<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-21467
FIRST PRIORITY GROUP, INC.
(Name of small business issuer in its charter)
NEW YORK 11-2750412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Duffy Avenue
Hicksville, New York 11801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (516) 938-1010
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock par value $.015 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No ___
<PAGE>
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year $14,066,248
The aggregate market value of the issuer's voting stock held by
non-affiliates of the issuer as of April 4, 1997, based upon the average bid and
asked prices was $4,923,699.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of March 31, 1997, the issuer had outstanding a total of 5,883,883
common shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Part I
Item 1. DESCRIPTION OF BUSINESS
First Priority Group, Inc. (the "Company"), a New York corporation
formed in October 1983, is engaged directly and through its wholly-owned
subsidiaries in nationwide managed auto care services for self-insured corporate
fleets, insurance companies and members of affinity groups. The services
provided by the Company include collision claims management, subrogation,
salvage, and administration of auto clubs, whose members require repair and
maintenance of vehicles. The Company has thousands of contracted repair
facilities nationwide. The Company is additionally engaged in the business of
direct mail programs providing various services and products through it's FPG
Direct division. FPG Direct was formed exclusively for the purpose of utilizing
the nations largest gasoline companies and retailers credit card data bases, as
a means of distributing the Company's products and services. The Company's
principal office is located at 270 Duffy Avenue, Hicksville, New York 11801. The
telephone number is (516) 938-1010.
Nature of Services
The services offered by the Company consist of vehicle maintenance and
repair management, including collision and general repair programs, appraisal
services subrogation services, vehicle salvage and vehicle rentals; and the
administration of automotive collision repair referral services for self insured
fleets, insurance companies and affinity group members.
The Company's wholly-owned subsidiary, National Fleet Service, Inc.,
conducts the Company's fleet management business. The Company itself provides
the various affinity programs for all types of businesses and administers the
automotive collision repair referral services for insurance companies.
Fleet Management. The Company has entered into contractual arrangements
with thousands of independently owned and operated repair shops throughout the
United States, as well as with national chains of automobile repair shops, to
provide repair services for the Company's fleet management clients' vehicles.
The automotive repair shops with which the Company has contracted can handle, on
a per incident basis, any repair which the Company's fleet management clients'
drivers may encounter. Because the Company has made arrangements with a large
number of repair shops, whenever a repair to a client's vehicle is needed, the
chances are excellent that a local repair shop will be available to perform the
required repair work. The repairs provided consist primarily of collision and
glass replacement repairs although general repairs can also be provided. In the
event that a repair is needed, the driver need only call the Company's toll free
telephone number. Through the development of a comprehensive proprietary
management system and customized computer software, upon receipt of the call,
the driver is directed to a local repair shop to which the driver may take the
vehicle for the needed repairs. All the activity surrounding the repair process
is tightly managed by the Company's staff. Upon completion of the repair, the
bill is forwarded to the Company, which in turn, bills the client. There is no
need for independent negotiations between the repair shop and the client or the
driver. As part of its fleet management services, the Company also offers its
clients computerized appraisal services, salvage and subrogation services, and
offers vehicle rentals to permit clients to avoid driver down-time while a
client's vehicle is being repaired. Additionally, the Company has created a
complete line of customized reports with features that allow risk managers to
thoroughly assess all variables concerning the collision activity expense of
their fleet. It is primarily these unique systems that won the Company it's
prestigious award in 1995 from Inc. Magazine and MCI, as one of the nations best
run service companies.
<PAGE>
Affinity Group Programs. These programs are a series of comprehensive
vehicle-related services for consumers that are provided through affinity
groups, financial institutions, corporations and organizations. These programs
may be used as re-enrollment incentives and/or membership premiums, or resold at
a profit, and may be sold individually, or a variety of services can be bundled
together as a high-value package.
Collision Damage Repair Program (CDR). - This is the corporate
collision program modified to suit consumer needs. Drivers participating in this
program may utilize the Company's proprietary network of collision body repair
shops. Additionally, the Company's customer service department will supervise
the entire process from expediting estimates and repairs, to troubleshooting any
problems or difficulties that may occur.
Driver Discount Program (DDP). This program offers drivers
discounts of up to forty percent off automotive-related services through
thousands of premium auto chain facilities throughout the nation. It applies
these discounts to virtually all routine maintenance including oil changes,
brakes, transmissions, mufflers, shocks, tires and glass. An option to this
program also provides 24 hour emergency roadside assistance for drivers anywhere
in the U.S..
Auto Service Hotline (ASH). This program provides drivers with
their own repair specialist who will help the driver determine a course of
action to repair the vehicle, and if necessary, provide a referral to one of
thousands of independently owned auto repair facilities. Drivers will receive a
ten percent discount off repairs and an enhanced nationwide warranty when
utilizing the shop to which they were referred. Additionally, drivers will be
offered rental replacement cars at preferred rates that are delivered to and
picked up from the driver's home or office.
ServiceGram. This program is a computerized tracking and
notification program that generates maintenance reminders in accordance with
manufacturer's specifications. ServiceGram archives a vehicle's history
including mileage and repairs that provides an accurate record for tax purposes,
warranty validation or to increase resale value.
Direct Appraisal and Repair Program (DARP). In 1992 the Company began
developing the business of providing automotive appraisal and collision repair
services for insurance companies. The automobile insurance industry is
experiencing massive changes as it moves in the direction of a "PPO" or "HMO"
type environment, similar to that of the health industry. The Company believes
that it's presence in this market and provision of such services to insurance
companies will be an important source of revenue for the Company because of the
high volume of collision repair referrals that insurance companies can provide.
The Company believes it is uniquely positioned to take advantage of the need for
such services by insurance companies. The Company has entered into agreements
with several insurance companies whereby such insurance companies have agreed to
utilize the Company for appraisal and repair services. The Company proposes to
try to expand its insurance company referral business, and to that end, has
hired a divisional company president to head up the marketing and administration
efforts of the Company's repair services to insurance companies. At the present
time the Company believes that it has the most proficient DARP system in the
industry.
Recent Developments.
The Company has been attempting to increase the number of insurance
companies participating in the insurance company referral program and to expand
the volume of referrals provided by existing participants in the program.
Additionally, the Company has begun marketing consumer oriented auto club
programs and has hired a divisional president to head up the marketing efforts
of the Company in providing such services. The Company has recently entered into
agreements with at least one large bank and several marketing agencies and
affinity groups. The Company already has millions of direct mail pieces en route
to the customers of banks, affinity
<PAGE>
groups, utilities and mortgage companies as of this report. Revenues for this
program are expected to grow dramatically during their 1997 calendar year.
Several of these agreements provide for clients to meet minimum participation
guarantees.
Sales and Marketing. The Company's fleet maintenance clients generally
consist of companies having a large number of vehicles on the road over a broad
geographical area. The Company's clients for its affinity programs are
organizations and affinity groups. The Company's clients for the insurance
company referral program are property and casualty insurance companies.
Sales activities are performed by the Company's own personnel and
contracted agencies outside the Company. Sales are made through referrals, cold
canvassing of appropriate prospects and direct mailings. The Company also
attends trade shows in order to increase its client base.
Since the Company deals with a large number of independently owned
repair facilities, it is often able to offer to its fleet management clients a
custom tailored program to suit their needs for vehicle repairs and maintenance.
The Company believes that this flexibility is important in its marketing
activities and in increasing its client base.
During the years 1996 and 1995, none of the Company's customers
accounted for more than 10 percent of the Company's revenues.
Employees
At year end, the Company employed 40 full-time employees. None of the
Company's employees are governed by a union contract and the Company believes
that its employee relationships are satisfactory.
Competition
Fleet Management. Some leasing companies offer fleet management
services, but most offer such services only to fleets leased by them. The
Company is aware of three other companies that, like the Company, offer fleet
management services independent of a fleet leasing arrangement.
Affinity Group Programs. Although there are several companies providing
various type of auto club programs the Company believes that there is only one
other company that offers a program providing many of the services offered by
the Company's Affinity Group division.
Insurance Company Referral Business. The Company is aware of two other
companies that offer automotive collision repair services to insurance
companies. One of such companies is, like the Company, in the fleet management
business, while the other is in the vehicle valuation business. The Company
believes that its services for insurance companies are superior to those offered
by such other companies.
Item 2. DESCRIPTION OF PROPERTY
In September 1990, the Company entered into a lease for new office
space at 270 Duffy Avenue, Hicksville, New York 11801. The space consists of
approximately 5,400 square feet of office space. The Company exercised an option
to renew the lease for an additional three year term at an annual rent of
$74,220. The Company holds several options of cancellation during the lease
<PAGE>
term. The Company has exercised its option to cancel its lease effective July
31, 1997 and has leased new office space to accommodate the Company's growth
consisting of 12,200 square feet located at 51 East Bethpage Road, Plainview,
NY. The Company expects to relocate to this new space during April 1997.
Item 3. LEGAL PROCEEDINGS
There is no pending legal proceeding which could have a material effect upon the
Company's financial position and/or operating results.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common shares are traded on the OTC Bulletin Board of The
Nasdaq Stock Market. The following table shows the high and low bid quotations
for the periods indicated, based upon information received from National
Quotation Bureau Incorporated of New York, New York. Such quotations represent
prices between dealers without retail markup, markdown or commission and may not
necessarily represent actual transactions.
Bid Price($)
High Low
1996
First Quarter $1.03125 $.5625
Second Quarter $.84375 $.53125
Third Quarter $1.75 $.40625
Fourth Quarter $2.1875 $1.50
1995
First Quarter $.05 $.05
Second Quarter $.09 $.05
Third Quarter $.69 $.09
Fourth Quarter $1.03 $.06
The number of record holders of the Company's common shares as of March
31, 1997 was 432.
The Company has never paid dividends on its common stock and is not
expected to do so in the foreseeable future. Payment of dividends is within the
discretion of the Company's Board of Directors and would depend on, among other
factors, the earnings, capital requirements and operating and financial
condition of the Company.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Company, prior to 1996, conducted business in only one segment,
automotive fleet management and related operations ("Automotive Management".) In
September of 1996, the Company commenced a new line of business, under the name
FPG Direct. FPG Direct markets consumer goods to the credit card base of
customers of oil companies and retail department stores through direct mailing
efforts throughout the United States ("Direct Response Business")
<PAGE>
Automotive Management
Revenues from services of the automotive management operations were
$13,338,678 in 1996, as compared to $10,150,086, representing an increase of
$3,188,592, or 31.4%. The increased revenues reflect the Company's continued
success in increasing the amount of business it is conducting with continuing
customers, as well as adding new customers to its base of business. The Company
has significantly increased its revenue in the areas of collision repair and
subrogation services. The direct costs of services related to such revenue
(principally charges from automotive repair facilities) were $11,010,836 in
1996, as compared to $8,332,487, representing an increase of $2,678,349, or
32.1%. Such increase in costs is attributable to the increase in the related
revenues.
Direct Response
FPG Direct had net sales of $727,570, and cost of goods sold of
$332,708, resulting in a gross profit of $394,862, or 54.3% in its initial four
month period. This initial four month period ("the roll-out period") included
only eleven promotions, some of which carried over into 1997, as some of the
promotions were conducted during the latter part of December 1996. FPG Direct
incurred selling, general and administrative expenses of $445,763, and interest
expense of $6,101, resulting in a net loss for FPG Direct of $57,002 during its
initial four month period. Management believes that FPG Direct's revenues will
increase substantially during 1997, and is hopeful that FPG Direct will be a
significant source of future profitability. The results for this roll out period
are not necessarily indicative of future results.
Operating expenses and other
Total operating expenses were $2,434,370 in 1996, as compared to
$1,591,873 in 1995, representing an increase of $842,497, or 52.9%. Of this
increase, $445,763 is directly related to the operating expenses of FPG Direct.
The remaining increase in operating expenses of $396,734 reflects an increase of
24.9% over 1995, and primarily represents increased payroll and related expenses
as well as increases in other general and administrative expenses required to
service the Company's growing automotive management operations.
Interest and other income were $37,529 in 1996, as compared to $7,554
in 1995, representing an increase of $29,975. The increase is primarily
attributable to larger average cash balances available during 1996 which were
invested in short-term cash equivalents.
Net income
As a result of the foregoing, net income was $313,574 in 1996 ($.05 per
share) as compared to $230,334 ($.04 per share) in 1995, representing an
improvement in net income of $83,240, or 26.5%.
Liquidity and Capital Resources
As of December 31, 1996, the Company had cash and cash equivalents of
$683,503 as compared to $779,074 as of December 31, 1995. Working capital of the
Company as of December 31, 1996, was $1,027,632 as compared to $763,248 as of
December 31, 1995. The Company's operating activities used $592,417 of cash in
1996 as compared to 1995, when the Company's operating activities provided
$265,021 of cash. The principal reason for the significant change in cash from
operating activities was the cash required to finance the working capital needs
of FPG Direct during its roll out period.
<PAGE>
In order to provide for the working capital needs of FPG Direct and
provide liquidity for its ongoing growth, the Company entered into a short-term
line of credit agreement with its bank, providing for financing up to $1,000,000
through June 30, 1997. As of December 31, 1996, the Company had borrowed
$600,000 from the bank under the line of credit. With the expected growth of FPG
Direct during 1997, the Company anticipates that it will continue to need line
of credit financing. The Company intends to enter into negotiations with its
bank to renew and/or expand its line of credit before its expiration date of
June 30, 1997.
The Company is relocating its Corporate offices in 1997 to a 12,000
square foot facility in Plainview, New York. The new facility will provide room
for anticipated future growth. In connection with the relocation, the Company
will incur significant expenditures, representing moving costs, new furniture
and equipment, and leasehold improvements. The Company intends to finance a
significant portion of such costs with a term loan from its bank, and the
Company is finalizing the financing arrangements with its bank.
The Company believes that its present cash position, combined with its
line of credit will enable the Company to continue to support its operations for
the short and longer term.
Item 7. FINANCIAL STATEMENTS
The Company's financial statements and schedules appear at the end of this
Report after Item 13.
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<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following schedule sets forth the name and age of each director and
executive officer of the Company and the title of all positions and offices with
the Company presently held by him or her.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Michael Karpoff 53 Co-Chairman of the Board of Directors,
Co-Chief Executive Officer, and President
Barry Siegel 45 Co-Chairman of the Board of Directors, Co-
Chief Executive Officer,
Secretary, and Treasurer
Lisa Siegel 36 Vice President of Operations
Leonard Giarraputo 52 Director
</TABLE>
The directors of the Company are elected by the Company's shareholders
or by the other members of the Board of Directors, and the Company's officers
are elected annually by the Board of Directors. Each officer devotes his full
business time to the Company.
Michael Karpoff has been President of the Company since June, 1986.
Mr. Karpoff became a director of the Company at its inception and became
Co-Chairman of the Company's Board of Directors and Co-Chief Executive Officer
in October, 1987. Mr. Karpoff was President of National Fleet Service, Inc.
from August, 1984 until January, 1991. On October 22, 1992, Mr. Karpoff was
again elected President of National Fleet Service, Inc. and has continued to
hold this position through the present date.
Barry Siegel became a director of the Corporation at its inception and
became Co-Chairman of the Board of Directors and Co-Chief Executive Officer in
October, 1987. Mr. Siegel was the Executive Vice-President of the Company from
June, 1986 until October, 1987. He became the Company's Treasurer in June, 1986,
and its Secretary in November, 1987. He was the Executive Vice-President of
National Fleet Service, Inc. from February 1984 until October, 1987, and he has
been the Treasurer of National Fleet Service, Inc., since February, 1984 and the
Secretary of National Fleet Service, Inc., since January, 1991. He is married to
Lisa Siegel.
Lisa Siegel was elected Vice President of Operations of the Company and
its wholly owned subsidiary, National Fleet Service, Inc. in February, 1994.
Previously, she held the position of Manager of Subrogation Services. She has
held various management positions in the Company since its inception. She is
married to Barry Siegel.
Leonard Giarraputo was elected a director of the Company in September,
1988. He has also been a director of National Fleet Service, Inc. since
February, 1984. From March, 1972 through May 1996, he was Senior Vice President
of Block Trading with Paine Webber Incorporated. Since May 1996, he has been a
Managing Director of Worldco, LLC., a member of NASD.
10
<PAGE>
There are no arrangements or understandings between any of the
Company's directors or officers, or anyone else, pursuant to which directors or
officers were, or are, to be selected for a particular office or position.
All Reporting Persons as defined under the Securities Exchange Act of
1934 (the "Act") have filed all required forms under Section 16(a) of the Act.
Item 10. EXECUTIVE COMPENSATION
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (c) (d)
Name
and
Principal
Position Year Salary($) Bonus($)
Michael Karpoff 1996 $175,000 $0 (1)
Co-Chairman 1995 $125,000 $11,771 (2)
of the Board 1994 $122,319 $6,229 (3)
of Directors,
Co-Chief Executive
Officer and President
Barry Siegel 1996 $175,000 $0
Co-Chairman 1995 $125,000 $11,771 (2)
of the Board 1994 $122,319 $6,229 (3)
of Directors, Co-
Chief Executive
Officer, Treasurer
and Secretary
- ----------------------
(1) Incentive compensation for the year ended December 31, 1996 was waived
by both executives.
(2) Incentive compensation for the year ended December 31, 1995 was paid
in 1996.
(3) Incentive compensation for the year ended December 31, 1994 was paid
in 1995.
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11
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(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Karpoff None None 308,333/291,667 $459,541/$255,459
Barry Siegel None None 308,333/291,667 $459,541/$255,459
</TABLE>
(f) Compensation of Directors
No compensation is paid to the directors in consideration of the
director's service on the board. However, the 1995 Stock Incentive Plan provides
that non-employee directors of the Company shall be granted nonstatutory stock
options for 15,000 shares of the Company's common stock on the day after the
first day of the Company's fiscal year. In March 1997, this provision was
amended by the Board of Directors whereby the non-employee director shall
receive an option grant of 15,000 shares on the date of election to the Board
and upon every successive anniversary date of his or her initial election.
(g) Employment contracts and termination of employment and change in
control arrangements.
The Company has employment agreements with its two principal officers,
Barry Siegel and Michael Karpoff. The Company entered into employment agreements
that expire on December 31, 1998. The agreements provide for minimum annual
salaries each of $175,000 effective January 1, 1996; $192,500 effective January
1, 1997; and $211,750 effective January 1, 1998. Each contract provides for
options to purchase 300,000 shares of the Company's common stock under the 1995
Incentive Stock Option Plan. Additionally, the agreements also provide for
additional incentive compensation based on a stated percentage of earnings as
defined in the agreements. Incentive compensation for the year ended December
31, 1995 totaled $23,542. Both executives waived their incentive compensation
for 1996.
These employment agreements also contain a change in control provision
whereby the executive, following a change of control as defined in the
agreement, would receive: (a) a severance payment of 300 percent of the average
annual salary for the past five years, less $100; (b) the cash value of the
outstanding, but unexercised stock options, and (c) other perquisites, should
the executive be terminated for various reasons as defined in the agreement. The
agreements provide that in no event, shall the severance payment exceed the
amount deductible by the Company under the provisions of the Internal Revenue
Code.
12
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is as of March 31, 1997.
(a) Security ownership of certain beneficial owners.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Amount and
Title Address of Nature of Percent of
of Class Beneficial Owner Beneficial Owner Common Stock(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Kirlin Holding Corp. 1,140,000 (2) 14.55
6901 Jericho Turnpike
Syosset, NY. 11791
Common Kirlin Securities, Inc. 1,140,000 (2) 14.55
6901 Jericho Turnpike
Syosset, NY. 11791
Common Frances Giarraputo 1,020,999 (3) 13.03%
6 Fox Hunt Court
Huntington, NY 11743
</TABLE>
- ---------------------------------------
(1) The percentages set forth in this Annual Report on Form 10-KSB
have been calculated in accordance with Instruction 3 to Item 403
of Regulation S-B.
(2) Includes 800,000 shares owned directly by Kirlin Holding Corp. and
warrants to purchase 40,000 and 300,000 shares of the Company's
common stock that are exercisable in full, held by Kirlin
Securities, Inc.
(3) Includes 749,000 owned directly by Frances Giarraputo, 56,999
shares owned directly or as custodian for others by Leonard
Giarraputo, and 215,000 shares representing options that are
exercisable within sixty days by Leonard Giarraputo to purchase
the common stock of the Company. Leonard and Frances Giarraputo
are husband and wife. Each disclaims beneficial ownership of
shares held by the other.
(b) Security ownership of management.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Amount and
Title Address of Nature of Percent of
Class Beneficial Owner Beneficial Owner Common Stock(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Michael Karpoff 1,110,666 (3) 14.18%
32 Gramercy Park South
New York, NY 10010
Common Barry Siegel 1,194,651(4) 15.25%
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
8 Indian Well Court
Huntington, NY 11743
Common Leonard Giarraputo 1,020,999 (2) 13.03%
6 Fox Hunt Court
Huntington, NY 11743
Common Lisa Siegel 1,194,651(4) 15.25%
8 Indian Well Court
Huntington, NY 11743
Common Directors and officers
as a group (4 persons) 3,326,316 42.47%
</TABLE>
(1) The percentages set forth in this Annual Report on Form 10-KSB have
been calculated in accordance with Instruction 3 to Item 403 of
Regulation S-B.
(2) Includes 749,000 owned directly by Frances Giarraputo, 56,999 shares
owned directly or as custodian for others by Leonard Giarraputo, and
215,000 shares representing options that are exercisable within sixty
days by Leonard Giarraputo to purchase the common stock of the Company.
Leonard and Frances Giarraputo are husband and wife. Each disclaims
beneficial ownership of shares held by the other.
(3) Owned jointly with another. Includes 308,333 shares representing
options that are exercisable within sixty days by Michael Karpoff to
purchase the common stock of the Company.
(4) Includes options exercisable by Barry Siegel within sixty days to
purchase 308,333 shares, 3,334 shares held by Barry Siegel as custodian
for two nephews, 67 shares held directly by Barry Siegel's wife, Lisa
Siegel, and 81,250 shares representing options held by her that are
exercisable within sixty days. Both Barry and Lisa Siegel disclaim
beneficial ownership of shares held by the other.
(c) Changes in control. None.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into an Investment Banking Agreement with Kirlin
Securities, Inc. ("Kirlin") (the "Investment Banking Agreement") on August 1,
1995. For a term of eighteen months, Kirlin will provide financial consulting
and investment banking services to the Company. It is anticipated that Kirlin
will assist the Company in exploring the possibility of raising additional
capital through the issuance of additional shares of its common stock. In
consideration, Kirlin has been granted a warrant to purchase 750,000 shares of
the Company's Common Stock which is exercisable at various prices.
On December 18, 1995, the Company sold through a private placement, 1 million
shares of common stock generating net proceeds of $435,000. Kirlin Holding Corp.
parent of its wholly owned subsidiary Kirlin Securities, and the principal
shareholders of Kirlin Holding Corp., were the sole purchasers of the 1 million
shares of this private placement. Kirlin earned a placement agent fee from this
private placement, under the Investment Banking Agreement, of $50,000,
non-accountable expenses of $15,000, and a warrant to purchase 100,000 shares of
the Company's common stock.
14
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
3.1 Certificate of Incorporation of the Company, as amended, incorporated
by reference to Exhibit 19.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1991.
3.2 Amendment to the Certificate of Incorporation incorporated by
reference to Exhibit 3.1 of the Company's Form 10-QSB for the
period ended September 30, 1996.
3.3. By-laws of the Company, incorporated by reference to Exhibit 19.2
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1991.
10.1 Sample employment agreement executed between the Barry Siegel and
Michael Karpoff dated January 18, 1996 incorporated by reference to
Exhibit 10.1 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995.
10.2 Sample subscription agreement executed by subscribers to the Company's
private placement dated December 18, 1995 incorporated by reference to
Exhibit 10.2 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995.
10.3 Sample warrant granted to transferees of Kirlin Securities, Inc.,
placement agent to the private placement, dated December 18, 1995
incorporated by reference to Exhibit 10.3 of the Company's Form 10-KSB
for the fiscal year ended December 31, 1995.
10.4 Amendment of Lease dated June, 1995, between the Company, American Auto
Trading and LBA Properties, Inc., of original lease dated September 12,
1990 for the Company's headquarters incorporated by reference to
Exhibit 10.1 of the Company's Form 10-QSB for the period ended March
31, 1996.
10.5 The Company's 1995 Incentive Stock Plan incorporated by reference to
Exhibit 10.1 of the Company's Form 10-QSB for the period ended
September 30, 1996.
10.6 Employment Agreement between the Company and Paul Zucker
dated September 3, 1996 incorporated by reference to Exhibit 10.2
of the Company's Form 10-QSB for the period ended September
30, 1996.
10.7 Employment Agreement between the Company and Steven Zucker
dated September 3, 1996 incorporated by reference to Exhibit 10.3
15
<PAGE>
of the Company's Form 10-QSB for the period ended September
30, 1996.
10.8 Employment Agreement between the Company and Donald Shanley dated
September 3, 1996 incorporated by reference to Exhibit 10.4 of the
Company's Form 10-QSB for the period ended September 30, 1996.
10.9 Employment Agreement between the Company and Barry J. Siegel dated
September 3, 1996 incorporated by reference to Exhibit 10.5 of the
Company's Form 10-QSB for the period ended September 30, 1996.
10.9 Employment Agreement between the Company and Barry J. Siegel dated
September 3, 1996 incorporated by reference to Exhibit 10.5 of the
Company's Form 10-QSB for the period ended September 30, 1996.
10.10 Employment Agreement between the Company and Douglas Konetzni dated
December 16, 1996 filed herein.
10.11 General Loan and Collateral Agreement dated July 29, 1996 between the
Company and Chase Manhattan Bank filed herein.
10.12 Security Agreement dated July 29, 1996 between the Company and Chase
Manhattan Bank filed herein.
13.1 Form 10-QSB for the quarter ending March 31,1996 incorporated
by reference dated and previously filed.
13.2 Form 10-QSB for the quarter ending June 30, 1996 incorporated by
reference and previously filed with the Commission.
13.3 Form 10-QSB for the quarter ending September 30, 1996 incorporated by
reference and previously filed with the Commission.
21 Subsidiaries of the Company, incorporated by reference to Exhibit 22 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
(b) Reports on Form 8-K
None
16
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
First Priority Group, Inc.
Hicksville, New York
We have audited the accompanying consolidated balance sheets of First Priority
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Priority Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
March 20, 1997
Nussbaum, Yates & Wolpow, P.C.
Melville, New York
F-1
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
(Note 4)
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 683,503 $ 779,074
Accounts receivable, less allowance for doubtful
accounts of $11,500 in 1996 and 1995 (Note 2) 2,016,635 1,069,786
Inventories 318,398 -
Prepaid expenses and other current assets 321,898 10,940
------------ -------------
Total current assets 3,340,434 1,859,800
Property and equipment, net (Note 3) 141,824 116,039
Security deposits and other 47,313 10,575
------------- -------------
Total assets $3,529,571 $1,986,414
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit financing (Note 4) $ 600,000 -
Equipment note (Note 4) - $ 37,264
Accounts payable 1,403,143 720,375
Accrued expenses, taxes and other current liabilities 309,659 338,913
------------ ------------
Total current liabilities 2,312,802 1,096,552
----------- -----------
Commitments and contingency (Notes 7 and 8)
Shareholders' equity (Notes 5, 6 and 10):
Common stock, $.015 par value, authorized 20,000,000
shares; issued 6,150,550 shares in 1996 and 1995 92,258 92,258
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding - -
Additional paid-in capital 1,942,643 1,929,310
Deficit ( 728,132) ( 1,041,706)
------------ ----------
1,306,769 979,862
Less common stock held in treasury, at cost,
266,667 shares 90,000 90,000
------------- -------------
Total shareholders' equity 1,216,769 889,862
----------- ------------
Total liabilities and shareholders' equity $3,529,571 $1,986,414
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- -----------
<S> <C> <C>
Revenues:
Revenue from services $13,338,678 $10,150,086
Net sales 727,570 -
-------------- -----------
Total revenue 14,066,248 10,150,086
-------------- -----------
Costs and expenses applicable to sales and revenues:
Cost of services 11,010,836 8,332,487
Cost of goods sold 332,708 -
-------------- -----------
Total costs and expenses applicable to revenue 11,343,544 8,332,487
-------------- -----------
Excess of revenue over direct costs 2,722,704 1,817,599
-------------- -----------
Operating expenses:
Selling and direct marketing expenses 990,995 509,206
General and administrative 1,443,375 1,082,667
-------------- -----------
Total operating expenses 2,434,370 1,591,873
-------------- -----------
Income from operations 288,334 225,726
-------------- -----------
Other income (expense):
Interest and other income 37,529 7,554
Interest expense ( 7,140) ( 1,407)
-------------- -----------
Total other income 30,389 6,147
-------------- ---------------
Income before income taxes 318,723 231,873
Income taxes, all current (Note 9) 5,149 1,539
-------------- -----------
Net income $ 313,574 $ 230,334
============ ============
Earnings per common share $ .05 $ .04
============ ============
Weighted average number of common shares
outstanding 5,883,883 4,922,239
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Total
Additional Share-
Common Stock Paid-in Treasury Stock holders'
Shares Amount Capital Deficit Shares Amount Equity
--------- ------- ---------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 5,150,550 $77,258 $1,509,310 ($1,272,040) 266,667 $90,000 $224,528
Issuance of common stock (Note 10) 1,000,000 15,000 420,000 - - - 435,000
Net income - - - 230,334 - - 230,334
--------- ------- ---------- ---------- ------- -------- --------
Balance, December 31, 1995 6,150,550 92,258 1,929,310 ( 1,041,706) 266,667 90,000 889,862
Issuance of stock options for services - - 13,333 - - - 13,333
Net income - - - 313,574 - - 313,574
--------- ------- ---------- ---------- ------- -------- --------
Balance, December 31, 1996 6,150,550 $92,258 $1,942,643 ($ 728,132) 266,667 $90,000 $1,216,769
========= ======= ========== =========== ======= ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $313,574 $230,334
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 42,105 32,940
Changes in assets and liabilities:
Accounts receivable ( 946,849) ( 325,078)
Inventories ( 318,398) -
Prepaid expenses and other current assets ( 299,625) 3,215
Security deposit and other ( 36,738) -
Accounts payable 682,768 285,759
Accrued expenses, taxes and other current liabilities ( 29,254) 37,851
---------- ----------
Total adjustments ( 905,991) 34,687
---------- ----------
Net cash provided by (used in) operating activities ( 592,417) 265,021
---------- ---------
Cash flows used in investing activities,
additions to property and equipment ( 65,890) ( 85,129)
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under line of credit 600,000 -
Proceeds from equipment note - 41,600
Principal payments on equipment note ( 37,264) ( 4,336)
Proceeds from issuance of common stock - 435,000
-------------- ---------
Net cash provided by financing activities 562,736 472,264
--------- ---------
Net increase (decrease) in cash ( 95,571) 652,156
Cash and cash equivalents at beginning of year 779,074 126,918
--------- ---------
Cash and cash equivalents at end of year $683,503 $779,074
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 5,350 $ 5,346
========== ==========
Cash paid during the year for interest $ 1,453 $ 1,407
========== ==========
</TABLE>
Supplemental disclosure of non-cash investing and financial activities: During
1996, the Company granted 100,000 stock options valued at $13,333 for
services.
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
First Priority Group, Inc. and its subsidiaries, National Fleet Service,
Inc., American Automotive Trading Corp., and First Priority Group Leasing,
Inc. (collectively referred to as the "Company") all of which are wholly
owned. All material intercompany balances and transactions have been
eliminated.
Inventories
Inventories, consisting of finished goods purchased for resale, are stated
at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. The Company provides
depreciation primarily by the straight-line method over the estimated
useful lives of the assets, ranging from three to five years.
Cash
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Direct-Response Advertising
The Company expenses the costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct-response advertising consists primarily of advertising inserts
mailed to customers that include order coupons for the Company's products.
The capitalized costs of the advertising are generally amortized over a
three or four-month period following the mail distribution date.
At December 31, 1996, $266,767 was reported as assets included under the
caption prepaid expenses and other current assets. Advertising expense was
$242,967 in 1996, including $13,385 for amounts written down to net
realizable value.
F-6
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Summary of Significant Accounting Policies (Continued)
Per Share Data
Earnings per share data is based upon the weighted average number of common
shares plus, in 1995, 820,500 common equivalent shares. Stock options and
warrants were not dilutive in 1996.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates are used in accounting for income taxes
and direct-response advertising costs.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation.
Fair Value of Financial Instruments
The following describes methods and assumptions used to estimate the fair
value of each class of significant financial instrument:
o Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
o Short-Term Borrowings
The carrying amount of the Company's short-term borrowings approximates
fair value.
F-7
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. Description of Business, Revenue Recognition and Concentration of Credit
Risk
o Automotive Management
The Company is engaged in automotive management, including fleet
management, for major corporate clients throughout the United States. The
Company provides computerized compilation and analysis of vehicle usage and
maintenance data and the repair and maintenance of vehicles through over
3,000 independently contracted repair facilities nationwide.
The Company also has a service called the Direct Appraisal Repair Program.
The program provides automotive collision repair and appraisal services to
insurance companies throughout the United States. The Company receives
commissions from participating body shop vendors for referring clients of
the insurance companies to them.
The Company recognizes revenue at the time of customer approval and
completion of repair services. The Company warrants such services for
varying periods ranging up to twelve months. Such warranty expense is borne
by the repair facilities and has not been material to the Company.
o Direct-Response Marketing
Effective September 1, 1996, the Company commenced marketing consumer goods
through oil companies and retail department stores ("client") through
direct mailing efforts throughout the United States, to customers who
regularly use a credit card issued by the client companies.
Revenues are recognized when merchandise is shipped. The Company generally
accepts returns for up to one year either by contractual arrangements with
the client company or as a client relations practice and, therefore, a
provision for estimated future returns is recorded at the time of shipment.
Accordingly, accounts receivable at December 31, 1996 have been reduced by
approximately $168,000 to provide for such future returns. All credit risks
associated with the credit card transaction are the client's
responsibility.
F-8
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. Business Segments (Continued)
Segment Reporting for 1996
<TABLE>
<CAPTION>
Automotive Direct-Response
Management Marketing Total
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 13,338,678 $ 727,570 $ 14,066,248
============= ============ =============
Operating income (loss) $ 339,235 ($ 50,901) $ 288,334
============= ============ =============
Identifiable assets $ 2,210,893 $ 1,318,678 $ 3,529,571
============= ============ =============
Capital expenditures $ 61,555 $ 4,335 $ 65,890
============== ============ ==============
Depreciation and amortization $ 40,672 $ 1,433 $ 42,105
============== ============ ==============
</TABLE>
During 1995, the Company's operations were limited to one business segment,
automotive management.
3. Property and Equipment
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Machinery and equipment $206,907 $197,047
Furniture and fixtures 112,934 56,904
--------- ----------
319,841 253,951
Less accumulated depreciation 178,017 137,912
--------- ---------
$141,824 $116,039
========= =========
</TABLE>
F-9
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
4. Bank Debt
Line of Credit Financing
At December 31, 1996, the Company has a line of credit with its bank in the
amount of $1,000,000, of which $600,000 was outstanding. The line is
collateralized by substantially all assets of the Company, and the Company
is required to maintain a compensating balance of $250,000 in a certificate
of deposit. The line bears interest at prime plus 1/2% and expires June 30,
1997.
Equipment Note
In July 1995, the Company borrowed $41,600 under a term note from a bank
used to purchase equipment which was pledged as collateral. The note was
interest bearing at a rate of 1 1/2% above prime. On March 15, 1996, the
balance of this note was paid off.
5. Stock Options
Stock Compensation Plan
The Company accounts for its stock option plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation
expense is recognized. In 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
(SFAS No. 123) for disclosure purposes; accordingly, no compensation
expense has been recognized in the results of operations for its stock
option plans as required by APB Opinion No. 25. The Company has two fixed
option plans, the 1995 Stock Incentive Plan, and the 1987 Incentive Stock
Option Plan. Under the plans, in the aggregate, the Company may grant
options to its employees, directors and consultants for up to 7,000,000
shares of common stock. Under both plans, incentive stock options may be
granted at no less than the fair market value of the Company's stock on the
date of grant, and in the case of an optionee who owns directly or
indirectly more than 10% of the outstanding voting stock ("an Affiliate"),
110% of the market price on the date of grant. The maximum term of an
option is ten years, except, in regard to incentive stock options granted
to an Affiliate, in which case the maximum term is five years.
F-10
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
5. Stock Options (Continued)
Stock Compensation Plan (Continued)
For disclosure purposes, the fair value of each stock option grant is
estimated on the date of grant using the Black Scholes option-pricing model
with the following weighted average assumptions used for stock options
granted in 1996 and 1995, respectively: annual dividends of $0.00 for both
years, expected volatility of 118% for both years, risk-free interest rate
of 6.68% and 5.88%, and expected life of five years for all grants. The
weighted-average fair value of stock options granted in 1996 and 1995 was
$.63 and $.23, respectively.
Under the above model, the total value of stock options granted in 1996 and
1995 (including in 1995, non-incentive stock options described below) was
$78,908 and $243,608, respectively, which would be amortized ratably on a
pro forma basis over the related vesting periods, which range from
twenty-eight months to five years (not including performance-based stock
options granted in 1996, see below). Had the Company determined
compensation cost for these plans in accordance with SFAS No. 123, the
Company's pro forma net income would have been $231,041 in 1996 and
$209,338 in 1995, the Company's pro forma earnings per share would have
been $.04 in 1996 and $.04 in 1995. The SFAS No. 123 method of accounting
does not apply to options granted prior to January 1, 1995, and
accordingly, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Performance-Based Stock Options
Under its 1995 Stock Incentive Plan, during 1996, the Company granted
1,975,000 options to certain key executives hired in 1996 whose vesting, is
entirely contingent upon the future profits (as defined) for the division
or subsidiary under the management of the related key executive. Generally,
for each $10,000 of future profits of the related division or subsidiary,
the key executive becomes vested and may exercise options equal to defined
amounts of shares, ranging from 500 shares to 1,500 shares based upon the
aggregate amount of future profit attained.
The Company believes that it is not possible to estimate any profits for
the related divisions and subsidiaries, all of which have incurred losses
through December 31, 1996, and therefore, cannot estimate as of December
31, 1996 the outcome of the performance condition. Accordingly, the pro
forma amounts of net income and earnings per share described above do not
include any pro forma compensation expense related to the performance-based
stock options granted in 1996.
F-11
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
5. Stock Options (Continued)
Performance-Based Stock Options (Continued)
For disclosure purposes, the fair value of each performance-based stock
option grant is estimated on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumption used
for stock options granted in 1996: annual dividends of $0.00, expected
volatility of 118%, risk-free interest rate of 6.42% and expected life of
five years for all grants. The weighted-average fair value of the
performance-based stock options granted in 1996 was $.90.
Non-Incentive Stock Option Agreements
The Company has non-incentive stock option agreements with three of its
directors and/or officers.
Summary
Stock options transactions (other than performance-based stock options) are
summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Number Exercise Average
of Price Exercise
Shares Range Price
------------- ----------- --------
<S> <C> <C> <C>
Options outstanding, January 1, 1995 783,333 $.06 - .25 $0.07
Options granted 1,050,000 .12 - 1.50 .79
Options expired ( 33,333) .25 .25
------------
Options outstanding, December 31, 1995 1,800,000 .06 - 1.50 .49
Options granted 2,215,000 .70 - 2.00 1.03
Options expired ( 100,000) .07 .07
-----------
Options outstanding, December 31, 1996 3,915,000 .06 - 2.00 .81
=========
Options exercisable, December 31, 1995 675,000 .06 - .22 .08
=========
Options exercisable, December 31, 1996 1,099,167 .06 - 1.50 .34
=========
</TABLE>
F-12
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
5. Stock Options (Continued)
Summary (Continued)
The following table summarizes information about the options outstanding at
December 31, 1996 other than performance-based stock options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ----------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
---------- ----------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.06 - .22 1,100,000 2.47 $ .11 779,167 $ .10
.70 - 1.00 1,905,000 4.52 .77 310,000 .90
1.25 - 2.00 910,000 4.43 1.72 10,000 1.50
</TABLE>
6. Stock Warrants
In connection with the 1995 issuance of 1,000,000 shares of its
common stock (Note 10), the Company issued warrants to purchase 850,000
shares of the Company's common stock. The warrants are all presently
exercisable at prices ranging from $.125 to $.50 per share. The
weighted-average grant date fair value of such warrants issued in 1995 was
$.29.
During the fiscal year ended December 31, 1996 and 1995, none of
these warrants were exercised. All warrants expire in 2000.
In lieu of the payment of the exercise price in cash, the holders
have the right (but not the obligation) to convert the warrants, in whole
or in part, into common stock as follows; upon exercise of the conversion
rights of the warrant, the Company shall deliver to the holder that number
of shares of common stock equal to the quotient obtained by dividing the
remainder derived from subtracting (a) the exercise price multiplied by the
number of shares of common stock being converted from (b) the market price
of the common stock multiplied by the number of shares of common stock
being converted, by the market price of the stock.
F-13
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. Employee Benefit Plan
During 1995, the Company instituted a new 401(k) profit sharing plan.
This plan is for the benefit of all eligible employees as defined in the
plan documents.
The plan provides for voluntary employee salary contributions from 1% to
15% not to exceed the statutory limitation provided by the Internal Revenue
Code. The Company may, at its discretion, match within prescribed limits,
the contributions of the employees. Employer contributions to the plan
amounted to $4,918 and $4,513 in 1996 and 1995.
The 401(k) profit sharing plan which was previously in effect, was frozen
during 1995. No contributions were made in 1996 and 1995.
8. Commitments and Contingency
Leases
The Company is obligated through March 2002 under a noncancelable operating
lease for a new facility which the Company anticipates to occupy in April
1997. The new lease requires minimum annual rentals and certain other
expenses including real estate taxes. Rent expense including real estate
taxes for the years ended December 31, 1996 and 1995 aggregated
approximately $80,000.
As of December 31, 1996, the Company's approximate future minimum rental
commitments are as follows:
1997 $124,000
1998 170,000
1999 177,000
2000 184,000
2001 192,000
Thereafter 48,000
F-14
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
8. Commitments and Contingency (Continued)
Employment Contracts
The Company has employment contracts with its two principal officers
expiring on December 31, 1998. The agreements provide for minimum annual
salaries each of $175,000 effective January 1, 1996; $192,500 effective
January 1, 1997; and $211,750 effective January 1, 1998. The agreements
also provide for additional incentive compensation based on a stated
percentage of earnings, as defined in the agreements. Incentive
compensation for the year ended December 31, 1995 totaled $23,542.
Incentive compensation for the year ended December 31, 1996 was waived by
the two principal officers of the Company.
Each employment contract provides that, in the event of termination of the
employment of the officer within three years after a change in control of
the Company, then the Company would be liable to pay a lump sum severance
payment of three years' salary (average of last five years), less $100, in
addition to the cash value of any outstanding, but unexercised stock
options. In no event would the maximum amount payable exceed the amount
deductible by the Company under the provisions of the Internal Revenue
Code.
During 1996, the Company entered into employment contracts, with five newly
hired executives, which expire on December 31, 1998. The contracts, in the
aggregate, provide for annual base compensation of approximately $457,000
in 1997 and $480,000 in 1998. The contracts also provide for additional
incentive compensation (as defined in each contract) based upon the
profits, if any, derived from the subsidiaries or divisions under the
management of the aforementioned key executives.
9. Income Taxes
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes.
At December 31, 1996, the Company has an operating loss carryforward of
approximately $300,000 which is available to offset future taxable income.
A valuation allowance has been recognized to offset the full amount of the
related deferred tax asset of approximately $130,000 at December 31, 1996,
and $250,000 at December 31, 1995 due to the uncertainty of realizing the
benefit of the loss carryforwards.
F-15
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
9. Income Taxes (Continued)
At December 31, 1996, the Company's net operating loss carryforwards are
scheduled to expire as follows:
Year ended December 31,
-----------------------
2002 $192,000
2003 24,000
2005 50,000
2008 34,000
----------
$300,000
==========
The Company's effective income tax rate differs from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
1996 1995
------- ---------
<S> <C> <C>
Federal statutory rate 34.0% 34.0%
Utilization of net operating loss carryforwards (34.0) (34.0)
State income taxes 1.6 .7
------ ------
1.6% .7%
====== =======
</TABLE>
10. Common Shares
On December 18, 1995, the Company issued 1,000,000 shares of its common
stock to Kirlin Holding Corporation and several of its executive officers
for $.50 per share and received net proceeds of $435,000 after underwriting
commissions of $65,000 (see Note 6 for warrants issued).
F-16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST PRIORITY GROUP, INC.
By: /s/ Michael Karpoff
---------------------------------
Michael Karpoff, Co-Chairman of
the Board of Directors and President
Date: April 8, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Michael Karpoff
---------------------------------
Michael Karpoff, Co-Chairman of
the Board of Directors, Co-Chief Executive Officer,
President and Director
Date: April 8, 1997
By: /s/ Barry Siegel
---------------------------------
Barry Siegel, Co-Chairman of
the Board of Directors, Co-Chief Executive Officer,
Treasurer, Secretary and Director (Principal
Financial and Accounting Officer)
Date: April 8, 1997
By: /s/ Leonard Giarraputo
---------------------------------
Director
Date: April 8, 1997
17
<PAGE>
INDEX OF EXHIBITS
3.1 Certificate of Incorporation of the Company, as amended, incorporated
by reference to Exhibit 19.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1991.
3.2 Amendment to the Certificate of Incorporation incorporated by reference
to Exhibit 3.1 of the Company's Form 10-QSB for the period ended
September 30, 1996.
3.3. By-laws of the Company, incorporated by reference to Exhibit 19.2 to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1991.
10.1 Sample employment agreement executed between the Barry Siegel and
Michael Karpoff dated January 18, 1996 incorporated by reference to
Exhibit 10.1 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995.
10.2 Sample subscription agreement executed by subscribers to the Company's
private placement dated December 18, 1995 incorporated by reference to
Exhibit 10.2 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1995.
10.3 Sample warrant granted to transferees of Kirlin Securities, Inc.,
placement agent to the private placement, dated December 18, 1995
incorporated by reference to Exhibit 10.3 of the Company's Form 10-KSB
for the fiscal year ended December 31, 1995.
10.4 Amendment of Lease dated June, 1995, between the Company, American Auto
Trading and LBA Properties, Inc., of original lease dated September 12,
1990 for the Company's headquarters incorporated by reference to
Exhibit 10.1 of the Company's Form 10-QSB for the period ended March
31, 1996.
10.5 The Company's 1995 Incentive Stock Plan incorporated by reference to
Exhibit 10.1 of the Company's Form 10-QSB for the period ended
September 30, 1996.
10.6 Employment Agreement between the Company and Paul Zucker dated
September 3, 1996 incorporated by reference to Exhibit 10.2 of the
Company's Form 10-QSB for the period ended September 30, 1996..
10.7 Employment Agreement between the Company and Steven Zucker dated
September 3, 1996 incorporated by reference to Exhibit 10.3 of the
Company's Form 10-QSB for the period ended September 30, 1996.
10.8 Employment Agreement between the Company and Donald Shanley dated
September 3, 1996 incorporated by reference to Exhibit 10.4 of the
Company's Form 10-QSB for the period ended September 30, 1996.
18
<PAGE>
10.9 Employment Agreement between the Company and Barry J. Spiegel dated
September 3, 1996 incorporated by reference to Exhibit 10.5 of the
Company's Form 10-QSB for the period ended September 30, 1996.
10.9 Employment Agreement between the Company and Barry J. Spiegel dated
September 3, 1996 incorporated by reference to Exhibit 10.5 of the
Company's Form 10-QSB for the period ended September 30, 1996.
10.10 Employment Agreement between the Company and Douglas Konetzni dated
December 16, 1996 filed herein.
10.11 General Loan and Collateral Agreement dated July 29, 1996 between the
Company and Chase Manhattan Bank filed herein.
10.12 Security Agreement dated July 29, 1996 between the Company and Chase
Manhattan Bank filed herein.
13.1 Form 10-QSB for the quarter ending March 31,1996 incorporated by
reference dated and previously filed.
13.2 Form 10-QSB for the quarter ending June 30, 1996 incorporated by
reference and previously filed with the Commission..
13.3 Form 10-QSB for the quarter ending September 30, 1996 incorporated by
reference and previously filed with the Commission..
21 Subsidiaries of the Company, incorporated by reference to Exhibit 22 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
19
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated December 16, 1996 by and between
First Priority Group, Inc., a New York corporation with an address at 270 Duffy
Avenue, Hicksville, New York (the "Company"), and DOUGLAS KONETZNI, an
individual residing at 7 Pinnacle Point, Randolph, New Jersey
07869 ("Employee").
W I T N E S S E T H
WHEREAS, the Company desires that Employee be employed by it and render
services to it, and Employee is willing to be so employed and to render such
services to the Company, all on the terms and subject to the conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt
sufficiency of which is hereby acknowledged, the parties
agree as follows:
1. Employment
Subject to and upon the terms and conditions contained in this Agreement, the
Company hereby employs Employee, for the period set forth in Paragraph 2
(subject to the terms and conditions of this Agreement), to render the services
to the Company, its affiliates and/or subsidiaries described in Paragraph 3.
2. Term
Employee's term of employment under this Agreement shall commence on January
20, 1997 (the "Commencement Date") and shall continue for a period of
twenty-four (24) months thereafter, terminating on December 31, 1998 (the
"Expiration Date"), unless earlier terminated under the terms and conditions
herein (the "Employment Term").
3. Duties
(a) Employee's responsibilities shall be to develop and manage the
insurance services division of the Company, FPG Claims Services Division (the
"Division"), with full responsibility for the financial performance of the
Division, and to perform such other duties and services involving sales,
marketing and program development as shall from time to time be designated by
the Board of Directors or the Co-Chief Executive Officers ("CCEO") of the
Company, or such other executives or employees of the Company as may be
designated by the Board of Directors or the CCEO, as the case may be. Employee
shall be based in Nassau or Suffolk counties during the Employment Term and
shall have the title of President, FPG Claims Services Division.
(b) Employee agrees to abide by all By-Laws and policies of the Company
promulgated from time to time by the Company.
4. Exclusive-Services and Best Efforts
Employee shall devote his entire working time, attention, best efforts and
ability exclusively to the service of the Company, its affiliates and
subsidiaries during the term of this Agreement.
5. Compensation
(a) Base Salary. Commencing on January 20, 1997, the Employee shall
receive an annual salary, payable pursuant to the Company's normal payroll
procedures in place from time to time, during the Employment Term, in the amount
of One Hundred and Fifty Thousand Dollars ($150,000), subject to all required
federal, state and local payroll deductions.
(b) Incentive Compensation. The Employee shall receive Incentive
Compensation equal to the amounts listed below payable on a monthly basis after
the Division's Profit and Loss Statement is calculated monthly:
20
<PAGE>
Total Net Income of Division Bonus Percentage
during Term of Agreement of Excess Net Income Bonus Dollars
- ---------------------------- -------------------- ------------------
$0 up to $249,999 25% $0 - $62,500
$250,000 up to $499,999 20% $50,000 - $100,000
$500,000 up to $749,999 15% $75,000 - $112,500
$750,000 and thereafter 10% $75,000 - open
(c) Stock Options. The Employee shall be granted an Incentive Stock
Option (the "Stock Option") under the Company's 1995 Incentive Stock Plan (the
"Plan") providing the Employee with the right to purchase 500,000 shares of the
Company's common stock at Two Dollars ($2) per share. The Company will provide
the Employee with a stock option contract for his signature which will set out
the terms of the option (the "Stock Option Contract"). This Stock Option shall
be subject to the terms of the Plan. Such Stock Option shall be exercisable as
follows:
(i) Definitions for use exclusively in this Paragraph 5:
(A) "Division Profit".The pre-tax net profit of the Division at the
end of each fiscal year ended during the Employment Term.
(B) "Base Profit". The highest Division Profit in the preceding
completed fiscal years attained by the Division during the Employment Term. The
Base Profit for the first fiscal year ended during Employment Term shall be Zero
Dollars ($0).
(C) "Option Profit". The difference resulting in subtracting the Base
Profit from the Division Profit from the most recently completed fiscal year.
(ii) The Employee shall be permitted to exercise Stock Options, for the
remaining term of the Stock Option Contract, with the right to purchase the
Company's common stock in the amounts as calculated using the following formula:
(A) The Employee shall be able to exercise the Stock Options equal to
1,000 shares for every $10,000 of Option Profit, subject to the terms of the
Stock Option Contract.
(iii) Notwithstanding the above, the Employee shall be granted an
additional Stock Option under the Plan with the right to purchase up to 50,000
shares of the Company's common stock at Two Dollars ($2) per share. The Company
will provide the Employee a Stock Option Contract for his signature which will
set out the terms of the option and the Stock Option shall be exercisable in
increments of 16,667 shares, 16,667 shares and 16,666 shares upon the first,
second and third anniversary date of the Commencement Date, respectively. This
Stock Option shall be subject to the terms of the Plan.
6. Business Expenses
Employee shall be reimbursed for only those business expenses incurred by him
(a) which are reasonable and necessary for Employee to perform his duties under
this Agreement in accordance with policies established from time to time by the
Company, and (b) for which Employee has submitted vouchers and/or receipts. The
Employee shall be issued a corporate credit card that he shall use solely for
business expenses which are reasonable and necessary for the Employee to perform
his duties under this Agreement in accordance with policies established from
time to time by the Company
7. Employee Benefits
During the Employment Term, Employee shall participate, to the extent he is
eligible under the terms and conditions thereof, in any health, life, disability
insurance, or 401(k) plan, or other employee benefit plans maintained by
Employer (but nothing herein shall obligate the Company to establish or maintain
any such benefit plan). Employee will not be covered under the Company's health
insurance until the Employee has been employed by the Company for more than
ninety (90) days. The Employee shall be reimbursed for any payments he must make
to continue his health insurance under the COBRA benefits offered by his former
employer, until the Employee is covered under the Company's health insurance
plan.
The Employee shall be reimbursed up to $500 per month for a car allowance upon
the Employee submitting supporting documentation.
8. Vacation and Sick Leave
Employee shall be entitled to three (3) weeks of vacation per annum during the
Employment Term, to be taken at such times as may be mutually agreed upon by the
Company and Employee. The Employee shall be entitled to one (1) week of sick
leave per annum during the Employment Term.
21
<PAGE>
9. Death and Disability
(a) The Employment Term shall terminate on the date of Employee's death,
in which event Employee's salary payable pursuant to Paragraph 5 through the
date of Employee's death shall be paid to his estate. Employee's estate will not
be entitled to any other compensation upon termination of this Agreement
pursuant to this Paragraph 9(a).
(b) If during the Employment Term, Employee, because of physical or
mental illness or incapacity, shall become substantially unable to perform the
duties and services required of him under this Agreement for a period of
forty-five (45) consecutive days or ninety (90) days in the aggregate, the
Company may, upon at least ten (10) days' prior written notice given at any time
after the expiration of such 45 or 90-day period, as the case may be, to
Employee of its intention to do so, terminate this Agreement as of such date as
may be set forth in the notice. In case of such termination, Employee shall be
entitled to receive his salary payable pursuant to Paragraph 5 through the date
of termination. Employee will not be entitled to any other compensation upon
termination of this Agreement pursuant to this Paragraph 9(b).
10. Termination
(a) The Company may terminate the employment of Employee For Cause (as
hereinafter defined). Upon such termination, the Company shall be released from
any and all further obligations under this Agreement, except that the Company
shall be obligated to pay Employee the unpaid prorated salary pursuant to
Paragraph 5 earned or accrued up through the day on which Employee is
terminated.
(b) As used herein, the term "For Cause" shall mean:
(i) any breach of this Agreement by Employee that, in the case of a
breach that may be cured or remedied, is not cured or remedied to the reasonable
satisfaction of the Company within 30 days after notice is given by the Company
to Employee, setting forth in reasonable detail the nature of such breach;
(ii) Employee's failure to perform his duties and services hereunder to
the satisfaction of the Board of Directors or CCEO of the Company that, in the
case of any such failure that may be cured or remedied, is not cured or remedied
to the reasonable satisfaction of the Company within 30 days after notice is
given by the Company to Employee, setting forth in reasonable detail the nature
of such failure;
(iii) any act, or failure to act, by Employee in bad faith and to the
detriment of the Company; or (iv) commission by Employee of an act involving
moral turpitude, dishonesty, unethical business conduct, or any other conduct
which significantly impairs the reputation of the Company, its subsidiaries or
affiliates.
(v) the conviction of the Employee of a felony, including the plea of
nolo contendere
(c) The Company may terminate this Agreement, upon thirty (30) days
written notice should the Division not attain, for three (3) consecutive months,
at least the pre-tax net income projections as set forth in the "Claims Services
Division Forecast & Projections Summary" for the first twelve (12) months of
this Agreement and at least fifty percent (50%) of the pre-tax net income
projections thereafter, as attached to this Agreement as Exhibit 1 (the
"Forecast") and has not attained at least the pre-tax net income projections as
set forth in the Forecast for the aggregate period commencing in January 1997
through the date of such termination notice.
11. Disclosure of Information and Restrictive Covenant
(a) Employee acknowledges that, by his employment, he has been and will
be in a confidential relationship with the Company and will have access to
confidential information and trade secrets of the Company, its subsidiaries and
affiliates, including, but not limited to, confidential information or trade
secrets belonging or relating to the Company, its subsidiaries, affiliates,
customers and/or clients or proprietary processes or procedures of the Company,
its subsidiaries, affiliates, customers and/or clients. Proprietary processes
and procedures shall include, but shall not be limited to, all information which
is known only to employees of the Company, its respective subsidiaries and
affiliates or others in a confidential relationship with the Company or its
respective subsidiaries and affiliates which relates to business matters.
Confidential information and trade secrets include, but are not limited to,
customer and client lists, price lists, marketing and sales strategies and
procedures, operational and equipment techniques, business plans and systems,
quality control procedures and systems, special projects and technological
research, including projects, research and reports for any entity or client or
any project, research, report or the like concerning sales or manufacturing or
new technology, employee compensation plans and any other
22
<PAGE>
information relating thereto, and any other records, files, drawings,
inventions, discoveries, applications or processes which are not in the public
domain (all the foregoing shall be referred to herein as the "Confidential
Information"). Employee agrees that in consideration of the execution of this
Agreement by the Company, he will not use, or disclose to any third party, any
of the Confidential Information, other than as required to perform his services
hereunder or as directed or authorized by the Company's Board of Directors or
President.
(b)
(i) Employee will not, at any time prior to the Expiration Date, or if
the Employee's employment shall terminate prior to the Expiration Date, then for
a period of one (1) year after the Employee ceases to be employed by the
Company, engage in or participate in any business activity, including, but not
limited to, acting as a director, officer, employee, agent, independent
contractor, partner, consultant, licensor or licensee, franchiser or franchisee,
proprietor, syndicate member, or shareholder that operates a program similar to
the program of the Division, conducted by the Division during the term of this
Agreement.
(ii) Any time during his employment by the Company or after the
Employee ceases to be employed by the Company, divulge to any persons, firms or
corporations, other than the Company (hereinafter referred to collectively as
"third parties"), or use or allow or cause or authorize any third parties to
use, any such Confidential Information; and
(iii) At any time during his employment by the Company and for a period
of one (1) year after the Employee ceases to be employed by the Company, solicit
or cause or authorize directly or indirectly to be solicited, for or on behalf
of the Employee or third parties, any business from persons, firms, corporations
or other entities who were at any time within one (1) year prior to the
cessation of his employment hereunder, customers of the Company; and
(iv) At any time during his employment by the Company and for a period
of one (1) year after the Employee ceases to be employed by the Company, accept
or cause or authorize directly or indirectly to be accepted, for or on behalf of
the Employee or third parties, any business from any such customers of this
Company; and
(v) At any time during his employment by the Company and for a period
of one (1) year after the Employee ceases to be employed by the Company, solicit
or cause or authorize directly or indirectly to be solicited for employment, for
or on behalf of the Employee or third parties, any persons who were at any time
within one year prior to the cessation of his employment hereunder, employees of
the Company; and
(vi) At any time during his employment by the Company and for a period
of one year after the Employee ceases to be employed by the Company, employ or
cause or authorize directly or indirectly to be employed, for or on behalf of
the Employee or third parties, any such employees of the Company; and
(vii) At any time during his employment by the Company and for a period
of one (1) year after the Employee ceases to be employed by the Company, compete
with the Company in any fashion or work for, advise, be a consultant to or an
officer, director, agent or employee of or otherwise associate with any person,
firm, corporation or other entity which is engaged in or plans to engage in a
business or activity which competes with any business or activity engaged in by
the Company, or which is under development or in a planning stage by the
Company.
(viii) Notwithstanding the above, should this Agreement expire on the
Expiration Date and the Employee's employment shall have terminated on that
Expiration Date, or should the Employee be terminated by the Company for reasons
other than For Cause, then the restrictions upon the Employee's activities as
set forth in Subparagraphs 11(b)(i), 11(b)(iii), 11(b)(iv) and 11(b)(vii) shall
not be operative for the one (1) year period following the Employee's cessation
of employment by the Company, so long as the Employee and/or any organization
with which he becomes associated does not engage in any business or activity
which competes or interferes with any business or activity engaged in by the
Company, or which is under development or is in a planning stage by the Company.
(c) Employee will not induce or persuade other employees of the Company
to join him in any activity prohibited by Paragraph 11 or 12.
(d) This Paragraph 11 and Paragraph 12, 13 and 14 shall survive the
expiration or termination of the Employment Term for any reason.
(e) It is expressly agreed by Employee that the nature and scope of each
of the provisions set forth in Paragraphs 11 and 12 are reasonable and
necessary. If, for any reason, any aspect of these provisions as they apply to
Employee is determined by a court of competent jurisdiction to be unreasonable
or unenforceable, the provisions shall only be modified to the minimum extent
required to make the provisions reasonable and/or enforceable, as the case may
be. Employee acknowledges and agrees that his services
23
<PAGE>
are of a unique character and expressly grants to the Company or any subsidiary,
successor or assignee of the Company, the right to enforce the provisions above
through the use of all remedies available at law or in equity, including, but
not limited to, injunctive relief.
12. Company Property
(a) Any patents, inventions, discoveries, applications, processes or
designs, devised, planned, applied, created, discovered or invented by Employee
in the course of Employee's employment under this Agreement and which pertain to
any aspect of the Company's or its respective subsidiaries' or affiliates'
businesses shall be the sole and absolute property of the Company, and Employee
shall make prompt report thereof to the Company and promptly execute any and all
documents reasonably requested to assure the Company the full and complete
ownership thereof.
(b) All records, files, lists, including computer generated lists,
drawings, documents, equipment and similar items relating to the Company's
business which Employee shall prepare or receive from the Company shall remain
the Company's sole and exclusive property. Upon termination of the Employment
Term, or, if earlier, upon demand by the Company, Employee shall promptly return
to the Company all property of the Company in his possession. Employee further
represents that he will not copy or cause to be copied, print out or cause to be
printed out any software, documents or other materials originating with or
belonging to the Company. Employee covenants that, upon termination of his
employment with the Company, he will not retain in his possession any such
software, documents or other materials.
13. Remedy
It is mutually understood and agreed that Employee's services are special,
unique, unusual, extraordinary and of an intellectual character giving them a
peculiar value, the loss of which cannot be reasonably or adequately compensated
in damages in an action at law. Accordingly, in the event of any breach of this
Agreement by Employee, including, but not limited to, the breach of the
nondisclosure, non-solicitation and non-compete clauses under Paragraphs 11 and
12 hereof, the Company shall be entitled to equitable relief by way of
injunction or otherwise in addition to damages the Company may be entitled to
recover. Nothing herein shall be deemed to restrict any remedy available to
Employee for breach of the Agreement by the Company.
14. Representations and Warranties of Employee and the Company
(a) In order to induce the Company to enter into this Agreement,
Employee hereby represents and warrants to the Company as follows: (i) Employee
has the legal capacity and unrestricted right to execute and deliver this
Agreement once to perform all of his obligations hereunder: (ii) the execution
and delivery of this Agreement by Employee and the performance of his
obligations hereunder will not violate or be in conflict with any fiduciary or
other duty, instrument, agreement, document, arrangement or other understanding
to which Employee is a party or by which he is or may be bound or subject; and
(iii) Employee is not a party to any instrument, agreement, document,
arrangement or other understanding with any person (other than the Company)
requiring or restricting the use or disclosure of any confidential information
or the provision of any employment, consulting or other services.
(b) The Company hereby represents and warrants to Employee, as follows:
(i) the execution, delivery, and performance of this Agreement has been duly
authorized by all necessary corporate action of the Company; and (ii) this
Agreement constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, except that such enforcement may be
subject to any bankruptcy, insolvency, reorganization, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally.
15. Notices
All notices given hereunder shall be in writing and shall be deemed
effectively given when mailed, if sent by registered or certified mail, return
receipt requested, addressed to Employee at his address set forth on the first
page of this Agreement, and to the Company at its address set forth on the first
page of this Agreement, Attention: Barry Siegel, Co-Chairman of the Board, with
a copy to Muenz & Meritz, P.C., Three Hughes Place, Dix Hills, New York 11746,
Attention: Lawrence A. Muenz, or at such address as such party
24
<PAGE>
shall have designated by a notice given in accordance with this Paragraph 15, or
when actually received by the party for whom intended, if sent by any other
means.
16. Entire Agreement
This Agreement constitutes the entire understanding of the parties with
respect to its subject matter and no change, alteration or modification hereof
may be made except in writing signed by the parties hereto. Any prior or other
agreements, promises, negotiations or representations not expressly set forth in
this Agreement are of no force or effect.
17. Severability
If any provision of this Agreement shall be unenforceable under any applicable
law, then notwithstanding such unenforceability, the remainder of this Agreement
shall continue in full force and effect.
18. Waivers, Modifications, Etc.
No amendment, modification or waiver of any provision of this Agreement shall
be effective unless the same shall be in writing and signed by each of the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
19. Assignment
Neither this Agreement. nor any of Employee's rights, powers, duties or
obligations hereunder, may be assigned by Employee. This Agreement shall be
binding upon and inure to the benefit of Employee and his heirs and legal
representatives and the Company and its successors and assigns. Successors of
the Company shall include, without limitation, any corporation or corporations
acquiring, directly or indirectly, all or substantially all of the assets of the
Company, whether by merger, consolidation, purchase, lease or otherwise, and
such successor shall thereafter be deemed "the Company" for the purpose hereof.
20. Applicable Law
This Agreement shall be deemed to have been made, drafted, negotiated and the
transactions contemplated hereby consummated and fully performed in the State of
New York and shall be governed by and construed in accordance with the laws of
the State of New York, without regard to the conflicts of law rules thereof.
Nothing contained in this Agreement shall be construed so as to require the
commission of any act contrary to law, and whenever there is any conflict
between any provision of this Agreement and any statute, law, ordinance, order
or regulation, contrary to which the parties hereto have no legal right to
contract, the latter shall prevail, but in such event any provision of this
Agreement so affected shall be curtailed and limited only to the extent
necessary to bring it within the legal requirements.
21. Jurisdiction and Venue
It is hereby irrevocably agreed that all actions, suits or proceedings between
the Company and Employee arising out of, in connection with or relating to this
Agreement shall be exclusively heard and determined in, and the parties do
hereby irrevocably submit to the exclusive jurisdiction of, the Supreme Court of
the State of New York for Nassau or Suffolk County or the United States District
Court for the Eastern District of New York. The parties also agree that a final
judgment in any such action, suit or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The parties hereby unconditionally waive any objection which
either of them may now or hereafter have to the venue of any such action, suit
or proceeding brought in any of the aforesaid courts, and waive any claim that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
22. Full Understanding
Employee represents and agrees that he fully understands his right to discuss
all aspects of this Agreement with his private attorney, that to the extent, if
any, that he desired, he availed himself of this right, that he has carefully
read and fully understands all of the provisions of this Agreement, that he is
competent to execute this Agreement. that his agreement to execute this
Agreement has not been obtained by any
25
<PAGE>
duress and that he freely and voluntarily enters into it, and that he has read
this document in its entirety and fully understands the meaning, intent and
consequences of this document which is that it constitutes an agreement of
employment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date written below.
FIRST PRIORITY GROUP, INC.
By:___________________________ Dated:______________________
Title:__________________________
Douglas Konetzni
By:___________________________ Dated:______________________
26
Exhibit 10.11
[CHASE LOGO]
General Loan and Collateral Agreement
of First Priority Group, Inc.
----------------------------------
<PAGE>
Upon and after the happening of any event of deficiency or event of default,
the Bank shall have, in addition to all other rights and remedies, the remedies
of a secured party under the New York Uniform Commercial Code.
The undersigned hereby authorizes the Bank at any time during the existence
of any event of deficiency, or upon or at any time after the occurrence of any
event of default, whether occasioned by acceleration of maturity of any of the
liabilities of the undersigned as hereinbefore provided or otherwise, to sell or
grant options to purchase or otherwise realize upon the whole or from time to
time any part of the collateral with or without notice or demand of payment of
any of the liabilities of the undersigned. Any such sales may be made at any
broker's board or at public or private sale, at the option of the Bank, with or
without advertisement or notice of intention to sell or of the time or place of
sale and may be for cash or credit and for present or future delivery. At any
sale the Bank may become the purchaser of any of the property sold, free from
any right of redemption.
The undersigned agrees to pay to the Bank, as soon as incurred, all costs
and expenses incidental to the care, sale, or collection of or realization upon
any of the collateral or in any way relating to the rights of the Bank
hereunder, including counsel fees. The Bank may apply any or all proceeds of the
collateral to the payment or reduction of such of the liabilities of the
undersigned and in such amounts as it may select, although contingent and
although unmatured; and may set off, without notice, against all or any part of
the liabilities of the undersigned, whether or not then due or matured, all
amounts owed by the Bank in any capacity to the undersigned in any capacity,
whether or not then due or matured, and the Bank shall be deemed to have
exercised such right against such funds immediately upon an event of default or
event of deficiency and without further action even though such set off is
subsequently entered on the Bank's books and records; and in case of any
deficiency, the undersigned will remain liable therefor.
The undersigned expressly waives and releases any right under any theory
whatsoever to require the Bank to collect any portion of the liabilities of the
undersigned from any other person or from the proceeds of any other property
held by the Bank. The Bank is hereby authorized, with or without notice, before
or after maturity of any of the liabilities of the undersigned, to transfer to
or register in the name of its nominee or nominees all or any part of the
collateral and to exercise any or all rights of collection, enforcement,
conversion or exchange and other similar rights, privileges and options
pertaining to the collateral, but the Bank shall have no duty to exercise any
such rights, privileges or options or to sell or otherwise realize upon any of
the collateral as herein authorized or to preerve the same and shall not be
responsible for any failure to do so or delay in doing so.
The undersigned expressly waives all notices of any character whatsoever and
waives, as against the Bank, any right of subogation, contribution,
indemnification and all other rights available to the undersigned at law or in
equity.
The Bank may transfer this instrument and/or any or all instruments
evidencing any or all of the liabilities of the undersigned and may deliver the
collateral or any part thereof to the transferee or transferees, who shall
thereupon become vested with all the powers and rights with respect thereto
given to the Bank hereby or by the instrument or instruments so trnsferred, and
the Bank shall thereafter be forever relieved and fully discharged from any
liability or responsibility with respect thereto; but the Bank shall retain all
rights and powers hereby given to it with respect to any and all liabilities of
the undersigned and collateral not so transferred. The provisions of the fifth
and sixth paragraphs hereof shall be and remain effective although any of the
conditions stated therein shall, with or without the knowledge of the Bank,
exist at or immediately after the time of its acceptance of any liability of the
undersigned or of further security or of any payment on account. Presentment and
demand for payment with respect to any of the liabilities of the undersigned may
be made at the office of the Bank. Any notice to or demand on the undersigned
elected to be given or made by the Bank or any transferee shall be deemed
effective, if not first otherwise made or given, when forwarded by mail,
telecopier, cable or radio or telephoned to the last address of the undersigned
appearing on the Bank's books. No act or delay on the part of the Bank or any
transferee in exercising any rights hereunder or failure to exercise the same
shall operate as a waiver of any rights; no notice to or demand on the
undersigned shall be deemed to be a waiver of the obligation of the undersigned
or of the right of the Bank or of any transferee to take further action without
notice or demand as provided herein; nor in any event shall any waiver be
effective unless in writing and then the same shall be applicable only in the
specific instance for which given. No course of dealing between the undersigned
and the Bank shall be effective to modify or discharge in whole or in part this
agreement.
This agreement shall cover all future as well as all existing transactions
and shall remain effective irrespective of any interruptions in the business
relations of the undersigned with the Bank. The term "undersigned" as used
herein shall, if this instrument is signed by more than one party, mean the
"undersigned and each of them" and each undertaking herein contained shall be
their joint and several undertaking, provided, however, that in the phrases "of
the undersigned", "by the undersigned", "against the undersigned", "for the
undersigned", "to the undersigned", and "on the undersigned", the term
"undersigned" shall mean the "undersigned or any of them", and the Bank may
release or exchange any of the collateral belonging to any of the parties hereto
and may renew or extend any of the liabilities of any of them and may make
additional advances or extensions of credit to any of them and may release or
fail to set off any deposit account or credit of any of them and may grant other
indulgences to any of them, all from time to time, before or after maturity of
any of the liabilities of the undersigned, with or without further notice to or
assent from any of the other parties hereto. If any party hereto shall be a
partnership, the agreements herein contained shall remain in force and
applicable notwithstanding any changes in the individuals composing the
partnership, and the term "undersigned" shall include any altered or successive
partnerships, but the predecessor partnerships and their partners shall not
thereby be released from any liability.
The Bank and the undersigned, in any litigation arising out of or in connection
with the collateral, the liabilities of the undersigned or this agreement,
IRREVOCABLY WAIVE TRIAL BY JURY.
This agreement shall be governed by and construed in accordance with the laws
of the State of New York.
Executed and delivered this 29 day of July, 1996.
---- ----- --
-------------------------------------------
(Individual Borrower)
-------------------------------------------
(Individual Borrower)
First Priority Group, Inc.
-------------------------------------------
(Name of Corporate or Partnership Borrower)
ATTEST: /s/ Barry Siegel BY: /s/ Barry Siegel Co-chairman, Secretary
---------------- ---------------------------------------
(for corporate (Name and Title)
Borrowers only - to be
signed by Secretary
or Assistant Secretary) BY:
---------------------------------------
(Name and Title)
(AFFIX CORPORATE SEAL HERE)
Exhibit 10.12
The Chase Manhattan Bank
SECURITY AGREEMENT
(General Purpose)
This Agreement made this 29 day of July, 1996, between The Chase
Manhattan Bank (herein called "Bank") and First Priority Group, Inc.
(herein called "Borrower").
1. DEFINITIONS OF TERMS USED HEREIN. (a) "Borrower" includes all
individuals executing this agreement as parties hereto and all members
of a partnership when Borrower is a partnership, each of whom shall be
jointly and severally liable individually and as partners hereunder. (b)
"Liability" or "liabilities" includes all liabilities (primary,
secondary, direct, contingent, sole, joint or several) due or to become
due, or that may be hereafter contracted or acquired, of Borrower
(including Borrower and any other person) to Bank, including without
limitation all liabilities arising under or from any note, loan or
credit agreement, letter of credit, guaranty, draft, acceptance,
interest rate or foreign exchange agreement or any other instrument or
agreement of (or the responsibility of) the Borrower or any loan, advance or
other extension of credit or financial accommodation to Borrower by Bank.
(c) "Proceeds" means whatever is received when Collateral is sold, exchanged,
leased, collected or otherwise disposed of and includes the account arising
when the right to payment is earned under a contract. (d) "Security interest"
means a lien or other interest in Collateral which secures payment of a
liability or performance of an obligation. (e) "Collateral" means the property
described in Section 2 hereof and the following described property of
the Borrower:
All present and future accounts, contract rights, general intangibles,
instruments, documents, and chattel paper, all returned and repossessed
goods relating thereto, all proceeds thereof, and all books, records and
other property relating to any of the foregoing.
All terms used herein which are also defined in the New York or any
other applicable Uniform Commercial Code shall also have at least the
meanings herein as therein defined.
2. SECURITY INTEREST. As security for the payment of all loans and
other extensions of credit or other financial accommodations now or in
the future made by Bank to Borrower and all other liabilities of
Borrower to Bank, Borrower hereby grants to Bank a security interest in
the above described Collateral and all and any Proceeds arising
therefrom and all and any products of the Collateral.
The proceeds of the loan hereby obtained by the Borrower will be
used to purchase the Collateral.
Borrower represents and warrants that it is the sole lawful owner
of the Collateral, free and clear of any liens and encumbrances, and has
the right and power to pledge, sell, assign and transfer absolute title
thereto to Bank and that no financing statement covering the
Collateral, other than the Bank's, is on file in any public office.
To further secure the Liabilities, the Borrower hereby grants,
pledges and assigns to the Bank a continuing lien, security interest and
right of set-off in and to all money, securities and all other property
of the Borrower, and the proceeds thereof, now or hereafter actually or
constructively held or received by or for the Bank, Chemical Securities,
Inc. or any other affiliate of the Bank for any purpose, including
safekeeping, custody, pledge, transmission and collection, and in and to
all of the Borrower's deposits (general and special) and credits with
the Bank, Chemical Securities, Inc. or any other affiliate of the Bank.
Borrower authorizes Bank to deliver to others a copy of this Agreement
as written notification of the Borrower's transfer of a security
interest in the foregoing property. The Bank is hereby authorized at any
time and from time to time, without notice, to apply all or part of such
money, securities, property, proceeds, deposits or credits to any of the
Liabilities in such amounts as the Bank may elect in its sole and
absolute discretion, although the Liabilities may then be contingent or
unmatured and whether or not the collateral security may be deemed
adequate.
3. USE OF COLLATERAL. Until default, Borrower may use the
Collateral in any lawful manner. If the Collateral is or is about to
become affixed to realty, Borrower will, at Bank's request, furnish the
Bank a writing executed by the mortgagee of the realty whereby the
mortgagee subordinates its rights and priorities to the Bank's security
interest in the Collateral. If the Collateral is or may become subject
to a landlord's lien, the Borrower will at Bank's request, furnish the Bank
with a landlord's waiver satisfactory in form to the Bank.
If goods, the Collateral will be used primarily as _________________
(Equipment in business, Inventory for sale or
lease, Farming, Personal, Family or Hosuehold.)
4. INSURANCE. Borrower will have and maintain insurance on the
Collateral until this Agreement is terminated against all expected risks
to which it is exposed, including fire, theft and collision, and those
which the Bank may designate, such insurance to be payable to Bank and
Borrower as their interest may appear; all policies shall provide for
thirty (30) days' written minimum cancellation notice to the Bank. Bank
may act as attorney for Borrower in obtaining, adjusting, settling and
cancelling such insurance.
<PAGE>
5. DEFAULT. Default shall exist hereunder (1) if the Borrower shall fail to
pay any amount of the Liabilities when due or if the Borrower shall fail to
keep, observe or perform any provision of this Agreement or of any note, or
other instrument or agreement between Borrower and Bank relating to any
Liabilities or if any default or Event of Default specified or defined in any
such note, instrument or agreement shall occur, (2) if the Borrower shall or
shall attempt to (a) remove or allow removal of the Collateral from the county
where the Borrower now resides or change the location of its chief executive
office or principal place of business, (b) sell, encumber or otherwise dispose
of the Collateral or any interest therein or permit any lien or security
interest (other than the Bank's) to exist thereon or therein, (c) conceal, hire
out or let the Collateral, (d) misuse or abuse the Collateral, or (e) use or
allow the use of the Collateral in connection with any undertaking prohibited by
law; (3) if bankruptcy or insolvency proceedings shall be instituted by or
against the Borrower, or (4) if the Collateral shall be attached, levied upon,
seized in any legal proceedings, or held by virtue of any lien or distress, or
(5) if the Borrower shall make any assignment for the benefit of creditors, or
(6) if the Borrower shall fail to pay promptly all taxes and assessments upon
the Collateral or the use thereof, or (7) if the Borrower shall die, or (8) if
the Bank with reasonable cause determines that its interest in the Collateral is
in jeopardy, or (9) if Borrower should fail to keep the Collateral suitably
insured. In the event of default or the breach of any undertaking of or
conditions to be performed by the Borrower (1) all liabilities shall become
immediately due and payable, and (2) the Borrower agrees upon demand to deliver
the Collateral to the Bank, or the Bank may, with or without legal process, and
with or without previous notice or demand for performance, enter any premises
wherein the Collateral may be, and take possession of the same, together with
anything therein; and the Bank may make disposition of the Collateral subject to
any and all applicable provisions of the law. If the Collateral is sold at
public sale, Bank may purchase the Collateral at such sale. The Bank, provided
it has sent the statutory notice of default, may retain from the proceeds of
such sale all reasonable costs incurred in the said taking and sale and also,
all sums then owing by the Borrower, and any surplus of any such sale shall be
paid to the Borrower.
6. GENERAL AGREEMENTS. (a) Borrower agrees to pay the costs of filing
financing statements and of conducting searches in connection with this
Agreement. (b) Borrower agrees to allow the Bank through any of its officers or
agents, at all reasonable times, to examine or inspect any of the Collateral and
to examine, inspect and make extracts from the Borrower's books and records
relating to the Collateral. (c) Borrower will promptly pay when due all taxes
and assessments upon the Collateral or for its use of operation or upon the
proceeds thereof or upon this Agreement or upon any note or other instrument or
agreement evidencing any of the liabilities. (d) At its option, the Bank may
discharge taxes, liens or security interests or other encumbrances at any time
levied or placed on the Collateral, and may pay for the maintenance and
preservation of the Collateral, and the Borrower agrees to reimburse the Bank on
demand for any payment made or any expense incurred by the Bank pursuant to the
foregoing authorization, including outside or in-house counsel fees and
disbursements incurred or expended by the Bank in connection with this
Agreement. (e) Borrower hereby authorizes the Bank to file financing statements
and any amendments thereto without the signature of Borrower. Such authorization
is limited to the security interest granted by this Agreement. (f) Borrower
agrees that the Bank has the right to notify (on invoices or otherwise) account
debtors and other obligors or payors on any Collateral of its assignment to the
Bank and that all payments thereon should be made directly to the Bank and that
the Bank has full power and authority to collect, compromise, endorse, sell or
otherwise deal with the Collateral on its own name or that of the Borrower at
any time. (g) The Borrower agrees to pay or reimburse the Bank on demand for all
costs and expenses incurred by it in connection with the administration and
enforcement of this Agreement and the administration, preservation, protection,
collection or realization of any Collateral (including outside or in-house
attorneys' fees and expenses). (h) The Bank shall not be deemed to have waived
any of its rights hereunder or under any other agreement, instrument or paper
signed by the Borrower unless such waiver is in writing and signed by the Bank.
No delay or omission on the part of the Bank in exercising any right shall
operate as a waiver thereof or of any other right. A waiver upon any one
occasion shall not be construed as a bar or a waiver of any right or remedy on
any future occasion. All of the rights and remedies of the Bank, whether
evidenced hereby or by any other Agreement, instrument or paper, shall be
cumulative and may be exercised singly or concurrently. (i) This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. (j) This Agreement, and the security interests, obligations, rights
and remedies created hereby, shall inure to the benefit of the Bank and its
successors and assigns and be binding upon the Borrower and its heirs,
executors, administrators, legal representatives, successors and assigns.
7. EXECUTION BY BANK. This Agreement shall take effect immediately upon
execution by the Borrower, and the execution hereof by the Bank shall not be
required as a condition to the effectiveness of this Agreement. The provision
for execution of this Agreement by the Bank is only for purposes of filing this
Agreement as a Security Agreement under the Uniform Commercial Code, if
execution hereof by the Bank is required for purposes of such filing.
First Priority Group, Inc.
-----------------------------------------------
(Borrower)
By /s/ Barry Siegel Co-chairman, Secretary
-----------------------------------------------
270 Duffy Avenue
-----------------------------------------------
(Number and Street)
Hicksville, New York 11801
-----------------------------------------------
(City, County, State)
Places of business in counties other than above.
----------------------------------------------
----------------------------------------------
----------------------------------------------
The Chase Manhattan Bank______________________
Bank Designation
By /s/ Barbara A. Lerman, V.P.
---------------------------------------
(Name and Title)
Address 50 Charles Lindbergh Boulevard
Mitchell Field, N.Y. 11553
----------------------------------
(Number, Street, City)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 683503
<SECURITIES> 0
<RECEIVABLES> 2016635
<ALLOWANCES> 0
<INVENTORY> 318398
<CURRENT-ASSETS> 3340434
<PP&E> 319841
<DEPRECIATION> 178017
<TOTAL-ASSETS> 3529571
<CURRENT-LIABILITIES> 2312802
<BONDS> 0
92258
0
<COMMON> 0
<OTHER-SE> 1214511
<TOTAL-LIABILITY-AND-EQUITY> 3529571
<SALES> 14066248
<TOTAL-REVENUES> 14103777
<CGS> 332708
<TOTAL-COSTS> 11343544
<OTHER-EXPENSES> 2434370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7140
<INCOME-PRETAX> 318723
<INCOME-TAX> 5149
<INCOME-CONTINUING> 313574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313574
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
