GSE SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
(410) 772-3500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The Annual Meeting of Stockholders of GSE Systems, Inc. (the
"Company") will be held on Friday, June 9, 2000, at 10:30 a.m. local time,
at the Baltimore Marriott Inner Harbor Hotel, 110 S. Eutaw Street,
Baltimore, Maryland. The purposes of the meeting are:
(1) To elect three Directors to serve until the 2003 Annual Meeting and one
Director to serve until the 2002 Annual Meeting;
(2) To ratify the appointment of KPMG LLP as independent auditors of the
Company to serve for the fiscal year ending December 31, 2000;
(3) To approve an amendment to the Company's 1995 Long-Term Incentive Plan (As
Amended and Restated Effective April 5, 1999); and
(4) To transact such other business as may properly come before the meeting and
at any adjournments or postponements of the meeting.
The Board of Directors set April 11, 2000 as the record date for the
meeting. This means that owners of common stock at the close of business on
that day are entitled to
-receive this notice of the meeting, and
-vote at the meeting and any adjournments or postponements of the meeting.
The list of stockholders as of the record date will be available at the meeting.
If you plan to attend, please mark the appropriate box on the enclosed proxy
card to help us plan for the meeting.
Your vote is important. We encourage you to read the enclosed proxy
statement and to sign and return the proxy card so that your shares will be
represented and voted even if you do not attend. If you do attend the
meeting, you may revoke your proxy and vote in person.
By Order of the Board of Directors.
Jeffery G. Hough
Secretary
Columbia, Maryland
May 15, 2000
<PAGE>
GSE SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
(410) 772-3500
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors is furnishing you this proxy statement to
solicit proxies on its behalf to be voted at the 2000 Annual Meeting of the
Stockholders of GSE Systems, Inc. (the "Company"). The meeting will be held
at 10:30 a.m., local time, on Friday, June 9, 2000 at the Baltimore
Marriott Inner Harbor Hotel, 110 S. Eutaw Street, Baltimore, Maryland. The
proxies may also be voted at any adjournments or postponements of the
meeting.
The address of the Company's principal executive offices is 9189 Red
Branch Road, Columbia, Maryland, 21045. The proxy materials and the
Company's 1999 Annual Report are first being sent to stockholders on or
about May 22, 2000.
All properly executed written proxies that are delivered pursuant to
this solicitation will be voted at the meeting in accordance with the
directions given in the proxy unless the proxy is revoked before the
meeting. You can revoke your proxy by
(a) giving written notice to the Secretary of the Company,
(b) delivering a later dated proxy, or
(c) voting in person at the meeting.
As a stockholder, you should specify your choice for each matter on
the enclosed form of proxy. If no instructions are given, proxies that are
signed and returned will be voted FOR the election of all Director
nominees, FOR the proposal to ratify the appointment of KPMG LLP, and FOR
the amendment to the Long-Term Incentive Plan. Other matters that properly
come before the meeting will be voted upon by the persons named in the
enclosed proxy in accordance with their best judgment.
The Company will continue its long-standing practice of holding the
votes of all stockholders in confidence from Directors, officers and
employees except: (a) as necessary to meet applicable legal requirements
and to assert and defend claims for or against the Company; (b) in case of
a contested proxy solicitation; or (c) if a stockholder makes a written
comment on the proxy card or otherwise communicates his/her vote to
management. The Company will, as it has in the past, retain an independent
tabulator to receive and tabulate the proxies.
<PAGE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
Voting Securities
Only stockholders of record at the close of business on April 11, 2000
will be entitled to vote at the Annual Meeting or at adjournments or
postponements of the meeting. On April 11, 2000, there were 5,186,047
shares of common stock issued and outstanding. Each share of common stock
is entitled to one vote on all matters that may properly come before the
Annual Meeting.
The presence in person or by proxy at the Annual Meeting of the
holders of at least a majority of the total number of outstanding shares of
common stock will constitute a quorum for the transaction of business.
Shares of common stock represented by a properly signed and returned
proxy will be counted as present at the Annual Meeting for purposes of
determining a quorum, without regard to whether the proxy is marked as
casting a vote or abstaining.
Directors are elected by a plurality of the votes cast. A withheld
vote will not affect the required plurality. All other matters to come
before the Annual Meeting require a majority vote in person or by proxy.
Therefore, abstentions will have the same effect as votes against the
proposals on such matters.
Brokers who hold shares of common stock in street name may not have
the authority to vote on certain matters for which they have not received
voting instructions from beneficial owners. Such broker non-votes, although
present for quorum purposes, will be deemed shares not present to vote on
such matters and will not be included in calculating the number of votes
necessary for approval of such matters.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial
ownership of the Company's common stock, as of April 11, 2000, by: (i) each
stockholder who is known by the Company to own beneficially more than five
percent of the outstanding common stock, (ii) each of the Company's
Directors, (iii) each executive officer of the Company named in the Summary
Compensation Table, and (iv) all Directors and executive officers of the
Company as a group. Except as otherwise indicated below, the Company
believes that the beneficial owners of the common stock listed below have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
In preparing the following table, the Company has relied on the
information contained in the statements on Schedule 13G previously filed by
ManTech International Corporation ("ManTech"), GP Strategies Corporation
("GP Strategies") and filed for 1999 by Benson & Associates LLC and FMR
Corp. Certain of the shares reported in the following table may be deemed
to be beneficially owned by more than one person and therefore may be
included in more than one table entry.
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of
Common Stock Outstanding
Shares Beneficially Owned Common Stock
------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Name of Beneficial Owner
- ------------------------
Certain Beneficial Owners
GP Strategies Corporation(1) 1,324,350 24.7%
9 West 57th Street
New York, NY 10019
ManTech International Corporation(2) 1,222,853 22.8%
12015 Lee Jackson Highway
Fairfax, VA 22033
SGLG, Inc. 875,000 16.9%
9 West 57th Street
New York, NY 10019
Benson Associates, LLC(3) 463,603 8.9%
111 S. W. Fifth Avenue, Suite 2130
Portland, OR 97204
FMR Corp(4) 353,800 6.8%
82 Devonshire Street
Boston, MA 02109
Directors and Executive Officers(5)
Jerome I. Feldman(6) 1,324,350 24.7%
Scott N. Greenberg(7) 1,308,700 24.5%
John A. Moore, Jr.(8) 1,150,953 21.6%
George J. Pedersen(9) 1,136,684 21.2%
Christopher M. Carnavos(10) 138,000 2.6%
Brian K. Southern(11) 120,600 2.3%
Sylvan Schefler(12) 42,129 0.8%
Chin-Our Jerry Jen(13) 25,300 0.5%
Sheldon L. Glashow(14) 13,408 0.3%
Jeffery G. Hough(15) 10,000 0.2%
Gill R. Grady(16) 6,450 0.1%
Directors and Executive Officers as a group
(11 persons)(17) 2,903,090 49.5%
</TABLE>
<PAGE>
(1) Includes 15,650 shares subject to option owned directly by Mr. Feldman (see
Note 6 below), 875,000 shares owned by SGLG, Inc. (SGLG), 250,000 shares owned
by General Physics Corporation (GPC) and 33,700 shares owned by GP Strategies.
Also includes 150,000 shares issuable upon the exercise of warrants which are
exercisable within sixty (60) days of April 11, 2000. GP Strategies, a company
in which Mr. Feldman has a controlling interest, owns GPC as well as a
controlling interest in SGLG. GP Strategies disclaims beneficial ownership of
all shares, including those subject to option, owned directly by Mr. Feldman.
(2) Includes 71,900 shares and shares subject to option owned directly by Mr.
Pedersen (see Note 9 below), 86,169 shares and shares subject to option owned
directly by John A. Moore, Jr. (see Note 8 below), and 914,784 shares owned by
ManTech. Also includes 150,000 shares issuable upon the exercise of warrants
which are exercisable within sixty (60) days of April 11, 2000. ManTech
disclaims beneficial ownership of all shares owned directly by Messrs. Pedersen
and Moore.
(3) Persons other than Benson Associates, LLC have the right to receive
dividends from, or the proceeds of, the sale of such common stock. No such right
to receive proceeds or dividends relates to more than 5 percent of the class.
(4) Fidelity Management & Research Company (Fidelity), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers Act
of 1940, is the beneficial owner of 353,800 shares as a result of acting as
investment adviser to Fidelity Low-Priced Stock Fund, an investment company
registered under Section 8 of the Investment Company Act of 1940.
Fidelity Low-Priced Stock Fund has its principal business office at 82
Devonshire Street, Boston, Massachusetts 02109.
Edward C. Johnson 3d, Chairman of FMR Corp., FMR Corp. through its control of
Fidelity, and the Fidelity Low-Priced Stock Fund, each has sole power to dispose
of the 353,800 shares owned by the Fidelity Low-Priced Stock Fund.
Neither FMR Corp. nor Edward C. Johnson 3d, has the sole power to vote or direct
the voting of the shares owned directly by the Fidelity Funds, which power
resides with the Funds' Boards of Trustees. Fidelity carries out the voting of
the shares under written guidelines established by the Funds' Boards of
Trustees.
Members of the Edward C. Johnson 3d family are the predominant owners of Class B
shares of common stock of FMR Corp., representing approximately 49% of the
voting power of FMR Corp. Mr. Johnson owns 12.0% and Abigail Johnson owns 24.5%
of the aggregate outstanding voting stock of FMR Corp. Mr. Johnson is Chairman
of FMR Corp. and Abigail P. Johnson is a Director of FMR Corp. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be voted in
accordance with the majority vote of Class B shares. Accordingly, through their
ownership of voting common stock and the execution of the shareholders' voting
agreement, members of the Johnson family may be deemed, under the Investment
Company Act of 1940, to form a controlling group with respect to FMR Corp.
(5) The address of all Directors and Executive Officers is in care of GSE
Systems, Inc., 9189 Red Branch Road, Columbia, MD 21045.
(6) Includes 33,700 shares owned by GP Strategies, 875,000 shares owned by SGLG
and 250,000 shares owned by GPC, and 150,000 warrants which are exercisable
within sixty (60) days of April 11, 2000 owned by GP Strategies (see Note 1
above). Mr. Feldman disclaims beneficial ownership of all the shares owned by GP
Strategies, SGLG and GPC. Also includes 15,650 shares issuable upon the exercise
of options which are exercisable within sixty (60) days of April 11, 2000.
(7) Includes 33,700 shares owned by GP Strategies, 875,000 shares owned by SGLG
and 250,000 shares owned by GPC, and 150,000 warrants which are exercisable
within sixty (60) days of April 11, 2000 owned by GP Strategies (see Note 1
above). Mr. Greenberg is Chief Financial Officer and a director of GP Strategies
and disclaims beneficial ownership of all the shares owned by GP Strategies,
SGLG and GPC.
(8) Includes 83,925 shares owned directly by Mr. Moore and 914,784 shares owned
by ManTech, and 150,000 warrants which are exercisable within sixty (60) days of
April 11, 2000 owned by ManTech (see Note 2 above). Mr. Moore is a stockholder
of ManTech and serves as its Chief Financial Officer. Mr. Moore disclaims
beneficial ownership of the shares owned by ManTech. Also includes 2,244 shares
issuable upon the exercise of options which are exercisable within sixty (60)
days of April 11, 2000.
(9) Includes 56,250 shares owned directly by Mr. Pedersen and 914,784 shares
owned by ManTech, and 150,000 warrants which are exercisable within sixty (60)
days of April 11, 2000 owned by ManTech (see Note 2 above). Mr. Pedersen is a
controlling stockholder of ManTech and serves as its Chairman, President and
Chief Executive Officer. Mr. Pedersen disclaims beneficial ownership of the
shares owned by ManTech. Also includes 15,650 shares issuable upon the exercise
of options which are exercisable within sixty (60) days of April 11, 2000.
(10) Includes 1,000 shares owned directly by Mr. Carnavos and his family and
137,000 shares issuable upon the exercise of options which are exercisable
within sixty (60) days of April 11, 2000.
(11) Includes 2,000 shares owned directly by Mr. Southern and 118,000 shares
issuable upon the exercise of options which are exercisable within sixty (60)
days of April 11, 2000. Also includes 600 shares owned by Mr. Southern's family;
Mr. Southern disclaims beneficial ownership of such shares.
(12) Includes 24,000 warrants which were awarded to Mr. Schefler through his
previous affiliation with Prime Charter Ltd. and 18,129 shares issuable upon the
exercise of options, both of which are exercisable within sixty (60) days of
April 11, 2000.
(13) Includes 3,800 shares owned directly by Mr. Jen and 21,500 shares issuable
upon the exercise of options which are exercisable within sixty (60) days of
April 11, 2000.
(14) Includes 8,129 shares owned directly by Mr. Glashow and 5,279 shares
issuable upon the exercise of options which are exercisable within sixty (60)
days of April 11, 2000.
(15) Includes 10,000 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 11, 2000.
(16) Includes 6,450 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 11, 2000.
(17) Includes 673,902 shares issuable upon the exercise of options and warrants
which are exercisable within sixty (60) days of April 11, 2000.
PROPOSAL 1: ELECTION OF DIRECTORS
The stockholders elect at least one-third of the members of the Board of
Directors (the "Board") annually. The Directors are divided into three classes.
Each class serves for a period of three years, although a Director may be
elected for a shorter term in order to keep the number of Directors in each
class approximately equal. This practice is in accordance with the Company's
Amended and Restated Certificate of Incorporation.
The terms of Scott N. Greenberg and John A. Moore, Jr. will expire at the
2000 Annual Meeting. Messrs. Greenberg and Moore have been nominated to stand
for reelection at the meeting to hold office until 2003 and until their
successors are elected and qualified.
On March 10, 2000 the Board increased the number of Directors to eight and
elected Joseph W. Lewis as a Director to serve until the 2000 Annual Meeting.
Mr. Lewis has been nominated to stand for election at the meeting to hold office
until 2003 and until his successor has been elected and qualified.
On March 22, 2000 the Board increased the number of Directors to nine and
elected Brian K. Southern as a Director to serve until the 2000 Annual Meeting.
Mr. Southern has been nominated to stand for election at the meeting to hold
office until 2002 and until his successor is elected and qualified.
The proxies solicited hereby, unless directed to the contrary, will be
voted for election of the nominees. All of the nominees have consented to being
named in this proxy statement and to serve if elected. The Board has no reason
to believe that any of the nominees will not be a candidate or will be unable to
serve, but if either occurs proxies may be voted for such substituted nominee or
nominees as the Board, in its discretion, may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF SCOTT N. GREENBERG, JOSEPH W. LEWIS, JOHN A. MOORE, JR.
AND BRIAN K. SOUTHERN
The following sets forth certain biographical information including professional
background and business-related experience for each of the Directors.
Class I : Incumbent standing for election for a term to expire in 2002
Brian K. Southern, age 36. Mr. Southern has served on the Board since
March. Mr. Southern joined the Company as Senior Vice President of Marketing and
Business Development in March 1998. In October 1998, Mr. Southern assumed
operational responsibilities for the Company's GSE Process Solutions subsidiary.
In June 1999 Mr. Southern assumed responsibility for corporate Business
Development that includes strategic planning, merger and acquisition activities,
investor relations and intellectual property management. In April of this year
Mr. Southern was elected Chairman of the Supervisory Board of Avantium
Technologies, a Netherlands research and development company in which the
Company has an equity position. Prior to joining the Company, Mr. Southern
served as Vice President of Entek IRD International, an equipment asset
management firm. From 1989 to 1996 he held various management positions in sales
and marketing for Elsag Bailey Process Automation and Johnson Yokogawa
Corporation, suppliers of distributed control systems. Mr. Southern has a
Masters degree in chemical engineering from Purdue University and is a member of
the Instrumentation Society of America, the International District Energy
Association, the Association for Services Management International and the
International Society of Pharmaceutical Engineering.
Class I Directors: Incumbents whose terms will expire in 2002
Christopher M. Carnavos, age 49. Mr. Carnavos has served as a Director of
the Company since November 1997. Mr. Carnavos joined the Company as Senior Vice
President - Process Industries in January 1997, was promoted to Senior Executive
Vice President in September 1997, to President in January 1998 and to President
and Chief Executive Officer in June 1999. Prior to joining the Company, Mr.
Carnavos served as Vice President and General Manager of Process Automation
Systems for Johnson Yokogawa Corporation, a supplier of distributed control
systems, from 1993 through 1996. From 1990 to 1993, he held various senior
management positions with the instrumentation and controls businesses of Asea
Brown Boveri, a leading global supplier of industrial automation equipment and
engineering services. Mr. Carnavos is a member of the Instrumentation Society of
America and the American Institute of Chemical Engineering. Prior to that Mr.
Carnavos was Chemical Industry Marketing manager for Digital Equipment
Corporation. Mr. Carnavos holds a Masters in Chemical Engineering from
Rensselaer Polytechnic Institute.
Sheldon L. Glashow, Ph.D., age 67. Dr. Glashow has served as a Director of
the Company since 1995. Dr. Glashow is the Higgins Professor of Physics at
Harvard University and previously taught physics at other major universities in
Massachusetts, Texas, California and France. In 1979, Dr. Glashow received the
Nobel Prize in Physics. Dr. Glashow has been a director of General Physics
Corporation, an industrial and government training and services company, since
1987; a director from 1985 to 1995 of GTS Duratek, Inc., an environmental
technology and consulting company; and a director of Interferon Sciences, Inc.,
a pharmaceuticals company, since 1991. Dr. Glashow currently serves as a
director of GP Strategies Corporation.
Class II: Incumbents standing for election for a term to expire in 2003
Scott N. Greenberg, age 43. Mr. Greenberg has served as a Director of the
Company since March 1999 and had previously served as a Director of the Company
from 1994 to 1995. Mr. Greenberg has served on the Board of Directors of GP
Strategies since 1987. Mr. Greenberg serves as Executive Vice President for GP
Strategies and has served as its Chief Financial Officer since 1989. Mr.
Greenberg has also served as Vice President and a director of SGLG, Inc., an
industrial and government training and consulting company, since 1991. Mr.
Greenberg has also served as a director since 1987 of General Physics
Corporation. From 1991 to January 1995, Mr. Greenberg was a director of GTS
Duratek, Inc.
Joseph W. Lewis, age 65. Mr. Lewis has served on the Board since March. He
has retired from Johnson Controls, Inc. after 39 years of service, including his
tenure from 1986 to 1998 as Executive Vice President with responsibilities for
its Controls Group. Mr. Lewis is Chairman of the Board of DryKor Ltd of Israel.
He has been director of Wheaton Franciscan Services, Inc., a multi-system health
care provider, since 1991 and its Treasurer since 1993. He also served as a
director of Entek IRD International until its recent sale to Allen Bradley, a
division of Rockwell International Corporation.
John A. Moore, Jr., age 47. Mr. Moore has served as a Director of the
Company since November 1997. Mr. Moore is an Executive Vice President and Chief
Financial Officer of ManTech. Mr. Moore also serves as a director and in an
executive capacity for a number of ManTech subsidiaries. Prior to joining
ManTech in 1982, he was supervisory auditor for the Defense Contract Audit
Agency. He holds a Bachelors degree in Accounting from La Salle University and
an MBA from the University of Maryland.
Class III Directors: Incumbents whose terms will expire in 2001
Jerome I. Feldman, age 71. Mr. Feldman has served as a Director of the
Company since 1994, and as Chairman of the Board since April 1997. Mr. Feldman
co-founded GP Strategies in 1959 and has served as its President and Chief
Executive Officer since its founding. Mr. Feldman is also President, Chief
Executive Officer and Chairman of the Executive Committee of the Board of
Directors of General Physics Corporation. Mr. Feldman has served as a director
of Interferon Sciences, Inc. since 1981 and was Chairman of its Executive
Committee from 1981 to 1996. From 1981 to 1996, he was a director of GTS
Duratek, Inc. and served as the Chairman of its Board from 1985 to 1995. Mr.
Feldman is Chairman of the New England Colleges Fund and Trustee of the Northern
Westchester Hospital.
George J. Pedersen, age 64. Mr. Pedersen has served as a Director of the
Company since 1994 and as Chairman of its Executive Committee since April 1997.
Mr. Pedersen co-founded ManTech in 1968 beginning as Vice President and
Secretary/Treasurer. He has served as its Secretary since 1968 and was elected
Chairman of its Board of Directors in 1979. In 1995, Mr. Pedersen was elected to
the additional positions of President and Chief Executive Officer of ManTech.
Mr. Pedersen has served as President and/or Chairman of the Board of a number of
ManTech subsidiaries. Mr. Pedersen serves as a director, Vice President and a
member of the Executive Committee of the Professional Services Council; a
Trustee and a member of the Executive Committee of the National Security
Industrial Association; a Trustee of the Naval Undersea Museum Foundation; and
as a director of the Ivymount School. Mr. Pedersen currently serves as Chairman
of the Board of MARE, Inc., Chairman of the Board of the Institute of Software
Research and Chairman of the Board of Praxa Limited, an information technology
systems integrator headquartered in Melbourne, Australia.
The Board of Directors and Board Committees
In 1999, the Board met five times and Committees of the Board held a total
of six meetings. The Directors attended at least 85% of the total of such Board
meetings and the meetings of Committees on which each Director served. The Board
has established the following Committees, the function and current members of
which are noted below:
Executive Committee. The Executive Committee consists of George J. Pedersen
(Chairman), Jerome I. Feldman and Christopher M. Carnavos. The Executive
Committee has the authority to exercise all powers of the Board, except for
actions that must be taken by the full Board under the Delaware General
Corporation Law. The Executive Committee met once during 1999.
Audit Committee. The Audit Committee consists of Sheldon L. Glashow and
Sylvan Schefler. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants and reviews the adequacy
of the Company's internal accounting controls. The Audit Committee met once
during 1999.
Nominating Committee. The Nominating Committee consists of Jerome I.
Feldman, George J. Pedersen and Christopher M. Carnavos. The Nominating
Committee selects and recommends nominees for election as Directors of the
Board. The Nominating Committee met once during 1999.
Compensation Committee. The Compensation Committee consists of Jerome I.
Feldman, George J. Pedersen (Chairman) and Christopher M. Carnavos. The
Compensation Committee is responsible for determining compensation for the
Company's executive officers and for administering and granting awards under the
Company's Long-Term Incentive Plan (the "Plan"). The Compensation Committee met
four times during 1999. See "Report of the Compensation Committee", below.
Compensation of Directors
The Board pays its members who are not employees of the Company (the
"Non-Management Directors") an annual fee of $5,000 for their service and $1,500
for each Board meeting attended. Officers who are full-time employees and are
also Directors do not receive any fee or remuneration for services as members of
the Board of Directors or any Board Committee.
At the discretion of the Board, each person who becomes a Non-Management
Director may receive an initial grant of options under the Plan to purchase
shares of common stock having an exercise price per share equal to the fair
market value of a share of common stock on the date such person first becomes a
Non-Management Director. Also at the discretion of the Board, under the Plan,
each Non-Management Director serving as a Director on December 31 of each
calendar year (commencing in 1995) may receive options to purchase shares of
common stock with an exercise price per share equal to the fair market value of
a share of common stock on such date. Usually, options granted under the Plan to
Non-Management Directors become exercisable in three installments with 40%
vesting on the first anniversary of the date of grant and 30% vesting on each of
the second and third anniversaries of the date of grant, subject to acceleration
under certain circumstances such as a change of control.
In 1999, Mr. Martin Pollack resigned from the Board of Directors. Mr.
Pollack requested that his options granted as of December 31, 1998 be valued at
the stock price as of June 23, 1999 and, in lieu of vesting, the difference be
paid to him. The Board agreed to Mr. Pollack's request; the amount of this
payment was $5,250.
Also in 1999, the Company entered into employment agreements with Messrs.
Feldman, Greenberg, Pedersen and Moore to serve as executives, providing
strategic planning in acquisitions and divestitures, management of financing
arrangements, and customer and other business development activities. Salaries
paid under these agreements in 1999 were $120,000 to each of Messrs. Feldman and
Pedersen and $60,000 to each of Messrs. Greenberg and Moore.
Additionally in 1999, as a management employee incentive, Messrs. Feldman
and Pedersen were each granted options to purchase 100,000 shares of common
stock at an exercise price of $3.3125; Messrs. Greenberg and Moore were each
granted options to purchase 50,000 shares of common stock at an exercise price
of $3.3125. These options have a Target Stock Value and vest immediately
following a 30-day trading-day period in which the Target Stock Value has been
met or exceeded (Target Stock Value of $8.00, 35% vested; Target Stock Value of
$10.00, 100% vested), or vest at 100% on the fifth anniversary of the date of
grant. Messrs. Glashow and Schefler were each granted options to purchase 1,500
shares of common stock at an exercise price of $3.3125, exercisable in three
installments as discussed above.
In April 1998, the Company awarded Messrs. Feldman and Pedersen options to
acquire 12,500 shares of common stock each at an exercise price of $2.75 per
share.
In February 1997, Messrs. Feldman, Pedersen and Pollak each received
options under the Plan to purchase 1,500 shares of common stock with an exercise
price of $9.25 per share upon being classified as Non-Management Directors. Upon
becoming a Non-Management Director in November 1997, Mr. Moore received an
option under the Plan to purchase 1,500 shares of common stock at an exercise
price of $6.25 per share. Each person who was a Non-Management Director as of
December 1, 1997 participated in a surrender/replacement of stock options,
pursuant to which previously granted options to purchase a total of 16,887
shares of common stock at various prices were surrendered by Non-Management
Directors and replaced with options to purchase 16,887 shares of common stock at
$3.875 per share. In May 1998, the Company and the Board of Directors
unanimously approved the immediate vesting of all such replacement options for
Non-Management Directors. On December 31, 1998, Messrs. Glashow, Schefler,
Feldman, Moore, Pedersen and Pollak each received options under the Plan to
purchase 1,500 shares of common stock with an exercise price of $2.50 per share.
PRINCIPAL EXECUTIVE OFFICERS OF THE
COMPANY WHO ARE NOT ALSO DIRECTORS
The Board elects executive officers of the Company. Set forth below is
certain information regarding the positions and business experience of each
executive officer of the Company who is not also a Director of the Company. See
"Election of Directors" for similar information regarding Mr. Carnavos and Mr.
Southern, who are executive officers and Directors of the Company.
Gill R. Grady, age 42. Mr. Grady has been a Senior Vice President since
September 1999 and is responsible for operations of the Company's GSE Process
Solutions subsidiary. Prior to this he served as Vice President of Business
Development for the GSE Power Systems subsidiary and has held numerous senior
management positions in business operations, marketing and project management
with the Company. From 1992 through 1997 Mr. Grady was responsible for business
development for the Company's Eastern European activities. Throughout his tenure
he has been the Company's liaison with the Department of Energy and with
Congress for funding related to the Company's Eastern European activities. He
has been employed by the Company or predecessor companies since 1980.
Jeffery G. Hough, age 45. Mr. Hough joined the Company in January 1999 as
Senior Vice President and Chief Financial Officer. During 1999 he was elected
both Treasurer and Secretary of the Company. Prior to joining the Company, Mr.
Hough was the Chief Financial Officer and Treasurer of Yokogawa Industrial
Automation America, Inc., a supplier of process control equipment, from 1995
through 1998. From 1982 through 1995, he held various financial management
positions with two other suppliers of process control equipment, ABB Process
Automation and Leeds & Northrop. Mr. Hough was an auditor for Price Waterhouse
from 1977 to 1982.
Chin-Our Jerry Jen, age 51. Mr. Jen has been a Senior Vice President of the
Company since May 1997 and is responsible for the operations of the Company's
GSE Power Systems subsidiary. Prior to this, he served as Vice President of
Projects and held various other senior management positions in engineering and
project management with the Company. From 1990 through 1994 Mr. Jen was the
Director of Engineering of GPI, which became a subsidiary of the Company in
1994. Mr. Jen has held various technical and management positions with the
Company or predecessor companies since 1980.
Compensation of Executive Officers
Summary of Cash and Certain Other Compensation
The following table sets forth information as to the compensation paid by
the Company for services rendered by the Company's principal executive officer
and the four other most highly compensated executive officers of the Company for
the fiscal years ended December 31, 1999, 1998, and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Long-Term
Annual Compensation
Compensation Awards
------------ ------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options (#) Compensation
Christopher M. Carnavos(8) 1999 221,618 50,000(1) 100,000 57,013(2)
President & CEO 1998 206,923 25,000 40,000 28,978
1997 173,934 30,000 30,000 63,646
Brian K. Southern(8) 1999 166,000 25,000(1) 50,000 37,732(3)
Sr. Vice President 1998 118,042 15,000 30,000 35,030
1997 -0- -0- -0- -0-
Chin-Our Jerry Jen 1999 140,000 25,000(1) 50,000 4,008(4)
Sr. Vice President 1998 120,202 -0- 10,000 2,997
1997 100,006 -0- 25,000 2,097
Jeffery G. Hough 1999 137,308 10,000(5) 75,000 49,125(6)
Sr. Vice President & CFO 1998 -0- -0- -0- -0-
1997 -0- -0- -0- -0-
Gill R.Grady 1999 113,889 10,000(1) 5,000 2,718(7)
Sr. Vice President 1998 108,696 -0- -0- 2,120
1997 103,002 -0- -0- 2,010
</TABLE>
(1) Bonus paid for 1998 performance of the Company.
(2) Consists of $2,866 for Company retirement plan matching, $1,839 for
executive group term life insurance premiums, and $52,308 for relocation
expenses.
(3) Consists of $3,200 for Company retirement plan matching, $595 for executive
group term life insurance premiums, and $33,937 for relocation expenses.
(4) Consists of $2,020 for Company retirement plan matching, and $1,988 for
executive group term life insurance premiums.
(5) Hiring bonus paid in 1999.
(6) Consists of $2,748 for Company retirement plan matching, and $926 for
executive group term life insurance premiums, and $45,451 in relocation
expenses.
(7) Consists of $1,385 for Company retirement plan matching, and $1,333 for
executive group term life insurance premiums.
(8) In 1999, the Company had severance agreements with Messrs. Carnavos and
Southern the payments for which would amount to more than $100,000.
Stock Options
The following table provides information on stock options granted to the
named executive officers during 1999. Only non-statutory stock options were
granted under the Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of Stock Price
Securities Total Options Appreciation for Option Term(4)
Underlying Granted to Exercise or
Options Employees in Base Price Expiration 0% 5% 10%
Name Granted(#) Fiscal Year(3) ($/share) Date
<S> <C> <C> <C> <C> <C> <C>
Christopher M. Carnavos 100,000(1) 14.8% $4.125 04/05/06 $0 $167,929 $391,346
Brian K. Southern 50,000(1) 7.4% $4.125 04/05/06 $0 $ 83,964 $195,673
Chin-Our Jerry Jen 50,000(1) 7.4% $4.125 04/05/06 $0 $ 83,964 $195,673
Jeffery G. Hough 25,000(2) 3.7% $2.750 01/27/06 $0 $ 27,988 $ 65,244
50,000(1) 7.4% $4.125 04/05/06 $0 $ 83,964 $195,673
Gill R. Grady 5,000 (2) 0.7% $4.000 08/24/06 $0 $ 8,142 $ 18,974
</TABLE>
(1) The options have a Target Stock Value, and shall be vested as of the date
immediately following a 30-day trading-day period in which the Target Stock
Value has been met or exceeded, or 100% of the shares shall be vested as of the
fifth anniversary of the date of grant.
Target Stock Value Percentage of Shares Vested
$ 8.00 35%
$10.00 100%
(2) The options become exercisable in three installments with 40% vesting on the
first anniversary of the date of grant and 30% vesting on each of second and
third anniversaries of the date of grant, subject to acceleration under certain
circumstances.
(3) In addition to the option grants to the executive officers reported in the
table, options with an average exercise price of $4.6250 covering a total of
678,000 shares of common stock were granted to nine (9) other employees during
1999.
(4) No gain to optionees is possible without an increase in stock price, which
will benefit all shareholders commensurately. A 0% increase in stock price will
result in $0 gain for the optionees. The potential realizable amounts shown
illustrate the values that might be realized upon exercise immediately prior to
the expiration of their term using 5% and 10% appreciation rates set by the SEC,
compounded annually, and therefore are not intended to forecast possible future
appreciation, if any, of the Company's stock price.
Options Exercises and Holdings
The following table summarizes the value of all outstanding options for the
executive officers named in the Summary Compensation Table as of December 31,
1999.
<TABLE>
<CAPTION>
<S> <C> <C>
FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1999 December 31, 1999
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
Christopher M. Carnavos 37,000/133,000 $7,500/$11,250
Brian K. Southern 12,000/68,000 $9,750/$14,625
Chin-Our Jerry Jen 21,500/63,500 $2,250/$ 3,375
Jeffery G.Hough 0/75,000 0/$14,063
Gill R.Grady 6,450/9,050 $ 675/$1,013
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
This report addresses the compensation of the Company's executive officers
for the last fiscal year and the Company's general compensation philosophy. The
Compensation Committee is responsible for determining compensation for the
Company's executive officers and for granting awards under and administering the
Company's Long-Term Incentive Plan. The Compensation Committee consists of
Jerome I. Feldman, George J. Pedersen and Christopher M. Carnavos.
Compensation Philosophy
The compensation program for the executive officers of the Company and its
subsidiaries is developed and administered by the Board and its Compensation
Committee. General overall compensation policies regarding other officers and
employees of the Company are established by the Compensation Committee, but the
specific compensation program for such persons is developed and administered by
management. The key goals of the Company's compensation program are to attract,
retain and reward the most capable executives and other employees who can
contribute (both short and long-term) to the success of the Company and to align
compensation with the attainment of the business objectives of the Company.
Compensation of Principal Executive Officer
Mr. Carnavos serves as the principal executive officer within the Company
and in this role directed the significant turn-around of the business in 1998
and the refocus of the Company's business strategy back to the core businesses
of Process Control and Simulation. Additionally, Mr. Carnavos orchestrated the
sale of several non-core businesses. In recognition of these accomplishments in
1998, he received a $50,000 bonus payment in March 1999.
Mr. Carnavos has also been the principal architect of the Company's new
VirtualPlant offering which allows customers to use simulation and control in
new ways to enhance time-to-market and production processes. As part of this
strategy, GSE also closed two recent acquisitions under Mr. Carnavos' direction,
acquiring certain of the assets of BatchCAD Limited and certain of the assets of
Mitech Corporation. Recognizing all of his accomplishments and his promotion,
announced on June 9, 1999, to Chief Executive Officer, the Board approved an
$8,590 (4%) raise for Mr. Carnavos. See Summary Compensation Table for
discussion of Mr. Carnavos' options awarded under the Plan.
Implementation Guidelines
To implement the compensation philosophy described above, the Company's
executive compensation program has three primary components: (i) a base salary,
(ii) bonus awards, and (iii) long-term incentive awards. The factors and
criteria to be considered with respect to each of these components are set forth
below.
Base Salary. The range of the base salary for an executive or other
employee position will be established primarily based on competitive salaries
for positions with a similar scope of responsibilities and job complexities. The
level of base salary within the range of competitive salaries will be determined
on the basis of individual performance, experience and other relevant factors,
such as demonstrated leadership, job knowledge and management skills. Such
determination will be made by the Compensation Committee, with regard to the
Company's executive officers, and by management with regard to all other
officers and employees consistent with the general overall compensation policies
established by the Compensation Committee. Base salaries will be targeted within
the appropriate competitive range, although higher compensation may be paid if
necessary or appropriate to attract or retain unusually qualified executives.
Annual or other base salary adjustments will be based on individual performance
as well as other market factors.
Bonus Awards. The bonus award is intended to focus the efforts of the
executives and other employees on performance objectives in accordance with the
business strategy of the Company.
The Compensation Committee will administer incentive awards for the
Company's executive officers. The Compensation Committee will review and assess
the extent to which the overall Company performance goals have been met during
the year and make such awards to the Company's executive officers. Management of
the Company will be responsible for awarding bonus amounts to other officers and
employees of the Company, taking into account the general compensation
philosophy of the Company.
For more information regarding the bonuses awarded in 1999 to the Company's
principal executive officers and the four other most highly compensated
executive officers of the Company, see "Compensation of Executive Officers --
Summary of Cash and Certain Other Compensation".
Long-Term Incentive Awards. The third element of the Company's compensation
program is provided through the Company's Long-Term Incentive Plan (the "Plan"),
which is designed to align the interests of the officers and employees with
those of stockholders. The Plan is intended to focus the efforts of officers and
employees on performance which will increase the value of the Company for its
stockholders.
Pursuant to the Plan, the Compensation Committee may grant incentive stock
options within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code"), and may grant, among other types of awards, nonstatutory stock options
to purchase shares of common stock. The Compensation Committee also may grant
stock appreciation rights and award shares of restricted stock and incentive
shares in accordance with the terms of the Plan. Subject to the terms of the
Plan, the Compensation Committee will have discretion in making grants and
awards under the Plan. The Compensation Committee may, however, consider the
recommendations of management with respect to such grants and awards.
Total direct compensation to the Company's executive officers (base salary,
bonus awards and long-term incentive awards) will be targeted within the
appropriate competitive range, although higher compensation may be paid if
necessary to attract or retain unusually qualified executives.
The Board, with the advice of the Compensation Committee, will reexamine
the Company's compensation philosophy and objectives periodically and determine
if changes should be considered.
Compensation Committee
George J. Pedersen, Chairman
Jerome I. Feldman
Christopher M. Carnavos
<PAGE>
Performance Graph
The following graph sets forth a comparison of the percentage change in the
cumulative total stockholder return on the Company's common stock compared to
the cumulative total return of the American Stock Exchange - US & Foreign Index
and a group of peer issuers selected on a line-of-business basis, consisting of
Aspen Technology, Inc., GenSym Corporation and Emerson Electric Co. for the
period from July 27, 1995 through December 31, 1999. Emerson Electric Co. was
selected to replace Tava Technologies, Inc. which is no longer publicly traded.
The graph was prepared for the Company by Media General Financial Services. The
stock price performance shown on the graph below is not necessarily indicative
of future performance.
[*The graphic material has been omitted.]
ASSUMES $100 INVESTED ON JULY 27, 1995
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
07/27/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
GSE SYSTEMS, INC. 100.00 86.82 57.36 18.60 15.50 20.54
PEER GROUP INDEX 100.00 115.62 141.86 167.23 180.73 176.31
AMEX MARKET INDEX 100.00 102.74 127.67 156.17 220.26 388.48
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company is comprised of Mr. Pedersen, who
is the Chairman of the Compensation Committee, and is President, Chairman of the
Board and Chief Executive Officer of ManTech; Mr. Feldman, who is Chairman of
the Board of the Company's Board of Directors and is President and Chief
Executive Officer of GP Strategies; and Mr. Carnavos, who is President and Chief
Executive Officer of the Company.
The Compensation Committee acts on matters related to other Directors,
executive officers other than Mr. Carnavos and certain related entity proposals.
On any matter related to members of the Committee or their affiliated
organizations, the Committee's recommendations require ratification by the
Non-Management Directors or approval of the entire Board.
On March 23, 2000, the Company entered into a new loan and security
agreement with a financial institution for a new credit facility with a maturity
date of March 23, 2003. In connection with the new credit facility, ManTech has
provided a one-year $900,000 standby letter of credit to the bank as additional
collateral for the Company's facility. The Company is allowed to borrow up to
100% of the letter of credit value. In addition, GP Strategies provided a
limited guarantee totaling $1.8 million; ManTech provided a limited guarantee
totaling $900,000.
On January 27, 2000, the Company issued 116,959 shares of its common stock,
at fair market value less discount, to ManTech for $500,000. The proceeds of the
stock issuance were used for working capital.
A subsidiary of the Company subleased office space to ManTech based on
square footage used through May 1998. For the years ended December 31, 1998 and
1997, such charges amounted to $30,000 and $117,000, respectively.
During 1997, ManTech entered into arrangements for the consulting services
of a member of the Company's finance staff. Payments to the Company for such
services were $92,000 for the year ended December 31, 1997.
In 1997, a subsidiary of the Company entered into certain agreements
regarding the formation of a joint venture with a company organized in the
People's Republic of China. In connection with the initial capitalization of
this joint venture, each of ManTech and GP Strategies made advances of $126,000
on behalf of the Company. During 1998, ManTech assumed control of the joint
venture. The operations of the joint venture were immaterial during the years
ended December 31, 1998 and 1997.
PROPOSAL 2: AMENDMENT TO THE 1995 LONG-TERM INCENTIVE PLAN
The Board proposes that the stockholders of the Company approve an
amendment to the Long-Term Incentive Plan (As Amended and Restated Effective
April 5, 1999) (the "Plan"). The Board has approved the amendment, subject to
stockholder approval, which increases the authorized number of shares available
for option grants pursuant to the Plan from 1,175,000 to 1,875,000 (the "Plan
Amendment"). The Board is requesting and recommends to the stockholders
ratification and approval of the Plan Amendment to ensure that an adequate
supply of authorized unissued shares is reserved for issuance of option grants
to attract and retain executive personnel, key employees, directors, consultants
and advisors and to provide additional incentive by permitting certain key
individuals to participate in the ownership of the Company.
Following is a summary of the provisions of the Plan, which is qualified in
its entirety by the terms of the Plan. A copy of the Plan may be obtained from
the Plan Administrator at the executive offices, 9189 Red Branch Road, Columbia,
Maryland, 21045.
The purpose of the Plan is to promote the long-term growth and
profitability of the Company. The Plan is administered by the Board of Directors
or a committee of the Board (the "Administrator"). The Plan permits the granting
of stock options (including incentive stock options and nonqualified stock
options) stock appreciation rights, restricted or unrestricted stock awards,
phantom stock, performance awards or any combination of these.
The Administrator has the powers vested in it by the terms of the Plan,
including determining the types of awards to be granted, number of shares
covered by each award, prescribed grant agreements evidencing such awards, and
the establishment of programs for granting awards. The Administrator has the
authority to administer and interpret the Plan and to adopt and interpret the
rules, regulations, agreements, guidelines and instruments as it determines are
necessary or advisable. In making such determination, consideration may be given
to the value of the services rendered by the respective individuals, their
present and potential contributions to the success of the Company and its
subsidiaries, and such other factors deemed relevant in accomplishing the
purposes of the Plan.
The Plan terminates on June 30, 2005. All awards made under the Plan shall
remain in effect until such awards have been satisfied or terminated in
accordance with the Plan and the terms of such awards.
At this time the only awards that have been made under the Plan are
nonqualified stock options. No tax consequences result from the grant of the
option. An option holder who exercises a nonqualified stock option generally
will realize compensation taxable as ordinary income in an amount equal to the
difference between the exercise price and the fair market value of the shares on
the date of exercise. The Company will be entitled to a deduction in the amount
of ordinary income so recognized.
The rules governing the tax treatment of options and the receipt of shares
in connection with such grants are quite technical; accordingly, the above
description of tax consequences is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change, as
their interpretation may vary in individual circumstances. Finally, the tax
consequences under applicable state law may not be the same as under the federal
income tax laws.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
TO THE LONG-TERM INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE
APRIL 5, 1999)
PROPOSAL 3: INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, has appointed
the firm of KPMG LLP as independent auditors of the Company for the current
fiscal year. The Board has been advised by KPMG LLP that neither the firm nor
any member of the firm has a direct or indirect financial interest in the
Company or its subsidiaries.
One or more representatives of KPMG LLP will be present at the Annual
Meeting. A representative of the independent auditors for the Company for the
fiscal year ending December 31, 1999 will also be present at the Annual Meeting.
These representatives will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
stockholders.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the votes cast by the holders of the shares of
common stock voting in person or by proxy at the Annual Meeting. If the
stockholders do not ratify the appointment of KPMG LLP, the Board of Directors
will reconsider the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who beneficially own 10% of
the Company's common stock (the "Reporting Persons"), to file reports regarding
their Company common stock ownership and changes in ownership with the SEC.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from certain of the Reporting Persons, the Company
believes that during 1999, the Reporting Persons complied with all Sections
16(a) reporting requirements applicable to them except that one (1) report was
inadvertently filed late on behalf of each of Messrs. Carnavos, Greenberg,
Schefler and Southern.
OTHER BUSINESS
The Company does not presently know of any matters that will be presented
for action at the Annual Meeting other than those set forth herein. If other
matters properly come before the meeting, proxies submitted on the enclosed form
will be voted by the persons named in the enclosed form of proxy in accordance
with their best judgment.
ANNUAL REPORTS
The Annual Report on Form 10-K filed by the Company with the SEC for the
fiscal year ended December 31, 1999 was filed on March 31, 2000. Also enclosed
is the Company's 1999 Annual Report to Stockholders. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon written request to the attention of the Corporate Secretary, GSE
Systems, Inc., 9189 Red Branch Road, Columbia, Maryland 21045.
STOCKHOLDER PROPOSALS
In accordance with rules promulgated by the SEC, any stockholder who wishes
to submit a proposal for inclusion in the proxy materials to be distributed by
the Company in connection with the Annual Meeting of Stockholders in 2001 must
do so no later than December 31, 2000.
In addition, in accordance with the Company's Bylaws, in order for a
stockholder proposal to be properly brought before the 2001 Annual Meeting, a
stockholder submitting a proposal must file a written notice with the Corporate
Secretary which conforms to the requirements of the Bylaws. If the Board or a
designated committee or the officer who will preside at the stockholders meeting
determines that the information provided in such notice does not satisfy the
informational requirements of the Bylaws or is otherwise not in accordance with
law, the stockholder will be notified promptly of such deficiency and be given
an opportunity to cure the deficiency within the time period prescribed in the
Bylaws. Such notice of a stockholder proposal must be delivered not less than 60
days nor more than 90 days prior to the date of the Annual Meeting to be held in
2001.
By Order of the Board of Directors
Jeffery G. Hough
Secretary
Columbia, Maryland
May 15, 2000
<PAGE>
EXHIBIT A
GSE SYSTEMS, INC.
1995 LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective March 17, 2000)
1. Restatement, Purpose and Types of Awards
GSE Systems, Inc., a Delaware corporation (the "Corporation"), maintained
the GSE Systems, Inc. 1995 Long-Term Incentive Plan (As Amended and Restated
Effective April 5, 1999)(the "Prior Plan"). The Prior Plan has been amended and
restated, as set forth herein, effective March 17, 2000, subject to the approval
of the shareholders of the Corporation within twelve months of such effective
date (the "Plan"). Notwithstanding anything herein to the contrary, nothing in
this Plan shall adversely affect the rights or obligations, under any Award
granted under the Prior Plan, of any grantee or holder of the Award without such
person's approval.
The purpose of the Plan is to promote the long-term growth and
profitability of the Corporation by: (i)providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Corporation; and (ii) enabling the Corporation to attract, retain and
reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, or any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing, which
controls, is controlled by, or is under common control with, the Corporation
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock award,
phantom stock award, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Corporation, $.01
par value.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(g) "Fair Market Value" of a share of the Corporation's Common Stock for any
purpose on a particular date shall mean the last reported sale price per share
of Common Stock, regular way, on such date or, in case no such sale takes place
on such date, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on a national
securities exchange or included for quotation on the American Stock Exchange, or
if the Common Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Common Stock is not so quoted, the
average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the American Stock Exchange or, if such
system is no longer in use, the principal other automated quotations system that
may then be in use or, if the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices, regular way, as
furnished by a professional market maker making a market in the Common Stock as
selected in good faith by the Administrator or by such other source or sources
as shall be selected in good faith by the Administrator. If, as the case may be,
the relevant date is not a trading day, the determination shall be made as of
the next preceding trading day. As used herein, the term "trading day" shall
mean a day on which public trading of securities occurs and is reported in the
principal consolidated reporting system referred to above, or if the Common
Stock is not listed or admitted to trading on a national securities exchange or
included for quotation on the American Stock Exchange, any business day.
(h) "Grant Agreement" shall mean a written document memorializing the terms and
conditions of an Award granted pursuant to the Plan and shall incorporate the
terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter existing, within
the meaning of the definition of "parent corporation" provided in Code section
424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the Board or
by such committee or committees as may be appointed by the Board from time to
time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Grant
Agreements evidencing such Awards and establish programs for granting Awards.
The Administrator shall have full power and authority to take all other actions
necessary to carry out the purpose and intent of the Plan, including, but not
limited to, the authority to: (i) determine the eligible persons to whom, and
the time or times at which Awards shall be granted; (ii) determine the types of
Awards to be granted; (iii) determine the number of shares to be covered by or
used for reference purposes for each Award; (iv) impose such terms, limitations,
restrictions and conditions upon any such Award as the Administrator shall deem
appropriate; (v) modify, amend, extend or renew outstanding Awards, or accept
the surrender of outstanding Awards and substitute new Awards (provided however,
that, except as provided in Section 7(d) of the Plan, any modification that
would materially adversely affect any outstanding Award shall not be made
without the consent of the holder); (vi) accelerate or otherwise change the time
in which an Award may be exercised or becomes payable and to waive or accelerate
the lapse, in whole or in part, of any restriction or condition with respect to
such Award, including, but not limited to, any restriction or condition with
respect to the vesting or exercisability of an Award following termination of
any grantee's employment or other relationship with the Corporation; and
(vii) establish objectives and conditions, if any, for earning Awards and
determining whether Awards will be paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and absolute
discretion, to administer and interpret the Plan and to adopt and interpret such
rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under the
Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no member of the
Administrator shall be liable for any action taken or decision made in good
faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions and
determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee, consultant, or director of the Corporation, and
their respective successors in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d), the shares of Common
Stock that may be issued with respect to Awards granted under the Plan
(including, for purposes of this Section 4, the Prior Plan) shall not exceed an
aggregate of 1,875,000 shares of Common Stock. The Corporation shall reserve
such number of shares for Awards under the Plan, subject to adjustments as
provided in Section 7(d). If any Award, or portion of an Award, under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any shares, or if any shares
of Common Stock are surrendered to the Corporation in connection with any Award
(whether or not such surrendered shares were acquired pursuant to any Award),
the shares subject to such Award and the surrendered shares shall thereafter be
available for further Awards under the Plan; provided, however, that any such
shares that are surrendered to the Corporation in connection with any Award or
that are otherwise forfeited after issuance shall not be available for purchase
pursuant to incentive stock options intended to qualify under Code section 422.
Subject to adjustments as provided in Section 7(d), the maximum number of
shares of Common Stock subject to Awards of any combination that may be granted
during any one fiscal year of the Corporation to any one individual under this
Plan shall be limited to 400,000. Such per-individual limit shall not be
adjusted to effect a restoration of shares of Common Stock with respect to which
the related Award is terminated, surrendered or canceled.
5. Participation
Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Corporation, or of any Affiliate of the
Corporation, as may be selected by the Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to eligible
participants Awards of incentive stock options as that term is defined in Code
section 422 or nonqualified stock options; provided, however, that Awards of
incentive stock options shall be limited to employees of the Corporation or of
any Parent or Subsidiary of the Corporation. Options intended to qualify as
incentive stock options under Code section 422 must have an exercise price at
least equal to Fair Market Value on the date of grant, but nonqualified stock
options may be granted with an exercise price less than Fair Market Value. No
stock option shall be an incentive stock option unless so designated by the
Administrator at the time of grant or in the Grant Agreement evidencing such
stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time grant to
eligible participants Awards of Stock Appreciation Rights ("SAR"). An SAR
entitles the grantee to receive, subject to the provisions of the Plan and the
Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Corporation of the amount receivable upon any
exercise of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted or
unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Corporation's assets. An Award of phantom stock may be settled in
Common Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. Except as otherwise
provided in the applicable Grant Agreement, the grantee shall not have the
rights of a stockholder with respect to any shares of Common Stock represented
by a phantom stock unit solely as a result of the grant of a phantom stock unit
to the grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Corporation's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Corporation or an Affiliate as a whole, over such
performance period as the Administrator may designate.
7. Miscellaneous
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Corporation or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld in respect of
Awards under the Plan no later than the date of the event creating the tax
liability. The Corporation or its Affiliate may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to
the grantee or holder of an Award. In the event that payment to the Corporation
or its Affiliate of such tax obligations is made in shares of Common Stock, such
shares shall be valued at Fair Market Value on the applicable date for such
purposes.
(b) Loans. The Corporation or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator, and in
any event in the case of an incentive stock option or a stock appreciation right
granted with respect to an incentive stock option, no Award granted under the
Plan shall be transferable by a grantee otherwise than by will or the laws of
descent and distribution. Unless otherwise determined by the Administrator in
accord with the provisions of the immediately preceding sentence, an Award may
be exercised during the lifetime of the grantee, only by the grantee or, during
the period the grantee is under a legal disability, by the grantee's guardian or
legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the Common
Stock of the Corporation by reason of any stock dividend, spin-off, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator shall, in its discretion, make
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by outstanding Awards, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in outstanding Awards,
including but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of the
Awards in cash or in shares of Common Stock or other securities of the
Corporation or of any other entity, or in any other matters which relate to
Awards as the Administrator shall, in its sole discretion, determine to be
necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be granted
under the Plan from time to time in substitution for Awards held by employees or
directors of entities who become or are about to become employees or directors
of the Corporation or an Affiliate as the result of a merger or consolidation of
the employing entity with the Corporation or an Affiliate, or the acquisition by
the Corporation or an Affiliate of the assets or stock of the employing entity.
The terms and conditions of any substitute Awards so granted may vary from the
terms and conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any Grant
Agreement thereunder shall confer any right on an individual to continue in the
service of the Corporation or shall interfere in any way with the right of the
Corporation to terminate such service at any time with or without cause or
notice.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Corporation and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Corporation pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Corporation.
(i) Governing Law. The validity, construction and effect of the Plan, of Grant
Agreements entered into pursuant to the Plan, and of any rules, regulations,
determinations or decisions made by the Administrator relating to the Plan or
such Grant Agreements, and the rights of any and all persons having or claiming
to have any interest therein or thereunder, shall be determined exclusively in
accordance with applicable federal laws and the laws of the State of Maryland
without regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of April 5, 1999,
the date on which the Plan, as an amendment and restatement of the Prior Plan,
was approved by the Board, subject to the approval of the stockholders of the
Corporation within twelve months of such effective date. No Award shall be
granted under the Plan after the close of business on June 30, 2005. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior to
such termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
Date Approved by the Stockholders: June 9, 2000.
