GSE SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
(410) 772-3500
NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The annual meeting of stockholders of GSE Systems, Inc. (the "Company")
will be held on Wednesday, May 29, 2002, at 10:30 a.m. local time, at our
headquarters located at 9189 Red Branch Road, Columbia, Maryland. The purposes
of the annual meeting are:
(1) to elect three directors to serve for a term of three years;
(2) to consider and vote upon the ratification of KPMG LLP as independent
public accountants for the fiscal year ending December 31, 2002; and
(3) to transact such other business as may properly come before the annual
meeting or at any adjournments or postponements thereof.
The board of directors set April 5, 2002 as the record date for the
meeting. This means that owners of common stock at the close of business on that
day are entitled to (a) receive this notice of the meeting, and (b) vote at the
meeting or at any adjournments or postponements thereof.
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 as soon as possible 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
April 30, 2002
GSE SYSTEMS, INC.
9189 Red Branch Road
Columbia, Maryland 21045
(410) 772-3500
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The board of directors is furnishing you this proxy statement and
accompanying proxy card to solicit proxies to be voted at the 2002 annual
meeting of the stockholders of GSE Systems, Inc. (the "Company"). The annual
meeting will be held at 10:30 a.m. local time, on Wednesday, May 29, 2002 at our
headquarters located at 9189 Red Branch Road, Columbia, Maryland. The proxies
may also be voted at any adjournments or postponements of the annual 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
2001 Annual Report are first being sent to stockholders on or about May 1, 2002.
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, and FOR
the proposal to ratify the appointment of KPMG LLP. Other matters that properly
come before the annual meeting will be voted upon by the persons named in the
enclosed proxy in accordance with their best judgment.
The Company will continue its long-standing practice of holding the
votes of all stockholders in confidence from directors, officers and employees
except: (a) as necessary to meet applicable legal requirements and to assert and
defend claims for or against the Company; (b) in case of a contested proxy
solicitation; or (c) if a stockholder makes a written comment on the proxy card
or otherwise communicates his/her vote to management. The Company will, as it
has in the past, retain an independent tabulator to receive and tabulate the
proxies.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
Voting Securities
Only stockholders of record at the close of business on April 5, 2002
will be entitled to vote at the annual meeting or at any adjournments or
postponements thereof. On April 5, 2002, there were 5,869,138 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 5, 2002, by: (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
outstanding common stock, (ii) each of the Company's directors, (iii) each
current executive officer of the Company named in the Summary Compensation
Table, and (iv) all directors and executive officers as a group. Except as
otherwise indicated, 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.
We are not aware of any material proceedings to which any of the
parties identified under (i), (ii) or (iii) above, or any associate thereof, is
a party adverse to the Company or any of its subsidiaries or has a material
interest adverse to the Company or any of its subsidiaries.
In preparing the following table, the Company has relied on the
information contained in the statements previously filed by GP Strategies
Corporation ("GP Strategies") and ManTech International Corporation ("ManTech"),
and Schedule 13G/A filed for 2001 by Benson Associates, LLC and Hathaway &
Associates, Ltd. Certain of the shares reported in the following table may be
deemed to be beneficially owned by more than one person and, therefore, may be
included in more than one table entry.
Number of Percent of
Common Stock Outstanding
Shares Beneficially Owned Common Stock
Name of Beneficial Owner
Certain Beneficial Owners
GP Strategies Corporation1.............................................1,325,700 22.0%
9 West 57th Street
New York, NY 10019
Benson Associates, LLC2................................................1,202,051 20.5%
111 S.W. Fifth Avenue, Suite 2130
Portland, OR 97204
ManTech International Corporation3.....................................1,225,165 20.3%
12015 Lee Jackson Highway
Fairfax, VA 22033
SGLG, Inc.4..............................................................875,000 14.9%
9 West 57th Street
New York, NY 10019
Hathaway & Associates, Ltd.5.............................................404,000 6.9%
119 Rowayton Avenue
Rowayton, CT 06853
Directors and Executive Officers6
Jerome I. Feldman 7....................................................1,325,700 22.0%
Scott N. Greenberg8....................................................1,308,700 21.7%
John A. Moore, Jr.9....................................................1,151,915 19.1%
George J. Pedersen10...................................................1,138,034 18.9%
Chin-Our Jerry Jen 11.....................................................38,800 *
Jeffery G. Hough12........................................................25,000 *
Sheldon L. Glashow 13.....................................................22,808 *
Gill R. Grady 14..........................................................14,000 *
Hal D. Paris 15...........................................................10,500 *
Joseph W. Lewis16..........................................................7,000 *
Directors and Executive Officers as a group
(10 persons)17........................................................2,668,973 42.3%
* Indicates less than one percent (1%).
1 Includes 17,000 shares issuable to Mr. Feldman upon the exercise of options
which are currently exercisable (see Note 7 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
to GP Strategies upon the exercise of warrants which are currently exercisable.
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 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% of the class. The natural
persons controlling Benson Associates, LLC are Mark Cooper (president) and Dale
Benson (chief investment officer).
3 Includes 73,250 shares and shares subject to option owned directly by Mr.
Pedersen (see Note 10 below), 87,131 shares and shares subject to option owned
directly by John A. Moore, Jr. (see Note 9 below), and 914,784 shares owned by
ManTech. Also includes 150,000 shares issuable to ManTech upon the exercise of
warrants which are currently exercisable. ManTech disclaims beneficial ownership
of all shares owned directly by Messrs. Pedersen and Moore. Does not include the
39,000 shares of Series A preferred stock issued to ManTech on December 5, 2001,
or the 1,474,480 shares of common stock convertible therefrom.
4 Controlling interest held by GP Strategies.
5 Persons other than Hathaway & Associates, Ltd. have the right to receive
dividends from, or the proceeds of, the sale of such common stock. The natural
persons controlling Hathaway & Associates, Ltd. are Carl Hathaway and Brian
Hathaway.
6 The address of all directors and executive officers is in care of GSE Systems,
Inc., 9189 Red Branch Road, Columbia, MD 21045.
7 Includes 17,000 shares subject to option owned directly by Mr. Feldman which
are currently exercisable, as well as 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 owned by GP Strategies and are currently exercisable (see
Note 1 above). Mr. Feldman disclaims beneficial ownership of all the shares
owned by GP Strategies, SGLG and GPC.
8 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 owned by GP
Strategies and are currently exercisable (see Note 1 above). Mr. Greenberg
disclaims beneficial ownership of all the shares owned by GP Strategies, SGLG
and GPC.
9 Includes 83,925 shares owned directly by Mr. Moore, 3,206 shares issuable upon
the exercise of options which are currently exercisable, 914,784 shares owned by
ManTech, and 150,000 warrants which are owned by ManTech and are currently
exercisable (see Note 3 above). Mr. Moore disclaims beneficial ownership of the
shares owned by ManTech.
10 Includes 56,250 shares owned directly by Mr. Pedersen, 17,000 shares issuable
upon the exercise of options which are currently exercisable, 914,784 shares
owned by ManTech, and 150,000 warrants which are owned by ManTech and are
currently exercisable (see Note 3 above). Mr. Pedersen disclaims beneficial
ownership of the shares owned by ManTech.
11 Includes 3,800 shares owned directly by Mr. Jen and 35,000 shares issuable
upon the exercise of options which are currently exercisable.
12 Includes 25,000 shares issuable upon the exercise of options which are
currently exercisable.
13 Includes 8,129 shares owned directly by Dr. Glashow and 14,679 shares
issuable upon the exercise of options which are currently exercisable.
14 Includes 14,000 shares issuable upon the exercise of options which are
currently exercisable.
15 Includes 10,500 shares issuable upon the exercise of options which are
currently exercisable.
16 Includes 7,000 shares issuable upon the exercise of options which are
currently exercisable.
17 Includes 1,099,089 shares issuable upon the exercise of options and warrants
which are currently exercisable.
PROPOSAL 1: ELECTION OF DIRECTORS
The board of directors is divided into three classes that serve
staggered three-year terms and are nearly equal in number as possible. The
stockholders elect at least one class of directors annually. Each class
generally 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
Certificate of Incorporation.
All of the directors were previously elected by the stockholders except
for Dr. Roger L. Hagengruber, who was appointed to the board in June 2001.
The terms of Chin-Our Jerry Jen, Dr. Sheldon L. Glashow and Dr. Roger
L. Hagengruber will expire at the 2002 annual meeting. These directors have been
nominated to stand for reelection at the meeting to hold office until 2005 and
until their successors are elected and qualified.
On March 10, 2000, the board increased the number of directors to eight
and elected Joseph W. Lewis as a director to serve until the 2000 annual
meeting. Mr. Lewis was elected at the 2000 annual meeting to hold office until
2003 and until his successor has been elected and qualified.
On March 22, 2000, the board increased the number of directors to nine
and elected Brian K. Southern as a director to serve until the 2000 annual
meeting. Mr. Southern was elected at the 2000 annual meeting to hold office
until 2002 and until his successor has been elected and qualified. On March 8,
2001, Mr. Southern resigned from the board.
On March 26, 2001, Christopher M. Carnavos resigned from the board.
On March 27, 2001, the board elected Chin-Our Jerry Jen as a director
to serve the vacancy created by Mr. Southern's resignation and to hold office
until 2002 and until his successor has been elected and qualified.
On June 13, 2001, the board elected Dr. Roger L. Hagengruber as a
director to serve until the 2002 annual meeting and until his successor has been
elected and qualified.
The proxies solicited hereby, unless directed to the contrary, will be
voted for election of the nominees. All of the nominees have consented to being
named in this proxy statement and to serve if elected. The board has no reason
to believe that any of the nominees will not be a candidate or will be unable to
serve, but if either occurs proxies may be voted for such substituted nominee or
nominees as the board, in its discretion, may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
CHIN-OUR JERRY JEN, SHELDON L. GLASHOW AND ROGER L. HAGENGRUBER
The following sets forth certain biographical information, including
professional background and business-related experience, for each of the
nominees and incumbent directors.
Class I Directors: Incumbents standing for election for a term to expire in 2005
Chin-Our Jerry Jen, age 53. Mr. Jen has served on the board since March
2001. Mr. Jen has been with the Company and its predecessor companies since 1980
in various engineering and senior management positions. In 1997, Mr. Jen was
promoted to senior vice president of the power business unit, and on November
14, 2000, he was named chief operating officer in charge of both the power and
process control businesses. On March 27, 2001, Mr. Jen was named president and
director. Mr. Jen also serves on the board of managers of RedStorm Scientific
LLC, a privately held computational drug design company.
Sheldon L. Glashow, Ph.D., age 69. Dr. Glashow has served as a director
since 1995. Dr. Glashow is the Higgins Professor of Physics Emeritus at Harvard
University, and a university professor and the Arthur G.B. Metcalf Professor of
Mathematics & the Sciences at Boston University since July 2000, 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 GP Strategies since 1997; a director of General
Physics Corporation since 1987; and a director of Interferon Sciences, Inc., a
pharmaceuticals company, since 1991. Dr. Glashow also serves on the board of
managers of RedStorm Scientific LLC, a privately held computational drug design
company. Dr. Glashow previously served as a director of Duratek, Inc., an
environmental technology and consulting company, from 1985 to 1995. Dr. Glashow
is a foreign member of the Russian Academy of Sciences.
Roger L. Hagengruber, Ph.D., age 59. Dr. Hagengruber has served as a
director since June 2001. Dr. Hagengruber is the senior vice president for
national security and arms control at the Sandia National Laboratories, where he
has served as an officer for over 15 years. In his current position, Dr.
Hagengruber oversees activities in arms control, satellite and sensor systems,
security, and international programs that include an extensive set of projects
within the states of the former Soviet Union. Dr. Hagengruber serves on
ManTech's Advisory Board. Dr. Hagengruber holds B.S., M.S. and Ph.D. degrees
from the University of Wisconsin, with his doctorate in nuclear physics. He is
also a graduate of the Industrial College of the Armed Forces.
Class II Directors: Incumbents whose terms expire in 2003
Scott N. Greenberg, age 45. Mr. Greenberg has served as a director
since 1999 and previously served as a director from 1994 to 1995. Mr. Greenberg
has served on the board of directors of GP Strategies since 1987. Mr. Greenberg
is the president of GP Strategies and has served as its chief financial officer
since 1989. Mr. Greenberg has 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 1995, Mr. Greenberg was a director of Duratek, Inc.
Joseph W. Lewis, age 67. Mr. Lewis has served as a director since March
2000. In 1998, Mr. Lewis 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, a manufacturer of dehumidification equipment. He has
served as a director of Wheaton Franciscan Services, Inc., a multi-system health
care provider, since 1991 and served as its treasurer from 1993 until 2002, and
is currently vice chairman of the board. He previously served as a director of
Entek IRD International until its sale to Allen Bradley, a division of Rockwell
International Corporation.
John A. Moore, Jr., age 49. Mr. Moore has served as a director since
1997. Mr. Moore has served as the executive vice president and chief financial
officer of ManTech since 1993. 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 a supervisory auditor for the Defense Contract Audit
Agency. Mr. Moore holds a Bachelors degree in Accounting from La Salle
University and an MBA from the University of Maryland.
Class III Directors: Incumbents whose terms expire in 2004
Jerome I. Feldman, age 73. Mr. Feldman has served as a director since
1994, and as chairman of the board since 1997. Mr. Feldman co-founded GP
Strategies in 1959 and has served as its chairman of the board and chief
executive officer since its founding. Since 1994, Mr. Feldman has been chairman
of the board and a director of Five Star Products, a wholesale distributor of
home decorating, hardware and finishing products. Mr. Feldman is chairman of the
New England Colleges Fund and a trustee of the Northern Westchester Hospital.
Mr. Feldman also serves on the supervisory board of Avantium International B.V.,
an advanced R&D company based in the Netherlands.
George J. Pedersen, age 66. Mr. Pedersen has served as a director since
1994, and as chairman of our executive committee since 1997. He currently serves
as chairman of the board, chief executive officer and president of ManTech. Mr.
Pedersen co-founded ManTech in 1968. He was elected chairman of ManTech's board
of directors in 1979. In 1995, Mr. Pedersen was elected to the additional
positions of president and chief executive officer. Mr. Pedersen has also served
as president and/or chairman of the board of a number of ManTech subsidiaries.
On June 12, 2001, Mr. Pedersen became a director of GP Strategies. Mr. Pedersen
also 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; 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 2001, the board met three times and committees of the board held a
total of ten meetings. The average attendance at meetings of the board and
committees was 96%. 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) and Jerome I. Feldman. The Executive Committee has the
authority to exercise all powers of the board, except for actions that must be
taken by the full board under the Delaware General Corporation Law. The
Executive Committee met twice during 2001.
Audit Committee. The Audit Committee consists of Roger L. Hagengruber,
Sheldon L. Glashow and Joseph W. Lewis. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants and reviews the adequacy of the Company's internal accounting
controls. The Audit Committee met four times during 2001.
Nominating Committee. The Nominating Committee consists of Jerome I.
Feldman and George J. Pedersen. The Nominating Committee selects and recommends
nominees for election as directors. The Nominating Committee met twice during
2001.
Compensation Committee. The Compensation Committee consists of Jerome
I. Feldman, George J. Pedersen (Chairman) and John A. Moore, Jr. 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
twice during 2001. See "Report of the Compensation Committee", below.
Compensation of Directors
Except as otherwise stated herein, 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 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 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 June 2001, Dr. Hagengruber was granted options to purchase 10,000
shares of common stock at an exercise price of $2.50.
In 2000, Messrs. Glashow and Lewis were each granted options to
purchase 10,000 shares of common stock at an exercise price of $7.50. Messrs.
Carnavos and Southern (former directors/employees) were each granted options to
purchase 100,000 shares of common stock at an exercise price of $4.75.
In 1999, Dr. Glashow was granted options to purchase 1,500 shares of
common stock at an exercise price of $3.3125.
In 1999, the Company entered into employment agreements with Messrs.
Feldman, Greenberg, Pedersen and Moore to serve as executive employees,
providing such services as strategic planning in acquisitions and divestitures,
management of financing arrangements, customer and business development,
management of business infrastructure, and general management of operations.
These employment agreements provide payments to Messrs. Feldman and Pedersen of
$120,000 annually, and to Messrs. Greenberg and Moore of $60,000 annually.
Salaries paid under these agreements in 2001 were $120,000 each to Messrs.
Feldman and Pedersen and $60,000 each to Messrs. Greenberg and Moore. These
employment agreements have a termination date of December 31, 2002, unless
terminated earlier by the executive employee or the Company (through its board
of directors).
On January 25, 2002, Messrs. Pedersen and Moore terminated their
employment agreements due to reasons associated with ManTech's initial public
offering. Notwithstanding their terminations, Messrs. Pedersen and Moore will
continue to serve as directors and will essentially perform the same services
that they did as executive employees. In March 2002, the independent directors,
by the affirmative votes of a majority of such independent directors, approved
the establishment of Executive Director I status for George J. Pedersen at the
annual rate of $120,000 for a term through the earlier of (i) December 31, 2005,
or (ii) his death, resignation or removal from the board in accordance with
applicable law. Similarly, the independent directors, by the affirmative votes
of a majority of such independent directors, approved the establishment of
Executive Director II status for John A. Moore, Jr. at the annual rate of
$60,000 for the same term.
Under these 1999 employment agreements, 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 (i.e.,
February 23, 2004).
PRINCIPAL EXECUTIVE OFFICERS OF THE
COMPANY WHO ARE NOT ALSO DIRECTORS
The board elects executive officers of the Company. Set forth below is
certain information regarding the positions and business experience of each
executive officer of the Company who is not also a director of the Company.
Gill R. Grady, age 44. Mr. Grady has been a senior vice president since
September 1999 and is currently responsible for the executive oversight of
business development as well as several administrative functions such as
investor relations, human resources, contract administration and information
technology. Prior to this, he was responsible for the operations of the
Company's process solutions business unit. He has also served as vice president
of business development for our power systems business unit 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 47. 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, from 1995 through 1998, Mr. Hough was the chief financial officer and
treasurer of Yokogawa Industrial Automation America, Inc., a supplier of process
control equipment. 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.
Harold ("Hal") D. Paris, age 47. Mr. Paris has served as senior vice
president for power simulation since May 2001. Previously, Mr. Paris served as
vice president of sales and marketing for our power systems business unit, and
has served in various marketing and business management positions with the
Company and its predecessors 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, 2001, 2000, and 1999.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
Securities
Name and Principal Position Underlying LTIP payouts All Other
Year Salary Bonus 1 Options (#) Compensation
Chin-Our Jerry Jen 2001 $176,654 0 25,000 0 $2,811 2
President & COO 2000 152,385 $15,000 0 0 3,057
1999 140,000 25,000 50,000 0 4,008
Jeffery G. Hough 2001 $155,841 0 0 0 $3,485 3
Sr. Vice President & CFO 2000 160,615 $15,000 0 0 3,602
1999 137,308 10,000 75,000 0 49,125
Gill R. Grady 2001 $135,048 0 15,000 0 $2,955 4
Sr. Vice President 2000 131,635 $10,000 0 0 3,219
1999 113,889 10,000 5,000 0 2,717
Hal D. Paris 2001 $128,984 $8,000 15,000 0 $2,863 5
Sr. Vice President 2000 115,767 0 0 0 2,430
1999 111,395 10,000 0 0 2,523
Christopher M. Carnavos6 2001 $223,600 0 25,000 $27,847 $10,234 7
2000 223,600 $5,000 100,000 0 3,295
1999 221,618 50,000 100,000 0 57,013
Brian K. Southern8 2001 $167,211 0 78,000 9 0 $14,936 10
2000 180,654 $10,000 100,000 0 3,573
1999 166,000 25,000 50,000 0 3,773
__________________________________
1 Bonus paid for prior year performance.
2 Consists of $2,110 for Company retirement plan matching and $701 for executive
group term life insurance premiums.
3 Consists of $3,010 for Company retirement plan matching and $475 for executive
group term life insurance premiums.
4 Consists of $2,701 for Company retirement plan matching and $254 for executive
group term life insurance premiums.
5 Consists of $2,740 for Company retirement plan matching and $123 for group
term life insurance premiums.
6 Mr. Carnavos resigned as chief executive officer and president on March 26,
2001. Payments made thereafter pursuant to terms of severance agreement.
7 Consists of $3,096 for Company retirement plan matching, $1,032 for executive
group term life insurance premiums and $6,106 in taxable assets received
pursuant to severance agreement.
8 Mr. Southern's employment with GSE was terminated on March 9, 2001. Payments
made thereafter pursuant to terms of severance agreement.
9 Consists of 25,000 options received in recognition of services as an employee,
and 53,000 options for transition services as a consultant during 2001.
10 Consists of $3,344 for Company retirement plan matching, $334 for executive
group term life insurance premiums and $11,258 in taxable assets received
pursuant to severance agreement.
Stock Options
The following table provides information on stock options granted to
the named executive officers during 2001. Only non-statutory stock options were
granted under the Plan.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Percent of Assumed Annual Rates of Stock Price
Total Appreciation for Option Term
Number of Options 12
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted (#) Year 11 ($/sh) Date
---- ------------ ------- ------- ----------- 0% 5% 10%
---- ---- ----
Chin-Our Jerry Jen 25,000 (13) 4.57% $2.00 5/3/2008 $0 $20,355 $47,436
Jeffery G. Hough 0 0% - - - - -
Gill R. Grady 15,000 2.74% $2.00 5/3/2008 $0 $12,213 $28,462
Hal D. Paris 15,000 2.74% $2.00 5/3/2008 $0 $12,213 $28,462
Christopher M. Carnavos 25,000 (14) 4.57% $1.33 3/26/2008 $0 $13,536 $31,545
Brian K. Southern 25,000 (15) 4.57% $1.70 3/8/2008 $0 $17,302 $40,320
Brian K. Southern 53,000 (16) 9.69% $1.70 3/8/2008 $0 $36,680 $85,479
____________________________
11 In addition to the option grants to the executive officers reported in the
table, options with an average exercise price of $1.95 covering a total of
389,000 shares of common stock were granted to twenty-four (24) employees during
2001, which included the 300,000 shares granted to Messrs. Feldman, Pedersen,
Greenberg and Moore as discussed under "Certain Relationships and Related
Transactions."
12 No gain to optionees is possible without an increase in stock price, which
will benefit all stockholders 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.
13 Options issued pursuant to the terms of Mr. Jen's executive compensation plan
for 2001.
14 These options immediately vested.
15 These options immediately vested.
16 These options immediately vested.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information on option exercises in 2001 by
the named executive officers and the value of their unexercised options as of
December 31, 2001.
FISCAL YEAR-END OPTION VALUES
# of Value Number of
Name Shares Realized Securities Underlying Value of Unexercised
acquired Unexercised In-the-Money
on Options at Options at
Exercise December 31, 2001 December 31, 2001
----------------- -----------------
Exercisable/Unexercisable Exercisable/Unexercisable
Chin-Our Jerry Jen -- -- 35,000/75,000 $3,500/$27,500
Jeffery G. Hough -- -- 17,500/57,500 $6,125/$2,625
Gill R. Grady -- -- 14,000/16,500 $1,050/$16,500
Hal D. Paris -- -- 10,500/15,000 $1,050/$16,500
Christopher M. Carnavos 25,000 $27,847 270,000/0 $54,750/$0
Brian K. Southern -- -- 205,000/0 $126,150/$0
Employment Agreements
On March 10, 2000, we entered into change of control agreements
with Messrs. Jen, Hough and Grady. Under these agreements, in the event of a
termination of the individual's employment within 12 months of a change in
business ownership structure, the executive is entitled to continuation of
salary, bonus and all benefits for up to 12 months following termination of
employment. The executive is also entitled to a bonus of 35% of base pay (30%
for Mr. Grady).
Executive Compensation Plan
On May 3, 2001, we established an executive compensation plan for
Mr. Jen. This plan was in effect for fiscal year 2001 and provided for a
performance bonus of up to $50,000 and immediate vesting of up to 25,000 stock
options issued to Mr. Jen during 2001 based upon the Company's achievement of
certain financial milestones for 2001. This matter is further described below
under "Compensation of Principal Executive Officer."
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 John A. Moore,
Jr.
Compensation Philosophy
The compensation program for the executive officers of the Company is
developed and administered by the board and its Compensation Committee. Overall
compensation policies regarding other officers and employees of the Company are
established by the Compensation Committee, but the specific compensation program
for such persons is developed and administered by Company management. The key
goals of the Company's compensation program are to attract, retain and reward
the most capable executives and other employees who can contribute (both short
and long-term) to the success of the Company and to align compensation with the
attainment of the business objectives of the Company.
Compensation of Principal Executive Officer
For 2001, Mr. Jen earned $176,654 in salary and bonus, as shown in
the Summary Compensation Table. The Committee considered this level of payment
appropriate in view of Mr. Jen's leadership of the Company. Upon a corporate
restructuring in early 2001, Mr. Jen has served as the principal executive
officer of the Company and in this role directed the Company's refocus on our
core businesses of power simulation and process automation and returning the
Company to profitability. This refocus also resulted in a solution-oriented
partnership with our customers. We established an executive compensation plan
for Mr. Jen, providing appropriate incentive compensation if the Company
achieved certain financial milestones for 2001. Specifically, if the Company
realized operating income of at least $2,889,000 (excluding VirtualPlant results
and certain other designated corporate expenses), then Mr. Jen would receive a
bonus payment of $50,000 and the 25,000 stock options awarded to him in 2001
would immediately vest. If the Company achieved more than 80% (but less than
100%) of this goal, then Mr. Jen would receive a prorated portion of the bonus
and vested options. If the Company achieved 80% or less of this goal, then Mr.
Jen would not receive any bonus and no options would vest. Under this executive
compensation plan, any unvested options would be forfeited and cancelled. The
Committee believed that the methodology of this executive compensation plan was
fair to Mr. Jen, the Company and our stockholders, as it properly aligned Mr.
Jen's incentive compensation with the Company's financial performance. Based on
the Company's 2001 financial performance, in which operating income was
$2,651,000 (excluding VirtualPlant results and certain other designated
corporate expenses), Mr. Jen achieved 91.8% of his incentive compensation goals.
On April 12, 2002, the Compensation Committee awarded Mr. Jen a bonus payment of
$45,900 and directed that he be granted options to purchase 22,950 shares of
common stock at an exercise price of $2.00 (with the balance of 2,050 shares
deemed forfeited and cancelled).
Implementation Guidelines
To implement the general compensation philosophy described above,
the Company's executive compensation program has three primary components: (i) a
base salary, (ii) bonus awards, and (iii) long-term incentive awards. The
factors and criteria to be considered with respect to each of these components
are set forth below.
Base Salary. The range of the base salary for an executive or other
employee position will generally be established based on competitive salaries
for positions with a similar scope of responsibilities and job complexities. The
level of base salary within the range of competitive salaries will be determined
on the basis of individual performance, experience and other relevant factors,
such as demonstrated leadership, job knowledge and management skills. Such
determination will be made by the Compensation Committee, with regard to the
Company's executive officers, and by management with regard to all other
officers and employees consistent with the general overall compensation policies
established by the Compensation Committee.
Base salaries will be targeted within the appropriate competitive
range, although higher compensation may be paid if necessary or appropriate to
attract or retain unusually qualified executives. Annual or other base salary
adjustments will be based on individual performance as well as other market
factors. Base salary payments made in 2001 were made to compensate ongoing
performance throughout the year.
Bonus Awards. The bonus award is intended to focus the efforts of
the executives and other employees on performance objectives in accordance with
the business strategy of the Company.
The Compensation Committee will administer incentive awards for the
Company's executive officers. The Compensation Committee will review and assess
the extent to which the overall Company performance goals have been met during
the year and make such awards to the Company's executive officers. Management of
the Company will be responsible for awarding bonus amounts to other officers and
employees of the Company, taking into account the general compensation
philosophy of the Company.
For more information regarding the bonuses awarded in 2001 to the
Company's principal executive officer and the four other most highly compensated
executive officers of the Company, see "Compensation of Executive Officers --
Summary of Cash and Certain Other Compensation."
Long-Term Incentive Awards. The third element of the Company's
compensation program is provided through the Company's Long-Term Incentive Plan
(the "Plan"), which is designed to align the interests of the officers and
employees with those of stockholders. The Plan is intended to focus the efforts
of officers and employees on performance which will increase the value of the
Company for its stockholders.
Pursuant to the Plan, the Compensation Committee may grant
incentive stock options within the meaning of the Internal Revenue Code of 1986,
as amended, and may grant, among other types of awards, nonstatutory stock
options to purchase shares of common stock. The Compensation Committee also may
grant stock appreciation rights and award shares of restricted stock and
incentive shares in accordance with the terms of the Plan. Subject to the terms
of the Plan, the Compensation Committee will have discretion in making grants
and awards under the Plan. The Compensation Committee may, however, consider the
recommendations of management with respect to such grants and awards.
Total direct compensation to the Company's executive officers (base
salary, bonus awards and long-term incentive awards) will be targeted within the
appropriate competitive range, although higher compensation may be paid if
necessary to attract or retain unusually qualified executives.
The Compensation Committee's decisions concerning the specific 2001
compensation elements for individual executive officers were made within the
broad framework previously described and in light of each executive officer's
level of responsibility, performance, current salary, prior year bonus and other
compensation awards. In all cases, the Compensation Committee's specific
decisions regarding 2001 executive officer compensation were ultimately based
upon the Compensation Committee's judgment about the individual executive
officer's performance and potential future contributions, and about whether each
particular payment or award would provide an appropriate reward and incentive
for that executive officer to contribute to, and enhance, the Company's
performance.
The board of directors, 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
John A. Moore, Jr.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has a written charter that specifies its
responsibilities. Upon recommendation of the Audit Committee, the board of
directors approved this charter in response to the audit committee requirements
adopted by the Securities and Exchange Commission ("SEC") and the American Stock
Exchange ("AMEX"). A copy of the charter is set forth in Appendix A of this
proxy statement. Each member of the Audit Committee is an independent director
as defined by AMEX rules. The Audit Committee has reviewed and discussed the
Company's audited financial statements with management, which has primary
responsibility for financial statements, and the Company's independent public
accountants, KPMG LLP. As the Company's independent public accountants for 2001,
KPMG LLP is responsible for expressing an opinion on the conformity of the
Company's audited financial statements with generally accepted accounting
principles. The Audit Committee has discussed with KPMG LLP the matters that are
required to be discussed by the Statement of Auditing Standards No. 61
(Communications with Audit Committees). KPMG LLP has provided the Audit
Committee the written disclosures and the letter required by Independence
Standards Board, Standard No. 1 (Independence Discussions with Audit
Committees), and the Audit Committee discussed with KPMG LLP that firm's
independence. KPMG LLP has not provided the Company with any non-audit services
that would be incompatible with that firm's independence.
Based on the considerations referred to above, the Audit Committee
recommended to the board of directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended December 31, 2001 and that KPMG LLP be appointed independent
public accountants for the Company for 2002. The foregoing report is provided by
the following independent directors, who constitute the Audit Committee:
Sheldon L. Glashow Roger L. Hagengruber Joseph W. Lewis
Performance Graph
The following graph sets forth a comparison of the percentage change in
the cumulative total stockholder return on the Company's common stock compared
to the cumulative total return of the American Stock Exchange - US & Foreign
Index and a group of peer issuers selected on a line-of-business basis,
consisting of Aspen Technology, Inc., GenSym Corporation and Emerson Electric
Co. for the period from January 1, 1997 through December 31, 2001. 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.
12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
GSE SYSTEMS, INC. 100.00 32.43 27.03 35.81 14.86 33.51
PEER GROUP INDEX 100.00 117.50 126.34 123.60 173.40 128.16
AMEX MARKET INDEX 100.00 120.33 118.69 147.98 146.16 139.43
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently comprised of Mr. Pedersen, who
is the chairman of the Compensation Committee, and is chairman of the board,
chief executive officer and president of ManTech; Mr. Feldman, who is chairman
of the board of the Company's board of directors and is chairman of the board
and chief executive officer of GP Strategies; and Mr. Moore, who is the
executive vice president and chief financial officer of ManTech.
The Compensation Committee acts on matters related to other directors,
executive officers and related entity proposals. In accordance with applicable
law, any matter related to a member of the Compensation Committee requires
ratification by the independent directors or approval of the entire board.
Certain Relationships and Related Transactions
ManTech presently beneficially owns approximately 20% of the Company.
Through the years, ManTech has assisted the Company financially via bank
guarantees and subordinated loans. Mr. Pedersen is the chairman of the board,
chief executive officer and president of ManTech, and a member of the Company's
board of directors.
Due to the Company's liquidity situation at the end of 2000, we
experienced some difficulties in procuring supplies from our vendors for
business operations. In January 2001, the Company entered into a purchasing
arrangement with ManTech whereby ManTech dealt directly with some of the
Company's vendors, ordered the supplies needed and had the products shipped in
accordance with the Company's instructions. Purchases under this arrangement
totaled $843,000 for the year ended December 31, 2001. This purchasing
arrangement terminated in June 2001, and the Company has no outstanding
obligations to ManTech in connection with this purchasing arrangement as of
December 31, 2001. The supplies purchased through ManTech were at the same
prices at which the Company could have procured the supplies directly, absent
the liquidity situation.
On May 10, 2001, the board, upon unanimous approval of the independent
directors, granted Messrs. Feldman and Pedersen 100,000 shares of common stock
each at an exercise price of $2.00, and Messrs. Greenberg and Moore 50,000
shares of common stock each at an exercise price of $2.00, based on their
efforts in the sale of the Company's VirtualPlant assets to Avantium
International B.V.
In September 2001, the Company entered into a sublease agreement with
ManTech, allowing ManTech to sublease 2,088 square feet of space at the
Company's Columbia, Maryland office through September 2002. For the year ended
December 31, 2001, such sublease payments amounted to $13,000. This sublease
agreement contains standard sublease terms and conditions, and the payments are
based on standard market rental rates for similarly situated subleases.
In September 2001, the Company entered into an alliance with General
Physics Corporation. In addition to cooperating in the marketing of individual
products in the power industry, the companies will combine some of General
Physics' extensive training materials and programs with our power plant
simulation models to provide interactive and adaptive total training solutions.
The Company will also help sell and distribute General Physics' GFE product to
our customer base.
On December 5, 2001, ManTech elected to convert $3.9 million of
subordinated debt into Series A convertible preferred stock at a conversion rate
of $100 per share. As a result, the subordinated promissory note for $3.9
million was cancelled and surrendered. The Series A convertible preferred stock
has no voting rights and bears dividends at the rate of 6% per annum payable
quarterly. Dividends will accumulate if not paid quarterly and compounded
interest will accrue on any unpaid dividends. As of December 31, 2001, the
Company had accrued dividends payable of $17,000. In the event of liquidation or
dissolution of the Company, payment of available funds shall be made on the
Series A convertible preferred stock (including payment in satisfaction of
dividend obligations) prior and in preference to the common stock. At its
discretion, ManTech has the right to convert each share of Series A convertible
preferred stock into Company common stock at a purchase price of $2.645 per
share at any time after a one-year holding period from the date of issuance. At
the end of the third year from the date of issuance, the Series A convertible
preferred stock automatically converts into 1,474,480 shares of Company common
stock. Prior to ManTech's conversion, GP Strategies has the option to acquire
50% of the Series A convertible preferred stock from ManTech for $1,950,000.
On December 7, 2001, the Company agreed to make certain cash and in-kind
contributions to RedStorm Scientific LLC ("RedStorm") in exchange for a 10%
membership interest in RedStorm, a privately held computational drug design
company. The Company paid $50,000 to RedStorm in the fourth quarter of 2001, and
will make additional cash payments of $50,000 in each of the first three
quarters of 2002. The Company's in-kind contribution consists of the development
of certain technology. Company will receive a perpetual, worldwide,
royalty-free, non-transferable, exclusive license to use the products developed
for RedStorm solely in the power and process controls markets. The Company will
receive one seat on RedStorm's board of managers. Additionally, one of the
Company's directors is also on RedStorm's board of managers. The Company will
account for its investment in RedStorm using the equity method of accounting
based on the Company's conclusion that we have significant influence on
RedStorm's operations.
PROPOSAL 2: APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, and subject to stockholder
approval, the board has appointed the firm of KPMG LLP as independent public
accountants of the Company for the current fiscal year. The board has been
advised by KPMG LLP that neither the firm nor any member of the firm has a
direct or indirect financial interest in the Company or its subsidiaries.
KPMG LLP became the Company's independent public accountants on March 17,
2000, replacing PricewaterhouseCoopers.
The following table presents fees for professional audit services rendered
by KPMG LLP for the audit of the Company's annual financial statements for 2001,
and fees billed for other services rendered by KPMG LLP.
Audit fees, excluding audit related $111,985
All other fees:
Audit related fees(1) 81,674
Other non-audit services(2) 86,056
Total all other fees $167,730
(1) Audit related fees consisted principally of audits of financial
statements of certain employee benefit plans, review of registration
statements and issuance of consents.
(2) Other non-audit fees consist of tax compliance.
A representative of KPMG LLP is expected to be present at the annual
meeting and will have an opportunity to make a statement if he/she desires to do
so and will be available to respond to appropriate questions from stockholders.
Ratification of the appointment of the independent public accountants
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
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
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
more than 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. These Reporting Persons are required by SEC regulations to provide
the Company with copies of all Section 16(a) filings. Based solely on a review
of the copies of such forms furnished to the Company, or written representations
from certain Reporting Persons that such filings were not required, the Company
believes that during 2001 the Reporting Persons complied with all Section 16(a)
reporting requirements applicable to them.
OTHER BUSINESS
As of the date of this proxy statement, the Company does not know of any
matters that will be presented for action at the annual meeting other than those
expressly 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.
COSTS OF SOLICITATION
The costs of preparing, printing and mailing the materials used in the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by mail, proxies may be solicited by our officers and
employees (who will receive no compensation therefor in addition to their
regular salaries) by telephone or other means of communication.
ANNUAL REPORTS
The Annual Report on Form 10-K filed by the Company with the SEC for the
fiscal year ended December 31, 2001 was filed on March 29, 2002. Also enclosed
is the Company's 2001 Annual Report to Stockholders. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of making 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 2003 annual meeting must do so
no later than December 31, 2002. Proposals submitted thereafter will be opposed
as not timely filed.
In addition, in accordance with the Company's Bylaws, in order for a
stockholder proposal to be properly brought before the 2003 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 to the
Corporate Secretary at the Company's principal executive offices not less than
60 days nor more than 90 days prior to the date of the 2003 annual meeting.
By Order of the Board of Directors
Jeffery G. Hough
Secretary
Columbia, Maryland
April 30, 2002
Appendix A
GSE Systems, Inc. Audit Committee Charter
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the Board
in fulfilling its oversight responsibilities. The Audit Committee's primary
duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
o Monitor the independence and performance of the Company's independent
auditors.
o Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the American Stock
Exchange. The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent nonexecutive
directors, free from any relationship that would interfere with the exercise of
his or her independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board on recommendation of the
Nominating Committee. If an audit committee Chair is not designated or present,
the members of the Committee may designate a Chair by majority vote of the
Committee membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the independent auditors,
and as a committee to discuss any matters that the Committee or each of these
groups believe should be discussed. In addition, the Committee, or at least its
Chair, should communicate with management and the independent auditors quarterly
to review the Company's financial statements and significant findings based upon
the auditors' limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments
..
3. In consultation with the management and the independent auditors,
consider the integrity of the Company's financial reporting processes
and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control, and report such
exposures. Review significant findings prepared by the independent
auditors together with management's responses.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of earnings
and/or the Company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with SAS 61. The Chair of the
Committee may represent the entire Audit Committee for purposes of this
review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually recommend
to the Board of Directors the appointment of the independent auditors
or approve any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors' audit plan - discuss scope, staffing,
locations, reliance upon management, and internal audit and general
audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
Legal Compliance
11. On at least an annual basis, review with the Company's counsel any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from regulators
or governmental agencies.
Other Audit Committee Responsibilities
12. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
annual proxy statement.
13. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
14. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
Appendix B
GSE SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
To be held on May 29, 2002
The undersigned hereby constitutes and appoints Jeffery G. Hough and/or
Richard J. Luebke, as attorneys and proxies with full power of substitution, to
attend and vote all of the shares which the undersigned is entitled to vote at
the annual meeting of stockholders of GSE Systems, Inc. (the "Company") to be
held at the Company's headquarters at 9189 Red Branch Road, Columbia, Maryland
21045 at 10:30 a.m. local time, on May 29, 2002 and at any and all adjournments
or postponements of the meeting, with the same force and effect as if the
undersigned were personally present and the undersigned hereby instructs said
attorneys and proxies to vote as follows with respect to the matters described
in the accompanying proxy statement:
1. To elect three persons to serve as Class I Directors on the Company's board
of directors, for a term of three years or until their successors have been
elected and qualified. The following three persons have been nominated to
serve as directors: Chin-Our Jerry Jen, Sheldon L. Glashow and Roger L.
Hagengruber.
|_| FOR all nominees listed above |_| WITHHOLD AUTHORITY to vote for
all nominees listed above
____________________________________________________________________________
INSTRUCTIONS: To withhold authority to vote for any one or more individual
nominees, line through or otherwise strike out the name of any nominee.
2. To ratify the appointment of KPMG LLP as the Company's independent public
accountants for the current fiscal year.
|_| FOR |_| AGAINST |_| ABSTAIN
To transact such other business as may properly come before the annual meeting
or at any adjournments or postponements thereof.
(Please sign on reverse side)
(continued from other side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY,
WHICH RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEES LISTED IN ITEM 1 AND FOR ITEM
2. AS TO ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING, SAID
PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
This proxy will be voted in the manner directed herein. If no direction is
given, the proxy will be voted FOR the election of all director nominees listed
in Item 1 and FOR Item 2. The undersigned acknowledges receipt of the
accompanying notice of annual meeting and proxy statement.
|_| Please indicate by check mark if you plan to attend the annual
meeting of stockholders.
DATED:____________________________________, 2002
_______________________________________________
(Signature)
________________________________________________
(Signature)
NOTE: Please sign exactly as your name or names appear on this card. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, personal representative, trustee or guardian, please give
full titles as such. (Please sign, date and return this proxy in the
enclosed envelope.)