UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarter ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 1-7234
GP STRATEGIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 826-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the preceding 12 months (or for such shorter period) that the registrant was
required to file such reports and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of issuer's classes of common stock as of
August 10, 1999:
Common Stock 11,006,422 shares
Class B Capital 450,000 shares
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
June 30, 1999 and December 31, 1998 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended June 30,
1999 and 1998 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II. Other Information 21
Signatures 22
<PAGE>
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
ASSETS (unaudited) *
Current assets
<S> <C> <C>
Cash and cash equivalents $ 7,156 $ 6,807
Marketable securities 741
Accounts and other receivables 59,510 55,531
Inventories 2,032 2,362
Costs and estimated earnings in excess
of billings on uncompleted contracts 23,049 15,395
Prepaid expenses and other current assets 5,105 5,344
---------- ----------
Total current assets 96,852 86,180
--------- ---------
Investments and advances 19,941 23,071
--------- ----------
Property, plant and equipment, net 14,842 14,474
--------- ----------
Intangible assets, net of amortization of $36,648
and $34,967 80,326 81,358
--------- ---------
Deferred tax asset 3,189 3,290
---------- ----------
Other assets 2,387 2,532
---------- ----------
$217,537 $210,905
======== ========
</TABLE>
* The Consolidated Condensed Balance Sheet as of December 31, 1998 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
June 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities:
Current maturities of long-term debt and
notes payable $ 5,257 $ 3,180
Short-term borrowings 35,538 30,723
Accounts payable and accrued expenses 33,363 24,089
Billings in excess of costs and estimated
earnings on uncompleted contracts 11,248 14,199
--------- ----------
Total current liabilities 85,406 72,191
--------- ---------
Long-term debt less current maturities 14,782 18,379
--------- ----------
Other liabilities 3,440
--------- ------------
Stockholders' equity
Common stock 114 111
Class B capital stock 4 3
Capital in excess of par value 167,230 164,217
Accumulated deficit (46,966) (39,397)
Accumulated other comprehensive income 178 99
Note receivable from stockholder (1,805) (1,742)
Treasury stock, at cost (4,846) (2,956)
---------- ----------
Total stockholders' equity 113,909 120,335
--------- ---------
$217,537 $210,905
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1998 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------- ------ ------- ---------
Sales $ 56,766 $ 70,910 $122,695 $133,769
Cost of sales 51,852 60,247 107,924 113,641
-------- -------- -------- ---------
Gross margin 4,914 10,663 14,771 20,128
Selling, general & administrative expenses (8,398) (8,078) (14,416) (15,768)
Interest expense (1,110) (958) (2,061) (1,846)
Investment and other income, net 263 339 742 782
Gain on trading securities 539 533 564 1,272
Restructuring charges (6,312) (6,312)
---------- ------------- --------- -------------
Income (loss) before income taxes (10,104) 2,499 (6,712) 4,568
Income tax expense (77) (236) (857) (514)
---------- --------- -------- ---------
Net income (loss) $(10,181) $ 2,263 $ (7,569) $ 4,054
======== ======== ======== ========
Net income (loss) per share:
Basic $ (.90) $ .21 $ (.67) $ .38
========== ========= ========== =========
Diluted $ (.90) $ .18 $ (.67) $ .33
========== ========= ========== =========
Dividends per share none none none none
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months
ended June 30,
<S> <C> <C>
1999 1998
Cash flows from operations:
Net income (loss) $(7,569) $4,054
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Depreciation and amortization 3,583 2,936
Issuance of stock for profit incentive plan 672 617
Equity loss on investments 234 780
Proceeds from sale of trading securities 2,639 1,319
Restructuring charge 6,312
Gain on trading securities (564) (1,272)
Changes in other operating items (6,828) (18,818)
------- ---------
Net cash used for operating activities (1,521) (10,384)
------- ----------
Cash flows from investing activities:
Acquisition of Learning Technologies (24,292)
Additions to property, plant & equipment (2,270) (2,593)
Additions to intangible assets, net (649) (862)
Reduction of (increase to) investments and other assets, net 1,146 (899)
------ ---------
Net cash used for investing activities (1,773) (28,646)
------- --------
Cash flows from financing activities:
Repayment of short-term borrowings (14,519)
Proceeds from short-term borrowings 4,815 36,147
Proceeds from issuance of long-term debt 15,000
Repayment of long-term debt (1,020) (270)
Exercise of common stock options and warrants 910 261
Repurchase of treasury stock (1,062) (240)
------- ---------
Net cash provided by (used for) financing activities 3,643 (36,379)
-------- ---------
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Six months
ended June 30,
1999 1998
Net increase (decrease) in cash and cash equivalents 349 (2,651)
Cash and cash equivalents at the beginning of the periods 6,807 12,375
------ --------
Cash and cash equivalents at the end of the periods $ 7,156 $ 9,724
======== ========
Cash paid during the periods for:
Interest $ 2,569 $ 2,211
========= ========
Income taxes $ 862 $ 784
========== ========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Qualification relating to financial information
The financial information included herein is unaudited. In addition,
the financial information does not include all disclosures required under
generally accepted accounting principles because certain note information
included in the Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods. The results for the 1999
interim period are not necessarily indicative of results to be expected for the
entire year.
2. Earnings per share
Earnings (loss) per share (EPS) for the periods ended June 30, 1999 and
1998 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1999 1998 1999 1998
Basic EPS
<S> <C> <C> <C> <C>
Net income (loss) $ (10,181) $ 2,263 $ (7,569) $ 4,054
Weighted average shares
outstanding 11,320 10,815 11,297 10,775
Basic earnings (loss) per share $ (.90) $ .21 $ (.67) $ .38
Diluted EPS
Net income (loss) $ (10,181) $ 2,263 $ (7,569) $ 4,054
Weighted average shares
outstanding 11,320 10,815 11,297 10,775
Dilutive effect of stock options
and warrants 1,573 1,462
------------- --------- ------------ ---------
Weighted average shares
outstanding, diluted 11,320 12,388 11,297 12,237
Diluted earnings (loss)
per share $ (.90) $ .18 $ (.67) $ .33
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Earnings per share (Continued)
Basic earnings per share are based upon the weighted average number of
common shares outstanding, including Class B common shares, during the period.
Class B common stockholders have the same rights to share in profits and losses
and liquidation values as common stock holders. In 1998, diluted earnings per
share are based upon the weighted average number of common shares outstanding
during the period, assuming the issuance of common shares for all dilutive
potential common shares outstanding. In 1999, even though the Company still has
stock options and warrants outstanding, diluted earnings per share is not
presented due to the Company's net loss, which makes the effect of the
potentially dilutive securities anti-dilutive.
3. Inventories
Inventories are valued at the lower of cost or market, principally
using the first-in, first-out (FIFO) method. Inventories consisting of material,
labor, and overhead are classified as follows (in thousands):
June 30, December 31,
1999 1998
Raw materials $ 768 $ 811
Work in process 300 272
Finished goods 964 1,279
---------- --------
$ 2,032 $ 2,362
======== ========
4. Long-term debt
Long-term debt consists of the following (in thousands):
June 30, December 31,
1999 1998
8% Swiss bonds due 2000 $ 2,208 $ 2,359
5% Convertible bonds due August 31, 1999 1,358 1,858
Term loan 14,438 14,813
Other 2,035 2,529
-------- --------
20,039 21,559
Less current maturities (5,257) (3,180)
-------- --------
$14,782 $18,379
======= =======
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Comprehensive income
The following are the components of comprehensive income (loss) (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income (loss) $(10,181) $ 2,263 $ (7,569) $ 4,054
-------- -------- --------- --------
Other comprehensive income (loss) before tax:
Net unrealized loss on
available-for-sale-securities (376) (2,549) (176) (2,911)
Foreign currency translation adjustment 223 195
---------- -------------- ---------- ------------
Other comprehensive income (loss),
before tax (153) (2,549) 19 (2,911)
---------- --------- ----------- --------
Income tax benefit relating to items
of other comprehensive income 127 867 60 990
----------- ----------- ----------- ----------
Comprehensive income (loss),
net of tax $(10,207) $ 581 $ (7,490) $ 2,133
======== ========== ========= ========
</TABLE>
The components of accumulated other comprehensive income are as follows:
June 30, December 31,
1999 1998
Net unrealized gain on
available-for-sale-securities $ 1,522 $ 1,698
Foreign currency translation adjustment (643) (838)
--------- ---------
Accumulated other comprehensive income
before tax 879 860
Accumulated income tax expense related to
items of other comprehensive income (701) (761)
--------- ---------
Accumulated other comprehensive income,
net of tax $ 178 $ 99
========= ==========
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Business segments
The operations of the Company currently consist of the following four
business segments, by which the Company is managed.
The Company's principal operating subsidiary is General Physics
Corporation (GP). GP is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. GP is a total solutions provider
for strategic training, engineering, consulting and technical support services
to Fortune 500 companies, government, utilities and other commercial customers.
GP, which through December 31, 1998 comprised the Performance Improvement Group,
has been resegmented during 1999 and now operates in three business segments.
The Manufacturing Services Group provides technology based training to leading
companies in the automotive, steel and food and beverage industries, as well as
to the government sector. The Process and Energy Group provides engineering,
consulting and technical training to the power, chemical, energy and
pharmaceutical industries as well as government facilities. The Information
Technology Group provides information training programs and solutions, including
Enterprise Solutions and comprehensive career training and transition programs.
The Optical Plastics Group, which is the Company's wholly-owned
subsidiary MXL Industries, Inc. (MXL), manufactures and distributes coated and
molded plastic products. For the six months ended June 30, 1998, the Company
also had the Distribution Group, which included the operations of the Five Star
Group, Inc. (Five Star), a distributor of home decorating, hardware and
finishing products. At June 30, 1998, the "Other" segment consisted of the
operations of American Drug Company (ADC) and the Company's Hydro Med Science
division. On September 30, 1998, the Company sold substantially all the
operating assets of Five Star to American Drug Company (ADC). Prior to the above
transaction, the Company sold a 16.5% interest in ADC to the management of Five
Star, bringing its interest in ADC to approximately 38%. Therefore as of
September 30, 1998, the Company no longer consolidated the balance sheet and
results of operations of ADC but instead accounts for ADC as an equity
investment. Accordingly, effective September 30, 1998, the "Other" segment
consists solely of the operations of the Company's Hydro Med Sciences division.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Business segments (continued)
Financial information for the six months ended June 30, 1998, has been
restated to show all sales from the Performance Improvement segment reclassified
to the Manufacturing Services, Process and Energy, and Information Technology
segments. The management of the Company does not allocate the following items by
segment: Investment and other income, interest expense, selling, general and
administrative expenses, depreciation and amortization expense, income tax
expense, significant non-cash items and long-lived assets. There are deminimis
inter-segment sales. The reconciliation of gross margin to net income is
consistent with the presentation on the Consolidated Condensed Statements of
Operations. The following tables set forth the sales and gross margin of each of
the Company's operating segments (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------ --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Sales
Manufacturing Services $ 22,241 $21,311 $ 46,741 $ 40,052
Process and Energy 17,424 19,343 39,317 36,896
Information Technology 14,342 5,243 30,944 8,149
Optical Plastics 2,476 2,826 5,205 5,611
Distribution 21,897 42,328
Other 283 290 488 733
-------- ------- -------- --------
$ 56,766 $ 70,910 $122,695 $133,769
-------- -------- -------- --------
Gross margin
Manufacturing Services $ 3,469 $ 3,367 $ 7,639 $ 5,787
Process and Energy 2,191 2,612 5,280 5,105
Information Technology (1,584) 115 176 408
Optical Plastics 685 824 1,401 1,649
Distribution 3,602 6,873
Other 153 143 275 306
-------- -------- -------- --------
$ 4,914 $ 10,663 $ 14,771 $ 20,128
-------- -------- ------- --------
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Business segments (continued)
Information about the Company's net sales in different geographic regions, which
are attributed to countries based on location of customers, is as follows (in
thousands):
Three months ended Six months ended
June 30, June 30,
----------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
United States $ 43,628 $ 67,043 $ 94,898 $129,448
Canada 6,916 1,144 15,245 1,144
United Kingdom 4,221 2,049 9,005 2,049
Latin America 2,001 674 3,547 1,128
-------- ---------- --------- ----------
$ 56,766 $ 70,910 $122,695 $133,769
-------- -------- -------- --------
Information about the Company's long-lived assets in different geographic
regions, is as follows (in thousands):
June 30, December 31,
1999 1998
United States $ 11,749 $ 10,704
Canada 2,674 1,989
United Kingdom 366 1,731
Latin America 53 50
---------- ---------
$ 14,842 $ 14,474
-------- --------
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Restructuring
On June 1, 1999, the Company adopted a restructuring plan, which
primarily relates to its Information Technology (IT) Business segment. The
Company has taken the steps in order to change the focus of the IT group from
open enrollment information technology training courses to project oriented work
for corporations, which is consistent with the focus of GP's current business.
In connection with the restructuring, the Company closed, downsized, or
consolidated 6 offices in the United States, 6 offices in Canada and 5 offices
in the United Kingdom (UK), and has terminated approximately 100 employees.
In connection with the restructuring, the Company has recorded a
restructuring charge of $6,312,000. The current portion of the charge totaling
$2,872,000 is included in Accounts payable and accrued expenses and the
remainder of $3,440,000 is set forth as Other liabilities in the Consolidated
Condensed Balance Sheet. The components are as follows (in thousands):
Severance and related benefits $1,201
Present value of future lease obligations 4,487
Other facility related obligations 624
--------
$6,312
The amounts that have been accrued for severance and related benefits
will be expended in the quarter ending September 30, 1999. The present value of
future lease obligations is net of assumed sublets, and will be expended through
2015. For the remainder of 1999, approximately $1,062,000 will be expended
related to the lease obligations, $818,000 in the year 2000, and remaining
balance through 2015. Other facility-related costs, totaling $624,000 will be
expended through the remainder of 1999 and 2000.
In connection with the restructuring, the Company has incurred
write-offs of inventory and other assets related to certain revenue producing
activities which are being exited as part of the restructuring ($1,002,000),
which are included in Cost of sales in the Consolidated Condensed Statement of
Operations. In addition, GP has incurred charges related to write-offs of assets
related to certain revenue producing activities which are being exited as a
result of the restructuring ($1,594,000), which are included in Selling, general
and administrative expenses in the Consolidated Condensed Statement of
Operations.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Restructuring (Continued)
Due to the Company's significant restructuring charge taken during the
quarter ended June 30, 1999, the Company is currently in discussions with its
banks to determine if a technical default exists with respect to certain
financial covenants in its loan agreements. Based on those discussions with such
banks, the Company believes that the loan agreements will be amended so that
such technical defaults if determined to exist are eliminated.
8. Related party transaction
On January 11, 1999, in conjunction with the purchase of an aggregate
of 100,000 shares of Class B Common Stock, the Company received a note
receivable from a senior executive officer for $891,000. As of December 31, 1998
the Company also had a note receivable of $1,742,000 from this senior executive
officer. On March 15, 1999, such senior executive officer repaid $828,267 of
such loans using proceeds from the sale of 43,593 shares of Common Stock to the
Company. As of June 30, 1999, the aggregate amount of indebtedness outstanding
was $1,805,000. The loans accrue interest at the prime rate and all principal
and interest are due and payable on October 28, 1999 and January 11, 2000,
respectively. The loans are secured by the shares of Class B Common Stock
acquired as well as certain other assets of the senior executive officer.
9. Treasury stock
On May 5, 1999, the Company announced that its Board of Directors had
authorized the purchase of up to 500,000 shares of the Company's common stock.
During the quarter ended June 30, 1999, the Company repurchased 84,259 shares of
its Common Stock.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company realized a loss before income taxes of $10,104,000 and
$6,712,000 for the quarter and six months ended June 30, 1999, as compared with
income of $2,499,000 and $4,568,000 for the corresponding periods of 1998. The
change in the Company's results is due to a Restructuring charge totaling
$6,312,000, primarily related to the Company's Information Technology (IT)
business segment as well as charges and a higher than normal level of expenses
incurred relative to revenues generated during the period of facility closure of
the activities that the Company is exiting in the second quarter ended June 30,
1999. These charges were included in Cost of sales and Selling, general and
administrative expenses, and included such items as: payroll and related
benefits, facility-related costs, write-offs of abandoned and other assets and
losses on contracts. The Restructuring charge is comprised of expenses related
to the severance and related benefit costs.
The Company's restructuring plan, which was adopted on June 1, 1999,
primarily relates to its IT Business segment. The Company has taken the steps in
order to change the focus of the IT group from open enrollment information
technology training courses to project oriented work for corporations, which is
consistent with the focus of General Physics Corporation's (GP) current
business. In connection with the restructuring, the Company closed, downsized,
or consolidated 6 offices in the United States, 6 offices in Canada and 5
offices in the United Kingdom (UK), and has terminated approximately 100
employees.
The Information Technology Group is part of the Company's principal
operating subsidiary, GP. GP is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. GP is a total solutions provider
for strategic training, engineering, and technical support services to
commercial customers, utilities and the government.
In addition, for the quarter and six months ended June 30, 1999, the Company
recorded a $539,000 and $564,000 gain on certain trading securities as compared
to a $533,000 and $1,272,000 gain on certain trading securities recorded for the
quarter and six months ended June 30, 1998, respectively.
Sales
For the quarter ended June 30, 1999, consolidated sales decreased by
$14,144,000 to $56,766,000 from the $70,910,000 recorded in the corresponding
quarter of 1998. For the six months ended June 30, 1999, consolidated sales
<PAGE>
decreased by $11,074,000 to $122,695,000 from the $133,769,000 recorded for the
six months ended June 30, 1998. The decreased sales were primarily the result of
the sale of substantially all the operating assets of the Five Star Group, Inc.
(Five Star) to American Drug Company (ADC) on September 30, 1998 partially
offset by increased sales generated by GP in all segments of its business (see
Note 6 to the Consolidated Condensed Financial Statements). GP's net sales for
the quarter and six months ended June 30, 1999, included sales from companies
acquired in June and July 1998.
For the quarter and six months ended June 30, 1998, net sales were
$21,897,000 and $42,328,000 for Five Star, which comprised the Distribution
Group through September 30, 1998. On September 30,1998, the Company sold
substantially all the operating assets of Five Star to ADC. Prior to the above
transaction, the Company sold a 16.5% interest in ADC to the management of Five
Star, bringing its interest in ADC to approximately 38%. Therefore as of
September 30, 1998, the Company no longer consolidated the balance sheet and
results of operations of ADC but instead accounts for ADC as an equity
investment. The acquisition of Learning Technologies (currently included in the
Information Technology Group) had only a minor effect on the results for the
quarter and six months ended June 30, 1998, since the acquisition took place on
June 16, 1998.
Gross margin
Consolidated gross margin of $4,914,000, or 9%, for the quarter ended June
30, 1999, decreased by $5,749,000 when compared to the consolidated gross margin
of $10,663,000, or 15%, for the quarter ended June 30, 1998. For the six months
ended June 30, 1999, consolidated gross margin of $14,771,000 or 12% of
consolidated sales decreased by $5,357,000 when compared to $20,128,000 or 15%
of consolidated sales earned in the six months ended June 30, 1998. The reduced
gross margin was due to two factors. In the quarter and six months ended June
30, 1998, Five Star earned $3,602,000 and $6,873,000 of gross margin. In
addition, the Information Technology Group had a gross margin of $176,000 on
sales of $30,944,000 for the six months ended June 30, 1999 and a negative gross
margin of $1,584,000 on sales of $14,342,000 for the quarter ended June 30,
1999. This was principally caused by charges related to (1) losses on contracts
($875,000), (2) write-offs of inventory and other assets related to certain
revenue producing activities which are being exited as a result of the
restructuring ($1,002,000), and (3) lower utilization of employees which led to
the termination of approximately 100 people (approximately $1,200,000).
Selling, general and administrative expenses
For the quarter and six months ended June 30, 1999, selling, general and
administrative expenses (SG&A) of $8,398,000 and $14,416,000 was $320,000 higher
and $1,352,000 lower, respectively, than the $8,078,000 and $15,768,000 of SG&A
expenses incurred during the quarter and six months ended June 30, 1998. The
increase in SG&A for the quarter ended June 30, 1999, was principally the result
of charges incurred by GP in connection with write-offs of assets related to
certain revenue producing activities which are being exited as a result of the
restructuring ($1,594,000) and costs related to facility costs and other
<PAGE>
operating costs incurred in the second quarter, which were higher than normal
relative to revenue generated (approximately $900,000). These costs, which were
primarily related to the IT Group, and the increased cost incurred due to
growth, were partially offset by the decrease in SG&A resulting from the sale of
substantially all the operating assets of Five Star to ADC on September 30,
1998. For the quarter and six months ended June 30, 1998, Five Star had SG&A
expenses of $3,357,000 and $6,362,000, respectively. The decrease in SG&A for
the six months ended June 30, 1999 was the result of the sale of substantially
all the operating assets of Five Star to ADC on September 30, 1998, partially
offset by increased costs incurred by GP due to growth and the items discussed
above.
Investment and other income, net
Investment and other income, net of $263,000 and $742,000 for the quarter
and six months ended June 30, 1999 decreased by $76,000 and $40,000,
respectively, as compared to $339,000 and $782,000 for the corresponding periods
of 1998. The Company recognized losses of $569,000 and $234,000 for the quarter
and six months ended June 30, 1999, on the Company's equity investments compared
to losses of $350,000 and $780,000 recognized for the corresponding periods in
1998.
Income tax expense
For the quarter and six months ended June 30, 1999, the Company recorded an
income tax expense of $77,000 and $857,000, respectively, which represents the
applicable federal, state and local income taxes. The Company has not recorded
Federal income tax expense for the quarter and six months ended June 30, 1998,
due to the availability of net operating losses.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." This Statement establishes accounting and reporting standards for
derivatives as either assets or liabilities in the activities. It requires that
an entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
This Statement as amended by SFAS 137 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133,
when effective, which is currently anticipated to be by January 1, 2001. The
Company is still evaluating its position with respect to the use of derivative
instruments.
Year 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Y2K) approaches. The "Y2K"
problem is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
<PAGE>
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram and test systems for Y2K compliance. GP, the
Company's principal operating subsidiary, has evaluated its computer systems and
believes that its business applications are Y2K compliant, except as noted
below. It has also identified various ancillary programs that need to be updated
and has contracted with third parties for this work to be completed within the
next three months. It is expected that the cost of these modifications will be
approximately $60,000.
In addition, the information systems and technology management group of
GP is examining their exposure to the Y2K in other areas of technology. These
areas include telephone and E-mail systems, operating systems and applications
in free standing personal computers, local area networks and other areas of
communication. A failure of these systems, which may impact the ability of GP to
service their customers could have a material effect on their results of
operations. These issues are being handled by the information and technology
team at GP by identifying the problems and obtaining from vendors and service
providers either the necessary modifications to the software or assurances that
the systems will not be disrupted. GP believes that the cost of the programming
and equipment upgrades will not exceed $300,000. In addition, certain personal
computers and other equipment that is not Y2K compliant will be upgraded or
replaced through GP's normal process of equipment upgrades. GP believes that the
evaluation and implementation process will be complete no later than the third
quarter of 1999. Over the next year, GP intends to continue to plan and
implement other information technology projects in the ordinary course of
business.
GP expects to finance these expenditures from a combination of working
capital and operating leases for a portion of the new computer equipment.
Therefore, GP does not expect the Y2K issue to have a material adverse impact on
its financial position or results of operations.
The other operations of the Company, including MXL and the corporate
office, will be Y2K compliant by September 1, 1999. The Company believes that
the only material application that is not Y2K compliant at this time is MXL's
manufacturing system. MXL anticipates that they will be Y2K compliant by
September 1, 1999. The cost will be approximately $20,000.
Like other companies, the Company relies on its customers for revenues
and on its vendors for various products and services; these third parties all
face the Y2K issue. An interruption in the ability of any of them to provide
goods or services, or to pay for goods or services provided to them, or an
interruption in the business operations of its customers causing a decline in
demand for services, could have a material adverse effect on the Company in
turn. In addition, the Company has significant equity investments which all face
<PAGE>
the Y2K issue as well. An interruption in their ability to operate could cause a
significant impact on their market value, which in turn would have a material
adverse effect on the Company. In the event of non-remediation of the Y2K issues
by the Company or certain of its vendors, the worst case scenario would be
disruption of the Company's operations, possibly impacting the provision of
services to customers and the Company's ability to bill or collect revenues.
The Company's business units are communicating with their principal
customers and vendors about their Y2K readiness, and expect this process to be
completed no later than the third quarter of 1999. None of the responses
received to date suggests that any significant customer or vendor expects the
Y2K issue to cause an interruption in its operations, which would have a
material adverse impact on the Company. However, because so many firms are
exposed to the risk of failure not only of their own systems, but of the systems
of other firms, the ultimate effect of the Y2K issue is subject to a very high
degree of uncertainty.
Management believes that the Company's efforts to mitigate its Y2K
risks will avoid significant business interruptions. Contingency planning is an
ongoing process. While the Company's overall Y2K contingency plan is now being
developed, existing disaster recovery documentation and procedures remain the
first line of defense. Some Y2K specific plans have been developed and are being
reviewed and tested. The principal Y2K operational contingency plans are
expected to be completed and tested by September 1999.
In addition, there is a risk, the probability of which the Company is
not in a position to estimate, that the transition to the Y2K will cause
wholesale, perhaps prolonged, failures of electrical generation, banking,
telecommunications or transportation systems in the United States or abroad,
disrupting the general infrastructure of business and the economy at large. The
effect of such disruptions on the Company could be material.
The statements in this section regarding the effect of the Y2K and the
Company's responses to it are forward-looking statements. They are based on
assumptions that the Company believes to be reasonable in light of its current
knowledge and experience. A number of contingencies could cause actual results
to differ materially from those described in forward-looking statements made by
or on behalf of the Company.
Adoption of a Common European Currency
On January 1, 1999, eleven European countries adopted the Euro as their common
currency. From that date until January 1, 2002, debtors and creditors may choose
to pay or to be paid in Euros or in the former national currencies.
On and after January 1, 2002, the former national currencies will cease to be
legal tender.
The Company is currently reviewing its information technology systems and
upgrading them as necessary to ensure that they will be able to convert among
the former national currencies and the Euro, and process transactions and
balances in Euros, as required. The Company has sought and received assurances
<PAGE>
from the financial institutions with which it does business that beginning in
1999 they will be capable of receiving deposits and making payments both in
Euros and in the former national currencies. The Company does not expect that
adapting its information technology systems to the Euro will have a material
impact on its financial condition or results of operations. The Company is also
reviewing contracts with customers and vendors calling for payments in
currencies that are to be replaced by the Euro, and intends to complete in a
timely way any required changes to those contracts.
Adoption of the Euro is likely to have competitive effects in Europe, as prices
that had been stated in different national currencies become directly comparable
to one another. In addition, the adoption of a common monetary policy throughout
the countries adopting the Euro can be expected to have an effect on the economy
of the region. These competitive and economic effects cannot be predicted with
certainty, and there can be no assurance that they will not have a material
effect on the Company's business in Europe.
Forward-looking statements
The forward-looking statements contained herein reflect GP Strategies'
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of GP Strategies, including, but not limited to,
the risk that qualified personnel will not continue to be available,
technological risks, risks associated with the Company's acquisition strategy
and its ability to manage growth, risks associated with changing economic
conditions, risks of conducting international operations, the risk that the
Company's preparations with respect to the risks presented by the year 2000
issue will not be adequate, the Company's ability to comply with financial
covenants in connection with various loan agreements and those risks and
uncertainties detailed in GP Strategies' periodic reports and registration
statements filed with the Securities and Exchange Commission.
At June 30, 1999, the Company had cash and cash equivalents totaling
$7,156,000. The Company has sufficient cash and cash equivalents, marketable
long-term investments and borrowing availability under existing and potential
lines of credit as well as the ability to obtain additional funds from its
operating subsidiaries in order to fund its working capital requirements. At
June 30, 1999, approximately $29,462,000 was available to the Company under its
credit agreements.
For the six months ended June 30, 1999, the Company's working capital
decreased by $2,543,000 to $11,446,000, reflecting the effect of increased
accounts payable and short-term borrowings, partially offset by increased
accounts receivables and costs and estimated earnings in excess of billings on
uncompleted contracts.
The increase in cash and cash equivalents of $349,000 in 1999 resulted
from cash provided by financing activities of $3,643,000, partially offset by
cash used for operations of $1,521,000 and cash used in investing activities of
<PAGE>
$1,773,000. Cash provided by financing activities consisted primarily of
proceeds from short-term borrowings partially offset by repayments of long-term
debt and repurchases of treasury stock. Net cash used in investing activities
includes $2,270,000 of additions to property, plant and equipment partially
offset by proceeds from the sale of equity and other investments.
Due to the Company's significant restructuring charge taken during the
quarter ended June 30, 1999, the Company is currently in discussions with its
banks to determine if a technical default exists with respect to certain
financial covenants in its loan agreements. Based on those discussions with such
banks, the Company believes that the loan agreements will be amended so that
such technical defaults, if determined to exist, are eliminated.
The Company does not anticipate having to replace major facilities in
the near term. As of June 30, 1999, the Company has not contractually committed
itself for any major capital expenditures.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.2 Amendment, dated as of July 30, 1999, to the Rights
Agreement, dated as of June 23, 1997, between the Company
and Harris Trust Company of New York, as Rights Agreement.
Incorporated herein by reference to Exhibit 4.2 of the
Company's report on Form 8-A/A filed on August 2, 1999.
10 Employment Agreement, dated as of June 1, 1999, between the
Company and Jerome I. Feldman. Filed herewith
(b) Reports on Form 8-K
None
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
June 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
GP STRATEGIES CORPORATION
DATE: August 13, 1999 BY: Scott N. Greenberg
Executive Vice President and
Chief Financial Officer
DATE: August 13, 1999 BY: Jerome I. Feldman
President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000070415
<NAME> GP STRATEGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,156
<SECURITIES> 1,556
<RECEIVABLES> 59,510
<ALLOWANCES> 2,391
<INVENTORY> 2,032
<CURRENT-ASSETS> 96,852
<PP&E> 43,912
<DEPRECIATION> 29,070
<TOTAL-ASSETS> 217,537
<CURRENT-LIABILITIES> 85,406
<BONDS> 14,782
0
0
<COMMON> 114
<OTHER-SE> 113,795
<TOTAL-LIABILITY-AND-EQUITY> 217,537
<SALES> 122,695
<TOTAL-REVENUES> 122,695
<CGS> 107,924
<TOTAL-COSTS> 16,477
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,061
<INCOME-PRETAX> (6,712)
<INCOME-TAX> (857)
<INCOME-CONTINUING> (7,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,569)
<EPS-BASIC> (.67)
<EPS-DILUTED> (.67)
</TABLE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 1, 1999, between GP Strategies Corporation, a
Delaware corporation with principal executive offices at 9 West 57th Street,
Suite 4170, New York, New York 10019 (the "Company"), and Jerome I. Feldman,
residing at 145 West Patent Road, Bedford Hills, New York 10507 ("Employee").
W I T N E S S E T H
WHEREAS, the Company desires to employ Employee upon the terms and subject
to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants, and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
Section 1. Employment.
The Company hereby agrees to continue to employ Employee, and Employee
hereby agrees to continue to serve the Company, all upon the terms and subject
to the conditions set forth in this Agreement.
Section 2. Capacity and Duties.
Employee is and shall be employed in the capacity of President and Chief
Executive Officer of the Company and shall have the duties, responsibilities,
and authorities normally performed by the president and chief executive officer
of a company and such other duties, responsibilities, and authorities as are
assigned to him by the Board of Directors of the Company (the "Board") so long
as such additional duties, responsibilities, and authorities are consistent with
Employee's position and level of authority as President and Chief Executive
Officer of the Company. Employee shall devote substantially all of his business
time and attention to promote and advance the business of the Company.
Section 3. Term of Employment.
The term of employment of Employee by the Company pursuant to this
Agreement shall be for the period (the "Employment Period") commencing on the
date hereof and ending on May 31, 2004, unless sooner terminated in accordance
with the provisions of this Agreement.
Section 4. Place of Employment.
Employee's principal place of work shall be located at the principal
offices of the Company, currently located in New York, New York. The Company's
<PAGE>
principal offices shall not be relocated outside of the New York/New Jersey
Metropolitan Area without Employee's consent.
Section 5. Compensation.
During the Employment Period, subject to all the terms and conditions of
this Agreement and as compensation for all services to be rendered by Employee
under this Agreement, the Company shall pay to or provide Employee with the
following:
(a) Base Salary. Commencing June 1, 1999, the Company shall pay to
Employee a base annual salary at the rate of $400,000. Each June 1 during the
Employment Period, commencing June 1, 2000, the base annual salary shall be
increased by $25,000. The base salary will be payable at such intervals (at
least monthly) as salaries are paid generally to other executive officers of the
Company.
(b) Incentive Compensation. The Company and Employee will negotiate
in good faith to formulate an annual incentive based compensation arrangement
based on the Company achieving certain financial milestones which will be fair
and equitable to Employee and the Company and its stockholders.
(c) Bonus. Each December during the Employment Period, the Board
shall determine Employee's bonus for the year then ending, based upon the
Company's revenues, profits or losses, financing activities, and such other
factors deemed relevant by the Board. Any bonus shall be payable to Employee on
or after January 2 of the following year.
(d) Options. On or before August 31, 1999, the Company shall grant
to Employee under the Company's option plan options to purchase 100,000 shares
of the Company's common stock at an exercise price equal to the market price on
the date of grant. Such options shall vest 20% on the date hereof and 20% on
each June 1 commencing June 1, 2000 and shall terminate on May 31, 2004.
(e) Vacation. Employee shall be entitled to vacation in accordance
with the Company's policy for its senior executives. Vacation may be carried
into the subsequent year if not used in the year earned.
(f) Automobile. The Company shall provide Employee with an
automobile of his choice (comparable to the automobile currently provided by the
Company to Employee) at the Company's expense and shall pay the maintenance,
gas, and insurance expenses in connection with such automobile.
Such automobile shall be equipped with a car phone.
(g) Club Dues. The Company shall pay for initiation and monthly dues
of one country club as shall be specified by Employee. Employee shall use such
country club primarily to further the Company's business.
(h) Life and Disability Insurance. The Company shall maintain the
existing life and disability insurance policies covering Employee.
<PAGE>
(i) Employee Benefit Plans. Employee shall be entitled to
participate in all employee benefit plans maintained by the Company for its
senior executives or employees, including without limitation the Company's
medical and 401(k) plans.
(j) Loans. The maturity date of the Company's presently outstanding
loans to Employee shall be extended to May 31, 2004.
(k) Termination of Restrictions on Disposition of Stock. All
contractual restrictions imposed by the Company on the disposition by Employee
of shares of Class B Capital Stock shall terminate as of the date hereof. The
Company shall remove the legend relating to such restrictions from the
certificates representing such shares.
Section 6. Expenses.
The Company shall reimburse Employee for all reasonable expenses
(including, but not limited to, business travel and customer entertainment
expenses) incurred by him in connection with his employment hereunder in
accordance with the written policy and guidelines established by the Company for
executive officers.
Section 7. Non-Competition.
Employee agrees that he will not during the period he is employed by
the Company under this Agreement or otherwise and for a period of one year
thereafter, directly or indirectly compete with or be engaged in the same
business as the Company, or be employed by, or act as consultant or lender to,
or be a director, officer, employee, owner, or partner of, any business or
organization which, during the period Employee is employed by the Company under
this Agreement or otherwise, directly or indirectly competes with or is engaged
in the same business as the Company, except that in each case the provisions of
this Section 7 will not be deemed breached merely because Employee owns not more
than 1% of the outstanding common stock of a corporation, if, at the time of its
acquisition by Employee, such stock is listed on a national securities exchange,
is reported on NASDAQ, or is regularly traded in the over-the-counter market by
a member of a national securities exchange; provided, however, that this Section
7 shall not apply if (a) in breach of this Agreement, the Company shall
terminate Employee's employment other than pursuant to Section 10(b) or 10(c)
(it being understood that a purported termination pursuant to Section 10(b) or
10(c) which is disputed and finally determined not to have been proper shall be
a termination by the Company in breach of this Agreement) or (b) Employee shall
terminate his employment for Good Reason (as hereinafter defined).
<PAGE>
Section 8. Patents.
Any interest in patents, patent applications, inventions,
copyrights, developments, and processes ("Such Inventions") which Employee now
or hereafter during the period he is employed by the Company under this
Agreement or otherwise may own or develop relating to the fields in which the
Company may then be engaged shall belong to the Company; and forthwith upon
request of the Company Employee shall execute all such assignments and other
documents and take all such other action as the Company may reasonably request
in order to vest in the Company all his right, title, and interest in and to
Such Inventions free and clear of all liens, charges, and encumbrances.
Section 9. Confidential Information.
All confidential information which Employee may now possess, may
obtain during or after the Employment Period, or may create prior to the end of
the period he is employed by the Company under this Agreement or otherwise
relating to the business of the Company or of any its customers or suppliers
shall not be published, disclosed, or made accessible by him to any other
person, firm, or corporation either during or after the termination of his
employment or used by him except during the Employment Period in the business
and for the benefit of the Company, in each case without prior written
permission of the Company. Employee shall return all tangible evidence of such
confidential information to the Company prior to or at the termination of his
employment.
Section 10. Termination.
Employee's employment hereunder may be terminated without any breach of
this Agreement only under the following circumstances:
(a) Death. Employee's employment hereunder shall terminate upon his
death.
(b) Disability. If, as a result of Employee's incapacity due to
physical or mental illness, Employee shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within 30 days after a Notice of Termination (as defined in Section 10(e))
is given shall not have returned to the performance of his duties hereunder on a
full-time basis, the Company may terminate Employee's employment hereunder.
(c) Cause. The Company may terminate Employee's employment hereunder
for Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate Employee's employment hereunder upon (i) the willful and continued
failure by Employee to substantially perform his duties or obligations hereunder
(other than any such failure resulting from Employee's incapacity due to
physical or mental illness), after demand for substantial performance is
delivered by the Company that specifically identifies the manner in which the
Company believes Employee has not substantially performed his duties or
<PAGE>
obligations, or (ii) the willful engaging by Employee in misconduct which is
materially monetarily injurious to the Company. For purposes of this paragraph,
no act, or failure to act, on Employee's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, Employee shall not be deemed to have
been terminated for Cause without (i) reasonable notice to Employee setting
forth the reasons for the Company's intention to terminate for Cause, (ii) an
opportunity for Employee, together with his counsel, to be heard before the
Board, and (iii) delivery to Employee of a Notice of Termination from the Board
finding that in the good faith opinion of the Board Employee was guilty of
conduct set forth above in clause (i) or (ii) of the preceding sentence, and
specifying the particulars thereof in detail.
(d) Termination by Employee. Employee may terminate his employment
hereunder (i) for Good Reason or (ii) if his health should become impaired to an
extent that makes his continued performance of his duties hereunder hazardous to
his physical or mental health or his life, provided that Employee shall have
furnished the Company with a written statement from a qualified doctor to such
effect and provided, further, that, at the Company's request, Employee shall
submit to an examination by a doctor selected by the Company and such doctor
shall have concurred in the conclusion of Employee's doctor. For purposes of
this Agreement, "Good Reason" shall mean (i) a change in control of the Company
(as defined below), (ii) a failure by the Company to comply with any material
provision of this Agreement which has not been cured within ten days after
notice of such noncompliance has been given by Employee to the Company, or (iii)
any purported termination of Employee's employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 10(e)
(and for purposes of this Agreement no such purported termination shall be
effective). For purposes of this Agreement, a "change in control" of the Company
shall mean (i) a change in control of a nature that would be required to be
reported in response to Item 1(a) of Current Report on Form 8-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
other than a change of control resulting in control by Employee or a group
including Employee, (ii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than Employee or a group including
Employee, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities, or (iii) at any time individuals who were either
nominated for election by the Board or were elected by the Board cease for any
reason to constitute at least a majority of the Board.
(e) Notice of Termination. Any termination of Employee's employment
by the Company or by Employee (other than termination pursuant to Section 10(a))
shall be communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Employee's employment under the
provision so indicated.
<PAGE>
(f) Date of Termination. "Date of Termination" shall mean (i) if
Employee's employment is terminated by his death, the date of his death, (ii) if
Employee's employment is terminated pursuant to Section 10(b), 30 days after
Notice of Termination is given (provided that Employee shall not have returned
to the performance of his duties on a full-time basis during such 30 day
period), and (iii) if Employee's employment is terminated for any other reason,
the date specified in the Notice of Termination, which shall not be earlier than
the date on which the Notice of Termination is given; provided that if within 30
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
resolved, either by mutual written agreement of the parties or by a judgment,
order, or decree of a court of competent jurisdiction.
Section 11. Compensation Upon Termination or During Disability.
(a) During any period that Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), Employee shall continue to receive his full salary at the
rate then in effect for such period until his employment is terminated pursuant
to Section 10(b), provided that payments so made to Employee during the
disability period shall be reduced by the sum of the amounts, if any, payable to
Employee at or prior to the time of any such payment under disability benefit
plans of the Company and which were not previously applied to reduce any such
payment.
(b) If Employee's employment is terminated by his death, the Company
shall pay to Employee's heirs, in a lump sum, an amount equal to his full salary
for the period ending May 31, 2004.
(c) If Employee's employment shall be terminated for Cause, the
Company shall pay Employee his full salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given.
(d) If (i) in breach of this Agreement, the Company shall terminate
Employee's employment other than pursuant to Section 10(b) or 10(c) (it being
understood that a purported termination pursuant to Section 10(b) or 10(c) which
is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement) or (ii) Employee shall
terminate his employment for Good Reason, then
(A) the Company shall pay Employee his full salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given;
(B) in lieu of any further salary, bonus, or incentive
compensation payments to Employee for periods subsequent to
the Date of Termination, the Company shall pay as severance
pay to Employee an amount equal to (1) Employee's average
annual cash compensation received from the Company during the
<PAGE>
three full calendar years immediately preceding the Date of
Termination, multiplied by (2) the greater of (w) the number
of years (including partial years) that would have been
remaining in the Employment Period if Employee's employment by
the Company had not so terminated and (x) three, such payment
to be made (y) if Employee's termination is based on a change
of control of the Company, in a lump sum on or before the
fifth day following the Date of Termination, or (z) if
Employee's termination results from any other cause, in
substantially equal semimonthly installments on the fifteenth
and last days of each month commencing with the month in which
the Date of Termination occurs and continuing for the number
of consecutive semimonthly payment dates (including the first
such date as aforesaid) equal to the product obtained by
multiplying the number of years (including partial years)
applicable under clause (w) above by 24;
(C) all options to purchase the Company's common stock
granted to Employee under the Company's option plan or
otherwise shall immediately become fully vested and shall
terminate on such date as they would have terminated if
Employee's employment by the Company had not terminated and,
if Employee's termination is based on a change of control of
the Company and Employee elects, not more than 30 days after
the Date of Termination, to surrender any or all of such
options to the Company, the Company shall pay Employee on or
before the fifth day following such surrender a lump sum cash
payment equal to the excess of (1) the fair market value on
the Date of Termination of the securities issuable upon
exercise of the options surrendered over (2) the aggregate
exercise price of the options surrendered;
(D) the Company shall maintain in full force and effect,
for the continued benefit of Employee, for a number of years
equal to the greater of (1) the number of years (including
partial years) that would have been remaining in the
Employment Period if Employee's employment by the Company had
not so terminated and (2) three, all employee benefit plans
and programs in which Employee was entitled to participate
immediately prior to the Date of Termination provided that
Employee's continued participation is possible under the
general terms and provisions of such plans and programs. In
the event that Employee's participation in any such plan or
program is barred, the Company shall arrange to provide
Employee with benefits substantially similar to those which
Employee would otherwise have been entitled to receive under
such plans and programs from which his continued participation
is barred; and
(E) if termination of Employee's employment arises out
of a breach by the Company of this Agreement, the Company
shall pay all other damages to which Employee may be entitled
as a result of such breach, including damages for any and all
<PAGE>
loss of benefits to Employee under the Company's employee
benefit plans which Employee would have received if the
Company had not breached this Agreement and had Employee's
employment continued for the then remaining term of the
Employment Period, and including all reasonable legal fees and
expenses incurred by him as a result of such termination.
(e) If Employee shall terminate his employment under Section
10(d)(ii), the Company shall pay Employee his full salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given.
(f) Employee shall not be required to mitigate the amount of any
payment provided for in this Section 11 by seeking other employment or
otherwise.
(g) Notwithstanding anything in this Agreement to the contrary, the
Company shall not be obligated to pay any portion of any amount otherwise
payable to Employee pursuant to this Section 11 if the Company could not
reasonably deduct such portion solely by operation of Section 280G of the
Internal Revenue Code of 1986, as amended.
Section 12. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and reasonably substance satisfactory to Employee, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
12(a) or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) Employee's rights and obligations under this Agreement shall not
be transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance, or the claims of Employee's creditors, and any attempt
to do any of the foregoing shall be void. The provisions of this Agreement shall
be binding upon and inure to the benefit of Employee and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees, and shall be binding upon and inure to the benefit of
the Company and its successors under Section 12(a). If Employee should die while
any amounts would still be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Employee's devisee, legatee, or other
designee or, if there be no such designee, to Employee's estate.
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Section 13. No Third Party Beneficiaries.
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Sections 11(b) and 12).
Section 14. Fees and Expenses.
The Company shall pay all reasonable legal fees and related expenses
(including the costs of experts, evidence, and counsel) incurred by Employee as
a result of a contest or dispute over Employee's termination of employment if
such contest or dispute is resolved in whole or in part in Employee's favor.
Section 15. Representations and Warranties of Employee.
Employee represents and warrants to the Company that (a) Employee is under
no contractual or other restriction or obligation which is inconsistent with the
execution of this Agreement, the performance of his duties hereunder, or the
other rights of the Company hereunder and (b) Employee is under no physical or
mental disability that would hinder his performance of duties under this
Agreement.
Section 16. Life Insurance.
If requested by the Company, Employee shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its expense
and for its own benefit, to obtain life insurance on the life of Employee.
Employee has no reason to believe that his life is not insurable with a
reputable insurance company at rates now prevailing in the City of New York for
healthy men of his age.
Section 17. Modification.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
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Section 18. Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 18). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 18. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
Section 19. Waiver.
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
Section 20. Headings.
The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
Section 21. Counterparts; Governing Law.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflict of
laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
GP Strategies Corporation
By:
Jerome I. Feldman
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