As filed with the Securities and Exchange Commission on August 23, 2005
Registration No. 333-126108
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Post-Effective Amendment No. 1
To
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act Of 1933
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GSE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1868008
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9189 Red Branch Road
Columbia, MD 21045
(410) 772-3500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
John V. Moran
Chief Executive Officer
GSE Systems, Inc.
9189 Red Branch Road
Columbia, MD 21045
(410) 772-3500
Fax: (410) 772-3599
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
-------------------------
Copy to:
Robert J. Hasday, Esq.
Duane Morris LLP
380 Lexington Avenue
New York, NY 10168
(212) 692-1000
Fax: (212) 692-1020
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Explanatory Note
This Post-Effective Amendment No. 1 is being filed for the purpose of updating
the "Where You Can Find More Information" and "Risk Factors" sections of the
prospectus included in Registrant's initial Registration Statement on Form S-3
(File No. 333-126108).
The information in this prospectus is not complete and may be changed. The
selling stockholders named in this prospectus may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 23, 2005
PROSPECTUS
GSE SYSTEMS, INC.
1,503,030 Shares of Common Stock
We have prepared this prospectus to allow Dolphin Direct Equity Partners,
L.P., the selling stockholder, to sell up to 1,503,030 shares of our common
stock issuable upon conversion of a senior subordinated secured convertible note
or exercise of a warrant issued to the selling stockholder by us. We will not
receive any proceeds from shares of common stock sold by the selling
stockholder.
The selling stockholder identified in this prospectus, or its pledgees,
donees, transferees or other successors-in-interest, may offer the shares from
time to time through public or private transactions at prevailing market prices,
at prices related to prevailing market prices or at privately negotiated prices.
Our common stock is listed on the American Stock Exchange under the symbol
"GVP." On August 22, 2005, the closing sale price of the common stock on the
American Stock Exchange was $1.65.
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is August , 2005
TABLE OF CONTENTS
Page
THE COMPANY....................................................................3
RISK FACTORS...................................................................3
THE FINANCING..................................................................7
SELLING STOCKHOLDER............................................................9
USE OF PROCEEDS...............................................................10
PLAN OF DISTRIBUTION..........................................................10
LEGAL MATTERS.................................................................12
EXPERTS.......................................................................12
WHERE YOU CAN FIND MORE INFORMATION...........................................12
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Special Note Regarding Forward-Looking Statements
This prospectus contains "forward-looking" statements that have been made
pursuant to the Private Securities Litigation Reform Act of 1995 which reflect
our expectations regarding our future growth, results of operations, performance
and business prospects and opportunities. Wherever possible, words such as
"anticipate," "believe," "plan," "expect" and similar expressions have been used
to identify these forward-looking statements. These statements reflect our
current beliefs and are based on information currently available to us.
Accordingly, these statements are subject to risks and uncertainties, including
those listed under "Risk Factors," which could cause our actual growth, results,
performance and business prospects and opportunities to differ from those
expressed in, or implied by, these statements. Except as otherwise required by
federal securities law, we are not obligated to update or revise these
forward-looking statements to reflect new events or circumstances.
THE COMPANY
GSE Systems, Inc. ("GSE Systems," "GSE," the "Company," or "we" or "us") is
a leader in real-time, high fidelity simulation. The Company provides simulation
solutions and services to the nuclear and fossil electric utility industry, the
chemical and petrochemical industries and to the US Military Complex. In
addition, the Company provides plant monitoring and signal analysis monitoring
and optimization software primarily to the power industry. Our executive offices
are located at 9189 Red Branch Road, Columbia, Maryland 21045. Our telephone
number is (410) 772-3500. We maintain a Web site at http://www.gses.com. Nothing
contained in such Web site should be deemed a part of this prospectus.
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below may not be the
only ones we will face. Additional risks and uncertainties not presently known
to us or that we currently deem not material may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
The Company has limited cash resources. If the Company is unable to
generate adequate cash flow from operations, it will need additional capital to
fund its operations.
For the years ended December 31, 2003 and 2002, the Company experienced net
losses from continuing operations of $1.9 million and $4.3 million,
respectively, and had only $82,000 of income from continuing operations for the
year ended December 31, 2004. The Company also had a net loss of $1.6 million
for the first six months of fiscal 2005. The Company's backlog has decreased
from $30.4 million at December 31, 2003 to $19.6 million at December 31, 2004
and $14.7 million at June 30, 2005. The Company has cash available through a
credit facility of $1.5 million, of which $725,000 had been utilized at June 30,
2005. In addition, as described herein, the Company recently issued and sold to
an investor a senior subordinated secured convertible note of the Company and a
warrant to purchase shares of our common stock for an aggregate purchase price
of $2,000,000. However, if the Company's income from continuing operations does
not improve, it may need additional capital to fund its operations. If adequate
funds are not available, GSE may be required to curtail its operations.
The Company is controlled by the Company's principal stockholder, whose
interests may not be aligned with those of the Company's other stockholders.
As of August 23, 2005, GP Strategies Corporation ("GP Strategies") owns
approximately 57% of GSE's outstanding common stock. Accordingly, GP Strategies
controls the Company's business and affairs, including the election of
individuals to the board of directors, and the outcome of actions that require
stockholder approval including mergers, sales of assets, and to prevent, or to
cause, a change of control of the Company.
On January 1, 2004, the Company entered into a Management Services
Agreement with GP Strategies Corporation in which GP Strategies agreed to
provide corporate support services to GSE, including accounting, finance, human
resources, legal, network support and tax. In addition, GSE uses General
Physics' financial system. (General Physics is a GP Strategies subsidiary.) In
2004, GSE was charged $685,000 for General Physics' services. The agreement has
been extended through December 31, 2005 without an increase in the fee. The
agreement can be renewed for successive one-year terms.
In addition, the Company does not have an independent credit facility;
instead, $1.5 million of General Physics' available credit facility has been
carved out for use by the Company.
The Company's principal stockholder intends to spin-off its interest in the
Company.
On June 21, 2005, GP Strategies announced that it intends to spin-off its
interest in the Company through a special dividend to GP Strategies'
stockholders. The Company's business has historically relied on GP Strategies
for various services, including the provision of a portion of General Physics'
available credit facility, as described above. GP Strategies may be less willing
to provide assistance or services to the Company after the spin-off.
The Company's expense levels are based upon its expectations as to future
revenues, so it may be unable to adjust spending to compensate for a revenue
shortfall. Accordingly, any revenue shortfall would likely have a
disproportionate effect on the Company's operating results.
The Company's revenues were $29.5 million and $25.0 million in 2004 and
2003, respectively, and $13.0 million for the six months ended June 30, 2005.
The Company's operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, including
purchasing patterns, timing of new products and enhancements by the Company and
its competitors, and fluctuating foreign economic conditions. Since the
Company's expense levels are based in part on its expectations as to future
revenues and includes certain fixed costs, the Company may be unable to adjust
spending in a timely manner to compensate for any revenue shortfall and such
revenue shortfalls would likely have a disproportionate adverse effect on
operating results. The Company believes that these factors may cause the market
price for its common stock to fluctuate, perhaps significantly. In addition, in
recent years the stock market in general, and the shares of technology companies
in particular, have experienced extreme price fluctuations. The Company's
common stock has also experienced a relatively low trading volume, making it
further susceptible to extreme price fluctuations.
Risk of International Sales and Operations.
Sales of products and the provision of services to end users outside the
United States accounted for approximately 65.1% of the Company's consolidated
revenue in 2004. The Company anticipates that international sales and services
will continue to account for a significant portion of its revenue in the
foreseeable future. As a result, the Company may be subject to certain risks,
including risks associated with the application and imposition of protective
legislation and regulations relating to import or export (including export of
high technology products) or otherwise resulting from trade or foreign policy
and risks associated with exchange rate fluctuations. Additional risks include
potentially adverse tax consequences, tariffs, quotas and other barriers,
potential difficulties involving the Company's strategic alliances and managing
foreign sales agents or representatives and potential difficulties in accounts
receivable collection. The Company currently sells products and provides
services to customers in emerging market economies such as Russia, Ukraine,
Bulgaria, and the Czech Republic. Although end users in the Ukraine accounted
for 20.7%, 28.7%, and 22.8% of the Company's consolidated revenue in 2004, 2003,
and 2002, respectively, GSE's customer for these projects was Battelle's Pacific
Northwest National Laboratory, which is the purchasing agent for the U.S.
Department of Energy ("DOE"). The DOE provides funding for various projects in
Eastern and Central Europe. Accordingly, the Company is not subject to the
political and financial risks that are normally faced when doing business in the
Ukraine. The Company has taken steps designed to reduce the additional risks
associated with doing business in these countries, but the Company believes that
such risks may still exist and include, among others, general political and
economic instability, lack of currency convertibility, as well as uncertainty
with respect to the efficacy of applicable legal systems. There can be no
assurance that these and other factors will not have a material adverse effect
on the Company's business, financial condition or results of operations.
The Company relies on one customer for a substantial portion of its
revenue. The loss of this customer would have a material adverse effect upon the
Company's revenues and results of operations.
For the years ended December 31, 2004, 2003, and 2002, one customer
(Battelle's Pacific Northwest National Laboratory) accounted for approximately
24.0%, 28.7%, and 22.8%, respectively, of the Company's consolidated revenue.
The Pacific Northwest National Laboratory is the purchasing agent for the DOE
and the numerous projects the Company performs in Eastern and Central Europe. If
the Company lost this customer, the Company's revenue and results of operations
would be materially and adversely affected.
The Company's business is substantially dependent on sales to the nuclear
power industry. Any disruption in this industry would have a material adverse
effect upon the Company's revenue.
In 2004, 85% of our revenue was from customers in the nuclear power
industry. The Company will continue to derive a significant portion of its
revenue from customers in the nuclear power industry for the foreseeable future.
The Company's ability to supply nuclear power plant simulators and related
products and services is dependent on the continued operation of nuclear power
plants and, to a lesser extent, on the construction of new nuclear power plants.
A wide range of factors affect the continued operation and construction of
nuclear power plants, including the political and regulatory environment, the
availability and cost of alternative means of power generation, the occurrence
of future nuclear incidents, and general economic conditions.
The Company's available credit facility imposes significant operating and
financial restrictions, which may prevent it from capitalizing on business
opportunities.
GSE's available credit facility, which has been carved out of General
Physics' credit facility, imposes significant operating and financial
restrictions. These restrictions affect, and in certain cases limit, among other
things, the Company's ability to:
* incur additional indebtedness and liens;
* make capital expenditures;
* make investments and acquisitions and sell assets; and
* consolidate, merge or sell all or substantially all of its assets.
At June 30, 2005, the Company was not in compliance with its debt service
coverage ratio. The Company obtained a letter dated August 4, 2005 in which the
lender has agreed to forebear from exercising its rights under the credit
agreement against the Company and other borrowers with respect to this event of
default until the Company has delivered to the lender the Company's financial
statements for the year ending December 31, 2005. Borrowings outstanding under
this arrangement are guaranteed by GP Strategies.
There can be no assurance that these restrictions will not adversely affect
the Company's ability to finance its future operations or capital needs or to
engage in other business activities that may be in the interest of stockholders.
The Company is dependent on product innovation and research and
development, which costs are incurred prior to revenues for new products and
improvements.
The Company believes that its success will depend in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
needs. The Company's product development activities are aimed at the development
and expansion of its library of software modeling tools, the improvement of its
display systems and workstation technologies, and the advancement and upgrading
of its simulation technology. The life cycles for software modeling tools,
graphical user interfaces, and simulation technology are variable and largely
determined by competitive pressures. Consequently, the Company will need to
continue to make significant investments in research and development to enhance
and expand its capabilities in these areas and to maintain its competitive
advantage. There can be no assurance that the Company will have the financial
resources to support such investments.
The Company relies upon its intellectual property rights for the success of
its business; however, the steps it has taken to protect its intellectual
property may be inadequate.
Although the Company believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements and reliable product maintenance are important to establishing and
maintaining a technological leadership position, the Company's business depends,
in part, on its intellectual property rights in its proprietary technology and
information. The Company relies upon a combination of trade secret, copyright,
patent and trademark law, contractual arrangements and technical means to
protect its intellectual property rights. The Company enters into
confidentiality agreements with its employees, consultants, joint venture and
alliance partners, customers and other third parties that are granted access to
its proprietary information, and limits access to and distribution of its
proprietary information. There can be no assurance, however, that the Company
has protected or will be able to protect its proprietary technology and
information adequately, that the unauthorized disclosure or use of the Company's
proprietary information will be prevented, that others have not or will not
develop similar technology or information independently, or, to the extent the
Company owns patents, that others have not or will not be able to design around
those patents. Furthermore, the laws of certain countries in which the Company's
products are sold do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
The industries in which GSE operates are highly competitive. This
competition may prevent the Company from raising prices at the same pace as its
costs increase.
The Company's businesses operate in highly competitive environments with
both domestic and foreign competitors, many of whom have substantially greater
financial, marketing and other resources than the Company. The principal factors
affecting competition include price, technological proficiency, ease of system
configuration, product reliability, applications expertise, engineering support,
local presence and financial stability. The Company believes that competition in
the simulation fields may further intensify in the future as a result of
advances in technology, consolidations and/or strategic alliances among
competitors, increased costs required to develop new technology and the
increasing importance of software content in systems and products. As the
Company's business has a significant international component, changes in the
value of the dollar could adversely affect the Company's ability to compete
internationally.
GSE will continue to pursue new acquisitions and joint ventures, and any of
these transactions could adversely affect its operating results or result in
increased costs or other problems.
The Company intends to continue to pursue new acquisitions and joint
ventures, a pursuit which could consume substantial time and resources.
Identifying appropriate acquisition candidates and negotiating and consummating
acquisitions can be a lengthy and costly process. The Company may also encounter
substantial unanticipated costs or other problems associated with the acquired
businesses. The risks inherent in this strategy could have an adverse impact on
the Company's results of operation or financial condition. There can be no
assurance that the Company will have the financial resources to fulfill its
strategy.
The nuclear power industry, the Company's largest customer group, is
associated with a number of hazards which could create significant liabilities
for the Company.
The Company's business could expose it to third party claims with respect
to product, environmental and other similar liabilities. Although the Company
has sought to protect itself from these potential liabilities through a variety
of legal and contractual provisions as well as through liability insurance, the
effectiveness of such protections has not been fully tested. Certain of the
Company's products and services are used by the nuclear power industry primarily
in operator training. Although the Company's contracts for such products and
services typically contain provisions designed to protect the Company from
potential liabilities associated with such use, there can be no assurance that
the Company would not be materially adversely affected by claims or actions
which may potentially arise.
The terms of our recent financing may require us to issue an indeterminate
number of shares of our common stock and restrict us from taking certain
actions.
As described in "The Financing," below, we have recently issued and sold to
an investor a senior subordinated secured convertible note of the Company and a
warrant to purchase shares of our common stock. The note is convertible, in part
or in whole, into shares of our common stock based on a conversion price of
$1.925. However, the conversion price, and thus the number of shares into which
the note may be converted, is subject to adjustment if we issue or sell certain
shares of common stock or convertible securities for a consideration per share
less than the then effective conversion price, in which case the conversion
price will be reduced to an amount equal to the consideration per share in such
new issuance. The exercise price of the warrant, but not the number of shares
for which it is exercisable, is similarly subject to adjustment.
In addition, under the terms of the financing, while the note is
outstanding, the Company may not, among other things, (i) acquire, sell or
otherwise transfer any material assets or rights of the Company or a subsidiary,
or enter into any contract or agreement relating to the sale of assets, which is
not consummated pursuant to an arms length transaction, (ii) enter into any
contract, agreement or transaction with any officer, director, stockholder or
affiliate of the Company or a subsidiary other than ordinary course transactions
that are consistent with past practice and pursuant to arms length terms, (iii)
pay or declare any dividend or make any distribution upon, redeem, retire or
repurchase or otherwise acquire, any shares of capital stock or other securities
of the Company or a subsidiary, other than certain dividends currently owed to
ManTech International Corp., (iv) materially change the Company's or any
subsidiary's line of business as currently conducted, or (v) incur any
additional indebtedness senior to the note. Furthermore, the note and the
warrant each prevent the Company from engaging in any fundamental transaction
(such as a merger, consolidation, or sale of the Company) while it is
outstanding, unless the successor assumes in writing all of the obligations of
the Company under it and, the successor is a publicly traded company with common
stock traded on the Amex, Nasdaq, or the New York Stock Exchange.
THE FINANCING
On May 26, 2005, the Company issued and sold to Dolphin Direct Equity
Partners, L.P. (the "Investor"), for an aggregate price of $2,000,000, a senior
subordinated secured convertible note of the Company in the aggregate principal
amount of $2,000,000 (the "Note") and a warrant (the "Warrant") to purchase
380,952 shares (the "Warrant Shares") of our common stock, pursuant to a Senior
Subordinated Secured Convertible Note and Warrant Purchase Agreement, dated as
of May 26, 2005 (the "Agreement"). We refer to this transaction as the
"Financing." Our board of directors approved the Financing on May 19, 2005.
Our common stock is listed on the American Stock Exchange (the "Amex"), and
we are therefore subject to the Amex's rules. Under Section 713 of the Amex
Company Guide, companies with securities listed on the Amex must obtain
stockholder approval before the sale, issuance, or potential issuance of their
common stock, or securities convertible into their common stock, in connection
with a transaction other than a public offering, equal to 20% or more of their
outstanding common stock, for less than the greater of book or market value of
their common stock.
The Note is convertible, in part or in whole, into shares of our common
stock based on a conversion price of $1.925. However, the conversion price, and
thus the number of shares into which the Note may be converted, is subject to
adjustment. Under these adjustment provisions, it is possible that we would be
required to issue, upon conversion of the Note (when aggregated with the number
of shares of our common stock issued upon exercise of the Warrant), 20% or more
of the outstanding shares of our common stock on May 26, 2005 for less than the
greater of book or market value of our common stock. Accordingly, under the
Amex's rules, we are required to obtain stockholder approval for any such
issuance.
Under the terms of the Agreement and Note, notwithstanding the adjustment
provisions of the Note, the number of shares of our common stock actually issued
or issuable on conversion of the Note, when aggregated with the number of shares
of our common stock actually issued upon exercise of the Warrant, will not
exceed 19.99% of the outstanding shares of our common stock on May 26, 2005 (the
"Conversion Share Limit"). However, the Note provides that the Conversion Share
Limit will terminate upon the effectiveness of the consent to the transaction by
stockholders holding a majority of the outstanding shares of our common stock,
in compliance with the stockholder approval requirements of the Amex.
On May 19, 2005, we obtained the written consent (the "Majority Consent")
of GP Strategies, as holder of a majority of the outstanding shares of our
common stock. In accordance with Rule 14c-2 under the Securities Exchange Act of
1934, as amended (the "1934 Act"), the effectiveness of the Majority Consent,
and the termination of the Conversion Share Limit, became effective on July 1,
2005 (the day following the twentieth day after an Information Statement on
Schedule 14C was mailed to our stockholders). No other approval is necessary or
will be sought.
The following is a summary of the terms of the Financing.
The Agreement. On May 26, 2005, pursuant to the Agreement, we issued the
Note and the Warrant to the Investor for an aggregate purchase price of
$2,000,000, less certain fees we agreed to pay. Of such purchase price, $500,000
was placed in escrow until the termination of the Conversion Share Limit. If the
Conversion Share Limit has not been terminated by the 75th day after the closing
date, the Agreement provides that such $500,000 will be paid to the Investor.
Under the Agreement, we have agreed, among other things, not to, and to
cause our subsidiaries not to, while the Note is outstanding, (i) acquire, sell
or otherwise transfer any material assets or rights of the Company or a
subsidiary, or enter into any contract or agreement relating to the sale of
assets, which is not consummated pursuant to an arms length transaction, (ii)
enter into any contract, agreement or transaction with any officer, director,
stockholder or affiliate of the Company or a subsidiary other than ordinary
course transactions that are consistent with past practice and pursuant to arms
length terms, (iii) pay or declare any dividend or make any distribution upon,
redeem, retire or repurchase or otherwise acquire, any shares of capital stock
or other securities of the Company or a subsidiary, other than certain dividends
currently owed to ManTech International Corp., or (iv) materially change the
Company's or any subsidiary's line of business as currently conducted.
We have agreed to file with the Securities and Exchange Commission (the
"Commission"), within 30 days of the closing of the Financing, the registration
statement of which this prospectus is a part, to cover the resale by the
Investor of all shares of common stock issuable pursuant to the Note or the
Warrant. We have also agreed to use our best efforts to have the registration
statement declared effective by the Commission as soon as possible thereafter,
but in no event later than 90 days after the closing of the Financing, and to
keep the registration statement effective thereafter until all such securities
have been sold or can be sold without most restrictions. If we do not meet the
deadlines for filing and effectiveness of the registration statement, we will be
required to pay Investor 2% of the outstanding principal of the Note for each
30-day period we are late. We have also agreed to provide piggyback registration
rights if at any time there is not an effective registration statement covering
the resale by the Investor of all shares of common stock issuable pursuant to
the Note or the Warrant.
Note. The Note is in the principal amount of $2,000,000 and matures on
March 31, 2009. The Note initially bears interest at the rate of 8% per annum.
Interest is payable in arrears on the last day of each calendar quarter and all
principal and accrued interest is payable upon maturity. The interest rate will
decrease, for each quarter during which the registration statement registering
the shares of common stock into which the Note is convertible is in effect, by
2% per annum for each 25% increment over the conversion price then in effect
achieved by our stock price.
The Note is convertible, in part or in whole, into a number of shares of
our common stock equal to the principal and interest of the Note being converted
divided by an initial conversion price of $1.925. However, if we issue or sell
any shares of common stock or securities exercisable or exchangeable for or
convertible into common stock (excluding certain shares, including shares issued
to the Investor, under certain employee benefit plans or pursuant to outstanding
options or convertible securities) for a consideration per share less than the
then effective conversion price, then the conversion price will be reduced to an
amount equal to the consideration per share in such new issuance. The conversion
price will also be appropriately adjusted upon any stock split, stock dividend,
recapitalization, combination, or similar transaction. Notwithstanding such
adjustment provision, the number of shares of common stock actually issued on
conversion of the Note will be limited by the Conversion Share Limit until the
effectiveness of the Majority Consent on the day following the twentieth day
after an Information Statement on Schedule 14C is mailed to our stockholders. If
we fail to issue a certificate for the shares into which the Note has been
converted within three days of such conversion, we will be required to pay, for
each day we are late, an amount equal to 1% of the product of number of shares
to which the Investor is entitled and the closing price of our common stock on
the last day we could have delivered such certificate.
Events of default under the Note include, among other things, and with
certain cure periods, the suspension of trading or failure of our common stock
to be listed on one of certain markets, failure to comply with certain
agreements with Investor (such as a failure to comply with the conversion
provisions of the Note, a failure to have sufficient shares authorized for
conversion, and a failure to pay principal or interest or other amount when
due), failure to pay material indebtedness, and bankruptcy. Upon and during the
continuance of an event of default of the Note, the interest rate will increase
to 24%. The holder of the Note may require us to redeem all or any portion of
the Note upon an event of default for a price equal to the greater of the amount
of the principal and interest of the note to be redeemed or the product of the
number of shares of common stock into which such principal and interest is
convertible multiplied by the closing trading price of the common stock
immediately prior to th e event of default.
The holder of the Note will be entitled to participate in any pro rata
issuance or sale of securities to our stockholders to the extent that the holder
would have been able to participate if the Note had been converted to common
stock in its entirety prior to such issuance.
We are prevented, under the terms of the Note, from engaging in any
fundamental transaction (such as a merger, consolidation, or sale of the
Company) unless the successor assumes in writing all of the obligations of the
Company under the Note and the successor is a publicly traded company with
common stock traded on the Amex, Nasdaq, or the New York Stock Exchange.
The Note ranks senior to all other indebtedness of the Company other than
debt connected with our senior credit agreement (or any refinancing thereof) and
our obligation to repay GP Strategies for payments made by GP Strategies
pursuant to its guaranty of our senior credit agreement debt, to which the Note
is expressly junior, and certain capitalized leases and contingent obligations.
We are prohibited from incurring any additional indebtedness senior to the Note
while the Note is outstanding. The ranking is effectuated by a subordination
agreement between our senior lender, the Investor, and us.
Warrant. The Warrant is exercisable for 380,952 Warrant Shares, and the
initial exercise price is $2.22 per Warrant Share. The exercise price of the
Warrant must be paid in cash, except that if a registration statement is not
available for the resale of Warrant Shares, the holder may make a "cashless
exercise" of the Warrant. The Warrant expires on the seventh anniversary of its
issuance.
If we issue or sell any shares of common stock or securities exercisable or
exchangeable for or convertible into common stock (excluding certain shares,
including shares issued to the Investor, under certain employee benefit plans or
pursuant to outstanding options or convertible securities) for a consideration
per share less than the then effective exercise price, then the exercise price
will be reduced to an amount equal to the consideration per share in such new
issuance, without adjustment to the number of Warrant Shares issuable on
exercise. The exercise price and number of Warrant Shares will also be
appropriately adjusted upon any dividend or distribution of assets (including
any distribution of cash, securities or other property by way of dividend,
spin-off, reclassification, or similar transaction) and upon any stock split,
recapitalization, combination, or similar transaction. If we fail to issue a
certificate for the shares for which the Warrant has been exercised within three
days of such conversion, we will be required to pay, for each day we are late,
an amount equal to 1% of the product of number of shares to which the Investor
is entitled and the closing price of our common stock on the last day we could
have delivered such certificate.
The holder of the Warrant will be entitled to participate in any pro rata
issuance or sale of securities to our stockholders to the extent that the holder
would have been able to participate if the Warrant had been exercised in its
entirety prior to such issuance.
We are prevented, under the terms of the Warrant, from engaging in any
fundamental transaction (such as a merger, consolidation, or sale of the
Company) unless the successor assumes in writing all of the obligations of the
Company under the Warrant and the successor is a publicly traded company with
common stock traded on the Amex, Nasdaq, or the New York Stock Exchange.
Security. We have granted the Investor a second priority lien on all of our
and our subsidiaries' assets.
SELLING STOCKHOLDER
The shares of common stock being offered by the selling stockholder are
issuable upon conversion of the Notes or upon exercise of the Warrant. For
additional information regarding the issuance of the Note and Warrant, see "The
Financing" above. We are registering the shares of common stock in order to
permit the selling stockholder to offer the shares for resale from time to time.
Except for the ownership of the Note and Warrant, the selling stockholder has
not had any material relationship with us within the past three years.
The table below lists the following information regarding the beneficial
ownership of the shares of common stock by the selling stockholder, to our
knowledge:
* the number of shares of common stock beneficially owned by the selling
stockholder, based on its ownership of the Note and Warrant, as of August
23, 2005, assuming conversion in full of the Note and exercise in full of
the Warrant on that date, without regard to the Conversion Share Limit;
* the number of shares of common stock being offered through this prospectus;
and
* the number and percentage of our outstanding shares of common stock to be
beneficially owned by the selling stockholder after the sale of common
stock being offered through this prospectus.
The selling shareholders may sell all, some or none of their shares in this
offering. See "Plan of Distribution."
Number of Shares Beneficially Owned
Number of Shares Shares Offered After the Offering
Beneficially Owned by this ------------------
Selling Stockholder Prior to the Offering Prospectus Number Percentage
------------------- --------------------- ---------- ------ ----------
Dolphin Direct Equity Partners, L.P. (1) 1,419,913 1,503,030(2) - -
(1) Dolphin Advisers, LLC ("Dolphin Advisors") is the sole managing general
partner of Dolphin Direct Equity Partners, L.P. ("Dolphin Direct"). Dolphin
Management Inc. ("Dolphin Management") is the sole managing member of Dolphin
Advisors. Peter E. Salas is the sole shareholder and President of Dolphin
Management. By reason of such relationships, Dolphin Advisors, Dolphin
Management, and Mr. Salas may be deemed to share dispositive power over the
shares of common stock stated as beneficially owned by Dolphin Direct.
(2) The Note provides that accrued interest as well as principal can be
converted into common stock. Included are 83,117 shares of common stock that may
be issuable upon conversion of $160,000 of accrued interest.
USE OF PROCEEDS
We will not receive any of the proceeds from sales of shares of common
stock by the selling stockholder. However, we would receive proceeds of
approximately $845,713 if the Warrant issued to the selling stockholder is
exercised for cash at an exercise price of $2.22 per share. The funds would be
used for general corporate purposes.
PLAN OF DISTRIBUTION
We are registering the shares of common stock issuable upon conversion of
the Note and the Warrant to permit the resale of the underlying shares of common
stock by the holders from time to time after the date of this prospectus. The
selling stockholders may sell all or a portion of the securities beneficially
owned by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents. The securities may be sold in one
or more transactions at fixed prices, at prevailing market prices at the time of
the sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve crosses
or block transactions,
* on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
* in the over-the-counter market;
* otherwise than on these exchanges or systems or in the
over-the-counter market;
* through the writing of options, whether such options are listed on an
options exchange or otherwise;
* consisting of ordinary brokerage transactions and transactions in
which the broker-dealer solicits purchasers;
* consisting of block trades in which the broker-dealer will attempt to
sell the securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
* through purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* through an exchange distribution in accordance with the rules of the
applicable exchange;
* consisting of privately negotiated transactions;
* consisting of short sales;
* pursuant to Rule 144 under the Securities Act;
* in which broker-dealers may agree with the selling stockholders to
sell a specified number of such securities at a stipulated price per
security;
* consisting of a combination of any such methods of sale; or
* by any other method permitted pursuant to applicable law.
If the selling stockholders effect such transactions by selling the shares
of common stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of any securities or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the securities in the course of hedging in positions they assume.
Subject to any contrary terms of the Agreement, the selling stockholders may
also sell securities short and deliver securities covered by this prospectus to
close out short positions. The selling stockholders may also loan or pledge
securities to broker-dealers that in turn may sell such securities.
The selling stockholders may pledge or grant a security interest in some or
all of shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended (the "1933 Act"),
amending, if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus. The selling stockholders also may transfer and donate the shares of
common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the 1933 Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the 1933 Act. At the time a particular offering
of the securities is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of securities being
offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the securities may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in some states the shares of common stock may not be sold unless such shares of
common stock have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The selling stockholders may choose not to sell any or may choose to sell
less than all of the shares of common stock registered pursuant to the shelf
registration statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the 1934 Act, and the
rules and regulations thereunder, including, without limitation, Regulation M of
the 1934 Act, which may limit the timing of purchases and sales of any of the
shares of common stock by the selling stockholders and any other participating
person. Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.
We will pay all expenses of the registration of the common stock pursuant
to the Agreement; provided, however, that a selling stockholder will pay all
underwriting discounts and commissions and selling commissions, if any. We will
provide customary indemnification of the selling stockholders against
liabilities, including some liabilities under the 1933 Act.
Once sold under the registration statement, of which this prospectus forms
a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
LEGAL MATTERS
Certain legal matters with respect to the shares of common stock offered by
this prospectus have been passed upon by Andrea D. Kantor, General Counsel of
the Company.
EXPERTS
The consolidated financial statements of GSE Systems Inc. as of December
31, 2004 and 2003, and for each of the years in the three-year period ended
December 31, 2004, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
registered public accounting firm, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
public reference facilities of the SEC located at Station Place, 100 F Street
NE, Washington D.C. 20549. You may obtain information on the operation of the
SEC's public reference facilities by calling the SEC at 1-800-SEC-0330. You can
also access copies of this material electronically on the SEC's home page on the
World Wide Web at http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333-126108) we filed with the SEC. The SEC permits us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file with the SEC after the date of this
prospectus will automatically update and supersede this information. However,
any information contained herein shall modify or supersede information contained
in documents we filed with the SEC before the date of this prospectus. We
incorporate by reference our Annual Report on Form 10-K for the year ended
December 31, 2004, filed on March 17, 2005, our Annual Report on Form 10-K/A for
the year ended December 31, 2004, filed on May 2, 2005, our Annual Report on
Form 10-K/A for the year ended December 31, 2004, filed on August 15, 2005, our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, filed on
May 16, 2005, our Quarterly Report on Form 10-Q/A for the quarter ended March
31, 2005, filed on August 16, 2005, our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005, filed on August 15, 2005, our Current Reports on
Form 8-K, filed on March 18, 2005, May 11, 2005, May 27, 2005 and August 11,
2005, our Current Report on Form 8-K/A, filed on August 16, 2005, and the
description of our common stock contained in our registration statement pursuant
to Section 12 of the Exchange Act, and any amendment or report filed for the
purpose of updating such description, filed by us with the SEC. In addition,
until we sell all of the shares of common stock being registered or until this
offering is otherwise terminated, we incorporate by reference any future filings
made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the 1934 Act,
except for information furnished under Item 2.02 or 7.01 of Current Report on
Form 8-K, or exhibits related thereto, which is deemed not to be incorporated by
reference herein.
You may write or telephone us to obtain at no cost a copy of any or all of
the documents incorporated by reference. You should direct written requests to
9189 Red Branch Road, Columbia, Maryland 21045, Attn: Secretary. Our telephone
number is (410) 772-3500. However, we will not send you exhibits to a document,
unless the exhibits are specifically incorporated by reference in the document.
--------------------------------------------------------------------------------
GSE SYSTEMS, INC.
COMMON STOCK
PROSPECTUS
AUGUST , 2005
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with this
offering. All of the amounts (except the SEC registration fee) are estimated.
SEC registration fee $ 326
Legal fees and expenses 12,000
Accounting fees and expenses 4,000
-------
Total $16,326
=======
Item 15. Indemnification of Directors and Officers.
Under Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), a corporation may indemnify its directors, officers, employees and
agents and its former directors, officers, employees and agents and those who
serve, at the corporation's request, in such capacities with another enterprise,
against expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner he or
she reasonably believed to be in (or not opposed to) the best interests of the
corporation and, in the case of a criminal action, such person must have had no
reasonable cause to believe his or her conduct was unlawful. In addition, the
DGCL does not permit indemnification in an action or suit by or in the right of
the corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended.
The Company's Third Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provides that the Company shall indemnify and hold
harmless, to the fullest extent permitted by Section 145 of the DGCL, as the
same may be amended and supplemented, every person who was or is made a party or
is threatened to be made a party or is otherwise involved in any action, suit of
proceeding by reason of the fact that such person is or was serving as a
director or officer of the Company or, while serving as a a director or officer
of the Company, is or was serving at the request of the Company as a director,
trustee, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expense, liability and loss
reasonably incurred or suffered by such person in connection therewith if such
person satisfied the applicable level of care to permit such indemnification
under the DGCL. The Restated Certificate provides that, subject to any
requirements imposed by law or the Company's Bylaws, the right to
indemnification includes the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition. The Company's Amended and
Restated By-Laws (the "By-Laws") provide that, if and to the extent required by
the DGCL, such an advance payment will only be made upon delivery to the Company
of an undertaking, by or on behalf of the director or officer, to repay all
amounts so advanced if it is ultimately determined that such director is not
entitled to indemnification.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Restated Certificate also provides that a director shall, to the
maximum extent permitted by Section 102(b)(7) of the DGCL (or any successor
provision), have no personal liability to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director.
Item 16. Exhibits.
Number Description
------ -----------
5.1 Opinion of Andrea D. Kantor*
23.1 Consent of KPMG LLP
23.2 Consent of Andrea D. Kantor*
24.1 Powers of Attorney*
*Previously filed
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities and Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan' annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 1 to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbia, the State of
Maryland, on the 23rd day of August, 2005.
GSE SYSTEMS, INC.
BY: /s/ John V. Moran
-----------------------------------
Name: John V. Moran
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to registration statement has been signed by the
following persons in the capacities and on the 23rd day of August, 2005.
*
------------------------------
John V. Moran
Chief Executive Officer and Director
(Principal Executive Officer)
*
------------------------------
Jeffery G. Hough
Senior Vice President and Chief
Financial Officer and Director
(Principal Financial and Accounting
Officer)
*
------------------------------
Jerome I. Feldman
Chairman of the Board
*
------------------------------
Dr. Sheldon L. Glashow
Director
*
------------------------------
Scott N. Greenberg
Director
*
------------------------------
Dr. Roger Hagengruber
Director
*
------------------------------
Chin-our Jerry Jen
Director
*
------------------------------
Andrea Kantor
Director
*
------------------------------
Joseph W. Lewis
Director
*
------------------------------
George J. Pedersen
Director
*
------------------------------
Douglas Sharp
Director
* By: /s/ Jeffery G. Hough
-------------------------------
Jeffery G. Hough, Attorney-in-Fact
Pursuant to Power of Attorney, dated June 16, 2005
EXHIBIT INDEX
Number Description
------ -----------
5.1 Opinion of Andrea D. Kantor*
23.1 Consent of KPMG LLP
23.2 Consent of Andrea D. Kantor*
24.1 Powers of Attorney*
* Previously filed