will, as it
has in the past, retain an independent tabulator to receive and tabulate the
proxies.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
Voting Securities
Only stockholders of record at the close of business on April 13, 2001
will be entitled to vote at the Annual Meeting or at adjournments or
postponements of the meeting. On April 13, 2001, there were 5,193,527 shares of
common stock issued and outstanding. Each share of common stock is entitled to
one vote on all matters that may properly come before the Annual Meeting.
The presence in person or by proxy at the Annual Meeting of the holders
of at least a majority of the total number of outstanding shares of common stock
will constitute a quorum for the transaction of business.
Shares of common stock represented by a properly signed and returned
proxy will be counted as present at the Annual Meeting for purposes of
determining a quorum, without regard to whether the proxy is marked as casting a
vote or abstaining.
Directors are elected by a plurality of the votes cast. A withheld vote
will not affect the required plurality. All other matters to come before the
Annual Meeting require a majority vote in person or by proxy. Therefore,
abstentions will have the same effect as votes against the proposals on such
matters.
Brokers who hold shares of common stock in street name may not have the
authority to vote on certain matters for which they have not received voting
instructions from beneficial owners. Such broker non-votes, although present for
quorum purposes, will be deemed shares not present to vote on such matters and
will not be included in calculating the number of votes necessary for approval
of such matters.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial
ownership of the Company's common stock, as of April 13, 2001, by: (i) each
stockholder who is known by the Company to own beneficially more than five
percent of the outstanding common stock, (ii) each of the Company's Directors,
(iii) each executive officer of the Company named in the Summary Compensation
Table, and (iv) all Directors and executive officers of the Company as a group.
Except as otherwise indicated below, the Company believes that the beneficial
owners of the common stock listed below have sole investment and voting power
with respect to such shares, subject to community property laws where
applicable.
In preparing the following table, the Company has relied on the
information contained in the Statements on Schedule 13G previously filed by
ManTech and GP Strategies Corporation ("GP Strategies"), and Schedule 13G/A
filed for 2000 by Benson & Associates LLC. Certain of the shares reported in the
following table may be deemed to be beneficially owned by more than one person
and therefore may be included in more than one table entry.
Number of Percent of
Common Stock Outstanding
Shares Beneficially Owned Common Stock
Name of Beneficial Owner
Certain Beneficial Owners
GP Strategies Corporation1......................1,325,250 24.7%
9 West 57th Street
New York, NY 10019
ManTech International Corporation 2 ............1,224,265 22.8%
12015 Lee Jackson Highway
Fairfax, VA 22033
SGLG, Inc. .......................................875,000 16.8%
9 West 57th Street
New York, NY 10019
Benson Associates, LLC3 ..........................542,703 10.4%
111 S.W. Fifth Avenue, Suite 2130
Portland, OR 97204
Directors and Executive Officers4
Jerome I. Feldman5 ..............................1,325,250 24.7%
Scott N. Greenberg6 .............................1,308,700 24.5%
John A. Moore, Jr.7 .............................1,151,465 21.5%
George J. Pedersen8..............................1,137,584 21.2%
Christopher M. Carnavos9 ..........................296,000 5.4%
Brian K. Southern10 ...............................207,600 3.8%
Bruce E. Manthey 11 ................................57,000 1.1%
Sylvan Schefler12 ..................................42,129 0.8%
Chin-Our Jerry Jen13 .............................. 35,800 0.7%
Sheldon L. Glashow14 ...............................18,908 0.4%
Jeffery G. Hough15 ..................................17,500 0.3%
Gill R. Grady16 .....................................11,600 0.2%
Joseph Lewis17 .......................................4,000 0.1%
Directors and Executive Officers as a group
(13 persons)18 ..................................3,240,052 52.2%
________________________________
1 Includes 16,550 shares subject to option owned directly by Mr. Feldman (see
Note 5 below), 875,000 shares owned by SGLG, Inc. (SGLG), 250,000 shares owned
by General Physics Corporation (GPC) and 33,700 shares owned by GP Strategies.
Also includes 150,000 shares issuable upon the exercise of warrants which are
exercisable within sixty (60) days of April 13, 2001. GP Strategies, a company
in which Mr. Feldman has a controlling interest, owns GPC as well as a
controlling interest in SGLG. GP Strategies disclaims beneficial ownership of
all shares, including those subject to option, owned directly by Mr. Feldman.
2 Includes 72,800 shares and shares subject to option owned directly by Mr.
Pedersen (see Note 8 below), 86,681 shares and shares subject to option owned
directly by John A. Moore, Jr. (see Note 7 below), and 914,784 shares owned by
ManTech. Also includes 150,000 shares issuable upon the exercise of warrants
which are exercisable within sixty (60) days of April 13, 2001. ManTech
disclaims beneficial ownership of all shares owned directly by Messrs. Pedersen
and Moore.
3 Persons other than Benson Associates, LLC have the right to receive dividends
from, or the proceeds of, the sale of such common stock. No such right to
receive proceeds or dividends relates to more than 5 percent of the class.
4 The address of all Directors and Executive Officers is in care of GSE Systems,
Inc., 9189 Red Branch Road, Columbia, MD 21045.
5 Includes 33,700 shares owned by GP Strategies, 875,000 shares owned by SGLG
and 250,000 shares owned by GPC, and 150,000 warrants which are exercisable
within sixty (60) days of April 13, 2001 owned by GP Strategies (see Note 1
above). Mr. Feldman disclaims beneficial ownership of all the shares owned by GP
Strategies, SGLG and GPC. Also includes 16,550 shares issuable upon the exercise
of options which are exercisable within sixty (60) days of April 13, 2001.
6 Includes 33,700 shares owned by GP Strategies, 875,000 shares owned by SGLG
and 250,000 shares owned by GPC, and 150,000 warrants which are exercisable
within sixty (60) days of April 13, 2001 owned by GP Strategies (see Note 1
above). Mr. Greenberg is Chief Financial Officer and a director of GP Strategies
and disclaims beneficial ownership of all the shares owned by GP Strategies,
SGLG and GPC.
7 Includes 83,925 shares owned directly by Mr. Moore and 914,784 shares owned by
ManTech, and 150,000 warrants which are exercisable within sixty (60) days of
April 13, 2001 owned by ManTech (see Note 2 above). Mr. Moore is a stockholder
of ManTech and serves as its Chief Financial Officer. Mr. Moore disclaims
beneficial ownership of the shares owned by ManTech. Also includes 2,756 shares
issuable upon the exercise of options which are exercisable within sixty (60)
days of April 13, 2001.
8 Includes 56,250 shares owned directly by Mr. Pedersen and 914,784 shares owned
by ManTech, and 150,000 warrants which are exercisable within sixty (60) days of
April 13, 2001 owned by ManTech (see Note 2 above). Mr. Pedersen is a
controlling stockholder of ManTech and serves as its Chairman, President and
Chief Executive Officer. Mr. Pedersen disclaims beneficial ownership of the
shares owned by ManTech. Also includes 16,550 shares issuable upon the exercise
of options which are exercisable within sixty (60) days of April 13, 2001.
9 Includes 1,000 shares owned directly by Mr. Carnavos and his family and
295,000 shares issuable upon the exercise of options which are exercisable
within sixty (60) days of April 13, 2001. Mr. Carnavos resigned as President,
CEO and Director on March 26, 2001.
10 Includes 2,000 shares owned directly by Mr. Southern and 205,000 shares
issuable upon the exercise of options which are exercisable within sixty (60)
days of April 13, 2001. Also includes 600 shares owned by Mr. Southern's family;
Mr. Southern disclaims beneficial ownership of such shares. Mr. Southern
resigned as a Director on March 8, 2001. Mr. Southern's employment with GSE
terminated on March 9, 2001.
11 Includes 57,000 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 13, 2001. Mr. Manthey's employment
with GSE terminated on March 8, 2001.
12 Includes 24,000 warrants which were awarded to Mr. Schefler through his
previous affiliation with Prime Charter Ltd. and 18,129 shares issuable upon the
exercise of options, both of which are exercisable within sixty (60) days of
April 13, 2001. Mr. Schefler resigned as a Director in the 1st Quarter of 2000.
13 Includes 3,800 shares owned directly by Mr. Jen and 32,000 shares issuable
upon the exercise of options which are exercisable within sixty (60) days of
April 13, 2001. Mr. Jen was appointed President and Director on March 27, 2001.
14 Includes 8,129 shares owned directly by Mr. Glashow and 10,779 shares
issuable upon the exercise of options which are exercisable within sixty (60)
days of April 13, 2001.
15 Includes 17,500 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 13, 2001.
16 Includes 11,600 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 13, 2001.
17 Includes 4,000 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 13, 2001. Mr. Lewis was elected to
the Board on March 10, 2000.
18 Includes 1,010,864 shares issuable upon the exercise of options and warrants
which are exercisable within sixty (60) days of April 13, 2001.
____________________________________
PROPOSAL 1: ELECTION OF DIRECTORS
The stockholders elect at least one-third of the members of the Board
of Directors (the "Board") annually. The Directors are divided into three
classes. Each class serves for a period of three years, although a Director may
be elected for a shorter term in order to keep the number of Directors in each
class approximately equal. This practice is in accordance with the Company's
Amended and Restated Certificate of Incorporation.
The terms of Jerome I. Feldman and George J. Pedersen will expire at
the 2001 Annual Meeting. Messrs. Feldman and Pedersen have been nominated to
stand for reelection at the meeting to hold office until 2004 and until their
successors are elected and qualified.
On March 10, 2000 the Board increased the number of Directors to eight
and elected Joseph W. Lewis as a Director to serve until the 2000 Annual
Meeting. Mr. Lewis was elected at the 2000 Annual Meeting to hold office until
2003 and until his successor has been elected and qualified.
On March 22, 2000 the Board increased the number of Directors to nine
and elected Brian K. Southern as a Director to serve until the 2000 Annual
Meeting. Mr. Southern was elected at the 2000 Annual Meeting to hold office
until 2002 and until his successor has been elected and qualified. On March 8,
2001, Mr. Southern resigned from the Board.
On March 26, 2001, Christopher M. Carnavos resigned from the Board. The
Board anticipates filling this vacancy by June 14, 2001 with an independent
director in order to meet Amex requirements for the Audit Committee.
On March 27, 2001 the Board elected Chin-Our Jerry Jen as a Director to
serve the vacancy created by Mr. Southern's resignation and to hold office
until 2002 and until his successor has been elected and qualified.
The proxies solicited hereby, unless directed to the contrary, will be
voted for election of the nominees. All of the nominees have consented to being
named in this Proxy Statement and to serve if elected. The Board has no reason
to believe that any of the nominees will not be a candidate or will be unable to
serve, but if either occurs proxies may be voted for such substituted nominee or
nominees as the Board, in its discretion, may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
JEROME I. FELDMAN, GEORGE J. PEDERSEN AND CHIN-OUR JERRY JEN
The following sets forth certain biographical information including professional
background and business-related experience for each of the nominees and
incumbent Directors.
Class I Directors: Incumbent standing for election for a term to expire in 2002
Chin-Our Jerry Jen, age 52. Mr. Jen has served on the Board since
March. Mr. Jen has been with the Company and its predecessor companies since
1980 in various engineering and senior management positions. In 1997, Mr. Jen
was promoted to Senior Vice President of the Power Business Unit, and on
November 14, 2000, he was named COO in charge of both the Power and Process
Control businesses. On March 27, 2001, Mr. Jen was named President and Director.
Class I Directors: Incumbent whose term will expire in 2002
Sheldon L. Glashow, Ph.D., age 68. Dr. Glashow has served as a
Director of the Company since 1995. Dr. Glashow is the Higgins Professor of
Physics at Harvard University and previously taught physics at other major
universities in Massachusetts, Texas, California and France. In 1979, Dr.
Glashow received the Nobel Prize in Physics. Dr. Glashow has been a director of
General Physics Corporation, an industrial and government training and services
company, since 1987; a director from 1985 to 1995 of GTS Duratek, Inc., an
environmental technology and consulting company; and a director of Interferon
Sciences, Inc., a pharmaceuticals company, since 1991. Dr. Glashow currently
serves as a director of GP Strategies Corporation.
Class II Directors: Incumbents whose terms expire in 2003
Scott N. Greenberg, age 44. Mr. Greenberg has served as a Director of
the Company since March 1999 and had previously served as a Director of the
Company from 1994 to 1995. Mr. Greenberg has served on the Board of Directors of
GP Strategies since 1987. Mr. Greenberg serves as Executive Vice President for
GP Strategies and has served as its Chief Financial Officer since 1989. Mr.
Greenberg has also served as Vice President and a director of SGLG, Inc., an
industrial and government training and consulting company, since 1991. Mr.
Greenberg has also served as a director since 1987 of General Physics
Corporation. From 1991 to January 1995, Mr. Greenberg was a director of GTS
Duratek, Inc.
Joseph W. Lewis, age 66. Mr. Lewis has served on the Board since March
2000. He retired from Johnson Controls, Inc. after 39 years of service,
including his tenure from 1986 to 1998 as Executive Vice President with
responsibilities for its Controls Group. Mr. Lewis is Chairman of the Board of
DryKor Ltd of Israel. He has been director of Wheaton Franciscan Services, Inc.,
a multi-system health care provider, since 1991 and its Treasurer since 1993. He
also served as a director of Entek IRD International until its sale to Allen
Bradley, a division of Rockwell International Corporation.
John A. Moore, Jr., age 48. Mr. Moore has served as a Director of the
Company since November 1997. Mr. Moore is an Executive Vice President and Chief
Financial Officer of ManTech. Mr. Moore also serves as a director and in an
executive capacity for a number of ManTech subsidiaries. Prior to joining
ManTech in 1982, he was supervisory auditor for the Defense Contract Audit
Agency. He holds a Bachelors degree in Accounting from La Salle University and
an MBA from the University of Maryland.
Class III Directors: Incumbents standing for election whose terms will expire in
2004
Jerome I. Feldman, age 72. Mr. Feldman has served as a Director of the
Company since 1994, and as Chairman of the Board since April 1997. Mr. Feldman
co-founded GP Strategies in 1959 and has served as its President and Chief
Executive Officer since its founding. Mr. Feldman has been a director of Five
Star Products, a wholesale distributor of home decorating, hardware and
finishing products, since 1994. Mr. Feldman is Chairman of the New England
Colleges Fund and Trustee of the Northern Westchester Hospital.
George J. Pedersen, age 65. Mr. Pedersen has served as a Director of
the Company since 1994 and as Chairman of its Executive Committee since April
1997. Mr. Pedersen co-founded ManTech in 1968 beginning as Vice President and
Secretary/Treasurer. He has served as its Secretary since 1968 and was elected
Chairman of its Board of Directors in 1979. In 1995, Mr. Pedersen was elected to
the additional positions of President and Chief Executive Officer of ManTech.
Mr. Pedersen has served as President and/or Chairman of the Board of a number of
ManTech subsidiaries. Mr. Pedersen serves as a director, Vice President and a
member of the Executive Committee of the Professional Services Council; a
Trustee and a member of the Executive Committee of the National Security
Industrial Association; a Trustee of the Naval Undersea Museum Foundation; and
as a director of the Ivymount School. Mr. Pedersen currently serves as Chairman
of the Board of MARE, Inc., Chairman of the Board of the Institute of Software
Research and Chairman of the Board of Praxa Limited, an information technology
systems integrator headquartered in Melbourne, Australia.
The Board of Directors and Board Committees
In 2000, the Board met three times and Committees of the Board held a
total of nine meetings. The Directors attended at least 96% of the total of such
Board meetings and the meetings of Committees on which each Director served. The
Board has established the following Committees, the function and current members
of which are noted below:
Executive Committee. The Executive Committee consists of George J.
Pedersen (Chairman), Jerome I. Feldman and formerly Christopher M. Carnavos. The
Executive Committee has the authority to exercise all powers of the Board,
except for actions that must be taken by the full Board under the Delaware
General Corporation Law. The Executive Committee met twice during 2000.
Audit Committee. The Audit Committee consists of Sheldon L. Glashow and
Joseph W. Lewis. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants and reviews the adequacy
of the Company's internal accounting controls. The Audit Committee met twice
during 2000. In accordance with Amex requirements, the Board will be appointing
a third member of the Audit Committee (i.e., a third independent Director) by
June 14, 2001.
Nominating Committee. The Nominating Committee consists of Jerome I.
Feldman, George J. Pedersen and formerly Christopher M. Carnavos. The Nominating
Committee selects and recommends nominees for election as Directors of the
Board. The Nominating Committee did not meet during 2000.
Compensation Committee. The Compensation Committee consists of Jerome
I. Feldman, George J. Pedersen (Chairman) and formerly Christopher M. Carnavos.
The Compensation Committee is responsible for determining compensation for the
Company's executive officers and for administering and granting awards under the
Company's Long-Term Incentive Plan (the "Plan"). The Compensation Committee met
five times during 2000. See "Report of the Compensation Committee", below.
Compensation of Directors
The Board pays its members who are not employees of the Company (the
"Non-Management Directors") an annual fee of $5,000 for their service and $1,500
for each Board meeting attended. Officers who are full-time employees and are
also Directors do not receive any fee or remuneration for services as members of
the Board of Directors or any Board Committee.
At the discretion of the Board, each person who becomes a
Non-Management Director may receive an initial grant of options under the Plan
to purchase shares of common stock having an exercise price per share equal to
the fair market value of a share of common stock on the date such person first
becomes a Non-Management Director. Also at the discretion of the Board, under
the Plan, each Non-Management Director serving as a Director on December 31 of
each calendar year (commencing in 1995) may receive options to purchase shares
of common stock with an exercise price per share equal to the fair market value
of a share of common stock on such date. Usually, options granted under the Plan
to Non-Management Directors become exercisable in three installments with 40%
vesting on the first anniversary of the date of grant and 30% vesting on each of
the second and third anniversaries of the date of grant, subject to acceleration
under certain circumstances such as a change of control.
In 2000, Messrs. Glashow, Lewis and Schefler were each granted options
to purchase 10,000 shares of common stock at an exercise price of $7.50. Messrs.
Carnavos and Southern were each granted options to purchase 100,000 shares of
common stock at an exercise price of $4.75.
In 1999, the Company entered into employment agreements with Messrs.
Feldman, Greenberg, Pedersen and Moore to serve as executives, providing
strategic planning in acquisitions and divestitures, management of financing
arrangements, and customer and other business development activities. Salaries
paid under these agreements in 2000 were $120,000 each to Messrs. Feldman and
Pedersen and $60,000 each to Messrs. Greenberg and Moore.
In 1999, as a management employee incentive, Messrs. Feldman and
Pedersen were each granted options to purchase 100,000 shares of common stock at
an exercise price of $3.3125; Messrs. Greenberg and Moore were each granted
options to purchase 50,000 shares of common stock at an exercise price of
$3.3125. These options have a Target Stock Value and vest immediately following
a 30-day trading-day period in which the Target Stock Value has been met or
exceeded (Target Stock Value of $8.00, 35% vested; Target Stock Value of $10.00,
100% vested), or vest at 100% on the fifth anniversary of the date of grant.
Messrs. Glashow and Schefler were each granted options to purchase 1,500 shares
of common stock at an exercise price of $3.3125.
PRINCIPAL EXECUTIVE OFFICERS OF THE
COMPANY WHO ARE NOT ALSO DIRECTORS
The Board elects executive officers of the Company. Set forth below is
certain information regarding the positions and business experience of each
executive officer of the Company who is not also a Director of the Company.
Gill R. Grady, age 43. Mr. Grady has been a Senior Vice President since
September 1999 and is currently responsible for the executive oversight of
Business Development as well as several administrative functions such as
Investor Relations, Human Resources, Contract Administration and Information
Technology. Prior to this, he was responsible for the operations of the
Company's Process Solutions subsidiary. He has also served as Vice President of
Business Development for the GSE Power Systems subsidiary and has held numerous
senior management positions in business operations, marketing and project
management with the Company. From 1992 through 1997, Mr. Grady was responsible
for business development for the Company's Eastern European activities.
Throughout his tenure, he has been the Company's liaison with the Department of
Energy and with Congress for funding related to the Company's Eastern European
activities. He has been employed by the Company or predecessor companies since
1980.
Jeffery G. Hough, age 46. Mr. Hough joined the Company in January 1999
as Senior Vice President and Chief Financial Officer. During 1999, he was
elected both Treasurer and Secretary of the Company. Prior to joining the
Company, Mr. Hough was the Chief Financial Officer and Treasurer of Yokogawa
Industrial Automation America, Inc., a supplier of process control equipment,
from 1995 through 1998. From 1982 through 1995, he held various financial
management positions with two other suppliers of process control equipment, ABB
Process Automation and Leeds & Northrop. Mr. Hough was an auditor for Price
Waterhouse from 1977 to 1982.
Compensation of Executive Officers
Summary of Cash and Certain Other Compensation
The following table sets forth information as to the compensation
paid by the Company for services rendered by the Company's principal executive
officer and the four other most highly compensated executive officers of the
Company for the fiscal years ended December 31, 2000, 1999, and 1998.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options (#) Compensation
Christopher M. Carnavos9 .. 2000 $223,600 $ 5,000 1 100,000 $ 3,295 2
President & CEO ........ 1999 221,618 50,000 100,000 57,013
1998 206,923 25,000 40,000 28,978
Brian K. Southern9 ........ 2000 $180,654 $10,000 1 100,000 $ 3,573 3
Sr. Vice President ..... 1999 166,000 25,000 50,000 37,732
1998 118,042 15,000 30,000 35,030
Bruce E. Manthey9 ......... 2000 $175,673 $91,427 4 -0- $ 2,701 5
Sr. Vice President ..... 1999 -0- -0- 55,000 6 -0-
1998 -0- -0- -0- -0-
Jeffery G. Hough .......... 2000 $160,615 $15,000 1 -0- $ 3,602 7
Sr. Vice President & CFO 1999 137,308 10,000 75,000 49,125
1998 -0- -0- -0- -0-
Chin-Our Jerry Jen ........ 2000 $152,385 $15,000 1 -0- $ 3,057 8
Sr. Vice President & COO 1999 140,000 25,000 50,000 4,008
1998 120,202 -0- 10,000 2,997
____________________________
1 Bonus paid for 1999 performance of the Company.
2 Consists of $2,303 for Company retirement plan matching and $992 for executive
group term life insurance premiums.
3 Consists of $3,102 for Company retirement
plan matching and $471 for executive group term life insurance premiums.
4 Hiring bonus paid in 2000 plus performance bonuses paid for 1st, 2nd and 3rd
quarters of 2000.
5 Consists of $1,390 for Company retirement plan matching and
$1,311 for executive group term life insurance premiums.
6 Options granted upon hiring in late December 1999.
7 Consists of $2,889 for Company retirement plan matching and $713 for executive
group term life insurance premiums.
8 Consists of $2,045 for Company retirement plan matching and $1,012 for
executive group term life insurance premiums.
9 In 2000, the Company had severance agreements with Messrs. Carnavos, Southern
and Manthey requiring payments for each which would amount to more than
$100,000. Such agreements became effective in 2001 with the resignation of Mr.
Carnavos and the termination of Messrs. Southern and Manthey as employees of the
Company.
______________________________
Stock Options
The following table provides information on stock options granted to
the named executive officers during 2000. Only non-statutory stock options were
granted under the Plan.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of Stock Price
Securities Total Options Appreciation for Option Term(3)
Underlying Granted to Exercise or
Options Employees in Base Price Expiration 0% 5% 10%
Name Granted(#) Fiscal Year(2) ($/share) Date
__________________________________________________________________________________________________________________________________
Christopher M. Carnavos 100,000(1) 33.9% $4.750 02/07/07 $0 $193,373 $450,641
Brian K. Southern 100,000(1) 33.9% $4.750 02/07/07 $0 $193,373 $450,641
Bruce E. Manthey 0
Jeffery G. Hough 0
Chin-Our Jerry Jen 0
________________________________________
1 These options immediately vested.
2 In addition to the option grants to the executive officers reported in
the table, options with an average exercise price of $5.76 covering a total of
95,000 shares of common stock were granted to seven (7) other employees during
2000.
3 No gain to the optionees is possible without an increase in stock price,
which will benefit all shareholders commensurately. A 0% increase in stock price
will result in $0 gain for the optionees. The potential realizable amounts shown
illustrate the values that might be realized upon exercise immediately prior to
the expiration of their term using 5% and 10% appreciation rates set by the SEC,
compounded annually and, therefore, are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
______________________________________
Options Exercises and Holdings
The following table summarizes the value of all outstanding options for
the executive officers named in the Summary Compensation Table as of December
31, 2000.
FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 2000 December 31, 2000
Name Exercisable/Unexercisable Exercisable/Unexercisable
Christopher M. Carnavos 181,000/89,000 0/0
Brian K. Southern 121,000/59,000 0/0
Bruce E. Manthey 24,000/33,000 0/0
Jeffery G. Hough 10,000/65,000 0/0
Chin-Our Jerry Jen 37,000/48,000 0/0
REPORT OF THE COMPENSATION COMMITTEE
This report addresses the compensation of the Company's executive
officers for the last fiscal year and the Company's general compensation
philosophy. The Compensation Committee is responsible for determining
compensation for the Company's executive officers and for granting awards under
and administering the Company's Long-Term Incentive Plan. The Compensation
Committee consists of Jerome I. Feldman, George J. Pedersen and formerly
Christopher M. Carnavos.
Compensation Philosophy
The compensation program for the executive officers of the Company and its
subsidiaries is developed and administered by the Board and its Compensation
Committee. General overall compensation policies regarding other officers and
employees of the Company are established by the Compensation Committee, but the
specific compensation program for such persons is developed and administered by
Company management. The key goals of the Company's compensation program are to
attract, retain and reward the most capable executives and other employees who
can contribute (both short and long-term) to the success of the Company and to
align compensation with the attainment of the business objectives of the
Company.
Compensation of Principal Executive Officer
For 2000, Mr. Carnavos earned $228,600 in salary and bonus, as shown in the
Summary Compensation Table. The Committee considered this level of payment
appropriate in view of Mr. Carnavos' leadership of the Company. Mr. Carnavos
served as the principal executive officer within the Company and in this role
directed the Company's evolution beginning in 1999 from a traditional
supplier-vendor relationship to a more focused solution-oriented partnership
with the Company's customers, a partnership based on the Company's core
capability to provide integrated real-time dynamic simulation and process
control solutions. This led to the Company's 1999 VirtualPlant initiative, a new
business strategy that continued into 2000 with extensive development and
investment. 1
Implementation Guidelines
To implement the compensation philosophy described above, the Company's
executive compensation program has three primary components: (i) a base salary,
(ii) bonus awards, and (iii) long-term incentive awards. The factors and
criteria to be considered with respect to each of these components are set forth
below.
Base Salary. The range of the base salary for an executive or other
employee position will generally be established based on competitive salaries
for positions with a similar scope of responsibilities and job complexities. The
level of base salary within the range of competitive salaries will be determined
on the basis of individual performance, experience and other relevant factors,
such as demonstrated leadership, job knowledge and management skills. Such
determination will be made by the Compensation Committee, with regard to the
Company's executive officers, and by management with regard to all other
officers and employees consistent with the general overall compensation policies
established by the Compensation Committee.
________________________
1 On March 6, 2001, the Company sold its VirtualPlant business to Avantium
International B.V. ("Avantium") in exchange for an increased equity position in
Avantium. For further details, see the Annual Report on Form 10-K filed by the
Company with the SEC for the fiscal year ended December 31, 2000 and the
Company's press release dated March 12, 2001.
Base salaries will be targeted within the appropriate competitive range,
although higher compensation may be paid if necessary or appropriate to attract
or retain unusually qualified executives. Annual or other base salary
adjustments will be based on individual performance as well as other market
factors. Base salary payments made in 2000 were made to compensate ongoing
performance throughout the year.
Bonus Awards. The bonus award is intended to focus the efforts of the
executives and other employees on performance objectives in accordance with the
business strategy of the Company.
The Compensation Committee will administer incentive awards for the
Company's executive officers. The Compensation Committee will review and assess
the extent to which the overall Company performance goals have been met during
the year and make such awards to the Company's executive officers. Management of
the Company will be responsible for awarding bonus amounts to other officers and
employees of the Company, taking into account the general compensation
philosophy of the Company.
For more information regarding the bonuses awarded in 2000 to the Company's
principal executive officer and the four other most highly compensated executive
officers of the Company, see "Compensation of Executive Officers -- Summary of
Cash and Certain Other Compensation."
Long-Term Incentive Awards. The third element of the Company's compensation
program is provided through the Company's Long-Term Incentive Plan (the "Plan"),
which is designed to align the interests of the officers and employees with
those of stockholders. The Plan is intended to focus the efforts of officers and
employees on performance which will increase the value of the Company for its
stockholders.
Pursuant to the Plan, the Compensation Committee may grant incentive stock
options within the meaning of the Internal Revenue Code of 1986, as amended, and
may grant, among other types of awards, nonstatutory stock options to purchase
shares of common stock. The Compensation Committee also may grant stock
appreciation rights and award shares of restricted stock and incentive shares in
accordance with the terms of the Plan. Subject to the terms of the Plan, the
Compensation Committee will have discretion in making grants and awards under
the Plan. The Compensation Committee may, however, consider the recommendations
of management with respect to such grants and awards.
Total direct compensation to the Company's executive officers (base salary,
bonus awards and long-term incentive awards) will be targeted within the
appropriate competitive range, although higher compensation may be paid if
necessary to attract or retain unusually qualified executives.
The Compensation Committee's decisions concerning the specific 2000
compensation elements for individual executive officers were made within the
broad framework previously described and in light of each executive officer's
level of responsibility, performance, current salary, prior year bonus and other
compensation awards. In all cases, the Compensation Committee's specific
decisions regarding 2000 executive officer compensation were ultimately based
upon the Compensation Committee's judgment about the individual executive
officer's performance and potential future contributions, and about whether each
particular payment or award would provide an appropriate reward and incentive
for that executive officer to contribute to, and enhance, the Company's
performance.
The Board, with the advice of the Compensation Committee, will reexamine
the Company's compensation philosophy and objectives periodically and determine
if changes should be considered.
Compensation Committee
George J. Pedersen, Chairman
Jerome I. Feldman
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is currently comprised of the
two Directors named below. In order to comply with Amex requirements, the
Company will be appointing a third member to the Audit Committee no later than
June 14, 2001. Each member of the Audit Committee is an independent director as
defined by Amex rules. The Audit Committee has adopted a written charter which
has been approved by the Board of Directors, and which is set forth in Appendix
A of this Proxy Statement. The Audit Committee has reviewed and discussed the
Company's audited financial statements with management, which has primary
responsibility for financial statements. KPMG LLP, the Company's independent
auditor for 2000, is responsible for expressing an opinion on the conformity of
the Company's audited financial statements with generally accepted accounting
principles. The Audit Committee has discussed with KPMG LLP the matters that are
required to be discussed by the Statement on Auditing Standards No. 61
(Communications with Audit Committees). KPMG LLP has provided the Audit
Committee the written disclosures and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Audit Committee discussed with KPMG LLP that firm's independence. KPMG
LLP has not provided the Company with any non-audit services that would be
incompatible with that firm's independence.
Based on the considerations referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended December 31, 2000 and that KPMG LLP be appointed independent
auditors for the Company for 2001. The foregoing report is provided by the
following independent Directors, who constitute the Audit Committee:
Sheldon L. Glashow Joseph W. Lewis
Performance Graph
The following graph sets forth a comparison of the percentage change in
the cumulative total stockholder return on the Company's common stock compared
to the cumulative total return of the American Stock Exchange - US & Foreign
Index and a group of peer issuers selected on a line-of-business basis,
consisting of Aspen Technology, Inc., GenSym Corporation and Emerson Electric
Co. for the period from January 1, 1996 through December 31, 2000. The graph was
prepared for the Company by Media General Financial Services. The stock price
performance shown on the graph below is not necessarily indicative of future
performance.
01/01/1996 12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/31/2000
GSE SYSTEM, INC. 100.00 66.07 21.43 17.86 23.66 9.82
PEER GROUP INDEX 100.00 122.92 144.75 156.17 152.49 214.03
AMEX MARKET INDEX 100.00 105.52 126.97 125.25 156.15 154.23
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company is currently comprised of Mr.
Pedersen, who is the Chairman of the Compensation Committee, and is President,
Chairman of the Board and Chief Executive Officer of ManTech; and Mr. Feldman,
who is Chairman of the Board of the Company's Board of Directors and is
President and Chief Executive Officer of GP Strategies.
The Compensation Committee acts on matters related to other Directors,
executive officers and related entity proposals. Any matter related to a member
of the Committee requires ratification by the Non-Management Directors or
approval of the entire Board.
On March 23, 2000, the Company entered into a new loan and security
agreement with a financial institution (the "bank") for a new credit facility
with a maturity date of March 23, 2003. In connection with the new credit
facility, ManTech provided a one-year $900,000 standby letter of credit to the
bank as additional collateral for the Company's facility. In addition, GP
Strategies provided a limited guarantee totaling $1,800,000; ManTech provided a
limited guarantee totaling $900,000. In July 2000, ManTech's guarantee was
converted into a second one-year $900,000 standby letter of credit to the bank,
which was also used as additional collateral for the Company's credit facility.
The Company was allowed to borrow up to 100% of the value of these two letters
of credit.
In the fourth quarter of 2000, the Company issued a demand promissory
note to ManTech that allowed the Company to borrow up to $1.8 million at an
interest rate of prime plus one percent. As of December 31, 2000, the Company
had borrowed $1.6 million, which was used for working capital. The promissory
note was secured by the Company's pledge of its equity interest in Avantium
International B.V., but such security interest was subordinate to the first lien
thereon by the Company's bank. In the first quarter of 2001, the promissory note
was amended to increase the principal amount to $2.1 million. Subsequently in
the first quarter of 2001, and with ManTech's approval, the Company issued a
replacement promissory note in the amount of $2.1 million to ManTech pursuant to
which the Company's obligations to ManTech became unsecured, and the principal
is payable over a two year period, in equal installments, commencing April 1,
2004, with interest payments to commence monthly on July 1, 2001. The note
permits ManTech to convert the principal into GSE convertible preferred stock at
a conversion rate of $100 per share, pending shareholder approval. ManTech has
agreed to subordinate the note to the Company's credit facility. On April 4,
2001, ManTech allowed the Company's bank to draw upon the two outstanding
letters of credit which were being used by the Company as additional collateral
for the Company's credit facility, thus paying down $1.8 million of the
Company's borrowings under the credit facility. The Company amended the
subordinated promissory note to ManTech, increasing the amount by $1.8 million
to a total of $3.9 million.
On January 27, 2000, the Company issued 116,959 shares of its common
stock to ManTech for $500,000. The proceeds of the stock issuance were used for
working capital.
PROPOSAL 2: INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, and subject to
stockholder approval, has appointed the firm of KPMG LLP as independent auditors
of the Company for the current fiscal year. The Board has been advised by KPMG
LLP that neither the firm nor any member of the firm has a direct or indirect
financial interest in the Company or its subsidiaries.
KPMG LLP became the Company's independent auditors on March 17, 2000,
replacing PricewaterhouseCoopers. During 2000, KPMG LLP billed the Company for
the following fees:
Audit Fees.....................................................$50,000
Financial Information Systems Design and Implementation Fees..... $0
All Other Fees.................................................$96,000
A representative of KPMG LLP will be present at the Annual Meeting and
will have an opportunity to make a statement if he/she desires to do so and will
be available to respond to appropriate questions from stockholders.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
common stock voting in person or by proxy at the Annual Meeting. If the
stockholders do not ratify the appointment of KPMG LLP, the Board of Directors
will reconsider the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS
PROPOSAL 3: AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE SHARES
OF AUTHORIZED COMMON STOCK
The Board proposes that the stockholders approve an amendment to the
Certificate of Incorporation increasing the Company's authorized Common Stock
from 8,000,000 shares to 18,000,000 shares (an increase of 10,000,000 shares).
The Board has approved the amendment, subject to stockholder approval.
The Company currently has the authority to issue 8,000,000 shares of
Common Stock with a par value of $0.01 each. As of April 13, 2001, there were
5,193,527 shares issued and outstanding. Combined with the options granted under
the Company's Long-Term Incentive Plan (1,486,655), options granted outside of
the Company's Long-Term Incentive Plan (42,500) and the warrants granted
(405,000), the number of authorized shares currently remaining for issuance is
872,318. Except for the purposes described in Proposal 4, there is no intended
current use for these new shares. The authority to issue these additional shares
is recommended to ensure an adequate supply of authorized unissued shares for
future business operations including, but not limited to, the issuance of
options to attract and retain executive personnel, key employees, directors,
consultants and advisors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
INCREASING THE AUTHORIZED COMMON STOCK FROM 8,000,000 SHARES
TO 18,000,000 SHARES
PROPOSAL 4: TO APPROVE A CONVERSION OF THE DEBT HELD BY MANTECH
INTERNATIONAL CORPORATION INTO EQUITY IN THE FORM OF CONVERTIBLE
PREFERRED STOCK
As previously mentioned under the section "Compensation Committee
Interlocks and Insider Participation," ManTech has loaned the Company
$3,900,000. ManTech has proposed to convert its debt into equity in the form of
Convertible Preferred Stock. This proposal is outlined in Appendix B of this
Proxy Statement. The preferences of this Convertible Preferred Stock are as
stated in the proposal. As stated therein, ManTech is acquiring the Convertible
Preferred Stock for investment for its own account and not with a view to, or
for sale in connection with, any distribution thereof or with any intention of
disposing of the same or any interest therein. In the event ManTech converts the
Convertible Preferred Stock to Common Stock, or upon the expiration of the
three-year conversion period, the Convertible Preferred Stock will convert into
2,405,180 shares of Common Stock. The Board recommends approval of this proposal
as a viable means of eliminating $3,900,000 of subordinated debt. Shareholders
ManTech and GP Strategies will be voting FOR this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CONVERSION OF
MANTECH'S DEBT INTO EQUITY IN THE FORM OF CONVERTIBLE PREFERRED STOCK
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who beneficially own
10% of the Company's common stock (the "Reporting Persons"), to file reports
regarding their Company common stock ownership and changes in ownership with the
SEC. Based solely on a review of the copies of such forms furnished to the
Company and written representations from certain of the Reporting Persons, the
Company believes that during 2000 the Reporting Persons complied with all
Section 16(a) reporting requirements applicable to them.
OTHER BUSINESS
The Company does not presently know of any matters that will be presented
for action at the Annual Meeting other than those set forth herein. If other
matters properly come before the meeting, proxies submitted on the enclosed form
will be voted by the persons named in the enclosed form of proxy in accordance
with their best judgment.
ANNUAL REPORTS
The Annual Report on Form 10-K filed by the Company with the SEC for the
fiscal year ended December 31, 2000 was filed on April 2, 2001. Also enclosed is
the Company's 2000 Annual Report to Stockholders. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon written request to the attention of the Corporate Secretary, GSE
Systems, Inc., 9189 Red Branch Road, Columbia, Maryland 21045.
STOCKHOLDER PROPOSALS
In accordance with rules promulgated by the SEC, any stockholder who
wishes to submit a proposal for inclusion in the proxy materials to be
distributed by the Company in connection with the Annual Meeting of Stockholders
in 2002 must do so no later than December 31, 2001.
In addition, in accordance with the Company's Bylaws, in order for a
stockholder proposal to be properly brought before the 2002 Annual Meeting, a
stockholder submitting a proposal must file a written notice with the Corporate
Secretary which conforms to the requirements of the Bylaws. If the Board or a
designated committee or the officer who will preside at the stockholders'
meeting determines that the information provided in such notice does not satisfy
the informational requirements of the Bylaws or is otherwise not in accordance
with law, the stockholder will be notified promptly of such deficiency and be
given an opportunity to cure the deficiency within the time period prescribed in
the Bylaws. Such notice of a stockholder proposal must be delivered not less
than 60 days nor more than 90 days prior to the date of the Annual Meeting to be
held in 2002.
By Order of the Board of Directors
Jeffery G. Hough
Secretary
Columbia, Maryland
May 1, 2001
Appendix A
GSE Systems, Inc. Audit Committee Charter
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
o Monitor the independence and performance of the Company's independent
auditors.
o Provide an avenue of communication among the independent auditors,
management, and the Board of Directors. The Audit Committee has the
authority to conduct any investigation appropriate to fulfilling its
responsibilities, and it has direct access to the independent auditors
as well as anyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal,
accounting, or other consultants or experts it deems necessary in the
performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the American Stock
Exchange. The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent nonexecutive
directors, free from any relationship that would interfere with the exercise of
his or her independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board on recommendation of the
Nominating Committee. If an audit committee Chair is not designated or present,
the members of the Committee may designate a Chair by majority vote of the
Committee membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the independent auditors,
and as a committee to discuss any matters that the Committee or each of these
groups believe should be discussed. In addition, the Committee, or at least its
Chair, should communicate with management and the independent auditors quarterly
to review the Company's financial statements and significant findings based upon
the auditors' limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually. Submit
the charter to the Board of Directors for approval and have the document
published at least every three years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments.
3. In consultation with the management and the independent auditors, consider
the integrity of the Company's financial reporting processes and controls.
Discuss significant financial risk exposures and the steps management has
taken to monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors together with management's
responses.
4. Review with financial management and the independent auditors the Company's
quarterly financial results prior to the release of earnings and/or the
Company's quarterly financial statements prior to filing or distribution.
Discuss any significant changes to the Company's accounting principles and
any items required to be communicated by the independent auditors in
accordance with SAS 61. The Chair of the Committee may represent the entire
Audit Committee for purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit Committee
and the Board of Directors. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to the
Board of Directors the appointment of the independent auditors or approve
any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors' audit plan - discuss scope, staffing,
locations, reliance upon management, and internal audit and general audit
approach.
9. Prior to releasing the year-end earnings, discuss the results of the audit
with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
Legal Compliance
11. On at least an annual basis, review with the Company's counsel any legal
matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
Other Audit Committee Responsibilities
12. Annually prepare a report to shareholders as required by the Securities and
Exchange Commission. The report should be included in the Company's annual
proxy statement.
13. Perform any other activities consistent with this Charter, the Company's
by-laws, and governing law, as the Committee or the Board deems necessary
or appropriate.
14. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
Appendix B
The following are the major features of the proposed Convertible Preferred
Stock.
Par Value: $.01 per share
Purchase Price: $100.00 per share
Number of Shares: 39,000
Dividends: The Convertible Preferred Stock will bear dividends
at the rate of 6% per annum on its $100.00 purchase price per share payable
quarterly. Dividends will accumulate if not paid quarterly and compounded
interest will accrue on any unpaid dividends.
Conversion to GSE Common Stock: ManTech at its discretion shall
have the right to convert each share of Convertible Preferred Stock into GSE
Common Stock at a purchase price of $1.6215 per share at any time within three
years from the date of issuance of the Convertible Preferred Stock. Example: One
share of preferred stock at $100 divided by $1.6215 (purchase price of Common
Stock) equals 61.6713 shares of GSE Common Stock. This conversion option may
only be exercised upon providing GSE and GP Strategies Corporation (GPS) at
least ten days prior written notice. Upon the expiration of the three-year
conversion period, the Convertible Preferred Stock automatically converts into
GSE Common Stock upon the terms and conditions stated herein.
Restricted Securities: ManTech acknowledges that the securities are not
registered with the SEC under the Securities Act of 1933 and, therefore, are
considered restricted securities in accordance with Rule 144. The Convertible
Preferred Stock cannot be offered for sale or sold except as specifically stated
herein.
Liquidation Preference: In the event of liquidation or dissolution of GSE,
payment of available funds shall be made on the Preferred Stock (including
payment in satisfaction of dividend obligations) prior and in preference to
other outstanding classes of stock. However, all debt obligations must be
satisfied before ManTech's investment return on the Preferred Stock can be
realized.
Exemption from Registration Requirements: This transaction is intended to be a
private issuance of securities and, therefore, exempt from SEC registration
requirements. ManTech is acquiring this Convertible Preferred Stock for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof or with any intention of disposing of the same or
any interest therein.
Holding Period: In accordance with Rule 144, ManTech agrees to a holding period
of at least one year from the date of the acquisition of the securities from
GSE.
Restrictive Legend: The certificate or other document evidencing the securities
will contain a restrictive legend stating that the securities have not been
registered under the Securities Act of 1933 and setting forth or referring to
the restrictions on transferability and sale of the securities.
GPS Option: GPS has the option to acquire 19,500 shares (50%) of the Convertible
Preferred Stock under the following arrangement: (a) such option must be
exercised before ManTech exercises its option to convert the Convertible
Preferred Stock to GSE Common Stock, otherwise such option lapses; (b) GPS must
pay ManTech $1,950,000; (c) upon receipt of such payment, ManTech will transfer
19,500 shares of Convertible Preferred Stock to GPS; and (d) GPS acquires such
Convertible Preferred Stock under the same terms and conditions as ManTech,
except that the one-year holding period for GPS begins as of the date the option
is exercised.
Shareholder/Regulatory Approval: This transaction is contingent upon shareholder
and/or regulatory approval, as applicable. Upon such applicable approval(s),
ManTech, GPS and GSE will promptly negotiate in good faith a Definitive
Agreement.