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 quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 1-7234
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Delaware 13-1926739
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
777 Westchester Avenue, White Plains, NY 10604
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(Address of principal executive offices) (Zip code)
(914) 249-9700
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(Registrant's telephone number, including area code)
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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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act).
Indicate the number of shares outstanding of each of issuer's classes of common stock as of November 7, 2003:
Common Stock 16,288,493 shares Class B Capital 1,200,000 shares
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
September 30, 2003 and December 31, 2002 1
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Consolidated Condensed Statements of Operations- Three Months and Nine Months Ended September 30, 2003 and 2002 3
Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 2003 and 2002 4
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosure About Market Risk 29
Item 4. Controls and Procedures 29
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 32
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in thousands)
September 30, December 31,
2003 2002
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 2,863 $ 1,516
Accounts and other receivables 23,878 26,708
Inventories 1,803 1,380
Costs and estimated earnings
in excess of billings on uncompleted contracts 11,217 14,177
Prepaid expenses and other current assets 4,503 4,079
----------- -----------
Total current assets 44,264 47,860
---------- ----------
Investments, marketable securities and note receivable 11,916 14,130
Property, plant and equipment, net 8,150 8,299
Intangible assets
Goodwill 57,554 57,491
Patents and licenses, net 688 755
------------ ------------
58,242 58,246
---------- ----------
Deferred tax asset 10,754 10,846
Other assets 5,395 5,524
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$138,721 $144,905
======== ========
See accompanying notes to the consolidated condensed financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(unaudited)
(in thousands)
September 30, December 31,
2003 2002
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,771 $ 3,610
Short-term borrowings 11,618 22,058
Accounts payable and accrued expenses 18,550 17,552
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,955 3,860
---------- ----------
Total current liabilities 36,894 47,080
--------- ---------
Long-term debt less current maturities 7,974 3,302
Other non-current liabilities 1,134 1,541
Stockholders' equity
Common stock 163 154
Class B capital stock 12 12
Additional paid in capital 195,143 189,988
Accumulated deficit (99,583) (93,167)
Accumulated other comprehensive income 456 460
Note receivable from stockholder (3,258) (4,095)
Treasury stock, at cost (214) (370)
------------ ------------
Total stockholders' equity 92,719 92,982
---------- ----------
$138,721 $144,905
======== ========
See accompanying notes to the consolidated condensed financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months Three months
ended September 30, ended September 30,
------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Sales $34,227 $36,616 $106,352 $116,084
Cost of sales 29,614 33,190 93,598 102,305
------ ------ ------ -------
Gross profit 4,613 3,426 12,754 13,779
------- ------- ------ --------
Executive incentive compensation bonus (1,000) (2,000)
Non-cash debt conversion expense, net (622)
Other selling, general & administrative expenses (5,562) (6,918) (14,944) (15,841)
------- ----- ------ ------
Total selling, general & administrative expenses (6,562) (6,918) (17,566) (15,841)
------- ----- ------ ------
Operating loss (1,949) (3,492) (4,812) (2,062)
Write-off of deferred financing costs (860) (860)
Interest expense (611) (654) (1,799) (2,083)
--------- -------- ----- -----
Total interest expense (1,471) (654) (2,659) (2,083)
------- ------- ----- -----
Investment and other income (loss), net (562) 16 100 (722)
Valuation adjustment of liability for warrants 1,162 1,162
Gain on sales of marketable securities 186 391 398 1,677
-------- ------- ------- --------
Loss before income taxes (2,634) (3,739) (5,811) (3,190)
Income tax expense (213) (148) (605) (429)
-------- -------- -------- --------
Net loss $(2,847) $(3,887) $(6,416) $(3,619)
======= ======= ======= =======
Net loss per share:
Basic and diluted $ (.16) $ (.25) $ (.38) $ (.24)
========= ======== ========= ========
Dividends per share $ none $ none $ none $ none
======== ======== ======== ========
See accompanying notes to the consolidated condensed financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months
ended September 30,
---------------------------------
------------ ---- ---------------
2003 2002
---- ----
Cash flows from operations:
Net loss $(6,416) $(3,619)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 2,552 2,238
Non-cash debt conversion expense, net 622
Valuation adjustment of liability for warrants (1,162)
Write-off of deferred financing costs 860
Issuance of stock for retirement savings plan 846 594
Non-cash (credit) charge to compensation and consultant fees (306) 240
Loss on equity investments, net 329 1,112
Gain on sale of marketable securities (398) (1,677)
Changes in other operating items 6,569 (709)
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Net cash provided by (used in) operating activities 3,496 (1,821)
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Cash flows from investing activities:
Repayments of note receivable 1,000
Proceeds from sale of marketable securities 1,120 2,687
Additions to property, plant and equipment (800) (1,504)
(Increases) reductions in investments and other assets, net (1,523) 188
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Net cash (used in) provided by investing activities (203) 1,371
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Cash flows from financing activities:
Net proceeds from sale of Common Stock 7,850
Net proceeds from sale of Class B Stock 1,260
Proceeds from exercise of stock options 776
Repayment of short-term borrowings (10,440) (8,713)
Proceeds from issuance of long-term debt 8,673
Repayments of long-term debt (853) 224
-------- -----
Net cash (used in) provided by financing activities (1,844) 621
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Effect of exchange rate changes on
cash and cash equivalents (102) (521)
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Nine months
ended September 30,
2003 2002
------- -------
Net (decrease) increase in cash and cash equivalents $1,347 $ (350)
Cash and cash equivalents at the beginning of the period 1,516 1,705
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Cash and cash equivalents at the end of the period $2,863 $ 1,355
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Cash paid during the periods for:
Interest $ 958 $ 1,563
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Income taxes $ 372 $ 431
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See accompanying notes to the consolidated condensed financial statements.
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GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
GP Strategies Corporation (the "Company") currently has three operating business segments. Two of these segments, the Manufacturing & Process Segment and the IT Segment, are managed through the Company's principal operating subsidiary General Physics Corporation ("GP") and the third segment through its operating subsidiary MXL Industries ("MXL"). GP is a global workforce development company that improves the effectiveness of organizations by providing training, management consulting, e-Learning solutions and engineering services that are customized to meet the needs of specific clients. Clients include Fortune 500 companies, manufacturing, process and energy companies, and other commercial and governmental customers. MXL is a specialist in the manufacture of polycarbonate parts requiring adherence to strict optical quality specifications and in the applications of abrasion and fog resistant coatings to those parts.
The accompanying Consolidated Condensed Balance Sheet at September 30, 2003 and the Consolidated Condensed Statements of Operations and Cash Flows for the periods ended September 30, 2003 and 2002 have not been audited, but have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These Consolidated Condensed Financial Statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002 as presented in our Annual Report on Form 10-K. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the 2003 interim periods are not necessarily indicative of results to be expected for the entire year.
In July 2002, the Company's Board of Directors approved a spin-off of certain of its non-core assets into a separate corporation, National Patent Development Corporation ("NPDC"). The Company would own and operate its manufacturing and process business and information technology business through its subsidiary, GP, and NPDC would own and operate the Company's optical plastics business through its subsidiary, MXL and would own certain of the Company's non-core assets. The separation of these businesses will be accomplished through a pro-rata distribution (the "Distribution") of 100% of the outstanding Class A common stock of NPDC to the Company's stockholders on the record date of the Distribution.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
1. Basis of Presentation (Continued)
On March 21, 2003, the Internal Revenue Service issued a favorable tax ruling which would enable the Distribution to be tax-free. As a result, each stockholder of the Company would receive a tax-free stock dividend of one share of NPDC Class A common stock for every share of the Company's common stock or Class B capital stock owned on the record date of the Distribution.
The spin-off is still subject to certain conditions, including certain SEC filings.
2. Earnings per share
Earnings (loss) per share (EPS) for the three and nine month periods ended September 30, 2003 and 2002 are as follows (in thousands, except per share amounts):
Three months Nine months
ended September 30, ended September 30,
------------------- --------------------------
2003 2002 2003 2002
---- ---- ---- ----
Basic and Diluted EPS
Net loss $(2,847) $(3,887) $(6,416) $(3,619)
-------- -------- -------- --------
Weighted average shares
outstanding basic 17,404 15,618 17,028 15,030
Weighted average shares
outstanding diluted 17,404 15,618 17,028 15,030
------ ------ ------ ------
Basic and diluted net loss
per share (a) $ (.16) $ (.25) $ (.38) $ (.24)
--------- --------- --------- ---------
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Basic earnings (loss) 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. Diluted earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period, assuming the issuance of common shares for all dilutive potential common shares outstanding.
(a) For the three and nine months ended September 30, 2003 and 2002 presentation of the dilutive effect of stock options, warrants and convertible notes are not included since they are anti-dilutive.
3. Long-term debt
Long-term debt consists of the following (in thousands):
September 30, December 31,
2003 2002
---- ----
6% conditional subordinated notes due 2008 (a) $7,500 -
Mortgage on MXL Pennsylvania facility 1,330 $1,505
Mortgage on MXL Illinois facility 1,162 1,212
Senior subordinated debentures 427 558
6% convertible exchangeable notes (b) - 2,640
AOtec equipment facility (c) 1,000 -
Other 673 997
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12,092 6,912
Less warrant related discount, net of accretion (2,347) -
------- -------
9,745 6,912
Less current maturities (1,771) (3,610)
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$7,974 $3,302
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(a) Pursuant to a Note and Warrant Purchase Agreement dated August 8, 2003, the Company issued and sold to four Gabelli funds $7,500,000 aggregate principal amount of 6% Conditional Subordinated Notes due 2008 (the "Notes") and 937,500 warrants ("GP Warrants"), each entitling the holder thereof to purchase (subject to adjustment) one share of the Company's common stock. The aggregate purchase price for the Notes and GP Warrants was $7,500,000.
The Notes bear interest at 6% per annum payable semi-annually commencing on December 31, 2003, and mature in August 2008. The Notes are secured by a mortgage on the Company's property located in Pawling, New York. At any time that less than $1,875,000 principal amount of Notes are outstanding, the Company may defease the obligations secured by the mortgage and obtain a release of the mortgage by depositing with an agent for the Noteholders, bonds or government securities with an investment grade rating by a nationally recognized rating agency which, without reinvestment, will provide cash on the maturity date of the Notes in an amount not less than the outstanding principal amount of the Notes.
3. Long term debt (Continued)
The GP Warrants have an exercise price of $8.00 per share and are exercisable at any time until August 2008. The exercise price may be paid in cash, by delivery
of Notes, or a combination of the two. The GP Warrants contain anti-dilution provisions for stock splits, reorganizations, mergers, and similar transactions.
The fair value of the GP Warrants at the date of issuance was $2,389,000, which reduced long-term debt in the accompanying consolidated balance sheet. This amount is being accreted as additional interest expense using the effective interest rate over the term of the Notes. The Notes have a yield to maturity of 15.436% based on the discounted value. Accretion charged as non-cash interest was approximately $42,000 as of September 30, 2003.
The GP Warrants are accounted for as a liability of the Company since the shares of the Company's common stock issuable on exercise of the GP Warrants were not registered as of September 30, 2003. Changes in the fair market value of the GP Warrants are marked to market with the adjustment shown as other income in the consolidated statement of operations. The Company recognized a gain of $1,162,000 in its September 30, 2003 valuation adjustment of the GP Warrants under the Black-Scholes model. The value of the GP Warrants of $1,227,000 at September 30, 2003 is included in accounts payable and accrued expenses. The Note and Warrant Purchase Agreement provides that, on completion of the Distribution described in Note 1 above, NPDC will issue warrants ("NPDC Warrants") to the holders of the GP Warrants. The NPDC Warrants will entitle the holders to purchase, in the aggregate, a number of shares of NPDC common stock equal to 8% of the number of shares outstanding at completion of the spin-off, subject to reduction for any GP Warrants exercised prior to the spin-off. The NPDC Warrants will be allocated to the holders of the GP Warrants on a pro-rata basis, on the respective number of GP Warrants held by them on such date.
In connection with the Distribution, the Company intends to contribute the Pawling property, subject to the mortgage, to MXL. MXL will assume the mortgage, but without liability for repayment of the Notes or any other obligations of the Company under the Note and Warrant Purchase Agreement (other than foreclosure on such property). If there is a foreclosure on the mortgage for payment of the Notes, the Company has agreed to indemnify MXL for loss of the value of the property.
If the Distribution does not occur by January 2005, the Noteholders will have the right to require the Company to redeem the Notes. There can be no assurance that the spin-off will be consummated.
3. Long term debt (Continued)
(b) On April 23, 2003, the Company entered into an agreement (the "Exchange Agreement") with the Holders of the 6% Convertible Exchangeable Notes due June 30, 2003 (the "HMS Notes") to exchange the HMS Notes plus related accrued interest to date for 554,000 shares of the Company's Common Stock with a fair value of $2,770,000. The original agreement provided that the HMS Notes, at the option of the Holders, could be exchanged for 19.9% of the outstanding capital stock of Valera Pharmaceuticals (formerly Hydro Med Sciences), or into shares of the Company's Common Stock at a conversion rate of $7.50 per share. As a result, in accordance with the provisions of SFAS Statement No. 84, Induced Conversions of Convertible Debt, the Company recorded debt conversion expense, net of approximately $622,000, which is included in selling, general and administrative expenses.
(c) On September 15, 2003, MXL purchased machinery, equipment and inventory from AOtec LLC ("AOtec"), located in the Massachusetts area, for $1,100,000, subject to adjustment. In connection with this purchase, the Company valued the machinery and equipment at approximately $900,000, the inventory at approximately $300,000 and recorded an accrued expense of $100,000. MXL paid $100,000 of the purchase price in cash and issued three notes, in the amount of $450,000, $275,000 and $275,000 each, due October 1, 2003, August 5, 2004 and August 5, 2005, respectively (collectively, the "AOtec Notes"). The AOtec Notes bear interest on the unpaid principal amount at the rate of 4% per annum. On October 1, 2003, MXL borrowed $700,000 from a bank under a lease agreement to finance the purchase price (the "AOtec Debt") and used the proceeds to pay the $450,000 note. The AOtec Debt is payable monthly for three years and is secured by the machinery and equipment purchased from AOtec. The Company guaranteed the AOtec Debt.
4. Comprehensive (loss) income
The following are the components of comprehensive (loss) income (in thousands):
Three months ended Nine months ended
September 30, September 30,
--------------------------------- -------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net loss $(2,847) $(3,887) $(6,416) $(3,619)
-------- -------- -------- --------
Other comprehensive income (loss) before tax:
Net unrealized income (loss)
available-for-sale-securities 1,757 (2,955) 158 (11,859)
Foreign currency translation adjustment 4 (253) (102) (521)
---------- ------- -------- --------
Other comprehensive income (loss) before tax 1,761 (3,208) 56 (12,380)
Income tax (expense) benefit relating to
items of other comprehensive income (loss) (686) 1,142 (60) 4,601
---------- -------- ----------- ----------
Comprehensive loss, net of tax $(1,772) $(5,953) $(6,420) $(11,398)
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The components of accumulated other comprehensive income (loss) are as follows:
September 30, December 31,
2003 2002
---- ----
Net unrealized gain on
available-for-sale-securities $2,838 $2,680
Foreign currency translation adjustment (1,251) (1,149)
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Accumulated other comprehensive
income before tax 1,587 1,531
Accumulated income tax expense
related to items of other comprehensive income (1,131) (1,071)
------- ------
Accumulated other comprehensive income,
net of tax $ 456 $ 460
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5. Short-term borrowings
On August 14, 2003, GP, GP's subsidiary, Skillright, Inc., and MXL, entered into a two-year $25 million Revolving Credit Facility (the "Credit Agreement") with a new bank, the proceeds of which were used to repay the Company's existing credit facility. The Credit Agreement is secured by certain assets of GP and certain of the accounts receivable of MXL. The Credit Agreement also provides for an unsecured guaranty from the Company. MXL provided a limited guaranty of the Credit Agreement up to the value of its accounts receivable collateral securing the Credit Agreement. For the continuation of the lender's security interest in
5. Short-term borrowings (Continued)
MXL's accounts receivables and the continuation of its limited guarantee after the potential spin-off, GP will pay MXL a guarantee fee. At GP's option, upon prior written notice to the lender under the Credit Agreement, MXL's accounts receivables can be eliminated from the borrowing base under the Credit Agreement, provided that GP makes a prepayment under the Credit Agreement, if necessary, to eliminate a borrowing base deficiency, if any. At such point, all obligations of MXL relating to the Credit Agreement shall terminate and MXL's limited guaranty of the Credit Agreement shall be void.
The interest rate on the Credit Agreement is at Eurodollar plus 3.00%, (which as of September 30, 2003 is approximately 4.1%). Based upon the financial performance of GP, the interest rate can be reduced. The Credit Agreement contains covenants with respect to GP's minimum tangible net worth, leverage ratio, interest coverage ratio and its ability to make capital expenditures. The Credit Agreement also contains certain restrictive covenants including a prohibition on future acquisitions, incurrence of debt and the payment of dividends. GP is currently restricted from paying dividends or management fees to the Company in excess of $1,000,000 in any fiscal year. GP is also subject to certain restrictive covenants including limitations on future acquisitions. GP was in compliance with all loan covenants under the Credit Agreement as of September 30, 2003.
The Company wrote off $860,000 of deferred financing costs due to the early termination of its previous credit agreement. This expense is included in interest expense for the three month and nine months ended September 30, 2003.
As of September 30, 2003, the current amount outstanding under the Credit Agreement is approximately $11,618,000, and approximately $4,700,000 was available to be borrowed under the Credit Agreement.
6. Business segments
The operations of the Company currently consist of three business segments, by which the Company is managed. The Company's principal operating subsidiary is GP. GP operates in two business segments.
The Manufacturing & Process Segment provides technology-based training, engineering, consulting and technical services to leading companies in the automotive, steel, power, oil and gas, chemical, energy, pharmaceutical and food and beverage industries, as well as to the government sector. The Information Technology Segment provides IT training programs and solutions, including Enterprise Solutions and comprehensive career training and transition programs.
6. Business segments (Continued)
The Optical Plastics Segment, which consists of MXL, manufactures and distributes coated and molded plastic products.
The management of the Company does not allocate the following items by segment:
Investment and other income, net, 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 profit to net (loss) income is consistent with the presentation on the Consolidated Condensed Statements of Operations. The following tables set forth the sales and gross profit of each of the Company's operating segments (in thousands):
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Sales
Manufacturing and Process $30,843 $32,543 $95,430 $102,109
Information Technology 1,470 1,852 4,740 6,284
Optical Plastics 1,914 2,221 6,182 7,691
--------- --------- ---------- -----------
$34,227 $36,616 $106,352 $116,084
======= ======= ======== ========
Gross profit
Manufacturing and Process $3,810 $3,024 $10,506 $11,873
Information Technology 318 (43) 993 215
Optical Plastics 485 445 1,255 1,691
-------- -------- --------- ---------
$4,613 $3,426 $12,754 $13,779
====== ====== ======= =======
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Information about the Company's sales in different geographic regions, which are attributed to countries based on location of customers, is as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
------------------- --------------------
2003 2002 2003 2002
-------- ------- ------- -------
United States $31,244 $34,037 $97,319 $107,983
Canada 262 265 880 996
United Kingdom 1,803 1,787 5,218 5,405
Latin America and other 918 527 2,935 1,700
-------- --------- ----------- ---------
$34,227 $36,616 $106,352 $116,084
======= ------- ======== --------
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6. Business segments (Continued)
Information about the Company's identifiable assets in different geographic regions, is as follows (in thousands):
September 30, December 31,
2003 2002
---- ----
United States $133,362 $137,303
Canada 483 3,076
United Kingdom 3,239 3,301
Latin America and other 1,637 1,225
----------- ----------
$138,721 $144,905
-------- --------
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7. Restructuring reserves
During 1999 and 2000, the Company adopted restructuring plans, primarily related to its IT business segment. During the nine month period ended September 30, 2003 the Company utilized $547,000 of the restructuring reserve and recorded $365,000 of other adjustments to the reserve. Of the remaining restructuring reserve balance of $959,000 and $1,141,000 at September 30, 2003 and December 31, 2002, respectively, $79,000 and $221,000, respectively, were included in accounts payable and accrued expenses and $880,000 and $920,000, respectively, were included in other non-current liabilities in the Consolidated Condensed Balance Sheet.
The remaining components of the restructuring reserve at September 30, 2003 and December 31, 2002 consist solely of lease and related obligations. Lease obligations are presented at their present value, net of assumed sublets.
8. Goodwill and intangible assets
The components of goodwill and intangible assets as of September 30, 2003 and December 31, 2002 are as follows (in thousands):
September 30, December 31,
2003 2002
----------- ---------------
Goodwill:
Manufacturing Process $51,073 $51,020
Information Technology 6,269 6,269
Optical Plastics 202 202
--------- --------
Total Goodwill $57,544 $57,491
======= =======
Amortized intangible assets:
Patents and licenses $ 1,348 $ 1,348
Less: accumulated depreciation 660 593
--------- --------
Patents and licenses, net $ 688 $ 755
======== =========
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Amortization expense for patents and licenses was $67,000 and $80,000 for the nine months ended September 30, 2003 and 2002. The weighted average amortization period as of September 30, 2003 is approximately six years. Amortization expense for the next six years is estimated to be approximately $100,000 a year.
Goodwill increased as of September 30, 2003 due to additional contingent payments made for previous acquisitions as well as the impact of foreign currency fluctuations.
9. Investments, marketable securities and note receivable
In March 2003, the Company and Interferon Sciences, Inc. ("ISI") entered into an agreement whereby the Company agreed to receive shares of common stock of Hemispherx Biopharma Inc. ("HEB") with a market value of $425,000 (the "Guaranteed Shares") in full settlement of all of ISI's debt obligations (the "ISI Debt"). The agreement obligates HEB to register the Guaranteed Shares, sets limits on the amount of shares the Company may sell and requires HEB to pay the Company an amount equal to the number of Guaranteed Shares remaining unsold on September 11, 2005 multiplied by $1.59. The Guaranteed Shares were registered by HEB in the fourth quarter of 2003.
The Company currently has an 8% senior unsecured note receivable from Five Star Products, Inc. ("FSP") in the outstanding principal amount of $3,000,000 (the "FSP Note"). On June 20, 2003, the Company entered into an Agreement of
9. Investments, marketable securities and note receivable (Continued)
Subordination and Assignments (the "Subordination Agreement") with FSP that amended the amount of annual repayment of principal on the FSP Note. Future repayments of the FSP Note are contingent on the operating results of FSP, subject to certain limitations as defined in the Subordination Agreement. Pursuant to the provisions of the Subordination Agreement, on June 27, 2003, the Company received a partial repayment from FSP in the amount of $500,000, reducing the outstanding principal amount of the FSP Note from $4,500,000 to $4,000,000. In July 2003, the Company received an additional repayment of $500,000, further reducing the outstanding principal from $4,000,000 to $3,500,000. Under the Subordination Agreement, FSP is permitted to make an additional repayment of up to $200,000 during the remainder of 2003.
On October 8, 2003, the Company exchanged $500,000 of the then outstanding amount of the FSP Note of $3,500,000 for 2,000,000 shares of FSP common stock, reducing the outstanding principal balance of the FSP Note from $3,500,000 to $3,000,000 and increasing the Company's ownership of FSP common stock to 9,133,417 shares, representing approximately 54% of FSP's outstanding shares. In consideration for the Company agreeing to the exchange at a price of $0.25 per share, FSP agreed to terminate the voting agreement between the Company and FSP. The voting agreement, which by its terms would in any event have terminated on June 30, 2004, provided that the Company (i) would vote its FSP common stock so that not more than 50% of the members of the FSP Board of Directors would be officers or directors of the Company, and (ii) would vote on matters other than the election of directors in the same proportion as the other FSP stockholders. As a result, commencing in the fourth quarter of 2003 the financial statements of FSP will be consolidated in the Company's consolidated financial statements.
In the second quarter of 2003, Valera Pharmaceuticals, Inc. (formerly Hydro Med Sciences) ("Valera") completed a private placement offering pursuant to which Valera raised approximately $12 million in gross proceeds from the sale of Series B preferred stock. As part of such transaction, the Company was granted an option (the "Valera Option") until March 31, 2004 (with a closing by June 30, 2004) to purchase up to $5 million of Series B preferred stock at the offering price of $.72 per share. The Company valued the Valera Option using the Black-Scholes model and recorded approximately $500,000 of income, which is included in Investments and other income (loss) net. The Valera Option was written down to zero in the quarter ended September 30, 2003 due to the recognition of the Company's share of Valera's equity loss.
10. Litigation
On January 3, 2001, the Company commenced an action alleging that MCI Communications Corporation ("MCI"), MCI's Systemhouse subsidiaries ("Systemhouse") , and Electronic Data
10. Litigation (continued)
Systems Corporation, as successor to Systemhouse, committed fraud in connection with the Company's 1998 acquisition of Learning Technologies from the defendants for $24.3 million. The Company seeks actual damages in the amount of $117.9 million plus interest, punitive damages in an amount to be determined at trial, and costs.
The complaint, which is pending in the New York State Supreme Court (the "State Court"), alleges that the defendants created a doctored budget to conceal the poor performance of the United Kingdom operation of Learning Technologies. The complaint also alleges that the defendants represented that Learning Technologies would continue to receive new business from Systemhouse even though the defendants knew that the sale of Systemhouse to EDS was imminent and that such new business would cease after such sale. In February 2001, the defendants filed answers denying liability. No counterclaims against the plaintiffs have been asserted. Although discovery had not yet been completed, defendants made a motion for summary judgment, which was submitted in April 2002. The motion was denied by the State Court due to the MCI bankruptcy (described below), but with leave granted to the other defendants to renew.
One of the defendants, MCI, filed for bankruptcy protection in July 2002. As a result, the action is stayed as to MCI. The Company and GP both filed timely Proofs of Claim in the United States Bankruptcy Court against MCI and WorldCom, Inc., et al. On or around April 22, 2003, MCI served objections to the Proofs of Claim filed by the Company and GP.
On May 15, 2003 the Company and GP submitted their opposition to the objections. The Company and GP subsequently made a motion in Bankruptcy Court to lift the automatic stay to permit the litigation to proceed against MCI in State Court. MCI opposed the motion, which is now subjudice.
The defendants other than MCI made an application to the State Court to stay the fraud action until a later-commenced arbitration, alleging breach of the acquisition agreement and related agreements, is concluded.
In a decision dated May 9, 2003, the State Court granted the motion and stayed the fraud action pending the outcome of the arbitration of the claim based on breach of the acquisition agreement and of a separate agreement to refer business to GP on a preferred provider basis. Discovery is now being conducted in connection with the arbitration.
The Company is not a party to any legal proceeding, the outcome of which is believed by management to have a reasonable likelihood of having a material adverse effect upon the financial condition of the Company.
11. Financial guarantees
On March 23, 2003, the Company extended its guarantee of up to $1,800,000 of GSE Systems, Inc. ("GSE") debt pursuant to GSE's credit facility. GSE's credit facility was scheduled to expire on March 23, 2003, however, it was extended until March 31, 2004. In consideration for the extension of the guarantee, the Company received 150,000 shares of GSE common stock with a value of $180,000. A deferred credit of $180,000 has been recorded for the receipt of these shares which will be amortized to income over the term of the guarantee. During the quarter and nine months ended September 30, 2003, the Company recorded $45,000 and $90,000, respectively, to other income in the Statement of Operations.
12. Stock based compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No. 123" ("SFAS No. 148"), and the transition guidance and annual disclosure provisions are effective for the Company for the quarterly interim periods beginning in 2003. SFAS No. 148 amends SFAS Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation" and provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used. The Company continues to account for stock-based compensation using APB Opinion No. 25 and has not adopted the recognition provisions of SFAS No. 123, as amended by SFAS No. 148. The Company has adopted the disclosure provisions of SFAS No. 148 for the 2003 fiscal year.
Proforma net income and earnings (loss) per share as if the Company recorded compensation expense based upon the fair value of stock-based awards have been presented in accordance with the provisions of SFAS No 123, for the three months and nine months ended September 30, 2003 and 2002 are as follows (in thousands, except per share amounts):
12. Stock based compensation (Continued)
Three months Nine Months
ended September 30, ended September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net loss As reported $(2,847) $(3,887) $(6,416) $(3,619)
Proforma compensation expense (542) (435) (938) (1,190)
---------- --------- ---------- ---------
Proforma $(3,389) $(4,322) $(7,354) $(4,809)
======== ======== ======== ========
Basic and Diluted
loss per share
As reported $(.16) $(.25) $(.38) $(.24)
Proforma $(.19) $(.28) $(.42) $(.32)
|
At September 30, 2003 and 2002, the per share weighted-average fair value of stock options granted was $2.74 and $2.69, respectively, on the date of grant using the modified Black-Scholes option-pricing model with the following weighted-average assumptions: 2003 expected dividend yield 0%, risk-free interest rate of 2.00%, expected volatility of 67.61% and an expected life of 2.46 years; 2002 expected dividend yield 0%, risk-free interest rate of 4.33%, expected volatility of 73.28% and an expected life of 5.70 years.
13. Related party transactions
Pursuant to the incentive compensation agreement (the "Incentive Agreement") entered into in 2002, Jerome I. Feldman, the Company's Chief Executive Officer, is eligible to receive from the Company up to five payments in an amount of $1 million each, based on the closing price of the Company's common stock sustaining or averaging increasing specified levels over periods of at least 10 consecutive trading days. On each of June 11, 2003 and July 23, 2003, Mr. Feldman earned an incentive payment of $1 million each, which payments are to be made in December 2003 unless deferred as set forth below. To the extent there are any outstanding loans from the Company to Mr. Feldman at the time an incentive payment is payable, the Company has the right to set-off the payment of such incentive payment first against the outstanding accrued interest under such loans and next against any outstanding principal. The Company recorded compensation expense of $1 million in the third quarter ended September 30, 2003 and $2,000,000 for the nine months ended September 30, 2003, which is included in selling, general and administrative expense. Although the set-off of the payments earned on June 11, 2003 and July 23, 2003 will take place in future periods, for accounting purposes, the set-offs will be deemed to have occurred on the dates earned since the Company possesses the right of set-off under the Incentive Agreement. As a result, the Company applied the first $1 million
13. Related party transactions (Continued)
earned by Mr. Feldman against $1 million of accrued interest receivable and the second $1million against the remaining $163,000 of accrued interest receivable and $837,000 of principal, which resulted in the outstanding balance of the note receivable being reduced from $4,095,000 at June 30, 2003 to $3,258,000 as of September 30, 2003.
On October 1, 2003, the incentive agreement was amended to allow Mr. Feldman to defer receipt of any incentive payment for a period of at least six months. The deferral period will automatically renew unless Mr. Feldman gives a termination notice at least 30 days prior to the expiration of the deferral period. However, no deferral period may end later than May 31, 2007. A deferral notice with respect to any incentive payment earned prior to December 31, 2003 must be given prior to December 1, 2003, and a deferral notice with respect to any incentive payment earned on or after December 31, 2003 must be given at least five business days prior to the date that such incentive payment is earned. A deferral notice cannot be given, and any deferral period will end, if any outstanding loan from the Company to Mr. Feldman is due and payable and is not otherwise paid. Interest accrues on each deferred amount at the prime rate minus 1%, which is 1% less than the interest rate accrued on the Company's outstanding loans to Mr. Feldman.
14. Subsequent events
On October 23, 2003, the Company purchased from ManTech International ("ManTech") 3,426,699 shares of common stock of GSE and a GSE Subordinated Convertible Note of $650,000, which the Company immediately converted into 418,653 shares of common stock of GSE.
This transaction increased the Company's ownership of the common stock of GSE
from approximately 22% to approximately 58%, assuming conversion of the GSE
Subordinated Note. As a result, commencing in the fourth quarter of 2003, the
financial statements of GSE will be consolidated in the Company's consolidated
financial statements. Simultaneously with the closing of this transaction, three
directors nominated by the Company were added to the GSE board of directors.
GSE, which is headquartered in Columbia, Maryland, is a provider of real-time
simulation, security and engineering services for the energy, process and
military industries.
The consideration paid to ManTech by the Company consisted of a 5% note for
$5,250,955 due in full in October 2008. Interest is payable quarterly. Each year
during the term of the note, ManTech will have the option to convert up to 20%
of the original principal amount of the note into common stock of the Company at
the then market price of the Company's common stock, but only in the event that
the Company's common stock is trading at $10 per share or more. In the event
that less than 20% of the principal amount of the note is not converted in any
Subsequent events (Continued)
year, such amount not converted will be eligible for conversion in each subsequent year until converted or until the note is repaid in cash.
The Company and ManTech entered into a five-year Teaming Agreement pursuant to which ManTech and the Company will work together to pursue training opportunities that will utilize the skills of the Company, GSE and ManTech.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company has three operating business segments. Two of these segments, the Manufacturing & Process Segment and the IT Segment, are managed through the Company's principal operating subsidiary General Physics ("GP") and the third segment through its operating subsidiary MXL. In addition, the Company holds a number of investments in publicly held companies, including Millennium Cell Inc., GSE and FSP, an investment in a private company Valera Pharmaceuticals (formerly Hydro Med) and also owns certain real estate.
GP is a global workforce development company that improves the effectiveness of organizations by providing training, management consulting, e-Learning solutions and engineering services that are customized to meet the specific needs of clients. Clients include Fortune 500 companies, manufacturing, process and energy companies, and other commercial and governmental customers. MXL is a specialist in the manufacture of polycarbonate parts requiring adherence to strict optical quality specifications and in the application of abrasion and fog resistant coatings to those parts.
For the quarter ended September 30, 2003, the Company had a net loss before income taxes of $2,634,000 compared to a net loss before income taxes of $3,739,000 for the quarter ended September 30, 2002. The loss in the third quarter of 2003 was primarily a result of the following: (i) an expense for an executive incentive compensation bonus of $1,000,000, (ii) a write-off of $860,000 of deferred finance costs due to the early termination of the Company's prior credit agreement, (iii)an equity loss on the Company's investment in Valera Pharmaceuticals, (formerly Hydro Med Sciences) of $500,000, and (iv) a non-cash charge of $339,000 relating to the Company's Millennium Cell Deferred Compensation Plan. These losses were offset by a non-cash gain of $1,162,000 from the September 30, 2003 valuation adjustment under the Black-Scholes method to the liability for the warrant to purchase Company Common Stock issued in connection with the Gabelli transaction. The loss before income taxes of $3,739,000 in the third quarter of 2002 included severance and related expenses of $1,944,000, offset by a $391,000 gain from the sale of shares of Millennium Cell Inc. and a non-cash credit of $348,000 relating to the Company's Millennium Cell Deferred Compensation Plan.
Each of the Company's three operating business segments had increased gross profit for the quarter ended September 30, 2003 as compared to 2002.
For the nine months ended September 30, 2003, the Company had a loss before income taxes of $5,811,000 compared to a net loss before income taxes of $3,190,000 for the nine months ended September 30, 2002. The nine months ended September 30, 2003 included the following: (i) an expense for an executive
incentive compensation bonus of $2,000,000, (ii) a debt conversion expense, net of approximately $622,000 related to the conversion of the Convertible Exchangeable Notes, (iii) the write-off of deferred financing costs of $860,000 and (iv) a non-cash equity loss on the Company's investment in Valera of $500,000, offset by a $398,000 gain from the sale of shares of Millennium Cell, a non-cash gain of $1,162,000 from the September 30, 2003 valuation adjustment to the liability for the warrant to purchase Company common stock issued in connection with the Gabelli transaction, and income of approximately $500,000 from a warrant received by the Company in connection with a Valera private placement transaction.
For the nine months ended September 30, 2002, the Company had a loss before income taxes of $3,190,000. The loss for the nine months ended September 30, 2002 included severance and related expenses of $1,944,000 and a non-cash equity loss of $1,401,000 on HMS, offset by a $1,677,000 gain from the sale of shares of Millennium Cell Inc., and a non-cash credit of $1,216,000 relating to the Company's Millennium Cell Deferred Compensation Plan.
Three months ended Nine months ended
September 30, September 30,
----------------------------- ----------------------------
-------------- -------------- ------------- --------------
2003 2002 2003 2002
---- ---- ---- ----
Sales
Manufacturing and Process $30,843 $32,543 $95,430 $102,109
Information Technology 1,470 1,852 4,740 6,284
Optical Plastics 1,914 2,221 6,182 7,691
--------- --------- ----------- -----------
$34,227 $36,616 $106,352 $116,084
======= ======= ======== ========
|
For the quarter and nine months ended September 30, 2003, sales decreased by $2,389,000 and $9,731,000 respectively, from the corresponding periods in 2002. The decrease in sales was primarily attributable to a continued reduction in sales from the automotive division of the Manufacturing and Process Segment, as well as decreased sales from clients in the utility industry and the Department of Energy. The Information Technology and the Optical Plastic segments sales continued to decline primarily due to the overall downturn in the economy.
Three months ended Nine months ended
September 30, September 30,
---------------------------------------- ------------------------------------------
2003 % 2002 % 2003 % 2002 %
---- - ---- - ---- - ---- -
Gross profit
Manufacturing and Process $3,810 12.4$3,024 9.3 $10,506 11.0 $11,873 11.6
Information Technology 318 21.5 (43) 993 20.9 215 3.4
Optical Plastics 485 25.3 445 20.0 1,255 20.3 1,691 22.0
------- ---------- ---- ----- ---- --------- ----
$4,613 13.5$3,426 9.4 $12,754 12.0 $13,779 11.9
====== ========== ===== ======= ==== ======= ====
|
Consolidated gross profit of $4,613,000 or 13.5% of sales for the quarter ended September 30, 2003, increased by $1,187,000, compared to consolidated gross profit of $3,426,000, or 9.4% of sales for the quarter ended September 30, 2002. For the nine months ended September 30, 2003, gross profit decreased by $1,025,000 from $13,779,000 to $12,754,000. The increase in gross profit and gross profit percentage in the third quarter was the result of the Company's continued effort to control costs on existing contracts. The decreased gross profit in the nine months ended September 30, 2003 occurred within the Manufacturing and Process and Optical Plastics Segments, as a result of a reduction in sales for the periods despite a consistent consolidated gross profit percentage.
The increased gross profit in both the quarter and nine months ended September 30, 2003 for the Information Technology Segment was a direct result of cost reduction initiatives within the segment and the Company's continued efforts to control costs on existing contracts. The overall gross margin percentage increased dramatically in this segment due to cost reductions.
Selling, general and administrative expenses
For the quarter ended September 30, 2003, selling, general and administrative (SG&A) expenses were $6,562,000 compared to $6,918,000 in the third quarter of 2002, resulting in a decrease in SG&A of $356,000. Selling general and administrative expenses for the quarter ended September 30, 2003, included an executive incentive compensation bonus of $1,000,000, and a $339,000 non-cash charge relating to the Company's Millennium Cell Deferred Compensation Plan. The selling, general and administrative expense in the third quarter of 2002 included severance and related expenses of $1,944,000, and a non-cash credit of $348,000 relating to the Company's Millennium Cell Deferred Compensation Plan.
For the nine months ended September 30, 2003, SG&A expenses increased by $1,725,000 from $15,841,000 to $17,566,000. The selling, general and administrative expense for nine months ended September 30, 2003 included an executive incentive compensation bonus of $2,000,000, a debt conversion expense, net of approximately $622,000 related to the conversion of the Convertible Exchangeable Notes, and a restructuring charge of $365,000. The selling general and administrative expenses for the nine months ended September 30, 2002 included severance and related expenses of $1,944,000. Without such items, selling general and administrative expenses in 2002 would have been consistent with the nine months ended September 30, 2003.
Interest expense
For the quarter ended September 30, 2003, interest expense increased by $817,000 to $1,471,000 compared to $654,000 the quarter ended September 30, 2002. For the nine months ended September 30, 2003, there was also an increase in interest expense of $576,000 from $2,083,000 to $2,659,000. The increase for both three months and nine months ended September 30, 2003 was primarily attributable to the Company's write-off of deferred financing costs on its prior credit agreement of $860,000 offset by a decrease in interest expense during 2003 as a
result of both a decrease in the Company's outstanding indebtedness and a reduction in interest rates offset by increased fees.
Investment and other income (loss), net
For the quarter and nine months ended September 30, 2003, investment and other income (loss), net was $(562,000) and $100,000 as compared to $16,000 and $(722,000) for the quarter and nine months ended September 30, 2002. The loss for the third quarter in 2003 was primarily attributable to the equity loss on the Company's investment in Valera of approximately $500,000 which offset the income of $500,000 recorded by the Company in the second quarter of 2003 in connection with the Company's receipt of the Valera Option. The increase of $822,000 for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 was attributable to an increase in net income recorded on the Company's equity investments of approximately $874,000 (primarily due to an equity loss on Valera of $1,401,000 in 2002 as compared to $500,000 in 2003) and a reduction of interest income on loans receivable of approximately $47,000.
Valuation adjustment of liability for warrants
The Company recognized a gain of $1,162,000 in its September 30, 2003 valuation adjustment of the liability relating to the GP Warrants which was valued using the Black-Scholes model for the quarter and nine months ended September 30, 2003. This liability will continue to be marked to market until the underlining shares are registered with the SEC. The Company intends to file a registration statement with the SEC to register the underlying shares on November 20, 2003.
Gain on sale of marketable securities
The gains on sale of marketable securities of $186,000 and $398,000 for the quarter and nine months of 2003 and $391,000 and $1,677,000 for the corresponding periods in 2002 related to the Company's continued sale of Millennium Cell stock.
Income taxes
For the quarter and nine months ended September 30, 2003, the Company recorded an income tax expense of $213,000 and $605,000, which represents the Company's applicable federal, state and local, and foreign tax expense for these periods. In the quarter and nine months ended September 30, 2002, the Company recorded an income tax expense of $148,000 and $429,000, which represents the applicable federal, state, and local, and foreign tax expense for these periods.
Liquidity and capital resources
At September 30, 2003, the Company had cash and cash equivalents totaling $2,863,000. The Company believes that cash generated from operations, borrowing
availability under the new credit agreement, cash generated from sales of marketable securities and potential equity financings will be sufficient to fund the working capital and other requirements of the Company for the foreseeable future.
For the nine months ended September 30, 2003, the Company's working capital increased by $6,590,000 to $7,370,000. The Company has increased working capital substantially during the nine months ended September 30, 2003 by paying certain of its short-term indebtedness with the proceeds of long-term debt.
The increase in cash and cash equivalents of $1,347,000 for the nine months ended September 30, 2003 resulted primarily from cash provided by operating activities of $3,496,000 offset by cash used in investing activities of $203,000 and financing activities of $1,844,000.
On August 14, 2003, GP, GP's subsidiary Skillright, Inc. and MXL entered into a two-year $25 million Credit Agreement with a new bank, the proceeds of which were used to repay the Company's existing credit facility. The Credit Agreement is secured by certain assets of GP and up to $1.5 million of the accounts receivable of MXL. The Credit Agreement also provides for an unsecured guaranty from the Company. MXL provided a limited guaranty up to the value of its account receivable collateral securing the Credit Agreement and will receive a guarantee fee from GP for the continuation of its limited guarantee after the NPDC distribution. At GP's option, upon prior written notice to the lender under the credit facility, MXL's account receivables can be eliminated from the borrowing base under the Credit Agreement, provided that GP makes a mandatory prepayment under the Credit Agreement to eliminate any borrowing base deficiency. At such point, all obligations of MXL relating to the Credit Agreement shall terminate and MXL's limited guaranty of the Credit Agreement shall be void. The Credit Agreement contains certain restrictive covenants, including a prohibition on future acquisitions, incurrence of debt and the payment of dividends. GP is currently restricted from paying dividends or management fees to the Company in excess of $1,000,000 in any fiscal year.
On October 23, 2003, the Company purchased from ManTech 3,426,699 shares of common stock of GSE and a GSE Subordinated Convertible Note of $650,000, which the Company immediately converted into 418,653 shares of common stock of GSE. This transaction increased the Company's ownership of the common stock of GSE from approximately 22% to approximately 58%, assuming conversion of the GSE Subordinated Note. The consideration paid to ManTech by the Company consisted of a 5% note for $5,250,955 due in full in October 2008. Interest is payable quarterly. Each year during the term of the note, ManTech will have the option to convert up to 20% of the original principal amount of the note into common
stock of the Company at the then market price of the Company's common stock, but only in the event that the Company's common stock is trading at $10 per share or more. In the event that less than 20% of the principal amount of the note is not converted in any year, such amount not converted will be eligible for conversion in each subsequent year until converted or until the note is repaid in cash.
Pursuant to a Note and Warrant Purchase Agreement dated August 8, 2003, the Company issued and sold to four Gabelli funds $7,500,000 aggregate principal amount of 6% Conditional Subordinated Notes due 2008 and 937,500 warrants, each entitling the holder thereof to purchase (subject to adjustment) one share of the Company's common stock. The aggregate purchase price for the Notes and GP Warrants was $7,500,000.
The Company currently has an 8% senior unsecured note receivable from FSP due September 30, 2004 in the outstanding principal amount of $3,500,000 (the "FSP Note"). On June 20, 2003, the Company entered into an Agreement of Subordination and Assignments (the "Subordination Agreement") with FSP that amended the amount of annual repayment of principal on the FSP Note. Future repayments of the FSP Note are contingent on the operating results of FSP, subject to certain limitations as defined in the Subordination Agreement. Pursuant to the provisions of the Subordination Agreement, on June 27, 2003, the Company received a partial repayment from FSP in the amount of $500,000, reducing the outstanding principal amount of the FSP Note from $4,500,000 to $4,000,000. In July 2003, the Company received an additional repayment of $500,000, further reducing the outstanding principal from $4,000,000 to $3,500,000. Under the Subordination Agreement, FSP is permitted to make an additional repayment of up to $200,000 during the remainder of 2003.
On October 8, 2003, the Company exchanged $500,000 principal amount of the $3,500,000 FSP Note for 2,000,000 shares of FSP common stock, reducing the outstanding principal balance of the FSP note from $3,500,000 to $3,000,000 and increasing the Company's ownership of the FSP common stock to 9,133,417 shares, or approximately 54% of the then FSP outstanding shares. As a result, commencing in the fourth quarter of 2003 the financial statements of FSP will now be consolidated in the Company's consolidated financial statements.
On March 23, 2000, the Company agreed to guarantee up to $1,800,000 of GSE's debt pursuant to GSE's credit facility. GSE's credit facility would have expired on March 23, 2003, however the facility was extended until March 31, 2004. In consideration for the extension of the guarantee, the Company received 150,000 shares of GSES common stock, with a value of $180,000. A deferred credit of $180,000 has been recorded for the receipt of these shares which will amortize to income over the term of the guarantee. During the third quarter and nine months ended September 30, 2003, the Company recorded $45,000 and $90,000, respectively, to other income in the Statement of Operations.
Recent accounting pronouncements
In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. This statement is effective for the Company
in fiscal 2003. The application of SFAS No. 143 did not have and is not expected to have a material impact on the Company's Consolidated Financial Statements.
During April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS No. 145"). Among other items, SFAS No. 145 updates and clarifies existing accounting pronouncements related to reporting gains and losses from the extinguishment of debt and certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of SFAS No. 145 are generally effective for fiscal years beginning after May 15, 2002, with earlier adoption of certain provisions encouraged. The application of SFAS No. 145 did not have and is not expected to have a material impact on the Company's Consolidated Financial Statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS No. 146"). This Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Company is required to adopt the provisions of SFAS No. 146 for exit or disposal activities, if any, initiated after December 31, 2002. The adoption of SFAS No. 146 did not impact the consolidated financial position or results of operations, although it can be expected to impact the timing of liability recognition associated with future exit activities, if any.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No. 123" ("SFAS No. 148"), and the transition guidance and annual disclosure provisions are effective for the Company for the quarterly interim periods beginning in 2003. SFAS No. 148 amends SFAS Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation" and provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used. The Company continues to account for stock-based compensation using APB Opinion No. 25 and has not adopted the recognition provisions of SFAS No. 123, as amended by SFAS No. 148. The Company has adopted the disclosure provisions of SFAS No. 148 for the 2003 fiscal year.
In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative. It also clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is
generally effective for contracts entered into or modified after June 30, 2003 and did not have an impact on the Company's Consolidated Financial Statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify certain financial instruments as a liability (or as an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.The adoption of SFAS No. 150 did not have an impact on the Company's Consolidated Financial Statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45"). FIN No. 45 elaborates on the disclosures for interim and annual reports regarding obligations under certain guarantees issued by a guarantor. Under FIN No. 45, the guarantor is required to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee at the inception of a guarantee. The recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company applied the provisions of FIN No. 45 for its financial guarantee entered into in the first quarter of 2003.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. FIN No. 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. The provisions of FIN No. 46 are effective immediately for all entities with variable interests in variable interest entities created after December 31, 2002. The provisions of FIN No. 46 are effective for public entities with a variable interest in a variable interest entity created prior to January 1, 2003 no later than the end of the first annual reporting period beginning after December 15, 2003. The Company has evaluated its interests in certain entities to determine if any such entities will require consolidation under FIN No. 46, and has determined that, at this time, it is not necessary to consolidate any such entities.
In November 2002, the EITF reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." This Issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The transition provision allows either prospective application or a cumulative effect adjustment upon adoption. The adoption of Issue No. 00-21 did not have an impact on the Company's Consolidated Financial Statements.
Forward-looking statements
The forward-looking statements contained herein reflect managements' current expectations regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as "anticipate," "believe," "plan," "expect" and similar expressions have been used to identify these forward- looking statements. These statements reflect the Company's current beliefs and are based on information currently available to the Company. Except as otherwise required by federal securities law, the company is not obligated to update or revise these forward-looking statements to reflect new events or circumstances. Accordingly, these statements are subject to certain risks and uncertainties which could cause the Company's actual growth, results, performance and business prospects and opportunities to differ from those expressed in, or implied by these statements, including, but not limited to, those risks and uncertainties detailed in the Company's periodic reports and registration statements filed with the Securities and Exchange Commission.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Except for the valuation adjustment of liability relating to the GP Warrants, we have no material changes to the disclosure on this matter made in our report on Form 10-K for the fiscal year ended December 31, 2002.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective, providing them with material timely information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act.
b. Changes in internal controls. There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses and therefore no corrective actions were taken.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4. 2003 Incentive Stock Plan.*
10. Amended and Restated Incentive Compensation Agreement
dated June 11, 2003 between GP Strategies Corporation
and Jerome I.Feldman. *
10.1 Amendment dated as of October 1, 2003 to the Amended
and Restated Incentive Compensation Agreement dated
June 11, 2003 between GP Strategies Corporation and
Jerome I. Feldman.*
10.2 Amended and Restated Incentive Compensation Agreement
dated November 17, 2003 between GP Strategies
Corporation and Jerome I. Feldman. *
10.3 Purchase and Sale Agreement dated October 21, 2003 by
and between GP Strategies Corporation and ManTech
International. Incorporated herein by reference to
Exhibit 10.1 of GP Strategies Form 8-K dated October
23, 2003.
10.4 Teaming Agreement dated October 21, 2003 by and
between GP Strategies Corporation and ManTech
International. Incorporated herein by reference to
Exhibit 10-2 of GP Strategies Form 8-K dated October
23, 2003.
10.5 $5,250,955 Promissory Note dated October 21, 2003 of
GP Strategies Corporation. Incorporated herein by
reference to Exhibit 10.3 of GP Strategies Form 8-K
dated October 23, 2003.
31.1 Certification of Chief Executive Officer pursuant to
Rule 13a-14 of the Securities Act of 1934.
31.2 Certification of Chief Financial Officer pursuant to
Rule 13a-14 of the Securities Act of 1934.
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32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports
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1. Form 8-K filed on August 14, 2003 reporting an event under Item 12.
2. Form 8-K filed on October 13, 2003 reporting an event under Item 5 with respect to Five Star Products, Inc.
3. Form 8-K filed on October 27, 2003 reporting an event under Item 5 with respect to GSE Systems, Inc.
4. Form 8-K filed on November 17, 2003 reported an event under Item 12.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
September 30, 2003
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 18, 2003 BY: Scott N. Greenberg
President &
Chief Financial Officer
DATE: November 18, 2003 BY: Jerome I. Feldman
Chief Executive Officer
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Exhibit 4
GP STRATEGIES CORPORATION
2003 INCENTIVE STOCK PLAN
Section 1. Purpose of the Plan
The purpose of this 2003 Incentive Stock Plan (the "Plan") is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of GP Strategies Corporation (the "Company") by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company's stockholders.
Section 2. Definitions
As used in the Plan,
"Award" means any Option, Stock Appreciation Right, Restricted Stock, Stock Unit, Performance Share, Performance Unit, dividend equivalent, cash-based award or other incentive payable in cash or in shares of Company Stock as may be designated by the Committee from time to time.
"Board" means the Board of Directors of the Company.
"Class B Stock shall mean the Class B Capital Stock, par value $.01 per share of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" shall mean the Compensation Committee of the Board, which Committee shall consist solely of two or more outside directors within the meaning of Treas. Reg. ss. 1.163-27(e)(3).
"Common Stock" means the Common Stock, par value $.01 per share, of the Company.
"Company" means GP Strategies Corporation, a Delaware corporation.
"Company Stock" shall mean the Common Stock or the Class B Stock.
"Covered Employee" means a "covered employee" as that term is defined in Section 162(m)(3) of the Code or any successor provision.
"Effective Date" has the meaning set forth in Section 18.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.
"Fair Market Value" of Company Stock of either class, as of a date of determination, shall mean the following:
(a) Class Listed and Shares Traded On Date Of Determination. If such class of Company Stock is listed and traded on a national securities exchange (as such term is defined by the Exchange Act) or on the Nasdaq Stock Market on the date of determination, the Fair Market Value per share shall be the last sale price of a share of such class of Company Stock on the applicable national securities exchange or Nasdaq Stock Market on the date of determination at the close of trading on such date. If such class of Company Stock is traded in the over-the-counter market, the Fair Market Value per share shall be the average of the closing bid and asked prices on the date of determination.
(b) Class Listed But No Shares Traded On Date Of Determination. If such class of Company Stock is listed on a national securities exchange or on the Nasdaq Stock Market but no shares of such class of Company Stock are traded on the date of determination but there were shares traded on dates within a reasonable period before the date of determination, the Fair Market Value shall be the last sale price of such class of Company Stock on the most recent trade date before the date of determination at the close of trading on such date. If such class of Company Stock is regularly traded in the over-the-counter market but no shares of such class of Company Stock are traded on the date of determination (or if records of such trades are unavailable or burdensome to obtain) but there were shares traded on dates within a reasonable period before the date of determination, the Fair Market Value shall be the average of the closing bid and asked prices of such class of Company Stock on the most recent date before the date of determination. If such class of Company Stock is listed on a national securities exchange or on the Nasdaq Stock Market or are traded in the over-the-counter market but no shares of such class of Company Stock are traded on the date of determination or within a reasonable period before the date of determination, then the Committee shall determine the Fair Market Value of such class of Company Stock from all relevant available facts, which may include opinions of independent experts as to value and may take into account any recent sales and purchases of such class of Company Stock to the extent they are representative.
(c) Class Not Listed. If such class of Company Stock is not listed on a national securities exchange or on the Nasdaq Stock Market and is not regularly traded in the over-the-counter market, then the Committee shall determine the Fair Market Value of such class of Company Stock from all relevant available facts, which may include the average of the closing bid and ask prices reflected in the over-the-counter market on a date within a reasonable period either before or after the date of determination or opinions of independent experts as to value and may take into account any recent sales and purchases of such class of Company Stock to the extent they are representative.
"Grant Date" means the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the Committee, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date.
"Incentive Stock Option" means an Option granted with the intention
that it qualify as an "incentive stock option" as that term is defined in
Section 422 of the Code or any successor provision.
"Nonqualified Stock Option" means an Option other than an Incentive Stock Option.
"Nonrecurring Items" means nonrecurring items deemed not reflective of the Company's core operating performance, including, but not limited to, exogenous events, acquisitions, divestitures, changes in accounting principles or "extraordinary items" determined under generally accepted accounting principles.
"Option" means a right to purchase Company Stock granted under Section 7.
"Participant" means any eligible person as set forth in Section 5 to whom an Award is granted.
"Performance Criteria" has the meaning set forth in Section 11.1.
"Performance Share" has the meaning set forth in Section 10.1.
"Performance Unit" has the meaning set forth in Section 10.2.
"Plan" means this GP Strategies Corporation 2003 Incentive Stock Plan.
"Related Company" means any entity that is directly or indirectly controlled by the Company, as determined under section 424 of the Code.
"Reload Option" means an Option granted to a Participant who exercises a previously held Option by surrendering Company Stock for all or part of the exercise price, pursuant to the provisions of Section 7.8.
"Restricted Stock" means an Award of shares of Company Stock granted under Section 9, the rights of ownership of which may be subject to restrictions prescribed by the Committee.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Stock Appreciation Right" has the meaning set forth in Section 8.1.
"Stock Unit" means an Award granted under Section 9 denominated in units of Common Stock and/or Class B Stock.
"Substitute Awards" means Awards granted or shares of Common Stock and/or Class B Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted by a company acquired by the Company or with which the Company combines in accordance with the rules of section 424 of the Code.
"Termination of Service," unless otherwise defined by the Committee or in the instrument evidencing the Award or in a written employment or services
agreement, means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary. Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by the Committee, and such determination shall be final. Transfer of a Participant's employment or service relationship between wholly owned subsidiaries of the Company, or between the Company and any wholly owned subsidiary of the Company, shall not be considered a Termination of Service for purposes of an Award. Unless the Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant's employment or service relationship is with an entity that has ceased to be a Related Company.
Section 3. Administration
3.1 Administration of the Plan
The Plan shall be administered by the Committee.
3.2 Administration and Interpretation by Committee
Except for the terms and conditions explicitly set forth in the Plan,
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the Committee shall have full power and exclusive authority, subject to such
orders or resolutions not inconsistent with the provisions of the Plan and the
Code as may from time to time be adopted by the Board, to (a) select the
eligible persons as set forth in Section 5 to whom Awards may from time to time
be granted under the Plan; (b) determine the type or types of Award to be
granted to each Participant under the Plan; (c) determine the number of shares
of Company Stock to be covered by each Award granted under the Plan; (d)
determine whether shares of Company Stock to be covered by each Award granted
under the Plan shall be shares of Common Stock or shares of the Class B Stock;
(e) determine the terms and conditions of any Award granted under the Plan; (f)
approve the forms of agreements for use under the Plan; (g) determine whether,
to what extent and under what circumstances Awards may be settled in cash,
shares of Company Stock or other property or canceled or suspended; (h)
determine whether, to what extent and under what circumstances cash, shares of
Company Stock, other property and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the Participant;
(i) interpret and administer the Plan and any instrument or agreement entered
into under the Plan; (j) establish such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
(k) delegate ministerial duties to such of the Company's officers as it so
determines; and (l) make any other determination and take any other action that
the Committee deems necessary or desirable for administration of the Plan.
Decisions of the Committee shall be final, conclusive and binding on all
persons, including the Company, any Participant, any stockholder and any
eligible person.
Section 4. Shares Subject to the Plan
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 15, the maximum number of shares of Company Stock available for issuance under the Plan shall be 2,000,000, of which no more than 500,000 may be shares of Class B Stock.
4.2 Share Usage
(a) Shares of Common Stock and/or Class B Stock covered by an Award
shall not be counted as used unless and until they are actually issued and
delivered to a Participant. If any Award lapses, expires, terminates or is
canceled prior to the issuance of shares thereunder or if shares of Common Stock
and/or Class B Stock are issued under the Plan to a Participant and thereafter
are reacquired by the Company, the shares subject to such Awards and the
reacquired shares shall again be available for issuance under the Plan. Any
shares of Common Stock and/or Class B Stock (i) tendered by a Participant or
retained by the Company as full or partial payment to the Company for the
purchase price of an Award or to satisfy tax withholding obligations in
connection with an Award, (ii) covered by an Award that is settled in cash, or
(iii) reacquired by the Company on the open market using cash proceeds received
by the Company from the exercise of Options shall be available for Awards under
the Plan. The number of shares available for issuance under the Plan shall not
be reduced to reflect any dividends or dividend equivalents that are reinvested
into additional shares or credited as additional Restricted Stock, Stock Units,
Performance Shares or Performance Units. All shares issued under the Plan may be
either authorized and unissued shares or issued shares reacquired by the
Company.
(b) Notwithstanding the foregoing, the maximum number of shares that
may be issued upon the exercise of Options shall equal the aggregate share
number stated in Section 4.1, subject to adjustment as provided in Section 15;
and provided, further, that for purposes of Section 4.3, any such shares shall
be counted in accordance with the requirements of Section 162(m) of the Code.
4.3 Limitation
Subject to adjustment as provided in Section 15, no Participant shall be eligible to receive in any one calendar year Awards relating to more than 150,000 shares of Company Stock.
Section 5. Eligibility
An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the Company's securities in a capital-raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company's securities. The above are "eligible persons."
Section 6. Awards
6.1 Form and Grant of Awards
The Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan. Such Awards may be granted either alone or in addition to or in tandem with any other type of Award.
6.2 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written instrument that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan.
Section 7. Options
7.1 Grant of Options
The Committee may grant Options designated as Incentive Stock Options or Nonqualified Stock Options.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Common Stock and/or Class B Stock issuable pursuant to the Option on the Grant Date, except in the case of Substitute Awards. In no event shall the Committee, without the prior approval of the Company's stockholders, cancel any outstanding Option for the purpose of reissuing the Option to the Participant at a lower exercise price or reduce the exercise price of an outstanding Option.
7.3 Term of Options
Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option shall be as established for that Option by the Committee and set forth in the instrument that evidences that Option or, if not so established, shall be ten years from the Grant Date.
7.4 Exercise of Options
The Committee shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, any of which provisions may be waived or modified by the Committee at any time.
To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery as directed by the Company to the Company or a brokerage firm designated or approved by the Company of a written stock option exercise agreement or notice, in a form and in accordance with procedures established by the Committee, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement, if any, and such representations and agreements as may be required by the Committee, accompanied by payment in full as described in Section 7.5. An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in full as directed by the Company to the Company or a brokerage firm designated or approved by the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid before the Company will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Committee as indicated in the instrument evidencing the Option for that purchase, which forms may include: (a) check; (b) wire transfer; (c) tendering by attestation shares of Company Stock already owned by the Participant that on the day prior to the exercise date have a Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; or (d) to the extent permitted by applicable law, delivery of a properly executed exercise notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of sale or loan proceeds to pay the Option exercise price and any tax withholding obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board.
7.6 Post-Termination Exercise
The Committee shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time.
7.7 Incentive Stock Options
The terms of any Incentive Stock Options shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder. Any such Incentive Stock Option by its terms must not be exercisable after the expiration of ten years from the Grant Date for the Incentive Stock Option, must not be exercisable by anyone other than the grantee otherwise than by will or the laws of descent and distribution, must be exercisable, during the grantee's lifetime, only by the grantee, and must state that it is an Incentive Stock Option. Individuals who are not employees of the Company or one of its parent or subsidiary corporations (as such terms are defined for purposes of Section 422 of the Code) may not be granted Incentive Stock Options. To the extent that the aggregate Fair Market Value of Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year exceeds $100,000 or, if different, the maximum limitation in effect at the time of grant under the Code (the Fair Market Value being determined as of the Grant Date for the Option), such portion in excess of $100,000 shall be treated as Nonqualified Stock Options.
7.8 Reload Options.
When the Committee grants an Option, it may designate in the instrument that evidences such Option whether a Reload Option accompanies the Option and any limitations that will apply to such Reload Option. Unless otherwise designated by the Committee in the instrument that evidences an Option, such Option shall not be subject to any Reload Options. If it so desires, the
Committee may permit multiple, successive Reload Options for an Option, and may designate such in the instrument that evidences an Option; but if no number of Reload Options is specified in the instrument that provides for such Reload Option, then the Option shall be subject to only one Reload Option. If the Committee has designated an Option as having an accompanying Reload Option, the Reload Option shall be for the same number of shares as is surrendered by the Participant in payment of the exercise price of the Option (but not for shares surrendered for tax or other withholding obligations) upon its exercise. The Reload Option shall have the same terms and conditions as the related original Option, including the expiration date of the original Option, except that (i) the exercise price for a Reload Option shall be the Fair Market Value of the Company Stock as of the date of grant of such Reload Option, and (ii) the Reload Option shall become fully exercisable no earlier than six months after its date of grant.
Section 8. Stock Appreciation Rights
8.1 Grant of Stock Appreciation Rights
The Committee may grant stock appreciation rights ("Stock Appreciation
Rights" or "SARs") to Participants at any time on such terms and conditions as
shall be set forth in the instrument evidencing the Award. An SAR may be granted
in tandem with an Option or alone ("freestanding"). The grant price of a tandem
SAR shall be equal to the exercise price of the related Option, and the grant
price of a freestanding SAR shall be equal to the Fair Market Value of the
Common Stock and/or Class B Stock, as applicable, on the Grant Date. An SAR may
be exercised upon such terms and conditions and for the term as the Committee
determines in its sole discretion; provided, however, that, subject to earlier
termination in accordance with the terms of the Plan and the instrument
evidencing the SAR, (a) the term of a freestanding SAR shall be as established
for that SAR by the Committee or, if not so established, shall be ten years, and
(b) in the case of a tandem SAR, (i) the term shall not exceed the term of the
related Option and (ii) the tandem SAR may be exercised for all or part of the
shares subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option, except that the tandem SAR may be
exercised only with respect to the shares for which its related Option is then
exercisable.
8.2 Payment of SAR Amount
Upon the exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) the excess of the Fair Market Value of the Common Stock and/or Class B Stock, as applicable, on the date of exercise over the grant price by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment upon exercise of an SAR may be in cash, in shares of equivalent value, in some combination thereof or in any other manner approved by the Committee in its sole discretion.
Section 9. Restricted Stock and Stock Units
9.1 Grant of Restricted Stock and Stock Units
The Committee may grant Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any (which may be based on continuous service with the Company or a Related Company or the achievement of any of the Performance Criteria set forth in Section 11.1), as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.
9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant's release from any terms, conditions and restrictions of Restricted Stock or Stock Units, as determined by the Committee, and subject to the provisions of Section 13, (a) the shares of Restricted Stock covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in cash, shares of Company Stock or a combination of cash and shares of Company Stock as the Committee shall determine in its sole discretion. Any fractional shares subject to such Awards shall be paid to the Participant in cash.
9.3 Dividends and Distributions
Participants holding shares of Restricted Stock or Stock Units may, if the Committee so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents while they are so held in a manner determined by the Committee in its sole discretion. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Company Stock, Restricted Stock or Stock Units.
9.4 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate; provided, however, that the Committee may not adjust performance goals for any Restricted Stock or Stock Unit intended to be exempt under Section 162(m) of the Code for the year in which the Restricted Stock or Stock Unit is settled in such a manner as would increase the amount of compensation otherwise payable to a Participant.
Section 10. Performance Shares and Performance Units
10.1 Grant of Performance Shares
The Committee may grant Awards of performance shares ("Performance Shares") and designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares, the length of the performance period and the other terms and conditions of each such Award. Each Award of Performance Shares shall entitle the Participant to a payment in the form of shares of Company Stock upon the attainment of performance goals and other terms and conditions specified by the Committee. Notwithstanding satisfaction of any performance goals, the number of shares issued under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. However, the Committee may not, in any event, increase the number of shares earned upon satisfaction of any performance goal by any Covered Employee.
10.2 Grant of Performance Units
The Committee may grant Awards of performance units ("Performance Units") and designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall entitle the Participant to a payment in cash upon the attainment of performance goals and other terms and conditions specified by the Committee. Notwithstanding the satisfaction of any performance goals, the amount to be paid under an Award of Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. However, the Committee may not, in any event, increase the amount earned under Awards of Performance Units upon satisfaction of any performance goal by any Covered Employee, and the maximum amount earned by such Covered Employee in any calendar year may not exceed $500,000. The Committee, in its discretion, may substitute actual shares of Company Stock for the cash payment otherwise required to be made to a Participant pursuant to a Performance Unit.
Section 11. Performance Criteria
11.1 Awards Subject to Performance Goals
Awards of Restricted Stock, Stock Units, Performance Shares, Performance Units and other Awards made pursuant to the Plan may be made subject to the attainment of performance goals relating to one or more of the following business criteria within the meaning of Section 162(m) of the Code: profits (including, but not limited to, profit growth, net operating profit or economic profit); profit-related return ratios; return measures (including, but not limited to, return on assets, capital, equity or sales); cash flow (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); earnings (including, but not limited to, net earnings, earnings per share, or earnings before or after taxes); net sales growth; net income (before or after taxes, interest, depreciation and/or amortization); gross or operating margins; productivity ratios; share price (including, but not limited to, growth measures and total stockholder return); expense targets; margins; operating efficiency; customer satisfaction; and working capital targets ("Performance
Criteria"). Performance Criteria may be stated in absolute terms or relative to comparison companies or indices to be achieved during a period of time.
11.2 Use and Calculation of Performance Criteria
Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company. Any Performance Criteria may include or exclude Nonrecurring Items. Performance Criteria shall be calculated in accordance with the Company's financial statements or generally accepted accounting principles, or under a methodology established by the Committee prior to the issuance of an Award that is consistently applied and identified in the audited financial statements, including footnotes, or the Management's Discussion and Analysis section of the Company's annual report. The Committee may not in any event increase the amount of compensation payable to a Covered Employee upon the satisfaction of any Performance Criteria.
Section 12. Other Stock or Cash-Based Awards
In addition to the Awards described in Sections 7 through 10, and subject to the terms of the Plan, the Committee may grant other incentives payable in cash or in shares of Company Stock under the Plan as it determines to be in the best interests of the Company and subject to such other terms and conditions as it deems appropriate.
Section 13. Withholding
The Company may require the Participant to pay to the Company the amount of (a) any taxes that the Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award ("tax withholding obligations") and (b) any amounts due from the Participant to the Company or to any Related Company ("other obligations"). The Company shall not be required to issue any shares of Company Stock or other consideration under the Plan until such tax withholding obligations and other obligations are satisfied.
The Committee may permit or require a Participant to satisfy all or
part of his or her tax withholding obligations and other obligations by (a)
paying cash to the Company, (b) having the Company withhold an amount from any
cash amounts otherwise due or to become due from the Company to the Participant,
(c) having the Company withhold a number of shares of Company Stock that would
otherwise be issued to the Participant (or become vested in the case of
Restricted Stock) having a Fair Market Value equal to the tax withholding
obligations and other obligations, or (d) surrendering a number of shares of
Company Stock the Participant already owns having a Fair Market Value equal to
the tax withholding obligations and other obligations.
Section 14. Assignability
No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by the Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, except that to the extent permitted by the Committee, in its sole discretion, a Participant may designate one or more beneficiaries on a Company-approved form who may receive payment under an Award after the Participant's death. During a Participant's lifetime, an Award may be exercised only by the Participant. Notwithstanding the foregoing, with the approval of the Committee and in its sole discretion, an Award may be amended to permit the Participant to transfer Awards under this Plan to such persons as the Committee deems appropriate.
Section 15. Adjustments
In the event, at any time or from time to time, a stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend or other change in the Company's corporate or capital structure results in (a) the outstanding shares of Company Stock, or any securities exchanged therefore or received in their place, being exchanged for a different number or kind of securities of the Company or of any other company or (b) new, different or additional securities of the Company or of any other company being received by the holders of shares of Company Stock, then the Committee shall make proportional adjustments in (i) the maximum number and kind of securities available for issuance under the Plan; (ii) the maximum number and kind of securities issuable as Incentive Stock Options as set forth in Section 4.2 all in accordance with section 424 of the Code and the Treasury regulations issued thereunder; (iii) the maximum number and kind of securities that may be issued to an individual in any one calendar year as set forth in Section 4.3; (iv) the maximum number and kind of securities that may be made subject to the different types of Awards available under the Plan; and (v) the number and kind of securities that are subject to any outstanding Award and the per share price of such securities, without any change in the aggregate price to be paid therefor.
The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefore, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding Awards.
Section 16. Amendment and Termination
16.1 Amendment, Suspension or Termination of the Plan
The Board or the Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the Plan.
16.2 Term of the Plan
Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan's terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the earlier of (a) the adoption of the Plan by the Board and (b) the Effective Date.
16.3 Consent of Participant
The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant's consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a "modification" within the meaning of section 424 of the Code and the Treasury regulations thereunder that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. Specifically, the Committee may, with the consent of the person entitled to exercise any outstanding Option, amend an Option in any manner consistent with the provisions of this Plan that it may deem advisable. Notwithstanding the foregoing, any adjustments made pursuant to Section 15 shall not be subject to these restrictions.
Section 17. General
17.1 No Individual Rights
No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.
Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant's employment or other relationship at any time, with or without cause.
17.2 Issuance of Shares
Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Company Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company's counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Company Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal, state and foreign securities laws. The Company may also require such other action or agreement by the Participants as may from time to time be necessary to comply with applicable securities laws.
To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Company Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.
17.3 No Rights as a Stockholder
Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment or services agreement, no Option or Award denominated in units shall entitle the Participant to any cash dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.
17.4 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Committee, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Participants who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants. Additionally, in interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code.
17.5 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Company Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
17.6 Successors
All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a merger, consolidation, direct or indirect purchase of all or substantially all the business and/or assets of the Company, or otherwise.
17.7 Severability
If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee's determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
17.8 Choice of Law
The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law.
Section 18. Effective Date
The Plan shall become effective (the "Effective Date") immediately following stockholder approval of the Plan.
Exhibit 10
AMENDED AND RESTATED INCENTIVE COMPENSATION AGREEMENT
Amended and Restated Agreement, dated June 11, 2003, between GP Strategies Corporation, a Delaware corporation with principal executive offices at 777 Westchester Avenue, White Plains, NY 10604 (the "Company"), and Jerome I. Feldman, residing at 145 West Patent Road, Bedford Hills, New York 10507 ("Employee").
WHEREAS, Employee is a founder of the Company and has for many years been Chairman of the Board and Chief Executive Officer of the Company;
WHEREAS, Section 5(b) of the Employment Agreement, dated as of June 1, 1999, as amended (the "Employment Agreement"), between the Company and Employee provides that the Company and Employee will negotiate in good faith to formulate an annual incentive based compensation arrangement based on the Company achieving certain financial milestones which will be fair and equitable to Employee and the Company and its stockholders; and
WHEREAS, the Company and Employee have entered into an Agreement, dated as of May 3, 2002 (the "2002 Agreement"), to provide incentive compensation to Employee in a manner that closely aligns the amount of such compensation to the interests of the Company's stockholders and the enhancement of stockholder value; and
WHEREAS, as of the time of the execution of this Agreement, no incentive compensation has been earned by Employee under the 2002 Agreement; and
WHEREAS, the Company and Employee wish to amend and restate the 2002 Agreement to modify the timing of certain payments under the 2002 Agreement.
NOW, THEREFORE, intending to be legally bound, and for and in consideration of the mutual covenants set forth herein, the parties hereto agree as follows:
1. Incentive Compensation. Employee shall be eligible to receive
from the Company up to five payments (each, an "Incentive
Payment"). The Employee will earn an Incentive Payment in an
amount equal to $1 million on the first date that each of the
following events occurs:
(a) the closing price of the common stock, par value $0.01 per
share, of the Company on the New York Stock Exchange (the
"Closing Price") equals or exceeds, for at least 10
consecutive trading days, $5.40 (the "First Incentive
Payment"); provided that if the First Incentive Payment is not
earned prior to May 3, 2004, the First Incentive Payment shall
be earned on the date, if any, that the Second Incentive
Payment (as defined below) is earned;
(b) the Closing Price exceeds, for at least 10 consecutive trading
days, $6.30 (the "Second Incentive Payment"); provided that if
the Second Incentive Payment is not earned prior to the May 3,
|
2006, the Second Incentive Payment shall be earned on the
date, if any, that the Third Incentive Payment (as defined
below) is earned;
(c) the Closing Price exceeds, for at least 10 consecutive trading
days, $7.20 (the "Third Incentive Payment");
(d) the Closing Price exceeds, for at least 10 consecutive trading
days, $8.10; and
(e) the Closing Price exceeds, for at least 10 consecutive trading
days, $9.00.
|
Each Incentive Payment shall be paid on the date it is earned, except that any Incentive Payment earned prior to December 31, 2003 shall be paid on the last payroll payment date in 2003.
2. Set-off Against Loans. To the extent there are any outstanding loans from the Company to Employee at the time an Incentive Payment is payable, the Company will set off the payment of such Incentive Payment against the outstanding principal and interest under such loans.
3. Termination. This Agreement will terminate on the earlier to occur of (a) May 3, 2007 and (b) the date of termination of Employee's employment with the Company (other than termination by (i) the Company in breach of the Employment Agreement or (ii) Employee for Good Reason (as defined in the Employment Agreement)). Notwithstanding anything set forth in this Agreement to contrary, (A) no Incentive Payment shall be earned after the termination of this Agreement and (B) termination of this Agreement shall not affect the obligation of the Company to pay any Incentive Payment earned prior to such termination.
4. Employment. Notwithstanding anything set forth in this Agreement to contrary, nothing in this Agreement shall be construed as an agreement by the Company to employ the Employee for any period of time and, except as provided in the Employment Agreement, the Company shall have the right at any time to terminate the Employee with or without cause.
5. Miscellaneous.
(a) The dollar amounts in Section 1 shall be equitably adjusted for stock splits, stock dividends, and similar transactions.
(b) This Agreement shall not be assignable, in whole or in part, by either party without the prior written consent of the other party, and any attempted assignment without such prior written consent shall be void.
(c) This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof, and supersedes all prior and contemporaneous agreements, representations and understandings, written or oral, of the parties.
(d) This Agreement may not be modified, amended, or supplemented except by a writing signed by each of the parties hereto.
(e) This Agreement may be executed in counterparts each of which shall be deemed an original but both of which together shall constitute one and the same instrument.
(f) This Agreement shall be governed by and interpreted under the internal laws of the State of New York, without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date first set forth above.
GP STRATEGIES CORPORATION
Title:
Jerome I. Feldman
Exhibit 10.1
Amendment
to the
Amended and Restated Incentive Compensation Agreement
This Amendment to the Amended and Restated Agreement, dated June 11, 2003, between GP Strategies Corporation, a Delaware corporation with principal executive offices at 777 Westchester Avenue, White Plains, NY 10604 (the "Company"), and Jerome I. Feldman, residing at 145 West Patent Road, Bedford Hills, NY 10507 ("Employee"), is effective as of October 1, 2003.
WHEREAS, the Company and Employee originally entered into an agreement, dated as of May 3, 2002, to provide incentive compensation to Employee, which agreement was subsequently amended and restated, effective as of June 11, 2003 (the "Amended and Restated Agreement");
WHEREAS, the Company and Employee wish to amend the Amended and Restated Agreement to modify the timing of certain payments under the Amended and Restated Agreement.
NOW, THEREFORE, intending to be legally bound, and for and in consideration of the mutual covenants set forth herein, the parties hereto agree to amend the Amended and Restated Agreement as follows:
1. Section 1 of the Amended and Restated Agreement is hereby amended by adding the following new paragraphs to the end thereof:
Notwithstanding the foregoing, Employee may, by written notice (a "Deferral Notice") to the Company, elect to defer receipt of all, or a portion, of any Incentive Payment (any amount so deferred being a "Deferred Amount") for a Deferral Period; provided that (x) any Deferral Notice with respect to any Incentive Payment earned prior to December 31, 2003 must be given prior to December 1, 2003, (y) any Deferral Notice with respect to any Incentive Payment earned on or after December 31, 2003 must be given at least five business days prior to the date that such Incentive Payment is earned (the date any Incentive Payment is earned is referred to as the "Earned Date" for such Incentive Payment), and (z) if, on any Earned Date, any amount of principal or interest on any outstanding loan from the Company to Employee (a "Loan Amount") is due and payable and is not otherwise paid, the Deferred Amount shall not exceed the excess, if any, of the amount of the Incentive Payment earned on such Earned Date over the Loan Amount then due.
Interest on each Deferred Amount shall accrue, from the related Earned Date to the last day of the related Deferral Period, at the prime lending rate announced by Fleet Bank, N.A. (or its successor) from time to time minus 1%. Each Deferred Amount, together with all accrued interest thereon, shall be paid on the last day of the related Deferral Period.
The "Deferral Period" with respect to any Deferred Amount shall be the period set forth in the related Deferral Notice, provided that
(i) no Deferral Period shall be less than six months (except as provided in clauses (iii) and (iv) below);
(ii) unless Employee provides written notice to the Company at least 30 days prior to the expiration of any Deferral Period that Employee elects to receive the related Deferred Amount, such Deferral Period shall be extended automatically for an additional period equal to the original related Deferral Period, subject to clauses (iii) and (iv);
(iii) no Deferral Period shall end later than December 31, 2013; and
(iv) if any Loan Amount becomes due and payable and is not otherwise paid, the Deferral Period shall terminate (or, in the case of the application of (ii), not be extended) with respect to the lesser of (x) the aggregate of the then-outstanding Deferred Amounts and interest thereon and (y) such Loan Amount.
In any case where clause (iv) of the definition of Deferral Period is applicable and the amount in clause (y) is less than the amount in clause (x), the Deferral Periods which shall terminate (in whole or in part) shall be those which would otherwise terminate latest unless otherwise specified by Employee by notice to the Company given not later than such termination date.
2. Except as otherwise amended by hereby, the Amended and Restated Agreement shall remain unamended and in full force and effect.
GP STRATEGIES CORPORATION
By:__________________________________
Its:______________________________
AMENDED AND RESTATED INCENTIVE COMPENSATION AGREEMENT
Amended and Restated Agreement, dated November 17, 2003 and effective December 1, 2003, between GP Strategies Corporation, a Delaware corporation with principal executive offices at 777 Westchester Avenue, White Plains, NY 10604 (the "Company"), and Jerome I. Feldman, residing at 145 West Patent Road, Bedford Hills, New York 10507 ("Employee").
WHEREAS, Employee is a founder of the Company and has for many years been Chairman of the Board and Chief Executive Officer of the Company;
WHEREAS, Section 5(b) of the Employment Agreement, dated as of June 1, 1999, as amended (the "Employment Agreement"), between the Company and Employee provides that the Company and Employee will negotiate in good faith to formulate an annual incentive based compensation arrangement based on the Company achieving certain financial milestones which will be fair and equitable to Employee and the Company and its stockholders; and
WHEREAS, the Company and Employee have entered into an Amended and Restated Agreement, dated as of June 11, 2003, as amended (the "Existing Agreement"), to provide incentive compensation to Employee in a manner that closely aligns the amount of such compensation to the interests of the Company's stockholders and the enhancement of stockholder value; and
WHEREAS, the Existing Agreement shall remain in effect until November 30, 2003; and
WHEREAS, the Company and Employee wish to amend and restate the Existing Agreement, effective December 1, 2003, to modify the criteria for earning certain payments under the Existing Agreement.
NOW, THEREFORE, intending to be legally bound, and for and in consideration of the mutual covenants set forth herein, the parties hereto agree as follows:
1. Incentive Compensation. Employee shall be eligible to receive from the Company up to five payments (each, an "Incentive Payment"). The Employee will earn an Incentive Payment in an amount equal to $1 million on the first date that each of the following events occurs:
(a) the closing price of the common stock, par value $0.01 per share, of the Company on the New York Stock Exchange (the "Closing Price") equals or exceeds, for at least 10 consecutive trading days, $5.40 (the "First Incentive Payment"); provided that if the First Incentive Payment is not earned prior to May 3, 2004, the First Incentive Payment shall be earned on the date, if any, that the Second Incentive Payment (as defined below) is earned;
(b) the Closing Price equals or exceeds, for at least 10 consecutive trading days, $6.30 (the "Second Incentive Payment"); provided that if the Second Incentive Payment is not earned prior to the May 3, 2006,
the Second Incentive Payment shall be earned on the date, if any, that the Third Incentive Payment (as defined below) is earned;
(c) the average Closing Price over a period of at least 10 consecutive trading days equals or exceeds $7.20 (the "Third Incentive Payment");
(d) the average Closing Price over a period of at least 10 consecutive trading days equals or exceeds $8.10; and
(e) the average Closing Price over a period of at least 10 consecutive trading days equals or exceeds $9.00.
Each Incentive Payment shall be paid on the date it is earned, except that any Incentive Payment earned prior to December 31, 2003 shall be paid on the last payroll payment date in 2003.
Notwithstanding the foregoing, Employee may, by written notice (a "Deferral Notice") to the Company, elect to defer receipt of all, or a portion, of any Incentive Payment (any amount so deferred being a "Deferred Amount") for a Deferral Period; provided that (x) any Deferral Notice with respect to any Incentive Payment earned prior to December 31, 2003 must be given prior to December 1, 2003, (y) any Deferral Notice with respect to any Incentive Payment earned on or after December 31, 2003 must be given at least five business days prior to the date that such Incentive Payment is earned (the date any Incentive Payment is earned is referred to as the "Earned Date" for such Incentive Payment), and (z) if, on any Earned Date, any amount of principal or interest on any outstanding loan from the Company to Employee (a "Loan Amount") is due and payable and is not otherwise paid, the Deferred Amount shall not exceed the excess, if any, of the amount of the Incentive Payment earned on such Earned Date over the Loan Amount then due.
Interest on each Deferred Amount shall accrue, from the related Earned Date to the last day of the related Deferral Period, at the prime lending rate announced by Fleet Bank, N.A. (or its successor) from time to time minus 1%. Each Deferred Amount, together with all accrued interest thereon, shall be paid on the last day of the related Deferral Period.
The "Deferral Period" with respect to any Deferred Amount shall be the period set forth in the related Deferral Notice, provided that
(i) no Deferral Period shall be less than six months (except as provided in clauses (iii) and (iv) below);
(ii) unless Employee provides written notice to the Company at least 30 days prior to the expiration of any Deferral Period that Employee elects to receive the related Deferred Amount, such Deferral Period shall be extended automatically for an additional period equal to the original related Deferral Period, subject to clauses (iii) and (iv);
(iii) no Deferral Period shall end later than May 31, 2007;
and
(iv) if any Loan Amount becomes due and payable and is not otherwise paid, the Deferral Period shall terminate (or, in the case of the application of (ii), not be extended) with respect to the lesser of (x) the aggregate of the then-outstanding Deferred Amounts and interest thereon and (y) such Loan Amount.
In any case where clause (iv) of the definition of Deferral Period is applicable and the amount in clause (y) is less than the amount in clause (x), the Deferral Periods which shall terminate (in whole or in part) shall be those which would otherwise terminate latest unless otherwise specified by Employee by notice to the Company given not later than such termination date.
2. Set-off Against Loans. To the extent there are any outstanding loans from the Company to Employee at the time an Incentive Payment is payable, the Company will set off the payment of such Incentive Payment against the outstanding principal and interest under such loans.
3. Termination. This Agreement will terminate on the earlier to occur of (a) May 3, 2007 and (b) the date of termination of Employee's employment with the Company (other than termination by (i) the Company in breach of the Employment Agreement or (ii) Employee for Good Reason (as defined in the Employment Agreement)). Notwithstanding anything set forth in this Agreement to contrary, (A) no Incentive Payment shall be earned after the termination of this Agreement and (B) termination of this Agreement shall not affect the obligation of the Company to pay any Incentive Payment earned prior to such termination.
4. Employment. Notwithstanding anything set forth in this Agreement to contrary, nothing in this Agreement shall be construed as an agreement by the Company to employ the Employee for any period of time and, except as provided in the Employment Agreement, the Company shall have the right at any time to terminate the Employee with or without cause.
5. Miscellaneous.
(a) The dollar amounts in Section 1 shall be equitably adjusted for stock splits, stock dividends, and similar transactions.
(b) This Agreement shall not be assignable, in whole or in part, by either party without the prior written consent of the other party, and any attempted assignment without such prior written consent shall be void.
(c) This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof, and supersedes all prior and contemporaneous agreements, representations and understandings, written or oral, of the parties.
(d) This Agreement may not be modified, amended, or supplemented except by a writing signed by each of the parties hereto.
(e) This Agreement may be executed in counterparts each of which shall be deemed an original but both of which together shall constitute one and the same instrument.
(f) This Agreement shall be governed by and interpreted under the internal laws of the State of New York, without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date first set forth above.
GP STRATEGIES CORPORATION
Title:
Jerome I. Feldman