GSE Systems, Inc./DE/
Filing Type: 10-K/A
Description: Amended Annual Report
Filing Date: April 28, 2000
Period End: Dec. 31, 1999
Primary Exchange: Nasdaq Amex - The American Stock
Exchange
Ticker: GVP
<PAGE>
Table of Contents
10-K/A
Page
PART III.....................................................2
Item 10......................................................2
Item 11......................................................4
Item 12......................................................9
Item 13.....................................................11
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-26494
GSE Systems, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
52-1868008
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(State of Incorporation)
(I.R.S. Employer Identification No.)
9189 Red Branch Road, Columbia, Maryland
21045
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (410) 772-3500
- ----------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class: Common Stock, $.01 par value
Number of Shares Outstanding as of 4/11/00: 5,186,047
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K [ ]
<PAGE>
The aggregate market value of common stock held by non-affiliates of the
Registrant as of April 11, 2000 was $40,840,120.
EXPLANATORY NOTE:
----------------
This Amendment No. 1 to the Form 10-K for the fiscal year ended December
31, 1999 is filed to add Part III of Form 10-K, which was omitted in reliance on
General Instruction G(3) thereto.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the executive
officers, key employees and directors of the Company as of April 11, 2000.
NAME AGE POSITION
- ---- --- --------
Christopher M. Carnavos (1)(3)(4) 49 Director, President and Chief
Executive Officer
Jerome I. Feldman (1)(3)(4) 71 Director, Chairman of the Board
Sheldon L. Glashow (2) 67 Director
Gill R. Grady 42 Senior Vice President
Scott N. Greenberg 43 Director
Jeffery G. Hough 45 Sr. Vice President and Chief
Financial Officer
Chin-Our Jerry Jen 51 Senior Vice President
Joseph W. Lewis (2) 65 Director
John A. Moore, Jr. 47 Director
George J. Pedersen (1)(3)(4) 64 Director
Sylvan Schefler (2) 62 Director
Brian K. Southern 36 Senior Vice President,Business
Development
- --------------------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Nominating Committee
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.
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 Corporation (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.
<PAGE>
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.
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.
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. 1991 to January 1995, Mr. Greenberg was a Director of GTS Duratek,
Inc.
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 Compan'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.
Joseph W. Lewis, age 65. Mr. Lewis has served on the Board since March
2000. 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 International Corporation (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.
<PAGE>
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.
Sylvan Schefler, age 62. Mr. Schefler has served as a Director of the
Company since 1995. Mr. Schefler has been Chairman of Crystal Asset Management
Group Ltd., a merchant banking firm, since 1990. Mr. Schefler has been Chairman
of Maxima Group, LLC, a merchant banking firm, since September 1997. From 1994
to 1997, Mr. Schefler was Vice Chairman of Prime Charter Ltd., an investment
banking firm and the underwriter of the Company's initial public offering. Mr.
Schefler was associated with the investment firm of Drexel Burnham for over 30
years, during which time he served as a member of both the Executive Committee
and Board of Directors of the company.
Brian K. Southern, age 36. 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 which includes strategic planning, M&A
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors and officers and persons who are the beneficial owners of more than
10% of the common stock are required to report their beneficial ownership of
common stock and any changes in that ownership to the Securities and Exchange
Commission (the "SEC"). Specific due dates for these reports have been
established, and the Company is required to report any failure to file by these
dates during 1999. The Company believes that all of these filing requirements
were satisfied by its directors and officers and by the beneficial owners of
more that 10% of the common stock except that one report was inadvertently filed
late on behalf of each of Messrs. Carnavos, Greenberg, Schefler and Southern. In
making the foregoing statements, the Company has relied on copies of the
reporting forms received by it or the written representations from certain
reporting persons that no Forms 5 (Annual Statements of Changes in Beneficial
Ownership) were required to be filed under the applicable rules of the SEC.
Item 11. EXECUTIVE COMPENSATION
Compensation of Directors
The Board pays its members who are not full-time employees of the Company
(the "Non-Management Directors") an annual fee of $5,000 for their service and
$1,500 for each Board or Committee meeting attended. Officers who 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 (or if such Director has served for less than a full year a
prorated portion thereof) with an exercise price per share equal to the fair
market value of a share of common stock on such date. All 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.
<PAGE>
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, customer and other business development activities. Payments made
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, Messrs. Feldman and Pedersen were each granted
options to purchase 100,000 shares of common stock at an exercise price of
$4.125; Messrs. Greenberg and Moore were each granted options to purchase 50,000
shares of common stock at an exercise price of $4.125; and Messrs. Glashow and
Schefler were each granted options to purchase 1,500 shares of common stock at
an exercise price of $3.3125.
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.
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.
<TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C>
Annual Long-Term
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 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- 2,120
1997 103,002 -0- 2,010
</TABLE>
<PAGE>
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 $100,000.
Stock Options
The following table provides information on stock options
granted to the named executive officers during 1999. Only
non-statutory stock options were granted under the Plan.
<TABLE>
<CAPTION> OPTION GRANTS IN LAST FISCAL YEAR
<S> <C> <C> <C> <C> <C> <C> <C>
Percent of Potential Realizable Value at
Total Options Assumed Annual Rates of Stock Price
Number of Granted to Appreciation for Option Term(4)
Securities Employees in
Underlying Fiscal Year(3) Exercise or
Options Base Price Expiration 0% ($) 5% ($) 10%
Name Granted(#) ($/share) Date
Christopher M. Carnavos 100,000(1) 14.8 4.125 4/5/06 -0- $167,929 $391,346
Brian K. Southern 50,000(1) 7.4 4.125 4/5/06 -0- $ 83,964 $195,673
Chin-Our Jerry Jen 50,000(1) 7.4 4.125 4/5/06 -0- $ 83,964 $195,673
Jeffery G.Hough 25,000(2) 3.7 2.750 1/27/06 -0- $ 27,988 $ 65,244
50,000(1) 7.4 4.125 4/5/06 $ 83,964 $195,673
Gill R. Grady 5,000(2) .7 4.000 8/24/06 -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, or 100% of the
shares shall be vested as of the fifth anniversary of the Grant Date.
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.
<PAGE>
<TABLE>
<CAPTION> 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
<S> <C> <C>
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>
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.
Report of The Compensation Committe
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 has directed and overseen 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, 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 to
Chief Executive Officer announced on June 9, 1999, 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.
<PAGE>
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 the 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 "Executive Compensation -- Summary of
Cash and Certain Other Compensation".
Long-Term Incentive Award. The third element of the Company's compensation
program will be provided through the Company's Long-Term Incentive Plan (the
"Plan"), which is also 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 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>
ITEM 12. 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 and GP Strategies, and filed 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Percent of
Common Stock Beneficial
Shares Bene- Ownership
Name of Beneficial Owner ficially Owned
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, Oregon 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>
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.
<PAGE>
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 or 6.8% of the common stock
outstanding of GSE Systems Incorporated (the Company) as a result of acting as
investment adviser to various investment companies registered under Section 8 of
the Investment Company Act of 1940.
The ownership of one investment company, Fidelity Low-Priced Stock Fund,
amounted to 353,800 shares or 6.8% of the common stock outstanding. 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.
Strategic Advisers, Inc., 82 Devonshire Street, Boston, MA 02109, a wholly-owned
subsidiary of FMR Corp. and an investment adviser registered under Section 203
of the Investment Advisers Act of 1940, provides investment advisory services to
individuals. It does not have sole power to vote or direct the voting of shares
of certain securities held for clients and has sole dispositive power over such
securities. As such, FMR Corp.'s beneficial ownership may include shares
benefically owned through Strategic Advisers, Inc.
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.
<PAGE>
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 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 21,500 shares issuable upon the exercise of options which are
exercisable within sixty (60) days of April 11, 2000.
14 Includes 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 option which are
exercisable within sixty (650) 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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, both GP Strategies and ManTech
have provided certain guarantees. The Company is presently in discussion with
both GP Strategies and ManTech regarding consideration for such guarantees.
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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
GSE SYSTEMS, INC.
Date: April 28, 2000 By: /s/ Christopher M. Carnavos
----------------------------
Christopher M. Carnavos
Director, Chief Executive Officer
and President
