<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 22, 1996
GSE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
8930 Stanford Boulevard, Columbia, Maryland
-------------------------------------------
(Address of principal executive offices)
21045
----------
(Zip Code)
(410) 312-3700
----------------------------------------------------
(Registrant's telephone number, including area code)
<TABLE>
<S> <C> <C>
Delaware 0-26494 52-1868008
- ---------------------------- ------------------------ ------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 22, 1996, the Company acquired all of the outstanding shares of
capital stock of Erudite Software & Consulting, Inc. ("Erudite Software"), a
leading provider of cost-effective client/server technology through providing
consulting services, custom applications, software development, training
services, and hardware-software sales.
Erudite Software is headquartered in Salt Lake City, Utah, with a primary
development facility in Provo, Utah, and has approximately 140 employees. This
acquisition was accomplished through a merger of Erudite Software into a wholly
owned subsidiary of the Company in which approximately 840,700 shares of the
Company's Common Stock were exchanged for all outstanding shares of capital
stock of Erudite Software. The acquisition has been accounted for using the
pooling of interests method of accounting.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
Listed below are the financial statements, pro forma financial
information and exhibits filed as a part of this report.
(a) Financial Statements of Erudite Software & Consulting, Inc.
-----------------------------------------------------------
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993
Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Unaudited Balance Sheets as of March 31, 1996 and December 31, 1995
Unaudited Statements of Operations for the Three Months Ended March 31, 1996
and 1995
Unaudited Statements of Cash Flows for the Three Months Ended March 31, 1996
and 1995
Notes to Unaudited Interim Financial Statements
2
<PAGE> 3
(b) Unaudited Pro Forma Combined Financial Information
---------------------------------------------------
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1996
Unaudited Pro Forma Combined Statements of Operations for the Three Months
Ended March 31, 1996 and 1995 and the Years Ended December 31, 1995, 1994 and
1993
Notes to Unaudited Pro Forma Combined Financial Statements
(c) Exhibits
--------
2.1 Agreement and Plan of Reorganization dated as of May 17, 1996 by and
among GSE Systems, Inc., GSE Erudite Software, Inc., Erudite Software and
Consulting, Inc., Eugene Loveridge, Daniel Masterson, Douglas Austin,
Gary Gray and Dennis Fairclough effective May 21, 1996.
2.2 Agreement and Plan of Merger dated as of May 17, 1996 by and between
Erudite Software and Consulting, Inc. and GSE Erudite Software, Inc.
effective May 22, 1996.
10.1 Employment Agreement dated as of May 17, 1996 by and between GSE Systems,
Inc. and Eugene Loveridge effective May 22, 1996.
10.2 Employment Agreement dated as of May 17, 1996 by and between GSE Systems,
Inc. and Daniel Masterson effective May 22, 1996.
99.1 Press release dated May 21, 1996.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 5, 1996 GSE SYSTEMS, INC.
/s/ William E. Kuhlmann
------------------------------------------
William E. Kuhlmann
Chairman and Chief Executive Officer
/s/ Dev Ganesan
------------------------------------------
Dev Ganesan
Vice President - Finance and Accounting
4
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF ERUDITE SOFTWARE & CONSULTING, INC.:
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the Years Ended December 31, 1995, 1994, and
1993
Statements of Changes in Stockholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1994, and 1993
Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and
1993
Notes to Financial Statements
UNAUDITED INTERIM FINANCIAL STATEMENTS OF ERUDITE SOFTWARE & CONSULTING, INC.
Balance Sheets as of March 31, 1996 and December 31, 1995
Statements of Operations for the Three Months Ended March 31, 1996 and
1995
Statements of Cash Flows for the Three Months Ended March 31, 1996 and
1995
Notes to Unaudited Interim Financial Statements
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF GSE SYSTEMS, INC.
AND ERUDITE SOFTWARE & CONSULTING, INC.
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1996
Unaudited Pro Forma Combined Statements of Operations for the Three
Months Ended March 31, 1996 and 1995 and Years Ended December 31, 1995,
1994 and 1993
Notes to Unaudited Pro Forma Combined Financial Statements
<PAGE> 6
ERUDITE SOFTWARE AND CONSULTING, INC.
---------
FINANCIAL STATEMENTS
as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995
AND
REPORT THEREON
------------
<PAGE> 7
[COOPERS & LYBRAND LETTERHEAD]
Report of Independent Accountants
To the Boards of Directors and Stockholders
of Erudite Software and Consulting, Inc. and GSE Systems, Inc.
We have audited the balance sheets of Erudite Software and
Consulting, Inc. (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, changes in stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Erudite Software
and Consulting, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Washington, D.C.
May 8, 1996, except for Note 9,
as to which the date is May 22, 1996
1
<PAGE> 8
ERUDITE SOFTWARE AND CONSULTING, INC.
BALANCE SHEETS
as of December 31, 1995 and 1994
----
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
Current assets:
Cash $ - $ -
Accounts receivable, net of allowance for doubtful
accounts of $2,541 and $28,758, respectively 2,595,977 608,565
Other current assets 12,420 10,636
Deferred income taxes 63,000 108,000
------------- -----------
Total current assets 2,671,397 727,201
------------- -----------
Property and equipment, net 647,456 264,759
Other assets 9,778 8,400
------------- -----------
Total assets $ 3,328,631 $ 1,000,360
============= ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 212,433 $ -
Notes payable - related parties 189,450 200,000
Accounts payable - trade 1,730,136 436,736
Accounts payable - related parties - 19,990
Current portion of capital lease obligation 27,704 -
Income taxes payable 159,000 86,000
Accrued expenses 313,872 83,278
Accrued payroll 137,460 154,845
Deferred revenue 369,653 135,406
------------- ----------
Total current liabilities 3,139,708 1,116,255
------------- ----------
Notes payable - related parties 216,974 -
Capital lease obligation, net of current portion 56,224 -
------------- ----------
Total liabilities 3,412,906 1,116,255
------------- ----------
Commitments
Stockholders' deficit:
Common stock, no par value; 50,000 shares
authorized; 10,000 shares issued and outstanding 1,500 1,500
Notes receivable from stockholders (2,000) (75,000)
Accumulated deficit (83,775) (42,395)
------------- -----------
Total stockholders' deficit (84,275) (115,895)
------------- -----------
Total liabilities and stockholders' deficit $ 3,328,631 $ 1,000,360
============= ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE> 9
ERUDITE SOFTWARE AND CONSULTING, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
----------
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Revenue
Consulting $ 3,401,593 $ 2,274,910 $ 898,606
Training 3,138,403 1,175,193 267,625
Equipment 2,531,721 653,483 1,086,931
Networking 947,389 82,656 -
Software and other 739,388 410,465 304,405
------------- ------------ ------------
Total revenue 10,758,494 4,596,707 2,557,567
------------- ------------ ------------
Cost of sales:
Consulting 2,373,228 1,274,042 135,930
Training 2,192,122 857,912 119,305
Equipment 2,097,612 675,644 946,525
Networking 829,991 12,981 -
Software and other 723,787 371,236 244,658
------------- ------------ ------------
Total cost of sales 8,216,740 3,191,815 1,446,418
------------- ------------ ------------
Gross profit 2,541,754 1,404,892 1,111,149
Selling, general and admini-
strative expenses 2,070,157 1,336,130 1,124,533
Depreciation and amortization 167,689 165,513 56,933
------------- ------------ ------------
Net income (loss) before
taxes 303,908 (96,751) (70,317)
Provision (benefit) for income taxes 118,000 (36,000) (26,000)
------------- ------------ -------------
Net income (loss) $ 185,908 $ (60,751) $ (44,317)
============= ============ =============
Earnings per Common Share $ 18.59 $ (6.07) $ (4.43)
============= ============ =============
Weighted Average Common Shares Outstanding 10,000 10,000 10,000
============= ============ =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
3
<PAGE> 10
ERUDITE SOFTWARE AND CONSULTING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1995, 1994 and 1993
--------
<TABLE>
<CAPTION>
------------------- --------------------
Common stock Treasury stock Notes
------------------- -------------------- receivable from
Shares Amount Shares Amount stockholders
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 10,000 $1,500 - $ $ -
Transfer of notes receivable from
stockholders (note 5) - - - - (200,000)
Reductions of notes receivable from
stockholders - - - - 50,000
Net loss - - - - -
------- ------ --------- ----------- -------------
Balance, December 31, 1993 10,000 1,500 - - (150,000)
Reductions of notes receivable from
stockholders - - - - 75,000
Net loss - - - - -
------- ------ --------- ----------- -------------
Balance, December 31, 1994 10,000 1,500 - - (75,000)
Purchase of treasury stock,
at cost - - (2,067) (227,288) -
Redistribution of treasury stock - - 2,067 227,288 -
Reductions of notes receivable from
stockholders - - - - 73,000
Net income - - - - -
------- ------ --------- ----------- -------------
Balance, December 31, 1995 10,000 $1,500 - $ - (2,000)
======= ====== ========= =========== =============
<CAPTION>
Retained
earnings
(deficit) Total
---------- ---------
<S> <C> <C>
Balance, December 31, 1992 $ 62,673 $ 64,173
Transfer of notes receivable from
stockholders (note 5) - (200,000)
Reductions of notes receivable from -
stockholders - 50,000
Net loss (44,317) (44,317)
----------- ----------
Balance, December 31, 1993 18,356 (130,144)
Reductions of notes receivable from
stockholders - 75,000
Net loss (60,751) (60,751)
---------- ----------
Balance, December 31, 1994 (42,395) (115,895)
Purchase of treasury stock,
at cost - (227,288)
Redistribution of treasury stock (227,288) -
Reductions of notes receivable from
stockholders - 73,000
Net income 185,908 185,908
---------- ----------
Balance, December 31, 1995 $ (83,775) $ (84,275)
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE> 11
ERUDITE SOFTWARE AND CONSULTING, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
-------------
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 185,908 $ (60,751) $ (44,317)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 167,689 165,513 56,933
Bad debt expense 19,477 23,950 4,808
Deferred income taxes 45,000 (36,000) (75,000)
Interest imputed on discounted note payable 16,686 - -
Reductions of notes receivable from stockholders
in exchange for services rendered 58,000 50,000 -
Changes in assets and liabilities:
Accounts receivable (2,006,889) (336,768) (226,203)
Other current assets (1,784) (1,681) (8,884)
Other assets (1,378) 1,350 (9,750)
Accounts payable - trade 1,306,754 147,535 247,389
Accounts payable - related party (19,990) (105,010) 125,000
Income taxes payable 73,000 - 49,000
Accrued expenses 230,594 42,806 26,546
Accrued payroll (17,385) 102,791 26,027
Deferred revenue 234,247 135,406 -
-------------- ---------- ----------
Net cash provided by operating activities 289,929 129,141 171,549
-------------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (459,983) (230,304) (197,436)
-------------- ---------- ----------
Net cash used in investing activities (459,983) (230,304) (197,436)
-------------- ---------- ----------
Cash flows from financing activities:
Repayments on borrowings from related parties (37,550) - -
Principal payments under capital lease obligations (6,475) - -
Collections on notes receivable from stockholders 15,000 25,000 50,000
Net borrowings under lines of credit 212,433
Cash overdraft (13,354) 13,354 -
-------------- ---------- ----------
Net cash provided by financing activities 170,054 38,354 50,000
-------------- ---------- ----------
Net increase (decrease) in cash - (62,809) 24,113
Cash at beginning of period - 62,809 38,696
-------------- ---------- ----------
Cash at end of period $ - $ - $ 62,809
============== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,372 $ - $ -
============== ========== ==========
Cash paid for income taxes $ - $ - $ -
============== ========== ==========
Supplemental disclosure of noncash investing
and financing activities:
Capital lease obligations $ 90,403 $ - $ -
============== ========== ==========
Notes payable issued for repurchase of treasury stock $ 227,288 $ - $ -
============== ========== ==========
Notes payable issued in exchange for notes receivable
from stockholders $ - $ - $ 200,000
============== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE> 12
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
------------
1. Nature of business
Erudite Software and Consulting, Inc. (the Company) was
incorporated on November 28, 1990 in the State of Utah. The Company
is engaged in the business of providing computer hardware and software
business solutions to a variety of commercial customers located
primarily in the western continental United States. The Company
provides its customers with application development tools and training
for client server system software and networking topics.
2. Summary of significant accounting policies
Revenue recognition
-------------------
The Company earns revenue from three primary sources: consulting
contract arrangements, sales of computer hardware and software
products, and training services provided to customers in the use of
the products it sells. The Company recognizes revenue from these
three sources as follows:
Consulting contract arrangements - Revenue is recognized on these
contracts by reference to the timing of performance of the actual
services by the Company. The contracts are generally time and
material type or fixed price type contracts. On time and material
type contracts, revenue is recognized based on hours incurred at a
contracted labor rate plus expenses. On fixed price type contracts,
revenue is recognized on the total contract value based on the
relationship that costs incurred to date bear to total estimated
costs at completion.
Sales of computer hardware and software products - Revenue is
recognized upon delivery of the products to its customers, provided
that any remaining obligations of the Company are insignificant, any
significant uncertainties regarding customer acceptance have been
resolved, and collectibility of the related receivable is probable.
Continued
6
<PAGE> 13
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
---------
Training services - Revenue is recognized as the training services are
provided. Training services are generally provided under time and
material type contracts. Revenue is recognized based on hours
incurred at a contracted labor rate plus expenses.
Concentration of credit risk
----------------------------
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
accounts receivable. The Company generally grants uncollateralized
credit terms to its customers and has not experienced any significant
credit related losses.
Accounting estimates
--------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Property and equipment
----------------------
Property and equipment is recorded at cost and depreciated
using the straight-line method with estimated useful lives ranging
from three to ten years. Leasehold improvements are amortized over
the life of the lease or the estimated useful life, whichever is
shorter, using the straight-line method. Upon sale or retirement, the
cost and related depreciation or amortization is eliminated from the
respective accounts and any resulting gain or loss is included in
operations. Maintenance and repairs are charged to expense as
incurred.
Continued
7
<PAGE> 14
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
------------
Research and development expenses
---------------------------------
Research and development costs including software development
costs prior to technological feasibility are expensed in the period in
which they are incurred. Research and development costs for the years
ended December 31, 1995, 1994 and 1993 were $173,000, $83,000 and
$6,000, respectively.
Income taxes
------------
Deferred income taxes are provided under the asset and
liability method. Under this method, deferred income taxes are
determined based on the difference between the financial statement and
tax basis of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Income tax expense
consists of the Company's current liability for federal and state
income taxes and the change in the Company's deferred income tax
assets and liabilities.
Fair value of financial instruments
-----------------------------------
The carrying amounts of financial instruments including
accounts receivable and accounts payable approximate fair value as of
December 31, 1995 because of the relatively short maturity of these
instruments. The carrying value of long-term debt approximates fair
value as of December 31, 1995 based on quoted market prices for the
same or similar debt issues.
Recapitalization
----------------
On February 28, 1995, the Board of Directors of the Company
effected a 6.67 for one stock split of the Company's common stock.
All share data and references have been retroactively restated to give
effect to this stock split for all periods presented.
Continued
8
<PAGE> 15
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
-----------
3. Property and equipment
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Computer equipment, including amounts
under capital leases $ 953,387 $ 436,283
Furniture and fixtures 69,768 39,266
Leasehold improvements 27,517 24,737
-------------- -------------
1,050,672 500,286
Less: accumulated depreciation
and amortization (403,216) (235,527)
-------------- -------------
$ 647,456 $ 264,759
============== =============
</TABLE>
Equipment under capital lease consists of equipment having
a cost of $90,403 as of December 31, 1995. Accumulated amortization
on this equipment was $2,152 as of December 31, 1995.
Continued
9
<PAGE> 16
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
---------
4. Income taxes
The components of the provision for income taxes for the
years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- ----
<S> <C> <C> <C>
Current:
Federal $ 59,000 $ - $ 40,000
State 14,000 - 9,000
---------- --------- ---------
73,000 - 49,000
---------- --------- ---------
Deferred:
Federal 36,000 (30,000) (60,000)
State 9,000 (6,000) (15,000)
---------- --------- ---------
45,000 (36,000) (75,000)
---------- --------- ---------
Total $ 118,000 $ (36,000) $ (26,000)
========== ========= =========
</TABLE>
The Company's provision for income taxes for the year
ended December 31, 1995 differed from the provision that would have
resulted from applying the 34% federal statutory rate to net income
before taxes primarily due to the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate 34% (34%) (34%)
State taxes, net of federal benefit 4% (4%) (4%)
Non-deductible expenditures 1% 1% 1%
---- ---- ----
39% (37%) (37%)
==== ==== ====
</TABLE>
Continued
10
<PAGE> 17
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
----------
The components of the Company's net deferred tax position
and the tax effects of temporary differences giving rise to the
Company's deferred tax asset as of December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenue recognition differences between
book and tax $ 63,000 $ 82,000
Net operating loss carryforwards - 26,000
----------- ------------
Total deferred tax asset $ 63,000 $ 108,000
=========== ============
</TABLE>
5. Stockholders' equity
In November 1993, the three founding shareholders sold an
aggregate of 2,000 shares of common stock on a pro-rata basis to two
other individuals in exchange for demand notes totaling $200,000 with
no stated interest rate. These notes were collateralized by the
shares of common stock received by the two individuals.
The founding shareholders immediately transferred the
$200,000 in notes receivable from the new shareholders to the Company
in exchange for notes due from the Company on demand with no stated
interest rate. For financial reporting purposes, the notes receivable
from the new shareholders have been included as a part of
stockholders' deficit in the accompanying balance sheet until such
time as the notes receivable are fully collected and the shares of
common stock no longer represent collateral against the notes. For
the years ended December 31, 1995, 1994 and 1993, the notes receivable
from stockholders were reduced through cash receipts of $15,000,
$25,000 and $50,000, respectively, and through services provided to
the Company of $58,000, $50,000, and $0, respectively. The services
provided have been valued based upon salaries, bonuses and
Continued
11
<PAGE> 18
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
-----------
commissions earned by these two individuals. As of December 31, 1995
and 1994, the notes receivable from stockholders were $2,000 and
$75,000, respectively. As of December 31, 1995 and 1994, the notes
payable to the founding shareholders had a balance of $189,450 and
$200,000, respectively.
During 1995, the Company entered into an agreement with
one of the founding shareholders for the repurchase of 2,067 shares of
the Company's common stock for $360,000 payable over a ten year period
in semi-monthly payments of $1,500. The Company has reported a note
payable related to this agreement of $216,974 as of December 31, 1995.
This amount represents the discounted future cash disbursements under
the stock repurchase agreement based on an interest rate of 10.75%.
Immediately upon the repurchase by the Company, the 2,067 shares were
redistributed pro rata to the remaining shareholders.
During 1995, the two remaining founding shareholders
offered a maximum of 400 shares of their common stock of the Company
to certain key employees. These shares are to be held in trust by the
Company and do not transfer to the employees until either the Company
is sold or the Company has an initial public offering of its common
stock. The employees must be full time employees of the Company at
the time of the occurrence of one of these events to be eligible to
receive the shares. As of December 31, 1995, 110 shares had been
committed to employees from the shareholders. Subsequent to December
31, 1995, an additional 90 shares were committed to employees.
6. Related party transactions
The Company's bi-weekly payroll is processed by a company
whose owner is also a founding shareholder of the Company. Expenses
incurred for such payroll processing were approximately $42,000,
$26,000, and $13,000 for the years ended December 31, 1995, 1994 and
1993, respectively. The Company subleases a portion of its corporate
headquarters to this related party. Sublease payments by the related
party were approximately $3,000, $2,000, and $1,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
Continued
12
<PAGE> 19
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
------------
7. Notes payable to banks
The Company has entered into two lines of credit which
provide for an aggregate borrowing facility of up to $451,000 from two
financial institutions. One of the lines provides for a maximum of
$201,000 in borrowings, and the Company had no amounts outstanding as
of December 31, 1995 and 1994. This line is collateralized by
substantially all of the Company's equipment and receivables and has a
maturity date of July 3, 1996. The interest rate on this line is the
bank's prime rate plus 2% (10.5% as of December 31, 1995), with
interest payments due quarterly. This line contains a restrictive
covenant regarding the Company's ratio of total liabilities to net
worth. The Company is not in compliance with this covenant as of
December 31, 1995, however has received a waiver of such
non-compliance from the financial institution. The second line, which
matures on August 28, 1996, provides for a maximum of $250,000 in
borrowings. As of December 31, 1995 and 1994, the balance outstanding
on this line was $212,433 and $0, respectively. The second line has
an interest rate of 10.75% per annum, with interest payments due
monthly.
Continued
13
<PAGE> 20
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
----------
8. Commitments
The Company is obligated under certain noncancelable
operating and capital leases for office facilities and equipment.
Future minimum lease payments under such leases as of December 31,
1995 were approximately as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -----------
<S> <C> <C>
1996 $234,786 $ 35,388
1997 145,307 35,388
1998 145,307 26,541
1999 121,090 -
-------- -----------
Total minimum lease payments $646,490 97,317
========
Less amount representing interest (13,389)
-----------
Present value of future minimum payments
under capital leases 83,928
Less current portion (27,704)
-----------
Capital lease obligation, net of current
portion $ 56,224
===========
</TABLE>
Total rent expense under operating leases was $220,500,
$129,882 and $53,378 for the years ended December 31, 1995, 1994 and
1993, respectively.
9. Subsequent event
Effective May 22, 1996 the Company and GSE Systems, Inc.
entered into an Agreement and Plan of Reorganization and a related
Agreement and Plan of Merger (collectively, "the Agreement") to effect
a business combination by the pooling of interests method. Under the
terms of the Agreement, all of the shareholders of the Company
exchanged 100% of their shares for common stock of GSE Systems, Inc.
<PAGE> 21
ERUDITE SOFTWARE AND CONSULTING, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 1,936,265 2,595,977
Other current assets . . . . . . . . . . . . . . . . . . . . . . 81,992 12,420
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 63,000 63,000
----------- --------------
Total current assets . . . . . . . . . . . . . . . 2,081,257 2,671,397
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 757,468 647,456
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,870 9,778
----------- --------------
Total assets . . . . . . . . . . . . . . . . . . . $ 2,877,595 $ 3,328,631
=========== ==============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . $ 196,333 $ 212,433
Notes payable - related parties . . . . . . . . . . . . . . . . 184,950 189,450
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . 964,651 1,730,136
Current portion of capital lease obligation . . . . . . . . . . 28,456 27,704
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 291,000 159,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 160,379 313,872
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . 368,901 137,460
Deferred revenue 277,117 369,653
----------- --------------
Total current liabilities . . . . . . . . . . . . . 2,471,787 3,139,708
Notes payable - related parties . . . . . . . . . . . . . . . . . . . . . 207,974 216,974
Capital lease obligation - net of current portion . . . . . . . . . . . . 48,822 56,224
----------- --------------
Total liabilities . . . . . . . . . . . . . . . . . 2,728,583 3,412,906
----------- --------------
Stockholders' equity (deficit):
Common stock, no par value, 50,000 shares authorized,
10,000 shares issued and outstanding . . . . . . . . . . . . 1,500 1,500
Notes receivable from Stockholders . . . . . . . . . . . . . . . -- (2,000)
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . 147,512 (83,775)
---------- --------------
Total stockholders' equity (deficit) . . . . . . . . 149,012 (84,275)
---------- --------------
Total liabilities & stockholders' equity (deficit) $ 2,877,595 $ 3,328,631
=========== ==============
</TABLE>
See notes to unaudited interim financial statements.
<PAGE> 22
ERUDITE SOFTWARE AND CONSULTING, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
-------------- ---------------
<S> <C> <C>
Revenue:
Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,388,120 $ 734,045
Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,248,995 541,644
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 760,528 302,397
Networking . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,915 420,543
Software and other . . . . . . . . . . . . . . . . . . . . . . . 171,443 123,510
----------- ------------
Total revenue. . . . . . . . . . . . . . . . . . . . 3,758,001 2,122,139
----------- ------------
Cost of sales
Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . 869,194 525,360
Training . . . . . . . . . . . . . . . . . . . . . . . . . . . 678,475 352,991
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 676,501 253,839
Networking . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,348 389,573
Software and other . . . . . . . . . . . . . . . . . . . . . . . 172,489 114,137
----------- ------------
Total cost of sales . . . . . . . . . . . . . . . . 2,523,007 1,635,900
----------- ------------
Gross profit . . . . . . . . . . . . . . . . . . . 1,234,994 486,239
Selling, general and administrative expenses . . . . . . . . . . . . . . 785,136 391,014
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 80,571 37,112
----------- ------------
Net income before income taxes . . . . . . . . . . 369,287 58,113
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . 138,000 21,906
----------- ------------
Net income . . . . . . . . . . . . . . . . . . . . $ 231,287 $ 36,207
=========== ============
Earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . $ 23.13 $ 3.62
======= ====
Weighted average common shares outstanding . . . . . . . . . . . . . . . 10,000 10,000
====== ======
</TABLE>
See notes to unaudited interim financial statements.
<PAGE> 23
ERUDITE SOFTWARE AND CONSULTING, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $231,287 $ 36,207
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 80,571 37,112
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . 659,712 (517,360)
Other current assets . . . . . . . . . . . . . . (69,572) 0
Other assets . . . . . . . . . . . . . . . . . . (81,262) (5,000)
Accounts payable - trade . . . . . . . . . . . . (765,485) 225,547
Income taxes payable . . . . . . . . . . . . . . 132,000 73,730
Accrued expenses . . . . . . . . . . . . . . . . (153,493) (29,283)
Accrued payroll . . . . . . . . . . . . . . . . . 231,441 65,655
Deferred revenue . . . . . . . . . . . . . . . . (92,536) 95,026
-------- --------
Net cash provided by (used in) operating activities . . . . . . . . . . 172,663 (18,366)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (138,413) (87,796)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (138,413) (87,796)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on borrowings from related parties . . . . . . . . (13,500) 0
Principal payments under capital lease obligations . . . . . . (6,650) 0
Collections on notes receivable from Stockholders . . . . . . . 2,000 50,000
Cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . (16,100) 56,162
-------- --------
Net cash (used in) provided by financing activities . . . . . . . . . . (34,250) 106,162
-------- --------
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . 0 0
------- --------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0
======= ========
Supplemental information:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . $ 6,000 $ 100
======= ========
</TABLE>
See notes to unaudited interim financial statements.
<PAGE> 24
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared without
independent audit. In the opinion of management, all adjustments of a normal
and recurring nature necessary to present fairly the financial position,
results of operations and cash flows for the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto of
Erudite Software and Consulting, Inc. for the period ended December 31, 1995.
The results of operations for the period ended March 31, 1996 are not
necessarily indicative of what the operating results for the full year will be.
2. EARNINGS PER SHARE
Net income per common share is based on the weighted average number of
shares of Common Stock outstanding during the period. The difference between
primary and fully-diluted per share amounts is insignificant.
<PAGE> 25
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------------------
HISTORICAL PROFORMA
------------------------------ --------------------------
GSE SYSTEMS ERUDITE SOFTWARE ADJUSTMENTS COMBINED
----------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 7,343 $ -- $ (381)(B) $ 6,962
Contract receivables . . . . . . . . . . . . . . 26,399 1,936 -- 28,335
Inventories . . . . . . . . . . . . . . . . . . 2,430 -- -- 2,430
Prepaid expenses and other current assets . . . 2,697 82 -- 2,779
Deferred income taxes . . . . . . . . . . . . . 327 63 390
------- ------- ------- -------
Total current assets . . . . . . . 39,196 2,081 (381) 40,896
Property and equipment, net . . . . . . . . . . . . . . . 3,390 758 -- 4,148
Software development costs, net . . . . . . . . . . . . . 3,057 -- -- 3,057
Goodwill and other intangible assets, net . . . . . . . . 2,302 -- -- 2,302
Deferred income taxes . . . . . . . . . . . . . . . . . . 1,486 -- -- 1,486
Other assets . . . . . . . . . . . . . . . . . . . . . . 62 39 -- 101
------- ------- ------- -------
Total assets . . . . . . . . . . . $ 49,493 $ 2,878 $ (381) $ 51,990
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $ 4,462 $ 965 -- 5,427
Accrued expenses . . . . . . . . . . . . . . . . 3,742 529 -- 4,271
Notes payable . . . . . . . . . . . . . . . . . 77 410 (381)(B) 106
Billings in excess of revenue earned . . . . . . 10,395 -- -- 10,395
Accrued contract reserves . . . . . . . . . . . 538 -- -- 538
Accrued warranty reserves . . . . . . . . . . . 2,217 -- -- 2,217
Other current liabilities . . . . . . . . . . . 1,066 277 -- 1,343
Income taxes payable . . . . . . . . . . . . . . 916 291 -- 1,207
------- ------- ------- -------
Total current liabilities . . . . . 23,413 2,472 (381) 25,504
Notes payable . . . . . . . . . . . . . . . . . . . . . . 151 257 -- 408
Billings in excess of revenues earned . . . . . . . . . . 1,423 -- -- 1,423
Accrued warranty reserves . . . . . . . . . . . . . . . . 1,629 -- -- 1,629
Accrued facility costs . . . . . . . . . . . . . . . . . 1,021 -- -- 1,021
Other liabilities . . . . . . . . . . . . . . . . . . . . 468 -- -- 468
------- ------- ------- -------
Total liabilities . . . . . . . . . 28,105 2,729 (381) 30,453
------- ------- ------- -------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . 42 -- 8 (A) 50
Additional paid-in capital . . . . . . . . . . . 21,121 -- (8)(A) 21,113
Retained earnings - at formation . . . . . . . . (5,112) -- -- (5,112)
Retained earnings - since formation . . . . . . 5,273 149 -- 5,422
Pension liability adjustment . . . . . . . . . . (100) -- -- (100)
Cumulative translation adjustment . . . . . . . 164 -- -- 164
------- ------- ------- -------
Total stockholders' equity . . . . 21,388 149 -- 21,537
------- ------- ------- -------
Total liabilities & stockholders'
equity . . . . . . . . . . . . . . $ 49,493 $ 2,878 $ (381) $ 51,990
======= ======= ======= =======
</TABLE>
See notes to unaudited pro forma combined Financial Statements.
<PAGE> 26
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,1996
---------------------------------------------------------
HISTORICAL
---------------------------------
GSE SYSTEMS ERUDITE SOFTWARE PRO FORMA COMBINED
----------- ---------------- ------------------
<S> <C> <C> <C>
Contract revenue . . . . . . . . . . . . . . . . . . . $ 18,545 $ 3,758 $ 22,303
Cost of revenue . . . . . . . . . . . . . . . . . . . . 12,176 2,523 14,699
-------- -------- --------
Gross profit . . . . . . . . . . 6,369 1,235 7,604
-------- -------- --------
Operating expenses:
Selling, general and administrative . . . . . 4,679 785 5,464
Depreciation and amortization . . . . . . . . 398 81 479
-------- -------- --------
Total operating expenses . . . . . . . . . . . 5,077 866 5,943
-------- -------- --------
Operating income . . . . . . . . 1,292 369 1,661
Interest expense . . . . . . . . . . . . . . . . . . . 139 -- 139
Other expense (income) . . . . . . . . . . . . . . . . (174) -- (174)
-------- -------- --------
Income before income taxes . . . 1,327 369 1,696
Provision for income taxes . . . . . . . . . . . . . . 467 138 605
-------- -------- --------
Net income . . . . . . . . . . . $ 860 $ 231 $ 1,091
======== ========= =========
Earnings per common share . . . . . . . . . . . . . . . $ .20(C) $ .22(C)
======== ====
Weighted average common shares outstanding . . . . . . 4,238,000(C) 5,078,700(C)
========= =========
</TABLE>
See notes to unaudited pro forma combined Financial Statements.
<PAGE> 27
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,1995
-----------------------------------------------------------
HISTORICAL
----------------------------------
GSE SYSTEMS ERUDITE SOFTWARE PRO FORMA COMBINED
----------- ---------------- ------------------
<S> <C> <C> <C>
Contract revenue . . . . . . . . . . . . . . . . . . . $ 19,016 $ 2,122 $ 21,138
Cost of revenue . . . . . . . . . . . . . . . . . . . . 13,201 1,636 14,837
-------- --------- ---------
Gross profit . . . . . . . . . . 5,815 486 6,301
-------- --------- ---------
Operating expenses:
Selling, general and administrative . . . . . 4,185 391 4,576
Depreciation and amortization . . . . . . . . 494 37 531
-------- --------- ---------
Total operating expenses . . . . . . . . . . . 4,679 428 5,107
-------- --------- ---------
Operating income . . . . . . . . 1,136 58 1,194
Interest expense . . . . . . . . . . . . . . . . . . . 292 -- 292
Other expense (income) . . . . . . . . . . . . . . . . (57) -- (57)
-------- --------- ---------
Income before income taxes . . . 901 58 959
Provision for income taxes . . . . . . . . . . . . . . 330 22 352
-------- --------- ---------
Net income . . . . . . . . . . . $ 571 $ 36 $ 607
======== ========= =========
Earnings per common share . . . . . . . . . . . . . . . $ .23(C) $ .18(C)
===== ====
Weighted average common shares outstanding . . . . . . 2,500,000(C) 3,340,700(C)
========= =========
</TABLE>
See notes to unaudited pro forma combined Financial Statements.
<PAGE> 28
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
HISTORICAL
----------------------------------
GSE SYSTEMS ERUDITE SOFTWARE PRO FORMA COMBINED
----------- ---------------- ------------------
<S> <C> <C> <C>
Contract revenue . . . . . . . . . . . . . . . . . . . $ 85,302 $ 10,758 $ 96,060
Cost of revenue . . . . . . . . . . . . . . . . . . . . 57,376 8,216 65,592
------- ------- -------
Gross profit . . . . . . . . . . 27,926 2,542 30,468
------- ------- -------
Operating expenses:
Selling, general and administrative . . . . . 19,745 2,070 21,815
Depreciation and amortization . . . . . . . . 2,173 168 2,341
------- ------- -------
Total operating expenses . . . . . . . . . . . 21,918 2,238 24,156
------- ------- -------
Operating income . . . . . . . . 6,008 304 6,312
Interest expense . . . . . . . . . . . . . . . . . . . 983 -- 983
Other expense (income) . . . . . . . . . . . . . . . . (364) -- (364)
------- ------- -------
Income before income taxes . . . 5,389 304 5,693
Provision for income taxes . . . . . . . . . . . . . . 1,899 118 2,017
------- ------- -------
Net income . . . . . . . . . . . $ 3,490 $ 186 $ 3,676
======= ======= =======
Earnings per common share . . . . . . . . . . . . . . . $ 1.08(C) $ .91(C)
==== ====
Weighted average common shares outstanding . . . . . . 3,218,000(C) 4,058,700(C)
========= =========
</TABLE>
See notes to unaudited pro forma combined Financial Statements.
<PAGE> 29
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------
HISTORICAL
---------------------------------------
GSE SYSTEMS(1) ERUDITE SOFTWARE PRO FORMA COMBINED
-------------- ---------------- ------------------
<S> <C> <C> <C>
Contract revenue . . . . . . . . . . . . . . . . . . . $ 47,147 $ 4,597 $ 51,744
Cost of revenue . . . . . . . . . . . . . . . . . . . . 35,120 3,192 38,312
------- ------- -------
Gross profit . . . . . . . . . . 12,027 1,405 13,432
------- ------- -------
Operating expenses:
Selling, general and administrative . . . . . 7,605 1,336 8,941
Depreciation and amortization . . . . . . . . 1,379 166 1,545
------- ------- -------
Total operating expenses . . . . . . . . . . . 8,984 1,502 10,486
------- ------- -------
Operating income . . . . . . . . 3,043 (97) 2,946
Interest expense . . . . . . . . . . . . . . . . . . . 443 -- 443
Other expense (income) . . . . . . . . . . . . . . . . (235) -- (235)
------- ------- -------
Income before income taxes . . . 2,835 (97) 2,738
Provision (benefit) for income taxes . . . . . . . . . 1,266 (36) 1,230
------- ------- -------
Net income . . . . . . . . . . . $ 1,569 $ (61) $ 1,508
======= ======= =======
Earnings per common share . . . . . . . . . . . . . . . $ .63(C) $ .45 (C)
==== ====
Weighted average common shares outstanding . . . . . . 2,500,000(C) 3,340,700 (C)
========= =========
</TABLE>
(1) Historical results of operations include the combined
results of operations on a historical cost basis of S3
Technologies, GPI and Eurosim ("the Predecessors") for the
period January 1 through April 13, and results for GSE
Systems for the period April 14 through December 31.
See notes to unaudited pro forma combined Financial Statements.
<PAGE> 30
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------------------
HISTORICAL
---------------------------------------
PREDECESSORS(1) ERUDITE SOFTWARE PRO FORMA COMBINED
--------------- ---------------- ------------------
<S> <C> <C> <C>
Contract revenue . . . . . . . . . . . . . . . . . . . $ 47,684 $ 2,558 $ 50,242
Cost of revenue . . . . . . . . . . . . . . . . . . . . 44,210 1,446 45,656
------- ------- -------
Gross profit . . . . . . . . . . 3,474 1,112 4,586
------- ------- -------
Operating expenses:
Selling, general and administrative . . . . . 10,217 1,125 11,342
Depreciation and amortization . . . . . . . . 984 57 1,041
------- ------- -------
Total operating expenses . . . . . . . . . . . 11,201 1,182 12,383
------- ------- -------
Operating income (loss) . . . . . (7,727) (70) (7,797)
Interest expense . . . . . . . . . . . . . . . . . . . 48 -- 48
Other expense (income) . . . . . . . . . . . . . . . . 57 -- 57
------- ------- -------
Income before income taxes . . . (7,832) (70) (7,902)
Provision (benefit) for income taxes . . . . . . . . . (823) (26) (849)
------- ------- -------
Net income (loss) . . . . . . . . $ (7,009) $ (44) $ (7,053)
======= ======= =======
Earnings (loss) per common share . . . . . . . . . . . $ (2.80)(C) $ (2.11)(C)
===== =====
Weighted average common shares outstanding . . . . . . 2,500,000 (C) 3,340,700 (C)
========= =========
</TABLE>
(1) Historical results of operations for the Predecessors
include the combined results of operations on a historical
cost basis of S3 Technologies, GPI and EuroSim.
See notes to unaudited pro forma combined Financial Statements.
<PAGE> 31
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On May 22, 1996, the Company acquired all of the outstanding shares of
capital stock of Erudite Software & Consulting, Inc. ("Erudite Software"), a
leading provider of cost-effective client/server technology through providing
consulting services, custom applications, software development, training
services, and hardware-software sales.
Erudite Software is headquartered in Salt Lake City, Utah, with a
primary development facility in Provo, Utah, and has approximately 140
employees. This acquisition was accomplished through a merger of Erudite
Software into a wholly owned subsidiary of the Company in which 840,700 shares
of the Company's Common Stock were exchanged for all outstanding shares of
capital stock of Erudite Software. The acquisition has been accounted for using
the pooling of interests method of accounting.
The unaudited pro forma combined balance sheet sets forth the
financial position of the Company as of March 31, 1996, to reflect the
acquisition of Erudite Software as if the acquisition has occurred on March 31,
1996.
The unaudited pro forma combined statements of operations set forth
the results of operations for the three months periods ended March 31, 1996 and
1995, and for the years ended December 31, 1995, 1994, and 1993, as if the
acquisition of Erudite Software by the Company had occurred at the beginning of
each period.
In the second quarter of 1996, GSE Systems and Erudite Software
incurred approximately $592,000 before taxes (or $383,000 after taxes) of
non-recurring, direct acquisition expenses, including broker fees,
auditing and legal expenses, etc. These one-time costs have not been reflected
in the pro forma combined financial statements.
The unaudited pro forma combined financial statements are intended for
informational purposes and are not necessarily indicative of future
consolidated financial position or future results of operations of the combined
entity.
<PAGE> 32
GSE SYSTEMS, INC.
AND
ERUDITE SOFTWARE AND CONSULTING, INC.
2. PRO FORMA ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
A. The balance sheet reflects the pro forma effect related to the
issuance of 840,700 shares of the Company's common stock for all
outstanding capital stock of Erudite Software.
B. The balance sheet reflects the repayment of notes payable to the
founding shareholders of Erudite Software of $184,950 and notes
payable to the bank of $196,333.
C. Net income per common share is based on the weighted average number of
shares of Common Stock outstanding during the period. The difference
between primary and fully-diluted per share amounts is insignificant.
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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2.1 Agreement and Plan of Reorganization dated as of May 17, 1996 by and among GSE
Systems, Inc., GSE Erudite Software, Inc., Erudite Software and Consulting, Inc.,
Eugene Loveridge, Daniel Masterson, Douglas Austin, Gary Gray and Dennis
Fairclough effective May 21, 1996.
2.2 Agreement and Plan of Merger dated as of May 17, 1996 by and between Erudite
Software and Consulting, Inc. and GSE Erudite Software, Inc. effective May 22,
1996.
10.1 Employment Agreement dated as of May 17, 1996 by and between GSE Systems, Inc.
and Eugene Loveridge effective May 22, 1996.
10.2 Employment Agreement dated as of May 17, 1996 by and between GSE Systems, Inc.
and Daniel Masterson effective May 22, 1996.
99.1 Press release dated May 21, 1996.
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Reorganization Agreement"
or this "Agreement") dated as of May 17, 1996, by and among GSE Systems, Inc.,
a Delaware corporation ("GSE"), GSE Erudite Software, Inc., a Delaware
corporation and wholly-owned subsidiary of GSE ("GSE Sub"), Erudite Software &
Consulting, Inc., a Utah corporation ("Erudite"), Eugene Loveridge, Daniel
Masterson, Douglas Austin, Gary Gray and Dennis Fairclough (each of the
foregoing individuals an "Erudite Stockholder" and collectively the "Erudite
Stockholders").
W I T N E S S E T H:
WHEREAS, the parties hereto desire that Erudite shall be merged with
GSE Sub ("Merger") pursuant to an Agreement and Plan of Merger attached hereto
as Exhibit A ("Plan of Merger"); and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties, covenants and indemnifications in
connection with the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. "Claim" means all actions, causes of action, suits, Liabilities,
amounts due, sums of money, accounts, reckonings, bonds, bills, controversies,
trespasses, damages, judgments, executions, claims, and demands whatsoever, in
law or equity.
1.2. "Closing" shall mean the closing described in Article 6 hereof at
which the Parties shall consummate the transactions contemplated hereby.
1.3. "Closing Date" shall mean the date that the Closing occurs.
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1.4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5. "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.6. "Damages" shall mean any and all Liabilities, losses, damages,
fines, penalties, costs, fees and expenses of every kind, nature or description
(including without limitation interest which may be imposed in connection
therewith, court costs and costs resulting from any judgments, orders, awards,
decrees or equitable relief, and reasonable fees and disbursements of counsel,
consultants and expert witnesses).
1.7. "Employment Agreements" shall mean the Employment Agreements
between GSE and each of Eugene Loveridge, Daniel Masterson, Gary Gray and
Douglas Austin, substantially in the forms attached hereto as Exhibit B.
1.8. "Encumbrance" means any title defect, conflicting claim of
ownership, order, decree, judgment, stipulation, settlement, attachment,
restriction, lien, pledge, right of first refusal, option, charge, security
interest, mortgage, reservation, lease or any other encumbrance of any nature
whatsoever.
1.9. "Environmental Claims" shall mean any Claim, suit, proceeding,
investigation, order, demand, obligation, duty or government directive or like
matter, based on any Environmental Law, which is asserted or threatened by a
party against Erudite (or GSE or GSE Sub as the successor-in-interest to
Erudite) or to which Erudite (or GSE or GSE Sub as the successor-in-interest to
Erudite) is subject, including, without limitation, Claims for reimbursement,
contribution, fines, penalties, punitive damages, to the extent that such
Claims arise from conditions or occurrences on or prior to the Closing Date,
regardless of when the Claim arises or is asserted.
1.10. "Environmental Laws" shall include all United States federal,
state and local laws, regulations, standards, rules, ordinances, policies and
other binding governmental requirements, judicial or administrative orders,
regulatory permits, and common law legal obligations pertaining to
environmental concerns, including without limitation the federal Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., the federal
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Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
federal Clean Water Act, 33 U.S.C. Section 1251 et seq., the federal Clean Air
Act, 42 U.S.C. Section 7401 et seq. and analogous state and local laws.
1.11. "Erudite Financial Statements" shall mean the balance sheets of
Erudite as of December 31, 1994 and 1995 and the related statements of income,
cash flows and changes in stockholders' equity (including related notes, if
any) for the years ended December 31, 1993, 1994 and 1995.
1.12. "Erudite Intellectual Property" shall mean all Intellectual
Property that is owned by, controlled by, used by, licensed by third parties to
or registered in the name of Erudite. All Erudite Intellectual Property owned
by third parties and licensed to Erudite is referred to herein as "Licensed
Intellectual Property."
1.13. "GSE Shares" shall mean the shares of GSE's common stock to be
issued in connection with the Merger in accordance with the terms and
conditions set forth in the Plan of Merger.
1.14. "Intellectual Property" shall mean all of the following
throughout the universe: (i) patents and patent applications and all forms and
equivalents thereof, including divisions, continuations, continuations-in-part,
utility patents, design patents, extensions, reissued and reexamined patents,
patents of addition, confirmation patents, importation patents, registration
patents, and inventor's certificates; (ii) rights to file patent applications
and other interests in inventions and discoveries, whether reduced to practice
or not, on which no patent application has been filed; (iii) copyrights and all
related and equivalent rights, including copyright registrations, applications
for copyright registration, moral rights, and neighbouring rights; (iv) common
law and other trademarks, trade names, trade dress, and service marks, and
registrations and applications for registration thereof; (v) rights in
industrial designs, mask works, and the like and registrations and applications
for registration thereof; (vi) trade secrets; (vii) methods, processes,
computer software, designs, drawings, laboratory notebooks, technical data,
research and development data, know-how, market reports, consumer
investigations, product surveys, distribution methods, and customer lists,
whether or not secret and whether or not reduced to writing; (viii) other
proprietary rights;
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(ix) licenses to or under and shop rights in any of the foregoing; and (x) all
other proprietary information, whether or not secret and whether or not reduced
to writing.
1.15. "Liabilities" shall mean liabilities, debts or obligations,
whether accrued, absolute, contingent or otherwise, known or unknown.
1.16. "Material Adverse Effect" shall mean, with respect to Erudite or
GSE, as the case may be, a material adverse effect on the consolidated
business, results of operations, financial condition or prospects of such
Party, taken as a whole.
1.17. "Materials of Environmental Concern" shall mean all chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum, petroleum
products and hazardous substances (as defined in Section 101(14) of CERCLA, 42
U.S.C. Section 9601(14)), or solid or hazardous wastes as now or hereafter
defined under any Environmental Laws.
1.18. "Non-Disclosure, Assignment and Non-Solicitation Agreements"
shall mean the Non-Disclosure, Assignment and Non-Solicitation Agreements
between GSE and each of the Erudite Stockholders except Mr. Fairclough, each
substantially in the form attached hereto as Exhibit C.
1.19. "Parties" shall mean GSE, GSE Sub, Erudite and each of the
Erudite Stockholders.
1.20. "Permits" shall mean permits, licenses, orders, authorizations,
certificates or approvals of any federal, state, local or foreign governmental
or regulatory body.
1.21. "Person" shall mean an individual, partnership, corporation,
trust, unincorporated organization, government or any department or agency
thereof and any other entity.
1.22. "Previously Disclosed" shall mean disclosed prior to the
execution hereof in (i) an SEC Document filed with the SEC subsequent to
December 31, 1994 and prior to the date hereof or (ii) a letter dated of even
date herewith from the Party making such
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disclosure and delivered in the case of GSE or GSE Sub, to Erudite and in the
case of Erudite or the Erudite Stockholders, to GSE and GSE Sub prior to
execution hereof. Any information Previously Disclosed by one Party for any
purpose hereunder shall be deemed to be Previously Disclosed for all purposes
hereunder.
1.23. "Properties" shall mean all properties (real or personal) and
other assets owned, leased or used by Erudite.
1.24. "Registration Rights Agreement" shall mean the Registration
Rights Agreement between GSE and the Erudite Stockholders substantially in the
form attached hereto as Exhibit E.
1.25. "Related Agreements" shall mean the Registration Rights
Agreement, Noncompete Agreement, Employment Agreements, Nondisclosure and
Assignment Agreements and Releases.
1.26. "Releases" shall mean the Releases between GSE and each of the
Erudite Stockholders, substantially in the form attached hereto as Exhibit F.
1.27. "Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock, and stock appreciation rights,
performance units and other similar stock-based rights whether they obligate
the issuer thereof to issue stock or other securities or to pay cash.
1.28. "SEC Documents" shall mean all reports and registration
statements filed, or required to be filed, by a Party hereto pursuant to the
Securities Laws.
1.29. "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.30. "Securities Laws" shall mean the Securities Act, the Securities
Exchange Act of 1934, and the rules and regulations of the Commission
promulgated thereunder.
Other capitalized terms used herein are defined in the preamble and the
recitals to this Reorganization Agreement and in the other Articles hereof.
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ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF ERUDITE
AND THE ERUDITE STOCKHOLDERS
Except as Previously Disclosed, with respect to Sections 2.2, 2.5(a),
2.22 and 2.23, Erudite and the Erudite Stockholders severally represent and
warrant, and with respect to all other Sections of this Article 2, Erudite and
the Erudite Stockholders (except Dennis Fairclough) jointly and severally
represent and warrant to GSE and GSE Sub as follows:
2.1. CAPITAL STRUCTURE OF ERUDITE
The authorized capital stock of Erudite consists solely of 50,000
shares of common stock, no par value per share ("Erudite Common Stock"), of
which, as of the date hereof, 10,000 shares are issued and outstanding, and no
shares are held in treasury. As of the date hereof, no shares of Erudite
Common Stock were reserved for issuance. All outstanding shares of Erudite
Common Stock have been duly authorized and issued and are validly outstanding,
fully paid and nonassessable. Erudite does not have and is not bound by any
Rights which are authorized, issued or outstanding with respect to the capital
stock of Erudite. None of the shares of Erudite's capital stock has been
issued in violation of the preemptive or other rights of any person.
Collectively, the Erudite Stockholders own 9,800 of the outstanding shares of
Erudite Common Stock; the remaining 200 outstanding shares of Erudite Common
Stock are restricted shares held by Erudite for the benefit of 17 employees of
Erudite (the "Erudite Restricted Holders").
2.2. OWNERSHIP OF ERUDITE CAPITAL STOCK
Each of the Erudite Stockholders and the Erudite Restricted Holders
owns of record and beneficially the number of shares of Erudite Common Stock
listed adjacent to the name of such Erudite Stockholder or Erudite Restricted
Holders on Schedule 2.2 hereto, with good and marketable title thereto free and
clear of all Encumbrances.
2.3. ORGANIZATION, STANDING AND AUTHORITY OF ERUDITE
Erudite is a duly organized corporation, validly existing and in good
standing under the laws of Utah. Erudite (i) has full corporate power and
authority to carry on its business as now conducted and (ii) is duly
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licensed or qualified to do business in all jurisdictions of the United States
and foreign jurisdictions where its ownership or leasing of property or the
conduct of its business requires such licensing or qualification, except where
the failure to be so licensed or qualified would not have a Material Adverse
Effect on Erudite.
2.4. SUBSIDIARIES AND RELATED INTERESTS
Erudite does not own, directly or indirectly, any capital stock,
partnership interest, joint venture interest or any other security issued by
any other corporation, partnership, limited liability company or other
organization or entity.
2.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Each of the Erudite Stockholders has the legal capacity to enter
into and perform all of his obligations under this Reorganization Agreement and
the Related Agreements to which he is a party. Upon execution and delivery by
such Erudite Stockholder of this Reorganization Agreement and each of the
Related Agreements to which such Erudite Stockholder is a party, assuming the
accuracy of the representation contained in Section 3.2(b) hereof, the
Reorganization Agreement and each such Related Agreement shall constitute the
legal, valid and binding obligations of each Erudite Stockholder who is a party
thereto, enforceable against him in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization, bulk sales, or similar laws from time
to time in effect which affect the enforcement of creditors' rights generally
and by general equity principles.
(b) Erudite has all requisite power and authority to enter into and
perform all of its obligations under this Reorganization Agreement, the Related
Agreements to which it is a party and the Plan of Merger. The execution and
delivery of this Reorganization Agreement, the Related Agreements to which
Erudite is a party and the Plan of Merger, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary action in respect thereof on the part of Erudite.
This Reorganization Agreement and the Plan of Merger have been, and each of the
Related Agreements to which Erudite is a party when executed and delivered by
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Erudite shall be, executed and delivered by a duly authorized agent of Erudite.
(c) Assuming the accuracy of the representation contained in Section
3.2(b) hereof, this Reorganization Agreement, the Related Agreements to which
Erudite is a party and the Plan of Merger constitute legal, valid and binding
obligations of Erudite, enforceable against it in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization, bulk sales, or similar laws
from time to time in effect which affect the enforcement of creditors' rights
generally and by general equity principles.
(d) Neither the execution and delivery of this Reorganization
Agreement, any of the Related Agreements or the Plan of Merger, nor
consummation of the transactions contemplated hereby or thereby, nor compliance
by Erudite or any of the Erudite Stockholders with any of the provisions hereof
or thereof shall (i) conflict with or result in a breach of any provision of
the articles or certificate of incorporation or bylaws (or equivalent
documents) of Erudite, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result
in the creation of any lien, charge or Encumbrance upon any property or asset
of Erudite pursuant to, any note, bond, mortgage, indenture, license, lease,
contract, agreement or other instrument or obligation, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Erudite or any of the Erudite Stockholders, except (in the case of clauses (ii)
and (iii) above) for such violations, rights, conflicts, breaches, creations or
defaults which, either individually or in the aggregate, will not have a
Material Adverse Effect on Erudite and will not impair the ability of Erudite
or the Erudite Stockholders to execute, deliver or perform their respective
obligations under this Agreement, any Related Agreement or the Plan of Merger.
(e) No consent, approval or authorization of, or declaration,
notice, filing or registration with, any governmental or regulatory authority,
or any other Person, is required to be made or obtained by Erudite or any
Erudite Stockholder in connection with the execution, delivery and performance
of this Agreement, the Related Agreements or the Plan of Merger or the
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consummation of the transactions contemplated hereby or thereby. Each of the
required consents Previously Disclosed that is material to Erudite's business,
operations, financial condition or prospects will be obtained within 60 days
after the Closing.
(f) Each of the Erudite Stockholders and each Erudite Restricted
Holder has executed and delivered to Erudite a written consent, substantially
in the form attached hereto as Exhibit G, approving this Agreement, the Plan of
Merger and the transactions contemplated hereby and thereby, in their capacity
as the sole stockholders of Erudite.
2.6. CONSTITUTIVE DOCUMENTS
Erudite has delivered to GSE complete and correct copies of Erudite's
articles or certificate of incorporation and bylaws, each as amended as of the
date hereof and all resolutions of the Board of Directors of Erudite (or any
committee thereof) relating to this Agreement, any Related Agreement, the Plan
of Merger or any of the transactions contemplated hereby or thereby. The minute
book of Erudite, a copy of which has been delivered to GSE, contains a
complete, correct and current record of all meetings and other corporate
actions of the stockholders and the board of directors (and any committee
thereof) of Erudite since its incorporation.
2.7. REGULATORY FILINGS
Erudite has filed all reports required by statute or regulation to be
filed with any federal, state, foreign or local regulatory agency, except where
the failure to so file would not have a Material Adverse Effect on Erudite, and
such reports were prepared in accordance with the applicable statutes,
regulations and instructions in existence as of the date of filing of such
reports in all material respects.
2.8. FINANCIAL STATEMENTS; BOOKS AND RECORDS
The Erudite Financial Statements fairly present the financial position
of Erudite as of the dates indicated and the results of operations, changes in
stockholders' equity and cash flows of Erudite for the periods presented, all
in conformity with generally accepted accounting principles applied on a
consistent basis except as disclosed therein. The books and records of Erudite
fairly reflect in all material
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respects the transactions to which it is a party or by which its properties are
subject or bound. All accounts receivable included in the latest Erudite
Financial Statements are valid and enforceable and, to the knowledge of Erudite
and the Erudite Stockholders, collectible net of reserves. The reserves have
been established in accordance with Erudite's policies which are in conformance
with generally accepted accounting principles.
2.9. MATERIAL ADVERSE CHANGE
Erudite has not suffered any material adverse change in its financial
condition, results of operations, business or prospects since December 31,
1995.
2.10. ABSENCE OF UNDISCLOSED LIABILITIES
Erudite does not have any Liability that is material to Erudite or
that, when combined with all similar Liabilities, would be material to Erudite,
except as disclosed in the Erudite Financial Statements and except for
Liabilities incurred in the ordinary course of business consistent with past
practices subsequent to December 31, 1995, and, to the knowledge of Erudite and
the Erudite Stockholders, no set of circumstances exist that are reasonably
likely to give rise to any such Liability.
2.11. PROPERTIES
Erudite has good and marketable title free and clear of all
Encumbrances to all of the Properties which, individually or in the aggregate,
are material to the business of Erudite taken as a whole, and which are
reflected on the Erudite Financial Statements as of December 31, 1995 or were
acquired after such date, except liens for taxes not yet due and payable for
which adequate reserves have been established on the books of Erudite. All
leases pursuant to which Erudite, as lessee, leases Properties which,
individually or in the aggregate, are material to the business of Erudite taken
as a whole (i) have been Previously Disclosed and (ii) are valid and
enforceable in accordance with their respective terms. There has not occurred
any default by Erudite under any lease, or any event (including the execution,
delivery and performance of this Agreement, any of the Related Agreements or
the Plan of Merger) which, with the lapse of time or the giving of notice or
both, will give rise to such a default.
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2.12. PERMITS
Erudite has Previously Disclosed to GSE a list and description of all
Permits which are issued to, held or used by Erudite, or for which Erudite has
applied. There are no other Permits which are material to the operation of
Erudite's business as now conducted or to the ownership or use of any of its
Properties which are required to be obtained by Erudite. All Permits
Previously Disclosed are in good standing and are valid and effective in
accordance with their respective terms. The Permits Previously Disclosed will
continue in effect after the Closing. Erudite is in material compliance with
all Permits Previously Disclosed and no governmental proceedings or
investigations are pending or, to the knowledge of Erudite or the Erudite
Stockholders, threatened against Erudite or the Erudite Stockholders relating
to noncompliance with such Permits.
2.13. TAX MATTERS
(a) Each of Erudite and Emcor, Inc. has timely filed federal income
tax returns for each year through October 31, 1995 and has timely filed, or
caused to be filed, all other federal, state, local and foreign tax returns
(including, without limitation, estimated tax returns, returns required under
Sections 1441-1446 and 6031-6060 of the Code and the regulations thereunder and
any comparable state, foreign and local laws, any other information returns,
withholding tax returns, FICA and FUTA returns and back up withholding returns
required under Section 3406 of the Code and any comparable state, foreign and
local laws) required to be filed with respect to Erudite, Emcor, Inc., or any
employees (including leased employees) of Erudite, except where the failure to
file timely such federal income and other tax returns would not, in the
aggregate, have a Material Adverse Effect on Erudite. All taxes due in respect
of the periods covered by such tax returns have been paid or adequate reserves
have been established for the payment of such taxes, except where any such
failure to pay or establish adequate reserves would not, in the aggregate, have
a Material Adverse Effect on Erudite and, as of the date hereof, all taxes due
in respect of any subsequent periods ending on or prior to the date hereof have
been paid or adequate reserves have been established for the payment thereof,
except where any such failure to pay or establish adequate reserves would not,
in the aggregate, have a Material Adverse Effect on Erudite. No material (i)
audit examination,
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(ii) deficiency, or (iii) refund litigations with respect to such returns is
pending. Erudite has Previously Disclosed to GSE a list of all (i) audit
examinations, (ii) deficiencies, and (iii) refund litigations with respect to
such returns. Erudite will not have any material Liability for any such taxes
in excess of the amounts so paid or reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by each of Erudite and Emcor are complete and accurate in all
material respects. Neither Erudite nor Emcor is delinquent in the payment of
any material tax, assessment or governmental charge (including without
limitation any sales or use tax or similar tax) and neither has requested any
extension of time within which to file any tax returns in respect of any fiscal
year or portion thereof which have not since been filed. No material
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed (tentatively or otherwise) against Erudite or Emcor which
have not been settled and paid. There are currently no agreements in effect
with respect to Erudite or Emcor to extend the period of limitations for the
assessment or collection of any tax.
(c) Neither the transactions contemplated in this Agreement nor in the
Related Agreements could result in Erudite making or being required to make any
"excess parachute payment" as that term is defined in Section 280G of the Code.
(d) For purposes of this Section 2.13, references to Erudite shall
include any predecessors thereof.
2.14. EMPLOYMENT BENEFIT PLANS
(a) Erudite has Previously Disclosed to GSE true and complete copies
of all qualified pension or profit-sharing plans, any deferred compensation,
consulting, bonus or group insurance contract or any other incentive, welfare
or employee benefit plan or agreement maintained for the benefit of employees
or former employees of Erudite together with (i) the most recent actuarial and
financial reports prepared with respect to any qualified plans, (ii) the most
recent annual reports filed with any government agency with respect to any
qualified plans and (iii) all rulings and
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determination letters and any open requests for rulings or letters that pertain
to any qualified plan.
(b) Neither Erudite nor any pension plan maintained by Erudite has
incurred any material Liability to the Pension Benefit Guaranty Corporation or
to the Internal Revenue Service with respect to any pension plan qualified
under Section 401 of the Code except Liabilities to the Pension Benefit
Guaranty Corporation pursuant to Section 4007 of Employment Retirement Income
Security Act of 1974, as amended ("ERISA"), all of which have been fully paid.
No reportable event under Section 4043(b) of ERISA has occurred with respect to
any such pension plan.
(c) Erudite does not participate in, and has not incurred any
Liability under Section 4201 of ERISA for a complete or partial withdrawal
from, a "multiemployer plan" as such term is defined in ERISA, nor would
Erudite incur any such Liability were it to withdraw from any such plan as of
the plan's last valuation date.
(d) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each "employee pension plan" (as defined in
Section 3(2) of ERISA) of Erudite which is intended to be a qualified plan, to
the effect that such plan is qualified under Section 401 of the Code and tax
exempt under Section 501 of the Code. No such letter has been revoked or
threatened to be revoked and neither Erudite nor any Erudite Stockholder knows
of any ground on which such revocation may be based. Erudite has no material
Liability under any such plan that is not reflected on the Erudite Financial
Statements as of December 31, 1995.
(e) No prohibited transaction (which shall mean any transaction
prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA)
has occurred with respect to any employee benefit plan maintained by Erudite
(i) which would result in the imposition, directly or indirectly, of a material
excise tax under Section 4975 of the Code or (ii) the correction of which would
have a Material Adverse Effect on Erudite.
(f) Erudite does not maintain any defined benefit plans within the
meaning of ERISA.
(g) As used in this Section 2.14 only, references to "employees" of
Erudite shall include
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persons whose services are leased from Emcor, Inc. and references to "Erudite"
shall include Emcor, Inc.
2.15. CERTAIN CONTRACTS
(a) Erudite is neither a party to nor bound by (i) any material
contract or similar arrangement, whether or not made in the ordinary course of
business, that will be performed in whole or in part by any party thereto
subsequent to the date hereof or under which Erudite has any unexercised right
or obligation, or any agreement restricting the nature or geographic scope of
Erudite's business activities in any material respect, (ii) any agreement,
indenture or other instrument relating to the borrowing of money by Erudite or
the guarantee by Erudite of any such obligation (iii) any agreement,
arrangement or commitment relating to the employment of a consultant who was
formerly a director or executive officer or the employment, election, retention
in office or severance of any present or former director or officer, or (iv)
any contract, agreement or understanding with a labor union, in each case
whether written or oral. Erudite does not have any outstanding proposals that,
based on its current estimates, are projected to result in a loss.
(b) Erudite is not in default under nor has Erudite or any Erudite
Stockholder received notice or obtained knowledge that any other party is in
default under, any agreement, commitment, arrangement, insurance policy or
other instrument whether entered into in the ordinary course of business or
otherwise and whether written or oral the effect of which would have a Material
Adverse Effect on Erudite; to the knowledge of Erudite there has not occurred
any event that, with the lapse of time or giving of notice or both, would
constitute such a default, except for such defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on Erudite.
2.16. LEGAL PROCEEDINGS
There are no Claims or proceedings instituted, pending or, to the
knowledge of Erudite or any of the Erudite Stockholders, threatened (or
unasserted but considered probable of assertion) against Erudite, against any
asset (including, without limitation, any of the Erudite Intellectual
Property), interest or right of Erudite, or against any Erudite Stockholder
which relate to Erudite or any asset, interest or right of Erudite or which
will result in a Material Adverse Effect on
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Erudite. There are no actual or, to the knowledge of Erudite or any of the
Erudite Stockholders, threatened actions, suits or proceedings that present a
Claim to restrain or prohibit the transactions contemplated in this Agreement,
the Plan of Merger or any of the Related Agreements, or to impose any material
Liability in connection therewith. There are no actions, suits or proceedings
instituted, pending or, to the knowledge of Erudite or any of the Erudite
Stockholders, threatened (or unasserted but considered probable of assertion)
against any present or former director or officer of Erudite, that might give
rise to a Claim for indemnification.
2.17. COMPLIANCE WITH LAWS
Erudite is in compliance in all material respects with all statutes and
regulations applicable to the conduct of its business, and Erudite has not
received notification from any agency or department of federal, state or local
government (i) asserting a violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, Permit or government
authorization or (iii) restricting or in any way limiting its operations.
Erudite is not subject to any regulatory or supervisory order, agreement,
directive, memorandum of understanding or commitment and has not received any
communication requesting that it enter into any of the foregoing.
2.18. LABOR AND RELATED MATTERS
(a) Erudite is not a party to any labor agreement with any labor
organization, group or association and has not engaged in any unfair labor
practice, unlawful employment practice or unlawful discriminatory practice.
Erudite has not experienced any attempt by organized labor or its
representatives to make Erudite conform to demands of organized labor relating
to its employees or enter into a binding agreement with organized labor that
would cover the employees of Erudite. There is no unfair labor practice charge
or any other action, suit, complaint, charge, arbitration, inquiry, proceeding
or investigation by or before any court, governmental agency, administrative
agency or commission brought by or on behalf of any employee, prospective
employee, former employee, retiree, labor organization or other representative
of the employees of Erudite which is pending or, to the knowledge of Erudite or
any of the Erudite Stockholders, threatened against Erudite. There is no labor
strike or
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labor disturbance pending or threatened against Erudite. Erudite has not
experienced any work stoppages or other labor difficulties. The relations of
Erudite with its employees are satisfactory. Erudite is not a party to or
affected by or threatened with any dispute or controversy with any supplier,
subcontractor, or customer, the adverse outcome of which would have a Material
Adverse Effect on Erudite.
(b) Erudite has Previously Disclosed the name and position of each
person employed by Erudite as of the date hereof, the current wage or salary of
each such person and all incentive awards that have been awarded with respect
to 1995 for each such person and the amount of vacation/holiday time accrued
but not taken for each such person as of March 31, 1996. Since December 31,
1995, except for normal increases in wages, salary, incentive awards and
benefits consistent with past practices, Erudite has not (i) granted or become
obligated to grant any increases in compensation of, (ii) paid or become
obligated to pay any bonus to, (iii) made or become obligated to make any
similar payment to, or (iv) granted or become obligated to grant any additional
benefit to any person employed by Erudite.
2.19. BROKERS AND FINDERS
Except for the fee payable to Geneva Business Services, Inc. ("Geneva")
in accordance with the agreement dated April 17, 1996 between Erudite and
Geneva, a copy of which has been Previously Disclosed, neither Erudite or any
of its officers, directors or employees nor any of the Erudite Stockholders,
has employed any broker, finder or financial advisor or incurred any Liability
for any brokerage or finders fees or commissions in connection with the
transactions contemplated in this Agreement, the Related Agreements or the Plan
of Merger.
2.20. ENVIRONMENTAL MATTERS
(a) Erudite has obtained, and now maintains as currently valid and
effective, all Permits (all of which have been Previously Disclosed) required
under the Environmental Laws (the "Environmental Permits") in connection with
the operation of its business. In connection with Erudite's operation of its
business, Erudite is in compliance with all material terms and conditions of
the Environmental Permits and all applicable Environmental Laws. Erudite is not
aware of
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any circumstances that may prevent or interfere with such compliance in the
future.
(b) Erudite has provided to GSE all material information and
communications (whether from a governmental authority, citizens' group,
employer or other person) in its possession or control relating to its business
regarding alleged or suspected noncompliance with any Environmental Laws or
Environmental Permits or alleged or suspected Liability under any Environmental
Laws.
(c) There are no material environmental Encumbrances on any of the
Properties, and no government actions have been taken or are in process which
are reasonably likely to subject any of such Properties to such Encumbrances,
and Erudite would not be required to place any notice or restriction relating
to the presence of Materials of Environmental Concern at any Property in any
deed to such Property that is or was used in connection with the operation of
its business.
(d) There is no Environmental Claim arising from the operation of
Erudite's business pending or, to the knowledge of Erudite or any of the
Erudite Stockholders, threatened against Erudite or against any Person whose
Liability for any Environmental Claim Erudite has or may have retained or
assumed either contractually or by operation of law.
(e) There are no past or present actions, activities, circumstances,
conditions, events or incidents relating to the operation of Erudite's
business, including, without limitation, the release, emission, discharge,
presence or disposal of any Material of Environmental Concern, that are
reasonably likely to form the basis of any Environmental Claim against Erudite
or against any Person whose Liability for any Environmental Claim Erudite has
or may have retained or assumed either contractually or by operation of law.
2.21. INTELLECTUAL PROPERTY
(a) Erudite has Previously Disclosed to GSE;
(i) All of the Erudite Intellectual Property that has been
registered in, filed in or issued by the United States Patent and Trademark
Office or the United States Copyright Office or any similar office in any
country; and
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(ii) All Erudite Intellectual Property, to the best knowledge of
Erudite or any of the Erudite Stockholders, that is not so registered, filed or
issued, but the use of which is material to the ability of Erudite to operate
its business as currently conducted.
(b) Either Erudite, or any of the Erudite Stockholders, have
Previously Disclosed to GSE:
(i) Any pending lawsuit to which Erudite is a party asserting:
(A) That any of the Erudite Intellectual Property infringes or
violates the Intellectual Property rights of third parties;
(B) That the past or present conduct of Erudite's business
infringes or violates the Intellectual Property rights of third
parties;
(C) That any third parties have any rights to use any of the
Erudite Intellectual Property (except the Licensed Intellectual
Property); or
(D) A cause of action which could, if adversely determined
against Erudite or any of the Erudite Stockholders, materially and
adversely affect the ability of GSE or GSE Sub to use any of the
Erudite Intellectual Property after the Closing.
(ii) Any notice given to any third parties asserting infringement
by such third parties of any of the Erudite Intellectual Property;
(iii) Any written opinion of legal counsel to Erudite that any of
the Erudite Intellectual Property that has been registered in, filed in or
issued by the United States Patent and Trademark Office or the United States
Copyright Office or any similar office in any country:
(1) Is invalid; or
(2) That Erudite's rights are unenforceable in any way;
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(iv) Any pending lawsuit to which Erudite is a party in which a
cause of action is asserted:
(1) That Erudite, any of the Erudite Stockholders or any
licensor is in breach of an agreement for Licensed Intellectual Property; or
(2) Against the licensor of any Licensed Intellectual
Property asserting that any of the Licensed Intellectual Property infringes or
conflicts with the rights of third parties, or that the present or past conduct
of Erudite's business infringes or violates the rights of third parties, which,
if adversely determined against the licensor of any Licensed Intellectual
Property or Erudite, respectively, will have a Material Adverse Effect.
(v) That, to the best knowledge of Erudite or any of the Erudite
Stockholders, Erudite is the sole and exclusive owner of the entire right,
title and interest in and to the portion of the Erudite Intellectual Property
(except the Licensed Intellectual Property) that is listed in Section 2.21 of
the letter described in Section 1.23 hereof.
(vi) Upon the Closing, GSE and GSE Sub will be entitled to
continue to use all of the Erudite Intellectual Property, without the
impairment or alteration thereof and without the payment of any license or
other fees, other than any of the foregoing that will not have a Material
Adverse Effect.
(c) To the best knowledge of Erudite or any of the Erudite
Stockholders:
(i) Erudite is the sole and exclusive owner of the entire right,
title and interest in and to the Erudite Intellectual Property (except the
Licensed Intellectual Property);
(ii) Erudite has not granted, nor does there exist by implication
or operation of law, any license or other right in respect thereof which does or
which will, subsequent to the Closing, permit or enable any Person other than
GSE or GSE Sub to use the Erudite Intellectual Property (except the Licensed
Intellectual Property);
(iii) None of the Erudite Intellectual Property (except the
Licensed Intellectual Property) is subject to any Encumbrance.
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(iv) There is no reasonably colorable basis for a Claim against
Erudite asserting:
(A) that any of the Erudite Intellectual Property infringes
or violates the Intellectual Property rights of third parties;
(B) that the past or present conduct of Erudite's business
infringes or violates the Intellectual Property rights of third parties;
(C) that any third parties have any rights to use any of the
Erudite Intellectual Property (except the Licensed Intellectual
Property); or
(D) a cause of action which could, if adversely determined
against Erudite or any of the Erudite Stockholders, materially
and adversely affect the ability of GSE or GSE Sub to use any of the
Erudite Intellectual Property after the Closing;
(v) Neither the Erudite Intellectual Property nor Erudite's past
or present conduct of business infringes or violates the Intellectual Property
rights of third parties;
(vi) Erudite is not utilizing any of the Licensed Intellectual
Property outside the scope of Erudite's license thereto;
(vii) No bars or other restrictions on Erudite's rights to
utilize any of the Erudite Intellectual Property will be created by or result
from the consummation of the Transactions contemplated in this Agreement, the
Related Agreements and the Plan of Merger;
(viii) Erudite has Previously Disclosed a list of all Licensed
Intellectual Property the loss of use of which would have a Material Adverse
Effect;
(ix) There is no reasonably colorable basis for a Claim:
(1) That Erudite, any of the Erudite Stockholders or any
licensor, is in breach of an agreement for Licensed Intellectual Property and
no basis for any such Claim exists; or
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(2) Against Erudite or the licensor of any Licensed
Intellectual Property asserting that any of the Licensed Intellectual Property
infringes or conflicts with the rights of third parties, or that the present or
past conduct of Erudite's business infringes or violates the rights of third
parties, which if adversely determined against the licensor of any Licensed
Intellectual Property or Erudite, respectively, will have a Material Adverse
Effect;
(x) After the Closing, GSE and GSE Sub will need no Intellectual
Property other than the Erudite Intellectual Property in order to operate
Erudite's business in a manner consistent with its past practice; and
(xi) All of the Erudite Intellectual Property that has been
registered in, filed in or issued by the United States Patent and Trademark
Office or the United States Copyright Office;
(1) Is valid; and
(2) Erudite's rights are enforceable.
2.22. ACCESS; SOPHISTICATION; ETC.
(a) GSE has provided to each Erudite Stockholder copies of GSE's SEC
Documents filed since August 1, 1995 and, each Erudite Stockholder has reviewed
such documents and has relied only on (i) the statements and information
contained therein and (ii) the representations, warranties, terms and
conditions of this Agreement and the Related Agreements.
(b) Each Erudite Stockholder acknowledges that all documents, books
and records requested by such Erudite Stockholder pertaining to GSE have been
made available for inspection by such Erudite Stockholder and his, her or its
agents and representatives; that such Erudite Stockholder and his, her or its
agents and representatives have had a reasonable opportunity to ask questions
of and receive answers from GSE or officers or employees acting on behalf of
GSE concerning the terms and conditions of the offering of the GSE Shares and
the business and prospects of GSE. Each Erudite Stockholder and his, her or its
respective agents and representatives have such knowledge and experience in
financial and business matters as to enable them to utilize the information
made available to them in connection with the transactions
<PAGE> 22
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contemplated hereby, to evaluate the merits and risks of an investment in GSE
and to make an informed decision with respect thereto and such an evaluation
and informed decision have been made. The questionnaires Previously Disclosed
to GSE relating to each of the Erudite Stockholders are accurate and complete
in all material respects.
(c) In connection with the transactions contemplated hereby, Messrs,
Loveridge and Masterson have served and will continue to serve as "purchaser
representatives" (as such term is defined in Rule 501(h) under the Securities
Act) for each of the Erudite Restricted Holders and in that capacity have
furnished to each Erudite Restricted Holder copies of the SEC Documents
described in Section 2.22(a) hereof.
2.23. INVESTMENT REPRESENTATION
Each Erudite Stockholder is acquiring the GSE Shares to be received by
such Erudite Stockholder, and each Erudite Restricted Holder has acknowledged
to Messrs. Loveridge and Masterson that he or she is acquiring the GSE Shares
to be received by him or her, upon consummation of the Merger for such person's
own account for investment only and not with a view to making a distribution
thereof within the meaning of the Securities Act. Each Erudite Stockholder
agrees, and on behalf of each Erudite Restricted Holder, Messrs. Loveridge and
Masterson agree, that such Erudite Restricted Holder will not sell or transfer
such GSE Shares, except in accordance with the terms of the legend set forth
below. Each Erudite Stockholder and each Erudite Restricted Holder is aware
that the GSE Shares have not been registered under the Securities Act or any
state or other jurisdiction's securities laws, and that the GSE Shares must be
held indefinitely unless subsequently registered or an exemption from such
registration is available. Each Erudite Stockholder and each Erudite
Restricted Holder is aware that he or she will not be readily able to
liquidate his or her investment in the GSE Shares, and is in a position to
bear the risk of a long term investment. Each Erudite Stockholder and each
Erudite Restricted Holder is a bona fide resident of Utah and has no present
intention of changing his or her residence. Each Erudite Stockholder
understands and agrees, each Erudite Restricted Holder understands, and on
behalf of each Erudite Restricted Holder, Messrs. Loveridge and Masterson
agree, that the certificate or certificates representing the GSE Shares
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to be received by such Erudite Stockholder or Erudite Restricted Holder will
bear a legend substantially to the effect set forth below and that a stop
transfer order may be placed with respect thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE SECURITIES LAW OF ANY JURISDICTION AND MAY NOT BE
TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND SUCH APPLICABLE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO OR (B) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES ACT AND
SUCH APPLICABLE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
2.24. INSURANCE
Erudite currently maintains insurance in amounts reasonably necessary
for its operations. Such policies (a) are valid and enforceable in accordance
with their terms with financially sound and reputable insurance companies and
are in full force and effect, (b) cover claims based on the date made, (c) are
sufficient for compliance by Erudite with all requirements of law and all
agreements to which Erudite is a party or is subject to, and (d) provide
insurance coverage of the Properties, operations and employees of Erudite
generally comparable in type and amount to that which is customarily carried by
other corporations engaged in similar businesses as Erudite. Erudite has not
received any notice of a premium increase or cancellation with respect to any
of its insurance policies or bonds and has not been refused any insurance
coverage sought or applied for. Erudite has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect, other than
possible increases in premiums or unavailability in coverage that have not
resulted from any extraordinary loss experience of Erudite.
2.25. DUTY TO MAKE INQUIRY
To the extent that any of the representations and warranties made by
Erudite or any of the Erudite Stockholders in this Agreement are qualified by
the
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knowledge and belief of Erudite or any of the Erudite Stockholders, Erudite and
each Erudite Stockholder represents and warrants that it, he or she has made
due and reasonable inquiry of all directors, officers, employees and agents of
Erudite reasonably likely to have knowledge or information concerning the
matters to which such representations and warranties relate.
2.26. OPERATION OF BUSINESS
Since December 31, 1995, Erudite has:
(a) conducted its business in the ordinary course consistent with past
practice and taken all reasonable actions to preserve its customer
relationships;
(b) not incurred any Liabilities, absolute or contingent, except in
the ordinary course of its business consistent with past practice;
(c) maintained in full force and effect the insurance customarily
maintained by it for its business;
(d) not entered into any agreement or contract which is material to
its business, operations or financial condition, except in the ordinary course
of its business consistent with past practice;
(e) not encumbered or pledged or otherwise disposed of any Properties,
except in the ordinary course of its business consistent with past practice;
(f) not declared or paid any dividend or made any distribution on any
shares of its capital stock, issued any shares of its capital stock,
repurchased or redeemed any shares of its capital stock, amended or modified
its certificate or articles of incorporation or bylaws or taken any other
action outside the ordinary course of its business;
(g) not entered into any swap, hedge, forward or similar transaction;
(h) not made any loan or other advance to any of its employees or
Affiliates or any employees of any Affiliate other than in the ordinary course
of its business to pay ordinary and reasonable business expenses to be incurred
by such Person on Erudite's behalf; or
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(i) not agreed to do any of the matters specified in clauses (b)
through (h) of this Section 2.26.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF GSE
Except as Previously Disclosed, GSE hereby represents and warrants to
Erudite and the Erudite Stockholders as follows:
3.1. ORGANIZATION, STANDING AND AUTHORITY OF GSE AND GSE SUB
Each of GSE and GSE Sub is a duly organized corporation, validly
existing and in good standing under the laws of Delaware. Each of GSE and GSE
Sub (i) has full corporate power and authority to carry on its business as now
conducted or proposed to be conducted and (ii) is duly licensed or qualified
to do business in all jurisdictions of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such licensing or qualification, except where the failure to
be so licensed or qualified would not have a Material Adverse Effect on GSE.
3.2. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Each of GSE and GSE Sub has all requisite corporate power and
authority to enter into and perform all of its obligations under this
Reorganization Agreement, the Related Agreements to which it is a party and the
Plan of Merger. The execution and delivery of this Reorganization Agreement,
the Related Agreements to which it is a party and the Plan of Merger and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of GSE and GSE Sub. This Reorganization Agreement and the Plan of
Merger have been, and each of the Related Agreements to which GSE or GSE Sub is
a party when executed and delivered by GSE or GSE Sub, as the case may be,
shall be, executed and delivered by a duly authorized agent of GSE or GSE Sub,
as the case may be.
(b) Assuming the accuracy of the representations contained in Sections
2.5(a) and 2.5(c) hereof, this Reorganization Agreement, the Related
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Agreements to which GSE or GSE Sub is a party and the Plan of Merger constitute
legal, valid and binding obligations of GSE and GSE Sub, as the case may be,
enforceable against it in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization, bulk sales, or similar laws from time to time in
effect which affect the enforcement of creditors' rights generally and by
general equity principles.
(c) Neither the execution and delivery of this Reorganization
Agreement, the Related Agreements to which GSE or GSE Sub is a party or the
Plan of Merger, nor consummation of the transactions contemplated hereby or
thereby, nor compliance by GSE and GSE Sub with any of the provisions hereof or
thereof shall (i) conflict with or result in a breach of any provision of the
certificate of incorporation or bylaws of GSE or GSE Sub, (ii) constitute or
result in a breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
Encumbrance upon any property or asset of GSE or GSE Sub pursuant to, any note,
bond, mortgage, indenture, license, lease, contract, agreement or other
instrument or obligation, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to GSE or GSE Sub, except (in the case
of clauses (ii) and (iii) above) for such violations, rights, conflicts,
breaches, creations or defaults which, either individually or in the aggregate,
will not have a Material Adverse Effect on GSE and will not impair the ability
of GSE or GSE Sub to execute, deliver or perform its obligations under this
Agreement, any Related Agreement or the Plan of Merger.
(d) No consent, approval or authorization of, or declaration, notice,
filing or registration with, any governmental or regulatory authority, or any
other Person, is required to be made or obtained by GSE or GSE Sub in
connection with the execution, delivery and performance of this Agreement, the
Related Agreements to which GSE or GSE Sub is a party or the Plan of Merger or
the consummation of the transactions contemplated hereby or thereby.
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3.3. GSE STOCK ISSUABLE IN MERGER
The GSE Shares to be issued in connection with the Merger have been
duly authorized and, when issued in accordance with the terms of the Plan of
Merger, will be validly issued, fully paid and nonassessable.
3.4. GSE SEC DOCUMENTS
GSE's SEC Documents do not, as of their respective dates, contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. GSE has filed
with the SEC all reports required to be filed by it during the last twelve
months, including all current reports on Form 8-K.
3.5. BROKERS AND FINDERS
GSE and GSE Sub shall be solely responsible for, and shall indemnify
and hold harmless each other Party with respect to, any Liability incurred by
GSE, GSE Sub or any of its respective officers, directors or employees in favor
of any broker, finder or financial advisor for any brokerage or finders fees or
commissions in connection with the transactions contemplated in this Agreement,
the Related Agreements or the Plan of Merger.
ARTICLE 4.
COVENANTS
4.1. CONDUCT OF ERUDITE'S BUSINESS PENDING THE CLOSING
Except as otherwise agreed to by GSE in writing, Erudite covenants and
agrees that, between the date hereof and the Closing, Erudite shall:
(a) conduct its business in the ordinary course consistent with past
practice and take all reasonable actions to preserve its customer
relationships;
(b) not incur any Liabilities, absolute or contingent, except in the
ordinary course of its business consistent with past practice;
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(c) not fail to maintain in full force and effect the insurance
customarily maintained by it for its business;
(d) not enter into any agreement or contract which is material to its
business, operations or financial condition, except in the ordinary course of
its business consistent with past practice;
(e) not encumber or pledge or otherwise dispose of any Properties,
except in the ordinary course of its business consistent with past practice;
(f) not declare or pay any dividend or make any distribution on any
shares of its capital stock, issue any shares of its capital stock, repurchase
or redeem any shares of its capital stock, amend or modify its certificate or
articles of incorporation or bylaws or take any other action outside the
ordinary course of its business;
(g) not enter into any swap, hedge, forward or similar transaction;
(h) not make any loan or other advance to any of its employees or
Affiliates or any employees of any Affiliate other than in the ordinary course
of its business to pay ordinary and reasonable business expenses to be incurred
by such Person on Erudite's behalf;
(i) not issue, grant or authorize the issuance or grant of any Rights
or effect any recapitalization, reclassification, stock dividend, stock split
or like change in capitalization;
(j) not merge with any other Person, permit any other Person to merge
into it, consolidate or consolidate with any Person, or acquire control over
any Person;
(k) not liquidate, sell, license, mortgage, lease or otherwise
encumber or dispose of any material assets, except sales of inventory in the
ordinary course of its business, or acquire or lease any material assets, or
make any capital expenditures;
(l) not enter into any material contract, agreement or other
arrangement that is not terminable at will, with less than 30 days notice,
without payment or penalty;
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(m) not increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees; not enter or modify any employment or
severance agreement; or not enter into or modify (except as may be required by
applicable law) any pension, retirement, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement; or
(n) not agree to do any of the matters specified in clauses (b)
through (m) of this Section 4.1.
4.2. OTHER OFFERS.
Neither Erudite nor any Erudite Stockholder shall solicit or encourage
inquiries or proposals with respect to, furnish any information relating to or
participate in any negotiations or discussions concerning, or enter into any
transaction involving, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, Erudite, or any
business combination with Erudite, except as contemplated in the Plan of
Merger. Erudite will instruct its officers, directors, agents and Affiliates,
to refrain from doing any of the above. Erudite will notify GSE immediately if
any such inquiries or proposals are received by, any such information is
received from, or any such negotiations or discussions are sought to be
initiated with it or any of the other persons or entities referred to above.
Erudite and each of the Erudite Stockholders acknowledges and agrees that any
remedy at law for breach of the foregoing covenant will be inadequate, and in
addition to any other relief which may be available, GSE will be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damages and without regard to the adequacy of any remedy at law.
4.3. CUSTOMER NOTICE; BUYER'S ACCESS
Following the execution and delivery of this Agreement, and prior to
the Closing, Erudite and GSE shall jointly notify all customers of Erudite
regarding the Merger in a manner to be mutually agreed upon. Erudite will (a)
continue to provide to GSE and its authorized representatives reasonable access
during normal business hours to Erudite's books, records and
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Properties, (b) make reasonably available additional personnel of Erudite
having knowledge of such matters to be investigated by GSE during normal
business hours and at their normal places of work, and (c) furnish to GSE
promptly upon request such generally available financial and operating data and
other information relating to Erudite's business and Properties as GSE may
reasonably request. GSE shall conduct its investigation in such a manner as to
minimize any disruption of Erudite's normal business operations.
4.4. COMPLIANCE
The Parties covenant and agree that between the date hereof and the
Closing, none of them shall take any action that would cause their
representations and warranties made herein not to be true and correct, in all
material respects, as of such Closing. Erudite and the Erudite Stockholders
shall promptly inform GSE in writing of (i) any matter that has caused the
representations and warranties of Erudite or the Erudite Stockholders to become
untrue or incorrect in any material respect or (ii) any materially adverse
change in Erudite's financial condition, results of operations, business or
prospects since March 31, 1995. GSE and GSE Sub shall promptly inform Erudite
in writing of any matter that has caused the representations and warranties of
GSE to become untrue or incorrect in any material respect.
4.5. BEST EFFORTS
Subject to the terms and conditions of this Agreement, each Party shall
use its reasonable best efforts and shall cooperate with the other Parties as
promptly as practicable to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations or otherwise to consummate, as soon as practicable, the
transactions contemplated hereby and by the Related Agreements and by the Plan
of Merger.
4.6. APPROVALS OF THIRD PARTIES
Erudite and each of the Erudite Stockholders shall use all reasonable
efforts to secure approvals and consents of any third parties necessary to the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements and by the Plan of Merger and to obtain any consent or
approval required for the continued effectiveness after the
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Closing of any contract, agreement or customer relationship to which Erudite is
a party.
4.7. PERSONNEL.
(a) Upon the Closing, GSE Sub shall assume the obligations of Erudite
to lease from Emcor, Inc. the services of the persons who currently work for
Erudite on the terms currently in effect. At such time as GSE Sub deems
appropriate after the Closing, GSE Sub shall have the right to cancel such
lease without any further liability or consideration thereunder and, except to
the extent otherwise required by applicable law or any applicable collective
bargaining agreement, offer employment to all such persons at his or her
existing base salary or hourly wage levels as Previously Disclosed. Such
Erudite employees who accept such employment are herein referred to as the
"Continuing Employees." Emcor, Inc. hereby agrees to the matters set forth in
this Section 4.7.
(b) For a period of three years following the Closing Date, no Erudite
Stockholder shall, without the prior written consent of GSE, solicit for
employment or employ any person who was an employee of Erudite as of the
Closing or whose services were leased by Erudite as described in the first
sentence of Section 4.7(a) hereof.
(c) After the Closing, GSE or GSE Sub shall provide to each Continuing
Employee a benefits package that taken as a whole is no less favorable to such
Continuing Employee than either of the following (at GSE's election): (i) the
benefits package provided to such Continuing Employee as of the Closing or (ii)
the benefits package provided to other similarly situated U.S. employees of GSE
and its subsidiaries. Continuing Employees shall not be subject to
pre-existing condition exclusions and shall be credited with service credit for
all purposes under all employee benefit plans applicable to such Continuing
Employees (other than for benefit accrual purposes under any pension plans
maintained by GSE), including but not limited to vacation/holiday time and sick
days, equal to the service credit he or she had under the corresponding Erudite
or Emcor, Inc. benefit plans. With respect to any personnel who continue to be
leased by GSE Sub from Emcor, Inc. after the Closing ("Leased Employees"),
Emcor shall make a "matching" contribution to the 401(k) plan it maintains for
such Leased Employees for each such Leased Employee in an amount equal to the
<PAGE> 32
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matching contribution such Leased Employee would have received under GSE's
employer matching policies if such Leased Employee had been a Continuing
Employee, calculated with respect to the period of time after the Closing that
such person is a Leased Employee, and GSE or GSE Sub shall promptly reimburse
Emcor, Inc. for such contributions.
(d) GSE shall establish a $150,000 hiring bonus pool to be paid to
key Continuing Employees consistent with standard industry practices. Such
pool shall be allocated in a manner determined by GSE after consultation with
senior management of Erudite. GSE may require as a condition to the payment of
any hiring bonus that the recipient thereof enter into an employment agreement
in form and substance reasonably satisfactory to GSE. The hiring bonuses to be
paid pursuant to the Employment Agreements shall be credited toward this
$150,000 bonus pool amount.
(e) Nothing in this Section 4.6 shall create any third-party rights or
require GSE or GSE Sub to employ any person for any specified period of time.
4.8. BOARD OF DIRECTORS REPRESENTATION
At or prior to the first meeting of the Board of Directors of GSE
after the Closing, GSE shall take all necessary action to elect or appoint
Eugene Loveridge to its Board of Directors, who shall serve in accordance with
GSE's Certificate of Incorporation and Bylaws.
4.9. REDEMPTION AGREEMENT
Effective upon consummation of the Merger, Erudite and Messrs.
Loveridge, Masterson, Austin and Gray hereby terminate the Redemption Agreement
dated as of April 13, 1995 by and among Erudite and Messrs. Loveridge,
Masterson, Austin and Gray.
4.10. RULE 144
GSE shall timely file the reports required to be filed by it under the
Securities Act and the Exchange Act of 1934, and shall take such further action
as any holder of GSE Shares may reasonably request to enable such holder to
sell GSE Shares within the limitations of the registration exemption provided
by Rule 144.
<PAGE> 33
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4.11. TAX TREATMENT
The Parties intend that the Merger constitute a reorganization within
the meaning of Code Section 368(a) and have included the receipt of an opinion
of counsel (the "Tax Opinion") to that effect as a condition under Section 6.2
hereof. Accordingly, each Party shall treat the Merger for all tax purposes as
such a reorganization and shall not take any action inconsistent with the
representations and assumptions set forth in the Tax Opinion unless such Party
has obtained competent counsel that such action will have no more than an
insubstantial effect on the qualification of the Merger as a reorganization
under Code Section 368(a).
ARTICLE 5.
INDEMNIFICATION
5.1. INDEMNIFICATION BY ERUDITE STOCKHOLDERS
Subject to the limitations set forth in Sections 5.5 and 5.6 hereof,
the Erudite Stockholders hereby jointly and severally (except that with respect
to Sections 2.2, 2.5(a), 2.22 and 2.23 hereof (the "Authority Reps"), the
Erudite Stockholders hereby severally) indemnify and hold harmless GSE, GSE Sub
and each of its respective affiliates, directors, officers, employees and
agents (the "GSE Indemnified Persons") from and against any and all Damages
arising out of, based upon or with respect to:
(i) any breach of any representation or warranty made by
Erudite or any of the Erudite Stockholders in this Agreement, or the
Plan of Merger or any material misrepresentation in or omission from
any certificate, schedule, exhibit or other document delivered to GSE
or GSE Sub pursuant to this Agreement or the Plan of Merger; or
(ii) any failure to perform any material covenant, agreement
or undertaking on the part of Erudite or the Erudite Stockholders
contained in this Agreement or the Plan of Merger.
<PAGE> 34
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5.2. INDEMNIFICATION BY GSE
Subject to the limitations set forth in Section 5.5 hereof, GSE shall
indemnify and hold harmless each Erudite Stockholder from and against any and
all Damages arising out of or based upon or with respect to:
(i) any breach of any representation or warranty made by GSE in
this Agreement or the Plan of Merger or any material misrepresentation
in or omission from any certificate, schedule, exhibit or other
document delivered to Erudite pursuant to this Agreement or the Plan of
Merger; or
(ii) any failure to perform any material covenant, agreement
or undertaking on the part of GSE and GSE Sub contained in this
Agreement or the Plan of Merger.
5.3. RETENTION OF DOCUMENTS
From the date hereof, each Party shall retain all documents with
respect to all matters pertaining to Erudite as to which indemnity may be
sought under this Agreement (except to the extent that such documents in the
possession of Erudite or the Erudite Stockholders at the Closing may be
transferred at the Closing to the possession of GSE). Before disposing of or
otherwise destroying any such documents, the possessor thereof shall give
reasonable notice to such effect and deliver to any Indemnitor (as defined in
Section 5.4 hereof), at such Indemnitor's expense and upon its request, a copy
of any such documents.
5.4. INDEMNIFICATION PROCEDURES
(a) Promptly after the occurrence of any event or the discovery of any
facts which could give rise to a right to indemnification under this Article 5,
the person who may be entitled to indemnification (the "Indemnified Person")
shall promptly give notice to the Party required to indemnify Indemnified
Person (the "Indemnitor"), in writing, describing in reasonable detail the
facts and circumstances giving rise to the claim for indemnification, the
Damages suffered or incurred, including the amount of such Damages, if known,
or as estimated, and the provisions of this Agreement relating to such claim
for indemnification. The failure of an Indemnified Person to give prompt
<PAGE> 35
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notice in the manner provided herein shall not relieve the Indemnitor of its
obligations under this Article 5, except to the extent that the Indemnitor is
actually prejudiced by such failure to give prompt notice or as provided in
Section 5.5 (c) hereof. Upon receipt of a notice of a claim for
indemnification, the Indemnitor shall promptly pay to the Indemnified Person
the amount of such Damages in accordance with and subject to the provisions of
this Article 5; provided, however, that no such payment shall be due during any
period in which the Indemnitor is contesting in good faith either its
obligation to make such indemnification or the amount of Damages payable.
(b) If any Claim is instituted by a third party with respect to which
an Indemnified Person intends to, or may be entitled to, claim a right to
indemnification under this Article 5, the Indemnified Person shall promptly
notify the Indemnitor of such Claim. The failure of an Indemnified Person to
give notice in the manner provided herein shall not relieve the Indemnitor of
its obligations under this Article 5, except to the extent that the Indemnitor
is actually prejudiced by such failure to give notice. The Indemnitor shall
have the right to control, at its expense and through counsel of its choosing,
the defense of any such third party Claim, but may compromise or settle the
same only with the consent of the Indemnified Person, which consent shall not
be unreasonably withheld. The Indemnified Person shall cooperate fully with
the Indemnitor and its counsel in the defense of any such third party Claim and
shall make available to the Indemnitor any books, records or other documents
within its control that are necessary or appropriate for such defense. After
providing notice of its intent to exercise its right to control such defense,
the Indemnitor shall not be responsible for any legal or other expenses
subsequently incurred by the Indemnified Person in connection therewith;
provided, however, that an Indemnified Person shall have the right to control
its defense of any such third party Claim and retain its own counsel, with the
reasonable fees and expenses to be paid by the Indemnitor, if such Indemnitor
shall have consented to such retention of counsel or the Indemnified Party
shall have reasonably concluded that representation of such Indemnified Person
by the counsel retained by the Indemnitor would be inappropriate due to actual
or potential differing interests between such Indemnified Person and any other
party represented by such counsel in such proceeding.
<PAGE> 36
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(c) At no time may an Indemnitor assert as a defense to its obligation
to provide indemnification as set forth in this Article 5 that the Indemnified
Person or any of its employees or agents, including any former employees of the
Indemnitor who became employees or agents of the Indemnified Person, had any
knowledge of the matter to which the claim for indemnification relates, or
conducted any investigation relating thereto prior to the Closing, and each
Party hereby irrevocably waives all such defenses.
5.5. LIMITATIONS ON RECOVERIES
Notwithstanding anything to the contrary contained herein,
(a) no indemnification Claim shall be enforced against any Indemnitor
to the extent any insurance proceeds or other recoveries actually are received
by the Indemnified Person with respect to any Damages otherwise payable by the
Indemnitor;
(b) No indemnification Claim under this Article 5 against any Erudite
Stockholder on the one hand, nor GSE on the other, shall be enforced against
such Indemnitor to the extent that such claim for Damages, together with any
prior indemnification payments made by such Indemnitor pursuant to this Article
5 exceeds such Indemnitor's Indemnification Cap. For purposes of the preceding
sentence, the "Indemnification Cap" for each of Messrs. Loveridge and Masterson
shall be $7,500,000, for each of Messrs. Austin, Gray and Fairclough shall be
$500,000, and for GSE shall be $2,500,000.
(c) No Claim for indemnification under this Article 5 shall be valid
against an Indemnitor unless a written notice pursuant to Section 5.4 of this
Agreement (a "Claims Notice") has been delivered to such Indemnitor with
respect to such Claim. Indemnification obligations shall only apply where such
Claims Notice is received on or prior to (i) the date of the audit report
relating to GSE's 1996 consolidated financial statements as to any
indemnification Claim that is based on matters addressed or resolved in such
audit or (ii) the first anniversary of the date of execution of this Agreement
as to any other indemnification Claims.
<PAGE> 37
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5.6. REMEDIES FOR DAMAGES
(a) The Indemnified Party's right to indemnification under Article 5
of this Agreement constitutes the Indemnified Party's sole remedy for damages
with respect to this Agreement or the Plan of Merger or the breach hereof or
thereof.
(b) Each Erudite Stockholder shall satisfy any indemnification
obligation to GSE hereunder that is based on a breach of any of the Authority
Reps by transferring for no additional consideration to GSE for cancellation
thereof such number (rounded to the next whole number) of GSE Shares that has
an aggregate Assigned Value (as defined below) equal to the amount of such
indemnification obligation; provided that if such Erudite Stockholder (or its
Affiliates) does not hold sufficient GSE Shares to satisfy such indemnification
obligation, such Erudite Stockholder shall pay the remainder of such
indemnification obligation to GSE in immediately available funds. As used in
this Section 5.6, "Assigned Value" of a GSE Share shall mean the closing sales
price reported on the Nasdaq National Market on the date the Merger becomes
effective, subject to appropriate adjustment to reflect any stock splits, stock
dividends or similar recapitalization transactions.
(c) Each Erudite Stockholder shall satisfy any indemnification
obligation to GSE hereunder that is not based on a breach of any of the
Authority Reps by transferring for no additional consideration to GSE for
cancellation thereof the Applicable Number of GSE Shares. As used in this
Section 5.6, "Applicable Number of GSE Shares" shall mean the lesser (rounded
down to the next whole number) of (i) the number obtained by dividing the
amount of such indemnification obligation by the Assigned Value and (ii) the
difference between ten percent of the total number of GSE Shares received by
such Erudite Stockholder upon consummation of the Merger minus the number of
Applicable Shares required to be delivered by such Erudite Stockholder to GSE
under this Section 5.6(c) in satisfaction of any previous indemnification
obligations without giving effect to the last sentence hereof (subject in both
cases to appropriate adjustment to reflect any stock splits, stock dividends or
similar recapitalization transactions); and "Fair Market Value" shall mean the
last reported closing sales price for one GSE Share on the market that
constitutes the principal trading market for the GSE Shares at such
<PAGE> 38
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time, or if no such closing price is then reported with regard to the GSE
Shares, the average of the last reported closing bid and asked prices for one
GSE Share on such market at such time, or if no closing sales price or closing
bid and asked prices are then reported with regard to the GSE Shares, the fair
market value of one GSE Share as determined by GSE's Board of Directors in good
faith. In the event an Erudite Stockholder (or his Affiliates) has sold or
otherwise disposed of any GSE Shares after the date hereof so that such Erudite
Stockholder (and his Affiliates) do not own sufficient GSE Shares to satisfy
his obligations under this Section 5.6(c), such Erudite Stockholder shall in
lieu of delivering such sold or disposed GSE Shares, pay to GSE an amount in
immediately available funds equal to the proceeds received by such Erudite
Stockholder (or his Affiliates) from such sale or disposition or in the event
such GSE Shares were sold or disposed of as a gift, in a transaction in which
the holder did not receive any proceeds or in a transaction that was not at
arm's length, the Fair Market Value of such GSE Shares on the date of their
sale or disposition.
ARTICLE 6.
CLOSING; CONDITIONS
6.1. CLOSING
The transactions contemplated by this Reorganization Agreement and the
Plan of Merger shall be consummated at a Closing to be held on May 16, 1996 at
the offices of Arnold & Porter, 555 Twelfth Street, N.W., Washington, D.C.
20004 or at such other place and on such other date as GSE and Erudite shall
agree. All actions taken at the Closing shall be deemed to occur
simultaneously, and no document shall be deemed to be delivered until all
documents are delivered. Unless otherwise indicated, each document delivered
at the Closing shall be dated as of the date of the Closing.
6.2. CONDITIONS TO THE OBLIGATIONS OF GSE AND GSE SUB
The obligations of GSE and GSE Sub under this Agreement and the Plan of
Merger are subject to the satisfaction at or prior to Closing of the following
conditions, but compliance with any such conditions may be waived by GSE:
(a) The representations and warranties of Erudite and the Erudite
Stockholders contained in this
<PAGE> 39
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Agreement shall be true and correct, in all material respects, at and as of the
Closing, and Erudite and the Erudite Stockholders shall have performed and
complied with all the covenants and agreements and satisfied all the
conditions, in all material respects, required by this Agreement to be
performed or complied with or satisfied by Erudite and the Erudite Stockholders
at or prior to the Closing. GSE shall have received a certificate signed by
Eugene Loveridge and Daniel Masterson stating that, to the best of their
knowledge, the conditions specified in this Section 6.2(a) have been satisfied.
(b) No inquiry, action or proceeding which, in the opinion of GSE, is
material shall have been instituted to restrain or prohibit the carrying out of
the transactions contemplated by this Agreement or any of the Related
Agreements or the Plan of Merger, or to challenge the validity of such
transactions or any part thereof, or seeking damages on account or as a result
thereof.
(c) There shall have been no material adverse change in the financial
condition, results of operations, business or prospects of Erudite since March
31, 1995.
(d) Except as provided in the last sentence of Section 2.5(e) hereof,
all required consents and approvals shall have been obtained, all other
requirements prescribed by law which are necessary to the consummation of the
transactions contemplated hereby, by any Related Agreement or by the Plan of
Merger shall have been obtained, and all statutory waiting periods in respect
thereof shall have expired.
(e) No event shall have occurred that, in the reasonable opinion of
GSE, may prevent the Merger from being accounted for under the pooling of
interests method of accounting, and GSE shall have received an opinion or other
written advice from Cooper & Lybrand L.L.P., in form and substance satisfactory
to GSE, to the effect that the Merger will be accounted for under the pooling
of interests method of accounting.
(f) GSE shall have received an opinion of Arnold & Porter to the
effect that the Merger should constitute a reorganization within the meaning of
Section 368(a) of the Code.
<PAGE> 40
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(g) GSE shall have received an opinion of counsel from Kimball, Parr,
Waddoups, Brown & Gee, counsel to Erudite, addressing the matters set forth in
Exhibit H.
(h) Messrs. Loveridge, Masterson, Gray and Austin shall have executed
and delivered to GSE the Employment Agreements.
(i) Each of the Erudite Stockholders other than Mr. Fairclough shall
have executed and delivered to GSE the Non-Disclosure, Assignment and
Non-Solicitation Agreements, and each of the Erudite Stockholders shall have
executed and delivered to GSE the Releases.
(j) Erudite shall have delivered to GSE a duly executed letter, each
substantially in the form attached hereto as Exhibit I, from each Person who
may constitute an "affiliate" of Erudite within the meaning of Rule 144(a) of
the SEC.
(k) GSE shall have received from Erudite and the Erudite Stockholders
such other documents confirming the accuracy and completeness of the
representations and warranties of Erudite and the Erudite Stockholders as GSE
may reasonably request.
6.3. CONDITIONS TO THE OBLIGATIONS OF ERUDITE AND THE ERUDITE STOCKHOLDERS
The obligations of Erudite and the Erudite Stockholders under this
Agreement and the Plan of Merger are subject to the satisfaction at or prior to
Closing of the following conditions, but compliance with any such conditions
may be waived by Erudite:
(a) The representations and warranties of GSE contained in this
Agreement shall be true and correct, in all material respects, at and as of the
Closing, and GSE and GSE Sub shall have performed and complied with all the
covenants and agreements and satisfied all the conditions, in all material
respects, required by this Agreement to be performed or complied with or
satisfied by GSE and GSE Sub at or prior to the Closing. Erudite shall have
received a certificate signed by an executive officer of GSE stating that, to
the best of his knowledge, the conditions specified in this Section 6.3(a) have
been satisfied.
<PAGE> 41
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(b) No order, judgment or decree shall have been issued restraining or
prohibiting the carrying out of the transactions contemplated by this
Agreement, any of the Related Agreements or the Plan of Merger or invalidating
any of such transactions.
(c) There shall have been no material adverse change in the
consolidated financial condition, results of operations, business or prospects
of GSE since December 31, 1995.
(d) Except as provided in the last sentence of Section 2.5(e) hereof,
all required consents and approvals shall have been obtained, all other
requirements prescribed by law which are necessary to the consummation of the
transactions contemplated hereby, by any Related Agreement or by the Plan of
Merger shall have been obtained, and all statutory waiting periods in respect
thereof shall have expired.
(e) GSE shall have received an opinion of Arnold & Porter to the
effect that the Merger should constitute a reorganization within the meaning of
Section 368(a) of the Code.
(f) Erudite shall have received an opinion of counsel from Thomas K.
Milhollan, corporate counsel to GSE, addressing the matters set forth in
Exhibit J.
(g) GSE shall have executed and delivered the Employment Agreements
and the Registration Rights Agreement.
(h) Erudite shall have received from GSE and GSE Sub such other
documents confirming the accuracy and completeness of the representations and
warranties of GSE and GSE Sub as Erudite may reasonably request.
ARTICLE 7.
MISCELLANEOUS
7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Subject to Section 5.5(c) hereof, the representations, warranties and
covenants contained in this Agreement shall survive the Closing and any and all
investigations and inquiries by the Parties made prior to the Closing Date in
connection with this Agreement and the transactions contemplated hereby. No
Claim may be made for breach of any such
<PAGE> 42
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representation, warranty or covenant except in accordance with the provisions
of Article 5. The representations, warranties, covenants and agreements of the
Parties contained in this Agreement and the Related Agreements shall not be
affected by or diminished in any way by any investigation (or failure to
investigate) made at any time by or on behalf of the Party for whose benefit
such representations, warranties, covenants and agreements were made.
7.2. AMENDMENT AND TERMINATION
This Reorganization Agreement may be amended, supplemented or
terminated at any time by the mutual agreement of the Parties. Any such
amendment, supplement or termination must be in writing and be executed by all
Parties.
7.3. NO WAIVER OF RIGHTS
No failure or delay on the part of any Party in the exercise of any
power or right hereunder shall operate as a waiver thereof. No single or
partial exercise of any right or power hereunder shall operate as a waiver of
such right or of any other right or power. The waiver by any Party of a breach
of any provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach hereunder. All rights and remedies
existing under this Agreement are cumulative with, and not exclusive of, any
rights or remedies otherwise available.
7.4. EXPENSES
Each Party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated in this Reorganization
Agreement, the Related Agreements and the Plan of Merger, including fees and
expenses of its own financial consultants, accountants and counsel. Up to
$30,000 of attorneys fees and expenses and up to $440,000 of the investment
advisory fees and expenses of Geneva described in Section 2.19 hereof incurred
by Erudite in connection with the transactions contemplated hereby and by the
Plan of Merger shall be paid by Erudite without such payment constituting a
breach of any provision hereof. All other costs and expenses incurred by
Erudite and the Erudite Stockholders in connection with the transactions
contemplated hereby and by the Plan of Merger shall be born and paid by the
Erudite Stockholders in such
<PAGE> 43
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proportions as they may agree among themselves and none of Erudite, GSE or GSE
Sub shall have any Liability therefor.
7.5. ENTIRE AGREEMENT; SUCCESSORS; THIRD PARTIES
This Reorganization Agreement, the Related Agreements and the Plan of
Merger contain the entire agreement between the Parties with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral, other
than documents referred to herein or therein. The terms and conditions of this
Reorganization Agreement, the Related Agreements and the Plan of Merger shall
inure to the benefit of and be binding upon the Parties hereto and thereto and
their respective successors and permitted assigns. Except as specifically set
forth herein, in any Related Agreement or in the Plan of Merger, nothing in
this Reorganization Agreement, any Related Agreement or the Plan of Merger,
expressed or implied, is intended to confer upon any party, other than the
Parties hereto and thereto, and their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities.
7.6. NO ASSIGNMENT
No Party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other Person.
7.7. NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, by
telecopier or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to GSE or GSE Sub:
GSE Systems, Inc.
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: William E. Kuhlmann
Telecopier: (410) 312-3599
<PAGE> 44
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with a required copy to:
Robert B. Ott, Esq.
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Telecopier: (202) 942-5999
If to Erudite:
Erudite Software & Consulting, Inc.
406 West 10600 South
Suite 460
South Jordon, Utah 84095
Attention: Eugene Loveridge
Telecopier: (801) 576-8815
With a required copy to:
Richard G. Brown, Esq.
Kimball, Parr, Waddoups, Brown & Gee
Suite 1300
185 South State Street
Salt Lake City, Utah 84147-0018
Telecopier: (801) 532-7750
If to any of the Erudite Stockholders, to the address set forth beneath the
signature of such Erudite Stockholder on the signature page hereof.
All such deliveries shall be deemed effective when received by the Persons
entitled to such receipt or when delivery has been attempted but refused by
such Person or Persons. Any Party may change the Persons or addresses to which
such deliveries shall be made with respect to such Party by delivering notice
thereof to the other Parties hereto in accordance with this Section 7.7.
7.8. CAPTIONS
The captions contained in this Reorganization Agreement are for
reference purposes only and are not part of this Reorganization Agreement, the
Related Agreements and the Plan of Merger.
7.9. COUNTERPARTS
This Reorganization Agreement, the Related Agreements and the Plan of
Merger may be executed in any number of counterparts, and each such counterpart
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shall be deemed to be an original instrument, but all such counterparts
together shall constitute but one agreement.
7.10. GOVERNING LAW
This Reorganization Agreement and each of the Related Agreements and
the Plan of Merger shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and entirely to be
performed within such jurisdiction, except to the extent the Delaware General
Corporation Law, the Utah Revised Business Corporation Act or federal law may
be applicable.
7.11. INVALID PROVISIONS
If any provision of this Agreement, any of the Related Agreements or
the Plan of Merger is held to be illegal, invalid or unenforceable under
present or future laws, such provision shall be fully severable. This
Agreement, such Related Agreement or the Plan of Merger, as the case may be
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part of thereof and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance therefrom.
7.12. FURTHER ASSURANCES
Subject to the terms and conditions herein provided, each of the
Parties hereto shall use reasonable efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement, the
Related Agreements and the Plan of Merger and under applicable law to
consummate and make effective the transactions contemplated by this Agreement,
the Related Agreements and the Plan of Merger.
7.13. PUBLICITY
Any general notices, releases, statements or communications to
employees, suppliers, distributors or customers of Erudite or to the general
public or the press relating to this Agreement, the Related
<PAGE> 46
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Agreements and the Plan of Merger and the transactions contemplated hereby and
thereby shall be made only at such times and in such manner as may be mutually
agreed upon by GSE and Erudite; provided, however, that each Party hereto shall
be entitled to issue such press releases and to make such public statements as
are, in the opinion of its legal counsel, required by applicable law or the
rules of any market in which its stock trades.
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed as of the day
and year first above written.
GSE SYSTEMS, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
GSE ERUDITE SOFTWARE, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
ERUDITE SOFTWARE & CONSULTING, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE> 47
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ERUDITE STOCKHOLDERS:
-------------------------------
Name: Eugene Loveridge
Address:
----------------------
-------------------------------
Telecopier:
-------------------
-------------------------------
Name: Daniel Masterson
Address:
----------------------
-------------------------------
Telecopier:
-------------------
-------------------------------
Name: Douglas Austin
Address:
----------------------
-------------------------------
Telecopier:
-------------------
-------------------------------
Name: Gary Gray
Address:
----------------------
-------------------------------
Telecopier:
-------------------
-------------------------------
Name: Dennis Fairclough
Address:
----------------------
-------------------------------
Telecopier:
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As to Section 4.7 only:
EMCOR, INC.
By:
--------------------------
Name:
-------------------------
Title:
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AGREEMENT AND PLAN OF MERGER OF
ERUDITE SOFTWARE & CONSULTING, INC.
WITH AND INTO GSE ERUDITE SOFTWARE, INC.
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of May 17,
1996, by and between Erudite Software & Consulting, Inc. ("Erudite"), a Utah
corporation having its principal executive office at Suite 460, 406 West 10600
South, South Jordan, Utah 84095, and GSE Erudite Software, Inc. ("GSE Sub"), a
Delaware corporation having its principal executive office at 8930 Stanford
Boulevard, Columbia, Maryland 21045, and joined in by GSE Systems, Inc.
("GSE"), a Delaware corporation having its principal executive office at 8930
Stanford Boulevard, Columbia, Maryland 21045.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of GSE, GSE Sub and Erudite
deem the merger of Erudite with and into GSE Sub, under and pursuant to the
terms and conditions herein set forth or referred to, desirable and in the best
interests of the respective corporations and their respective shareholders; and
WHEREAS, the Board of Directors of Erudite and its shareholders have
approved this Plan of Merger and an Agreement and Plan of Reorganization dated
of even date herewith ("Reorganization Agreement") in accordance with the laws
of the State of Utah, and the Board of Directors of GSE Sub, and GSE as the
sole stockholder of GSE Sub, have approved this Plan of Merger and the
Reorganization Agreement in accordance with the laws of Delaware;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
MERGER
Subject to the terms and conditions of this Plan of Merger, at the
Effective Time (as hereinafter
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defined), Erudite shall be merged with and into GSE Sub, pursuant to the
provisions of, and with the effect provided in, Part 11 of the Utah Revised
Business Corporation Act, Utah Code Section 16-10a-1101 et seq. and 8 Del. Code
Ch. 1, subchapter IX (the "Merger"). At the Effective Time, the separate
existence of Erudite shall cease and GSE Sub, as the surviving entity, shall
continue unaffected and unimpaired by the Merger. (GSE Sub as existing at and
after the Effective Time being hereinafter sometimes referred to as the
"Surviving Corporation.")
ARTICLE II
CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation and the Bylaws of GSE Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, in each case until
amended in accordance with their terms and applicable law.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
At the Effective Time, the Board of Directors and officers of the
Surviving Corporation shall consist of the persons, serving in the capacities
indicated opposite their names, listed on Schedule A attached hereto.
ARTICLE IV
CAPITAL
The shares of capital stock of the Surviving Corporation issued and
outstanding immediately prior to the Effective Time shall, at the Effective
Time, continue to be issued and outstanding.
ARTICLE V
CONVERSION AND EXCHANGE OF ERUDITE
SHARES; FRACTIONAL SHARE INTERESTS
1. At the Effective Time, each share of the common stock of Erudite,
no par value per share ("Erudite Common Stock"), outstanding immediately prior
to the Effective Time (except as provided in Paragraphs 2, 6 and 7 of this
Article) shall by virtue of the Merger be converted into 84.07 shares of common
stock, par value $.01 per share, of GSE ("GSE Common Stock").
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2. At the Effective Time, all shares of Erudite Common Stock held in
the treasury of Erudite shall be canceled and no cash, stock or other property
shall be delivered in exchange therefor.
3. At and after the Effective Time, each holder of a certificate or
certificates theretofore representing outstanding shares of Erudite Common
Stock (a "Certificate") may surrender the same to GSE or its agent for
cancellation, and each such holder shall be entitled upon such surrender to
receive in exchange therefor (i) certificate(s) representing the number of
shares of GSE Common Stock to which such holder is entitled as provided herein
and (ii) a check in an amount equal to the aggregate amount of cash to which
such holder is entitled to be paid pursuant to Paragraph 7 of this Article V,
without interest. Until so surrendered, each Certificate, after the Effective
Time, shall be deemed for all purposes to evidence ownership of the number of
shares of GSE Common Stock into which the shares represented by such
Certificate have been changed or converted as aforesaid. No dividends or other
distributions declared after the Effective Time with respect to GSE Common
Stock shall be paid to the holder of any unsurrendered Certificate. After the
surrender of a Certificate in accordance with this Article V, the record holder
of the GSE Common Stock shares represented by such Certificate shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to such
shares of GSE Common Stock. If any certificate for shares of GSE Common Stock
is to be issued in a name other than that in which a Certificate surrendered
for exchange is issued, the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and the person requesting
such exchange shall affix any requisite stock transfer tax stamps to the
Certificate surrendered or provide funds for their purchase or establish to the
reasonable satisfaction of GSE or its agent that such taxes are not payable.
4. The certificates representing shares of GSE Common Stock issued
pursuant to this Plan of Merger shall bear a legend substantially to the
following effect:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE
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SECURITIES LAW OF ANY JURISDICTION AND MAY NOT BE TRANSFERRED
UNTIL (A) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO OR (B) IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
5. At the Effective Time, the stock transfer books of Erudite shall be
closed and no transfer of Erudite Common Stock shall thereafter be made or
recognized. Any other provision of this Plan of Merger notwithstanding,
neither GSE or its agent nor any party to the Merger shall be liable to a
holder of Erudite Common Stock for any amount paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
6. In the event that prior to the Effective Time the outstanding
shares of GSE Common Stock shall have been increased, decreased or changed into
or exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in GSE's capitalization, all without GSE receiving
adequate consideration therefor, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of GSE stock to be
thereafter delivered pursuant to this Plan of Merger.
7. Notwithstanding any other provision hereof, each holder of shares
of Erudite Common Stock who would otherwise have been entitled to receive a
fraction of a share of GSE Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash in
an amount equal to such fractional part of a share of GSE Common Stock
multiplied by the closing price of GSE Common Stock on the Nasdaq National
Market (as reported by The Wall Street Journal, Eastern Edition, or other
authoritative source) on the last business day preceding the Effective Time. No
such holder shall be entitled to dividends, voting rights or any other
shareholder right in respect of any fractional share.
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ARTICLE VI
EFFECTIVE TIME OF THE MERGER
GSE Sub shall execute a certificate of merger and shall cause such
certificate to be delivered to the Delaware Secretary of State in accordance
with Section 252(c) of the Delaware General Corporation Law. GSE Sub also shall
execute articles of merger and cause such articles to be delivered to Utah's
Division of Corporations and Commercial Code in accordance with Utah Code
Sections 16-10a-1105 and 16-10a-1107. The Merger shall be effective
when both such certificate of merger and such articles of merger have been so
delivered (such date and time being herein referred to as the "Effective
Time").
ARTICLE VII
FURTHER ASSURANCES
If at any time the Surviving Corporation shall consider or be advised
that any further assignments, conveyances or assurances are necessary or
desirable to vest, perfect or confirm in the Surviving Corporation title to any
property or rights of Erudite, or to otherwise carry out the provisions hereof,
the proper officers and directors of Erudite, as of the Effective Time, and
thereafter the officers of the Surviving Corporation acting on behalf of
Erudite, shall execute and deliver any and all proper assignments, conveyances
and assurances, and do all things necessary or desirable to vest, perfect or
confirm title to such property or rights in the Surviving Corporation and
otherwise carry out the provisions hereof.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of GSE, GSE Sub and Erudite to effect the Merger as
herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Reorganization Agreement.
ARTICLE IX
TERMINATION
Notwithstanding anything contained in the Plan of Merger to the
contrary, and notwithstanding adoption hereof by the shareholders of Erudite,
this Plan of Merger may be terminated and the Merger abandoned as provided in
the Reorganization Agreement.
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ARTICLE X
MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time
prior to its Effective Time by mutual agreement of GSE, GSE Sub and Erudite.
Any such amendment or supplement must be in writing and approved by their
respective Boards of Directors or officers authorized thereby and, if required
by applicable law, by the shareholders of GSE Sub and/or Erudite.
2. Any notice or other communication required or permitted under this
Plan of Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the Articles herein are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in
accordance with the laws of Delaware applicable to the internal affairs of
Erudite and GSE Sub, except to the extent that application of the laws of Utah
are mandated by the Utah Revised Business Corporation Act.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement and Plan of Merger to be executed by their
duly authorized officers as of the day and year first above written.
GSE SYSTEMS, INC.
By
-----------------------
Name:
Title:
GSE ERUDITE SOFTWARE, INC.
By
-----------------------
Name:
Title:
ERUDITE SOFTWARE & CONSULTING, INC.
By
------------------------
Name:
Title:
<PAGE> 1
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 17, 1996
by and between GSE Systems, Inc., a Delaware corporation (the "Company"), and
Eugene D. Loveridge (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company has determined to employ the Employee as a Senior
Vice President; the Employee wishes to accept such employment; and the Company
and the Employee wish to provide herein the terms of the Employee's employment;
NOW, THEREFORE, IT IS AGREED THAT:
1. Agreement of Employment; Effective Date. The Company agrees to
employ the Employee, and the Employee agrees to serve the Company, as a Senior
Vice President, all upon the terms and conditions hereinafter set forth. Such
employment shall become effective upon the consummation of the merger of
Erudite Software & Consulting, Inc. with GSE Erudite Software, Inc. (the
"Effective Date").
2. Term. The employment of the Employee under this Agreement shall
be for a term of three (3) years from and after the Effective Date, subject to
renewal and extension as provided for in Paragraph 3 hereof. Such period of
employment, as from time to time renewed or extended as provided for in
Paragraph 3 hereof, is hereinafter referred to as the "Term."
3. Renewal. On the third anniversary of the Effective Date hereof
and each succeeding anniversary thereof (each a "Renewal Date"), this Agreement
shall be automatically renewed for an additional period of one (1) year, unless
at least one hundred twenty (120) days prior to such Renewal Date the Company
shall have given written notice to the Employee that such renewal shall not
take place or the Employee shall have given written notice to the Company that
such renewal shall not take place.
4. Duties. During the Term, the Employee shall perform the duties
of a Senior Vice President, all as
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set forth in the By-Laws of the Company and shall perform all other duties
typically performed by a senior executive officer of a corporation of the size
and nature of the Company. The Company agrees that it will assign to employee
only those duties of the type, nature and dignity normally assigned to a senior
executive officer of a corporation of the size and nature of the Company and
that Employee will have the full decisionmaking and other authority normally
conferred upon such an officer. The Employee agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company or any of its subsidiaries, and as a member of any committees of the
board of directors of any such corporations, and in one or more executive
positions of any of the Company's subsidiaries. The Employee agrees to devote
substantially all of his business time to the operation of the Company's
business.
5. Compensation. For the services rendered by the Employee to the
Company under this Agreement, the Company shall compensate the Employee as
follows:
(a) Base Salary. The Company shall pay the Employee for his
services an annual salary of $150,000 (after adjusting for any increases
therein, the "Base Salary") payable in accordance with the payroll practices of
the Company applicable to all employees. The Employee's Base Salary may be
increased by the Company from time to time but may not be decreased without the
Employee's prior written consent.
(b) Incentive Bonuses. The Compensation Committee of the
Board of Directors of the Company shall consider awarding the Employee annual
incentive bonuses during the Term and in determining whether to award any such
bonuses and, if any bonus is awarded, the amount thereof shall take into
account, among other factors, the Employee's performance during the past year
or other relevant periods, the overall performance of the Company and the
amount of incentive bonuses paid to the other senior executive officers,
including the chief executive officer, of the Company for comparable periods.
(c) Employee Benefits. The Employee shall be entitled to
receive, on the same basis as other executive personnel of the Company, group
employee benefits such as sick leave, group disability and health, life, and
accident insurance and similar indirect compensation which the Company may from
time to time extend to its personnel. The Company shall pay all
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premiums with regard to medical and dental insurance covering the Employee and
his immediate family and life insurance for the Employee.
(d) Automobile Allowance; Club Dues. The Company shall pay the
Employee an automobile allowance in the amount of $600 per month and shall
provide the Employee with a Company gasoline credit card for his use. The
Company shall pay the annual dues of the Employee to one health club.
(e) Withholding Taxes. All payments by the Company to the
Employee hereunder shall be less Social Security taxes and withholding taxes
for which the Employee is obligated and less any other taxes that may be
lawfully levied by any governmental authority which the Company may be required
by law from time to time to withhold.
6. Reimbursement. The Company shall reimburse the Employee for the
reasonable expenses incurred by him in connection with the performance of his
duties hereunder, including but not limited to, travel and entertainment
expenses, for which the Employee shall account to the company in a manner
sufficient to conform to Internal Revenue Service requirements.
7. Disability.
If, during the Term, the Employee suffers an illness or
incapacity of such a character as to prevent or preclude him from devoting
substantially full working time to his employment hereunder or otherwise from
carrying out any substantial portion of the normal and usual duties of his
employment hereunder for 180 days (whether or not consecutive) during any
twelve-month period, his services as an officer of the Company hereunder may be
terminated (a "Disability Termination") by the Company upon 30 days' prior
written notice to Employee. During the period of the Employee's disability and
until the expiration date of such 30 days' notice, the Employee shall continue
to earn all compensation provided herein as if he had not been disabled, such
compensation to be paid at the time, in the amounts, and in the manner provided
herein. Upon the termination of the Employee's services as an officer of the
Company under this Paragraph 7(b), the Employee shall remain an employee of the
Company for purposes of continued eligibility under the Company's Long-Term
Disability Plan but the obligations of the Company shall be limited to (i)
paying the Employee his Base Salary
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through the date of such termination and any other benefits that have fully
accrued and vested but not yet been paid as of such date; (ii) paying the
Employee any bonus for the then current calendar year, (iii) paying the
Employee disability compensation in accordance with its policies for the
payment of disability compensation to senior executive officers and (iv)
continuing to provide the Employee with any group health benefits for the
remainder of the Term to the extent permitted under the Company's group health
plan. Upon such a termination, the Employee shall also be entitled to all
applicable benefits under the Company's Long-Term Disability Plan.
8. Termination.
(a) Termination for Cause. The Company may terminate the
employment of the Employee hereunder if the Employee during the Term (i)
commits an act of intentional fraud with respect to the Company, (ii) is
convicted of any felony, (iii) continually fails to substantially perform his
duties under Paragraph 4 hereof (other than any such failure resulting from a
material breach of the obligations of the Company hereunder or the disability
of the Employee or any such failure occurring after any of the events
constituting "Good Reason" hereunder has occurred) for a period of ten (10)
days after receipt by the Employee of a written demand for substantial
performance has been delivered by the Company to Employee, which written demand
specifically identifies in reasonable detail the manner in which the Company
believes that the Employee has not substantially performed his duties
hereunder, or (iv) the material breach by the Employee of any of his
obligations under Paragraphs 10 or 11 hereof and in the case of an
unintentional breach of his obligations under Paragraph 10 hereof, the failure
of the Employee to correct such breach within sixty (60) days after the receipt
by the Employee of a written notice from the Company specifying in reasonable
detail the nature of such breach. Termination pursuant to this Paragraph 8(a)
shall be herein referred to as a "Termination for Cause." Notwithstanding the
foregoing, a Termination for Cause (other than pursuant to clause (ii) hereof)
shall not be effective unless and until the Employee has received reasonable
notice setting forth the reasons for the Company's intention to terminate him
pursuant to this Paragraph 8(a), the Employee has had an opportunity, together
with his counsel, to be heard before the Executive Committee of the Board of
Directors of the Company and to submit any
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materials or information to the Executive Committee that he views appropriate,
and the Executive Committee has issued a finding that, in the good faith
opinion of a majority of the Executive Committee, the Employee's conduct has
established a sufficient basis for a Termination for Cause. During the
pendency of such proceedings, the Executive Committee, by a majority vote, may
suspend the Employee from his duties hereunder with full compensation during
such period of suspension. Upon Termination for Cause, the Company shall have
no further obligation to pay the Employee's Base Salary or to provide any other
employee benefits hereunder except for any Base Salary or other benefits that
have fully accrued and vested but not been paid as of the effective date of
such termination.
(b) Termination Without Cause. At any time after the Effective
Date, the Company may terminate the employment of the Employee hereunder without
cause. Such termination shall be effective by providing the Employee with a
written notice of termination at least 90 days prior to the date of such
termination. Termination pursuant to this Paragraph 8(b) shall be herein
referred to as "Termination Without Cause." If the Company terminates the
Employee's employment under this Paragraph 8(b), the Company shall be obligated
to make the severance payments described in Paragraph 9 hereof.
(c) Termination by Employee. The Employee may terminate his
employment hereunder by providing the Company with a written notice of
termination at least 90 days prior to the effective date of such termination in
the case of a termination other than for Good Reason (as defined below) or 30
days prior to the effective date of such termination in the case of a
termination for Good Reason. If the Employee terminates his employment under
this Paragraph 8(c) other than for Good Reason, the Company shall have no
further obligation to pay the Employee's Base Salary or to provide any other
employee benefits hereunder except for any Base Salary or other benefits that
have fully accrued and vested but not been paid as of the effective date of
such termination. If the Employee terminates his employment under this
Paragraph 8(c) for Good Reason (a "Termination for Good Reason"), the Company
shall be obligated to make the severance payments described in Paragraph 9
hereof. As used herein, "Good Reason" shall mean the occurrence of any of the
following: (i) the material breach by the Company of any of its agreements set
forth herein and the failure of the Company to correct such breach within
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thirty (30) days (ten (10) days in the case of a breach of any of the Company's
agreements set forth in Paragraph 5(a) or (b) hereof) after the receipt by the
Company of a written notice from the Employee specifying in reasonable detail
the nature of such breach; or (ii) the failure of the Employee to be elected as
a Senior Vice President of the Company.
9. Severance Payments. In the case of a Termination Without Cause
pursuant to Paragraph 8(b) hereof or a Termination for Good Reason pursuant to
Paragraph 8(c) hereof, the Company shall continue to pay to the Employee for
the Applicable Period (as defined below) (a) the Employee's then current Base
Salary on the dates such payments would have been made under Paragraph 5(a)
hereof if the Employee's employment had not terminated and (b) the other
benefits provided in Paragraph 5(c) and (d) hereof. As used herein "Applicable
Period" shall mean the period commencing on the effective date of such
Termination Without Cause or Termination for Good Reason and ending on the
second anniversary of the Effective Date.
10. Competition.
(a) In consideration of the Company's agreement to employ the
Employee as a Senior Vice President, the Employee hereby agrees that during the
Noncompete Period (as defined below), without the prior written approval of the
Company, the Employee shall not, directly or indirectly, enter into or in any
manner take part in any business, either individually or as an officer,
director, employee, agent, consultant, partner, investor (excluding passive
investments in publicly traded securities not aggregating more than 5% of any
such entity's total outstanding voting securities), principal or otherwise,
which is in competition with the business of the Company or any of its
subsidiaries in any segment of the industrial simulation, process control and
data acquisition, or client/server technology fields in which the Company or
any of its subsidiaries is materially engaged or the Board of Directors has
approved a plan for the Company or any of its subsidiaries to become materially
engaged during the Noncompete Period in any jurisdiction in the world in which
the Company or any of its subsidiaries is so materially engaged or the Board of
Directors has approved a plan for the Company or any of its subsidiaries to
become so materially engaged in such segment during the Noncompete Period. The
Employee further agrees that during the Noncompete Period he
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shall not, directly or indirectly, acting either alone or in concert with
others, seek to influence any employee of the Company or any of its
subsidiaries to leave or otherwise terminate his or her employment with such
entity or solicit or assist any other person in soliciting any customers,
clients or suppliers of the Company or any of its subsidiaries.
As used herein, "Noncompete Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the Effective Date.
(b) The Employee acknowledges that he has carefully read and
considered all of the terms of this Agreement, including particularly the terms
of this Paragraph 10 and the following Paragraph 11, that the Company has made
a substantial investment in the Company's business and that the restrictions
provided in this Paragraph 10 and the following Paragraph 11 are reasonable and
necessary for the Company's protection. The Employee further acknowledges that
damages at law will not be a measurable or adequate remedy for breach of the
covenants contained in this Paragraph 10 or in Paragraph 11 and, accordingly
the Employee consents to the entry by any court of competent jurisdiction of
any order enjoining him from violating any such covenants. The parties hereto
further agree that if, in any judicial proceeding, a court should refuse to
enforce any covenants set forth in this Paragraph 10 or in Paragraph 11 because
of their term or geographical scope, then such covenants shall be deemed to be
modified to permit their enforcement to the maximum extent permitted by law.
11. Confidentiality. The Company acknowledges and agrees that it
competes in a highly competitive industry and in competitive markets and that
as a Vice President the Employee may have access to proprietary and
confidential information and trade secrets of the Company and its subsidiaries.
The Employee agrees that he will not, without the written consent of the
Company, disclose or permit anyone under his control to disclose to anyone not
properly entitled to the information or use for his own benefit or the benefit
of anyone else other than the Company or any subsidiary of the Company, any
such trade secrets or proprietary or confidential information relating to the
Company or its subsidiary.
12. Waiver. A waiver by any party of any of the terms and conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such
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terms and conditions for the future, or of any subsequent breach thereof.
13. Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
personally delivered, if mailed, on the third business day after it is deposited
in the United States mails, certified or registered mail, postage prepaid and
addressed as follows:
To the Employee:
Eugene D. Loveridge
6733 West 9600 North
Highland, Utah 84003
To the Company:
GSE Systems, Inc.
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: Chairman
Telecopier: (410) 312-3599
Any party may change by notice the address to which notices to it are to be
addressed.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland without regard
to the principles of conflicts of laws thereof.
15. Amendments, Etc. The Agreement may not be varied, altered,
modified, changed, or in any way amended except by an instrument in writing,
executed by the parties hereto or their legal representatives.
16. Headings and Captions. Headings and paragraph captions used in
this Agreement are intended for convenience of reference only and shall not
affect the interpretation of this Agreement.
17. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, which taken together shall be deemed to constitute one
original.
18. Miscellaneous.
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(a) The Employee shall not have any right to commute, encumber or
dispose of the right to receive payment hereunder or the right to receive any
of the benefits provided for hereunder.
(b) In the event of the termination of the Employee's employment
with the Company for any reason other than the Employee's death, the party
terminating such employment shall give written notice to the other party
within the time limitations above provided, and such notice shall state the
date on which termination is to be effective, specify the provision of this
Agreement under which notice is given, and, if such termination is claimed to
be for disability or cause, the notice shall set forth the basis for such claim
in reasonable detail.
(c) The Company shall pay all reasonable expenses (including
attorneys' fees) incurred by the Employee in enforcing any provisions of this
Agreement or prosecuting a claim for breach thereof if the Employee is
successful in such enforcement or prosecution.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GSE SYSTEMS, INC.
By:
--------------------------
Robert W. Stroup
Executive Vice President
------------------------------
EUGENE D. LOVERIDGE
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 17, 1996
by and between GSE Systems, Inc., a Delaware corporation (the "Company"), and
Daniel Masterson (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company has determined to employ the Employee as a Vice
President and Chief Technology Officer; the Employee wishes to accept such
employment; and the Company and the Employee wish to provide herein the terms
of the Employee's employment;
NOW, THEREFORE, IT IS AGREED THAT:
1. Agreement of Employment; Effective Date. The Company agrees to
employ the Employee, and the Employee agrees to serve the Company, as a Vice
President and Chief Technology Officer, all upon the terms and conditions
hereinafter set forth. Such employment shall become effective upon the
consummation of the merger of Erudite Software & Consulting, Inc. with GSE
Erudite Software, Inc. (the "Effective Date").
2. Term. The employment of the Employee under this Agreement shall
be for a term of three (3) years from and after the Effective Date, subject to
renewal and extension as provided for in Paragraph 3 hereof. Such period of
employment, as from time to time renewed or extended as provided for in
Paragraph 3 hereof, is hereinafter referred to as the "Term."
3. Renewal. On the third anniversary of the Effective Date hereof
and each succeeding anniversary thereof (each a "Renewal Date"), this Agreement
shall be automatically renewed for an additional period of one (1) year, unless
at least one hundred twenty (120) days prior to such Renewal Date the Company
shall have given written notice to the Employee that such renewal shall not
take place or the Employee shall have given written notice to the Company that
such renewal shall not take place.
4. Duties. During the Term, the Employee shall perform the duties
of a Vice President and Chief
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Technology Officer, all as set forth in the By-Laws of the Company and shall
perform all other duties typically performed by a senior executive officer of a
corporation of the size and nature of the Company. The Company agrees that it
will assign to employee only those duties of the type, nature and dignity
normally assigned to a senior executive officer of a corporation of the size
and nature of the Company and that Employee will have the full decisionmaking
and other authority normally conferred upon such an officer. The Employee
agrees to serve without additional compensation, if elected or appointed
thereto, as a director of the Company or any of its subsidiaries, and as a
member of any committees of the board of directors of any such corporations,
and in one or more executive positions of any of the Company's subsidiaries.
The Employee agrees to devote substantially all of his business time to the
operation of the Company's business.
5. Compensation. For the services rendered by the Employee to the
Company under this Agreement, the Company shall compensate the Employee as
follows:
(a) Base Salary. The Company shall pay the Employee for his
services an annual salary of $150,000 (after adjusting for any increases
therein, the "Base Salary") payable in accordance with the payroll practices of
the Company applicable to all employees. The Employee's Base Salary may be
increased by the Company from time to time but may not be decreased without the
Employee's prior written consent.
(b) Incentive Bonuses. The Compensation Committee of the
Board of Directors of the Company shall consider awarding the Employee annual
incentive bonuses during the Term and in determining whether to award any such
bonuses and, if any bonus is awarded, the amount thereof shall take into
account, among other factors, the Employee's performance during the past year
or other relevant periods, the overall performance of the Company and the
amount of incentive bonuses paid to the other senior executive officers,
including the chief executive officer, of the Company for comparable periods.
(c) Employee Benefits. The Employee shall be entitled to
receive, on the same basis as other executive personnel of the Company, group
employee benefits such as sick leave, group disability and health, life, and
accident insurance and similar indirect compensation which the Company may from
time to time extend to its personnel. The Company shall pay all
<PAGE> 3
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premiums with regard to medical and dental insurance covering the Employee and
his immediate family and life insurance for the Employee.
(d) Automobile Allowance; Club Dues. The Company shall pay
the Employee an automobile allowance in the amount of $600 per month and shall
provide the Employee with a company gasoline credit card for his use. The
Company shall pay the annual dues of the Employee to one health club.
(e) Withholding Taxes. All payments by the Company to the
Employee hereunder shall be less Social Security taxes and withholding taxes
for which the Employee is obligated and less any other taxes that may be
lawfully levied by any governmental authority which the Company may be required
by law from time to time to withhold.
6. Reimbursement. The Company shall reimburse the Employee for the
reasonable expenses incurred by him in connection with the performance of his
duties hereunder, including but not limited to, travel and entertainment
expenses, for which the Employee shall account to the company in a manner
sufficient to conform to Internal Revenue Service requirements.
7. Disability.
If, during the Term, the Employee suffers an illness or
incapacity of such a character as to prevent or preclude him from devoting
substantially full working time to his employment hereunder or otherwise from
carrying out any substantial portion of the normal and usual duties of his
employment hereunder for 180 days (whether or not consecutive) during any
twelve-month period, his services as an officer of the Company hereunder may be
terminated (a "Disability Termination") by the Company upon 30 days' prior
written notice to Employee. During the period of the Employee's disability and
until the expiration date of such 30 days' notice, the Employee shall continue
to earn all compensation provided herein as if he had not been disabled, such
compensation to be paid at the time, in the amounts, and in the manner provided
herein. Upon the termination of the Employee's services as an officer of the
Company under this Paragraph 7(b), the Employee shall remain an employee of the
Company for purposes of continued eligibility under the Company's Long-Term
Disability Plan but the obligations of the Company shall be limited to (i)
paying the Employee his Base Salary
<PAGE> 4
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through the date of such termination and any other benefits that have fully
accrued and vested but not yet been paid as of such date; (ii) paying the
Employee any bonus for the then current calendar year, (iii) paying the
Employee disability compensation in accordance with its policies for the
payment of disability compensation to senior executive officers and (iv)
continuing to provide the Employee with any group health benefits for the
remainder of the Term to the extent permitted under the Company's group health
plan. Upon such a termination, the Employee shall also be entitled to all
applicable benefits under the Company's Long-Term Disability Plan.
8. Termination.
(a) Termination for Cause. The Company may terminate the
employment of the Employee hereunder if the Employee during the Term (i)
commits an act of intentional fraud with respect to the Company, (ii) is
convicted of any felony, (iii) continually fails to substantially perform his
duties under Paragraph 4 hereof (other than any such failure resulting from a
material breach of the obligations of the Company hereunder or the disability
of the Employee or any such failure occurring after any of the events
constituting "Good Reason" hereunder has occurred) for a period of ten (10)
days after receipt by the Employee of a written demand for substantial
performance has been delivered by the Company to Employee, which written demand
specifically identifies in reasonable detail the manner in which the Company
believes that the Employee has not substantially performed his duties
hereunder, or (iv) the material breach by the Employee of any of his
obligations under Paragraphs 10 or 11 hereof and in the case of an
unintentional breach of his obligations under Paragraph 10 hereof, the failure
of the Employee to correct such breach within sixty (60) days after the receipt
by the Employee of a written notice from the Company specifying in reasonable
detail the nature of such breach. Termination pursuant to this Paragraph B(a)
shall be herein referred to as a "Termination for Cause." Notwithstanding the
foregoing, a Termination for Cause (other than pursuant to clause (ii) hereof)
shall not be effective unless and until the Employee has received reasonable
notice setting forth the reasons for the Company's intention to terminate him
pursuant to this Paragraph 8(a), the Employee has had an opportunity, together
with his counsel, to be heard before the Executive Committee of the Board of
Directors of the Company and to submit any materials or
<PAGE> 5
- 5 -
information to the Executive Committee that he views appropriate, and the
Executive Committee has issued a finding that, in the good faith opinion of a
majority of the Executive Committee, the Employee's conduct has established a
sufficient basis for a Termination for Cause. During the pendency of such
proceedings, the Executive Committee, by a majority vote, may suspend the
Employee from his duties hereunder with full compensation during such period of
suspension. Upon Termination for Cause, the Company shall have no further
obligation to pay the Employee's Base Salary or to provide any other employee
benefits hereunder except for any Base Salary or other benefits that have fully
accrued and vested but not been paid as of the effective date of such
termination.
(b) Termination Without Cause. At any time after the
Effective Date, the Company may terminate the employment of the Employee
hereunder without cause. Such termination shall be effective by providing the
Employee with a written notice of termination at least 90 days prior to the
date of such termination. Termination pursuant to this Paragraph 8(b) shall be
herein referred to as "Termination Without Cause." If the Company terminates
the Employee's employment under this Paragraph 8(b), the Company shall be
obligated to make the severance payments described in Paragraph 9 hereof.
(c) Termination by Employee. The Employee may terminate his
employment hereunder by providing the Company with a written notice of
termination at least 90 days prior to the effective date of such termination in
the case of a termination other than for Good Reason (as defined below) or 30
days prior to the effective date of such termination in the case of a
termination for Good Reason. If the Employee terminates his employment under
this Paragraph 8(c) other than for Good Reason, the Company shall have no
further obligation to pay the Employee's Base Salary or to provide any other
employee benefits hereunder except for any Base Salary or other benefits that
have fully accrued and vested but not been paid as of the effective date of
such termination. If the Employee terminates his employment under this
Paragraph 8(c) for Good Reason (a "Termination for Good Reason"), the Company
shall be obligated to make the severance payments described in Paragraph 9
hereof. As used herein, "Good Reason" shall mean the occurrence of any of the
following: (i) the material breach by the Company of any of its agreements set
forth herein and the failure of the Company to correct such breach within
<PAGE> 6
- 6 -
thirty (30) days (ten (10) days in the case of a breach of any of the Company's
agreements set forth in Paragraph 5(a) or (b) hereof) after the receipt by the
Company of a written notice from the Employee specifying in reasonable detail
the nature of such breach; or (ii) the failure of the Employee to be elected as
a Vice President of the Company.
9. Severance Payments. In the case of a Termination Without Cause
pursuant to Paragraph 8(b) hereof or a Termination for Good Reason pursuant to
Paragraph 8(c) hereof, the Company shall continue to pay to the Employee for
the Applicable Period (as defined below) (a) the Employee's then current Base
Salary on the dates such payments would have been made under Paragraph 5(a)
hereof if the Employee's employment had not terminated and (b) the other
benefits provided in Paragraph 5(c) and (d) hereof. As used herein "Applicable
Period" shall mean the period commencing on the effective date of such
Termination Without Cause or Termination for Good Reason and ending on the
second anniversary of the Effective Date.
10. Competition
(a) In consideration of the Company's agreement to employ the
Employee as a Vice President, the Employee hereby agrees that during the
Noncompete Period (as defined below), without the prior written approval of the
Company, the Employee shall not, directly or indirectly, enter into or in any
manner take part in any business, either individually or as an officer,
director, employee, agent, consultant, partner, investor (excluding passive
investments in publicly traded securities not aggregating more than 5% of any
such entity's total outstanding voting securities), principal or otherwise,
which is in competition with the business of the Company or any of its
subsidiaries in any segment of the industrial simulation, process control and
data acquisition, or client/server technology fields in which the Company or
any of its subsidiaries is materially engaged or the Board of Directors has
approved a plan for the Company or any of its subsidiaries to become materially
engaged during the Noncompete Period in any jurisdiction in the world in which
the company or any of its subsidiaries is so materially engaged or the Board of
Directors has approved a plan for the Company or any of its subsidiaries to
become so materially engaged in such segment during the Noncompete Period. The
Employee further agrees that during the Noncompete Period he
<PAGE> 7
- 7 -
shall not, directly or indirectly, acting either alone or in concert with
others, seek to influence any employee of the Company or any of its
subsidiaries to leave or otherwise terminate his or her employment with such
entity or solicit or assist other person in soliciting any customers, clients
or suppliers of the Company or any of its subsidiaries.
As used herein, "Noncompete Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the Effective Date.
(b) The Employee acknowledges that he has carefully read and
considered all of the terms of this Agreement, including particularly the terms
of this Paragraph 10 and the following Paragraph 11, that the Company has made
a substantial investment in the Company's business and that the restrictions
provided in this Paragraph 10 and the following Paragraph 11 are reasonable and
necessary for the Company's protection. The Employee further acknowledges that
damages at law will not be a measurable or adequate remedy for breach of the
covenants contained in this Paragraph 10 or in Paragraph 11 and, accordingly
the Employee consents to the entry by any court of competent jurisdiction of
any order enjoining him from violating any such covenants. The parties hereto
further agree that if, in any judicial proceeding, a court should refuse to
enforce any covenants set forth in this Paragraph 10 or in Paragraph 11 because
of their term or geographical scope, then such covenants shall be deemed to be
modified to permit their enforcement to the maximum extent permitted by law.
11. Confidentiality. The Employee acknowledges and agrees that the
Company and its subsidiaries compete in a highly competitive industry and in
competitive markets and that as a Vice President the Employee may have access
to proprietary and confidential information and trade secrets of the Company
and its subsidiaries. The Employee agrees that he will not, without the written
consent of the Company, disclose or permit anyone under his control to disclose
to anyone not properly entitled to the information or use for his own benefit
or the benefit of anyone else other than the Company or any subsidiary of the
Company, any such trade secrets or proprietary or confidential information
relating to the Company or its subsidiary.
12. Publication Rights. The Employee shall be permitted to publish
articles in scientific and industry
<PAGE> 8
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periodicals, as well as make presentations at conferences and symposiums, in
his capacity as Chief Technology Officer of the Company; provided that such
publications or presentations do not have the effect of jeopardizing the
legitimate interests of the Company in the protection of its intellectual
property, as determined by the Company's intellectual property advisors on a
case-by-case basis.
13. Waiver. A waiver by any party of any of the terms and conditions
of this Agreement in any instance shall not be deemed or construed to be a
waiver of such terms and conditions for the future, or of any subsequent breach
thereof.
14. Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
personally delivered, if mailed, on the third business day after it is deposited
in the United States mails, certified or registered mail, postage prepaid and
addressed as follows:
To the Employee:
Daniel Masterson
5561 West 10080 North
Highland, Utah 84003
To the Company:
GSE Systems, Inc.
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: Chairman
Telecopier: (410) 312-3599
Any party may change by notice the address to which notices to it are to be
addressed.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland without regard to the
principles of conflicts of laws thereof.
16. Amendments, Etc. The Agreement may not be varied, altered,
modified, changed, or in any way amended except by an instrument in writing,
executed by the parties hereto or their legal representatives.
17. Headings and Captions. Headings and paragraph captions used in
this Agreement are intended
<PAGE> 9
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for convenience of reference only and shall not affect the interpretation of
this Agreement.
18. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, which taken together shall be deemed to constitute one
original.
19. Miscellaneous.
(a) The Employee shall not have any right to commute, encumber
or dispose of the right to receive payment hereunder or the right to receive
any of the benefits provided for hereunder.
(b) In the event of the termination of the Employee's
employment with the Company for any reason other than the Employee's death, the
party terminating such employment shall give written notice to the other party
within the time limitations above provided, and such notice shall state the
date on which termination is to be effective, specify the provision of this
Agreement under which notice is given, and, if such termination is claimed to
be for disability or cause, the notice shall set forth the basis for such claim
in reasonable detail.
(c) The Company shall pay all reasonable expenses (including
attorneys' fees) incurred by the Employee in enforcing any provisions of this
Agreement or prosecuting a claim for breach thereof if the Employee is
successful in such enforcement or prosecution.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GSE SYSTEMS, INC.
By:
-----------------------------
Robert W. Stroup
Executive Vice President
--------------------------------
DANIEL MASTERSON
<PAGE> 1
AT THE COMPANY AT THE FINANCIAL RELATION BOARD
Bill Kuhlmann Doug DeLieto, Marty Gitlin or Julie Creed
Chairman and CEO (general) (media) (analysts)
410-312-3600 212-661-8030 212-661-8030 312-266-7800
FOR IMMEDIATE RELEASE
May 21, 1996
GSE SYSTEMS ACQUIRES CLIENT/SERVER COMPANY;
STRATEGIC ADDITION BOLSTERS COMPANY'S POSITION
AS A GLOBAL PROVIDER OF TOTAL SOLUTIONS
COLUMBIA, MARYLAND, MAY 21, 1996 -- GSE Systems, Inc. (Nasdaq National Market:
GSES), a leading global provider of integrated enterprise software and
information solutions to the energy, process and manufacturing industries,
today announced that it has acquired Erudite Software & Consulting, Inc., a
leading provider of cost-effective client/server technology through consulting,
custom application development, training services, and hardware/software sales.
"We are very excited about the opportunities this acquisition
presents," commented William E. Kuhlmann, GSE Systems' Chairman and Chief
Executive Officer. "Erudite Software's expertise in client/server technology
will significantly enhance our presence in the emerging and increasingly
important client/server market as well as enhance GSE Systems' ability to
provide total integrated solutions to the business, production, process control
and engineering needs of our customers -- from the plant floor to the board
room."
(more)
<PAGE> 2
Founded in 1990, Erudite Software is headquartered in Salt Lake
City,Utah with a primary development facility in Provo, Utah. The Company has
expertise in Oracle and Sybase databases and has approximately 140 employees,
of which 24 are Certified PowerBuilder Developers. Erudite Software assists
large organizations in identifying, developing and implementing client/server
business applications. Erudite Software's unique and proprietary rapid
application development methodology assists clients in downsizing from
mainframe systems to client/server systems. Erudite Software has also developed
extensive base class libraries in both PowerBuilder and Delphi which are used
to develop quality applications in significantly less time than Erudite
Software's competitors. Further, Erudite Software has extensive training
expertise and offers more than 54 classes taught by certified instructors in
programs offered by Erudite Software's partners which include Microsoft,
Novell, Sybase, PowerSoft and Borland. Its training staff holds more than 150
authorized training certifications. Erudite Software was the 1995 winner of
"The Utah 100 Award" for being the state's fastest growing company for the past
five years.
"We are unique among companies providing client/server services in that
we are dedicated solely to the client/server environment," said Eugene D.
Loveridge, Erudite Software's President and Co-Founder. "We will benefit
immediately from GSE Systems' broad set of customer relationships and extensive
international presence," added Loveridge, who will head the Business Systems
Group unit.
(more)
<PAGE> 3
GSE Systems has issued approximately 840,700 new shares of common stock
to Erudite Software's shareholders, and the transaction will be accounted for
as a pooling of interest. Privately held, Erudite Software posted revenues of
$10.8 million and net income after taxes of $186,000 during the twelve months
ended December 31, 1995. In the first quarter of 1996, it posted (unaudited)
revenue of $3.8 million and net income of $231,000. Revenue for the first
quarter increased 77% and net income 541% over the same period in 1995.
GSE Systems is headquartered in Columbia, Maryland and its global
locations include Belgium, Japan, Korea, Singapore, Sweden, Taiwan and the USA.
TO RECEIVE ADDITIONAL INFORMATION ON GSE SYSTEMS, INC., VIA FAX AT NO CHARGE,
DIAL 1-800-PRO-INFO AND ENTER #178 OR TICKER SYMBOL GSES.
# # #
<PAGE> 4
ERUDITE SOFTWARE ACQUISITION HIGHLIGHTS
- - Market Position
- Leading provider of client/server technology
- Proprietary methodology to assist clients
- Fastest growing company in the State of Utah in 1995 during the
past five years
- - Product Offerings
- Consulting
- Application development
- Training
- Hardware & software
- - Purchase Price
- Approximately 840,700 shares of GSE Systems
- - Pooling-Of-Interest Accounting
- No goodwill on the books
- - Increased Revenue
- Adds approximately $10.8 million in 1995 and $3.7 million in Q196
to annual revenues.
- - Valued Customers - Valued Partners
- Novell - Microsoft - HP
- Vanstar - Novell - IBM
- Avent/Hallmark Comp - Sybase - DEC
- Geneva Steel - Oracle - Compaq
- - Growth Opportunities
- Bolsters GSE's position as a global provider of total solutions
- Capitalize on GSE's broad channels of distribution, both Domestic
and Internationally
<PAGE> 5
ERUDITE SOFTWARE FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
($000) 1993 1994 1995 Q195 Q196
- ------ ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $2,557 $ 4,597 $10,759 $2,122 $3,758
Profit Before Taxes $ (70) $ (97) $ 304 $ 58 $ 369
Net Income $ (44) $ (61) $ 186 $ 36 $ 231
</TABLE>
