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 September 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
November 18, 1999:
Common Stock 11,093,611 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 -
September 30, 1999 and December 31, 1998 1
Consolidated Condensed Statements of Operations-
Three Months and Nine Months Ended September 30,
1999 and 1998 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial
Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Part II. Other Information 25
Signatures 26
<PAGE>
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
1999 1998
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 4,902 $ 6,807
Marketable securities 741
Accounts and other receivables 62,941 55,531
Inventories 2,321 2,362
Costs and estimated earnings in excess
of billings on uncompleted contracts 16,765 15,395
Prepaid expenses and other current assets 3,821 5,344
--------- ----------
Total current assets 90,750 86,180
--------- ---------
Investments and advances 18,054 23,071
--------- ----------
Property, plant and equipment, net 14,492 14,474
--------- ----------
Intangible assets, net of amortization of $37,431
and $34,967 78,964 80,684
--------- ---------
Deferred tax asset 3,445 3,290
--------- ----------
Other assets 3,470 3,206
--------- ----------
$209,175 $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 BALANCE SHEETS (Continued)
(in thousands)
September 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities:
Current maturities of long-term debt and
notes payable $ 3,559 $ 3,180
Short-term borrowings 38,246 30,723
Accounts payable and accrued expenses 27,194 24,089
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,154 14,199
---------- ---------
Total current liabilities 78,153 72,191
--------- ---------
Long-term debt less current maturities 15,228 18,379
--------- ---------
Other liabilities 3,200
---------- ---------
Stockholders' equity
Common stock 115 111
Class B capital stock 4 3
Capital in excess of par value 168,109 164,217
Accumulated deficit (48,788) (39,397)
Accumulated other comprehensive income 42 99
Notes receivable from stockholder (1,975) (1,742)
Treasury stock, at cost (4,913) (2,956)
---------- ----------
Total stockholders' equity 112,594 120,335
--------- ---------
$209,175 $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 Nine months
ended September 30, ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 53,258 $ 86,182 $175,953 $219,951
Costs of goods sold 46,022 74,672 153,946 188,313
-------- -------- -------- --------
Gross margin 7,236 11,510 22,007 31,638
Selling, general & administrative (7,013) (7,819) (21,429) (23,587)
Interest expense (1,144) (1,291) (3,205) (3,137)
Investment and other income
(loss), net (1,332) 204 (590) 985
Restructuring charge (6,312)
Loss on sale of assets (6,225) (6,225)
Loss on investment (3,067) (3,067)
Gain on trading securities 693 435 1,257 1,707
--------- ------- ---------- ---------
Loss before income taxes (1,560) (6,253) (8,272) (1,686)
Income tax expense (262) (313) (1,119) (827)
---------- ---------- ----------- ----------
Net loss $ (1,822) $ (6,566) $ (9,391) $ (2,513)
========= ========= ========= =========
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
(in thousands, except per share data)
Three months Nine months
ended September 30, ended September 30,
1999 1998 1999 1998
Loss per share:
Basic $ (.16) $ (.60) $ (.82) $ (.23)
------- ------- ------- -------
Diluted $ (.16) $ (.60) $ (.82) $ (.23)
------- ------ ------- -------
Dividends per share none none none none
======= ====== ======= =======
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>
Nine months
ended September 30,
1999 1998
---- ----
Cash flows from operations:
<S> <C> <C>
Net loss $ (9,391) $ (2,513)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 5,274 4,263
Issuance of stock for profit incentive plan 1,001 967
Loss on sale of assets 6,225
Loss on investment 3,067
Equity loss on investments, net 1,302 1,210
Restructuring charge 6,312
Gain on trading securities (1,257) (1,707)
Change in other operating items (10,710) (21,866)
------- --------
Net cash used in operations (7,469) (10,354)
-------- --------
Cash flows from investing activities:
Acquisition of Learning Technologies (24,292)
Acquisition of Deltapoint (6,280)
Proceeds from sale of trading securities 3,577 2,365
Additions to property, plant & equipment (2,828) (4,013)
Additions to intangible assets (744) (1,516)
Increase in investments and other assets, net 527 (460)
-------- ---------
Net cash provided by (used in) investing activities $ 532 $ (34,196)
--------- ---------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Nine months
ended September 30,
1999 1998
---- ----
Cash flows from financing activities:
Proceeds from short-term borrowings $ 7,523 $ 41,273
Repayments of short-term borrowings (14,519)
Proceeds from issuance of long-term debt 15,000
Repayment of long-term debt (2,272) (1,393)
Exercise of common stock options and warrants 910 261
Repurchase of treasury stock (1,129) (943)
-------- --------
Net cash provided by financing activities 5,032 39,679
-------- --------
Net decrease in cash and cash equivalents (1,905) (4,871)
Cash and cash equivalents at the
beginning of the periods 6,807 12,375
-------- ---------
Cash and cash equivalents at the
end of the periods $ 4,902 $ 7,504
======== ========
Supplemental disclosures of cash
flow information:
Cash paid during the periods for:
Interest $ 3,930 $ 3,419
========= ========
Income taxes $ 955 $ 849
========= ========
See accompanying notes to 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. Proposed merger
On October 6, 1999, the Board of Directors of the Company approved a
merger with VS&A Communications Partners III, L.P., an affiliate of Veronis,
Suhler & Associates Inc., in which the holders of outstanding shares of Common
Stock and Class B Capital Stock of the Company would receive $13.75 per share
(which includes $.01 per share to be paid upon redemption of the associated
rights), payable in cash upon consummation of the merger. Certain members of
Company management are participating in the transaction with VS&A Communications
Partners III, L.P. and have agreed to vote in favor of the merger.
On November 17, 1999, the Company announced that based on updated
fourth quarter 1999 projections and other information relating to the Company's
General Physics subsidiary furnished by the Company to VS&A, VS&A has informed
the Company that it believes that the Company has suffered a material adverse
change and that the conditions to VS&A's obligation to consummate the merger
contemplated by the merger agreement therefore may not be fulfilled. VS&A has
also informed the Company that it is investigating the matter, but does not
intend to waive the conditions to its obligations. The Company has not agreed
that a material adverse change has occurred.
The updated projections indicate a reduction in fourth quarter revenues
and earnings before interest, taxes, depreciation, and amortization of General
Physics, due to a continued and significant downturn in General Physics'
Information Technology open enrollment business and the expectation that the
remainder of General Physics' business will not grow to the originally projected
levels.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Proposed merger (Continued)
The Company is evaluating its options with respect to the foregoing,
which include (1) continuing with the going private transaction even though
there would be no assurance that VS&A would have an obligation to close, (2)
agreeing to terminate the going private transaction and renegotiating a new
transaction with VS&A, or (3) agreeing to terminate the going private
transaction and not entering into an alternate transaction. Since certain
members of management have an interest in the going private transaction, the
special negotiating committee that evaluated and recommended the going private
transaction has been reactivated to consider and make a recommendation to the
Board of Directors with respect to the Company's alternatives.
3. Earnings (loss) per share
Earnings (loss) per share (EPS) for the periods ended September 30,
1999 and 1998 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
1999 1998 1999 1998
Basic and Diluted EPS
<S> <C> <C> <C> <C>
Net loss $ (1,822) $ (6,566) $ (9,391) $ (2,513)
Weighted average shares
outstanding 11,287 10,883 11,407 10,808
Basic and Diluted loss per share $ (.16) $ (.60) $ (.82) $ (.23)
</TABLE>
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 and 1999, even though
the Company still has stock options and warrants outstanding, diluted earnings
per share is the same as basic earnings per share due to the Company's net loss,
which makes the effect of such securities anti-dilutive.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. 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):
September 30, December 31,
1999 1998
Raw materials $ 861 $ 811
Work in process 314 272
Finished goods 1,146 1,279
-------- ---------
$ 2,321 $ 2,362
======== ==========
5. Long-term debt
Long-term debt consists of the following (in thousands):
September 30, December 31,
1999 1998
Term loan $ 14,250 $14,813
8% Swiss bonds due 2000 2,337 2,359
5% Convertible bonds due 1999 1,858
Other 2,200 2,529
--------- --------
18,787 21,559
Less current maturities (3,559) (3,180)
--------- -------
$ 15,228 $ 18,379
======== ========
In April 1999 $500,000 of the Company's 5% convertible bonds were converted into
28,751 shares of the Company's Common Stock. In August 1999 the Company paid the
balance due of $1,282,000 on the 5% Convertible bonds.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Comprehensive income (loss)
The following are the components of comprehensive income (loss) (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net loss $ (1,822) $ (6,566) $ (9,391) $ (2,513)
-------- -------- -------- --------
Other comprehensive loss before tax:
Net unrealized loss on
available-for-sale-securities (391) (4,348) (567) (7,259)
Foreign currency translation adjustment 122 317
---------- -------------- ---------- ------------
Other comprehensive loss,
before tax (269) (4,348) (250) (7,259)
---------- --------- --------- --------
Income tax benefit relating to items
of other comprehensive loss 133 1,478 193 2,468
--------- --------- ------------ -------
Comprehensive loss, net of tax $ (1,958) $ (9,436) $ (9,448) $ (7,304)
======== ======== ========= ========
</TABLE>
The components of accumulated other comprehensive income (loss) are as follows:
September 30, December 31,
1999 1998
Net unrealized gain on
available-for-sale-securities $ 1,131 $ 1,698
Foreign currency translation adjustment (521) (838)
-------- ---------
Accumulated other comprehensive income
before tax 610 860
Accumulated income tax expense related to
items of other comprehensive income (568) (761)
-------- ---------
Accumulated other comprehensive income,
net of tax $ 42 $ 99
========== ==========
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. 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.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Business segments (Continued)
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 nine months ended September 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 September 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.
Financial information for the nine months ended September 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):
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Business segments (continued)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Sales
<S> <C> <C> <C> <C>
Manufacturing Services $ 20,277 $22,622 $ 67,018 $ 62,674
Process and Energy 17,254 21,876 56,571 58,772
Information Technology 13,290 17,241 44,234 25,390
Optical Plastics 2,432 2,621 7,637 8,232
Distribution 21,820 64,148
Other 5 2 493 735
------------- ----------- ----------- -----------
$ 53,258 $ 86,182 $175,953 $219,951
-------- -------- -------- --------
Gross margin
Manufacturing Services $ 3,717 $ 3,153 $ 11,356 $ 8,940
Process and Energy 2,857 3,304 8,137 8,409
Information Technology 228 975 404 383
Optical Plastics 622 641 2,023 2,290
Distribution 3,581 10,454
Other (188) (144) 87 162
---------- ------------ ---------- ---------
$ 7,236 $ 11,510 $22,007 $31,638
--------- -------- ------- -------
</TABLE>
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):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
United States $ 41,603 $ 72,368 $136,501 $201,816
Canada 5,889 6,582 21,134 7,726
United Kingdom 4,285 6,580 13,290 8,629
Latin America 1,481 652 5,028 1,780
--------- ---------- --------- ----------
$ 53,258 $ 86,182 $175,953 $219,951
-------- -------- -------- --------
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Business segments (continued)
Information about the Company's long-lived assets in different geographic
regions is as follows (in thousands):
September 30, December 31,
1999 1998
------------ --------------
United States $ 10,098 $ 10,704
Canada 2,797 1,989
United Kingdom 1,528 1,731
Latin America 69 50
---------- ----------
$ 14,492 $ 14,474
-------- --------
8. 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. During the quarter ended September 30, 1999,
the Company expended $1,770,000. The current portion of the remaining charge
totaling $1,342,000 is included in Accounts payable and accrued expenses and the
remainder of $3,200,000 is set forth as Other liabilities in the Consolidated
Condensed Balance Sheet. The components are as follows (in thousands):
<TABLE>
<CAPTION>
Severance Present Value Other facility
and related of future lease related
benefits costs costs Total
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1999 $ 1,201 $ 4,487 $ 624 $ 6,312
Utilization 989 578 203 1,770
-------- -------- -------- --------
Balance
September 30, 1999 $ 212 $ 3,909 $ 421 $ 4,542
======= ======= ====== =======
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Restructuring (Continued)
Remaining amounts that have been accrued for severance and related
benefits will be expended by December 31, 1999. The present value of future
lease obligations is net of assumed sublets. Approximately $484,000 will be
expended during the remainder of 1999, $818,000 in the year 2000, and the
remaining balance through 2015. Other facility-related costs, totaling $421,000
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.
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.
9. Related party transaction
On January 11, 1999, in connection with the exercise of stock options
to purchase an aggregate of 100,000 shares of Class B Common Stock, the Company
received a note receivable from a senior executive officer for $899,000. 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. On September 22, 1999, in connection with the
exercise of stock options to purchase of 21,012 shares of Common Stock, the
Company received a $161,372 Note receivable from the same senior executive. As
of September 30, 1999, the aggregate amount of indebtedness outstanding was
approximately $1,975,000. The loans accrue interest at the prime rate and all
principal and interest are due and payable on September 22, 2000 (as amended),
October 28, 2000 and January 11, 2001, 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.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
10. 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 nine months ended September 30, 1999, the Company repurchased 107,516
shares of its Common Stock.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On October 6, 1999, the Board of Directors of the Company approved a merger
with VS&A Communications Partners III, L.P., an affiliate of Veronis, Suhler &
Associates Inc., in which the holders of outstanding shares of Common Stock and
Class B Capital Stock of the Company would receive $13.75 per share (which
includes $.01 per share to be paid upon redemption of the associated rights),
payable in cash upon consummation of the merger. Certain members of Company
management are participating in the transaction with VS&A Communications
Partners III, L.P. and have agreed to vote in favor of the merger.
On November 17, 1999, the Company announced that based on updated fourth
quarter 1999 projections and other information relating to the Company's General
Physics subsidiary furnished by the Company to VS&A, VS&A has informed the
Company that it believes that the Company has suffered a material adverse change
and that the conditions to VS&A's obligation to consummate the merger
contemplated by the merger agreement therefore may not be fulfilled. VS&A has
also informed the Company that it is investigating the matter, but does not
intend to waive the conditions to its obligations. The Company has not agreed
that a material adverse change has occurred.
The updated projections indicate a reduction in fourth quarter revenues and
earnings before interest, taxes, depreciation, and amortization of General
Physics, due to a continued and significant downturn in General Physics' IT open
enrollment business and the expectation that the remainder of General Physics'
business will not grow to the originally projected levels.
The Company is evaluating its options with respect to the foregoing, which
include (1) continuing with the going private transaction even though there
would be no assurance that VS&A would have an obligation to close, (2) agreeing
to terminate the going private transaction and renegotiating a new transaction
with VS&A, or (3) agreeing to terminate the going private transaction and not
entering into an alternate transaction. Since certain members of management have
an interest in the going private transaction, the special negotiating committee
that evaluated and recommended the going private transaction has been
reactivated to consider and make a recommendation to the Board of Directors with
respect to the Company's alternatives.
<PAGE>
RESULTS OF OPERATIONS
The Company realized a loss before income taxes of $1,560,000 and $8,272,000
for the quarter and nine months ended September 30, 1999, as compared with a net
loss of $6,253,000 and $1,686,000 for the corresponding periods of 1998. The
loss for the nine months ended September 30, 1999 was primarily due to a
Restructuring charge recorded in the quarter ended June 30, 1999 totaling
$6,312,000, principally related to the Company's Information Technology (IT)
business segment as well as other costs incurred by the IT group in exiting
certain activities. 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 other assets and losses
on contracts. 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. The IT open enrollment business, has been
negatively affected by the lack of new software products, companies diverting
training dollars to fixing Y2K issues and heavy competition in this area. 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
Restructuring charge is comprised of expenses related to the severance and
related benefit costs as well as facility and related costs.
Management believes that the restructuring plan, together with other
strategic initiatives, will enable the IT business segment to return to
profitability. If such plans are not successful, the Company may need to take
other steps as yet not determined. The Company continues to assess the
recoverability of intangible assets and other long-lived assets related to its
IT business segment and management does not currently believe an impairment has
occurred. However, in the event the Company's plans are not successful, there
cannot be any assurance that an impairment charge will not be required.
The loss for the quarter ended September 30, 1999, was primarily due to
continued losses in GP's Information Technology Group, as well as legal and
salary related expenses of $1,200,000 incurred as a result of the anticipated
VS&A transaction.
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.
The losses for the quarter and nine months ended September 30, 1998, were
primarily due to two factors. On September 30, 1998, the Company sold
substantially all the operating assets of its wholly-owned subsidiary, the Five
<PAGE>
Star Group, Inc. (Five Star), to the American Drug Company (ADC) (a 37.5% owned
affiliate at September 30, 1998). The Company recognized a $6,225,000 loss on
this transaction for the quarter and nine months ended September 30, 1998. The
results of operations for Five Star have been included in the Consolidated
Condensed Statement of Operations through September 30, 1998. Subsequent to that
date the Company no longer consolidates the balance sheet and results of
operations of ADC, but instead accounts for ADC as an equity investment.
In addition, the Company recorded a $3,067,000 loss for the quarter and nine
months ended September 30, 1998 resulting from the write down of its investment
in the common stock of Interferon Sciences, Inc. (ISI) as a result of the
significant decrease in the market value of ISI's common stock.
In addition, for the quarter and nine months ended September 30, 1999, the
Company recorded investment and other income (loss), net of $(1,332,000) and
$(590,000) as compared to $204,000 and $985,000 recorded for the quarter and
nine months ended September 30, 1998, respectively.
Sales
For the quarter ended September 30, 1999, consolidated sales decreased by
$32,924,000 to $53,258,000 from the $86,182,000 recorded in the corresponding
quarter of 1998. For the nine months ended September 30, 1999, consolidated
sales decreased by $43,998,000 to $175,953,000 from the $219,951,000 recorded
for the nine months ended September 30, 1998. The decreased sales were primarily
the result of the sale of substantially all the operating assets of the Five
Star to ADC on September 30, 1998 partially offset by increased sales generated
by GP. For the quarter and nine months ended September 30, 1998, net sales
were $21,820,000 and $64,148,000 for Five Star, which comprised the
Distribution Group through September 30, 1998. GP's net sales for the quarter
and nine months ended September 30, 1999, included sales by companies acquired
in June and July 1998. Learning Technologies (currently included in the IT
Group), which was acquired on June 16, 1998, had sales of $14,152,000 for the
nine months ended September 30, 1998.
Gross margin
Consolidated gross margin of $7,236,000, or 14%, for the quarter ended
September 30, 1999, decreased by $4,274,000 when compared to the consolidated
gross margin of $11,510,000, or 13%, for the quarter ended September 30, 1998.
For the nine months ended September 30, 1999, consolidated gross margin of
$22,007,000 or 13% of consolidated sales decreased by $9,631,000 when compared
to $31,638,000 or 14% of consolidated sales earned in the nine months ended
September 30, 1998. The reduced gross margin was due to the following factors.
In the quarter and nine months ended September 30, 1998, Five Star earned
$3,581,000 and $10,454,000 of gross margin. In addition, the IT Group had a
<PAGE>
gross margin of $404,000 on sales of $44,234,000 for the nine months ended
September 30, 1999 and a gross margin of $228,000 on sales of $13,290,000 for
the quarter ended September 30, 1999. The reduced gross margin for the nine
months ended September 30, 1999 was principally caused by secon quarter 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). Of the above charges approximately
$2,346,000 pertained to the IT Group and $731,000 pertained to the Process
and Energy Group.
Selling, general and administrative expenses
For the quarter and nine months ended September 30, 1999, selling, general
and administrative expenses (SG&A) of $7,013,000 and $21,429,000 was $806,000
and $2,158,000 lower, respectively, than the $7,819,000 and $23,587,000 of SG&A
expenses incurred during the quarter and nine months ended September 30, 1998.
The decrease in SG&A for the quarter and nine months ended September 30, 1999,
was principally the result of the sale of substantially all the operating assets
of Five Star to ADC on September 30, 1998. For the quarter and nine months ended
September 30, 1998, Five Star had SG&A expenses of $3,232,000 and $9,594,000,
respectively. For the nine months ended September 30, 1999, the decrease due to
Five Star was partially offset by 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), costs related to
facility and other operating costs incurred by the IT Group in the second
quarter, which were higher than normal relative to revenue generated
(approximately $900,000) and $1,200,000 of legal and salary related costs
related to the anticipated VS&A transaction.
Investment and other income (loss), net
Investment and other income (loss), net of $(1,332,000) and $(590,000) for
the quarter and nine months ended September 30, 1999 decreased by $1,536,000 and
$1,575,000, respectively, as compared to Investment and other income (loss), net
of $204,000 and $985,000 for the corresponding periods of 1998. The change for
the quarter ended September 30, 1999, was primarily due to the write-down and
increased losses on the Company's equity investments as well as reduced
other income earned related to Five Star resulting from the sale of
substantially all the operating assets of Five Star to ADC on September 30,
1998. The change for the nine months ended September 30, 1999, was primarily
due to $813,000 of consulting and marketing income earned by Five Star for
the nine months ended September 30, 1998. The Company recognized losses of
$1,460,000 (including a $1,000,000 write-down of its investment in GSE
Systems, Inc.) and $1,694,000 for the quarter and nine months ended
September 30, 1999, on the Company's equity investments compared to
losses of $430,000 and $1,210,000 recognized for the corresponding periods
in 1998.
<PAGE>
Income tax expense
For the quarter and nine months ended September 30, 1999, the Company
recorded an income tax expense of $262,000 and $1,119,000, respectively, which
represents primarily foreign, state and local income taxes. The Company has not
recorded Federal income tax expense for the quarter and nine months ended
September 30, 1998, due to the availability of net operating loss carryforwards.
Liquidity and capital resources
At September 30, 1999, the Company had cash and cash equivalents totaling
$4,902,000. 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
September 30, 1999, approximately $26,754,000 was available to the Company under
its credit agreements.
For the nine months ended September 30, 1999, the Company's working capital
decreased by $1,392,000 to $12,597,000, reflecting the effect of increased
accounts payable and short-term borrowings, partially offset by increased
accounts receivables.
The decrease in cash and cash equivalents of $1,905,000 for the nine months
ended September 30, 1999 resulted from cash used in operations of $7,469,000,
partially offset by cash provided by financing activities of $5,032,000. 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 provided by investing activities of $532,000 includes
$2,828,000 of additions to property, plant and equipment, partially offset by
proceeds from the sale of trading securities of $3,577,000.
Due to the Company's restructuring charge taken during 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. However, there can be no assurance that such amendments,
if necessary, will be obtained.
The Company does not anticipate having to replace major facilities in the
near term. As of September 30, 1999, the Company has not contractually committed
itself for any major capital expenditures.
<PAGE>
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 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. It has also identified and
remediated various ancillary programs.
In addition, the information systems and technology management group of GP
has examined and remediated 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 serve 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. The cost of the programming
and equipment upgrades was approximately $200,000. In addition, certain personal
computers and other equipment that was not Y2K compliant have been upgraded or
replaced through GP's normal process of equipment upgrades. GP believes that the
evaluation process has been completed and that the implementation process will
be completed by December 1, 1999. Over the next year, GP intends to continue to
plan and implement other information technology projects in the ordinary course
of business.
GP financed 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,
are Y2K compliant.
<PAGE>
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 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 have communicated with their principal
customers and vendors about their Y2K readiness. 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 December 1, 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.
<PAGE>
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 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.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Employment Agreement, dated as of July 1, 1999, between
the Company and Scott N. Greenberg.
10.2 Employment Agreement, dated as of July 1, 1999, between
the General Physics Corporation and John C. McAuliffe.
b. Reports on Form 8-K
Form 8-K filed on September 1, 1999 reporting event under Item 5.
Form 8-K filed on October 7, 1999 reporting event under Item 7.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
September 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: November 22, 1999 BY: Jerome I. Feldman
President &
Chief Executive Officer
DATE: November 22, 1999 BY: Scott N. Greenberg
Executive Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000070415
<NAME> GP STRATEGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,902
<SECURITIES> 0
<RECEIVABLES> 62,941
<ALLOWANCES> 1,585
<INVENTORY> 2,321
<CURRENT-ASSETS> 90,750
<PP&E> 44,470
<DEPRECIATION> 29,978
<TOTAL-ASSETS> 209,175
<CURRENT-LIABILITIES> 78,153
<BONDS> 18,787
0
0
<COMMON> 115
<OTHER-SE> 112,479
<TOTAL-LIABILITY-AND-EQUITY> 209,175
<SALES> 175,953
<TOTAL-REVENUES> 175,363
<CGS> 153,946
<TOTAL-COSTS> 181,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,205
<INCOME-PRETAX> (8,272)
<INCOME-TAX> 1,119
<INCOME-CONTINUING> (9,391)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,391)
<EPS-BASIC> (.82)
<EPS-DILUTED> (.82)
</TABLE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 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 Scott N.
Greenberg, residing at 9 Eli Circle, Morganville, New Jersey 07751 ("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 Executive Vice
President of the Company and shall have the duties, responsibilities, and
authorities normally performed by the executive vice president 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 Executive Vice President 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.
Unless sooner terminated in accordance with the provisions of this
Agreement, 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 June 30, 2004; provided, however, that if this
Agreement has not been terminated in accordance with the provisions hereof prior
to June 30, 2002, the Employment Period shall be extended on June 30, 2002 to
June 30, 2005.
<PAGE>
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
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 July 1, 1999, the Company shall
pay to Employee a base annual salary at the rate of $250,000. Each July 1 during
the Employment Period, commencing July 1, 2000, the base annual salary shall be
increased, as determined by the Board, by a minimum of the greater of (i) 3% and
(ii) the percentage increase in the Consumer Price Index (as hereinafter
defined) in effect for the month of April preceding the July 1 in question
compared to the Consumer Price Index in effect for the prior month of April. The
"Consumer Price Index" shall mean the Consumer Price Index for all Urban
Consumers published by the Bureau of Labor Statistics, United States Department
of Labor, or the supplement or successor thereto if publication of such index
should be discontinued. 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) Signing Bonus. Upon execution of this Agreement,
the Company shall pay to Employee a $300,000 signing bonus.
(c) Bonus. Each December during the Employment Period,
commencing in 2000, the Board shall determine Employee's bonus (the "Bonus") for
the year then ending, based upon the formula attached hereto as Schedule A.
(d) Options. The Company shall grant to Employee under its
option plan, options to purchase 100,000 shares of the common stock of the
Company 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 July 1 commencing
July 1, 2000, shall terminate on June 30, 2004, and shall accelerate as provided
in Section 11(d)(ii)(C).
(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.
<PAGE>
(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 to be paid for by the Company.
(g) Life and Disability Insurance. The Company shall maintain
the existing life and disability insurance policies covering Employee.
(h) 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.
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, Non-Solicitation.
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
nine months thereafter, directly or indirectly, (a) solicit the employment of,
or encourage to leave the employment of the Company or any of its subsidiaries,
any person who is now employed by the Company or any of its subsidiaries, (b)
hire any employee or former employee of the Company or any of its subsidiaries,
or (c) compete with or be engaged in the same business as the Company or any of
its subsidiaries, 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 or any of its subsidiaries, 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. If
the Employment Period ends on June 30, 2005, the Company shall pay Employee
during the period after the Employment Period that Employee is subject to this
Section 7, provided that Employee is in full compliance with this Section 7, at
the rate of his base annual salary received from the Company during the last
year of the Employment Period, payable at such intervals (at least monthly) as
salaries are paid generally to executive officers of the Company, which
obligation shall cease after nine months or such earlier time as the Company, in
its sole discretion, releases Employee from the provisions of this Section 7.
Section 8. Patents.
<PAGE>
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 or any of its subsidiaries 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.
<PAGE>
(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
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 (as defined below) 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 management change
in control of the Company (as defined below), (iii) 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 (iv) 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 any of the following, but only if not approved by the
Board, (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 Jerome Feldman or Employee or a group
including Jerome Feldman or Employee, (ii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than Jerome Feldman or
Employee or a group including Jerome Feldman or 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, (iii) the
Company and its affiliates owning less than a majority of the voting stock of
General Physics Corporation ("GPC"), (iv) the sale of all or substantially all
of the assets of GPC, or (v) at any time when there has not been a management
change of control of the Company, 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. For purposes of this Agreement, a
"management change in control" of the Company shall mean either of the following
(i) an event that would have constituted a change of control of the Company if
it had not been approved by the Board or (ii) a change in control of the Company
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 Exchange Act,
resulting in control by a buy-out group including Jerome Feldman but not
Employee. For purposes of the foregoing definitions, a group shall not be deemed
to include Employee if he declines the opportunity to join such group.
<PAGE>
(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.
(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 spouse, or if he leaves no spouse to his estate,
an amount equal to his full salary at the rate then in effect for a period of
one year after the date of death.
(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.
<PAGE>
(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 (other than as a result of a management
change of control), then
(A) the Company shall (I) pay Employee his
full salary and provide Employee his benefits through
the Date of Termination at the rate or level in
effect at the time Notice of Termination is given and
(II) pay Employee his full Bonus for the calendar
year in which the Date of Termination occurs, at such
time as such Bonus would have been paid if Employee's
employment by the Company had not so terminated;
(B) in lieu of any further salary or bonus
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 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 but
the Employment Period were not thereafter extended
pursuant to the proviso of Section 3 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;
<PAGE>
(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 but the Employment Period were not
thereafter extended pursuant to the proviso of
Section 3 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 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 but the
Employment Period were not thereafter extended
pursuant to the proviso of Section 3, and including
all reasonable legal fees and expenses incurred by
him as a result of such termination.
(e) If Employee shall terminate his employment for Good
Reason as a result of a management change of control, then
(A) the Company shall (I) pay Employee his
full salary and provide Employee his benefits through
the Date of Termination at the rate or level in
effect at the time Notice of Termination is given and
(II) pay Employee his full Bonus for the calendar
year in which the Date of Termination occurs, at such
time as such Bonus would have been paid if Employee's
employment by the Company had not so terminated;
(B) in lieu of any further salary or bonus
payments to Employee for periods subsequent to the
Date of Termination, the Company shall pay as
severance pay to Employee an amount equal to twice
Employee's average annual cash compensation received
from the Company during the three full calendar years
immediately preceding the Date of Termination, such
payment to be made in a lump sum on or before the
fifth day following the Date of Termination;
<PAGE>
(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 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; and
(D) the Company shall maintain in full force
and effect, for the continued benefit of Employee,
for two years, 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.
(f) 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.
(g) Employee shall not be required to mitigate the amount of
any payment provided for in this Section 11 by seeking other employment or
otherwise.
(h) 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.
<PAGE>
(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.
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
(a) such contest or dispute is resolved in whole or in part in Employee's favor
or (b) Employee reasonably believed in good faith that he had a valid claim. In
addition, the Company shall pay Employee interest, at the prime rate of Fleet
Bank, National Association, on any amounts payable to Employee hereunder that
are not paid when due.
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.
<PAGE>
Section 17. Modification.
This Agreement and the Schedule hereto set forth the entire
understanding of the parties with respect to the subject matter hereof,
supersede all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
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.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
GP STRATEGIES CORPORATION
By:
------------------------------
Scott N. Greenberg
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 1, 1999, between General Physics
Corporation, a Delaware corporation with principal executive offices at 9 West
57th Street, Suite 4170, New York, New York 10019 (the "Company"), and John C.
McAuliffe, residing at 4035 Log Trail Way, Reisterstown, Maryland 21136
("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 of the
Company and shall have the duties, responsibilities, and authorities normally
performed by the president 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 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.
Unless sooner terminated in accordance with the provisions of this
Agreement, 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 June 30, 2004; provided, however, that if this
Agreement has not been terminated in accordance with the provisions hereof (a)
prior to June 30, 2002, the Employment Period shall be extended on June 30, 2002
to June 30, 2005 and (b) prior to June 30, 2003, the Employment Period shall be
extended on June 30, 2003 to June 30, 2006.
<PAGE>
Section 4. Place of Employment.
Employee's principal place of work shall be located at the principal
offices of the Company, currently located in Columbia, Maryland. The Company's
principal offices shall not be relocated outside of the Maryland 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 July 1, 1999, the Company shall
pay to Employee a base annual salary at the rate of $250,000. Each July 1 during
the Employment Period, commencing July 1, 2000, the base annual salary shall be
increased, as determined by the Board, by a minimum of 5%. 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) Signing Bonus. Upon execution of this Agreement, the
Company shall pay to Employee a $300,000 signing bonus. In addition, Employee
shall have the right to allocate bonuses in an aggregate amount of up to
$800,000 to employees of the Company other than Employee, Doug Sharp, and John
Moran, which bonuses shall be payable within 60 days of the execution of this
Agreement provided that each such employee enters into an agreement with the
Company, in reasonably acceptable form, in which such employee agrees to return
his or her bonus to the Company if his or her employment with the Company
terminates prior to July 1, 2002.
(c) Bonus. Each December during the Employment Period,
commencing in 2000, the Board shall determine Employee's bonus (the "Bonus") for
the year then ending, based upon the formula attached hereto as Schedule A.
(d) Options. The Company shall cause GP Strategies Corporation
("GPS") to grant to Employee under GPS's option plan, options to purchase
100,000 shares of the common stock of GPS 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 July 1 commencing July 1, 2000, shall terminate on June
30, 2004, and shall accelerate as provided in Section 11(d)(ii)(C).
(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 to be paid for by the Company.
<PAGE>
(g) Club Dues. The Company shall pay up to $10,000 a year in
membership dues in such 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.
(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.
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, Non-Solicitation.
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
nine months thereafter, directly or indirectly, (a) solicit the employment of,
or encourage to leave the employment of GPS or the Company or any of their
respective subsidiaries, any person who is now employed by GPS or the Company or
any of their respective subsidiaries, (b) hire any employee or former employee
of GPS or the Company or any of their respective subsidiaries, or (c) compete
with or be engaged in the same business as GPS or the Company or any of their
respective subsidiaries, 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 GPS or the Company or any of their respective
subsidiaries, 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 (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 (as hereinafter defined). If the Employment Period
ends on June 30, 2006, the Company shall pay Employee during the period after
the Employment Period that Employee is subject to this Section 7, provided that
Employee is in full compliance with this Section 7, at the rate of his base
annual salary received from the Company during the last year of the Employment
Period, payable at such intervals (at least monthly) as salaries are paid
<PAGE>
generally to executive officers of the Company, which obligation shall cease
after nine months or such earlier time as the Company, in its sole discretion,
releases Employee from the provisions of this Section 7.
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 or any of its subsidiaries 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
<PAGE>
delivered by the Company that specifically identifies the manner in which the
Company believes Employee has not substantially performed his duties or
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 GPS (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
GPS shall mean any of the following (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
Jerome Feldman or Employee or a group including Jerome Feldman or Employee, (ii)
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 Exchange Act, resulting in control by a buy-out group including
Jerome Feldman but not Employee, (iii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than Jerome Feldman or
Employee or a group including Jerome Feldman or Employee, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of GPS representing 20% or more of the combined
voting power of GPS's then outstanding securities, (iv) GPS and its affiliates
owning less than a majority of the voting stock of the Company, (v) the sale of
all or substantially all of the assets of the Company, or (vi) at any time
individuals who were either nominated for election by the Board of Directors of
GPS or were elected by the Board of Directors of GPS cease for any reason to
constitute at least a majority of the Board of Directors of GPS. For purposes of
the foregoing definition, a group shall not be deemed to include Employee if he
declines the opportunity to join such group.
(e) Notice of Termination. Any termination of Employee's
employment by the Company or by Employee (other than termination pursuant to
<PAGE>
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.
(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 spouse, or if he leaves no spouse to his estate,
an amount equal to his full salary at the rate then in effect for a period of
one year after the date of death.
(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
<PAGE>
(A) the Company shall (I) pay Employee his
full salary and provide Employee his benefits through
the Date of Termination at the rate or level in
effect at the time Notice of Termination is given and
(II) pay Employee his full Bonus for the calendar
year in which the Date of Termination occurs, at such
time as such Bonus would have been paid if Employee's
employment by the Company had not so terminated;
(B) in lieu of any further salary or bonus
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 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 but
the Employment Period were not thereafter extended
pursuant to the proviso of Section 3 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;
<PAGE>
(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 but the Employment Period were not
thereafter extended pursuant to the proviso of
Section 3 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 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 but the
Employment Period were not thereafter extended
pursuant to the proviso of Section 3, 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.
<PAGE>
(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.
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
(a) such contest or dispute is resolved in whole or in part in Employee's favor
or (b) Employee reasonably believed in good faith that he had a valid claim. In
addition, the Company shall pay Employee interest, at the prime rate of Fleet
Bank, National Association, on any amounts payable to Employee hereunder that
are not paid when due.
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.
<PAGE>
Section 17. Modification.
This Agreement and the Schedule hereto set forth the entire
understanding of the parties with respect to the subject matter hereof,
supersede all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
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.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
GENERAL PHYSICS CORPORATION
By:
John C. McAuliffe
The undersigned hereby guarantees the performance by General
Physics Corporation of its obligations under the foregoing Agreement.
GP STRATEGIES CORPORATION
By:
<PAGE>
Schedule A
Employee's bonus for each calendar year during the Employment Period,
commencing 2000, shall equal (i) 1% of Employee's base salary for that year for
each 1% increase in EBITDA from the prior year's EBITDA, up to a 10% increase in
EBITDA, (ii) 2% of Employee's base salary for that year for each 1% increase in
EBITDA from the prior year's EBITDA, in excess of a 10% increase up to a 15%
increase in EBITDA, and (iii) 3% of Employee's Base Salary for that year for
each 1% increase in EBITDA from the prior year's EBITDA, in excess of a 15%
increase up to a 25% increase in EBITDA. The maximum bonus for any calendar year
during the Employment Period, shall equal 50% of Employee's base salary for that
year.
EBITDA shall mean the consolidated earnings of G P C and its
subsidiaries before interest, taxes, depreciation and amortization, excluding
extraordinary or unusual nonrecurring items of income and expense (including
without limitation, restructuring charges, severance, write off of goodwill,
future lease expense and similar items), determined in accordance with generally
accepted accounting principles by GPC's independent accountants. In calculating
the bonus for any year in which GPC or its subsidiaries acquires any business,
the EBITDA for the prior year shall be adjusted to reflect the budgeted EBITDA
of the acquired business (as set forth in the budget numbers on which the
acquisition was based) for the period from the date of the acquisition to the
end of the calendar year in which the acquisition takes place. In calculating
the bonus for any year in which GPC or its subsidiaries disposes of any
business, the EBITDA for that year and the prior year shall be adjusted to
eliminate income and expense reasonably attributable to the disposed of
business. The bonus for any year shall be paid not later than 30 days after
delivery of GPC's audited financial statements for that year.
