SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 1998.
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _______ to ________ .
Commission File Number: 0-26494
-------
GSE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1868008
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8930 Stanford Boulevard, Columbia, Maryland, 21045
(Address of principal executive office and zip code)
Registrant's telephone number,
including area code: (410) 312-3700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-----
As of May 7, 1998, there were 5,065,688 shares of the Registrant's common
stock (par value $ .01 per share) outstanding.
GSE SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998
(Unaudited) and December 31, 1997 3
Unaudited Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and 1997 4
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 754 $ 334
Contract receivables 22,944 24,371
Inventories 2,898 2,700
Prepaid expenses and other current assets 2,161 1,739
Deferred income taxes 2,570 2,570
------ ------
Total current assets 31,327 31,714
Property and equipment, net 3,290 3,864
Investment in joint venture 188 252
Software development costs, net 7,638 7,526
Goodwill and other intangible assets, net 2,888 2,974
Deferred income taxes 1,730 1,730
Other assets 322 302
------ ------
Total assets $ 47,383 $ 48,362
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 8,939 $ 9,032
Accounts payable 7,755 7,919
Accrued expenses 4,686 4,304
Obligations under capital lease 67 208
Accrued severance costs 60 148
Billings in excess of revenue earned 7,223 6,719
Accrued contract reserves 155 287
Accrued warranty reserves 675 625
Other current liabilities 211 513
Income taxes payable 305 313
------ ------
Total current liabilities 30,076 30,068
Notes payable to related parties 181 185
Obligations under capital lease 183 234
Accrued contract and warranty reserves 649 674
Other liabilities 1,270 1,276
------ ------
Total liabilities 32,359 32,438
------ ------
Stockholders' equity:
Common stock $.01 par value, 8,000,000
shares authorized, 5,065,688 shares
issued and outstanding 50 50
Additional paid-in capital 21,378 21,378
Retained earnings (deficit) - at formation (5,112) (5,112)
Retained earnings (deficit) - since formation (965) (239)
Cumulative translation adjustment (327) (153)
------ ------
Total stockholders' equity 15,024 15,924
------ ------
Total liabilities & stockholders' equity $ 47,383 $ 48,362
====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Contract revenue $ 17,454 $ 19,327
Cost of revenue 12,243 13,763
------ ------
Gross profit 5,211 5,564
Operating expenses:
Selling, general and administrative 5,327 6,249
Depreciation and amortization 561 568
Employee severance and termination costs - 1,349
------ ------
Total operating expenses 5,888 8,166
------ ------
Operating income (loss) (677) (2,602)
Interest expense 165 187
Other expense (income) (428) 210
------ ------
Income (loss) before income taxes (414) (2,999)
------ ------
Provision for (benefit from) income taxes 40 (1,010)
------ ------
Net (loss) $ (454) $ (1,989)
====== ======
Basic and diluted (loss) per common share $ (.09) $ (0.39)
====== ======
Weighted average common shares outstanding 5,065,688 5,065,688
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
GSE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (454) $ (1,989)
Adjustments made to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 1,170 712
Accrued severance -- 1,349
Deferred income taxes -- (390)
Changes in assets and liabilities:
Contract receivables 1,671 1,520
Inventories (138) 438
Prepaid expenses and other current assets (398) (307)
Other assets 123 83
Accounts payable and accrued expenses (984) (2,050)
Billings in excess of revenue earned 1,233 (1,371)
Accrued contract and warranty reserves (166) (328)
Other current liabilities (622) (584)
Income taxes payable (14) (532)
Other liabilities -- (1)
------ ------
Net cash (used in) operating activities 1,421 (3,450)
------ ------
Cash Flows From Investing Activities:
Capital expenditures (25) (340)
Capitalization of software development costs (722) (993)
------ ------
Net cash (used in) investing activities (747) (1,333)
------ ------
Cash Flows From Financing Activities:
Increase in lines of credit with bank (93) 4,056
Repayments under capital lease obligations (188) (285)
Principal payments under term-note 4 (23)
Decrease in borrowings from related parties (4) (4)
------ ------
Net cash (used in) provided by financing activities(281) 3,744
Effect of exchange rate changes on cash 17 (204)
------ ------
Net decrease in cash and cash equivalents 410 (1,243)
Cash and cash equivalents at beginning of period 344 2,450
------ ------
Cash and cash equivalents at end of period $ 754 $ 1,207
====== ======
</TABLE>
The accompanying notes are in integral part of these
condensed consolidated financial statements.
GSE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Basis of Presentation
---------------------
The condensed consolidated financial statements included herein have been
prepared by the Company without independent audit. In the opinion of the
Company's management, all adjustments and reclassifications 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
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the period ended December 31, 1997 filed
with Securities and Exchange Commission on March 31, 1998. The results of
operations for the period ended March 31, 1998 are not necessarily indicative
of what the operating results for the full year will be.
2. Subsequent Event - Disposal of Assets
-------------------------------------
On May 1, 1998, the Company completed the sale of substantially all of the
assets of its wholly owned subsidiary, GSE Erudite Software, Inc.
("Erudite"), to Keane, Inc. ("Keane"), pursuant to an Asset Purchase
Agreement, dated as of April 30, 1998, by and among the Company, Erudite and
Keane.
The aggregate purchase price for the Erudite assets was approximately $9.86
million (consisting of $8.86 million in cash and $1.0 million in the form of
an unsecured promissory note due on April 30, 1999, subject to certain
adjustments). In connection with the transaction, Keane purchased certain
assets of approximately $4.4 million and assumed certain operating
liabilities of Erudite totaling approximately $2.2 million. The Company
anticipates recognizing a gain on this transaction in excess of $5.0 million.
In connection with the sale of these assets, the Company has written off
approximately $800,000 in capitalized software development costs, since all
operations that would support the recoverability of these costs have been
sold. The write off of these costs is reflected in the calculation of the
expected gain on the sale.
The purchase price is subject to post-closing adjustment based upon a balance
sheet as of closing (the "Closing Balance Sheet"). If the Closing Balance
Sheet indicates that the "Net Asset Value" (defined in the Asset Purchase
Agreement), which is an amount equal to (a) the assets purchased by Keane
minus (b) the assumed liabilities, is greater than, or less than $2.2
million, the purchase price will be increased or decreased by that positive
or negative difference (the "Closing Net Book Value Adjustment), respectively.
With the proceeds from the sale of the Erudite assets, the Company reduced its
outstanding bank debt by approximately $3.8 million, and will use the remainder
of the proceeds to pay for transaction expenses and for general corporate
purposes.
The Company acquired Erudite on May 22, 1996. This acquisition, which was
accounted for as a pooling of interests, was made to facilitate the Company's
efforts to enter the client/server IT solutions market. As previously
disclosed, as a result of the Company's decision to re-focus its strategy on
its core businesses, the Company decided to divest itself of Erudite.
3. Basic and Diluted Loss Per Common Share
---------------------------------------
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which requires the
presentation of basic earnings per share and diluted earnings per share.
Basic earnings per share is based on the weighted average number of
outstanding common shares for the period. Diluted earnings per share adjusts
the weighted average for the potential dilution that could occur if stock
options, warrants or other convertible securities were exercised or converted
into common stock. Diluted earnings per share is the same as basic earnings
per share for the three months ended March 31, 1998 and 1997 because the
effects of such items were anti-dilutive. The earnings per share
computations have been restated for all periods presented to conform to FAS
128.
4. Inventories
-----------
Inventories are stated at the lower of cost, as determined by the average
cost method, or market. Obsolete or unsaleable inventory is reflected at its
estimated net realizable value.
Inventories, net, consist of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
(in thousands)
Raw materials $1,784 $1,610
Service parts 1,114 1,090
------ ------
Total $2,898 $2,700
====== ======
</TABLE>
5. Software Development Costs
--------------------------
Certain computer software development costs are capitalized in the
accompanying consolidated balance sheets. Capitalization of computer software
development costs begins upon the establishment of technological feasibility.
Capitalization ceases and amortization of capitalized costs begins when the
software product is commercially available for general release to customers.
Amortization of capitalized computer software development costs is included
in cost of revenues and is provided at the greater of the amount computed
using (a) the ratio of current gross revenues for a product to the total of
current and anticipated future gross revenues or (b) the straight-line method
over the remaining estimated economic life of the product, not to exceed five
years. Software development costs capitalized were $700,000 and $1.0 million
for the three months ended March 31, 1998 and 1997. Total amortization
expense was $609,000 and $144,000 for the three months ended March 31, 1998
and 1997.
6. Financing Arrangements
----------------------
The Company maintained, through its subsidiaries, two lines of credit with
its bank that provided for borrowings up to $14.0 million to support foreign
letters of credit, margin requirements on foreign exchange contracts and
working capital needs, which were due to expire June 30, 1998. At March 31,
1998, the Company had approximately $8.9 million of borrowings under the
lines of credit with its bank. Concurrent with the sale of the Erudite
assets described in Note 2, the line of credit for Process Solutions was
reduced from $7.0 million to $3.0 million, reducing the two lines of credit
to $10.0 million with the same maturity date of June 30, 1998. The Company
reduced its bank debt by $3.8 million after the Erudite closing. Letters of
credit issued from its bank amounted to approximately $850,000 at March 31,
1998.
As previously disclosed, the aforementioned lines of credit contain certain
restrictive covenants. The Company was in violation of the cash flow
coverage ratio as of March 31, 1998. As of March 6, 1998, the bank has
waived such covenant violations at March 31, 1998. Should a violation of any
loan covenant occur at any future measurement date, the bank would have the
right to declare an event of default, and the loans would be payable on demand.
With respect to the potential liquidity issues related to the June 30, 1998
maturity date on the lines of credit, certain of the Company's principal
stockholders, ManTech International Corporation ("ManTech") and GP Strategies
Corporation ("GP Strategies"), have agreed to provide working capital support
to the Company through March 31, 1999, in the form of credit enhancements or
by taking actions that would result in additional liquidity to the Company.
In consideration for the guaranties, the Company has agreed to grant both of
ManTech and GP Strategies warrants to purchase shares of the Company's common
stock. The number of shares of common stock and other provisions for such
warrants have not been finalized as of the date of this report. When the
terms of the warrants become finalized, including the number of shares of
common stock into which the warrants will be exercisable and the related
exercise price, the Company will recognize the fair value of such warrants in
the consolidated financial statements.
7. Contract Receivables
--------------------
The components of contract receivables are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
(in thousands)
Billed receivables $ 16,403 $ 16,994
Recoverable costs and accrued profit
not billed 7,321 8,398
Allowance for doubtful accounts (780) (1,021)
------ ------
Total contract receivables $ 22,944 $ 24,371
====== ======
</TABLE>
Recoverable costs and accrued profit not billed represent costs incurred and
profit accrued on contracts that will become billable upon future milestones
or completion of contracts.
Revisions in estimated contract costs at completion are reflected in the
period during which facts and circumstances necessitating such a change first
become known. Revenue under long-term, fixed-price contracts generally is
accounted for on the percentage-of-completion method, based on contract costs
incurred to date and estimated costs to complete. The effect of changes in
estimates of contract profits was to increase gross profit by $139,523 and
$237,000 during the three months ended March 31, 1998.
8. Income Taxes
------------
The Company's effective tax rate is based on the best current estimate of its
expected annual effective tax rate. The difference between the statutory
U.S. tax rate and the Company's effective tax rate for the three months ended
March 31, 1998 and 1997 is primarily the result of a valuation allowance
against all of the net operating losses generated during the three months
ended March 31, 1998, the effects of foreign operations at different tax
rates and state income taxes. For the three months ended March 31, 1997, the
Company recorded an income tax benefit on the pre-tax losses incurred by the
Company's domestic operations.
9. Comprehensive Income
--------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" is effective for the three months ended March 31, 1998. SFAS No. 130
establishes standards for reporting comprehensive income on an annual basis
in a full set of general purpose financial statements either in the statement
of operations or in a separate statement. For the three months ended
March 31, 1998 and 1997, the Company had a comprehensive loss of $788,000 and
$2,279,000, respectively. The difference between the comprehensive loss and
the net loss as reported in the statements of operations related to foreign
currency translation adjustments.
10. Recent Pronouncements
---------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 131. "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments, including related disclosures, and
products, services, geographic areas and major customers and is effective for
the year ending December 31, 1998.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
-------------------------------------------------------------
General Business Environment
- ----------------------------
GSE designs, develops and delivers business solutions by applying
high-technology-related process control and high fidelity simulation systems
and services into applications for worldwide industries including energy and
process manufacturing. The Company's solutions and services assist customers
in improving quality, safety and throughput; reducing operating expenses;
addressing environmental issues; and enhancing overall productivity.
As previously disclosed, the Company is finalizing the senior management
changes, and has set a course to reduce costs and to return the Company's
focus to its core businesses of controls and simulation. Additionally, the
Company has completed the sale of Erudite to Keane.
The results to date of the efforts to re-focus and reduce costs are evidenced by
the improvement in operating results from the first quarter of 1997 to the
first quarter of 1998, reflected in the operating losses of $677,000 versus
$2.6 million, respectively. The operating results for the first quarter of
1998 were a substantial improvement over each quarter in 1997.
On May 1, 1998, the Company completed the sale of substantially all of the
assets of Erudite to Keane, pursuant to an Asset Purchase Agreement, dated as
of April 30, 1998, by and among the Company, Erudite and Keane. The Erudite
sale is part of the Company's continuing plan and effort to refocus and
reduce costs. As a result of the Erudite sale, the Company was able to
reduce its debt by approximately $3.8 million, while improving its cash
position by approximately $4.1 million. (Refer to Liquidity and Capital
Resources, Item 5 of Part II, Other Information, Acquisition and Disposition
of Assets, below, and Note 2, Subsequent Events - Disposal of Assets - "Notes
to the Condensed Consolidated Financial Statements" for a further discussion
of the sale.
The Company believes these actions will result in an ongoing, viable
enterprise more closely focused on its core businesses.
Results of Operations
- ---------------------
The following table sets forth the results of operations for the periods
presented expressed as a percentage of revenues.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Contract revenue $17,454 100.0% $19,327 100.0%
Cost of revenue 12,243 70.2 13,763 71.2
------ ----- ------ -----
Gross profit 5,211 29.9 5,564 28.8
Operating expenses:
Selling, general and
administrative 5,327 30.6 249 32.3
Depreciation and amortization 561 3.2 568 3.0
Employee severance and termination
costs -- 0.0 1,349 7.0
------ ----- ------ -----
Total operating expenses 5,888 33.8 8,166 42.3
------ ----- ------ -----
Operating income (loss) (676) (3.9) (2,602) (13.5)
Interest expense 165 1.0 187 1.0
Other expense (income) (428) (2.5) 210 1.1
------ ----- ------ -----
Income (loss) before income
taxes (414) (2.4) (2,999) (15.5)
Provision for income taxes 40 (0.3) (1,010) (5.2)
------ ----- ------ -----
Net income $ (454) (2.6)% $ (1,989) (10.3)%
====== ===== ====== =====
</TABLE>
Revenues. Revenues for the three months ended March 31, 1998 amounted to
$17.5 million, as compared with revenues of $19.3 million in the three months
ended March 31, 1997, respectively. This decrease was mainly due to
temporary delays in customer orders.
Gross Profit. Gross profit decreased to $5.2 million in the three months
ended March 31, 1998 from $5.6 million in the corresponding period of 1997.
The decrease in the gross profit amount is primarily attributable to lower
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $5.3 million, or 30.6% of revenues,
during the three months ended March 31, 1998, from $6.2 million, or 32.3% of
revenues, during the corresponding period of 1997, due to the Company's
outgoing efforts to reduce costs.
Total research and product development expenditures were $1.1 million and
$1.4 million in the three months ended March 31, 1998 and 1997, respectively.
Capitalized software development costs totaled $0.7 and $1.0 million during
the quarters ended March 31, 1998 and 1997, respectively. Net research and
development costs expensed and included within selling, general and
administrative expenses were $225,000 and $360,000 during the quarters ended
March 31, 1998 and 1997, respectively. The Company continued investing in
the conversion of its DCS product to the Windows NT(r) platform, SCADA system
enhancements for the Windows NT(r) platform and the productization of its
SimSuite(tm) software tools.
Depreciation and Amortization. Depreciation expense amounted to $478,000
and $514,000 during the three months ended March 31, 1998 and 1997,
respectively.
Amortization of goodwill and intangibles was $83,000 and $54,000 during the
three months ended March 31, 1998 and 1997, respectively. This increase is
attributable to the acquisition of J. L. Ryan, Inc. in December of 1997, as
previously disclosed.
Operating (Loss). Operating results improved to a loss of $(677,000), or
(3.9%) of revenues, during the three months ended March 31, 1998, from a loss
of $(2.6) million, or (13.5%) of revenues, during the corresponding period of
1997. The 1998 reduction in loss is attributable to the decrease in Employee
Severance and Termination Costs, as well as decreased selling, general and
administrative expenses, which partially offset the reduction in revenues and
gross profit.
Interest Expense. Interest expense decreased to $165,000 during the three
months ended March 31, 1998, respectively, from $187,000 during the three
months ended March 31, 1997, respectively.
Other (Income) Expense. Other (income) expense increased for the three
months ended March 31, 1998 compared to the same period of 1997, from an
expense of $ 210,000 to income of $ 428,000 primarily due to gains on foreign
currency transactions from the Company's Asian operations.
Income Taxes. The Company's effective tax rate is based on the best current
estimate of its expected annual effective tax rate. The difference between
the statutory U.S. tax rate and the Company's effective tax rate for the
three months ended March 31, 1998 and 1997 is primarily the result of a
valuation allowance against all of the net operating losses generated during
the three months ended March 31, 1998, the effects of foreign operations at
different tax rates and state income taxes. For the three months ended March
31, 1997, the Company recorded an income tax benefit on the pre-tax losses
incurred by the domestic operations.
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1998, the Company's operations provided
$1.4 million of net cash, primarily resulting from collections of receivables.
At March 31, 1998, the Company had cash and cash equivalents totaling
approximately $754,000 compared with $334,000 at December 31, 1997.
On May 1, 1998, the Company completed the sale of substantially all of the
assets of Erudite to Keane, pursuant to an Asset Purchase Agreement, dated as
of April 30, 1998, by and among the Company, Erudite and Keane. The purchase
price for the Erudite assets was $9.86 million ($8.86 million in cash and
$1.0 million in the form of an unsecured promissory note due on April 30,
1999, subject to certain adjustments) plus the assumption by Keane of certain
operating liabilities totaling approximately $2.2 million.
Net cash proceeds to be received in 1998 in connection with the sale of
Erudite, including transaction costs, is estimated at $4.1 million, after
reducing outstanding debt as described below.
The foregoing description of the Asset Purchase Agreement is qualified in its
entirety by the full text of the Asset Purchase Agreement, which is filed as
Exhibit 2.3 to this report and is incorporated herein by reference.
Refer to Item 5 of Part II, Other Information, Acquisition and Disposition of
Assets, below, and Note 2, Subsequent Event - Disposal of Assets - "Notes to
the Condensed Consolidated Financial Statements" for a further discussion of
the sale.
The Company maintained, through its subsidiaries, two lines of credit with
its bank that provided for borrowings up to $14.0 million to support foreign
letters of credit, margin requirements on foreign exchange contracts and
working capital needs, which are due to expire June 30, 1998. At
March 31, 1998, the Company had approximately $8.9 million of borrowings
under the lines of credit with its bank. Concurrent with the sale of the
Erudite assets described in Notes 2, the line of credit for Process Solutions
was reduced from $7.0 million to $3.0 million using approximately $3.8
million of the proceeds from the Erudite transaction. Available borrowings
under the two lines of credit now total $10.0 million with the same
maturity date of June 30, 1998.
The Company intends to continue to seek to replace or renegotiate its expiring
credit facilities. In addition to the approximately $4.1 million of cash
proceeds from the Erudite sale, certain of the Company's principal
stockholders, ManTech and GP Strategies, have agreed to provide working
capital support to the Company through March 31, 1999, in the form of credit
enhancements or by taking actions that would result in additional liquidity
to the Company.
In consideration for the guaranties, the Company has agreed to grant both of
ManTech and GP Strategies warrants to purchase shares of the Company's common
stock. The number of shares of common stock and other provisions for such
warrants have not been finalized as of the date of this report. When the
terms of the warrants become finalized, including the number of shares of
common stock into which the warrants will be exercisable and the related
exercise price, the Company will recognize the fair value of such warrants in
the consolidated financial statements.
The aforementioned lines of credit also contain certain restrictive
covenants. The Company was in violation of the cash flow coverage ratio and
the tangible net worth covenants as of March 31, 1998. The bank has waived
such covenant violations at March 31, 1998. Should a violation of any loan
covenant occur at any future measurement date, the bank would have the right
to declare an event of default, and the loans would be payable on demand. For
further discussion, see Note 6 of "Notes to Condensed Consolidated Financial
Statements".
Management believes the Company has sufficient liquidity and working capital
resources necessary for currently planned business operations, debt service
requirements, planned investments, and capital expenditures.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
The Company is not a party to any current litigation; various actions and
proceedings are pending to which the Company is a party. In the opinion of
management, the aggregate liabilities, if any, arising from such actions are
not expected to have a material effect on the financial condition of the
Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Acquisition or Disposition of Assets
- ------------------------------------
On May 1, 1998, the Company completed the sale of substantially all of the
assets of Erudite to Keane, pursuant to an Asset Purchase Agreement, dated as
of April 30, 1998, by and among the Company, Erudite and Keane. The purchase
price for the Erudite assets was approximately $9.86 million ($8.86 million
in cash and $1.0 million in the form of an unsecured promissory note due on
April 30, 1999, subject to certain adjustments). In connection with the
transaction, Keane purchased certain assets of approximately $4.4 million and
assumed certain operating liabilities totaling approximately $2.2 million
(Refer to Item 2, Management's Discussion and Analysis of the Results of
Operations and Financial Condition, General Business Environment and
Liquidity and Capital Resources, above, and Note 2, Subsequent Event -
Disposal of Assets - "Notes to the Condensed Consolidated Financial
Statements" for a further discussion of the sale).
The purchase price is subject to post-closing adjustment based upon a balance
sheet as of the closing date (the "Closing Balance Sheet"). If the Closing
Balance Sheet indicates that the "Net Asset Value" (defined in the Asset
Purchase Agreement), which is an amount equal to (a) the assets purchased by
Keane minus (b) the assumed liabilities, is greater than, or less than
approximately $2.2 million, then the purchase price will be increased or
decreased by that positive or negative difference (the "Closing Net Book
Value Adjustment), respectively.
With the proceeds from the Sale of the Erudite, the Company reduced its
outstanding bank debt by approximately $3.8 million, and will use the
remainder of the proceeds to pay for transaction expenses and for general
corporate purposes.
The foregoing description of the Asset Purchase Agreement is qualified in its
entirety by the full text of the Asset Purchase Agreement, which is included
as Exhibit 2.3 to this report and is incorporated herein by reference.
The Company expects to report a pre-tax gain on the sale of Erudite in excess
of $5.0 million in the second quarter of 1998.
Pro Forma Financial Statements
- ------------------------------
The following unaudited Pro Forma Balance Sheet as of March 31, 1998 and the
unaudited Pro Forma Statements of Operations for the three months ended
March 31, 1998 and the year ended December 31, 1997, are presented to give
effect to the sale of Erudite.
Historical financial data used to prepare the pro forma financial statements
were derived from the audited consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
and the unaudited condensed consolidated financial statements included in the
Company's Quarterly Report on Form 10-Q herein for the period ended
March 31, 1998. These pro forma financial statements should be read in
conjunction with such historical financial statements and notes thereto.
The pro forma adjustments reflected herein are based on available information
and certain assumptions that the Company's management believes are reasonable.
Pro forma adjustments made in the unaudited Pro Forma Balance Sheet assume that
the Sale of the Erudite was consummated on March 31, 1998, and do not reflect
the impact of Erudite's operating results or changes in balance sheet amounts
subsequent to March 31, 1998. The pro forma adjustments to the unaudited Pro
Forma Statements of Operations assume that the Sale of Erudite was
consummated on January 1, 1998 and January 1, 1997 in the unaudited Pro Forma
Statements of Operations for the three months ended March 31, 1998 and for
the year ended December 31, 1997, respectively.
The Pro Forma Balance Sheet and Pro Forma Statements of Operations are based
on assumptions and approximations and, therefore, do not reflect the impact
of the transaction on the historical financial statements. In addition, such
pro forma financial statements should not be used as a basis for forecasting
the future operations of the Company.
<TABLE>
<CAPTION>
GSE SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 1998
(In thousands, unaudited)
Less:
Erudite net Pro forma
Historical assets sold adjustments Pro Forma
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 754 4,105(A)$ 4,859
Contract receivables 22,944 (2,456) 20,488
Inventories 2,898 2,898
Prepaid expenses and
other current assets 2,161 (705) 1,456
Deferred income taxes 2,570 (2,505)(C) 65
------ ------ ------ ------
Total current assets 31,327 (3,161) 1,600 29,766
------ ------ ------ ------
Property and equipment, net 3,290 (1,195) 2,095
Investment in joint venture 188 188
Software development
costs, net 7,638 (815)(D) 6,823
Goodwill and other
intangible assets, net 2,888 2,888
Deferred income taxes 1,730 (27)(C) 1,703
Other assets 322 (35) 1,000 (B) 1,287
------ ------ ------ ------
Total assets $47,383 $(4,391) $1,758 $44,750
====== ====== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 8,939 $(3,800)(E) 5,139
Accounts payable 7,755 $ (705) 7,050
Accrued expenses 4,686 (762) 3,924
Obligations under capital
lease 67 67
Accrued severence costs 60 60
Billing in excess of
revenue earned 7,223 (586) 6,637
Accrued contract reserves 155 155
Accrued warranty reserves 675 675
Other current liabilities 211 (50) 161
Income taxes payable 305 305
------ ----- ------- ------
Total current liabilities 30,076 (2,103) (3,800) 24,173
------ ----- ------- ------
Notes payable to related
parties 181 181
Obligations under capital
lease 183 (88) 95
Accrued contract and
warranty reserves 649 649
Other liabilities 1,270 1,270
------ ----- ------- ------
Total liabilities 32,359 (2,191) (3,800) 26,368
------ ----- ------- ------
Total stockholders' equity15,024 (2,200) 5,558 (F) 20,614
------ ----- ------- ------
Total liabilities &
stockholders' equity $47,383 $(4,391) $ 1,758 46,982
====== ===== ======= ======
</TABLE>
GSE SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 1998
(In thousand, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Less Pro forma
Historical Erudite adjustments Pro Forma
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Contract revenue $ 17,454 $ 4,032 $ 13,422
Cost of revenue 12,243 2,731 9,512
------- ------- ------- -------
Gross profit 5,211 1,301 3,910
------- ------- ------- -------
Operating expenses:
Selling, general and
administrative 5,327 937 4,390
Depreciation and
amortization 561 122 439
------- ------- ------- -------
Total operating expenses 5,888 1,059 4,829
------- ------- ------- -------
Operating (loss) income (677) 242 (919)
Interest expense, net (165) $ (65) (G) (100)
Other (income) expense (428) - 429
------- ------- ------- -------
(Loss) income before
income taxes (414) 242 65 (590)
(Benefit from) provision for
income taxes 40 40
------- ------- ------- -------
Net (loss) income $ (454) $ 242 $ 65 $ (630)
======= ======= ======= =======
Basic and diluted (loss)
per common share $ (0.09) $ 0.04 $ 0.01 $ (0.12)
</TABLE>
GSE SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1997
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Less Pro forma
Historical Erudite adjustments Pro Forma
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Contract revenue $ 79,711 $ 17,999 $ 61,712
Cost of revenue 58,326 15,148 43,178
-------- -------- ---------- --------
Gross profit 21,385 2,851 18,534
-------- -------- ---------- --------
Operating expenses:
Selling, general and
administrative 27,320 5,199 22,121
Depreciation and amortization 2,368 334 2,034
Employee severance and
termination costs 1,124 1,124
-------- -------- ---------- --------
Total operating expenses 30,812 5,533 25,279
-------- -------- ---------- --------
Operating (loss) (9,427) (2,682) (6,745)
Interest expense, net 765 $ (290)(G) 475
Other (income) expense 1,228 (23) 1,251
-------- -------- ---------- --------
(Loss) income before
income taxes (11,420) (2,659) 290 (8,471)
(Benefit from) provision for
income taxes (2,717) (1,272) (1,445)
-------- -------- ---------- --------
Net (loss) $(8,703) $(1,387) $ 290 $ (7,026)
======== ======== ========== ========
Basic and diluted (loss) per
common share $ (1.72) $ 0.27 $ 0.01 $ (1.44)
</TABLE>
GSE SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Historical
----------
The historical balances represent the financial position as of March 31, 1998
and the results of operations for the three months ended March 31, 1998 and
for the year ended December 31, 1997 as reported in the historical consolidated
financial statements of GSE Systems, Inc. (the Company), by reference to the
Annual Report on Form 10-K of GSE Systems, Inc. for the year ended December 31,
1997.
2. Sale of the Net Assets of Erudite
---------------------------------
The Company has sold substantially all the net assets of Erudite. The Company
acquired Erudite on May 22, 1996 in a transaction accounted for under the
pooling-of-interests method. The net assets of Erudite sold to Keane, as set
forth in this column, have been excluded from the historical consolidated
balance sheet of the Company in the unaudited pro forma consolidated balance
sheet as of March 31, 1998. The operations of Erudite, as set forth in this
column, have been excluded from the historical statements of operations of the
Company in the unaudited pro forma consolidated statements of operations for
the three months ended March 31, 1998 and the year ended December 31, 1997,
respectively.
The following pro forma adjustments for the sale of the net assets of Erudite
are reflected as of March 31, 1998 in the case of the pro forma consolidated
balance sheet, or as of January 1, 1998 or January 1, 1997, respectively, in
the case of the pro forma consolidated statements of operations for the three
months ended March 31, 1998 and for the year ended December 31, 1997,
respectively.
(A) Net cash proceeds to be received in connection with the sale of the net
assets of Erudite, including transaction costs, is estimated at $4,105 and is
determined as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross proceeds from sale $8,855
Estimated expenses related to sale (950)
Net proceeds 7,905
Less: required paydown of line of credit (3,800)
------
Net increase in cash $4,105
======
</TABLE>
(B) Amount represents an unsecured promissory note issued to the Company in
connection with the sale of the net assets of Erudite. The promissory note
is receivable April 30, 1999.
(C) Amount represents reduction of deferred taxes resulting from estimated
income tax liability related to the gain on the sale of the net assets of
Erudite. The Company's existing net operating loss carryforwards will be
used to offset the taxable gain on this transaction.
(D) Amount represents the write-off of capitalized software development costs
that were not acquired by Keane. Since all operations that would support the
recoverability of these costs have been sold to Keane, the write-off of the
costs is reflected in the calculation of the expected gain on the sale.
(E) Amount represents paydown of the line of credit using proceeds from the
sale of the net assets of Erudite. Such paydown was required pursuant to the
Company's negotiations for extension of its lines of credit.
(F) The net change in stockholders' equity is determined as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross proceeds from sale $8,855
Estimated expenses related to sale (950)
------
Net proceeds 7,905
Add: Promissory note receivable (B) 1,000
Less: Write-off of assets acquired costs (D) ( 815)
Estimated income taxes (C) (2,532)
------
Net increase in stockholders' equity $5,558
======
</TABLE>
(G) Amount represents the reduction of interest expense incurred by the Company
during the three months ended March 31, 1998 and the year ended December 31,
1997 attributable to the borrowings under the bank line of credit that were
repaid with the proceeds from the sale of the net assets of Erudite.
Forward-Looking Statements
- --------------------------
This Form 10-Q contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are subject to
the safe harbors created by those Acts. These statements include the plans
and objectives of management for future operations, including plans and
objectives relating to the development of the Company's business in the
domestic and international marketplace. All forward-looking statements
involve risks and uncertainties, including, without limitation, risks relating
to the Company's ability to enhance existing software products and to introduce
new products in a timely and cost-effective manner, reduced development of
nuclear power plants that may utilize the Company's products, a long pay-back
cycle from the investment in software development, uncertainties regarding the
ability of the Company to grow its revenues and successfully integrate
operations through expansion of its existing business and strategic
acquisitions, the ability of the Company to respond adequately to rapid
technological changes in the markets for process control, data acquisition and
simulation software and systems, significant quarter-to-quarter volatility in
revenues and earnings as a result of customer purchasing cycles and other
factors, dependence upon key personnel, and general market conditions and
competition. The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties as set forth
herein, the failure of any one of which could materially adversely affect the
operations of the Company. The Company's plans and objectives are also based
on the assumptions that market conditions and competitive conditions within
the Company's business areas will not change materially or adversely and that
there will be no material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with
respect, among other things, to future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could
be inaccurate and there can, therefore, be no assurance that the
forward-looking statements included in this Form 10-Q will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2.3 Asset Purchase Agreement among GSE Systems, Inc., GSE
Erudite Software, Inc. and Keane, Inc. dated as of
April 30, 1998.
Exhibit 2.4 Instrument of Assumption of Liabilities among GSE Erudite
Software, Inc. and Keane, Inc. dated as of April 30, 1998.
Exhibit 10.28 Termination of Employment Agreement among
GSE Systems, Inc., GSE Erudite Software, Inc. and
Eugene D. Loveridge, dated as of April 30, 1998.
Exhibit 10.29 Termination of Employment Agreement among
GSE Systems, Inc., GSE Erudite Software, Inc. and
Daniel E. Masterson, dated as of April 30, 1998.
Exhibit 99.1 Press release issued by GSE Systems, Inc. on May 4, 1998
(b) Reports on Form 8-K
None
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: May 15, 1998 GSE SYSTEMS, INC.
/S/ Christopher M. Carnavos
----------------------------
Christopher M. Carnavos
President and Director
(Principal Executive Officer)
/S/ Robert W. Stroup
---------------------
Robert W. Stroup
Executive Vice President and Treasurer
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
BY AND
AMONG
KEANE, INC.,
GSE SYSTEMS, INC.
AND
GSE ERUDITE SOFTWARE, INC.
April 30, 1998
TABLE OF CONTENTS
Page
----
ARTICLE I
SALE AND DELIVERY OF THE ASSETS 1
1.1 Delivery of the Assets 1
1.2 Further Assurances 2
1.3 Assumption of Liabilities; Etc. 2
1.4 Purchase Price 3
1.5 The Closing 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE PARENT 4
2.1 Organization, Qualification and
Corporate Power 4
2.2 Authority 4
2.3 Noncontravention 5
2.4 Ownership of the Assets 5
2.5 Financial Statements 5
2.6 Absence of Certain Changes 5
2.7 Offering Materials 6
2.8 Tax Matters 6
2.9 Fixed Assets 6
2.10 Real Property 6
2.11 Contracts 6
2.12 Intellectual Property 8
2.13 Accounts Receivable 9
2.14 Litigation 9
2.15 Warranty 9
2.16 Employees 9
2.17 Legal Compliance 10
2.18 Books and Records 10
2.19 Customers and Suppliers 10
2.20 Environmental Matters 11
2.21 Certain Business Relationships With
Affiliates 11
2.22 Prepayments 12
2.23 Completeness of Assets 12
2.24 Brokers' Fees 12
2.25 Disclosure 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER 12
3.1 Organization, Qualification and
Corporate Power 12
3.2 Authority 12
3.3 Noncontravention 12
3.4 Brokers' Fees 13
3.5 Disclosure 13
ARTICLE IV
CONDITIONS TO PURCHASE OF THE ASSETS 13
4.1 Conditions to Obligations of the Buyer 13
4.2 Conditions to Obligations of the Seller
and the Parent 14
ARTICLE V
POST-CLOSING COVENANTS 15
5.1 Hired Employees 15
5.2 Sharing of Data 15
5.3 Agreement Not to Compete; Non-Solicitation
Agreement 16
5.5 Use of Name 17
ARTICLE VI
INDEMNIFICATION 17
6.1 Indemnification by the Seller and the Parent 17
6.2 Method of Asserting Claims 17
6.3 Payment of Indemnification Obligations 18
6.4 Survival 19
6.5 Limitation 19
6.6 Parent Guaranty 19
ARTICLE VII
MISCELLANEOUS 19
7.1 Press Releases and Announcements 19
7.2 Proprietary Information 20
7.3 No Third Party Beneficiaries 20
7.4 Entire Agreement 20
7.5 Succession and Assignment 20
7.6 Counterparts 20
7.7 Headings 20
7.8 Notices 20
7.9 Governing Law 21
7.10 Amendments and Waivers 21
7.11 Severability 21
7.12 Expenses 21
7.13 Construction 21
7.14 Incorporation of Exhibits and Schedules 21
7.15 Immediate Vesting of 401(k) Plan 21
Exhibit A -Instrument of Assumption of Liabilities
Exhibit B -Form of Promissory Note
Exhibit C -Opinion of Thomas K. Milhollan, General Counsel to
the Seller and the Parent
Exhibit D -Bill of Sale
Exhibit E -Form of Noncompete Agreement
Schedule 1.1-Contract Rights
Schedule 1.3-Assumed Liabilities
Schedule 5.1-Hired Employees
Disclosure Schedule
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of the
30th day of April, 1998, by and among Keane, Inc., a Massachusetts
corporation (the "Buyer"), GSE Systems, Inc., a Delaware corporation (the
"Parent"), and GSE Erudite Software, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Parent (the "Seller"). The Buyer, the Parent
and the Seller are referred to collectively herein as the "Parties."
Preliminary Statement
WHEREAS, the Seller is in the business of (i) providing computer
programming, software consulting and development services, database and
computer tool training, staff augmentation and related services,
(ii) developing and selling computer games and (iii) engaging in computer
hardware and software sales (the business of the Seller as it is currently
conducted and as it has been conducted at any time in the past two (2) years
being hereinafter referred to as the "Business");
WHEREAS, the Buyer desires to purchase, and the Parent and the Seller
desire to sell, substantially all of the assets and Business associated with the
Seller for the consideration set forth below and the assumption of certain of
the Seller's liabilities set forth below, subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Parties hereby agree as follows:
ARTICLE I
SALE AND DELIVERY OF THE ASSETS
1.1 Delivery of the Assets.
(a) Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by this Agreement
(the "Closing"), the Seller shall sell, transfer, convey, assign and deliver
to the Buyer, and the Buyer shall purchase from the Seller, the following
properties, assets and other claims, rights and interests:
(i) all rights of the Seller, including accounts and notes
receivable, (collectively, the "Contract Rights") under the contracts,
purchase and sale orders, leases, agreements, licenses and other instruments
set forth on Schedule 1.1 attached hereto (the "Assumed Contracts);
(ii) all of the Seller's right, title and interest in and to
all intangible property rights used or useful in conducting the Business of
the Seller, including but not limited to inventions, discoveries, trade
secrets, processes, formulas, know-how, United States and foreign patents,
patent applications, trade names, including the names "Erudite Software,"
"Erudite Software Base Class Libraries," "Modification Tracking System,"
"Student Tracking System," "The Hundred Years War" and "Erudite Development
Process" or any derivations thereof, trademarks, service marks and
copyrights, and any registrations or applications for registrations relating
thereto, computer software, data and documentation, research and development
information, financial, marketing and business information and other
proprietary rights relating to any of the foregoing owned or, where not
owned, used by the Seller in conducting its Business, and all goodwill
related thereto, and all licenses, sublicenses and other agreements to which
the Seller is a party (as licensor or licensee) or by which the Seller is
bound relating to any of the foregoing kinds of property or rights to any
"know-how" or disclosure or use of ideas (collectively, the "Intellectual
Property");
(iii) all books, records, correspondence, technical, accounting
and procedural manuals, marketing information, customer lists and client files,
employment records and employee files, studies, reports or summaries
(collectively, the "Records") relating to the Assets (as defined below)
and/or the operation of the Business, and any confidential information which
has been reduced to writing relating to or arising out of the Business;
(iv) all of the computers, furniture and equipment, tangible
personal property, machinery, maintenance supplies and tools owned by the
Seller on the Closing Date (as defined below) and used or useful in
conducting the Business of the Seller (including without limitation those
located at client sites or in possession of employees for client work),
whether or not reflected as capital assets in the accounting records of the
Seller (collectively, the "Fixed Assets");
(v) all work in progress relating to any Assumed Contract
which exists on the Closing Date (the "Inventory"); and
(vi) all employee receivables, accounts receivable, notes
receivable, and other receivables that are payable to the Seller, including
any security held by the Seller or the Parent for the payment thereof, all of
which shall be set forth in Section 2.5 of the Disclosure Schedule (the
"Accounts Receivable").
(b) The Contract Rights, Intellectual Property, Records,Fixed
Assets, Inventory, Accounts Receivable and other properties, assets and
business of the Seller described in paragraph (a) above are hereinafter
referred to collectively as the "Assets."
Notwithstanding the foregoing, the Parties acknowledge and agree that the
Assets shall not include any petty cash on hand or in checking accounts of
the Seller.
1.2 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Seller
and the Parent promptly shall execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take such other action,
as the Buyer may reasonably request to more effectively transfer, convey and
assign to the Buyer, and to confirm the Buyer's title to, all of the Assets,
to put the Buyer in actual possession and operating control thereof, to assist
the Buyer in exercising all rights with respect thereto and to carry out the
purpose and intent of this Agreement.
1.3 Assumption of Liabilities; Etc.
(a) At the Closing, the Buyer shall execute and deliver an
Instrument of Assumption of Liabilities (the "Instrument of Assumption") in
the form attached hereto as Exhibit A, pursuant to which it shall assume and
agree to perform, pay and discharge the following liabilities, obligations and
commitments of the Seller (the "Assumed Liabilities"):
(i) All obligations of the Seller continuing after the Closing
under the Assumed Contracts which become due and payable after the Closing Date;
and
(ii) All other liabilities and obligations of the Seller
specifically set forth on Schedule 1.3 attached hereto.
(b) The Buyer shall not at the Closing assume or agree to perform,
pay or discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities.
1.4 Purchase Price.
(a) The purchase price (the "Purchase Price") to be paid by the
Buyer for the Assets shall be the sum of (i)$8,855,448, subject to the
adjustments provided in this Section 1.4 (the "Cash Portion of the Purchase
Price") payable by certified check or by wire transfer of immediately
available funds to an account designated by the Seller and (ii) an unsecured
promissory note of the Buyer in the original principal amount of $1,000,000
in substantially the form attached hereto as Exhibit B (the "Note").
(b) Not later than 15 calendar days after the Closing Date, the
Buyer shall deliver to the Seller a balance sheet of the Seller as of the
Closing Date (the "Closing Balance Sheet"). The Closing Balance Sheet shall be
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied consistently with the Seller's past practice
(to the extent such past practices are consistent with GAAP), subject to the
adjustments set forth in this Section 1.4 (which shall be in addition to and
not in lieu of those required by GAAP). The Closing Balance Sheet shall be
signed by Eugene D. Loveridge, formerly the President of the Seller, whose
signature shall certify that the Closing Balance Sheet was prepared
consistently with the Seller's past practice.
(c) The Closing Balance Sheet delivered pursuant to paragraph (b)
above shall be accompanied by (i) all relevant backup materials and schedules,
in detail reasonably acceptable to the Seller and (ii) a statement setting
forth the amount, if any, by which the Net Asset Value (which shall mean the
Assets (excluding any in-house developed software) less the Assumed
Liabilities, each as shown on the Closing Balance Sheet) is greater than, or
less than, $2,198,903 (such amount, the "Closing Net Book Value Adjustment")
(with the Closing Net Book Value Adjustment to be expressed as a positive
number if the Net Asset Value on the Closing Balance Sheet is greater than
$2,198,903 and as a negative number if the Net Asset Value on the Closing
Balance Sheet is less than $2,198,903. The Closing Balance Sheet shall be
accompanied by a statement setting forth the calculations showing the basis
for the determination of such sums.
(d) In the event that the Seller disputes the Closing Balance Sheet
or the calculation of the Closing Net Book Value Adjustment, the Seller shall
notify the Buyer in writing (the "Dispute Notice") of the amount, nature and
basis of such dispute, within 15 calendar days after delivery of the Closing
Balance Sheet. In the event of such a dispute, the Buyer and the Seller shall
first use their diligent good faith efforts to resolve such dispute between
themselves. If the parties are unable to resolve the dispute within 30
calendar days after delivery of the Dispute Notice, then any remaining items
in dispute shall be submitted to an independent nationally recognized
accounting firm selected in writing by the Seller and the Buyer or, if the
Seller and Buyer fail or refuse to select such a firm within 10 calendar days
after written request therefor by the Seller or the Buyer, such an independent
nationally recognized accounting firm shall be selected in accordance with the
rules of the American Arbitration Association (the "Arbitrator"). The
Arbitrator shall determine the remaining disputed items and report to the
Seller and the Buyer in writing with respect to such items. The Arbitrator's
decision shall be final, conclusive and binding on all parties. A judgment on
the determination made by the Arbitrator pursuant to this Section 1.4 may be
entered into and enforced by any court having jurisdiction thereover.
(e) The fees and expenses of the Arbitrator in connection with the
resolution of disputes pursuant to paragraph (d) above shall be shared
equally by the Seller and the Buyer.
(f) Immediately upon the expiration of the 15-day period for giving
the Dispute Notice, if no Dispute Notice is given, or immediately upon the
resolution of disputes, if any, pursuant to Section 1.4(d) above, the Parties
shall make the post-closing adjustments as follows:
(i) if the Closing Net Book Value Adjustment is negative, the
Seller shall pay to the Buyer an amount equal to the
Closing Net Book Value Adjustment;
(ii) if the Closing Net Book Value Adjustment is zero, there
shall be no adjustment to the Purchase Price as a result
of this Section 1.4; and
(iii) if the Closing Net Book Value Adjustment is positive, the
Buyer shall pay to the Seller an amount equal to the
Closing Net Book Value Adjustment.
Such amounts shall be payable by the Seller or the Buyer, as the case may be, in
cash, by cashier's or certified check or by wire transfer of immediately
available funds to an account designated by the party entitled to payment (at
the option of the party entitled to payment), and shall be paid within five
business days following the determination of the Closing Net Book Value
Adjustment in accordance with this Section 1.4(f).
1.5 The Closing. The Closing shall take place at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m., Boston
time, on the date of execution of this Agreement (the "Closing Date"). At
the Closing the Parties shall execute and deliver the instruments contemplated
by Article IV hereof. Such instruments may, at the election of the Parties,
be exchanged by telecopier upon a written undertaking to provide original
executed copies within one business day following the Closing. The transfer of
the Assets by the Seller and the assumption of the Assumed Liabilities by the
Buyer shall be deemed to occur at 12:01 a.m. Boston time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE PARENT
The Seller and the Parent represent and warrant to the Buyer that the
statements contained in this Article II are true and correct, except as set
forth in the disclosure schedule attached hereto (the "Disclosure Schedule").
The Disclosure Schedule shall be arranged in sections and paragraphs
corresponding to the numbered and lettered sections and paragraphs contained
in this Article II, and the disclosures in any section or paragraph of the
Disclosure Schedule shall qualify only the corresponding section or paragraph
in this Article II.
2.1 Organization, Qualification and Corporate Power. The Seller is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation. The Seller is
duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its business or
the ownership or leasing of its properties requires such qualification. The
Seller has all requisite corporate power and authority to carry on the
business in which it is engaged and to own and use the properties owned and
used by it. The Seller has furnished to the Buyer a true and complete copy
of its Certificate of Incorporation and By-laws. The Seller is not in default
under or in violation of any provision of its Certificate of Incorporation or
By- laws.
2.2 Authority. The Seller and the Parent have all requisite power and
authority to execute and deliver this Agreement and to perform their
respective obligations hereunder. The Seller has all requisite power and
authority to execute and deliver the Bill of Sale (as defined below) and to
perform its obligations thereunder. The execution, delivery and performance
by the Seller and the Parent of this Agreement, and the execution, delivery
and performance by the Seller of the Bill of Sale, and the consummation by
the Seller and the Parent of the transactions contemplated hereby and thereby,
have been duly and validly authorized by all necessary corporate and
stockholder action on the part of the Seller and the Parent. This Agreement has
been duly and validly executed and delivered by the Seller and the Parent and
constitutes valid and binding obligations of the Seller and the Parent,
enforceable against the Seller and the Parent in accordance with its terms.
The Bill of Sale has been duly and validly executed and delivered by the
Seller and constitutes the valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms.
2.3 Noncontravention. Neither the execution and delivery of this
Agreement by the Seller or the Parent, the execution and delivery of the Bill
of Sale by the Seller, nor the consummation by the Seller and the Parent of
the transactions contemplated hereby and thereby, will (a) conflict with or
violate any provision of the charter or By-laws or comparable agreement or
document of the Seller or the Parent, (b) require on the part of the Seller
or the Parent any filing with, or any permit, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency
("a "Governmental Entity"), (c) conflict with, result in a breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to
which the Seller or the Parent is a party or by which the Seller or the
Parent is bound or to which any of their respective assets is subject,
(d) result in the imposition of any Security Interest upon any assets of the
Seller or the Parent, or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Seller the Parent or any of
their respective properties or assets. For purposes of this Agreement,
"Security Interest" means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by operation of law), other
than (i) mechanic's, materialmen's, and similar liens, (ii) liens for taxes not
yet due and payable or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings, (iii) liens arising under worker's
compensation, unemployment insurance, social security, retirement and similar
legislation, (iv) liens on goods in transit incurred pursuant to documentary
letters of credit, (v) purchase money liens and liens securing rental payments
under capital lease arrangements, and (vi) other liens arising in the ordinary
course of business consistent with past custom and practice (including with
respect to frequency and amount) of the Seller in connection with the Business
of the Seller (the "Ordinary Course of Business") and not incurred in
connection with the borrowing of money.
2.4 Ownership of the Assets. There are no mortgages,
liens, pledges, Security Interests, restrictions or similar encumbrances
affecting the Assets. The Seller is the true and lawful owner of the Assets,
and has the right to sell and transfer to the Buyer good, clear, record and
marketable title to the Assets, free and clear of all claims, liabilities,
liens, pledges, Security Interests or encumbrances of any kind. The delivery
to the Buyer of the instruments of conveyance contemplated by this Agreement
will vest good and marketable title to the Assets in the Buyer, free and clear
of all claims, liabilities, liens, pledges, Security Interests or encumbrances
of any kind.
2.5 Financial Statements. The Seller has provided to the Buyer complete
and accurate copies of its (a) unaudited balance sheets and related statements
of income, retained earnings, stockholders' equity and cash flows for the fiscal
year ended December 31, 1997, (b) unaudited balance sheet dated February 28,
1998, and (c) unaudited balance sheet and related statements of income,
retained earnings, stockholders' equity and cash flows for the three-month
period ended March 31, 1998. The foregoing financial statements together
with the Closing Balance Sheet, (the "Financial Statements") have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby (except as may be indicated therein or in the notes
thereto), fairly present the financial condition, results of operations and
cash flows of the Seller as of the respective dates thereof and for the
periods referred to therein, and are consistent with the books and records of
the Parent and the Seller. Section 2.5 of the Disclosure Statement sets forth
a detailed breakdown of each line item in the Financial Statements as of the
Balance Sheet Date (to the extent not set forth in any other section of the
Disclosure Schedule).
2.6 Absence of Certain Changes. Since March 31, 1998, there has not been
any material adverse change in the assets, business, financial condition,
results of operations or future prospects of the Business or the Seller
("Material Adverse Effect"), nor has there occurred any event or development
which could reasonably be foreseen to result in such a material adverse change
in the future.
2.7 Offering Materials. The Seller and the Parent have provided to the
Buyer a confidential memorandum dated March 2, 1998 titled "GSE Erudite
Software, Inc." and attached hereto in Section 2.7 of the Disclosure Schedule
(the "Offering Materials"). The information set forth in the Offering
Materials was true, complete and accurate in all respects as of its date.
2.8 Tax Matters. The amounts shown on the Closing Balance Sheet as
"sales tax payable - Utah and Arizona" and "Sales tax payable - Idaho"
represent the entire actual or potential liability for any Tax obligation of
the Seller relating to Utah, Arizona and Idaho.
2.9 Fixed Assets. Section 2.9 of the Disclosure Schedule sets forth
a true, correct and complete list of all Fixed Assets as of the Closing Date,
including a description thereof and the date of purchase, original cost,
accumulated depreciation and book value thereof. All of the Fixed Assets are
in good operating condition and repair, normal wear and tear excepted, are
currently used by the Seller in the Ordinary Course of Business and normal
maintenance has been consistently performed with respect to such Fixed Assets.
2.10 Real Property. The Seller does not own any real property. Section
2.10 of the Disclosure Schedule lists and describes briefly all real property
leased or subleased to the Seller and all real property subleased by the
Seller and included in the Assets and lists the term of such lease, any
extension and expansion options, and the rent payable thereunder. The Seller
has delivered to the Buyer correct and complete copies of the leases and
subleases (as amended to date) listed in Section 2.10 of the Disclosure
Schedule. With respect to each lease and sublease listed in Section 2.10 of
the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding and enforceable
against the Seller and in full force and effect;
(b) to the knowledge of the Seller and the Parent, the lease or
sublease is legal, valid, binding and enforceable against the other party
thereto;
(c) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(d) neither Seller nor, to the Seller's and the Parent's knowledge,
any other party to the lease or sublease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(e) there are no disputes, oral agreements or forbearance programs
in effect as to the lease or sublease;
(f) except as set forth in Section 2.10 of the Disclosure Schedule,
the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the leasehold or subleasehold;
(g) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities; and
(h) no construction, alteration or other leasehold improvement
work with respect to the lease or sublease remains to be paid for or performed
by the Seller.
2.11 Contracts.
(a) Section 2.11 of the Disclosure Schedule lists the following
written arrangements (including without limitation written agreements) to which
the Seller is a party:
(i) any written arrangement (or group of related written
arrangements) for the furnishing or receipt of services;
(ii) any written arrangement concerning confidentiality, non-
competition or non-solicitation (other than confidentiality agreements with
customers or employees of the Seller set forth in the Seller's standard terms
and conditions of sale or standard form of employment agreement, copies of
which have previously been delivered to the Buyer);
(iii) any written arrangement under which the consequences of
a default or termination could have a material adverse effect on the assets,
business, financial condition, results of operations or future prospects of
the Business or the Seller or on the ability of the Parties to consummate the
transactions contemplated by this Agreement and the Bill of Sale;
(iv) any written arrangement which requires or contemplates
the performance of services or the delivery of products by the Seller (which
arrangements shall also be listed on Schedule 1.1); and
(v) any other written arrangement (or group of related written
arrangements) (A) reflecting or relating to the Contract Rights or the Assumed
Contracts, (B) involving more than $50,000, or (C) not entered into in the
Ordinary Course of Business.
(b) Section 2.11 of the Disclosure Schedule accurately discloses
with respect to each arrangement or agreement disclosed therein (the
"Contracts"), if applicable, (i) the project name; (ii) the date of the
Contract and the term of the Contract; (iii) the customer name and address;
(iv) the contract amount or, if the contract amount is not fixed, a good faith,
reasonable estimate of the contract amount; (v) the estimated contract amount
most recently communicated to the customer if contract amount is not fixed;
(vi) the total billings to date under such Contract; (vii) the estimated
completion dates therefor; (viii) whether or not the Seller has any reason to
believe that such Contract will be unprofitable or that its profit margin
with respect to such Contract might be less than it had estimated when it
entered into the Contract; and (ix) whether or not such Contract is included
within the Assets to be acquired by the Buyer under this Agreement.
(c) The Seller has delivered to the Buyer a correct and complete
copy of each Contract (as amended to date). With respect to each Contract:
(i) the Contract is legal, valid, binding and enforceable against the Seller
and in full force and effect; (ii) to the knowledge of the Seller and the
Parent, the Contract is legal, valid, binding and enforceable against the
other party thereto; (iii) the Contract will continue to be legal, valid,
binding and enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
and (iv) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration, under the Contract. The Seller
shall use best efforts to obtain as soon as practicable after the date hereof
all requisite consents to assignments or novations, as the case may be, of all
of the Contracts and the Buyer agrees to cooperate with the Seller and to use
all reasonable efforts to assist in obtaining such consents. If any such
required consents cannot be secured without the incurring of any significant
additional costs, the Seller and the Buyer shall enter into such other
arrangements with respect to the underlying obligations as shall permit the
Buyer or any of its affiliates to perform the obligations of the Seller
thereunder, as a subcontractor or otherwise, and the Buyer to obtain the
benefit thereof (the "Subcontracted Work") and until the requisite consents are
obtained, such obligations shall not be deemed to be Assets and nothing
contained herein shall be deemed to constitute a breach of the contract
underlying such obligations. The Buyer agrees to diligently perform and
discharge the obligations of the Seller in connection with the Subcontracted
Work and if and to the extent that consents to assignment are obtained after
the date hereof, the Buyer agrees that such obligations shall no longer be
considered to be Subcontracted Work, but shall instead be deemed to be Assets
for all purposes of this Agreement.
(d) Except as listed in Section 2.11 of the Disclosure Schedule,
the Seller is not a party to any oral contract, agreement or other arrangement
which, if reduced to written form, would be required to be disclosed under the
terms of this Section 2.11. Except as listed in Section 2.11 of the Disclosure
Schedule, the Seller is not a party to any written or oral arrangement relating
to the Business or the Seller (i) to perform services or sell products which is
expected to be performed at, or to result in, a loss, or (ii) which requires
the performance of services or the delivery of products by the Seller at a
fixed price (which shall include, for purposes of this Agreement, an agreement
for the provision of services on a "time and materials not to exceed" basis).
Except as listed in Section 2.11 of the Disclosure Schedule, the Seller has not
pre-billed or accepted customer deposits from any of its clients and none of its
clients are entitled to a credit for products to be shipped or services to be
performed after the Closing Date. The Seller is not restricted by any
Contract from carrying on the Business anywhere in the world.
2.12 Intellectual Property.
(a) The Seller owns, or is licensed or otherwise possesses legally
enforceable right to use, all intellectual property used in the operation of
the Business or necessary for the operation of the Business as presently
proposed to be conducted. Each item of intellectual property owned by or used
in the operation of the Business at any time during the period covered by the
Financial Statements will be owned or available for use by the Buyer on
identical terms and conditions immediately following the Closing. The Seller
has taken reasonable measures to protect the proprietary nature of each item
of Intellectual Property and to maintain in confidence all trade secrets and
confidential information, that it owns or uses. To the knowledge of the Seller
and the Parent, (i) no other person or entity has any rights to any of the
Intellectual Property owned or used by the Seller, and (ii) no other person
or entity is infringing, violating or misappropriating any of the Intellectual
Property that the Seller owns or uses.
(b) None of the activities or business conducted by the Seller
infringes, violates or constitutes a misappropriation of (or in the past
infringed, violated or constituted a misappropriation of) any Intellectual
Property rights of any other person or entity. The Seller has not received
any complaint, claim or notice alleging any such infringement, violation or
misappropriation, and to the knowledge of the Seller and the Parent, there is
no basis for any such complaint, claim or notice.
(c) Section 2.12(c) of the Disclosure Schedule identifies each (i)
patent or registration that has been issued to the Seller with respect to any
of its Intellectual Property, (ii) pending patent application or application
for registration that the Seller has made with respect to any of its
Intellectual Property, and (iii) license or other agreement pursuant to which
the Seller has granted any rights to any third party with respect to any of
its Intellectual Property. The Seller has delivered to the Buyer correct and
complete copies of all such patents, registrations, applications, licenses
and agreements (as amended to date) and has specifically identified and made
available to the Buyer correct and complete copies of all other written
documentation evidencing ownership of, and any claims or disputes relating to,
each such item. Except as set forth in Section 2.12(c) of the Disclosure
Schedule, with respect to each item of Intellectual Property that the Seller
owns:
(A) subject to such rights as have been granted by the Seller
under license agreements entered into in the Ordinary Course of Business of
the Seller, the Seller possesses all right, title and interest in and to such
item;
(B) such item is not subject to any outstanding judgment,
order, decree, stipulation or injunction; and
(C) the Seller has not agreed to indemnify any person or
entity for or against any infringement, misappropriation or other conflict
with respect to such item.
(d) Section 2.12(d) of the Disclosure Schedule identifies each
item of intellectual property used in the operation of the business of the
Seller at any time during the period covered by the Financial Statements that
is owned by a party other than the Seller (other than commercially available
desktop software applications generally available to the public, which are
not listed in Section 2.12(d) of the Disclosure Schedule but with respect to
which the representations set forth below in this Section 2.12(d) are true).
The Seller has supplied the Buyer with correct and complete copies of all
licenses, sublicenses or other agreements (as amended to date) pursuant to
which the Seller uses such intellectual property, all of which are listed on
Section 2.12(d) of the Disclosure Schedule. Except as set forth in Section
2.12(d) of the Disclosure Schedule, with respect to each such item of
intellectual property:
(i) the license, sublicense or other agreement covering such
item is legal, valid, binding and enforceable against the Seller and in full
force and effect, and, to the knowledge of the Seller and the Parent, the
license, sublicense or other agreement covering such item is legal, valid and
enforceable against the other party thereto;
(ii) to the knowledge of the Seller and the Parent, such
license, sublicense or other agreement will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(iii) neither the Seller nor, to the knowledge of the Seller
or the Parent, any other party to such license, sublicense or other agreement
is in breach or default, and no event has occurred with respect to the Seller
or the Parent, or to the knowledge of the Seller and the Parent, with respect
to the other party thereto which with notice or lapse of time would constitute
a breach or default or permit termination, modification or acceleration
thereunder;
(iv) the underlying item of intellectual property is not
subject to any outstanding judgment, order, decree, stipulation or injunction;
(v) the Seller has not agreed to indemnify any person or
entity for or against any interference, infringement, misappropriation or
other conflict with respect to such item; and
(vi) no license or other fee is payable upon any transfer or
assignment of such license, sublicense or other agreement.
2.13 Accounts Receivable. All Accounts Receivable of the Seller
reflectedon the Closing Balance Sheet other than the Note Receivable are valid
receivables subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which it first became due and
payable), net of the applicable reserve for bad debts on the Closing Balance
Sheet. The Note Receivable is a valid receivable subject to no setoffs or
counterclaims and is current and collectable in accordance with its terms.
2.14 Litigation. Section 2.14 of the Disclosure Schedule identifies,
and contains a brief description of, (a) any unsatisfied judgment, order,
decree, stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any Governmental Entity or
before any arbitrator to which the Seller is a party or, to the knowledge of
the Seller or the Parent, is threatened to be made a party (collectively,
"Litigation"). None of the complaints, actions, suits, proceedings, hearings
and investigations set forth in Section 2.14 of the Disclosure Schedule could
have a Material Adverse Effect.
2.15 Warranty. Except as set forth in Section 2.15 of the Disclosure
Schedule, no product or service manufactured, sold, licensed, leased, delivered
or otherwise provided by the Seller is subject to any guaranty, warranty (other
than warranties that may be implied under law), right of return or other
indemnity.
2.16 Employees.
(a) Section 2.16 of the Disclosure Schedule contains a list of
(i) all employees of the Seller based at, or otherwise providing services
primarily on behalf of, the Seller (the "Seller Employees") and (ii) all
employees of Emcor, Inc., a Utah corporation ("Emcor"), based at or otherwise
providing services on behalf of, the Seller (the "Emcor Employees" and together
with the Seller Employees, the "Employees"), along with the position,date of
hire or in the case of Emcor Employees, date or commencement of services for
the Seller, annual rate of compensation (or, with respect to Employees
compensated on an hourly or per diem basis, the hourly or per diem rate of
compensation) and estimated or target annual incentive compensation of each such
Employee. None of the Employees is a party to an employment agreement or
contract with the Seller. None of the Emcor Employees is a party to an
employment agreement, non-competition agreement or other contract with Emcor
pursuant to which such Emcor Employees will have any rights or obligations on
or after the Closing Date. Section 2.16 of the Disclosure Schedule lists each
Employee and indicates the form of agreement relating to confidentiality, non-
competition, non-solicitation and/or assignment of inventions executed by such
Employee. Section 2.16 of the Disclosure Schedule includes a copy of each form
of agreement referred to in the preceding sentence.
(b) Neither the Seller nor Emcor is a party to or bound by any
collective bargaining agreement, nor have either of the Seller or Emcor
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. Neither the Seller, the Parent nor Emcor has
knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to the Employees. Neither the Seller
nor Emcor has any financial obligation to any Hired Employee (as defined below)
except for financial obligations that will be paid by the Seller pursuant to
Section 5.1(b) of this Agreement.
(c) For purposes of this Agreement, the term "employee" shall be
construed to include sales agents and other independent contractors who spend
a majority of their working time on the business of the Seller (each of whom
shall be so identified in Section 2.16 of the Disclosure Schedule).
(d) To the knowledge of Emcor, Emcor, and the conduct and operations
of its business, are and have been in compliance with each law (including rules
and regulations thereunder) of any federal, state, local or foreign government,
or any Governmental Entity which is applicable to the Emcor Employees.
2.17 Legal Compliance. The Seller, the Parent and any subsidiary of the
Seller, and the conduct and operations of their business, are in compliance with
each law (including rules and regulations thereunder) of any federal, state,
local or foreign government, or any Governmental Entity, which (a) affects or
relates to this Agreement or the Bill of Sale or the transactions contemplated
hereby or thereby or (b) is applicable to the Seller or the Business.
2.18 Books and Records. The books and records of the Seller accurately
reflect the assets, liabilities, business, financial condition and results of
operations of the Seller (including its Business) and have been maintained in
accordance with customary business and bookkeeping practices.
2.19 Customers and Suppliers. Except as set forth in Section 2.19 of the
Disclosure Schedule, no customer of the Seller that accounted for gross revenues
to the Seller of $225,000 or more in the 15 months ended March 31, 1998 has
indicated within the past year that it will stop, or decrease the rate of,
buying materials, products or services from the Seller. To the knowledge of the
seller and the Parent, the Seller has good customer relations with the
customers of the Seller. None of such customers has notified the Seller that
it intends to discontinue its relationship with the Seller. No unfilled
customer order or commitment obligating the Seller to process, manufacture or
deliver products or perform services will result in a loss to the Seller upon
completion of performance. No purchase order or commitment of the Seller is
in excess of normal requirements, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder.
No material supplier of the Seller has indicated within the past year that it
will stop, or decrease the rate of, supplying materials, products or services
to them. Section 2.19 of the Disclosure Schedule sets forth a list of (a) each
customer of the Seller during the last full fiscal year and the interim period
through the Balance Sheet Date and the amount of revenues accounted for by such
customer during each such periods and (b) each supplier that is the sole
supplier of any significant product or component to the Seller.
2.20 Environmental Matters.
(a) The Seller has complied with all applicable Environmental Laws
(as defined below). There is no pending or, to the knowledge of the Seller or
the Parent, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Seller. For purposes of this Agreement, "Environmental Law"
means any federal, state or local law, statute, rule or regulation or the
common law relating to the environment or occupational health and safety,
including without limitation any statute, regulation or order pertaining to
(i) treatment, storage, disposal, generation and transportation of industrial,
toxic or hazardous substances or solid or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
substances, or solid or hazardous waste, including without limitation emissions,
discharges, injections, spills, escapes or dumping of pollutants, contaminants
or chemicals; (v) the protection of wild life, marine sanctuaries and wetlands,
including without limitation all endangered and threatened species; (vi) storage
tanks, vessels and containers; (vii) underground and other storage tanks or
vessels, abandoned, disposed or discarded barrels, containers and other closed
receptacles; (viii) health and safety of employees and other persons; and
(ix) manufacture, processing, use, distribution, treatment, storage, disposal,
transportation or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or oil or petroleum products or solid or hazardous
waste. As used above, the terms "release" and "environment" shall have the
meaning set forth in the federal Comprehensive Environmental Compensation,
Liability and Response Act of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility formerly or currently owned, operated or controlled by the
Seller. With respect to any such releases of Materials of Environmental
Concern, the Seller has given all required notices to Governmental Entities
(copies of which have been provided to the Buyer). Neither the Seller nor the
Parent is aware of any releases of Materials of Environmental Concern at
parcels of real property or facilities other than those owned, operated or
controlled by the Seller that could reasonably be expected to have an impact
on the real property or facilities owned, operated or controlled by the Seller.
For purposes of this Agreement, "Materials of Environmental Concern" means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as such terms are
defined under the federal Resources Conservation and Recovery Act), toxic
materials, oil or petroleum and petroleum products, or any other material
subject to regulation under any Environmental Law.
(c) Set forth in Section 2.20(c) of the Disclosure Schedule is a
list of all environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Seller (whether
conducted by or on behalf of the Seller or a third party, and whether done at
the initiative of the Seller or directed by a Governmental Entity or other
third party) which the Seller has possession of or access to. Complete and
accurate copies of each such report, or the results of each such investigation
or audit, have been provided to the Buyer.
(d) Set forth in Section 2.20(d) of the Disclosure Schedule is a
list of all of the solid and hazardous waste transporters and treatment,
storage and disposal facilities that have been utilized by the Seller.
Neither the Seller nor the Parent is aware of any material environmental
liability of any such transporter or facility.
2.21 Certain Business Relationships With Affiliates. No Affiliate (as
defined below) of the Seller (a) owns any property or right, tangible or
intangible, which is used in the business of the Seller, (b) has any claim or
cause of action against the Seller, (c) owes any money to the Seller or (d) is
a party to any contract or other arrangement (written or verbal) with the
Seller (the agreements, arrangements and relationships described in this
sentence are hereinafter referred to as "Related Party Transactions").
Section 2.21 of the Disclosure Schedule summarizes any Related Party
Transactions.
2.22 Prepayments. The Seller has not received or submitted any invoices
or requests for any prepayment or deposits from customers for products to be
shipped, or services to be performed, after the Closing Date.
2.23 Completeness of Assets. The Assets are, when utilized by a labor
force substantially similar to that employed by the Seller on the date hereof,
adequate to conduct the Business as currently conducted by the Seller.
2.24 Brokers' Fees. The Seller has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.25 Disclosure. No representation or warranty by the Seller or the
Parent contained in this Agreement, and no statement contained in the
Disclosure Schedule, the Financial Statements or any other document,
certificate or other instrument delivered or to be delivered by or on behalf of
the Seller or the Parent pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omit or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
3.1 Organization, Qualification and Corporate Power. The Buyer is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation. The Buyer is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such qualification. The Buyer
has all requisite corporate power and authority to carry on the business in
which it is engaged and to own and use the properties owned and used by it.
The Buyer is not in default under or in violation of any provision of its
Articles of Organization or By-laws.
3.2 Authority. The Buyer has all requisite corporate power and authority
to execute and deliver this Agreement and the Instrument of Assumption of
Liabilities in the form attached hereto as Exhibit A (the "Instrument of
Assumption") and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by the Buyer of this Agreement and the
Instrument of Assumption and the consummation by the Buyer of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of the Buyer. This Agreement and the
Instrument of Assumption have been duly and validly executed and delivered by
the Buyer and constitute valid and binding obligations of the Buyer,
enforceable against the Buyer in accordance with their respective terms.
3.3 Noncontravention. Neither the execution and delivery of this
Agreement or the Instrument of Assumption by the Buyer, nor the consummation
by the Buyer of the transactions contemplated hereby and thereby, will
(a) conflict with or violate any provision of the charter or By-laws of the
Buyer, (b) require on the part of the Buyer any filing with, or any permit,
authorization, consent or approval of, any Governmental Entity, (c) conflict
with, result in a breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration of, create in
any party any right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest or other arrangement to
which the Buyer is a party or by which the Buyer is bound or to which any of
its assets is subject, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or any of its properties
or assets.
3.4 Brokers' Fees. The Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.5 Disclosure. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in any other document, certificate
or other instrument delivered to or to be delivered by or on behalf of the
Buyer pursuant to this Agreement, contains or will contain any untrue statement
of a material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
ARTICLE IV
CONDITIONS TO PURCHASE OF THE ASSETS
4.1 Conditions to Obligations of the Buyer. The obligations of the
Buyer under this Agreement are subject to the satisfaction of the following
conditions:
(a) the Seller shall have obtained all of the waivers, permits,
consents, approvals and other authorizations, and effected all of the
registrations, filings and notices, from third parties and Governmental
Entities necessary to effect the transactions contemplated by this Agreement;
(b) the representations and warranties of the Seller and the Parent
set forth in Article II shall be true and correct in all material respects as
of the Closing Date, except for representations and warranties made as of a
specific date, which shall be true and correct as of such date;
(c) the Seller and the Parent shall have performed or complied with
its agreements and covenants required to be performed or complied with under
this Agreement as of or prior to the Closing Date;
(d) no action, suit or proceeding shall be pending or threatened
before any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or
(iii) affect adversely the right of the Buyer to own, operate or control the
Assets or the Business, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(e) the Seller and the Parent shall have delivered to the Buyer a
certificate (without qualification as to knowledge or materiality or otherwise)
to the effect that each of the conditions specified in clauses (a) through
(d) and clause (g) of this Section 4.1 is satisfied in all respects;
(f) the Buyer shall have received an opinion of Thomas K. Milhollan,
General Counsel to the Seller and the Parent, dated as of the Closing Date, in
the form attached hereto as Exhibit C;
(g) all corporate and other proceedings required to be taken on
the part of the Seller and the Parent to authorize or carry out this
Agreement and to convey, assign, transfer and deliver the Assets shall have been
taken;
(h) at the Closing the Buyer shall receive good, clear, record and
marketable title to the Assets, free and clear of all liens, liabilities,
Security Interests and encumbrances of any nature whatsoever, other than those
imposed by acts of the Buyer;
(i) the Buyer shall have received at or prior to the Closing each
of the following documents:
(i) a Bill of Sale in the form attached hereto as Exhibit D
(the "Bill of Sale");
(ii) the Records, all in form and substance satisfactory to
the Buyer;
(iii) such contracts, files and other data and documents
pertaining to the Assets or the Business as the Buyer may reasonably request;
(iv) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing (including tax) of the
Seller in Delaware;
(v) certificates of the Secretary of State of the States of
Arizona and Utah as to the good standing (including tax in such jurisdictions
where the Secretary of State will reference tax in a good standing certificate)
of the Seller in such jurisdictions;
(vi) certificates of the Secretary of the Seller attesting to
the incumbency of the Seller's officers and the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement; and
(vii) a cross receipt executed by the Buyer and the Seller;
(j) Each of Eugene D. Loveridge, Gary L. Gray and Daniel Masterson
shall have executed and delivered to the Buyer a Noncompete Agreement in the
form attached hereto as Exhibit E; and
(k) all actions to be taken by the Seller and the Parent in
connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to
effect the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to the Buyer.
4.2 Conditions to Obligations of the Seller and the Parent. The
obligations of the Seller and the Parent under this Agreement are subject to
the satisfaction of the following conditions:
(a) the representations and warranties of the Buyer set forth in
Article III shall be true and correct in all material respects as of the
Closing Date, except for representations and warranties made as of a
specific date, which shall be true and correct as of such date;
(b) the Buyer shall have performed or complied with its agreements
and covenants required to be performed or complied with under this Agreement
as of or prior to the Closing Date;
(c) the Seller shall have received at or prior to the Closing each
of the following documents:
(i) the Instrument of Assumption;
(ii) payment of the Cash Portion of the Purchase Price;
(iii) a cross receipt executed by the Buyer and the Seller;
(iv) the Note;
(v) a certificate of the Secretary of State of the
Commonwealth of Massachusetts as to the legal existence and Good Standing of
the Buyer in Massachusetts; and
(vi) a certificate of the Clerk or an Assistant Clerk of the
Buyer attesting to the incumbency of the Buyer's officers and the authenticity
of the resolutions authorizing the transactions contemplated by this Agreement.
(d) all actions to be taken by the Buyer in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Seller and the Parent.
ARTICLE V
POST-CLOSING COVENANTS
5.1 Hired Employees.
(a) On or prior to the Closing Date, the Buyer shall offer
employment to those Employees identified on Schedule 5.1 attached hereto (the
"Hired Employees"). For those Hired Employees who accept the Buyer's offer of
employment within two weeks of the Closing Date, the Buyer shall provide such
Hired Employees with the standard benefit and bonus programs provided to
similarly situated employees of the Buyer.
(b) The Seller or Emcor, as the case may be, shall, within seven (7)
calendar days following the Closing Date (or earlier if required by law), issue
to each individual employed by the Seller or leased by the Seller from Emcor, as
the case may be, immediately prior to the Closing a final paycheck, which
paycheck shall include payment for all salary, sickness (to the extent owed to
any employee as of the Closing Date) and disability and other financial
obligations, including without limitation accrued vacation, due to such
employees or contractors, as the case may be, for all periods through the
Closing Date.
(c) The Seller shall, within ten (10) days of notification by the
Buyer, reimburse the Buyer for severance and related payroll and benefit costs
("Severance Costs") related to any Hired Employee whose employment or other
relationship is terminated by the Buyer within 60 days after the Closing Date.
The amount of such Severance Costs shall be identified on Schedule 5.1 attached
hereto.
(d) The Parent shall honor all of the Parent's and Seller's
obligations under the employment agreements between the Parent or the Seller
and each of Douglas Austin, Eugene D. Loveridge, Gary L. Gray and Daniel
Masterson.
(e) Emcor and the Seller shall each use all reasonable commercial
efforts to enable the Hired Employees to accept the Buyer's offer of
employment.
5.2 Sharing of Data. The Parties agree and covenant that:
(a)The Seller shall have the right for a period of six (6) years
following the Closing Date to have reasonable access to such books, records
and accounts, including financial and tax information, correspondence,
production records, employment records and other similar information as are
transferred to the Buyer pursuant to the terms of this Agreement for the
limited purposes of concluding its involvement in the Business prior to the
Closing Date and for complying with its obligations under applicable securities,
tax, environmental, employment or other laws and regulations. The Buyer shall
have the right for a period of six (6) years following the Closing Date to have
reasonable access to those books, records and accounts, including financial and
tax information, correspondence, production records, employment records and
other records which are retained by the Seller or the Parent pursuant to the
terms of this Agreement to the extent that any of the foregoing relates to the
Seller or the Business transferred to the Buyer hereunder or is otherwise needed
by the Buyer in order to comply with its obligations under applicable
securities, tax, environmental, employment or other laws and regulations.
(b) The Parties agree that from and after the Closing Date they
shall cooperate in all reasonable respects with each other to facilitate the
transfer of the Assets from the Seller to the Buyer and the operation of the
Business by the Buyer.
5.3 Agreement Not to Compete; Non-Solicitation Agreement.
(a) During the period commencing on the Closing Date and ending on
the third anniversary thereof, each of the Seller and the Parent agree not to
directly or indirectly, as a partner, stockholder, joint venturer or investor
(other than as the holder of not more than ten percent (10%) of the total
outstanding stock of a publicly held company):
(i) engage in, operate or establish any aspect of the
Business; or
(ii) solicit, divert or take away, or attempt to solicit,
divert or take away, the business or patronage of any individual, corporation
or other entity which was or is a prospective client, customer or account of
the Seller at the time of execution of this Agreement, or had been a client,
customer or account of the Seller within a period of two years prior to the
execution of this Agreement.
Nothing in this paragraph (a) shall limit the Parent's ability (x) to engage
in the Business in Sweden through GSE Power AB or (y) to contract through an
independent third party provider to service the customers of GSE Process
Solutions in the process industry outside of Utah or Arizona.
(b)
(i) During the period commencing on the Closing Date and
ending on the third anniversary thereof, each of the Seller and the Parent
agree not to directly or indirectly recruit, solicit or induce any employee
or subcontractor of the Buyer or any of its subsidiaries to terminate their
employment with, or otherwise cease their relationship with, the Buyer or any
such subsidiary. In addition, the Seller and the Parent will not hire,
employ or enter into any subcontracting or other arrangement with any present
or former employee or subcontractor of the Buyer, any of the Buyer's
subsidiaries or the Seller (including any employees or subcontractors of Emcor)
for a period of one year from such employee's completion of his or her
assignment with the Buyer, any such subsidiary or the Seller, as the case may
be, without the prior written consent of an authorized executive officer of
the Buyer.
(ii) During the period commencing on the Closing Date and
ending on the third anniversary thereof, the Buyer agrees not to directly or
indirectly recruit, solicit or induce any employee or subcontractor of the
Parent to terminate their employment with, or otherwise cease their relationship
with, the Parent. In addition, the Buyer will not hire, employ or enter into
any subcontracting or other arrangement with any present or former employee
or subcontractor of the Parent for a period of one year from such employee's
completion of his or her assignment with the Parent, without the prior written
consent of an authorized executive officer of the Parent.
(c) If any restriction set forth in this Section 5.3 is found by
any court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities or in
too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic areas as to which it
may be enforceable.
(d) The restrictions contained in this Section 5.3 are necessary
for the protection of the business and goodwill of the Buyer and are considered
by the Seller and the Parent to be reasonable for such purpose. Each of the
Seller and the Parent agrees that a breach of this Section 5.3 would not be
adequately remedied by money damages and, therefore, in the event of any breach,
in addition to such other remedies which may be available, the Buyer shall have
the right to specific performance and injunctive relief. This Section 5.3
shall survive the closing of the transactions contemplated by this Agreement.
5.4 Collection of Accounts Receivable. The Seller and the Parent shall
forward promptly to the Buyer any monies, checks or instruments received by the
Seller or the Parent after the Closing Date with respect to the Accounts
Receivable. The Seller and the Parent shall provide to the Buyer such reasonable
assistance as the Buyer may request with respect to the collection of any such
Accounts Receivable.
5.5 Use of Name. The Seller and the Parent agree not to directly or
indirectly use the names" "Erudite Software," "Erudite Software Base Class
Libraries," "Modification Tracking System," "Student Tracking System,"
"The Hundred Years War" and "Erudite Development Process" or any derivations
thereof after the Closing Date; provided, however that the Seller and the
Parent may make reference to "GSE Erudite Software, Inc." and derivations
thereof until the first anniversary of the Closing Date in connection with
historical descriptions of the Parent and the Seller. The Buyer agrees not to
use the name "GSE" or any derivation thereof in any marketing, advertising or
promotional material after the first anniversary of the Closing Date.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Seller and the Parent. The Seller and the
Parent, jointly and severally, hereby agree to defend, indemnify and hold
harmless the Buyer, its directors, officers, affiliates, successors and
assigns, from and against any and all claims, losses, damages, liabilities,
costs and expenses (including attorneys' fees and court costs) (collectively,
"Damages") resulting from, consisting of or arising out of or in connection
with (a) any misrepresentation, breach of representation or warranty or failure
to perform any covenant or agreement of the Seller, the Parent or Emcor in this
Agreement or in any of the agreements, schedules or exhibits contemplated
herein; (b) any warranty claim or product liability claim relating to services
provided or products distributed or sold by the Seller prior to the Closing
Date; (c) any liabilities or obligations of the Seller for Taxes (as defined
below); (d) the failure of the Buyer to obtain protections afforded by
compliance with the notification and other requirements of the bulk sales
laws in force in the jurisdictions in which such laws may be applicable to
either the Seller or the transactions contemplated by this Agreement; (e) any
claims against, or liabilities or obligations of, the Seller with respect to
obligations under any Employee Benefit Plan (as defined below); (f) any claims
of Hired Employees arising from actions or inactions of Emcor, the Seller or
any of their respective Affiliates (as such term is defined in the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder)
or agents prior to the Closing Date or pursuant to Section 5.1 hereof, and any
liabilities or obligations resulting from or arising out of the application of
the Worker Adjustment Retraining and Notification Act ("WARN"), 29 U.S.C. 2101,
et. seq., to the transactions contemplated herein; (g) any litigation, suit,
action, investigation, proceeding or controversy arising out of the Seller's
actions prior to the Closing Date or Emcor's actions, and any failure of Emcor,
and the conduct and operations of its business, to be in compliance with each
law (including rules and regulations thereunder) of any federal, state, local or
foreign government or any Governmental Entity which is applicable to the Emcor
Employees; and (h) any liabilities, obligations or commitments, fixed or
contingent, of Emcor or of the Seller other than the Assumed Liabilities. For
purposes of this Agreement, (i) "Taxes" includes federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, business and
occupation, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees, assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto,
and (ii) "Employee Benefit Plan" means any "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation any employment agreement, insurance coverage, severance benefits,
disability benefits, deferred compensation, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation, post-retirement compensation, vacations, leaves of absence or
similar practices.
6.2 Method of Asserting Claims.
(a) If the Buyer has incurred or suffered Damages for which it is
entitled to indemnification under this Article VI, the Buyer shall, prior to
the expiration of the representation, warranty, covenant or agreement to which
such claim relates, give written notice of such claim (a "Claim Notice") to the
Seller. Each Claim Notice shall state the amount of claimed Damages (the
"Claimed Amount"), if known, and the basis for such claim.
(b) Within 20 days after delivery of a Claim Notice, the Seller
shall provide to the Buyer a written response (the "Response Notice") in which
the Seller shall: (i) agree that all of the Claimed Amount is owed to the
Buyer, (ii) agree that part, but not all, of the Claimed Amount (the "Agreed
Amount") is owed to the Buyer, or (iii) contest that any of the Claimed Amount
is owed to the Buyer. The Seller may contest the payment of all or a portion of
the Claimed Amount only based upon a good faith belief that all or such
portion of the Claimed Amount does not constitute Damages for which the Buyer
is entitled to indemnification under this Article VI. If no Response Notice
is delivered by the Seller within such 20-day period, the Seller shall be deemed
to have agreed that all of the Claimed Amount is owed to the Buyer.
(c) If the Seller in the Response Notice agrees (or is deemed to
have agreed) that all of the Claimed Amount is owed to the Buyer, the Seller
shall promptly pay to the Buyer an amount equal to the Claimed Amount. If the
Seller in the Response Notice agrees that part, but not all, of the Claimed
Amount is owed to the Buyer, the Seller shall promptly pay to the Buyer an
amount equal to the Agreed Amount set forth in such Response Notice.
(d) The Buyer shall give prompt written notification to the Seller
of the commencement of any action, suit or proceeding relating to a third party
claim for which indemnification pursuant to this Article VI may be sought.
Within 20 days after delivery of such notification, the Seller may, upon written
notice thereof to the Buyer, assume control of the defense of such action, suit
or proceeding with counsel reasonably satisfactory to the Buyer, provided the
Seller acknowledges in writing to the Buyer that any damages, fines, costs or
other liabilities that may be assessed against the Buyer in connection with
such action, suit or proceeding constitute Damages for which the Buyer shall
be entitled to indemnification pursuant to this Article VI. If the Seller
assumes control of such defense as provided in this paragraph (d), the Buyer
shall provide the Seller with reasonable assistance in connection therewith,
including but not limited to reasonable access to documentation and personnel.
If the Seller does not so assume control of such defense, the Buyer shall
control such defense. The party not controlling such defense may participate
therein at its own expense; provided that if the Seller assumes control of such
defense and the Buyer reasonably concludes that the Seller and the Buyer have
conflicting interests or different defenses available with respect to such
action, suit or proceeding, the reasonable fees and expenses of counsel to the
Buyer shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense shall keep the other party advised of the status of
such action, suit or proceeding and the defense thereof and shall consider in
good faith recommendations made by the other party with respect thereto. The
Buyer shall not agree to any settlement of such action, suit or proceeding
without the prior written consent of the Seller, which shall not be
unreasonably withheld. The Seller shall not agree to any settlement of such
action, suit or proceeding without the prior written consent of the Buyer,
which shall not be unreasonably withheld.
6.3 Payment of Indemnification Obligations.
(a) Subject to Section 6.3(b) below, all indemnification payments by
the Seller or the Parent pursuant to this Article VI shall be effected by prompt
payment of cash or delivery of a cashier's or certified check in the amount of
the indemnification liability.
(b) Without limiting the other rights the Buyer may have, if the
Buyer has made an indemnity claim or claims pursuant to this Article VI prior
to the first anniversary of the Closing Date, and such claim or claims have not
been paid by the Seller or the Parent or otherwise resolved on the date on which
any amounts are due to the Seller pursuant to the Note then the Buyer shall be
entitled to hold back and set-off from the payment that would otherwise be
payable an amount equal to the amount of the unresolved indemnity claim or
claims. Any amount so held back by the Buyer shall be segregated by the Buyer
and held in trust for the benefit of the Seller. Upon the resolution of any
indemnity claim that was the subject of a hold back or set-off under this
Section 6.3, the Buyer shall release the amount held back for such claim
within ten business days of the date of such resolution, and shall (i) retain
such portion (if any) of such amount as the Buyer is entitled to receive
pursuant to the resolution of such indemnity claim, which shall release the
Seller of its obligation to pay such amount of the Buyer under this Article VI
and shall release the Buyer of its obligation to pay such amount to the Seller
under the Note, as the case may be, and (ii) pay to the Seller the remaining
portion (if any) of such amount.
6.4 Survival. The representations, warranties, covenants and agreements
of the Seller set forth in this Agreement shall survive the Closing and the
consummation of the transactions contemplated hereby and continue through
December 31, 1999 and shall not be affected by any examination made for or on
behalf of the Buyer, or the knowledge of any of the Buyer's officers, directors,
stockholders, employees or agents. Notwithstanding the foregoing, the
indemnification obligations contained in clauses (c), (e), (f), (g) and (h) of
Section 6.1 shall survive the Closing and the consummation of the transactions
contemplated thereby and continue until the expiration of the applicable
statute of limitations relating to the claims underlying such indemnification
obligations. If a notice is given in accordance with Section 6.2 before the
expiration of such period, then (notwithstanding the expiration of such time
period) the representation, warranty, covenant or agreement applicable to such
claim shall survive until, but only for purposes of, the resolution of such
claim.
6.5 Limitation. Except as provided in this Section 6.5, neither the
Seller nor the Parent shall be liable under this Article VI unless and until
the aggregate Damages exceed $100,000 (at which point the Seller and the Parent
shall become liable for the aggregate Damages in excess of $50,000). The
Buyer's recourse for Damages under Section 5.1, Section 6.1(c), (d), (e), (f)
and (h) and Section 7.12 and for the Closing Net Asset Value Adjustment shall
not be subject to the limitation set forth in the preceding sentence.
6.6 Parent Guaranty. The Parent hereby unconditionally guarantees the
due and punctual payment and performance of the Seller's obligations set
forth in this Agreement. This guaranty is an irrevocable guaranty of payment
(and not just of collection) and shall continue in effect notwithstanding any
extension or modification of the terms of this Agreement, any assumption of
any such guaranteed obligation by any other party or any other act or event
which might otherwise operate as a legal or equitable discharge of the Parent
under this Section 6.6. The Parent hereby waives all special suretyship
defenses and notice requirements. This Section 6.6 shall survive the closing
of the transactions contemplated by this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement
without the prior written approval of the other Party; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by law, regulation or rule of Nasdaq or the American Stock Exchange (in which
case the disclosing Party shall advise the other Party and provide it with a
copy of the proposed disclosure prior to making the disclosure).
7.2 Proprietary Information. Each of the Seller and the Parent agrees
that from and after the Closing Date the Seller, the Parent and each of their
respective Affiliates shall hold in confidence and shall use its or his best
efforts to have all officers, directors and personnel who continue after the
Closing to be employed by the Seller, the Parent or any such Affiliate to hold
in confidence all knowledge and information of a secret or confidential nature
with respect to the Business and not to disclose, publish or make use of the
same without the consent of the Buyer, except to the extent that such
information shall have become public knowledge other than by breach of this
Agreement by the Seller or the Parent.
7.3 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
7.4 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or among the
parties, written or oral, that may have related in any way to the subject
matter hereof.
7.5 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party (which shall not be unreasonably withheld);
provided, however, that at any time from and after the first anniversary of the
Closing Date the Buyer may assign its rights, interest and obligations
hereunder to (a) an Affiliate of the Buyer or (b) to a person who acquires
(whether by stock or merger or otherwise) all or substantially all of the
business or assets of the Buyer or the Business.
7.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.7 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.8 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to the Seller
or the Parent: Copy to:
------------- -------
GSE Systems, Inc. Arnold & Porter
8930 Stanford Boulevard 555 Twelfth Street N.W.
Columbia, MD 21045 Washington DC 20004
Attention: Corporate Office Attention: Robert Ott, Esq.
If to the Buyer: Copy to:
--------------- -------
Keane, Inc. Hale and Dorr LLP
Ten City Square 60 State Street
Boston, MA 02129 Boston, MA 02109
Attention: Attention:
Vice President - Finance Hal J. Leibowitz, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
individual for whom it is intended. Any Party may change the address to which
notices, requests, demands, claims and other communications hereunder are to be
delivered by giving the other Party or Parties notice in the manner herein set
forth.
7.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Massachusetts.
7.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
all of the Parties. No waiver by any Party of any default, misrepresentation
or breach of warranty or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default, misrepresentation
or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
7.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision,
and this Agreement shall be enforceable as so modified after the expiration
of the time within which the judgment may be appealed.
7.12 Expenses. Except as otherwise expressly provided herein, each of
the Buyer, on the one hand, and the Seller and the Parent, on the other hand,
will pay its own fees and expenses (including, without limitation, legal and
accounting fees and expenses) incurred by it in connection with the
transactions contemplated hereby.
7.13 Construction. The language used in this Agreement shall be deemed
to be the language chosen by the Parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
Any reference to any federal, state, local or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
7.14 Incorporation of Exhibits and Schedules. If the provisions of any
Exhibit or Schedule to this Agreement are inconsistent with the provisions of
this Agreement, the provisions of this Agreement shall prevail. The Exhibits
and Schedules attached hereto or to be attached hereafter are hereby
incorporated as integral parts of this Agreement.
7.15 Immediate Vesting of 401(k) Plan. The Parent and the Seller shall
cause the account balance of each Hired Employee made under any 401(k) plan
maintained by the Parent or the Seller for the benefit of such Hired Employee
to become fully vested immediately prior to the Closing.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
KEANE, INC.
By: /s/ Wallace A. Cataldo
----------------------
Title: Vice President - Finance
------------------------
SELLER:
GSE ERUDITE SOFTWARE, INC.
By: /s/ Eugene D. Loveridge
-----------------------
Title: President
---------
PARENT:
GSE SYSTEMS, INC.
By: /s/ Robert W. Stroup
--------------------
Title: Executive Vice President
------------------------
Emcor, Inc. hereby executes this Agreement for the limited purpose of agreeing
to and becoming bound by the provisions of Section 2.16 and Section 5.1 hereof.
EMCOR, INC.
By: /s/ Eugene D. Loveridge
-----------------------
Eugene D. Loveridge
Chief Financial Officer
Exhibit A
---------
INSTRUMENT OF ASSUMPTION OF LIABILITIES
This Instrument of Assumption of Liabilities dated as of April 30, 1998,
is made by Keane, Inc., a Massachusetts corporation (the "Buyer"), in favor
of GSE Erudite Software, Inc. a Delaware corporation (the "Seller"). All
capitalized words and terms used in this Instrument of Assumption of
Liabilities and not defined herein shall have the respective meanings
ascribed to them in the Asset Purchase Agreement dated as of April 30, 1998,
among the Seller, the Buyer and GSE Systems, Inc. (the "Agreement").
WHEREAS, pursuant to the Agreement, the Seller has agreed to sell,
transfer, convey, assign and deliver to the Buyer substantially all of the
assets and business associated with the Seller referred to in the Agreement;
and
WHEREAS, in partial consideration therefor, the Agreement requires the
Buyer to assume certain of the liabilities of the Seller;
NOW, THEREFORE, in consideration of the mutual promises set forth in the
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, the Buyer hereby agrees as follows:
1. The Buyer hereby assumes and agrees to perform, pay and discharge all
of the Assumed Liabilities set forth on Schedule 1.3 hereto.
2. Notwithstanding the foregoing, the Buyer does not assume or agree
to perform, pay or discharge, and the Seller shall remain unconditionally
liable for, all obligations, liabilities and commitments, fixed or contingent,
of the Seller other than the Assumed Liabilities.
3. Nothing contained herein shall require the Buyer to perform, pay or
discharge any liability, obligation or commitment expressly assumed by the
Buyer herein so long as the Buyer in good faith contests or causes to be
contested the amount or validity thereof, subject, however, to the provisions
of Paragraph 6 below.
4. Nothing herein shall be deemed to deprive the Buyer of any defenses,
set-offs or counterclaims which the Seller may have had or which the Buyer
shall have against anyone other than the Seller with respect to any of the
obligations, liabilities and commitments hereby assumed (the "Defenses and
Claims"). The Seller hereby transfers, conveys and assigns to the Buyer all
Defenses and Claims and agrees to cooperate with the Buyer to maintain, secure,
perfect and enforce such Defenses and Claims, including the signing of any
documents, the giving of any testimony or the taking of any such other action
as is reasonably requested by the Buyer in connection with such Defenses and
Claims.
5. It is expressly understood and agreed that all liabilities,
obligations and commitments not assumed hereunder by the Buyer pursuant to
Paragraph 1 above shall remain the sole obligation of the Seller and its
respective successors and assigns.
6. The Buyer agrees to indemnify and hold harmless the Seller from and
against all claims, damages, losses, liabilities, costs and expenses, including
without limitation reasonable attorneys' fees, with respect to the failure of
the Buyer to pay, discharge or otherwise satisfy or perform, when due, the
liabilities, obligations and commitments hereby assumed by the Buyer. The
Seller shall give prompt written notice to the Buyer of the commencement of any
action, suit or proceeding relating to a third party claim for which
indemnification pursuant to this Paragraph 6 may be sought. Within 20 days
after delivery of such notification, the Buyer may, upon written notice thereof
to the Seller, assume control of the defense of such action, suit or proceeding
with counsel reasonably satisfactory to the Seller. If the Buyer assumes
control of such defense as provided in this Paragraph 6, the Seller shall
provide the Buyer with reasonable assistance in connection therewith, including
but not limited to reasonable access to documentation and personnel. If the
Buyer does not so assume control of such defense, the Seller shall control such
defense. The Seller shall not agree to any settlement of such action,
suit or proceeding without the prior written consent of the Buyer, which shall
not be unreasonably withheld. The Buyer shall not agree to any settlement of
such action, suit or proceeding without the prior written consent of the Seller,
which shall not be unreasonably withheld.
7. The Buyer, by its execution of this Instrument of Assumption of
Liabilities, and the Seller, by its acceptance of this Instrument of Assumption
of Liabilities, each hereby acknowledges and agrees that neither the
representations and warranties nor the rights, obligations or remedies of
either party under the Agreement shall be deemed to be enlarged, modified or
altered in any way by such execution and acceptance of this instrument.
IN WITNESS WHEREOF, the Buyer and the Seller have caused this instrument
to be duly executed under seal as of the date first above written.
KEANE, INC.
By: /s/ Wallace A. Cataldo
----------------------
Title: Vice President-Finance
----------------------
[Corporate Seal]
Attest:
/s/ Brian T. Keane
- ------------------
ACCEPTED:
GSE ERUDITE SOFTWARE, INC.
By: /s/ Eugene D. Loveridge
-----------------------
Title: President
---------
Exhibit B
---------
FORM OF PROMISSORY NOTE
April 30, 1998
$1,000,000 Boston, Massachusetts
FOR VALUE RECEIVED, Keane, Inc., a Massachusetts corporation (the
"Maker"), promises to pay to the order of GSE Erudite Software, Inc., a
Delaware corporation (the "Holder"), at the offices of the Holder or at such
other place as the holder of this Note may designate, the principal sum of
$1,000,000. This Note was issued pursuant to the terms of an Asset Purchase
Agreement dated April 30, 1998 between the Maker, the Holder and GSE Systems,
Inc. (the "Asset Purchase Agreement"), and is limited by that Asset Purchase
Agreement. This Note shall bear simple interest at the rate of 6% per annum.
The interest on this Note shall be calculated on a 365-day year basis.
Subject to the terms of the Asset Purchase Agreement, principal and
interest shall be due and payable on the first anniversary of the date of
this Note. All payments by the Maker under this Note shall be in immediately
available funds. All outstanding amounts under the Note are subject to a
set-off or counterclaim by the Maker for any claims or payments by the Maker
as provided in Section 6.3(b) of the Asset Purchase Agreement. Whenever any
amount is paid under this Note, all or part of the amount paid may be applied
to principal or interest in such order and manner as shall be determined by
the Holder in its discretion.
1. Events of Default
-----------------
This Note and all accrued and unpaid interest shall become immediately
due and payable without notice or demand upon the occurrence at any time of
any of the following events of default (individually, "an Event of Default"
and collectively, "Events of Default"):
(1) default in the payment or performance of this liability and
obligation of the Maker to the Holder, including the payment when
due of any principal, premium or interest under this Note; or
(2) the institution by the Maker or any indorser or guarantor of
this Note of any proceedings under the United States Bankruptcy Code
or any other federal or state bankruptcy, reorganization,
receivership, insolvency or other similar law affecting the rights
of creditors generally or the making by the Maker or any indorser or
guarantor of this Note of a composition or an assignment or trust
mortgage for the benefit of creditors.
2. Costs of Collection
-------------------
The Maker agrees to pay on demand all costs of collection, including
but not limited to reasonable attorneys' fees, incurred by the Holder in
enforcing the obligations of the Maker under this Note.
3. Waivers
-------
No delay or omission on the part of the Holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
of such Holder, nor shall any delay, omission or waiver on any one occasion
be deemed a bar to or waiver of the same or any other right on any future
occasion. The Maker waives presentment, demand, protest and notices of every
kind and assents to any extension or postponement of the time of payment or
any other indulgence, and the addition or release of any other party or person
primarily or secondarily liable.
4. Prepayment
----------
This Note may be prepaid in whole or in part at any time or from time
to time upon 10 days' prior written notice with the consent of the Holder,
with the giving of such consent to be in the sole discretion of the Holder.
Any such prepayment shall be without premium or penalty.
5. General
-------
5.1 Successors and Assigns. This Note, and the obligations and rights
of the Maker hereunder, shall be binding upon and inure to the benefit of the
Maker, the Holder and their respective successors and assigns; provided,
however, that the Maker shall not assign this Note or its obligations
hereunder.
5.2 Entire Agreement. This Note, the Asset Purchase Agreement and the
documents referred to in the Asset Purchase Agreement, including without
limitation the exhibits thereto, together incorporate all discussions and
negotiations between the Maker and the Holder, either express or implied,
concerning the matters included herein, any custom or usage to the contrary
notwithstanding. No such discussion or negotiations shall limit, modify or
otherwise affect the provisions hereof. No modification, amendment or waiver
of any provision of this Note shall be effective unless executed in writing by
the party to be charged with such modification, amendment or waiver.
5.3 Currency. All payments shall be made in such coin or currency of
the United States of America as at the time of payment shall be legal tender
therein for the payment of public and private debts.
5.4 Notices. All notices, requests, consents and demands shall be
made in writing and shall be mailed postage prepaid, or delivered by hand, to
the Maker or to the Holder at their respective addresses set forth below or
to such other address as may be furnished in writing to the other party hereto:
If to the Holder: GSE Erudite Software, Inc.
c/o GSE Systems, Inc.
8930 Stanford Boulevard
Columbia, MD 21045
Attention: Corporate Office
If to the Maker: Keane, Inc.
Ten City Square
Boston, Massachusetts 02129
Attention: Vice President - Finance
5.5 Saturdays, Sundays, Holidays. If any date that may at any time
be specified in this Note as a date for the making of any payment of
principal under this Note shall fall on Saturday, Sunday or on a day which in
Boston, Massachusetts shall be a legal holiday, then the date for the making
of that payment shall be the next subsequent day which is not a Saturday,
Sunday or legal holiday.
5.6 Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Note has been executed and delivered as a
sealed instrument on the date first above written by the duly authorized
representative of the Maker.
ATTEST: KEANE, INC.
By: /s/ Brian T. Keane By: /s/ Wallace A. Cataldo
------------------ ----------------------
Title: Office of the President Title: Vice President of Finance
----------------------- -------------------------
Exhibit C
---------
[Letterhead of the Parent]
April 30, 1998
Keane, Inc.
Ten City Square
Boston, MA 02129
Ladies and Gentlemen:
This opinion is being furnished to you pursuant to Section 4.1(f) of
the Asset Purchase Agreement dated as of April 30, 1998 (the "Agreement"),
among Keane, Inc., a Massachusetts corporation (the "Buyer"), GSE Systems,
Inc., a Delaware corporation (the "Parent), and GSE Erudite Software, Inc., a
wholly-owned subsidiary of the Parent (the "Seller"). Capitalized terms not
otherwise defined herein have the respective meanings ascribed to them in the
Agreement.
I am the General Counsel of the Seller and the Parent. As such
counsel, I have assisted in the preparation of the Agreement, the
Non-Competition Agreements and the Bill of Sale (collectively, the
"Documents").
I have also examined and are familiar with and have relied upon the
following documents:
(a) The charter and By-laws, each as amended to date, of each of
the Seller and the Parent;
(b) Certificates, dated as of recent date(s), of the Secretary of
State of the States of Delaware, Arizona, Idaho and Utah certifying
as to the legal existence and the corporate and tax good standing of
the Seller on such date in such jurisdictions;
(c) A certificate of the Secretary of the Seller attesting to the
incumbency of the Seller's officers and the authenticity of the
resolutions authorizing the transactions contemplated by the
Agreement;
(d) Resolutions of the Board of Directors and sole stockholder of
the Seller and resolutions of the Board of Directors and
stockholders of the Parent approving the sale of the Assets and
authorizing, among other things, the execution, delivery and
performance by the Seller and the Parent of the Agreement and
related documents;
(e) The Agreement;
(f) the Noncompetition Agreements;
(f) The Bill of Sale; and
(g) Such other documents, opinions, instruments and certificates
(including, but not limited to, certificates of public officials
and officers of the Seller and the Parent) as I have considered
necessary for purposes of this opinion.
In my examination of the documents described above, I have assumed the
genuineness of all signatures, the legal capacity of each signatory to such
document, the authenticity of all documents submitted to me as originals, the
conformity to original documents of documents submitted to me as certified,
facsimile or photostatic copies, and the authenticity of the originals of
such latter documents.
The opinions hereinafter expressed are qualified to the extent that
they may be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws
affecting the rights and remedies of creditors generally, (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing, and (iii) duties and standards imposed on creditors and
parties to contracts, including without limitation requirements of good
faith, reasonableness and fair dealing. I express no opinion as to federal
or state antitrust, trade regulation or unfair competition laws. Furthermore,
I express no opinion as to the availability of any equitable or specific
remedy or defense upon any breach of any of the covenants, warranties or other
provisions contained in the Documents or any of the other agreements,
instruments or documents referred to herein or therein, in so much as the
availability of such remedies or defenses may be subject to the discretion of
a court.
On the basis of and subject to the foregoing, I am of the opinion that:
1. The Seller is a corporation duly organized, validly existing and in
corporate and tax good standing under the laws of the state of its
incorporation. The Seller is duly qualified to conduct business and is in
corporate and tax good standing under the laws of the State of Delaware. The
Seller has all requisite corporate power and authority to carry on the
business in which it has engaged and to own and use the properties owned and
used by it.
2. Each of the Seller and the Parent has all requisite power and
authority to execute and deliver the Documents and to consummate the
transactions contemplated thereby. The execution and delivery of the
Documents and the consummation of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate and stockholder
action on the part of the Seller and the Parent. The Documents have been
duly and validly executed and delivered by each of the Seller and the Parent
and constitute valid and binding obligations of each of the Seller and
the Parent enforceable against the Seller and the Parent in accordance
with their respective terms.
3. The Seller has the right and power to sell, convey, assign,
transfer and deliver the Assets as provided in the Agreement and, to my
knowledge, after due inquiry, there is no mortgage, pledge, lease, lien,
Security Interest, charge, title retention or other security arrangement or
any other encumbrance upon or affecting the Assets.
4. The Seller has good, valid and marketable title to all of the
Assets. The Bill of Sale and other agreements and documents therein
contemplated to be delivered by the Seller to effect the transfer of the
Assets are, or will be when executed and delivered, sufficient to effect the
sale, transfer, conveyance and assignment of all of the Seller's right, title
and interest in the Assets.
5. Neither the execution and delivery of the Documents to which the
Seller or the Parent is a party, nor the consummation of the transactions
contemplated thereby, (i) conflicts with or violates any provision of the
charter or By-laws of the Seller or the Parent; (ii) requires on the part of
the Seller or the Parent any filing with, or permit, authorization, consent
or approval of, any Governmental Entity, other than any filing, permit,
authorization, consent or approval which has been obtained; (iii) conflicts
with, results in a breach of, constitutes (with or without due notice or
lapse of time or both) a default under, results in the acceleration of,
creates in any party the right to accelerate, terminates, modifies or cancels
or requires any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement known to us to which the Seller or the Parent is a party or
by which the Seller or the Parent is bound or to which any of their
respective assets is subject; (iv) to my knowledge, results in the imposition
of any Security Interest upon any assets of the Seller or the Parent; (v) to
my knowledge, violates any order, writ, injunction or decree specifically
naming the Seller or the Parent, or any of the property or assets of the
Seller or the Parent or any of their respective property or assets; or (vi)
violates any federal or Delaware statute, rule or regulation applicable to
the Seller or the Parent or any of their respective property or assets.
6. To the best of my knowledge after due inquiry, the Seller (i) is
not subject to any unsatisfied judgment, order, decree, stipulation or
injunction and (ii) is not a party to, or to our knowledge, is threatened to
be made a party to, any complaint, action, suit, proceeding, hearing or
investigation of or in any court or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator.
Very truly yours,
[_________________]
Exhibit D
---------
BILL OF SALE
This Bill of Sale dated as of April 30, 1998, is executed and delivered
by GSE Erudite Software, Inc., a Delaware corporation (the "Seller"), to Keane,
Inc., a Massachusetts corporation (the "Buyer"). All capitalized words and
terms used in this Bill of Sale and not defined herein shall have the
respective meanings ascribed to them in the Asset Purchase Agreement dated as
of April 30, 1998, by and among the Seller, the Buyer and GSE Systems, Inc.
(the "Agreement").
WHEREAS, pursuant to the Agreement, the Buyer desires to purchase, and
the Seller desires to sell, substantially all of the assets and business of
the Seller referred to in the Agreement for the consideration set forth in
the Agreement, subject to the terms and conditions of the Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth in the
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, the Seller hereby agrees as follows:
1. The Seller hereby sells, transfers, conveys, assigns and delivers
to the Buyer, its successors and assigns, to have and to hold forever, all of
the Assets.
2. The Seller hereby covenants and agrees that it will, at the request
of the Buyer and without further consideration, execute and deliver, and will
cause its employees to execute and deliver, such other instruments of sale,
transfer, conveyance and assignment, and take such other action, as may
reasonably be necessary to more effectively sell, transfer, convey, assign and
deliver to, and vest in, the Buyer, its successors and assigns, good, clear and
marketable title to the Assets, and to put the Buyer in actual possession and
operating control thereof, to assist the Buyer in exercising all rights with
respect thereto and to carry out the purpose and intent of the Agreement.
3. The Seller does hereby irrevocably constitute and appoint the Buyer,
its successors and assigns, its true and lawful attorney, with full power of
substitution, in its name or otherwise, and on behalf of the Seller, or for
its own use, to claim, demand, collect and receive at any time and from time
to time any and all of the Assets, and to prosecute the same at law or in
equity and, upon discharge thereof, to complete, execute and deliver any and
all necessary instruments of satisfaction and release.
4. The Seller, by its execution of this Bill of Sale, and the Buyer,
by its acceptance of this Bill of Sale, each hereby acknowledges and agrees
that neither the representations and warranties nor the rights and remedies
of any party under the Agreement shall be deemed to be enlarged, modified or
altered in any way by this instrument.
IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument
to be duly executed under seal as of the date first above written.
GSE ERUDITE SOFTWARE, INC.
By: /s/ Robert W. Stroup
--------------------
[Corporate Seal] Title: Secretary
---------
ATTEST:
Thomas K. Milhollan
- -------------------
ACCEPTED:
KEANE, INC.
By:______________________
Title:____________________
Exhibit E
---------
AGREEMENT NOT TO COMPETE
------------------------
THIS AGREEMENT NOT TO COMPETE ("Agreement") is entered into as of the
30th day of April, 1998, by and between Keane, Inc., a Massachusetts
corporation with its principal place of business at Ten City Square, Boston,
Massachusetts 02129 ("Keane"), and __________________, an employee (the
"Principal") of GSE Erudite Software, Inc., a Delaware corporation (the
"Seller"). Keane and the Principal are referred to collectively herein as the
"Parties."
Introduction
- ------------
Keane, the Seller and GSE Systems, Inc., a Delaware corporation (the
"Parent"), have entered into an Asset Purchase Agreement dated as of the date
hereof (the "Agreement") pursuant to which Keane will acquire substantially all
of the assets and the Business (as defined in the Agreement) of the Seller.
The value of the Business to be acquire by Keane would be significantly
diminished if the Principal were to compete against Keane or its subdivisions.
In consideration of the mutual covenants and promises contained herein,
and the good and valuable consideration, including Keane's offer of employment
to the Principal, the receipt of which is hereby acknowledged, the Parties
agree as follows:
1. Non-Compete
1.1 During the period commencing on the date of execution of this
Agreement and ending on the later of (i) the third anniversary of the
Closing Date (as such term is defined in the Agreement), or (ii) the
second anniversary of the last day of employment with Keane or any of its
subsidiaries (the later of such dates being hereinafter referred to as the
"Termination Date" and such period being hereinafter referred to as the
"Restricted Period"), Principal will not (other than in his or her
capacity as an employee of Keane or any subsidiary of Keane) directly or
indirectly as a partner, stockholder, joint venture, or investor (other
than as the holder of not more than five percent (5%) of the total
outstanding stock of a publicly-held company):
(a) engage in, operate or establish any aspect of the Business, or
if Principal becomes an employee of Keane, the business of Keane;
or
(b) solicit, divert or take away, or attempt to solicit, divert or
take away, the business or patronage of any individual, corporation
or other entity which was or is a prospective client, customer or
account of the Seller or Keane or any of its subsidiaries at the
Termination Date, or had been a client, customer or account of the
Seller within a period of two (2) years prior to the Termination
Date.
1.2 During the Restricted Period, Principal will not directly or
indirectly recruit, solicit or induce any employee or employees or
subcontractors of the Seller, Keane or any of its subsidiaries to
terminate their employment with, or otherwise cease their relationship
with the Seller, Keane or any such subsidiary. In addition, Principal
will not hire nor employ or use under any subcontracting or other
arrangement any present or former employee(s) or contractors of Keane, any
of its subsidiaries or the Seller for a period of one (1) year from the
employee's/employees' last day of employment with Keane, any of its
subsidiaries or the Seller, as the case may be, without the prior written
consent of an authorized executive officer of Keane.
2. Entire Agreement
This Agreement constitutes the entire agreement between the Parties and
supersedes all prior understandings and agreements, written or oral, that may
have related in any way to the subject matter of this Agreement.
3. Amendment
This Agreement may be amended or modified only by a written instrument
executed by Keane and the Principal.
4. Applicable Laws and Jurisdiction
This Agreement shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Massachusetts without reference to the
conflict of laws provisions thereof.
5. Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns.
No Party may assign either this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other Party;
provided, that Keane may assign its rights, interest and obligations hereunder
to (a) an Affiliate of Keane or (b) to a person who acquires (whether by stock
or merger or otherwise) all or substantially all of the business or assets of
Keane or the Business.
6. Notices
All notices, requests, demands, claims and other communications hereunder
shall be in writing. Any notice, request, demand, claim or other communication
hereunder shall be deemed duly delivered two business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service, in each case to the intended recipient as set forth below:
If to the Principal:
-------------------
[name]
[address]
Copy to:
-------
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Robert Oh, Esq.
If to Keane:
-----------
Keane, Inc.
Ten City Square
Boston, MA 02129
Attention: Vice President - Finance
Copy to:
-------
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Hal J. Leibowitz, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex,ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
individual for whom it is intended. Any Party may change the address to which
notices, request, demand, claims and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
7. Miscellaneous
7.1 No delay or omission by Keane in exercising any right under this
Agreement shall operate as a waiver of that or any other right. A waiver
or consent given by Keane on any one occasion shall be effective only in
that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
7.2 The section headings in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of
this Agreement.
7.3 In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.
If any restriction set forth in this Agreement is found by any court of
competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too
broad a geographic area as to which it may be enforceable.
7.4 The restrictions contained in this Agreement are necessary for the
protection of the business and goodwill of Keane and are considered by
the Principal to be reasonable for such purpose. The Principal agrees
that a breach of this Agreement would not be adequately remedied by money
damages, and, therefore, in the event of any breach, in addition to such
other remedies which may be available, at law or in equity, Keane shall
have the right to specific performance an injunctive relief.
7.5 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
7.6 Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Agreement.
7.7 Each of the Parties (a) submits to the jurisdiction of any state
or federal court sitting in Boston, Massachusetts in any action or
proceeding arising out of or relating to this Agreement, (b) agrees that
all claims in respect of the action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other
court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any
bond, surety or other security that might be required of any other Party
with respect thereto. Any Party may make service on another Party by
sending or delivering a copy of the process to the Party to be served at
the address and in the manner provided for the giving of notices in
Section 6. Nothing in this Section 7.7, however, shall affect the right
of any Party to serve legal process in any other manner permitted by law.
7.8 The Principal acknowledges that this Agreement does not constitute
a contract of employment and does not imply that Keane will continue his
or her employment for any period of time.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the day and year first set forth above.
KEANE, INC.
By: /s/ Wallace A. Cataldo
----------------------
Title: Vice President - Finance
------------------------
_______________________
[Name]
SCHEDULE 1.1 -- CONTRACT RIGHTS
SCHEDULE 1.3 -- ASSUMED LIABILITIES
SCHEDULE 5.1 -- HIRED EMPLOYEES
DISCLOSURE SCHEDULE
EXHIBIT 2.4
INSTRUMENT OF ASSUMPTION OF LIABILITIES
This Instrument of Assumption of Liabilities dated as of April 30, 1998,
is made by Keane, Inc., a Massachusetts corporation (the "Buyer"), in favor of
GSE Erudite Software, Inc. a Delaware corporation (the "Seller"). All
capitalized words and terms used in this Instrument of Assumption of
Liabilities and not defined herein shall have the respective meanings ascribed
to them in the Asset Purchase Agreement dated as of April 30, 1998, among the
Seller, the Buyer and GSE Systems, Inc. (the "Agreement").
WHEREAS, pursuant to the Agreement, the Seller has agreed to sell,
transfer, convey, assign and deliver to the Buyer substantially all of the
assets and business associated with the Seller referred to in the Agreement;
and
WHEREAS, in partial consideration therefor, the Agreement requires the
Buyer to assume certain of the liabilities of the Seller;
NOW, THEREFORE, in consideration of the mutual promises set forth in the
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, the Buyer hereby agrees as follows:
1. The Buyer hereby assumes and agrees to perform, pay and discharge
all of the Assumed Liabilities set forth on Schedule 1.3 hereto.
2. Notwithstanding the foregoing, the Buyer does not assume or agree
to perform, pay or discharge, and the Seller shall remain unconditionally
liable for, all obligations, liabilities and commitments, fixed or contingent,
of the Seller other than the Assumed Liabilities.
3. Nothing contained herein shall require the Buyer to perform, pay or
discharge any liability, obligation or commitment expressly assumed by the
Buyer herein so long as the Buyer in good faith contests or causes to be
contested the amount or validity thereof, subject, however, to the provisions
of Paragraph 6 below.
4. Nothing herein shall be deemed to deprive the Buyer of any defenses,
set-offs or counterclaims which the Seller may have had or which the Buyer
shall have against anyone other than the Seller with respect to any of the
obligations, liabilities and commitments hereby assumed (the "Defenses and
Claims"). The Seller hereby transfers, conveys and assigns to the Buyer all
Defenses and Claims and agrees to cooperate with the Buyer to maintain, secure,
perfect and enforce such Defenses and Claims, including the signing of any
documents, the giving of any testimony or the taking of any such other action
as is reasonably requested by the Buyer in connection with such Defenses and
Claims.
5. It is expressly understood and agreed that all liabilities,
obligations and commitments not assumed hereunder by the Buyer pursuant to
Paragraph 1 above shall remain the sole obligation of the Seller and its
respective successors and assigns.
6. The Buyer agrees to indemnify and hold harmless the Seller from and
against all claims, damages, losses, liabilities, costs and expenses, including
without limitation reasonable attorneys' fees, with respect to the failure of
the Buyer to pay, discharge or otherwise satisfy or perform, when due, the
liabilities, obligations and commitments hereby assumed by the Buyer. The
Seller shall give prompt written notice to the Buyer of the commencement of any
action, suit or proceeding relating to a third party claim for which
indemnification pursuant to this Paragraph 6 may be sought. Within 20 days
after delivery of such notification, the Buyer may, upon written notice thereof
to the Seller, assume control of the defense of such action, suit or proceeding
with counsel reasonably satisfactory to the Seller. If the Buyer assumes
control of such defense as provided in this Paragraph 6, the Seller shall
provide the Buyer with reasonable assistance in connection therewith, including
but not limited to reasonable access to documentation and personnel. If the
Buyer does not so assume control of such defense, the Seller shall control such
defense. The Seller shall not agree to any settlement of such action, suit or
proceeding without the prior written consent of the Buyer, which shall not be
unreasonably withheld. The Buyer shall not agree to any settlement of such
action, suit or proceeding without the prior written consent of the Seller,
which shall not be unreasonably withheld.
7. The Buyer, by its execution of this Instrument of Assumption of
Liabilities, and the Seller, by its acceptance of this Instrument of
Assumption of Liabilities, each hereby acknowledges and agres that neither the
representations and warranties nor the rights, obligations or remedies of
either party under the Agreement shall be deemed to be enlarged, modified or
altered in any way by such execution and acceptance of this instrument.
IN WITNESS WHEREOF, the Buyer and the Seller have caused this instrument
to be duly executed under seal as of the date first above written.
KEANE, INC.
By: /s/ Wallace A. Cataldo
----------------------
Title: Vice President - Finance
------------------------
[Corporate Seal]
Attest:
/s/ Brian T. Keane
- ------------------
ACCEPTED:
GSE ERUDITE SOFTWARE, INC.
By: Eugene D. Loveridge
-------------------
Title: President
---------
EXHIBIT 10.28
EMPLOYMENT TERMINATION
AND SEVERANCE AGREEMENT
This EMPLOYMENT TERMINATION AND SEVERANCE AGREEMENT (this "Agreement")
made and entered into as of April 29, 1998, by and among GSE Systems, Inc.,
a Delaware corporation ("GSE"), GSE Erudite Software, Inc., a Delaware
corporation ("Erudite" and together with GSE, the "Companies"), and Eugene
Loveridge (the "Employee" and together with the Companies, the "Parties").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Employee has entered into an Employment Agreement dated as
of May 17, 1996 with GSE relating to such Employee's employment as an officer
or employee of one or more of the Companies (the "Employment Agreement");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Companies are executing and delivering an Asset Purchase
Agreement (the "Keane Agreement") with Keane, Inc. ("Keane") relating to the
sale to Keane of substantially all of the assets of Erudite and the assumption
by Keane of certain liabilities of Erudite (the "Sale Transaction");
WHEREAS, the Parties have agreed that effective upon consummation of the
Sale Transaction (the "Effective Time"), the Employee shall resign all
employment, director and other positions he may hold with either of the
Companies or their affiliates, the Employment Agreements shall terminate, the
Employee shall execute and deliver the noncompetition agreement attached as
Exhibit E to the Keane Agreement (the "Noncompetition Agreement") and the
Employee shall accept employment with Keane pursuant to the terms of the
offer letter presented to him by Keane (the "Offer Letter"), all as provided
herein;
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein and intending to be legally bound hereby, the Parties hereby agree as
follows:
1. Termination of Employment; Releases.
-----------------------------------
(a) The Employee hereby resigns each and every employment,
director or other position such Employee may hold with either of the Companies
or any of their affiliates, including without limitation the Employee's
position as a director of GSE. The Employment Agreement is hereby terminated
and has no further force or effect.
(b) The Employee hereby releases and forever discharges the
Companies, their affiliates, and their respective officers, directors,
employees and agents (the "Released Persons") from and waives any and all
claims, demands, controversies, actions, causes of action, obligations, damages
and liabilities of any nature whatsoever, whether at law or in equity, known or
unknown, suspected or unsuspected, absolute or contingent (collectively,
"Claims"), that the Employee ever had, now has, or may hereafter have against
any of the Released Persons arising out of, resulting from or related to the
Employee's service as an officer, director, employee or agent of either of the
Companies or any of their affiliates, including without limitation any Claims
that may arise out of, result from or relate to the Employment Agreement,
except that nothing contained herein shall release (i) GSE from its obligations
under Article VI of GSE's Bylaws as in effect on the date hereof or Section
145 of the Delaware General Corporation Law or (ii) either of the Companies
from their obligations under this Agreement. The Employee hereby agrees and
acknowledges that all stock options previously issued to the Employee pursuant
to GSE's 1995 Long-Term Incentive Plan are hereby terminated and surrendered.
(c) Effective upon the first anniversary of the Effective Time,
each of the Companies hereby releases and forever discharges the Employee from
and waives any and all Claims that either of the Companies ever had, now has,
or may hereafter have against the Employee arising out of, resulting from or
related to such Employee's service as an officer, director, employee or agent
of either of the Companies or any of their affiliates, including without
limitation any Claims that may arise out of, result from or relate to such
Employee's Employment Agreement, except that nothing contained herein shall
release the Employee from (i) any Claims as to which either of the Companies
has provided the Employee with written notice on or prior to the first
anniversary of the Effective Time or (ii) his obligations under this Agreement.
2. Acceptance of Employment with Keane. The Employee hereby agrees
-----------------------------------
to accept the offer of employment made by Keane pursuant to the Offer Letter
and to execute and deliver the Offer Letter and the Noncompetition Agreement.
3. Certification. The Employee hereby certifies, represents and
-------------
warrants to the Companies as follows:
(a) The Employee has carefully reviewed the representations and
warranties made by the Companies in the Keane Agreement and the information
contained in the Disclosure Schedule to the Keane Agreement, is not aware of
any inaccuracy contained in any such representation, warranty or information
or any breach of any such representation or warranty not fully disclosed in
such Disclosure Schedule, and knows of no information inconsistent with such
representations, warranties and information or necessary to make any thereof
true, correct, accurate and complete in all respects on the date hereof.
(b) The Employee will cooperate with Erudite and Keane in the
preparation of financial statements of Erudite for the period ended April 30,
1998, which are required by the Keane Agreement to be delivered to Keane within
15 days after consummation of the Sale Transaction. The Employee will
carefully review such financial statements and hereby represents, warrants and
covenants with the Companies that such financial statements will be true,
correct, accurate and complete.
4. Severance Payments. In consideration of the agreements and
------------------
certifications set forth in Sections 1-3 of this Agreement and the Employee's
prior service to the Companies, Erudite hereby promises to pay to the Employee
the following severance payments:
(a) Within seven days after the Effective Time, the Companies
shall cause to be paid to the Employee, a severance payment in the amount of
$100,000.
(b) Promptly after the final resolution of all claims for Damages
made by Keane against either of the Companies under Article VI of the Keane
Agreement, the Companies shall cause to be paid to the Employee an additional
severance payment equal to the Additional Amount (as defined below) plus
interest thereon at a simple annual rate of 6% for the period from the
Effective Time to the date such additional severance payment is made to the
Employee. As used herein, the "Additional Amount" means the difference between
(i) $50,000 minus (ii) the product of (A) 0.2970 multiplied by (B) the actual
dollar amount paid or payable by either of the Companies pursuant to
Article VI of the Keane Agreement (after taking into account the provisions
of Section 6.5 thereof and including any reduction in the principal amount of
the Note issued by Keane pursuant to the Keane Agreement as a payment made by
the Companies pursuant to such Article VI) provided that (x) the dollar amount
reflected in clause (B) of this sentence shall not include (1) any amounts
paid or payable by the Companies that result from the inability of Keane to
collect any account receivable that it acquired pursuant to the Keane
Agreement if the Employee can demonstrate that the payor of such account
receivable became bankrupt or insolvent after the Effective Time and that
none of the Employee, Daniel Masterson, Gary Gray, or Douglas Austin had any
knowledge at the Effective Time of any information that suggested that such
account receivable might be uncollectible due to the payor's financial
condition or (2) any amounts payable by the Companies that result from a
liability to SSI of up to $40,000 and (y) the dollar amount reflected in
clause (B) of this sentence shall include only 50% of the first $50,000 of
any amounts paid or payable by either of the Companies pursuant to Article VI
of the Keane Agreement.
5. Representations and Warranties. Each Party hereby represents and
------------------------------
warrants to each other Party as follows: (a) such Party has carefully
considered and reviewed the provisions of this Agreement and consulted with
such Party's counsel regarding this Agreement and (b) this Agreement is a
valid and binding obligation of such Party enforceable in accordance with its
terms.
6. Miscellaneous.
-------------
(a) Successors. This Agreement shall be binding upon and inure
----------
to the benefit of the respective successors and assigns of each Party.
(b) Interpretation and Construction. The
-------------------------------
headings of the Sections of this Agreement have been inserted for convenience
of reference only and shall not be deemed to be a part of this Agreement.
Words such as "herein," "hereof," "hereby," "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular Section of
this Agreement, unless the context clearly indicates otherwise.
(c) Severability. In the event any provision of this Agreement
------------
hall finally be determined to be unlawful or unenforceable, such provision
shall be deemed to be severed from this Agreement, and every other provision
of this Agreement shall remain in full force and effect.
(d) Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given at
the time of receipt if delivered by hand or by facsimile transmission or three
days after being mailed, registered or certified mail, return receipt
requested, with postage prepaid to the address or facsimile number listed below
such Party's name on the signature page hereto or if any Party shall have
designated a different address or facsimile number by notice to the other
Parties given as provided above, then to the last address or facsimile number
so designated.
(e) Complete Agreement. This Agreement sets forth the entire
------------------
understanding of the Parties with respect to the subject matter hereof and
supersedes all prior letters of intent, agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
Party or any officer, employee or representative of any Party.
(f) Third Parties. This Agreement is not intended to, and shall
-------------
not, create any rights in or confer any benefits upon anyone other than the
Parties and their successors and assigns.
(g) Governing Law; Consent to Jurisdiction. This Agreement shall
--------------------------------------
be governed by, and construed in accordance with, the laws of the State of
Maryland, without giving effect to the conflicts of laws provisions thereof.
THE PARTIES HEREBY AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
FEDERAL OR STATE COURTS SITTING IN THE STATE OF MARYLAND, IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT. THE PARTIES AGREE TO ACCEPT SERVICE
OF PROCESS PURSUANT TO THE PROCEDURES SET FORTH IN SECTION 6(d) HEREOF.
(i) Waiver. The waiver by any Party of any matter provided for
------
herein shall only be effective if made in writing signed by such Party, but
such waiver shall not be deemed to be a waiver of any other such matter.
(j) Counterparts. More than one counterpart of this Agreement
------------
may be executed by the Parties , and each fully executed counterpart shall be
deemed an original.
(k) Amendment of this Agreement. Any amendment to this
---------------------------
Agreement must be effected by the written consent of each Party who is to be
bound or adversely affected by such Amendment.
(l) Effectiveness of this Agreement. This Agreement shall be
-------------------------------
effective as of the Effective Time. In the event the Keane Agreement is
terminated or the Sale Transaction is otherwise not consummated, this Agreement
shall terminate automatically and be of no further force or effect.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the Parties as of the date first above written.
GSE SYSTEMS, INC.
By: /s/ Robert W. Stroup
--------------------
Name: Robert W. Stroup
----------------
Title: Executive Vice President
------------------------
Address:
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: President
Fax No.: 410-312-3720
GSE ERUDITE SOFTWARE, INC.
By: /s/ Robert W. Stroup
--------------------
Name: Robert W. Stroup
----------------
Title: Secretary
---------
Address:
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: President
Fax No.: 410-312-3720
/s/ Eugene D. Loveridge
-----------------------
EUGENE LOVERIDGE
Address:
________________________
________________________
________________________
Fax No.:________________
EXHIBIT 10.29
EMPLOYMENT TERMINATION
AND SEVERANCE AGREEMENT
This EMPLOYMENT TERMINATION AND SEVERANCE AGREEMENT (this "Agreement")
made and entered into as of April 29, 1998, by and among GSE Systems, Inc., a
Delaware corporation ("GSE"), GSE Erudite Software, Inc., a Delaware
corporation ("Erudite" and together with GSE, the "Companies"), and Daniel
Masterson (the "Employee" and together with the Companies, the "Parties").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Employee has entered into an Employment Agreement dated as
of May 17, 1996 with GSE relating to such Employee's employment as an officer
or employee of one or more of the Companies (the "Employment Agreement");
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Companies are executing and delivering an Asset Purchase
Agreement (the "Keane Agreement") with Keane, Inc. ("Keane") relating to the
sale to Keane of substantially all of the assets of Erudite and the assumption
by Keane of certain liabilities of Erudite (the "Sale Transaction");
WHEREAS, the Parties have agreed that effective upon consummation of the
Sale Transaction (the "Effective Time"), the Employee shall resign all
employment, director and other positions he may hold with either of the
Companies or their affiliates, the Employment Agreements shall terminate, the
Employee shall execute and deliver the noncompetition agreement attached as
Exhibit E to the Keane Agreement (the "Noncompetition Agreement") and the
Employee shall accept employment with Keane pursuant to the terms of the offer
letter presented to him by Keane (the "Offer Letter"), all as provided herein;
NOW, THEREFORE, in consideration of the mutual agreements set forth herein
and intending to be legally bound hereby, the Parties hereby agree as follows:
1. Termination of Employment; Releases .
-----------------------------------
(a) The Employee hereby resigns each and every employment,
director or other position such Employee may hold with either of the
Companies or any of their affiliates. The Employment Agreement is hereby
terminated and has no further force or effect.
(b) The Employee hereby releases and forever discharges the
Companies, their affiliates, and their respective officers, directors,
employees and agents (the "Released Persons") from and waives any and all
claims, demands, controversies, actions, causes of action, obligations, damages
and liabilities of any nature whatsoever, whether at law or in equity, known or
unknown, suspected or unsuspected, absolute or contingent (collectively,
"Claims"), that the Employee ever had, now has, or may hereafter have against
any of the Released Persons arising out of, resulting from or related to the
Employee's service as an officer, director, employee or agent of either of the
Companies or any of their affiliates, including without limitation any Claims
that may arise out of, result from or relate to the Employment Agreement,
except that nothing contained herein shall release (i) GSE from its obligations
under Article VI of GSE's Bylaws as in effect on the date hereof or Section 145
of the Delaware General Corporation Law or (ii) either of the Companies from
their obligations under this Agreement. The Employee hereby agrees and
acknowledges that all stock options previously issued to the Employee pursuant
to GSE's 1995 Long-Term Incentive Plan are hereby terminated and surrendered.
(c) Effective upon the first anniversary of the Effective Time,
each of the Companies hereby releases and forever discharges the Employee from
and waives any and all Claims that either of the Companies ever had, now has,
or may hereafter have against the Employee arising out of, resulting from or
related to such Employee's service as an officer, director, employee or agent
of either of the Companies or any of their affiliates, including without
limitation any Claims that may arise out of, result from or relate to such
Employee's Employment Agreement, except that nothing contained herein shall
release the Employee from (i) any Claims as to which either of the Companies
has provided the Employee with written notice on or prior to the first
anniversary of the Effective Time or (ii) his obligations under this Agreement.
2. Acceptance of Employment with Keane. The Employee hereby agrees
-----------------------------------
to accept the offer of employment made by Keane pursuant to the Offer Letter
and to execute and deliver the Offer Letter and the Noncompetition Agreement.
3. Certification. The Employee hereby certifies, represents and
-------------
warrants to the Companies as follows:
(a) The Employee has carefully reviewed the representations and
warranties made by the Companies in the Keane Agreement and the information
contained in the Disclosure Schedule to the Keane Agreement, is not aware of
any inaccuracy contained in any such representation, warranty or information
or any breach of any such representation or warranty not fully disclosed in
such Disclosure Schedule, and knows of no information inconsistent with such
representations, warranties and information or necessary to make any thereof
true, correct, accurate and complete in all respects on the date hereof.
(b) The Employee will cooperate with Erudite and Keane in the
preparation of financial statements of Erudite for the period ended April 30,
1998, which are required by the Keane Agreement to be delivered to Keane within
15 days after consummation of the Sale Transaction. The Employee will
carefully review such financial statements and hereby represents, warrants and
covenants with the Companies that such financial statements will be true,
correct, accurate and complete.
4. Severance Payments. In consideration of the agreements and
------------------
certifications set forth in Sections 1-3 of this Agreement and the Employee's
prior service to the Companies, Erudite hereby promises to pay to the Employee
the following severance payments:
(a) Within seven days after the Effective Time, the Companies
shall cause to be paid to the Employee, a severance payment in the amount of
$100,000.
(b) Promptly after the final resolution of all claims for
Damages made by Keane against either of the Companies under Article VI of the
Keane Agreement, the Companies shall cause to be paid to the Employee an
additional severance payment equal to the Additional Amount (as defined below)
plus interest thereon at a simple annual rate of 6% for the period from the
Effective Time to the date such additional severance payment is made to the
Employee. As used herein, the "Additional Amount" means the difference between
(i) $50,000 minus (ii) the product of (A) 0.2970 multiplied by (B) the actual
dollar amount paid or payable by either of the Companies pursuant to Article VI
of the Keane Agreement (after taking into account the provisions of Section 6.5
thereof and including any reduction in the principal amount of the Note issued
by Keane pursuant to the Keane Agreement as a payment made by the Companies
pursuant to such Article VI) provided that (x) the dollar amount reflected in
clause (B) of this sentence shall not include (1) any amounts paid or payable
by the Companies that result from the inability of Keane to collect any account
receivable that it acquired pursuant to the Keane Agreement if the Employee can
demonstrate that the payor of such account receivable became bankrupt or
insolvent after the Effective Time and that none of the Employee,
Eugene Loveridge, Gary Gray, or Douglas Austin had any knowledge at the
Effective Time of any information that suggested that such account receivable
might be uncollectible due to the payor's financial condition or (2) any
amounts payable by the Companies that result from a liability to SSI of up to
$40,000 and (y) the dollar amount reflected in clause (B) of this sentence
shall include only 50% of the first $50,000 of any amounts paid or payable by
either of the Companies pursuant to Article VI of the Keane Agreement.
5. Representations and Warranties. Each Party hereby represents and
------------------------------
warrants to each other Party as follows: (a) such Party has carefully
considered and reviewed the provisions of this Agreement and consulted with
such Party's counsel regarding this Agreement and (b) this Agreement is a valid
and binding obligation of such Party enforceable in accordance with its terms.
6. Miscellaneous.
-------------
(a) Successors. This Agreement shall be
----------
binding upon and inure to the benefit of the respective successors and assigns
of each Party.
(b) Interpretation and Construction. The headings of the
-------------------------------
Sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be a part of this Agreement. Words such as
"herein," "hereof," "hereby," "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular Section of this Agreement,
unless the context clearly indicates otherwise.
(c) Severability. In the event any provision of this Agreement
------------
shall finally be determined to be unlawful or unenforceable, such provision
shall be deemed to be severed from this Agreement, and every other provision of
this Agreement shall remain in full force and effect.
(d) Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given at
the time of receipt if delivered by hand or by facsimile transmission or three
days after being mailed, registered or certified mail, return receipt
requested, with postage prepaid to the address or facsimile number listed below
such Party's name on the signature page hereto or if any Party shall have
designated a different address or facsimile number by notice to the other
Parties given as provided above, then to the last address or facsimile number
so designated.
(e) Complete Agreement. This Agreement sets forth the entire
------------------
understanding of the Parties with respect to the subject matter hereof and
supersedes all prior letters of intent, agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
Party or any officer, employee or representative of any Party.
(f) Third Parties. This Agreement is not intended to, and shall
-------------
not, create any rights in or confer any benefits upon anyone other than the
Parties and their successors and assigns.
(g) Governing Law; Consent to Jurisdiction. This Agreement
--------------------------------------
shall be governed by, and construed in accordance with, the laws of the State
of Maryland, without giving effect to the conflicts of laws provisions thereof.
THE PARTIES HEREBY AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL
OR STATE COURTS SITTING IN THE STATE OF MARYLAND, IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT. THE PARTIES AGREE TO ACCEPT SERVICE OF
PROCESS PURSUANT TO THE PROCEDURES SET FORTH IN SECTION 6(d) HEREOF.
(i) Waiver. The waiver by any Party of any matter provided for
------
herein shall only be effective if made in writing signed by such Party, but
such waiver shall not be deemed to be a waiver of any other such matter.
(j) Counterparts. More than one counterpart of this Agreement
------------
may be executed by the Parties , and each fully executed counterpart shall be
deemed an original.
(k) Amendment of this Agreement. Any amendment to this Agreement
---------------------------
must be effected by the written consent of each Party who is to be bound or
adversely affected by such Amendment.
(l) Effectiveness of this Agreement. This Agreement shall be
-------------------------------
effective as of the Effective Time. In the event the Keane Agreement is
terminated or the Sale Transaction is otherwise not consummated, this Agreement
shall terminate automatically and be of no further force or effect.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
Parties as of the date first above written.
GSE SYSTEMS, INC.
By: /s/ Robert W. Stroup
--------------------
Name: Robert W. Stroup
----------------
Title: Executive Vice President
------------------------
Address:
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: President
Fax No.: 410-312-3720
GSE ERUDITE SOFTWARE, INC.
By: /s/ Robert W. Stroup
--------------------
Name: Robert W. Stroup
----------------
Title: Secretary
---------
Address:
8930 Stanford Boulevard
Columbia, Maryland 21045
Attention: President
Fax No.: 410-312-3720
Daniel Masterson
----------------
DANIEL MASTERSON
Address:
________________________
________________________
________________________
Fax No.:________________
EXHIBIT 99.1
For Immediate Release
GSE SYSTEMS FINALIZES SALE OF GSE ERUDITE SOFTWARE BUSINESS TO KEANE
Columbia, Maryland, May 4, 1998 -- 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,
announced today they have completed the asset sale of its GSE Erudite Software
business to Keane Inc. (AMEX:KEA) for approximately $9 million in cash.
In addition to the cash at closing, Keane has issued a promissory note for an
additional $1 million to be paid to GSE Systems on the first anniversary of
the closing, subject to offset in the case of any claims for indemnification.
With this sale completed, GSE Systems will concentrate on key industry markets
currently served by their Power, Process Automation and Oil & Gas business
units.
"This transaction is a significant step in our previously announced initiative
to refocus our Company back to building a stronger core business of controls
and simulation", said Chris Carnavos, President of GSE Systems. "Our improved
balance sheet will strengthen our efforts toward meeting these objectives."
GSE Systems, Inc. develops and delivers business and technology solutions by
applying process control, data acquisition and simulation software, systems
and services to the energy, process and manufacturing industries worldwide.
The Company's products are used in the following industries: specialty
chemical, food and beverage, petroleum refining, oil and gas, pharmaceutical,
fossil and nuclear power generation, metals and water treatment. GSE Systems
is headquartered in Columbia, Maryland with other offices in Georgia,
Louisiana, Maryland, North Carolina, Pennsylvania, and Texas, and its global
locations include offices in Belgium, Japan, Korea, Singapore, Sweden and
Taiwan. Information about GSE Systems is available via the Internet's World
Wide Web at http://www.gses.com.
Headquartered in Boston, Massachusetts, Keane, Inc. is an $800 million firm
that helps companies build and manage high-performance IT organizations.
Keane does this by adhering to rigorous process and management disciplines and
performance metrics incorporated in its six core IT solutions. Keane's services
include IT consulting, application development, application outsourcing, year
2000 compliance, help desk outsourcing, and enterprise healthcare solutions.
These service offerings are delivered through a North American network of more
than 40 branch offices. Information about Keane, which was recently named the
Wall Street Journal's Best 10-Year Performer, is available via the Internet's
World Wide Web at http://www.keane.com.
This news release contains forward-looking statements that involve risks and
uncertainties. The actual future results of GSE Systems may differ materially
due to a number of factors, including but not limited to delays in introduction
of products or enhancements, size and timing of individual orders, rapid
technological changes, market acceptance of new products and competition. These
and other factors are more fully discussed in the Company's annual report
on Form 10-K.
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