4. Acquisitions

DP Engineering

On February 15, 2019, the Company through its wholly-owned subsidiary GSE Performance Solutions, Inc. (Performance Solutions), entered into a membership interest purchase agreement (the “DP Engineering Purchase Agreement”) with Steven L. Pellerin, Christopher A. Davenport, and DP Engineering to purchase 100% of the membership interests in DP Engineering for $13.5 million. The acquisition of DP Engineering was completed on an all-cash transaction basis. The acquisition was completed through the draw down of $14.3 million (including transaction costs) of the term loan. During the transaction, GSE incurred and paid $0.7 million of transaction cost. The purchase price was subject to customary pre- and post-closing working capital adjustments, plus an additional earn-out amount not to exceed $5 million, potentially payable in 2020 and 2021 depending on DP Engineering’s satisfaction of certain targets for Adjusted EBITDA in calendar years 2019 and 2020, respectively. An escrow of approximately $1.7 million was funded at the closing and was released in full to the Company in December 2019 as part of a negotiated settlement of certain Company claims for indemnification pursuant to the DP Engineering Purchase Agreement.

DP Engineering is a provider of value-added technical engineering solutions and consulting services to nuclear power plants with an emphasis on preparation and implementation of design modifications during plant outages. Located in Fort Worth, Texas, DP Engineering is well-regarded as a leading service provider to the nuclear power industry, having been designated an “engineer of choice” by several of the largest power generation companies.

Based on preliminary forecasted adjusted EBITDA of DP Engineering for the years 2019 and 2020, as of the acquisition date, the estimated fair value of the total earn-out amount was $1.2 million and was recorded as contingent consideration. Subsequent to the acquisition, it was determined that the conditions related to the contingent consideration would not be met and hence $1.2 million was recorded to income in the first quarter of 2019.

The following table summarizes the calculation of adjusted purchase price as of the acquisition date (in thousands):

Base purchase price per agreement	$	13,500
Pre closing working capital adjustment		155
Fair value of contingent consideration		1,200
Total purchase price	$	14,855

The following table summarizes the consideration paid to acquire DP Engineering and the fair value of the assets acquired and liabilities assumed at the date of the transaction. The following amounts except for cash are all reflected in the consolidated statement of cash flows within the “Acquisition of DP Engineering, net of cash acquired” line caption.

(in thousands)

Total purchase price	$	14,855
Purchase price allocation:
Cash		134
Contract receivables		2,934
Prepaid expenses and other current assets		209
Property, and equipment, net		98
Intangible assets		6,798
Other assets		1,806
Accounts payable and accrued expenses		(1,396	)
Other liabilities		(1,494	)
Total identifiable net assets		9,089
Goodwill		5,766
Net assets acquired	$	14,855

The fair value of the assets acquired includes gross trade receivables of $2.9 million, of which the Company has collected in full. GSE did not acquire any other class of receivable as a result of the acquisition of DP Engineering.

The goodwill is primarily attributable to value-added technical engineering solutions and consulting services to nuclear power plants with an emphasis on preparation and implementation of design modification during plant outages, the workforce of the acquired business and the significant synergies expected to arise after the acquisition of DP Engineering. The total amount of goodwill is expected to be tax deductible. All of the $5.8 million of goodwill was assigned to our Performance Improvement Solutions segment.

Approximately one week following our acquisition of DP Engineering, an adverse event occurred at one of DP Engineering’s major customer’s location that affected plant operations. This incident adversely impacted the relationship between DP Engineering and its customer. The Company determined this represented a triggering event requiring an interim assessment for impairment. As a result of the impairment analysis, we recognized an impairment charge of $5.6 million on goodwill related to the acquisition of DP Engineering during the quarter ended March 31, 2019. On August 6, 2019, following the Notice of Suspension, the Company received a Notice of Termination from this customer, notifying the Company that they were terminating their Engineer of Choice consulting service agreement with DP Engineering. See Note 7 for further analysis on the carrying amount change due to impairment on goodwill and definite-lived intangible assets during the year ended December 31, 2019. As described in Note 3, a revision was made to prior periods regarding the impairment of DP Engineering.

On August 27, 2019, the Company made a demand for indemnification pursuant to the DP Engineering Purchase Agreement and on December 30, 2019, the Company entered into a settlement agreement pursuant to which the sellers agreed to release the full escrow account balance to the Company and pay additional funds, in the total amount of $2.0 million. The Company received these funds on December 31, 2019.

The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:

Intangible Assets	Weighted average amortization period		Fair Value
	(in years)		(in thousands)
Customer relationships		15	$	4,898
Tradename		10		1,172
Non-compete agreements		5		728
Total			$	6,798

DP Engineering contributed revenue of $8.2 million to GSE for the period from February 15, 2019 to December 31, 2019.

True North

On May 11, 2018, GSE, through Performance Solutions, entered into a membership interest purchase agreement with Donald R. Horn, Jenny C. Horn, and True North Consulting LLC (the True North Purchase Agreement) to purchase 100% of the membership interests in True North Consulting LLC (True North) for $9.8 million. The purchase price was subject to customary pre- and post-closing working capital adjustments, resulting in total consideration of $9.9 million. The True North Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions subject to certain limitations. An escrow of $1.5 million was funded from the cash paid to the sellers of True North at the closing and was available to GSE to promote retention of key personnel and satisfy indemnification claims for 18 months after the closing, but no claims were made pursuant to the membership interest purchase agreement and all funds were related to the sellers prior to December 31, 2019. The acquisition of True North was completed on an all-cash transaction basis. In connection with the acquisition, we drew down a $10.3 million term loan to finance the transaction (including the transaction costs). See Note 13 for further information on the loan.

True North is a provider of technical engineering solutions to nuclear and fossil fuel power plants with an emphasis on regulatory-driven ASME code programs. Located in Montrose, Colorado, True North is a well-regarded service provider to leading companies in the power industry. The acquisition of True North has broadened our engineering services offering, expanded our relationships with several of the largest nuclear energy providers in the United States, and has added a highly specialized, complementary talent pool to our employee base.

The following table summarizes the consideration paid to acquire True North and the fair value of the assets acquired and liabilities assumed at the date of the transaction. As of December 31, 2019, the Company had finalized the determination of the fair value allocated to various assets and liabilities.

(in thousands)

Total purchase price	$	9,915

Purchase price allocation:
Cash		306
Contract receivables		1,870
Prepaid expenses and other current assets		8
Property, and equipment, net		1
Intangible assets		5,088
Accounts payable, accrued expenses		(1,744	)
Accrued compensation		(353	)
Total identifiable net assets		5,176
Goodwill		4,739
Net assets acquired	$	9,915

The fair value of the assets acquired includes gross trade receivables of $1.9 million, of which the Company has collected in full. GSE did not acquire any other class of receivable as a result of the acquisition of True North.

True North contributed revenue of $8.0 million to GSE for the period from May 11, 2018 to December 31, 2018. For the year ended December 31, 2019, True North contributed revenue of $9.8 million to GSE.

The goodwill is primarily attributable to broader engineering service offering to new and existing customers, the workforce of the acquired business and the significant synergies expected to after since the acquisition of True North. The total amount of goodwill is expected to be tax deductible. All of the $4.7 million of goodwill was assigned to our Performance Improvement Solutions segment.

The Company identified other intangible assets of $5.1 million, including customer contracts and relationships, tradename, non-compete agreements, and alliance agreements, with amortization periods of four years to fifteen years

The following table summarizes the fair value of intangible assets acquired at the date of acquisition and the related weighted average amortization period:

Intangible Assets	Weighted Average Amortization Period		Fair Value
	(in years)		(in thousands)
Customer relationships		15	$	3,758
Tradename		10		582
Alliance agreements		5		527
Non-compete agreements		4		221
Total			$	5,088

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for GSE, True North and DP Engineering as if the business combinations had occurred on January 1, 2018, in thousands.

	Years ended December 31,
	2019			2018
Revenue	$	85,959		$	120,373
Net loss		(4,805	)		(274	)

The pro forma financial information for all periods presented has been calculated after applying GSE's accounting policies and has also included pro forma adjustments resulting from these acquisitions, including amortization charges of the intangible assets identified from these acquisitions, interest expenses related to the financing transaction in connection with the acquisition of DP Engineering, and the related tax effects as if aforementioned companies were combined as of January 1, 2018.

For the year ended December 31, 2019 the Company has incurred $0.7 million of selling, general and administrative costs related to the acquisition of DP Engineering. Due to a triggering event described in Note 7, an impairment test was conducted, which resulted in substantially writing down the estimated fair value of goodwill initially recognized upon the acquisition. These expenses are included in general and administrative expense on GSE's consolidated statements of operations and are reflected in pro forma loss for the year ended December 31, 2019, in the table above.

For the year ended December 31, 2018 the Company incurred $0.5 million of selling, general and administrative costs related to the acquisition of True North. These expenses are included in general and administrative expense on GSE's consolidated statements of operations and are reflected in pro forma loss for the year ended December 31, 2018, in the table above.

The pro forma financial information is not intended to reflect the actual results of operations that would have occurred if the acquisition had been completed on January 1, 2018, nor is it intended to be an indication of future operating results.