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 28, 2003, 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, 2003; 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 1, 2003 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, 2003
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 2003 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 28, 2003 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
2002 Annual Report are first being sent to stockholders on or about May 1, 2003.
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 1, 2003
will be entitled to vote at the annual meeting or at any adjournments or
postponements thereof. On April 1, 2003, 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 1, 2003, 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 Schedule 13G/A filed for 2002 by ManTech
International Corporation ("ManTech"), 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.
Number of Percent of
Common Stock Outstanding
Shares Beneficially Owned Common Stock
Name of Beneficial Owner
Certain Beneficial Owners
GP Strategies Corporation(1)............................................1,385,700 22.7%
777 Westchester Avenue, 4th Floor
White Plains, NY 10604
Benson Associates, LLC(2)...............................................1,359,111 23.2%
111 S.W. Fifth Avenue, Suite 2130
Portland, OR 97204
ManTech International Corporation(3)....................................1,285,165 21.1%
12015 Lee Jackson Highway
Fairfax, VA 22033
SGLG, Inc.(4).............................................................875,000 14.9%
777 Westchester Avenue, 4th Floor
White Plains, NY 10604
FMR Corp.(5).............................................................297,600 5.1%
82 Devonshire Street
Boston, MA 02109
Directors and Executive Officers(6)
Jerome I. Feldman(7)....................................................1,365,700 22.5%
Scott N. Greenberg(8)...................................................1,328,700 22.0%
George J. Pedersen(9)...................................................1,178,034 19.4%
John A. Moore, Jr.(10)..................................................1,171,915 19.4%
Chin-Our Jerry Jen(11).....................................................61,750 1.0%
Jeffery G. Hough(12).......................................................25,000 *
Sheldon L. Glashow(13).....................................................23,258 *
Gill R. Grady(14)..........................................................21,500 *
Hal D. Paris(15)...........................................................16,500 *
Dion A. Freedman(16).......................................................14,000 *
Joseph W. Lewis(17).........................................................7,000 *
Roger L. Hagengruber(18)....................................................4,000 *
Directors and Executive Officers as a group
(12 persons)19.........................................................2,843,873 43.8%
* Indicates less than one percent (1%).
1 Includes 57,000 shares issuable to Mr. Feldman upon the exercise of options
which are currently exercisable (see Note 7 below), 20,000 shares issuable to
Mr. Greenberg upon the exercise of options which are currently exercisable (see
Note 8 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 Messrs. Feldman and Greenberg.
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 113,250 shares and shares subject to option owned directly by Mr.
Pedersen (see Note 9 below), 107,131 shares and shares subject to option owned
directly by John A. Moore, Jr. (see Note 10 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, including those subject to option, 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 Various persons have the right to receive or the power to direct the receipt
of dividends from, or the proceeds from the sale of, such common stock. The
interest of one person, Fidelity Low Priced Stock Fund, an investment company
registered under the Investment Company Act of 1940, in the common stock of the
Company amounted to 297,600 shares on December 31, 2002.
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 57,000 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 20,000 shares subject to option owned directly by Mr. Greenberg 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. Greenberg disclaims beneficial ownership of all the shares
owned by GP Strategies, SGLG and GPC.
9 Includes 56,250 shares owned directly by Mr. Pedersen, 57,000 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 all the shares owned by ManTech.
10 Includes 83,925 shares owned directly by Mr. Moore, 23,206 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 all the shares owned by ManTech.
11 Includes 3,800 shares owned directly by Mr. Jen and 57,950 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 15,129 shares
issuable upon the exercise of options which are currently exercisable.
14 Includes 21,500 shares issuable upon the exercise of options which are
currently exercisable.
15 Includes 16,500 shares issuable upon the exercise of options which are
currently exercisable.
16 Includes 14,000 shares issuable upon the exercise of options which are
currently exercisable.
17 Includes 7,000 shares issuable upon the exercise of options which are
currently exercisable.
18 Includes 4,000 shares issuable upon the exercise of options which are
currently exercisable.
19 Includes 618,285 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.
The terms of Scott N. Greenberg, Joseph W. Lewis and John A. Moore, Jr.
will expire at the 2003 annual meeting. These directors have been nominated to
stand for reelection at the meeting to hold office until 2006 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. Mr. Jen was
elected at the 2002 annual meeting to hold office until 2005 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. Dr. Hagengruber was elected at the 2002 annual meeting to
hold office until 2005 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
SCOTT N. GREENBERG, JOSEPH W. LEWIS AND JOHN A. MOORE, JR.
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 whose terms expire in 2005
Chin-Our Jerry Jen, age 54. 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.
Sheldon L. Glashow, Ph.D., age 70. 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
directors of RedStorm Scientific, Inc., a 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 60. Dr. Hagengruber has served as a
director since June 2001. Dr. Hagengruber recently retired as the senior vice
president for national security and arms control at the Sandia National
Laboratories, where he served as an officer for over 17 years. In his former
position, he led programs in nuclear technologies, arms control, satellite and
sensor systems, security, and international programs, including an extensive set
of projects within the states of the former Soviet Union. Dr. Hagengruber serves
on ManTech's Advisory Board. He is senior vice president emeritus at Sandia
National Laboratories and a professor at the University of New Mexico, where he
also serves as director of the Institute for Public Policy. 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 standing for election for a term to expire in
2006
Scott N. Greenberg, age 46. 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 68. 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 50. 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 74. 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 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 research and
development company based in the Netherlands.
George J. Pedersen, age 67. Mr. Pedersen has served as a director since
1994, and as chairman of the Company's 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. 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, chairman of the board of Vega
International, and a member of the board of directors of the Association for
Enterprise Integration (AFEI).
The Board of Directors and Board Committees
In 2002, the board met four times and committees of the board held a
total of seven meetings. The average attendance at meetings of the board and
committees was 94%. 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 did not meet formally during 2002. However, the Executive
Committee met informally on at least fifteen occasions during 2002 and took
several actions through resolution by unanimous written consent in lieu of a
meeting in accordance with applicable law.
Audit Committee. The Audit Committee consists of Roger L. Hagengruber,
Sheldon L. Glashow and Joseph W. Lewis (Chairman). 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 five times during 2002.
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 once during
2002.
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
once during 2002. See "Report of the Compensation Committee", below.
Compensation of Directors
In past years, including 2002, the board paid its members who were 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 were full-time employees and were also directors did 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, 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 had a termination date of December 31, 2002, unless
terminated earlier by the executive employee or the Company (through its board
of directors). In past years, these employment agreements provided payments to
Messrs. Feldman and Pedersen of $120,000 annually, and to Messrs. Greenberg and
Moore of $60,000 annually.
In 2002, Messrs. Pedersen and Moore were compensated under the
following arrangement: After receiving payment of $10,000 (Mr. Pedersen) and
$6,000 (Mr. Moore), respectively, in January 2002 as executive employees,
Messrs. Pedersen and Moore terminated their employment agreements on January 25,
2002 due to reasons associated with ManTech's initial public offering.
Notwithstanding their terminations, Messrs. Pedersen and Moore continued to
serve as directors and essentially performed 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. As a result, Mr. Pedersen received $110,000 as
Executive Director I for eleven months of 2002 and Mr. Moore received $54,000 as
Executive Director II for the same period.
In 2002, Messrs. Feldman and Greenberg were compensated under the
following arrangement: After receiving payment of $80,000 (Mr. Feldman) and
$40,000 (Mr. Greenberg), respectively, as executive employees for the first
eight months of 2002, Messrs. Feldman and Greenberg had their status converted
from executive employees to Executive Director I for Mr. Feldman and Executive
Director II for Mr. Greenberg on August 30, 2002. The full board, including the
independent directors, agreed to this status conversion based on the stipulation
that the term for all Executive Directors I and II (Messrs. Feldman, Pedersen,
Greenberg and Moore) would expire on December 31, 2002. This conversion did not
effect the annualized payments of $120,000 to Mr. Feldman and $60,000 to Mr.
Greenberg as previously provided under their executive employment agreements. As
a result, Mr. Feldman received $40,000 as Executive Director I for the last four
months of 2002 and Mr. Greenberg received $20,000 as Executive Director II for
the same period.
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). These options continue in full force and effect
notwithstanding (i) any conversion from executive employee to Executive Director
I or II, or (ii) the expiration of the term of Executive Director I or II on
December 31, 2002.
In light of the Sarbanes-Oxley Act of 2002, and other director
responsibilities, the board revisited director compensation. On February 25,
2003, the board unanimously approved a proposal from the Executive Committee to
revise director compensation (retroactive to January 1, 2003) based on the
current board configuration as follows:
Title Annual Retainer Meetings Est. Yearly Fee
----- --------------- -------- ---------------
Chairman of the Board $30,000 $12,000(1) $42,000
Chairman, Exec. Comm. $30,000 $12,000(1) $42,000
Executive, Comp. Comm. $15,000 $12,000(1) $27,000
Chairman, Audit Comm. $15,000 $ 8,000(2) $23,000
Executive, Non-Mgt. Director $15,000 $ 6,000(3) $21,000
Other, Audit Comm. $10,000 $ 8,000(2) $18,000
Other, Audit Comm. $10,000 $ 8,000(2) $18,000
(1)Includes $6,000 for estimated number of board meetings (4 times $1,500 each)
and $6,000 for estimated number of Executive Committee meetings (4 times $1,500
each).
(2)Includes $6,000 for estimated number of board meetings (4 times $1,500
each) and $2,000 for estimated number of Audit Committee meetings (4 times $500
each).
(3)Compensation for estimated number of board meetings (4 times $1,500 each).
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 45. 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 48. 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 48. 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.
Dion A. Freedman, age 55. Mr. Freedman has served as senior vice
president for process automation since August 2002. Previously, Mr. Freedman
served as vice president for our process automation business unit, and has
served in various business management positions with the Company and its
predecessors since 1979.
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, 2002, 2001, and 2000.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
Securities
Name and Principal Position Underlying All Other
Year Salary Bonus(1) Options (#) LTIP payouts Compensation
Chin-Our Jerry Jen 2002 $195,961 $45,900 0 0 $5,3132
President & COO 2001 176,654 0 22,950 0 2,811
2000 152,385 15,000 0 0 3,057
Jeffery G. Hough 2002 $142,154 $ 9,000 0 0 $2,3763
Sr. Vice President & CFO 2001 155,841 0 0 0 3,485
2000 160,615 15,000 0 0 3,602
Gill R. Grady 2002 $143,307 $12,500 0 0 $3,5304
Sr. Vice President 2001 135,048 0 15,000 0 2,955
2000 131,635 10,000 0 0 3,219
Hal D. Paris 2002 $140,538 $ 9,000 0 0 $3,3085
Sr. Vice President 2001 128,984 8,000 15,000 0 2,863
2000 115,767 0 0 0 2,430
Dion A. Freedman 2002 $126,721 $12,500 0 0 $2,7306
Sr. Vice President 2001 117,211 17,250 10,000 0 2,868
2000 112,204 5,000 0 0 2,483
____________________________
(1)Bonus paid for prior year performance.
(2)Consists of $3,919 for Company retirement plan matching and $1,394 for
executive group term life insurance premiums.
(3)Consists of $1,712 for Company retirement plan matching and $664 for
executive group term life insurance premiums.
(4)Consists of $2,866 for Company retirement plan matching and $664 for
executive group term life insurance premiums.
(5)Consists of $2,810 for Company retirement plan matching and $498 for
group term life insurance premiums.
(6)Consists of $2,534 for Company retirement plan matching and $196 for
group term life insurance premiums.
____________________________
Stock Options
In 2002, no stock options were granted to the named executive officers
(or any other Company employees).
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information on option exercises in 2002 by
the named executive officers and the value of their unexercised options as of
December 31, 2002.
FISCAL YEAR-END OPTION VALUES
# of Number of
Shares Securities Underlying Value of Unexercised
acquired Unexercised In-the-Money
Name on Value Options at Options at
Exercise Realized December 31, 2002 December 31, 2002
-------- --------- ----------------- -----------------
Exercisable/Unexercisable Exercisable/Unexercisable
Chin-Our Jerry Jen -- -- 57,950/107,950 -/-
Jeffery G. Hough -- -- 25,000/75,000 -/-
Gill R. Grady -- -- 21,500/30,500 -/-
Hal D. Paris -- -- 16,500/25,500 -/-
Dion A. Freedman -- -- 14,000/20,000 -/-
Employment Agreements
On March 10, 2000, we entered into change of control agreements with
Messrs. Jen, Hough, Grady and Freedman. On May 30, 2002, we entered into a
similar agreement with Mr. Paris. 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 Messrs. Grady, Freedman and Paris).
Executive Compensation Plan
On August 28, 2002, we established an executive compensation plan for
Mr. Jen. This plan was in effect for fiscal year 2002 and provided for a
potential performance bonus of up to $50,000 and immediate vesting of up to
25,000 stock options conditionally awarded to Mr. Jen during 2002 (which, if
achieved, would actually be reflected as stock options issued and vested in
2003) based upon the Company's achievement of certain financial milestones for
2002. 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 2002, Mr. Jen earned $241,861 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 its
core businesses of power simulation and process automation. We established an
executive compensation plan for Mr. Jen, providing appropriate incentive
compensation if the Company achieved certain financial milestones for 2002.
Specifically, if the Company realized operating income of at least $2,968,000
then Mr. Jen would receive a bonus payment of $50,000 and the 25,000 stock
options conditionally awarded to him in 2002 would immediately vest in 2003. 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
2002 financial performance, Mr. Jen will not receive any incentive compensation
in 2003 under his 2002 executive compensation plan.
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 2002 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 2002 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 2002
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 2002 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"). This charter will be amended in 2003 to reflect the changes
required by the Sarbanes-Oxley Act of 2002. 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 2002, 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, 2002 and that KPMG LLP be appointed independent
public accountants for the Company for 2003. 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, 1998 through December 31, 2002. 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.
[GRAPHIC OMITTED]]
12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002
GSE SYSTEMS, INC. 83.33 110.42 45.83 103.33 35.00
PEER GROUP INDEX 107.34 105.12 147.43 108.91 98.79
AMEX MARKET INDEX 98.64 122.98 121.47 115.87 111.25
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
GP Strategies presently beneficially owns approximately 23% of the
Company. Through the years, GP Strategies has assisted the Company financially
via bank guarantees. Mr. Feldman is the chairman of the board and chief
executive officer of GP Strategies, chairman of the Company's board of
directors, and a member of the Company's Executive, Compensation and Nominating
Committees.
ManTech presently beneficially owns approximately 21% 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, a member of the Company's
board of directors and Nominating Committee, and chairman of the Company's
Executive and Compensation Committees.
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 had no outstanding
obligations to ManTech in connection with this purchasing arrangement as of
December 31, 2002. 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 approximately 1,432 square feet of space
at the Company's Columbia, Maryland office through September 2002, and
thereafter on a month-to-month basis. For the year ended December 31, 2002, such
sublease payments amounted to $26,580. 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, 2002, the
Company had accrued dividends payable of $176,000. 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, Inc. ("RedStorm") in exchange for
a 10% interest in RedStorm, a privately held computational drug design company.
The Company paid $50,000 to RedStorm in the fourth quarter of 2001, and made
additional cash payments totaling $200,000 in the year ended 2002. The Company's
in-kind contribution consisted of the development of a graphical user interface
that will allow scientists to easily access and use RedStorm's Fyrestar
technology, allowing results to be graphically displayed as the calculations
take place. The Company received a perpetual, worldwide, royalty-free,
non-transferable, exclusive license to use the products developed for RedStorm
solely in the power and process controls markets. One of the Company's directors
is also on RedStorm's board of directors. Another director owns approximately
0.5% of RedStorm. The Company has accounted 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.
In October 2002, the Company purchased a Chinese subsidiary of ManTech
for $45,000. This transaction was unanimously approved by the independent
directors.
On March 21, 2003, the Company agreed to issue GP Strategies 150,000
shares of Company common stock at a price of $1.20 per share in consideration
for GP Strategies continuing its bank guarantee in the amount of $1.8 million.
This allowed the Company's credit facility to be extended until March 31, 2004.
This transaction was unanimously approved by the independent directors.
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 2002 and fees billed for other services rendered by KPMG LLP, together with
a comparison of the fees for audit services and other services rendered by KPMG
LLP in 2001.
2002 2001
---- ----
Audit fees, excluding audit related $112,250 $141,985
All other fees:
Audit related fees(1) 9,500 32,762
Tax fees(2) 118,718 104,968
Total fees $240,468 $279,715
=========== ==========
(1) Audit related fees consisted principally of fees for audits of
financial statements of certain employee benefit plans, SEC
compliance and issuance of consents.
(2) Tax fees consisted of fees for tax consultation and tax
compliance services.
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 2002 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, 2002 was filed on March 31, 2003. Also
enclosed is the Company's 2002 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 2004 annual meeting must do so
no later than December 31, 2003. 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 2004 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 2004 annual meeting.
By Order of the Board of Directors
Jeffery G. Hough
Secretary
Columbia, Maryland
April 30, 2003