<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
For the fiscal year ended December 31, 1998
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.)
51 East Bethpage Road
Plainview, New York 11803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (516) 694-1010
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
Preferred Stock Purchase Rights par value $.01 per share
<PAGE>
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 /_/
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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./_/
State the issuer's revenues for its most recent fiscal year $14,558,474
The aggregate market value of the issuer's voting stock held by
non-affiliates of the issuer as of April 13, 1999, based upon the closing price
on the date thereof is $9,332,348.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of April 13, 1999, the issuer had outstanding a total of 8,331,800
common shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of this Form 10-KSB is hereby incorporated by reference to the
Definitive Proxy or Definitive Information Statement issued by the Company for
the Notice of the Annual Meeting of Shareholders.
Transitional Small Business Disclosure Format (check one):
Yes /_/ No /x/
THE REMAINING PORTION OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
3
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Part I
Item 1. DESCRIPTION OF BUSINESS
The Company, a New York corporation formed on June 28, 1985, is engaged
in automotive fleet management and administration of automotive repairs for
businesses, insurance companies and members of affinity groups.
The Company's office is located at 51 East Bethpage Road, Plainview,
New York 11803 and its telephone number is (516) 694-1010.
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.,
("NFS") 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 through its Direct Appraisal and Repair Program, Affinity Division and
Recovery Services Division.
Fleet Management. The Company has entered into contractual arrangements
with over 2,000 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
4
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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.
Affinity Group Programs. These programs are a series of comprehensive
vehicle-related services for consumers sold 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.
Driver's Shield(R). - This is the premium program consisting of
components which may be sold individually. This package consists of the
Collision Damage Repair Program, Driver Discount Program and the Auto Service
Hotline. Also offered, are an auto buying service, legal defense reimbursement,
and custom trip routing services.
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.
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 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 has increased its' sales
force in order to rapidly expand its market share in Direct Appraisal and Repair
Programs. [See Forward-Looking Statements and Cautionary Factors]
5
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Discontinued Operations
In September 1996, the Company's FPG Direct division began to market
consumer goods through direct mailing efforts to credit card customers of major
oil companies and retail department stores. During the second quarter of 1997,
the Company decided to discontinue its FPG Direct division. The division has not
participated in any new promotions since June 1997, it continued to fill orders
(to reduce inventory) through October 1997, pay vendors, collect receivables,
and receive returns. The Company did not expect to incur any additional losses
during the remaining phase out period; however, the Company was unable to
realize certain assets being carried (consisting mostly of inventories) and
wrote these assets off in 1998. Losses from this division did not provide any
income tax benefit during 1997 or 1998.
Recent Developments.
The Company has made a decision to grow its business by entering into a
number of strategic partnerships. Recently the Company announced that NFS has
begun to provide collision claims management services to self insured clients of
Sedgwick Claims Management Services, Inc., a unit of Marsh & McLennan Companies,
Inc. Previously, the Company announced that it had entered into an agreement
with American Bankers Insurance Group, Inc.("American Bankers") whereby American
will market the Company's Driver's Shield(R) program. [See Forward-Looking
Statements and Cautionary Factors]
Sales and Marketing. The Company's fleet management 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. The Company
believes that this flexibility is important in its marketing activities and in
increasing its client base.
In 1998, one customer accounted for approximately 10% of the Company's
revenue. In 1997, a different customer accounted for approximately 10% of the
Company's revenue.
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Employees
At year end, the Company employed thirty-seven full-time employees and
three part 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 types of auto club programs the Company believes that there is only one
other company that offers a program providing similar 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 software 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 December 1996, the Company entered into a lease for new office space
at 51 East Bethpage Road, Plainview, New York 11803. The space consists of
approximately 12,000 square feet of office space. The Company relocated to this
new space during April 1997. The lease is for five years and expires on March
31, 2002.
In July 1998, the Company entered into a one year sublease for
approximately 6,500 of office space in Margate, Florida to house the Company's
second call center. Although this call center was closed in January 1999, the
lease runs through June 30, 1999.
Item 3. LEGAL PROCEEDINGS
The Company was served with a summons and complaint filed by Philip M.
Panzera in United States District Court (Eastern District, NY) alleging that the
Company wrongfully terminated his employment on January 29, 1998 pursuant to an
employment agreement dated November 14, 1997 (the "Employment Agreement") and
wrongfully converted Mr. Panzera's personal property. Mr. Panzera is
7
<PAGE>
seeking monetary damages in excess of $1 million. Mr. Panzera held the position
in the Company of Senior Vice President, Chief Financial Officer for the period
of November 17, 1997 through January 29, 1998. The Company has recently answered
this complaint and denied all of Mr. Panzera's allegations stating that the
Company properly terminated Mr. Panzera for cause pursuant to the Employment
Agreement. Additionally, the Company has filed a counterclaim against Mr.
Panzera alleging, among other things, that Mr. Panzera fraudulently induced the
Company to enter into the Employment Agreement by making false representations
concerning his educational background, employment history, experience and
skills. The Company is seeking monetary damages of no less than $1 million. The
Company believes that Mr. Panzera's claim is without merit and intends to
vigorously defend this suit.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common shares are traded on The Nasdaq SmallCap market.
The following table shows the high and low closing prices for the periods
indicated.
Sale Price($)
High Low
---- ---
1998
First Quarter $6.625 $4.94
Second Quarter $6.75 $5.50
Third Quarter $5.125 $2.50
Fourth Quarter $4.25 $1.50
1997
First Quarter $2.25 $1.50
Second Quarter $2.167 $1.375
Third Quarter $3.375 $1.44
Fourth Quarter $6.875 $3.00
8
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The number of record holders of the Company's common shares as of March
31, 1999 was 379.
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 September 1996, conducted business in only one
segment, automotive fleet management and related operations, such as the DARP
and Affinity programs ("Automotive Management."). In September 1996, the Company
commenced a new line of business, under the name FPG Direct. FPG Direct marketed
consumer goods to the credit card base of customers of oil companies and retail
department stores through direct mailing efforts throughout the United States.
See discussion below regarding the discontinuance of the operations of FPG
Direct.
Automotive Management
Revenues from services of the automotive management operations were
$14,558,474 in 1998, as compared to $13,558,640 in 1997, representing an
increase of $999,834, or 7.4%. The direct costs of services related to such
revenue (principally charges from automotive repair facilities) were $12,129,819
in 1998, as compared to $11,262,698 in 1997, representing an increase of
$867,121, or 7.7%. Gross profit percentage decreased .2% to 16.7% in 1998 from
16.9% in 1997. Although the number of vehicles increased, this was partially
offset by a reduction in the national vehicle accident rate. The reduced vehicle
accident rate, recognized by various insurance industry sources, is due to: (i)
increased safety conditions on both roads and in vehicles, (ii) drivers' safety
awareness and defensive driving and (iii) moderate weather conditions.
Total operating expenses were $4,573,009 for 1998, as compared to
$2,946,232 for 1997, representing an increase of $1,626,777 or 55.2%. Increased
operating expenses were primarily attributable to the Company's efforts in
exploring new business opportunities in order to grow its business, incurring
charges for consultants to review alternative business strategies and associated
legal fees. Additionally, in 1998, the Company incurred costs associated with
the opening and the subsequent closing of a second call center facility in
Margate, Florida. This call center was closed in January 1999, resulting in an
accrual for the remaining lease payments of $48,520. The Company also developed
an Information Technology Department in order to upgrade all its systems for
Y2K. These expenditures have positioned the Company for rapid growth in new
business and technology areas. In addition, the Company incurred severance
expenses related to the resignation of the former President and Chief Operating
Officer of the Company.
9
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Interest and other income were $245,246 in 1998, as compared to $41,781
in 1997, representing an increase of $203,465. The increase is primarily
attributable to larger average cash balances available during 1998 which were
invested in short-term cash equivalents.
Interest expense was $2,800 in 1998, as compared to $9,532 in 1997,
representing an increase of $6,732.
FPG Direct (Discontinued operations)
Management discontinued operations of the FPG Direct division in 1997
and has not participated in any new promotions since June 1997.
For the ended December 31, 1998, FPG Direct had no sales as compared to
sales of $2,500,097 in 1997. The cost of goods sold for the year ended December
31, 1997 was $1,301,077, resulting in a gross profit of $1,199,020 (48%). In
1997, FPG Direct incurred selling, general, and administrative expenses of
$2,277,156, and interest expense of $32,934 resulting in a net loss of
$1,111,070. FPG Direct experienced a loss on disposition of assets of $93,922 in
1998.
Liquidity and Capital Resources
As of December 31, 1998, the Company had cash and cash equivalents of
$2,782,180 as compared to $3,453,864 as of December 31, 1997. Working capital of
the Company as of December 31, 1998, was $2,680,475 as compared to $3,717,452 as
of December 31, 1997. The Company's operating activities used $1,554,262 of cash
in 1998 as compared to 1997, when the Company's operating activities used
$861,894 of cash. As discussed above, the Company experienced large increases in
its operating costs in order to accommodate the growth of the Company as it
explores and enters into new business.
The Company arranged for a short-term line of credit agreement with its
bank, providing for financing up to $750,000 through June 30, 1998. Effective
October 16, 1997, the Company terminated this line of credit.
In April 1997, the Company relocated its corporate offices to a 12,000
square foot facility in Plainview, New York. The Company incurred significant
expenditures representing moving costs, new furniture and equipment, and
leasehold improvements. In April 1997, the Company obtained a term loan of
$150,000 from its bank to finance some of these costs. On October 16, 1997, the
Company repaid the balance of the loan.
In April 1997, the Company raised $400,000 through the private
placement issuance of 266,667 shares at $1.50 per share. Several of the
Company's executives and employees accounted for a majority of the shares issued
in the private placement. In August 1997 the Company raised an additional
$1,500,000 through the private placement issuance of 750,000 units at $2.00 per
unit, consisting of one share of common stock and a redeemable common stock
purchase warrant at
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$2.00 per share. A private investment group and one executive participated in
this placement. In December 1997, the Company raised an additional $2,330,813
through the private placement issuance of 581,250 units at $4.01 per unit,
consisting of one share of common stock and a redeemable common stock purchase
warrant at $5.75 per share. Additionally, in December, the Company issued a
Notice of Redemption to the holders of the warrants issued as part of the August
1997 private placement. Thereafter, one holder, an executive in the Company,
exercised his right to purchase 250,000 additional shares of common stock at
$2.00, permitting the Company to raise an additional $400,000 in cash and a note
from the executive for a $100,000. This note was paid, in full, on March 6,
1998. Subsequently, in January 1998 the other warrant holder also exercised its
right to purchase 500,000 additional shares of common stock at $2.00, permitting
the Company to raise an additional $1,000,000. In December, 1998 a holder of a
stock option exercised its right to purchase 100,000 shares of common stock at
$.70 per share, permitting the Company to raise an additional $70,000 in cash.
The Company believes that its present cash position will enable the
Company to continue to support its operations for the short and longer term.
Year 2000 Compliance
The Company has two computer systems and software products coded to
accept only two digit entries to represent years. For example, the year "1998"
would be represented by "98." These systems and products will need to be able to
accept four digit entries to distinguish years beginning with 2000 from prior
years. As a result, systems and products that do not accept four digit year
entries will be replaced to comply with such "Year 2000" requirements. The
Company believes that its internal systems are Year 2000 compliant or will be
replaced in connection with previously planned changes to information systems
prior to the need to comply with Year 2000 requirements. Expenses related to
Year 2000 compliance amounted to approximately $100,000 in 1998 and are expected
to amount to approximately $100,000 in 1999. The anticipated costs of any Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to the availability or cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties. In addition, there can be no assurance
that Year 2000 compliance problems will not be revealed in the future which
could have a material adverse affect on the Company's business, financial
condition and results of operations. Many of the Company's customers and
suppliers may be affected by Year 2000 issues that may require them to expend
significant resources to modify or replace their existing systems. This may
result in those customers having reduced funds to purchase the Company's
products or in those suppliers experiencing difficulties in producing or
shipping key components to the Company on a timely basis or at all.
11
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Forward Looking Statements - Cautionary Factors
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks some of which are discussed at
appropriate points in the Report and are also summarized as follows:
1. The Company has been able to assemble a network of independently owned and
operated repair shops throughout the United States. These collision repair
shops must maintain the high quality repairs standard that has enabled the
Company to continue to retain and attract new clients. The Company's
inability to retain these quality repair shops and maintain their
individually high repair standards could have a material adverse impact
upon all of the Company's vehicle collision repair programs.
2. The Company, under the DARP, or NFS, under its fleet management business,
or the Affinity Division, have clients that either individually control a
large number of insureds, control large fleets, or a large number of
participants in FPG programs such as Driver's Shield(R). The loss of any
one insurance company, large fleet operator, or affinity group, terminating
its relationship with the Company or NFS, could have an adverse impact on
the continued growth of that business. The Company and NFS have addressed
the issue of customer retention by implementing a policy of entering into
long term contracts with its customers. In the past several years, this has
materially improved the customer retention rate.
3. As the Company's proprietary programs gain more success, it is possible
that the competition will attempt to copy these programs and incorporate
them into their programs. This could lead to increased competitive
pressures on those programs that are the most successful. The competition
could result in decreased profit margins and/or the loss of certain
customers.
4. The DARP concept is to enter into contractual commitments with auto
insurers that will permit the Company to manage the insurer's claim
management process. During this contractual period, the insurer may
terminate the agreement during the trial period, and/or not offer for
processing, a substantial number of claims of its entire claims experience.
This situation could result in individual insurer's relationship not
contributing to FPG's growth and profitability as originally expected.
Item 7. FINANCIAL STATEMENTS
The Company's financial statements and schedules appear at the end of
this Report after Item 13.
12
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FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998 AND 1997
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, 1998 and 1997, 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, 1998 and 1997, and the
consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Melville, New York NUSSBAUM YATES & WOLPOW, P.C.
February 18, 1999
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,782,180 $3,453,864
Accounts receivable, less allowance for doubtful
accounts of $28,223 in 1998 and $22,500 in 1997 1,711,644 1,604,266
Note receivable, shareholder - 100,000
Inventories - 61,642
Prepaid expenses and other current assets 66,207 139,276
---------- ----------
Total current assets 4,560,031 5,359,048
Property and equipment, net 601,424 457,310
Security deposits and other assets 107,972 41,328
---------- ----------
Total assets $5,269,427 $5,857,686
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,238,089 $1,254,628
Accrued expenses and other current liabilities 596,795 386,968
Current portion of long-term debt 44,672 -
---------- ----------
Total current liabilities 1,879,556 1,641,596
----------- -----------
Long-term debt 51,926 -
---------- ----------
Shareholders' equity:
Common stock, $.015 par value, authorized 20,000,000 shares; issued
8,598,467 shares in 1998 and 7,998,467
shares in 1997 128,977 119,977
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding - -
Additional paid-in capital 7,762,350 6,645,737
Deficit (4,463,382) (2,459,624)
---------- ----------
3,427,945 4,306,090
Less common stock held in treasury, at cost, 266,667 shares 90,000 90,000
---------- ----------
Total shareholders' equity 3,337,945 4,216,090
---------- ----------
Total liabilities and shareholders' equity $5,269,427 $5,857,686
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 14,558,474 $ 13,558,640
Cost of revenue (principally charges incurred at repair
facilities for services) 12,129,819 11,262,698
------------ ------------
Gross profit 2,428,655 2,295,942
------------ ------------
Operating expenses:
Selling 1,351,360 972,407
General and administrative 3,221,649 1,973,825
------------ ------------
Total operating expenses 4,573,009 2,946,232
------------ ------------
(2,144,354) (650,290)
------------ ------------
Other income (expense):
Interest and other income 245,246 41,781
Interest expense (2,800) (9,532)
------------ ------------
Total other income 242,446 32,249
------------ ------------
Loss from continuing operations before
income taxes (1,901,908) (618,041)
Income taxes, all current 7,928 2,381
------------ ------------
Loss from continuing operations (1,909,836) (620,422)
------------ ------------
Discontinued operations:
Loss from operations of discontinued direct
response marketing division, no income
tax benefit -- (670,198)
Loss on disposal of direct response marketing
division, no income tax benefit (93,922) (440,872)
------------ ------------
(93,922) (1,111,070)
------------ ------------
Net loss ($ 2,003,758) ($ 1,731,492)
============ ============
Basic and diluted loss per share:
Continuing operations ($ .23) ($ .10)
Discontinued operations (.01) (.17)
------------ ------------
Net loss ($ .24) ($ .27)
============ ============
Weighted average number of common shares outstanding 8,197,827 6,364,768
============ ============
</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, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
Additional
-------------------------- Paid-in
Shares Amount Capital Deficit
--------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 6,150,550 $ 92,258 $1,942,643 ($ 728,132)
Issuance of common stock in private
placements 1,597,917 23,969 4,206,844 -
Exercise of warrants 250,000 3,750 496,250 -
Net loss - - - (1,731,492)
--------- ------ --------- ---------
Balance, January 1, 1998 7,998,467 119,977 6,645,737 (2,459,624)
Exercise of options 100,000 1,500 68,500 -
Exercise of warrants 500,000 7,500 992,500 -
Options granted for services - - 55,613 -
Net loss - - - (2,003,758)
--------- ------ --------- ---------
Balance, December 31, 1998 8,598,467 $128,977 $7,762,350 ($4,463,382)
--------- ------ --------- ---------
<CAPTION>
Total
Treasury Stock Share-
--------------------------- holders'
Shares Amount Equity
---------- -------- ---------
<S> <C> <C> <C>
Balance, January 1, 1997 266,667 ($90,000) $1,216,769
Issuance of common stock in private
placements - - 4,230,813
Exercise of warrants - - 500,000
Net loss - - (1,731,492)
------------ ------------- -----------
Balance, January 1, 1998 266,667 (90,000) 4,216,090
Exercise of options - - 70,000
Exercise of warrants - - 1,000,000
Options granted for services - - 55,613
Net loss - - (2,003,758)
------------ ------------- -----------
Balance, December 31, 1998 266,667 ($90,000) $3,337,945
------------ ------------- -----------
------------ ------------- -----------
</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, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss ($2,003,758) ($1,731,492)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 143,308 83,072
Provision for bad debts 16,723 39,000
Options granted for services 55,613 -
Changes in assets and liabilities:
Accounts receivable (124,101) 373,369
Inventories 61,642 256,756
Prepaid expenses and other current assets 73,069 182,622
Security deposit and other assets (66,644) 5,985
Accounts payable (16,539) (148,515)
Accrued expenses and other current liabilities 306,425 77,309
------------ -------------
Total adjustments 449,496 869,598
------------ ------------
Net cash used in operating activities (1,554,262) (861,894)
------------ -------------
Purchase of property and equipment and net cash
used in investing activities (287,422) (398,558)
------------ ------------
Cash flows provided by financing activities:
Net repayments of borrowings under line of credit - (600,000)
Borrowing on equipment note- 150,000
Principal payments on equipment note - (150,000)
Collection of shareholder note 100,000 -
Proceeds from issuance of common stock 1,070,000 4,630,813
------------ -------------
Net cash provided by financing activities 1,170,000 4,030,813
------------ -------------
Net increase (decrease) in cash and cash equivalents (671,684) 2,770,361
Cash and cash equivalents at beginning of year 3,453,864 683,503
------------ -------------
Cash and cash equivalents at end of year $2,782,180 $3,453,864
============ =============
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 2,876 $ 3,762
============ =============
Cash paid during the year for interest $ - $ 48,152
============ =============
Supplemental disclosure of non-cash financing activities:
During 1997, the Company received $400,000 and a note of $100,000 from a
shareholder in connection with the exercise of 250,000 warrants for
$500,000. The note was paid during 1998.
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
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 of the
discontinued operation, 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 for machinery and equipment and for furniture and fixtures
by the straight-line method over the estimated useful lives of the
assets, principally five years. Leasehold improvements are amortized over
the estimated useful lives or the remaining term of the lease, whichever
is less.
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 (Discontinued Operation)
The Company expenses the costs of advertising the first time the
advertising takes place, except for direct-response advertising (see Note
15), which in 1996 was 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 were
generally amortized over a three or four-month period following the mail
distribution date. Advertising expense was $1,629,680 in 1997.
F-6
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. Summary of Significant Accounting Policies (Continued)
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.
Fair Value of Financial Instruments
o Cash and Cash Equivalents
The carrying amounts approximate fair value because of the short
maturity of the instruments.
o Note Receivable, Shareholder
The carrying amount of the Company's note receivable, shareholder
approximates fair value.
o Long-Term Debt
The carrying amount of the Company's long-term debt approximates fair
value.
2. Description of Business, Revenue Recognition and Concentration of
Credit Risk
Automotive Management
The Company is engaged in automotive management services, including fleet
management, for major corporate clients throughout the United States. The
Company offers computerized collision estimates and provides its clients
with a cost-effective method for repairing their vehicle. The Company
also arranges for repair of the vehicles through a nationwide network of
independently owned contracted facilities.
F-7
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
2. Description of Business, Revenue Recognition and Concentration of
Credit Risk (Continued)
Automotive Management (Continued)
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.
Sales to one customer accounted for 10% of revenue in 1998, and sales to
a different customer accounted for 10% of revenue in 1997.
The Company has no instruments with significant off-balance-sheet risk or
concentration of credit risk.
Direct-Response Marketing (Discontinued Operation)
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. In the
second quarter of 1997, the Company decided to discontinue this segment
(see Note 15).
3. Due From Shareholder
In December 1997, the Company received $400,000 and a note of $100,000
from a shareholder in connection with the exercise of warrants (see Note
9). The note, which was paid in full during 1998, bore interest at 6% per
annum and was secured by 250,000 shares of Company stock.
F-8
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
4. Property and Equipment
1998 1997
-------------- -------------
Machinery and equipment $ 717,912 $468,266
Furniture and fixtures 264,823 246,933
Leasehold improvements 19,886 -
------------- -------------
1,002,621 715,199
Less accumulated depreciation 401,197 257,889
------------- -------------
$ 601,424 $457,310
============= =============
5. Bank Debt
Line of Credit Financing
The Company had a line of credit with its bank in the amount of
$1,000,000, which was collateralized by substantially all assets of the
Company, and the Company was required to maintain a compensating balance
of $250,000 in a certificate of deposit. The line bore interest at prime
plus 1/2% and was cancelled in October, 1997.
Equipment Notes
In 1997, the Company borrowed $150,000 from a bank to purchase equipment,
furniture, fixtures and for relocation costs. The note was collateralized
by substantially all assets of the Company. The note was interest bearing
at a rate of 1/2% above prime and was repaid in October, 1997.
F-9
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
6. Long-Term Debt
In August 1998, the Company agreed to pay severance to its former
Co-Chairman and President in the amount of $100,000 including imputed
interest of 8.5% in quarterly installments of $12,500 commencing March
31, 1999. This amount has been accrued and charged to operations in the
year ended December 31, 1998.
7. Loss Per Share
Basic loss per share is computed by dividing the loss by the weighted
average number of common shares outstanding during the period. Diluted
loss per share reflects the potential dilution that could occur if common
stock equivalents, such as stock options and warrants, were exercised.
<TABLE>
<CAPTION>
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
1998:
-----
Basic and Diluted Loss Per Share
Loss from continuing operations ($1,909,836) 8,197,827 ($.23)
========== ========= ====
1997:
-----
Basic and Diluted Loss Per Share
Loss from continuing operations ($ 620,422) 6,364,768 ($.10)
=========== ========= ====
</TABLE>
In 1998 and 1997, options and warrants were anti-dilutive.
F-10
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
8. 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.
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 1998 and 1997, respectively: annual dividends of $-0-
for both years, expected volatility of 80% and 93%, risk-free interest
rate of 5.02% and 6.08%, and expected life of five years for all grants.
The weighted-average fair value of stock options granted in 1998 and 1997
was $.83 and $2.43, respectively.
F-11
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
8. Stock Options (Continued)
Stock Compensation Plan (Continued)
Under the above model, the total value of stock options granted in 1998
and 1997 was $1,044,745 and $766,784, respectively, which would be
amortized ratably on a pro forma basis over the related vesting periods,
which range from thirty-six months to five years (not including
performance-based stock options granted in 1998 and 1997, see below). Had
compensation cost been determined based upon the fair value of the stock
options at grant date consistent with the method of SFAS No. 123, the
Company's loss from continuing operations and loss per share from
continuing operations would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997
---------------- -------------
<S> <C> <C>
Loss from continuing operations:
As reported ($1,909,836) ($620,422)
Pro forma ($2,994,711) ($761,261)
Basic and diluted loss per share from continuing operations:
As reported ($ .23) ($ .10)
Pro forma ($ .37) ($ .12)
</TABLE>
During 1998, the Company repriced certain options granted in 1997,
representing the right to purchase 465,000 shares of common stock. The
original 1997 grants gave the holders the right to purchase common stock
at prices ranging from $2.75 to $6.84 per share. The options were
repriced at prices ranging from $1.75 to $1.93 per share. In addition,
during 1998, the Company repriced certain options granted at earlier
dates in 1998, representing the right to purchase 1,095,000 shares of
common stock. The original 1998 grants gave the holders the right to
purchase common stock at prices ranging from $5.13 to $5.69 per share.
The options were repriced at prices ranging from $1.75 to $1.93 per
share. At the date of repricing, the new exercise price was equal to the
fair market value of the shares (110% of the fair market value in the
case of an affiliate).
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.
F-12
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
8. Stock Options (Continued)
Performance-Based Stock Options
Under its 1995 Stock Incentive Plan, the Company had granted 2,125,000
options to certain key executives hired in 1997 and 1996 whose vesting is
entirely contingent upon the future profits (as defined) for the division
or subsidiary or commissions earned under the management of the related
key executive. During 1998, the Company terminated an executive hired in
1996 who had been granted 500,000 of the above options, and cancelled
450,000 options granted to another executive. During 1997, the Company
terminated three executives hired in 1996 who had been granted 1,000,000
of these options. 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 and, therefore, cannot estimate as
of December 31, 1998 the outcome of the performance condition.
Accordingly, the pro forma amounts of net loss and loss per share
described above do not include any pro forma compensation expense related
to the performance-based stock options.
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 assumptions for
1997 (none in 1998): annual dividends of $-0-, expected volatility of
93%, risk-free interest rate of 6.08% and expected life of five years for
all grants. The weighted-average fair value of the performance-based
stock options granted in 1997 was $1.50 (none in 1998)
On October 22, 1998, the Company repriced certain performance-based
options granted in 1997, representing the right to purchase 150,000
shares of common stock. The original 1997 grants gave the holder the
right to purchase common stock at $2.00 per share. The options were
repriced at $1.75 per share. At the date of the repricing, the new
exercise price was equal to the fair market value of the shares.
Non-Incentive Stock Option Agreements
The Company has non-incentive stock option agreements with five of its
directors and/or officers.
F-13
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
8. Stock Options (Continued)
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, 1997 3,915,000 $.06-2.00 .81
Options granted 850,000 2.00-6.84 3.07
Options expired/canceled (1,000,000) .75-2.00 1.38
---------
Options outstanding, December 31, 1997 3,765,000 .06-6.84 1.17
Options granted 3,242,500 1.75-6.63 3.38
Options expired/canceled (3,630,000) .06-6.84 2.79
Options exercised (100,000) .70 .70
---------
Options outstanding, December 31, 1998 3,277,500 .12-5.00 1.57
=========
Options exercisable, December 31, 1997 1,566,667 .06-2.75 .55
=========
Options exercisable, December 31, 1998 1,552,500 .12-5.00 1.36
=========
</TABLE>
The following table summarizes information about the options outstanding
at December 31, 1998 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>
$.12 - .22 450,000 1.46 $ .19 362,500 $ .19
.75 - 1.56 765,000 1.93 1.17 743,334 1.18
1.75 - 2.25 1,837,500 3.65 1.80 288,333 1.80
2.75 - 5.00 225,000 4.14 3.77 158,333 4.08
</TABLE>
F-14
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
9. Common Stock and Stock Warrants
In April 1997, the Company raised $400,000 through the private placement
issuance of 266,667 shares of common stock at $1.50 per share. Several of
the Company's executives and employees accounted for a majority of the
shares issued. In June 1997, the agreement was amended to provide for
additional shares to the subscribers to bring the value of their
investment to $2.00 per share if the closing price on the anniversary
date, April 1998, was less than $2.00 per share. No additional shares
became issuable on such date.
In August 1997, the Company raised $1,500,000 through the private
placement issuance of 750,000 units at $2.00 per unit. Each unit consists
of one share of common stock and a redeemable common stock purchase
warrant at $2.00 per share for a period of two years. The units were
issued to an executive of the Company and a private investment group. In
response to the Notice of Redemption issued by the Company, the executive
exercised 250,000 shares of the warrants in December 1997 (see Note 3).
Thereafter, in January 1998, the private investment group exercised
500,000 shares of the warrants.
In December, 1997, the Company raised $2,330,813 through the private
placement issuance of 581,250 units at $4.01 per unit. Each unit consists
of one share of common stock and a redeemable common stock purchase
warrant at $5.75 per share for a period of five years. Should the price
of the Company's stock exceed $11.50 per share for 20 consecutive trading
days, the Company may request redemption of the warrants at a price of
$.01 per share. The warrant holders would then have 30 days in which to
either exercise the warrant or accept the redemption offer. The Company
has provided the investors with certain price protection, subject to
certain conditions being met, which may require the Company to issue
additional shares and warrants to these investors without receiving
additional consideration. Subsequent to December 31, 1997, the price
protection element of the above expired.
F-15
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
9. Common Stock and Stock Warrants (Continued)
In connection with the 1995 issuance of 1,000,000 shares of its common
stock, 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 and these warrants expire in
2000. During the fiscal year ended December 31, 1998 and 1997, none of
these warrants were exercised. In lieu of the payment of the exercise
price in cash, the holders of these warrants 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.
10. Preferred Stock Purchase Rights
The Company is authorized to issue 1,000,000 shares of preferred stock,
$.01 par, with rights and preferences as determined by the Board of
Directors.
On December 28, 1998, the Board of Directors authorized the issuance of
up to 200,000 shares of non redeemable Junior Participating Preferred
Stock ("JPPS"). The JPPS shall rank junior to all other series of
preferred stock (but senior to the common stock) with respect to payment
of dividends, and any other distributions. Among other rights, the
holders of the JPPS shall be entitled to receive, when and if declared,
quarterly dividends per share equal to the greater of (a) $100 and (b)
the sum of 1,000 (subject to adjustment) times the aggregate per share of
all cash and non cash dividends (other than dividends payable in common
stock of the Company and other defined distributions). Each share of JPPS
shall entitle the holders to voting rights equal to 1,000 votes per
share. The holders of JPPS shall vote together with the common stock
holders.
F-16
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
10. Preferred Stock Purchase Rights (Continued)
On December 28, 1998, the Board of Directors also adopted a Rights
Agreement ("the Agreement"). Under the agreement, each share of the
Company's common stock carries with it one preferred share purchase right
("Rights"). The Rights themselves will at no time have voting power or
pay dividends. The Rights become exercisable only if a person or group
acquires (1) 20% or more of the Company's common stock (10% in the case
of an Adverse Person as defined) (2) an additional 1% or more in the case
of acquisitions by any shareholder with beneficial ownership of 20% or
more on the record date (10% in the case of an Adverse Person as
defined). (3) the tenth day after a person or group announces a tender
offer to acquire 20% or more of the Company's common stock (10% in the
case of an Adverse Person as defined). When exercisable, each Right
entitles the holder to purchase one- one thousandth of a share of the
JPPS at an exercise price of $27.50 per one- one thousandth of a share,
subject to adjustment.
11. Employee Benefit Plan
The Company has a 401(k) profit sharing plan 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 $9,632 and $7,727 in 1998 and 1997.
12. Commitments and Contingency
Leases
The Company leases its executive office in Plainview, New York, expiring
in March 2002 under a noncancelable operating lease which requires
minimum annual rentals and certain other expenses including real estate
taxes. Rent expense including real estate taxes for the years ended
December 31, 1998 and 1997 aggregated $253,531 and $152,268,
respectively.
F-17
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
12. Commitments and Contingency (Continued)
Leases (Continued)
As of December 31, 1998, the Company's future minimum rental commitments
are as follows:
1999 $177,100
2000 184,300
2001 191,600
2002 48,400
----------
$601,400
==========
Employment Contracts
The Company has employment contracts with its two principal officers
expiring during 2001. The agreements provide minimum annual salaries of
$300,000 to the Chief Executive Office ("CEO") and $150,000 to the
President.
In consideration for several senior executives voluntarily temporarily
reducing their salaries (without changing the terms of employment
contracts), the Company granted stock options representing the right to
purchase 145,000 shares of the Company's common stock at prices ranging
from $1.13 to $1.24. Such temporary salary reduction amounts to
approximately $145,000 on an annualized basis, of which $100,000 is
attributable to the CEO. Such salary reductions can be terminated by the
executives at any time without forfeiture of the options.
The CEO's 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. The President's employment contract provides
that, in the event of termination of the employment of the officer within
one year after a change in control of the Company, then the Company would
be liable to pay a lump sum severance payment of two years' salary as
determined on the date of termination or the date on which a change in
control occurs, whichever is greater. In no event would the maximum
amount payable exceed the amount deductible by the Company under the
provisions of the Internal Revenue Code.
F-18
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
13. 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, 1998, the Company has an operating loss carryforward of
approximately $4,000,000 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 $1,520,000 and
$770,000 at December 31, 1998 and 1997 due to the uncertainty of
realizing the benefit of the loss carryforwards.
At December 31, 1998, the Company's net operating loss carryforwards are
scheduled to expire as follows:
Year ended December 31,
2002 $ 232,000
2003 24,000
2005 50,000
2008 36,000
2012 1,685,000
2013 1,973,000
----------
$4,000,000
==========
The Company's effective income tax rate differs from the Federal
statutory rate as follows:
1998 1997
-------------- ------------
Federal statutory rate 34.0% 34.0%
Expected tax benefit (34.0) (34.0)
State income taxes .4 .1
------- ------
.4% .1%
======= ======
F-19
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
14. Advertising Expense
Advertising expense (other than from discontinued operations) amounted to
$125,873 and $116,759 in 1998 and 1997.
15. Discontinued Operations
At June 30, 1997, the Company decided to discontinue its direct-response
marketing division. Accordingly, the operating results of the division
have been segregated from continuing operations and reported separately
on the statement of operations. Net sales for discontinued operations
were $2,500,097 for 1997.
At the measurement date, the Company did not provide for any loss on
disposal or anticipate any continuing losses from this division.
Subsequent to the measurement date, the division reflected losses of
$93,922 and $440,872 during the years ended December 31, 1998 and 1997
which are reflected as a disposal losses in the accompanying financial
statements. As of December 31, 1998, there are no remaining assets or
liabilities of this division.
16. Fourth Quarter Adjustments
During the fourth quarter of the year ended December 31, 1998, the
Company recorded a severance agreement (see Note 6) and an accrual for
consulting services of $50,000, applicable to earlier periods in 1998.
F-20
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
17. Contingency
On January 29, 1998, the Company terminated the employment of its chief
financial and accounting officer, who had been employed by the Company
since November 17, 1997 pursuant to an employment contract. The
employment contract provided for a base salary of $145,000 during the
first year of the contract, $152,250 during the next year of the contract
and $160,000 during the third year of the contract. The employment
contract also provided for the employee to receive incentive compensation
equal to 2% of annual pre-tax earnings of the Company, and health and
other fringe benefits. Further, the employee was granted options to
purchase 120,000 shares of common stock of the Company. Such options were
cancelled upon the termination of employment. The employee has asserted a
claim against the Company for at least $1,000,000, including, but not
limited to the remaining unpaid portion of the employment contract, and
other losses sustained. The Company has served an answer denying
liability and interposing a counterclaim to recover amounts previously
paid to the former employer. The action is in the early discovery stages
and counsel for the Company is unable to form an opinion as to the
outcome of this matter, and the Company intends to vigorously defend the
action.
The Company has not provided for any loss on this matter in the
accompanying financial statements.
F-21
<PAGE>
Part III
Items 9 through 12 have been incorporated by reference from the
Company's definitive proxy statement or definitive information statement.
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. Amended and restated By-laws of the Company, incorporated by reference
to Exhibit 4 to the Company's Current Report on Form 8- K dated
December 28, 1998.
4 Shareholders Rights Agreement, dated as of December 28, 1998, between
First Priority Group, Inc. and North American Transfer Co., as Rights
Agent, together with Exhibits A, B and C attached thereto incorporated
by reference to the Registrant's Registration Statement on Form 8-A
filed on December 31, 1998.
10.1 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.
10.2 Lease Agreement dated December 6, 1996 between the Company and 51 East
Bethpage Holding Corporation for lease of the Company's facilities in
Plainview, New York incorporated by reference to Exhibit 10.3 of the
Company's Form 10-QSB for the period ended June 30, 1997.
10.3 First Amendment to Lease Agreement dated July 14, 1997 amending the
lease dated December 6, 1996 between the Company and 51 East Bethpage
Holding Corporation incorporated by reference to Exhibit 10.4 of the
Company's Form 10-QSB for the period ended June 30, 1997.
13
<PAGE>
10.4 Form of subscription agreement executed by subscribers to the Company's
private placement dated August 26, 1997 incorporated by reference to
Exhibit 10.1 of the Company's Form 10-QSB for the period ended
September 30, 1997.
10.5 Form of warrant granted to subscribers to the Company's private
placement dated August 26, 1997 incorporated by reference to Exhibit
10.2 of the Company's Form 10-QSB for the period ended September 30,
1997.
10.6 Form of subscription agreement executed by subscribers to the Company's
private placement dated December 19, 1997 incorporated by reference to
Exhibit 10.2 of the Company's Form 10-QSB for the period ended
September 30, 1997.
10.7 Form of warrant executed by the Company's pursuant to the subscription
agreement dated December 19, 1997 incorporated by reference to Exhibit
10.18 of the Company's Form 10-KSB for the period ended December 31,
1997.
10.8 Employment agreement between the Company and Philip M. Panzera dated
November 14, 1997 incorporated by reference to Exhibit 10.19 of the
Company's Form 10-KSB for the period ended December 31, 1997.
10.9 Amendment to employment agreement dated November 26, 1997 between the
Company and Michael Karpoff incorporated by reference to Exhibit 10.20
of the Company's Form 10-KSB for the period ended December 31, 1997.
10.10 Amendment to employment agreement dated November 26, 1997 between the
Company and Barry Siegel incorporated by reference to Exhibit 10.21 of
the Company's Form 10-KSB for the period ended December 31, 1997.
10.11 Termination Agreement dated July 16, 1997 between the Company and
Douglas Konetzni incorporated by reference to Exhibit 10.22 of the
Company's Form 10-KSB for the period ended December 31, 1997.
10.12 Termination Agreement dated May 20, 1997 between the Company and Paul
Zucker incorporated by reference to Exhibit 10.23 of the
14
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Company's Form 10-KSB for the period ended December 31, 1997.
10.13 Amendment to Termination Agreement dated August 22, 1997 between the
Company and Paul Zucker incorporated by reference to Exhibit 10.24 of
the Company's Form 10-KSB for the period ended December 31, 1997.
10.14 Termination Agreement dated May 20, 1997 between the Company and Steven
Zucker incorporated by reference to Exhibit 10.25 of the Company's Form
10-KSB for the period ended December 31, 1997.
10.15 Amendment to Termination Agreement dated August 22, 1997 between the
Company and Steven Zucker incorporated by reference to Exhibit 10.26 of
the Company's Form 10-KSB for the period ended December 31, 1997.
10.16 Employment Agreement dated March 23, 1998 between the Company and
Gerald M. Zutler incorporated by reference to Exhibit 10.1 of the
Company's Form 10-QSB for the period ended March 31, 1998.
10.17 Employment Agreement dated October 8, 1998 between the Company and
Barry Siegel filed herein.
10.18 Employment Agreement dated October 2, 1998 between the Company and
Barry J. Spiegel filed herein.
10.19 Employment Agreement dated December 14, 1998 between the Company and
Lisa Siegel filed herein.
10.20 Employment Agreement dated October 8, 1998 between the Company and
Gerald M. Zutler filed herein.
10.21 Severance Agreement dated August 17, 1998 between the Company and
Michael Karpoff filed herein.
13.1 Form 10-QSB for the quarter ending March 31,1998 incorporated by
reference dated and previously filed.
15
<PAGE>
13.2 Form 10-QSB for the quarter ending June 30, 1998 incorporated by
reference and previously filed with the Commission..
13.3 Form 10-QSB for the quarter ending September 30, 1998 incorporated by
reference and previously filed with the Commission..
21 List of subsidiaries filed herein.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated December 28, 1998
stating:
A. On December 28, 1998, the Board of Directors of First
Priority Group, Inc. (the "Company") authorized the issuance of one preferred
share purchase right (a "Right") for each outstanding share of common stock, par
value $0.015 per share (the "Common Stock"), of the Company. The description and
terms of the Rights, and certain defined terms used herein, are set forth in a
Rights Agreement (the "Rights Agreement") between the Company and North American
Transfer Co. as Rights Agent (the "Rights Agent"), dated as of December 28, 1998
and filed as an exhibit to the Form 8-K.
B. On December 28, 1998, the Board of Directors of the Company
also adopted the following amendments to the Company's By-laws:
(i) Article I Section 2 was amended to provide that
shareholders shall have no right to call special meetings of shareholders.
(ii) Article I Section 3 was amended to require that
a shareholder desiring to bring up business at an annual meeting so notify the
Company not less than 60 days nor more than 90 days prior to the anniversary
date of the immediately preceding annual meeting (the "Anniversary Date"), or if
the annual meeting is scheduled to be held on a date more than 30 days before
the Anniversary Date or more than 60 days after the Anniversary Date, not later
than the close of business on the later of (A) the 75th day prior to the
scheduled date of the annual meeting or (B) the 15th day following the day on
which public announcement of the date of such annual meeting is made by the
Company.
(iii) Article II Section 1 was amended to implement a
classified board of directors. The directors will be classified, with respect to
the term for which they hold office, into three classes, as nearly equal as
possible. One class of directors (consisting of one director) shall be elected
for a term expiring at the annual meeting to be held in 1999, another class
(consisting of two directors) shall be elected for a term expiring at the annual
meeting to be held in 2000, and another
16
<PAGE>
class (consisting of two directors) shall be elected for a term expiring at the
annual meeting to be held in 2001.
(iv) Article II Section 2 was amended to require that
shareholders desiring to nominate one or more candidates for election to the
board of directors so notify the Company not less than 60 days nor more than 90
days prior to the Anniversary Date, or if the annual meeting is scheduled to be
held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, not later than the close of business on the
later of (A) the 75th day prior to the scheduled date of the annual meeting or
(B) the 15th day following the day on which public announcement of the date of
such annual meeting is made by the Company.
(v) Article IX Section 1 was amended to require that
the by-laws may only be amended or repealed by the shareholders by an
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
total votes eligible to be cast on such amendment or repeal by holders of voting
stock, voting together as a class.
The amendments relating to the classified board (clause (iii) above)
and the shareholder super-majority provision (clause (v) above) are subject to
shareholder approval, which the Company currently intends to seek at the next
annual meeting of shareholders. The amended and restated By-laws are attached as
an exhibit to the Form 8-K.
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/ Barry Siegel
---------------------------
Barry Siegel
Chairman of the Board of Directors,
Treasurer, Secretary,
Chief Executive Officer,
Principal Accounting Officer
Date: April 14, 1999
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.
17
<PAGE>
By: /s/ Barry Siegel
---------------------------
Barry Siegel
Chairman of the Board of Directors,
Treasurer, Secretary,
Chief Executive Officer,
Principal Accounting Officer
Date: April 14, 1999
18
<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. Amended and restated By-laws of the Company, incorporated by
reference to Exhibit 4 to the Company's Current Report on Form
8-K dated December 28, 1998.
4 Shareholders Rights Agreement, dated as of December 28, 1998,
between First Priority Group, Inc. and North American Transfer
Co., as Rights Agent, together with Exhibits A, B and C
attached thereto incorporated by reference to the Registrant's
Registration Statement on Form 8-A filed on December 31, 1998.
10.1 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.
10.2 Lease Agreement dated December 6, 1996 between the Company and
51 East Bethpage Holding Corporation for lease of the
Company's facilities in Plainview, New York incorporated by
reference to Exhibit 10.3 of the Company's Form 10-QSB for the
period ended June 30, 1997.
10.3 First Amendment to Lease Agreement dated July 14, 1997
amending the lease dated December 6, 1996 between the Company
and 51 East Bethpage Holding Corporation incorporated by
reference to Exhibit 10.4 of the Company's Form 10-QSB for the
period ended June 30, 1997.
10.4 Form of subscription agreement executed by subscribers to the
Company's private placement dated August 26, 1997 incorporated
by reference to Exhibit 10.1 of the Company's Form 10-QSB for
the period ended September 30, 1997.
10.5 Form of warrant granted to subscribers to the Company's
private placement dated August 26, 1997 incorporated by
reference to Exhibit 10.2 of the Company's Form 10-QSB for
the period ended September 30, 1997.
10.6 Form of subscription agreement executed by subscribers to the
Company's private placement dated December 19, 1997
incorporated by reference to Exhibit 10.2 of the Company's
Form 10-QSB for the period ended September 30, 1997.
19
<PAGE>
10.7 Form of warrant executed by the Company's pursuant to the
subscription agreement dated December 19, 1997 incorporated by
reference to Exhibit 10.18 of the Company's Form 10-KSB for
the period ended December 31, 1997.
10.8 Employment agreement between the Company and Philip M. Panzera
dated November 14, 1997 incorporated by reference to Exhibit
10.19 of the Company's Form 10-KSB for the period ended
December 31, 1997.
10.9 Amendment to employment agreement dated November 26, 1997
between the Company and Michael Karpoff incorporated by
reference to Exhibit 10.20 of the Company's Form 10-KSB for
the period ended December 31, 1997.
10.10 Amendment to employment agreement dated November 26, 1997
between the Company and Barry Siegel incorporated by reference
to Exhibit 10.21 of the Company's Form 10-KSB for the period
ended December 31, 1997.
10.11 Termination Agreement dated July 16, 1997 between the Company
and Douglas Konetzni incorporated by reference to Exhibit
10.22 of the Company's Form 10-KSB for the period ended
December 31, 1997.
10.12 Termination Agreement dated May 20, 1997 between the Company
and Paul Zucker incorporated by reference to Exhibit 10.23 of
the Company's Form 10-KSB for the period ended December 31,
1997.
10.13 Amendment to Termination Agreement dated August 22, 1997
between the Company and Paul Zucker incorporated by reference
to Exhibit 10.24 of the Company's Form 10- KSB for the period
ended December 31, 1997.
10.14 Termination Agreement dated May 20, 1997 between the Company
and Steven Zucker incorporated by reference to Exhibit 10.25
of the Company's Form 10-KSB for the period ended December 31,
1997.
10.15 Amendment to Termination Agreement dated August 22, 1997
between the Company and Steven Zucker incorporated by
reference to Exhibit 10.26 of the Company's Form 10-KSB for
the period ended December 31, 1997.
10.16 Employment Agreement dated March 23, 1998 between the Company
and Gerald M. Zutler incorporated by reference to Exhibit 10.1
of the Company's Form 10-QSB for the period ended March 31,
1998.
10.17 Employment Agreement dated October 8, 1998 between the Company
and Barry Siegel filed herein.
20
<PAGE>
10.18 Employment Agreement dated October 2, 1998 between the Company
and Barry J. Spiegel filed herein.
10.19 Employment Agreement dated December 14, 1998 between the
Company and Lisa Siegel filed herein.
10.20 Employment Agreement dated October 8, 1998 between the Company
and Gerald M. Zutler filed herein.
10.21 Severance Agreement dated August 17, 1998 between the Company
and Michael Karpoff filed herein.
13.1 Form 10-QSB for the quarter ending March 31,1998 incorporated
by reference dated and previously filed.
13.2 Form 10-QSB for the quarter ending June 30, 1998 incorporated
by reference and previously filed with the Commission..
13.3 Form 10-QSB for the quarter ending September 30, 1998
incorporated by reference and previously filed with the
Commission.
21 List of subsidiaries filed herein.
27 Financial Data Schedule
21
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
AGREEMENT made as of October 9, 1998, by and between FIRST
PRIORITY GROUP, INC., a New York corporation (hereinafter referred to as the
"Company"), having an office at 51 East Bethpage Road, Plainview, New York 11803
and BARRY SIEGEL, residing at 8 Indian Well Court, Huntington, NY. 11743
(hereinafter referred to as the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to engage the services of the
Executive, and the Executive desires to render such services;
NOW, THEREFORE, in consideration of the premises, the parties
agree as follows:
1. Employment. The Company hereby employs the Executive as
Chairman of the Board of Directors, Chief Executive Officer, Secretary and
Treasurer, and the Executive hereby accepts such employment, subject to the
terms and conditions hereinafter set forth.
2. Term. The term of the Executive's employment hereunder
shall commence on July 1, 1998 and shall continue to December 31, 2001. The
Employment Agreement dated January 18, 1996, as amended, shall hereby be
terminated on the date hereof.
3. Duties. The Executive agrees that the Executive will serve
the Company on a full-time basis faithfully and to the best of his ability as
the Chairman of the Board of Directors, Chief Executive Officer, Secretary and
Treasurer of the Company, subject to the general supervision of the Board of
Directors of the Company. The Executive agrees that the Executive will not,
during the term of this Agreement, engage in any other business activity which
interferes with the performance of his obligations under this Agreement. The
Executive further agrees to serve as a director of the Company and/or of any
parent, subsidiary or affiliate of the Company if the Executive is elected to
such directorship.
Upon the Date of Termination, the Executive shall resign as an
officer and director of the Company and any of its subsidiaries.
4. Compensation.
(a) In consideration of the services to be rendered by the
Executive hereunder, including, without limitation, any services rendered by the
Executive as director of the Company or of any parent, subsidiary or affiliate
of the Company, the Company agrees to pay the Executive, and the Executive
agrees to accept fixed compensation at the rate Three Hundred Thousand Dollars
($300,000) per annum, subject to all required federal, state and local payroll
deductions.
22
<PAGE>
(b) The Executive shall also be entitled to five weeks
vacation, unlimited sick leave and fringe benefits in accordance with Company
policies and plans in effect, from time to time, for Executive officers of the
Company.
(c) The Executive shall participate in the Company's Corporate
Compensation Program as approved and authorized by the Board of Directors of the
Company, subject to amendment by the Board of Directors or the Compensation
Committee of the Board of Directors of the Company ("Incentive Compensation").
The Executive shall not receive any Incentive Compensation should the Executive
be terminated for Termination for Cause. Such Incentive Compensation for the
particular fiscal year shall be paid to the Executive no later than upon the
filing of the Company's Form 10-KSB, or equivalent form.
(d) Except as hereinafter provided in Section 5(a), the
Company shall pay the Executive, for any period during which the Executive is
unable fully to perform his duties because of physical or mental illness or
incapacity, an amount equal to the fixed compensation due the Executive for such
period less the aggregate amount of all income disability benefits which the
Executive may receive or to which the Executive may be entitled under or by
reason of (i) any group health and/or disability insurance plan provided by the
Company; (ii) any applicable state disability law; (iii) the Federal Social
Security Act; (iv) any applicable worker's compensation law or similar law; and
(v) any plan towards which the Company or any parent, subsidiary or affiliate of
the Company has contributed or for which it has made payroll deductions, such as
group accident, health and/or disability policies.
(e) The Executive shall be granted a stock option under the
Company's 1995 Incentive Stock Plan (the "Plan") with the right to purchase up
to 400,000 shares of the Company's common stock (the "Stock Option"). The Stock
Option shall be granted at a price equal to the closing price of the Company's
common stock as quoted on The Nasdaq SmallCap Stock Market on the date hereof.
The Stock Option shall become exercisable in one-third increments upon the
first, second and third anniversary of the Stock Option grant. The Company will
provide the Executive a Stock Option Contract for his signature which will set
out the terms of the option. This Stock Option shall be subject to the terms of
the Plan.
Notwithstanding anything to the contrary herein, should the
Executive wish to exercise any stock option that: (a) was previously been
granted to him, (b) is exercisable by the Executive, and (c) shall expire within
three (3) months, then the Company shall provide the Executive its loan guaranty
for monies borrowed by the Executive equal to the federal and/or state tax
liability incurred by the Executive as a result of the exercise of such stock
option(s), should the Executive not wish to, or be unable to sell such number of
shares, issued pursuant to the exercise of such stock option, to pay the tax
liability incurred from the exercise of such stock option. Each loan guaranty
provided herein, shall continue for a term of at least one year, or such longer
term: (x) until the common stock of the Company closes for at least ten
consecutive trading days equal to or greater than seventy-five percent (75%) of
the closing price of the common stock of the Company on the day on which the
Executive exercised his stock option(s), or (y) as there is a sufficiently
liquid market for the sale of that number of common stock shares of the Company
equal in value to the loan amount plus accrued interest at a price equal to or
greater than seventy-five percent (75%) of the closing price of the common stock
of the Company on the day on which the Executive exercised his stock option(s),
or (z) at the discretion of the Board of Directors.
23
<PAGE>
5. Compensation Upon Termination.
Upon termination of the Executive's employment or during a period of
Disability the Executive shall be entitled to the following benefits:
(a) Termination for Cause, Disability, Death or Retirement etc.
(i) If the Executive's employment shall be terminated by the
Company for Termination for Cause, or by the Company or the Executive for
Disability, or by either the Company or the Executive for Retirement, the
Company shall pay to the Executive the Executive's full base salary through the
Date of Termination at the rate in effect at the date that Notice of Termination
is given, plus all other amounts to which the Executive is entitled under any
compensation plan of the Company in effect on the date the payments are due, in
addition to any other benefits set forth in this Agreement, and the Company
shall have no further obligations to the Executive under this Agreement. If the
Executive's employment shall be terminated by the Company for Death, the Company
shall pay to the estate of the Executive the Executive's full base salary
through the period of four (4) months following the Date of Termination at the
rate in effect at the date that Notice of Termination is given, plus all other
amounts to which the Executive is entitled under any compensation plan of the
Company in effect on the date the payments are due, in addition to any other
benefits set forth in this Agreement, and the Company shall have no further
obligations to the Executive under this Agreement.
(ii) If the Executive's employment shall be terminated by the
Executive for any reason other than for Termination for Cause, Death,
Disability, Retirement or Good Reason after a Change in Control, the Company
shall pay to the Executive the Executive's full base salary through the Term of
this Agreement, or for one (1) year following the Date of Termination, which
ever is less, at the rate in effect at the date that Notice of Termination is
given, plus all other amounts to which the Executive is entitled under any
compensation plan of the Company in effect on the date the payments are due , in
addition to any other benefits set forth in this Agreement, and the Company
shall have no further obligations to the Executive under this Agreement.
(b) Severance Benefits. If the Executive's employment shall be
terminated by the Company within three (3) years after a Change in Control of
the Company, for reasons other than for Termination for Cause, Retirement, Death
or Disability, or terminated by the Executive for Good Reason within three (3)
years after a Change in Control of the Company, then, subject to the limitations
set forth in Subparagraph 5(d) below, the Executive shall be entitled to the
benefits provided below:
(i) the Company shall pay the Executive the Executive's full
base salary through the Date of Termination at the rate equal to the greater of
the rate in effect on the date prior to the Change in Control and the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which the Executive is entitled under any compensation plan of the Company in
effect on the date, the payments are due, except as otherwise provided below;
(ii) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, except as provided in
Paragraph 5(d) below, the Company shall pay as severance pay to the Executive a
lump sum severance payment equal to 300% of an average annual amount actually
paid by the Company or any parent or subsidiary of the Company to the Executive
and included in the Executive's gross income for services rendered in each of
the five
24
<PAGE>
prior calendar years (or shorter period during which the Executive shall have
been employed by the Company or any parent or subsidiary of the Company), less
$100;
(iii) in consideration of the surrender on the Date of
Termination of the then outstanding options ("Options") granted to the
Executive, if any, under the stock option plans of the Company, or otherwise,
for shares of common stock of the Company ("Company Shares"), except as provided
in Paragraph 5(d) below, the Executive shall receive an amount in cash equal to
the product of (A) the excess of, (x) in the case of options granted after the
date of this Agreement that qualify as incentive stock options ("ISOs") under
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), the
closing price on or nearest the Date of Termination of Company Shares as
reported in the principal national securities exchange on which the Company's
Shares are listed or admitted to trading or, if the Company Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use, or, if on any such date the Company Shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Company Shares
selected by the Board of Directors of the Company, and (y) in the case of all
other Options, the higher of such closing price or the highest per share price
for any Company Shares actually paid in connection with any Change in Control of
the Company, over the per share exercise price of each Option held by the
Executive (irrespective of whether or not such Option is then fully
exercisable), times (B) the number of Company Shares covered by each such Option
(irrespective of whether or not such Option is then fully exercisable). The
parties hereto acknowledge and agree that the benefits afforded to the Executive
under this Subparagraph (iii) do not, and shall not be deemed to, materially
increase the benefits accruing to the Executive under any stock option plan
under which any such Options are granted. Insofar as the Executive receives full
payment under this Subparagraph (iii) with respect to the surrender of all such
Options, such Options so surrendered shall be canceled upon the Executive's
receipt of such payment. However, if pursuant to the limitations set forth under
Paragraph 5(d) below, the full amount described under this Subparagraph
5(b)(iii) cannot be paid, the number of Options which are canceled shall be
reduced so that the ratio of the value of the canceled Options to the value of
all such Options equals the ratio of the amount payable under this Subparagraph
5(b)(iii) after the application of the limitation described under Paragraph
5(d), to the amount that otherwise would have been paid under this Subparagraph
5(b)(iii) in the absence of such limitations. The Options canceled pursuant to
the immediately preceding sentence shall be those Options providing the smallest
"excess amounts" as determined under Subparagraph 5(b)(iii)(A). For those
Options not surrendered and canceled pursuant to this subparagraph, the Company
shall guaranty the Executive's loan for such amount as needed by the Executive
to exercise those outstanding Options that may be exercised as they become
exercisable by the Executive. Additionally, those stock options not surrendered
and canceled as determined in this Subparagraph 5(b)(iii) shall hereinafter
become fully exercisable for the remaining term of such stock option grant,
regardless whether the Executive continues as an employee of the Company; and
(iv) The Company shall also pay to the Executive all legal
fees and expenses incurred by the Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any
25
<PAGE>
right or benefit provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of Section 499 of
the Code to any payment or benefit provided hereunder).
(c) Date Benefits Due. The payments provided for in Paragraph 5(b)
above shall be made not later than the fifth day following the Date of
Termination, provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 7872(f)(2) of the Code)
as soon as the amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive repayable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 7872(f)(2) of the Code).
(d) Reduction to Avoid Non-Deductibility. Any of the other provisions
of this Agreement notwithstanding, if any payment to be made by the Company
pursuant to this Agreement to the Executive or for the Executive's benefit (the
"Payments") otherwise would not be deductible by the Company for Federal income
tax purposes due to the provisions of the Code Section 280G, the aggregate
present value (determined as of the date of the Change in Control) of the
Payments shall be reduced (but not to a negative amount) to an amount expressed
in the present value as of such date (the "Reduced Amount") that maximizes the
present value of the Payments without causing any payment to be nondeductible by
the Company due to the Code Section 280G. The determination of the Reduced
Amount and the accompanying reduction in Payments shall be made by the
independent certified public accountants for the Company. Any such decrease in
Payments shall be applied to the amounts to be paid to the Executive or for the
Executive's benefit hereunder in the following order but only to the extent such
amounts would be taken into account in determining whether the Payments
constitute "parachute payments" within the meaning of the Code Section
280G(b)(2)(A): (i) to decrease the amounts payable to the Executive pursuant to
Subparagraph 5(b)(iii); (ii) to decrease the amounts payable to the Executive
pursuant to Subparagraph 5(b)(ii); (iii) to decrease the amounts payable to the
Executive pursuant to Section 5(j); (iv) to decrease the amounts payable to the
Executive pursuant Subparagraph 5(b)(iv); and (v).to decrease the amounts
payable to the Executive pursuant to Section 5(a)
(e) Determination of Reduced Amount. The determination of the Reduced
Amount and of the reduction in the Payments shall be communicated to the
Executive in writing by the Company. If the Executive does not agree with such
determinations, the Executive may give written notice of such disagreement to
the Board within five (5) days of the Executive's receipt of the determination,
and within fifteen (15) days after the Executive's notice of disagreement, the
Executive shall deliver to the Board the Executive's calculation of the
reduction in Payments. If the Executive fails to give notice of disagreement or
to furnish the Executive's calculation in accordance with the provisions of the
immediately preceding sentence, the Executive shall be conclusively deemed to
have accepted the
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determinations made by the independent public accountants for the Company. If
the accountants for the Company and the Executive's accountants are unable to
agree upon the reduction of Payments within ten (10) days of the receipt of the
Board of the Executive's calculation, the determination of the reduction in
Payments shall be made by a third accounting firm picked by the Company's
accountants and the Executive's accountants (the "Arbiter") whose determination
shall be final and binding upon the Executive and the Company, except to the
extent provided below. The Company shall withhold for income tax purposes all
amounts that the Company's independent certified public accountants believe that
the Company is required to withhold.
(f) Arbiter to Resolve Disputes. If the Arbiter's and the Company's
accountant's fees shall be borne solely by the Company. The Executive's
accountant's fees shall be borne by the Executive.
(g) Final Payment. As promptly as practicable after the final
determination of the reduction in Payments, the Company shall pay to the
Executive or for the Executive's benefit the amounts determined to be payable.
(h) IRS Ruling. In the event there is a final determination by the
Internal Revenue Service or by a court of competent jurisdiction that any
portion of the Payments are not deductible by the Company by reason of Section
280G, then the amount of the Payments that exceeds the amount deductible by the
Company shall be deemed to be a loan by the Company to the Executive, which
shall be repaid by the Executive five (5) days after delivery of a demand by the
Company therefor together with interest from the date paid by the Company to the
date repaid by the Executive at the rate provided for a demand loan in Section
7872(f)(2) of the Code.
(i) Interpretation. The provisions of this Section 4 shall be
interpreted in a manner that will avoid the disallowance of a deduction to the
Company pursuant to Section 280G and the imposition of excise taxes on the
Executive under Section 4899 of the Code.
(j) Additional Fringe Benefits. If the Executive's employment shall be
terminated by the Company other than for Termination for Cause, Retirement,
Death or Disability or by the Executive within three years after a Change in
Control of the Company for Good Reason, then for a three (3) year period after
such termination, the Company shall arrange to provide the Executive with life,
disability, and accident insurance benefits substantially similar to those that
the Executive was receiving immediately prior to the Notice of Termination. In
addition to the benefits set forth above, the Company shall reimburse the
Executive for the cost of leasing, insuring and maintaining (including the cost
of fuel) a luxury automobile of the Executive's choice similar to the Infiniti
Q45 or the Lexus LS400, during the three (3) year period following the
Executive's termination.
Benefits otherwise receivable by the Executive pursuant to this
Paragraph 5(j) shall be reduced to the extent comparable benefits are otherwise
received by the Executive during the three (3) year period following the
Executive's termination and any such benefits otherwise received by the
Executive shall be reported to the Company.
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(k) No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Paragraph 5 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Paragraph 5 be reduced by any compensation earned by the Executive
as the result of the Executive's employment by another employer, by any
retirement benefits, by offset against any amount claimed to be owing by the
Executive to the Company, or otherwise, except as specifically provided in this
Paragraph 5.
(l) The benefits provided in this Paragraph 5 shall replace benefits
provided to the Executive other than in this Agreement only in the circumstances
set forth herein, and under all other circumstances, the Executive's benefits
will be determined in accordance with other agreements between the Company and
the Executive and other plans, arrangements and programs of the Company in which
the Executive participates.
(m) Notwithstanding anything in this Agreement, the Company shall
arrange to provide the Executive and his immediate family with health insurance
benefits substantially similar to those that the Executive was receiving,
immediately prior to the Notice of Termination, for the remainder of his and his
spouse's life.
6. Termination for Cause. Termination by the Company of the Executive's
employment for cause (hereinafter referred to as "Termination for Cause), shall
mean termination upon (i) the willful and continued failure by the Executive to
substantially perform the Executive's material duties with the Company (other
than any such failure resulting from the Executive's incapacity due to physical
or mental illness or any such failure after the issuance by the Executive for
Good Reason of a Notice of Termination (as the terms "Good Reason" and "Notice
of Termination" are defined in this Agreement) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the material duties that the Board believes that the
Executive has not substantially performed, or (ii) the willful engaging by the
Executive in conduct that is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this Paragraph 6, no act, or
failure to act, on the Executive's part, shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Company, or (iii) the conviction of the Executive of a felony, including the
plea of nolo contendere, limited solely for a crime related to the business
operations of the Company, or that results in the Executive being unable to
substantially carry out his duties as set forth in this Agreement, or (iv) the
commission of any act by the Executive against the Company that may be construed
as the crime of embezzlement, larceny, and/or grand larceny. Any other provision
in this paragraph to the contrary notwithstanding, the Executive shall not be
deemed to have been terminated for Termination for Cause unless and until the
Board duly adopts a resolution by the affirmative vote of no less than
three-quarters (3/4) of the entire membership of the Board, at a meeting of the
Board called and held for such purpose (after reasonable notice to the Executive
and an opportunity for the Executive, together with the Executive's counsel, to
be heard before the Board), finding that in the good faith opinion of the Board,
the Executive was guilty of conduct described in Subparagraphs (i), (ii) or (iv)
of this paragraph and
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specifying the particulars thereof in detail and a certified copy of such
resolution is delivered to the Executive.
7. Non-Disclosure of Confidential Information and Non- Competition
(a) The Executive acknowledges that the Executive has been informed
that it is the policy of the Company to maintain as secret and confidential all
information (i) relating to the products, processes, designs and/or systems used
by the Company and (ii) relating to the customers and employees of the Company
(all such information hereafter referred to as "confidential information"), and
the Executive further acknowledges that such confidential information is of
great value to the Company. The parties recognize that the services to be
performed by the Executive are special and unique, and that by reason of his
employment by the Company, the Executive has and will acquire confidential
information as aforesaid. The parties confirm that it is reasonably necessary to
protect the Company's goodwill, and accordingly the Executive does agree that
the Executive will not directly or indirectly (except where authorized by the
Board of Directors of the Company for the benefit of the Company):
A. At any time during his employment by the Company or after
the Executive 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
B. At any time during his employment by the Company and for a
period of one (1) year after the Executive ceases to be employed by the Company,
solicit or cause or authorize directly or indirectly to be solicited, for or on
behalf of the Executive 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
C. At any time during his employment by the Company and for a
period of one (1) year after the Executive ceases to be employed by the Company,
accept or cause or authorize directly or indirectly to be accepted, for or on
behalf of the Executive or third parties, any business from any such customers
of this Company; and
D. At any time during his employment by the Company and for a
period of one (1) year after the Executive 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 Executive or third parties, any persons
(excluding any individuals residing in the same immediate primary residence as
the Executive, and/or the Executive's immediate family) who were at any time
within one year prior to the cessation of his employment hereunder, employees of
the Company; and
E. At any time during his employment by the Company and for a
period of one year after the Executive ceases to be employed by the Company,
employ or cause or authorize directly or indirectly to be employed, for or on
behalf of the Executive or third parties, any such employees of the Company; and
F. At any time during his employment by the Company and for a
period of one (1) year after the Executive 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
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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.
Notwithstanding the above, should the Executive not be
receiving compensation from the Company either in a lump sum, or on a regular
basis for a period at least equal to one (1) year, as set forth in this
Agreement following his Date of Termination, then Subparagraphs 7(C), 7(E) and
7(F) shall be ineffective. Additionally, Subparagraphs 7(C), 7(D), and 7(E)
shall be ineffective as it relates to the spouse of the Executive.
(b) The Executive agrees that, upon the expiration of his employment by
the Company for any reason, the Executive shall forthwith deliver up to the
Company any and all records, drawings, notebooks, keys and other documents and
material, and copies thereof in his possession or under his control which is the
property of the Company or which relate to any confidential information or any
discoveries of the Company.
(c) The Executive agrees that any breach or threatened breach by the
Executive of any provision of this Section 7 shall entitle the Company, in
addition to any other legal remedies available to it, to enjoin such breach or
threatened breach through any court of competent jurisdiction. The parties
understand and intend that each restriction agreed to by the Executive
hereinabove shall be construed as separable and divisible from every other
restriction, and that the unenforceability, in whole or in part, of any
restriction will not affect the enforceability of the remaining restrictions,
and that one or more or all of such restrictions may be enforced in whole or in
part as the circumstances warrant.
(d) For the purposes of this Section, the term "Company" shall mean and
include any and all subsidiaries, parents and affiliated corporations of the
Company in existence from time to time.
8. Change in Control.
(a) Effectiveness of Change in Control Provisions. The terms set forth
in this Paragraph 8, shall be effective should a Change in Control of the
Company, as defined below, have occurred during the term of this Agreement, or
during any extensions thereof, and shall continue in effect for a period of
thirty-six (36) months beyond the month in which such Change in Control
occurred. However, the definitions set forth in Subparagraph 8(c) shall apply
throughout this Agreement.
(b) Change in Control. No benefits shall be payable hereunder unless an
event as set forth below, shall have occurred (hereinafter called a "Change in
Control"):
(i) Any person including any individual, firm, partnership or
other entity, together with all Affiliates and Associates (as defined by
ss.240.12b-2 of the regulations promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act") of such person, directly or indirectly
acquires securities of the Company's then outstanding securities representing
twenty percent (20%) or more of the voting securities of the Company, such
person being hereinafter referred to as an Acquiring Person; or, but excluding:
(A) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Subsidiary of the Company,
or
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(B) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of the Company, or
(C) the Company or any Subsidiary of the Company, is
or becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange
Act),or
(D) a person who acquires securities of the Company
directly from the Company pursuant to a transaction that has been approved by a
vote of at least a majority of the Incumbent Board, or
(ii) Individuals who, on the date hereof, constitute the
Incumbent Board shall cease for any reason to constitute a majority of the
Board; or
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such other surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(c) Definitions. For the purposes of this Agreement, the following
terms shall mean:
(i) "Incumbent Board" shall mean the members of the Board, who
were members of the Board prior to the date of this Agreement.
(ii) "Subsidiary" shall mean any corporation of which an
amount of voting securities sufficient to elect at least a majority of the
directors of such corporation is beneficially owned, directly or indirectly, by
the Company, or is otherwise controlled by the Company.
(iii) "Good Reason" shall mean, without the Executive's
express written consent, the occurrence of any of the following circumstances
unless, such circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination, as defined in Paragraphs 8(c)(iv) and
(v), respectively, given in respect thereof:
(A) the assignment to the Executive of any duties
inconsistent with the Executive's status as Chairman of the Board, and/or Chief
Executive Officer of the Company, or a substantial adverse alteration in the
nature or status of the Executive's responsibilities from those in effect
immediately prior to a Change in Control of the Company;
(B) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all senior
executives of any person in control of the Company;
(C) the relocation of the Company's principal
executive offices to a location which is not within the boundaries of New York,
Queens, Nassau and Suffolk counties within the state of New York or the Company
requiring the Executive to be based anywhere other than the Company's principal
executive offices, except for required travel on the Company's business to an
extent substantially consistent with the Executive's present business travel
obligations, or the adverse and substantial alteration of the office space or
secretarial or support services provided to the Executive for the performance of
the Executive's duties;
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(D) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's
current compensation, except pursuant to an across-the-board compensation
deferral similarly affecting all senior executives of the Company and all senior
executives of any person in control of the Company, or the failure by the
Company to pay to the Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(E) the failure by the Company to continue in effect
any compensation plan in which the Executive participates that is material to
the Executive's total compensation, including but not limited to the Company's
Incentive Stock Option Plan, 401(k) plan, cafeteria or salary reduction plan, or
any other or substitute plans adopted prior to a Change in Control of the
Company, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of the Executive's participation
relative to other participants, than the Executive's participation as it existed
at the time of a Change in Control of the Company;
(F) unless such action is pursuant to an
across-the-board reduction in benefits similarly affecting all senior executives
of the Company and all senior executives of any person in control of the
Company, the failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed by the Executive under any of
the Company's pension, life insurance, automobile reimbursement, Company credit
card, medical, health and accident, or disability plans, if any, in which the
Executive was participating at the time of a Change in Control of the Company,
or the taking of any action by the Company that would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by the Executive at the time of a Change in Control of
the Company, or the failure by the Company to provide the Executive with the
number of paid vacation or sick days to which the Executive is entitled under
this Agreement at the time of a Change in Control of the Company;
(G) the failure of the Company to obtain a
satisfaction agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Paragraph 5 hereof; or
(H) any purported termination of the Executive's
employment that is not affected pursuant to a Notice of Termination satisfying
the requirements of Subparagraph 8(c)(iv) below (and, if applicable, the
requirement of Paragraph 6 above); for purposes of this Agreement, no such
purported termination shall be effective.
The Executive's right to terminate the Executive's employment
pursuant to this paragraph shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of right with respect to, any
circumstances constituting Good Reason hereunder.
(iv) "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
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(v) "Date of Termination" shall mean (A) if employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided, that the Executive shall not return to the full-time performance of
the Executive's duties during such thirty (30) day period), or (B) if employment
is terminated due to Death of the Executive, upon receipt of Notice of
Termination or (C) if employment is terminated pursuant to any other provision
in this Agreement, the date specified in Notice of Termination (which, in the
case of a termination pursuant to any provision of this Agreement other than for
Disability and Death shall not be less than fifteen (15) nor more than sixty
(60) days, respectively, from the date such Notice of Termination is given).
Notwithstanding the above, provided, that if within fifteen
(15) days after any Notice of Termination is given to the Executive or prior to
the Date of Termination (as determined without regard to this provision) the
Executive receiving such Notice of Termination notifies the Company that a
dispute exists concerning such termination, that during the pendency of any such
dispute, the Company will continue to pay the Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, base salary) and continue the Executive as a participant in all
compensation, benefit, and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved. However, should final resolution of the dispute
result in the Notice of Termination being affirmed in the forum, as set forth in
Paragraph 16, utilized for resolving said dispute, then the Executive shall be
liable to the Company for all compensation, benefit, and insurance plans paid
and/or provided to the Executive during the period that the Notice of
Termination was in dispute.
Amounts paid under this subparagraph are prior to all other
amounts due under this Agreement and shall not reduce any other amounts due
under this Agreement, which other amounts shall be in addition to, and shall not
be offset by, amounts due under this subparagraph.
Anything to the contrary herein notwithstanding, twenty-four
hours after written notice to the Executive, the Company may relieve the
Executive of authority to act on behalf of, or legally bind, the Company,
provided, that any such action by the Company shall be without prejudice to the
Executive's right to the compensation and benefits provided under this Agreement
and the Executive's right to termination hereunder under such circumstances and
with the compensation and benefits following such termination as provided in
this Agreement.
(vi) "Disability"- If the Executive, due to physical or mental
illness or incapacity, is unable fully to perform his duties herein for twelve
(12) consecutive months.
(vii) "Death"- If the Executive shall die during the term of
this Agreement.
(viii) ""Retirement"- Shall mean termination in accordance
with the Company's retirement policy, if any, including early retirement,
generally applicable to its salaried employees or in accordance with any
retirement arrangement established with the Executive's consent with respect to
the Executive.
(d) Termination Following Change in Control. If any of the events
described in Paragraph 8(b) hereof constituting a Change in Control of the
Company shall have occurred, the Executive shall be entitled to the benefits
provided in Paragraph 5 hereof upon the subsequent termination of the
Executive's employment during the term of this Agreement unless such termination
is (i) because of the Executive's Death, Disability or Retirement, (ii) by the
Company for Termination for Cause, or (iii) by the Executive for Good Reason
within three years after a Change in Control shall have occurred.
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(e) Notice of Termination. Any purported termination of the Executive's
employment by the Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Paragraph 15
hereof.
9. Successors; Binding Agreement.
(a) Assumption by Successor. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle the Executive to compensation from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive terminates the Executive's employment for Good Reason
following a Change in Control of the Company, except that for purposes of
implementing this paragraph, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid that assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) Successors. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Executive (except by will or intestate
succession) or any successor to the Executive's interest, nor shall it be
subject to attachment, execution, pledge or hypothecation, but this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representative, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there is no such designee, to the Executive's
estate.
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party that are not set forth in
this Agreement. All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Company under
Paragraph 5 shall survive the expiration of the term of this Agreement.
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11. Severance and Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall be
binding unless in writing and signed by the party to be bound; provided,
however, that the Executive's compensation and benefits may be increased at any
time by the Company without in any way affecting any of the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force and effect.
14. Negotiated Agreement. This Agreement has been negotiated and shall
not be construed against the party responsible for drafting all or parts of this
Agreement.
15. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or received by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service providing for a signed
return receipt, addressed to the Executive at the Executive's home address set
forth in the Company's records and to the Company at the address set forth on
the first page of this Agreement, provided that all notices to the Company shall
be directed to the attention of the Board with a copy to counsel to the Company,
at Muenz & Meritz, P.C., 3 Hughes Place, Dix Hills, New York 11746, Attention:
Lawrence A. Muenz, Esq., or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
16. Governing Law and Resolution of Disputes. All matters concerning
the validity and interpretation of and performance under this Agreement shall be
governed by the laws of the State of New York. Any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Garden City, New York, in accordance with the rules of the
American Arbitration Association ("AAA") then in effect. Any judgment rendered
by the arbitrator as above provided shall be final and binding on the parties
hereto for all purposes and may be entered in any court having jurisdiction;
provided, however, that the Executive shall be entitled to seek specific
performance of the Executive's right to be paid following termination for any
reason during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The Company share bear the total cost of filing
fees for the initial Demand of Arbitration, as well as all charges billed by the
AAA, regardless of which party shall commence the action. The Company shall
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bear the cost of the Executive's legal fees regarding any dispute or controversy
arising under or in connection with this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FIRST PRIORITY GROUP, INC.
By:___________________________ Dated:______________________
Title:________________________
BARRY SIEGEL
By:___________________________ Dated:______________________
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Exhibit 10.18
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated October 2, 1998 by and
between First Priority Group, Inc., a New York corporation with an address at 51
East Bethpage Road, Plainview, New York 11803 (the "Company"), and Barry J.
Spiegel, residing at 300 East 75th Street, Apartment 29M, New York, New York
10021 (the "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 of this Agreement.
2. Term
The Company and the Employee hereby agree to terminate the Employment
Agreement dated September 3, 1996 on the date hereof. Additionally, the Company
and the Employee agree to terminate all previously granted and unexercisable
stock options. However, the Employee shall retain the right to purchase up to
50,000 shares of Common Stock at $.75 per share pursuant to the 1995 Incentive
Stock Plan Stock Option Contract dated March 3, 1997. The Employee's term of
employment under this Agreement shall commence on July 1, 1998 (the
"Commencement Date") and shall continue for a period of thirty-six months (36)
months, terminating on June 30, 2001
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(the "Expiration Date"), unless earlier terminated under the terms and
conditions herein (the "Employment Term").
3. Duties
(a) Employee's responsibilities shall be to manage and direct
the Company's Affinity Services Division of the Company, as shall from time to
time be designated by the Chief Executive Officer ("CEO") of the Company.
Employee shall be based in Nassau or Suffolk counties during the Employment Term
and shall have the title of President of the Affinity 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, Best Efforts and Acknowledgment
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. The Company and the Employee
acknowledge that the Affinity Services Division shall only offer its services in
the form of programs that require outside parties to bear the sole cost of sales
marketing, distribution, printing and fulfillment, without the Company incurring
any such costs. The Company shall provide the service and bear the costs
associated with the benefits that are normally offered to the end users of such
affinity programs. The parties agree to develop an annual budget for the
Affinity Services Division that conforms to the program expense format set forth
above.
5. Compensation
(a) Base Salary. Commencing on the Commencement Date, 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 Thirty Thousand Dollars ($130,000), subject
to all required federal, state and local payroll deductions. The Employee's Base
Salary may be increased upon the recommendation of the CEO and the approval of
the Board of Directors.
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(b) Incentive Compensation. The Employee shall participate in
the Company's Corporate Compensation Program as approved and authorized by the
Board of Directors of the Company, subject to amendment by the Board of
Directors or the Compensation Committee of the Board of Directors of the
Company.
(c) The Employee shall be granted a stock option under the
Company's 1995 Incentive Stock Plan (the "Plan") with the right to purchase up
to 250,000 shares of the Company's common stock (the "Stock Option"). The Stock
Option shall be granted at a price equal to the closing price of the Company's
common stock as quoted on The Nasdaq SmallCap Stock Market on the Commencement
Date. The Stock Option shall become exercisable in one-third increments upon the
first, second and third anniversary of the Stock Option grant. The Company will
provide the Employee a Stock Option Contract for his signature which will set
out the terms of the option. This Stock Option shall be subject to the terms of
the Plan. Additionally, should a Change in Control, as hereinafter defined,
occur, only to the extent that the Company does not lose any deductions that
would be otherwise be deductible under Section 280G of the Internal Revenue
Code, the Employee's Stock Option shall become fully exercisable.
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).
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The Employee shall be reimbursed $500 per month for a car allowance.
8. Vacation and Sick Leave
Employee shall be entitled to three (3) weeks of paid 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 paid sick leave per annum during the Employment Term.
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 and any accrued vacation, 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
in any one calendar year, 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
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or accrued and any other benefits normally paid and/provided to the Employee
up through the day on which Employee is terminated.
(b) The Company may terminate the employment of Employee
Without 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 and any other benefits normally paid
and/provided to the Employee up through the day on which Employee is terminated,
in addition to the lesser of (i) Base Salary and other employee benefits, as set
forth in Paragraph 7, for a twelve (12) month period from the date employment is
terminated, or (ii) the Base Salary and other employee benefits that would have
been paid the Employee from the date employment is terminated through the
Expiration Date.
(c) As used herein, the term "For Cause" shall mean:
(i) any material 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 reasonable satisfaction of the CEO 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 material act, or material failure to act, by
Employee in bad faith and to the material detriment of the Company; or
(iv) commission by Employee of a material 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
(vi) the Affinity Services Division does not achieve
net income of at least (x) $500,000 in the year ending on December 31, 1999,
(y) $750,000 in the year ending on December 31, 2000, or (z) $1 million in the
year ending December 31, 2001.
(d) As used herein, the term "Without Cause" shall mean:
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(i) Termination by the Company of the Employee's
employment for any reason other than For Cause, Death or Disability.
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 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
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operates a business or activity which competes with any business or activity
engaged in by the Company.
(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.
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(viii) Notwithstanding anything to the contrary, the
Employee may engage in any business activity he so wishes as long as: (A) this
business activity did not directly compete with any business of the Company
prior to the Employee joining or entering into this business activity, (B) the
Employee does not assist this business activity to develop a business that
competes with any business of the Company that existed, or was in the planning
stages, at the time that the Employee's employment terminated with the
Company, or (c) the Employee shall not serve in a management capacity whereby
a subsidiary, division or business unit reports directly or indirectly to him
and engages in a business activity that competes with any business of the
Company that existed, or was in the planning stages, at the time that the
Employee's employment terminated with 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 Agreement 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 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
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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
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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, 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 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
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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
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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 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.
23. Definitions
A Change in Control shall have occurred if:
(a) Any person including any individual, firm,
partnership or other entity, together with all
Affiliates and Associates (as defined by ss.240.12b-2
of the regulations promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
of such person, directly or indirectly acquires
securities of the Company's then outstanding
securities representing Twenty percent (20%) or more
of the voting securities of the Company, such person
being hereinafter referred to as an Acquiring
Person; or, but excluding:
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(i) a trustee or other fiduciary holding
securities under an employee benefit plan
of the Company or any Subsidiary of the
Company, or
(ii) a corporation owned, directly or indirectly,
by the stockholders of the Company in
substantially the same proportions as their
ownership of the Company, or
(iii) the Company or any Subsidiary of the
Company, is or becomes the Beneficial Owner
(as defined in Rule 13d-3 under the Exchange
Act),or
(iv) a person who acquires securities of the
Company directly from the Company pursuant
to a transaction that has been approved by a
vote of at least a majority of the Incumbent
Board, or
(b) Individuals who, on the date hereof, constitute the
Incumbent Board shall cease for any reason to
constitute a majority of the Board; or
(c) The stockholders of the Company approve a merger or
consolidation of the Company with any other
corporation, other than a merger or consolidation
that would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) at least 80% of
the combined voting power of the voting securities
of the Company or such other surviving entity
outstanding immediately after such merger or
consolidation, or the stockholders of the Company
approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition
by the Company of all or substantially all of the
Company's assets.
4. Definitions. For the purposes of this Contract, the
following terms shall mean:
(i) "Incumbent Board" shall mean the members of
the Board, who were members of the Board
prior to the date of this Agreement.
(ii) "Subsidiary" shall mean any corporation of
which an amount of voting securities
sufficient to elect at least a majority of
the directors of such corporation is
beneficially owned, directly or indirectly,
by the Company, or is otherwise controlled
by the Company.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written below.
FIRST PRIORITY GROUP, INC. BARRY J. SPIEGEL
By: By:
--------------------------------- ---------------------------
Title: Dated:
------------------------------ ------------------------
Dated:
------------------------------
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Exhibit 10.19
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated December 14, 1998 by and
between First Priority Group, Inc., a New York corporation with an address at 51
East Bethpage Road, Plainview, New York 11803 (the "Company"), and LISA SIEGEL,
residing at 8 Indian Well Court, Huntington, NY. 11743 (hereinafter referred to
as the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires that Executive be employed by it and
render services to it, and Executive 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 Executive, 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
The Executive's term of employment under this Agreement shall commence
on July 1, 1998 (the "Commencement Date") and shall continue for a period of
thirty-six months (36) months, terminating on June 30, 2001 (the "Expiration
Date"), unless earlier terminated under the terms and conditions herein (the
"Employment Term").
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3. Duties
(a) Executive's responsibilities shall be to manage and direct
the operational affairs of the Company as shall from time to time be designated
by the Chief Operating Officer ("COO") of the Company. Executive shall be based
in Nassau or Suffolk counties during the Employment Term and shall have the
title of Vice President Administation.
(b) Executive 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
Executive 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 the Commencement Date, the
Executive 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 Eighty-five Thousand Dollars ($85,000), subject to all
required federal, state and local payroll deductions. The Executive's Base
Salary may be increased upon the recommendation of the COO, the Chief Executive
and the approval of the Board of Directors.
(b) Incentive Compensation. The Executive shall participate in
the Company's Corporate Compensation Program as approved and authorized by the
Board of Directors of the Company, subject to amendment by the Board of
Directors or the Compensation Committee of the Board of Directors of the
Company.
(c) The Executive shall be granted a stock option under the
Company's 1995 Incentive Stock Plan (the "Plan") with the right to purchase up
to 100,000 shares of the Company's common stock (the "Stock Option"). The Stock
Option shall be granted at a price equal to the closing price of the Company's
common stock as quoted on The Nasdaq SmallCap Stock Market on the date hereof.
The Stock Option
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shall become exercisable in one-third increments upon the first, second and
third anniversary of the Stock Option grant. However, following a Change in
Control, as hereinafter defined, all stock options previously granted the
Executive shall become fully exercisable for the remaining term of such stock
option grant, regardless whether the Executive continues as an employee of the
Company. The Company will provide the Executive a Stock Option Contract for
his signature which will set out the terms of the option. This Stock Option
shall be subject to the terms of the Plan.
6. Business Expenses
Executive shall be reimbursed for only those business expenses incurred
by him (a) which are reasonable and necessary for Executive to perform his
duties under this Agreement in accordance with policies established from time to
time by the Company, and (b) for which Executive has submitted vouchers and/or
receipts. The Executive shall be issued a corporate credit card that he shall
use solely for business expenses which are reasonable and necessary for the
Executive to perform his duties under this Agreement in accordance with policies
established from time to time by the Company
7. Executive Benefits
During the Employment Term, Executive 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). Executive will not be covered under the
Company's health insurance until the Executive has been employed by the Company
for more than ninety (90) days. The Executive 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 Executive is covered under the
Company's health insurance plan.
The Company shall pay the Executive a monthly automobile allowance of
Four Hundred Dollars ($400).
8. Vacation and Sick Leave
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Executive 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 Executive. The Executive shall be entitled to one (1)
week of sick leave per annum during the Employment Term.
9. Death and Disability
(a) The Employment Term shall terminate on the date of
Executive's death, in which event Executive's salary payable pursuant to
Paragraph 5 and any accrued vacation, through the date of Executive's death,
shall be paid to his estate. Executive'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, Executive, 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
in any one calendar year, 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 Executive 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, Executive shall be entitled to receive his salary payable
pursuant to Paragraph 5 through the date of termination. Executive 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 Executive 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 Executive the unpaid prorated salary
pursuant to Paragraph 5 earned or accrued up through the day on which Executive
is terminated.
(b) The Company may terminate the employment of Executive
Without Cause (as hereinafter defined). Upon such termination, the Company shall
be
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released from any and all further obligations under this Agreement, except
that the Company shall be obligated to pay Executive the unpaid prorated
salary pursuant to Paragraph 5 earned or accrued up through the day on which
Executive is terminated, in addition to the lesser of (i) Base Salary and
other employee benefits, as set forth in Paragraph 7, for a twelve (12) month
period from the date employment is terminated, or (ii) the Base Salary and
other employee benefits that would have been paid the Executive from the date
employment is terminated through the Expiration Date.
(c) As used herein, the term "For Cause" shall mean:
(i) any material breach of this Agreement by Executive
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 Executive, setting forth in reasonable
detail the nature of such breach;
(ii) Executive's failure to perform his duties and
services hereunder to the reasonable satisfaction of the COO or the Chief
Executive Officer 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 Executive, setting forth in reasonable detail the nature of such
failure;
(iii) any material act, or material failure to act,
by Executive in bad faith and to the material detriment of the Company; or
(iv) commission by Executive of a material 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 Executive of a felony,
including the plea of nolo contendere
(d) As used herein, the term "Without Cause" shall mean:
(i) Termination by the Company of the Executive's
employment for any reason other than For Cause, Death or Disability.
11. Disclosure of Information and Restrictive Covenant
(a) Executive 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,
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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 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").
Executive 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) Executive will not, at any time prior to the
Expiration Date, or if the Executive's employment shall terminate prior to the
Expiration Date, then for a period of one (1) year after the Executive 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 business or activity which competes with any
business or activity engaged in by the Company.
(ii) Any time during his employment by the Company or
after the Executive 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
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(iii) At any time during his employment by the
Company and for a period of one (1) year after the Executive ceases to be
employed by the Company, solicit or cause or authorize directly or indirectly
to be solicited, for or on behalf of the Executive 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 Executive ceases to be employed by
the Company, accept or cause or authorize directly or indirectly to be
accepted, for or on behalf of the Executive 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 Executive 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 Executive 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 Executive ceases to be employed by the
Company, employ or cause or authorize directly or indirectly to be employed,
for or on behalf of the Executive 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 Executive 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.
(c) Executive 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 Agreement for any reason.
Additionally, Subparagraphs 11(b)(v) and 11(b)(vi) shall be ineffective as it
relates to the spouse of the Executive.
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(e) It is expressly agreed by Executive 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 Executive 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. Executive acknowledges and agrees that his services 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 Executive in the course of Executive'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 Executive 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 Executive 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, Executive shall
promptly return to the Company all property of the Company in his possession.
Executive 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. Executive 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 Executive's services are
special, unique, unusual, extraordinary and of an intellectual character giving
them a peculiar
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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 Executive, 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
Executive for breach of the Agreement by the Company.
14. Representations and Warranties of Executive and the Company
(a) In order to induce the Company to enter into this
Agreement, Executive hereby represents and warrants to the Company as follows:
(i) Executive 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 Executive 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 Executive is a party or by which he is or may be bound or
subject; and (iii) Executive 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 Executive,
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 Executive at his address set forth on the first
page of this Agreement,
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and to the Company at its address set forth on the first page of this
Agreement, Attention: Barry Siegel, 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 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 Executive's rights, powers, duties
or obligations hereunder, may be assigned by Executive. This Agreement shall be
binding upon and inure to the benefit of Executive 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
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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 Executive 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
Executive 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
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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 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.
23. Severance
(a) Severance Benefits. If the Executive's employment shall be
terminated by the Company within one (1) year after a Change in Control of the
Company, for reasons other than for Termination for Cause, Retirement, Death or
Disability, or terminated by the Executive for Good Reason within one (1) year
after a Change in Control of the Company, then, subject to the limitations set
forth in Subparagraph 23(c) below, the Executive shall be entitled to the
benefits provided below:
(i) the Company shall pay the Executive the Executive's full
base salary through the Date of Termination at the rate equal to the greater of
the rate in effect on the date prior to the Change in Control and the rate in
effect at the time Notice of Termination is given, plus all other amounts to
which the Executive is entitled under any compensation plan of the Company in
effect on the date, the payments are due, except as otherwise provided below;
(ii) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, except as provided in
Paragraph 23(c) below, the Company shall pay as severance pay to the Executive a
lump sum severance payment equal to 200% of the Executive's annual salary as
determined on the Date of Termination or the date on which a Change in Control
occurs, whichever is greater;
(b) Date Benefits Due. The payments provided for in Paragraph
23(a) above shall be made not later than the fifth day following the Date of
Termination, provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 7872(f)(2) of the Code)
as soon as the amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a
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loan by the Company to the Executive repayable on the fifth day after demand
by the Company (together with interest at the rate provided in Section
7872(f)(2) of the Code).
(c) Reduction to Avoid Non-Deductibility. Any of the other
provisions of this Agreement notwithstanding, if any payment to be made by the
Company pursuant to this Agreement to the Executive or for the Executive's
benefit (the "Payments") otherwise would not be deductible by the Company for
Federal income tax purposes due to the provisions of the Code Section 280G, the
aggregate present value (determined as of the date of the Change in Control) of
the Payments shall be reduced (but not to a negative amount) to an amount
expressed in the present value as of such date (the "Reduced Amount") that
maximizes the present value of the Payments without causing any payment to be
nondeductible by the Company due to the Code Section 280G. The determination of
the Reduced Amount and the accompanying reduction in Payments shall be made by
the independent certified public accountants for the Company. Any such decrease
in Payments shall be applied to the amounts to be paid to the Executive or for
the Executive's benefit hereunder in the following order but only to the extent
such amounts would be taken into account in determining whether the Payments
constitute "parachute payments" within the meaning of the Code Section
280G(b)(2)(A): (i) to decrease the amounts payable to the Executive pursuant to
Subparagraph 5(c); (ii) to decrease the amounts payable to the Executive
pursuant to Subparagraph 23(a)(ii);
(d) Determination of Reduced Amount. The determination of the
Reduced Amount and of the reduction in the Payments shall be communicated to the
Executive in writing by the Company. If the Executive does not agree with such
determinations, the Executive may give written notice of such disagreement to
the Board within five (5) days of the Executive's receipt of the determination,
and within fifteen (15) days after the Executive's notice of disagreement, the
Executive shall deliver to the Board the Executive's calculation of the
reduction in Payments. If the Executive fails to give notice of disagreement or
to furnish the Executive's calculation in accordance with the provisions of
the immediately preceding sentence, the Executive shall be conclusively deemed
to have accepted the determinations made by the independent public accountants
for the Company. If the accountants for the Company and the Executive's
accountants are unable to agree upon the reduction of Payments within ten (10)
days of the receipt of the Board of the Executive's calculation, the
determination of the reduction in Payments shall be made by a third accounting
firm picked by the Company's accountants and the Executive's
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accountants (the "Arbiter") whose determination shall be final and binding upon
the Executive and the Company, except to the extent provided below. The Company
shall withhold for income tax purposes all amounts that the Company's
independent certified public accountants believe that the Company is required to
withhold.
(e) Arbiter to Resolve Disputes. The Arbiter's and the
Company's accountant's fees shall be borne solely by the Company. The
Executive's accountant's fees shall be borne by the Executive.
(f) Final Payment. As promptly as practicable after the final
determination of the reduction in Payments, the Company shall pay to the
Executive or for the Executive's benefit the amounts determined to be payable.
(g) IRS Ruling. In the event there is a final determination by
the Internal Revenue Service or by a court of competent jurisdiction that any
portion of the Payments are not deductible by the Company by reason of Section
280G, then the amount of the Payments that exceeds the amount deductible by the
Company shall be deemed to be a loan by the Company to the Executive, which
shall be repaid by the Executive five (5) days after delivery of a demand by the
Company therefor together with interest from the date paid by the Company to the
date repaid by the Executive at the rate provided for a demand loan in Section
7872(f)(2) of the Code.
(h) Interpretation. The provisions of this Paragraph 23 shall
be interpreted in a manner that will avoid the disallowance of a deduction to
the Company pursuant to Section 280G and the imposition of excise taxes on the
Executive under Section 4899 of the Code.
(i) Definitions. For the purposes of this Agreement, the
following terms shall mean:
(i) "Incumbent Board" shall mean the members of the Board,
who were members of the Board prior to the date of this Agreement.
(ii) "Subsidiary" shall mean any corporation of which an
amount of voting securities sufficient to elect at least a majority of the
directors of such corporation is beneficially owned, directly or indirectly,
by the Company, or is otherwise controlled by the Company.
(iii) "Good Reason" shall mean, without the Executive's
express written consent, the occurrence of any of the following circumstances
unless, such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination, as defined in Paragraphs
23(i)(iv) and (v), respectively, given in respect thereof:
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(A) the assignment to the Executive of any duties
inconsistent with the Executive's status as President and/or Chief Operating
Officer of the Company, or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those in effect immediately
prior to a Change in Control of the Company;
(B) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all senior
executives of any person in control of the Company;
(C) the relocation of the Company's principal
executive offices to a location which is not within the boundaries of New
York, Queens, Nassau and Suffolk counties within the State of New York or the
Company requiring the Executive to be based anywhere other than the Company's
principal executive offices, except for required travel on the Company's
business to an extent substantially consistent with the Executive's present
business travel obligations, or the adverse and substantial alteration of the
office space or secretarial or support services provided to the Executive for
the performance of the Executive's duties;
(D) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of the Executive's
current compensation, except pursuant to an across-the-board compensation
deferral similarly affecting all senior executives of the Company and all
senior executives of any person in control of the Company, or the failure by
the Company to pay to the Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(E) the failure by the Company to continue in effect
any compensation plan in which the Executive participates that is material to
the Executive's total compensation, including but not limited to the Company's
Incentive Stock Option Plan, 401(k) plan, cafeteria or salary reduction plan,
or any other or substitute plans adopted prior to a Change in Control of the
Company, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
the Company to continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of the Executive's
participation relative to other participants, than the Executive's
participation as it existed at the time of a Change in Control of the Company;
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(F) unless such action is pursuant to an
across-the-board reduction in benefits similarly affecting all senior
executives of the Company and all senior executives of any person in control
of the Company, the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, automobile
reimbursement, Company credit card, medical, health and accident, or
disability plans, if any, in which the Executive was participating at the time
of a Change in Control of the Company, or the taking of any action by the
Company that would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit enjoyed by
the Executive at the time of a Change in Control of the Company, or the
failure by the Company to provide the Executive with the number of paid
vacation or sick days to which the Executive is entitled under this Agreement
at the time of a Change in Control of the Company;
(G) the failure of the Company to obtain a
satisfaction agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Paragraph 5 hereof; or
(H) any purported termination of the Executive's
employment that is not affected pursuant to a Notice of Termination satisfying
the requirements of Subparagraph 8(c)(iv) below (and, if applicable, the
requirement of Paragraph 6 above); for purposes of this Agreement, no such
purported termination shall be effective.
The Executive's right to terminate the Executive's employment
pursuant to this paragraph shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of right with respect to, any
circumstances constituting Good Reason hereunder.
(iv) "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(v) "Date of Termination" shall mean (A) if employment is
terminated for Disability, thirty (30) days after Notice of Termination is
given (provided, that the Executive shall not return to the full-time
performance of the Executive's duties during such thirty (30) day period), or
(B) if employment is terminated due to Death of the Executive, upon receipt of
Notice of Termination or (C) if employment is terminated pursuant to any other
provision in this Agreement, the date specified in
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Notice of Termination (which, in the case of a termination pursuant to any
provision of this Agreement other than for Disability and Death shall not be
less than fifteen (15) nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
Notwithstanding the above, provided, that if within fifteen
(15) days after any Notice of Termination is given to the Executive or prior
to the Date of Termination (as determined without regard to this provision)
the Executive receiving such Notice of Termination notifies the Company that a
dispute exists concerning such termination, that during the pendency of any
such dispute, the Company will continue to pay the Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue the Executive as a
participant in all compensation, benefit, and insurance plans in which the
Executive was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved. However, should final resolution
of the dispute result in the Notice of Termination being affirmed in the
forum, as set forth in Paragraph 21, utilized for resolving said dispute, then
the Executive shall be liable to the Company for all compensation, benefit,
and insurance plans paid and/or provided to the Executive during the period
that the Notice of Termination was in dispute.
Amounts paid under this subparagraph are prior to all other
amounts due under this Agreement and shall not reduce any other amounts due
under this Agreement, which other amounts shall be in addition to, and shall
not be offset by, amounts due under this subparagraph.
Anything to the contrary herein notwithstanding, twenty-four
hours after written notice to the Executive, the Company may relieve the
Executive of authority to act on behalf of, or legally bind, the Company,
provided, that any such action by the Company shall be without prejudice to
the Executive's right to the compensation and benefits provided under this
Agreement and the Executive's right to termination hereunder under such
circumstances and with the compensation and benefits following such
termination as provided in this Agreement.
(vi) "Disability"- If the Executive, due to physical or
mental illness or incapacity, is unable fully to perform his duties herein for
twelve (12) consecutive months.
(vii) "Death"- If the Executive shall die during the term of
this Agreement.
(viii) ""Retirement"- Shall mean termination in accordance
with the Company's retirement policy, if any, including early retirement,
generally applicable to
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its salaried employees or in accordance with any retirement arrangement
established with the Executive's consent with respect to the Executive.
(ix) "Change in Control"- . No benefits shall be payable
hereunder unless an event as set forth below, shall have occurred (hereinafter
called a "Change in Control"):
(a) Any person including any individual, firm,
partnership or other entity, together with all Affiliates and Associates (as
defined by ss.240.12b-2 of the regulations promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of such person, directly
or indirectly acquires securities of the Company's then outstanding securities
representing twenty percent (20%) or more of the voting securities of the
Company, such person being hereinafter referred to as an Acquiring Person; or,
but excluding:
(A) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Subsidiary of the
Company, or
(B) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of the Company, or
(C) the Company or any Subsidiary of the Company, is
or becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange
Act),or
(D) a person who acquires securities of the Company
directly from the Company pursuant to a transaction that has been approved by
a vote of at least a majority of the Incumbent Board, or
(b) Individuals who, on the date hereof, constitute the
Incumbent Board shall cease for any reason to constitute a majority of the
Board; or
(c) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such other surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
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24. Legal Fees
The Company shall bear the cost of the Executive's legal fees regarding
any dispute or controversy arising under or in connection with this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written below.
FIRST PRIORITY GROUP, INC. Lisa Siegel
By: By:
--------------------------------- ---------------------------
Title: Dated:
------------------------------ ------------------------
Dated:
------------------------------
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Exhibit 10.20
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated October 8, 1998 by and between
First Priority Group, Inc., a New York corporation with an address at 51 East
Bethpage Road, Plainview, New York 11803 (the "Company"), and Gerald M. Zutler,
residing at 32 Lincoln Road North, Plainview, New York 11803 (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires that Executive be employed by it and render
services to it, and Executive 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 Executive, 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
The Company and the Executive hereby agree to terminate the Employment
Agreement dated March 23, 1998 on the date hereof. Additionally, the Company and
the Executive agree to terminate all previously granted and unexercised stock
options. The Executive's term of employment under this Agreement shall commence
on July 1, 1998 (the "Commencement Date") and shall continue for a period of
thirty-six months (36) months, terminating on June 30, 2001 (the "Expiration
Date"), unless earlier terminated under the terms and conditions herein (the
"Employment Term").
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3. Duties
(a) Executive's responsibilities shall be to manage and direct the
operational affairs of the Company as shall from time to time be designated by
the Chief Executive Officer ("CEO") of the Company. Executive shall be based in
Nassau or Suffolk counties during the Employment Term and shall have the title
of President and Chief Operating Officer.
(b) Executive 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
Executive 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 the Commencement Date, the Executive
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 Fifty Thousand Dollars ($150,000), subject to all required
federal, state and local payroll deductions. The Executive's Base Salary may be
increased upon the recommendation of the CEO and the approval of the Board of
Directors.
(b) Incentive Compensation. The Executive shall participate in the
Company's Corporate Compensation Program as approved and authorized by the Board
of Directors of the Company, subject to amendment by the Board of Directors or
the Compensation Committee of the Board of Directors of the Company.
(c) The Executive shall be granted a stock option under the Company's
1995 Incentive Stock Plan (the "Plan") with the right to purchase up to 300,000
shares of the Company's common stock (the "Stock Option"). The Stock Option
shall be granted at a price equal to the closing price of the Company's common
stock as quoted on The Nasdaq SmallCap Stock Market on the Commencement Date.
The Stock Option shall become exercisable in one-third increments upon the
first, second
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and third anniversary of the Stock Option grant. However, following a Change in
Control, as hereinafter defined, all stock options previously granted the
Executive shall become fully exercisable for the remaining term of such stock
option grant, regardless whether the Executive continues as an employee of the
Company. The Company will provide the Executive a Stock Option Contract for his
signature which will set out the terms of the option. This Stock Option shall be
subject to the terms of the Plan.
6. Business Expenses
Executive shall be reimbursed for only those business expenses incurred by
him (a) which are reasonable and necessary for Executive to perform his duties
under this Agreement in accordance with policies established from time to time
by the Company, and (b) for which Executive has submitted vouchers and/or
receipts. The Executive shall be issued a corporate credit card that he shall
use solely for business expenses which are reasonable and necessary for the
Executive to perform his duties under this Agreement in accordance with policies
established from time to time by the Company
7. Executive Benefits
During the Employment Term, Executive 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). Executive will not be covered under the
Company's health insurance until the Executive has been employed by the Company
for more than ninety (90) days. The Executive 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 Executive is covered under the
Company's health insurance plan.
The Company shall pay the Executive a monthly automobile allowance of Six
Hundred Dollars ($600).
8. Vacation and Sick Leave
Executive 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
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Company and Executive. The Executive shall be entitled to one (1) week of sick
leave per annum during the Employment Term.
9. Death and Disability
(a) The Employment Term shall terminate on the date of Executive's
death, in which event Executive's salary payable pursuant to Paragraph 5 and any
accrued vacation, through the date of Executive's death, shall be paid to his
estate. Executive'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, Executive, 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 in any one
calendar year, 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 Executive 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, Executive shall be entitled to receive his salary payable pursuant
to Paragraph 5 through the date of termination. Executive 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 Executive 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 Executive the unpaid prorated salary pursuant
to Paragraph 5 earned or accrued up through the day on which Executive is
terminated.
(b) The Company may terminate the employment of Executive Without
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 Executive the unpaid prorated salary
pursuant to Paragraph 5 earned or accrued up through the day on which Executive
is terminated,
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in addition to the lesser of (i) Base Salary and other employee benefits, as set
forth in Paragraph 7, for a twelve (12) month period from the date employment is
terminated, or (ii) the Base Salary and other employee benefits that would have
been paid the Executive from the date employment is terminated through the
Expiration Date.
(c) As used herein, the term "For Cause" shall mean:
(i) any material breach of this Agreement by Executive 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 Executive, setting forth in reasonable detail the nature of such
breach;
(ii) Executive's failure to perform his duties and services
hereunder to the reasonable satisfaction of the CEO 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 Executive, setting forth in reasonable detail the nature
of such failure;
(iii) any material act, or material failure to act, by Executive in
bad faith and to the material detriment of the Company; or
(iv) commission by Executive of a material 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 Executive of a felony, including the plea
of nolo contendere
(d) As used herein, the term "Without Cause" shall mean: (i)
Termination by the Company of the Executive's employment for any reason other
than For Cause, Death or Disability.
11. Disclosure of Information and Restrictive Covenant
(a) Executive 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
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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 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"). Executive 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) Executive will not, at any time prior to the Expiration Date,
or if the Executive's employment shall terminate prior to the Expiration Date,
then for a period of one (1) year after the Executive 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 business or
activity which competes with any business or activity engaged in by the Company.
(ii) Any time during his employment by the Company or after the
Executive 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 Executive ceases to be employed by the Company,
solicit or cause or authorize directly or indirectly to be solicited, for or on
behalf of the Executive or third parties, any business from persons, firms,
corporations or other
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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 Executive ceases to be employed by the Company,
accept or cause or authorize directly or indirectly to be accepted, for or on
behalf of the Executive 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 Executive 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 Executive 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 Executive ceases to be employed by the Company,
employ or cause or authorize directly or indirectly to be employed, for or on
behalf of the Executive 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 Executive 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.
(c) Executive 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 Agreement for any reason.
(e) It is expressly agreed by Executive 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
Executive 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
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provisions reasonable and/or enforceable, as the case may be. Executive
acknowledges and agrees that his services 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 Executive
in the course of Executive'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 Executive
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 Executive 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, Executive shall promptly
return to the Company all property of the Company in his possession. Executive
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. Executive 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 Executive'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 Executive, 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
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addition to damages the Company may be entitled to recover. Nothing herein shall
be deemed to restrict any remedy available to Executive for breach of the
Agreement by the Company.
14. Representations and Warranties of Executive and the Company
(a) In order to induce the Company to enter into this Agreement,
Executive hereby represents and warrants to the Company as follows: (i)
Executive 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 Executive 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 Executive is a party or by which he is or may be bound or subject; and
(iii) Executive 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 Executive, 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 Executive 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, 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 shall have
designated by a notice given in accordance
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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 Executive's rights, powers, duties or
obligations hereunder, may be assigned by Executive. This Agreement shall be
binding upon and inure to the benefit of Executive 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
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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 Executive 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
Executive 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 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.
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23. Severance
(a) Severance Benefits. If the Executive's employment shall be
terminated by the Company within one (1) year after a Change in Control of the
Company, for reasons other than for Termination for Cause, Retirement, Death or
Disability, or terminated by the Executive for Good Reason within one (1) year
after a Change in Control of the Company, then, subject to the limitations set
forth in Subparagraph 23(c) below, the Executive shall be entitled to the
benefits provided below:
(i) the Company shall pay the Executive the Executive's full base
salary through the Date of Termination at the rate equal to the greater of the
rate in effect on the date prior to the Change in Control and the rate in effect
at the time Notice of Termination is given, plus all other amounts to which the
Executive is entitled under any compensation plan of the Company in effect on
the date, the payments are due, except as otherwise provided below;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, except as provided in Paragraph
23(c) below, the Company shall pay as severance pay to the Executive a lump sum
severance payment equal to 200% of the Executive's annual salary as determined
on the Date of Termination or the date on which a Change in Control occurs,
whichever is greater;
(b) Date Benefits Due. The payments provided for in Paragraph 23(a)
above shall be made not later than the fifth day following the Date of
Termination, provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 7872(f)(2) of the Code)
as soon as the amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive repayable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 7872(f)(2) of the Code).
(c) Reduction to Avoid Non-Deductibility. Any of the other provisions
of this Agreement notwithstanding, if any payment to be made by the Company
pursuant to this Agreement to the Executive or for the Executive's benefit (the
"Payments")
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otherwise would not be deductible by the Company for Federal income tax purposes
due to the provisions of the Code Section 280G, the aggregate present value
(determined as of the date of the Change in Control) of the Payments shall be
reduced (but not to a negative amount) to an amount expressed in the present
value as of such date (the "Reduced Amount") that maximizes the present value of
the Payments without causing any payment to be nondeductible by the Company due
to the Code Section 280G. The determination of the Reduced Amount and the
accompanying reduction in Payments shall be made by the independent certified
public accountants for the Company. Any such decrease in Payments shall be
applied to the amounts to be paid to the Executive or for the Executive's
benefit hereunder in the following order but only to the extent such amounts
would be taken into account in determining whether the Payments constitute
"parachute payments" within the meaning of the Code Section 280G(b)(2)(A): (i)
to decrease the amounts payable to the Executive pursuant to Subparagraph 5(c);
(ii) to decrease the amounts payable to the Executive pursuant to Subparagraph
23(a)(ii);
(d) Determination of Reduced Amount. The determination of the Reduced
Amount and of the reduction in the Payments shall be communicated to the
Executive in writing by the Company. If the Executive does not agree with such
determinations, the Executive may give written notice of such disagreement to
the Board within five (5) days of the Executive's receipt of the determination,
and within fifteen (15) days after the Executive's notice of disagreement, the
Executive shall deliver to the Board the Executive's calculation of the
reduction in Payments. If the Executive fails to give notice of disagreement or
to furnish the Executive's calculation in accordance with the provisions of the
immediately preceding sentence, the Executive shall be conclusively deemed to
have accepted the determinations made by the independent public accountants for
the Company. If the accountants for the Company and the Executive's accountants
are unable to agree upon the reduction of Payments within ten (10) days of the
receipt of the Board of the Executive's calculation, the determination of the
reduction in Payments shall be made by a third accounting firm picked by the
Company's accountants and the Executive's accountants (the "Arbiter") whose
determination shall be final and binding upon the Executive and the Company,
except to the extent provided below. The Company shall withhold for income tax
purposes all amounts that the Company's independent certified public accountants
believe that the Company is required to withhold.
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(e) Arbiter to Resolve Disputes. The Arbiter's and the Company's
accountant's fees shall be borne solely by the Company. The Executive's
accountant's fees shall be borne by the Executive.
(f) Final Payment. As promptly as practicable after the final
determination of the reduction in Payments, the Company shall pay to the
Executive or for the Executive's benefit the amounts determined to be payable.
(g) IRS Ruling. In the event there is a final determination by the
Internal Revenue Service or by a court of competent jurisdiction that any
portion of the Payments are not deductible by the Company by reason of Section
280G, then the amount of the Payments that exceeds the amount deductible by the
Company shall be deemed to be a loan by the Company to the Executive, which
shall be repaid by the Executive five (5) days after delivery of a demand by the
Company therefor together with interest from the date paid by the Company to the
date repaid by the Executive at the rate provided for a demand loan in Section
7872(f)(2) of the Code.
(h) Interpretation. The provisions of this Paragraph 23 shall be
interpreted in a manner that will avoid the disallowance of a deduction to the
Company pursuant to Section 280G and the imposition of excise taxes on the
Executive under Section 4899 of the Code.
(i) Definitions. For the purposes of this Agreement, the following
terms shall mean:
(i) "Incumbent Board" shall mean the members of the Board, who were
members of the Board prior to the date of this Agreement.
(ii) "Subsidiary" shall mean any corporation of which an amount of
voting securities sufficient to elect at least a majority of the directors of
such corporation is beneficially owned, directly or indirectly, by the Company,
or is otherwise controlled by the Company.
(iii) "Good Reason" shall mean, without the Executive's express
written consent, the occurrence of any of the following circumstances unless,
such circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination, as defined in Paragraphs 23(i)(iv) and
(v), respectively, given in respect thereof:
(A) the assignment to the Executive of any duties inconsistent
with the Executive's status as President and/or Chief Operating Officer of the
Company, or a substantial adverse alteration in the nature or status of the
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Executive's responsibilities from those in effect immediately prior to a Change
in Control of the Company;
(B) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time, except for across-the-board salary reductions similarly affecting all
senior executives of the Company and all senior executives of any person in
control of the Company;
(C) the relocation of the Company's principal executive offices
to a location which is not within the boundaries of New York, Queens, Nassau and
Suffolk counties within the State of New York or the Company requiring the
Executive to be based anywhere other than the Company's principal executive
offices, except for required travel on the Company's business to an extent
substantially consistent with the Executive's present business travel
obligations, or the adverse and substantial alteration of the office space or
secretarial or support services provided to the Executive for the performance of
the Executive's duties;
(D) the failure by the Company, without the Executive's consent,
to pay to the Executive any portion of the Executive's current compensation,
except pursuant to an across-the-board compensation deferral similarly affecting
all senior executives of the Company and all senior executives of any person in
control of the Company, or the failure by the Company to pay to the Executive
any portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of the date such
compensation is due;
(E) the failure by the Company to continue in effect any
compensation plan in which the Executive participates that is material to the
Executive's total compensation, including but not limited to the Company's
Incentive Stock Option Plan, 401(k) plan, cafeteria or salary reduction plan, or
any other or substitute plans adopted prior to a Change in Control of the
Company, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in terms of
the amount of benefits provided and the level of the Executive's participation
relative to other participants, than the Executive's participation as it existed
at the time of a Change in Control of the Company;
(F) unless such action is pursuant to an across-the-board
reduction in benefits similarly affecting all senior executives of the Company
and all senior executives of any person in control of the Company, the failure
by the Company
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to continue to provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's pension, life
insurance, automobile reimbursement, Company credit card, medical, health and
accident, or disability plans, if any, in which the Executive was participating
at the time of a Change in Control of the Company, or the taking of any action
by the Company that would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit enjoyed by the
Executive at the time of a Change in Control of the Company, or the failure by
the Company to provide the Executive with the number of paid vacation or sick
days to which the Executive is entitled under this Agreement at the time of a
Change in Control of the Company;
(G) the failure of the Company to obtain a satisfaction agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Paragraph 5 hereof; or
(H) any purported termination of the Executive's employment that
is not affected pursuant to a Notice of Termination satisfying the requirements
of Subparagraph 8(c)(iv) below (and, if applicable, the requirement of Paragraph
6 above); for purposes of this Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment pursuant
to this paragraph shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of right with respect to, any circumstances
constituting Good Reason hereunder.
(iv) "Notice of Termination" shall mean a notice that shall indicate
the specific termination provision of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
(v) "Date of Termination" shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided,
that the Executive shall not return to the full-time performance of the
Executive's duties during such thirty (30) day period), or (B) if employment is
terminated due to Death of the Executive, upon receipt of Notice of Termination
or (C) if employment is terminated pursuant to any other provision in this
Agreement, the date specified in Notice of Termination (which, in the case of a
termination pursuant to any provision of this Agreement other than for
Disability and Death shall not be less than fifteen (15)
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nor more than sixty (60) days, respectively, from the date such Notice of
Termination is given).
Notwithstanding the above, provided, that if within fifteen (15) days
after any Notice of Termination is given to the Executive or prior to the Date
of Termination (as determined without regard to this provision) the Executive
receiving such Notice of Termination notifies the Company that a dispute exists
concerning such termination, that during the pendency of any such dispute, the
Company will continue to pay the Executive his full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
base salary) and continue the Executive as a participant in all compensation,
benefit, and insurance plans in which the Executive was participating when the
notice giving rise to the dispute was given, until the dispute is finally
resolved. However, should final resolution of the dispute result in the Notice
of Termination being affirmed in the forum, as set forth in Paragraph 21,
utilized for resolving said dispute, then the Executive shall be liable to the
Company for all compensation, benefit, and insurance plans paid and/or provided
to the Executive during the period that the Notice of Termination was in
dispute.
Amounts paid under this subparagraph are prior to all other amounts
due under this Agreement and shall not reduce any other amounts due under this
Agreement, which other amounts shall be in addition to, and shall not be offset
by, amounts due under this subparagraph.
Anything to the contrary herein notwithstanding, twenty-four hours
after written notice to the Executive, the Company may relieve the Executive of
authority to act on behalf of, or legally bind, the Company, provided, that any
such action by the Company shall be without prejudice to the Executive's right
to the compensation and benefits provided under this Agreement and the
Executive's right to termination hereunder under such circumstances and with the
compensation and benefits following such termination as provided in this
Agreement.
(vi) "Disability"- If the Executive, due to physical or mental illness
or incapacity, is unable fully to perform his duties herein for twelve (12)
consecutive months.
(vii) "Death"- If the Executive shall die during the term of this
Agreement.
(viii) ""Retirement"- Shall mean termination in accordance with the
Company's retirement policy, if any, including early retirement, generally
applicable to its salaried employees or in accordance with any retirement
arrangement established with the Executive's consent with respect to the
Executive.
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(ix) "Change in Control"- . No benefits shall be payable hereunder
unless an event as set forth below, shall have occurred (hereinafter called a
"Change in Control"):
(a) Any person including any individual, firm, partnership or other
entity, together with all Affiliates and Associates (as defined by ss.240.12b-2
of the regulations promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of such person, directly or indirectly acquires
securities of the Company's then outstanding securities representing twenty
percent (20%) or more of the voting securities of the Company, such person being
hereinafter referred to as an Acquiring Person; or, but excluding:
(A) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the Company, or
(B) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of the Company, or
(C) the Company or any Subsidiary of the Company, is or becomes
the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act),or (D)a
person who acquires securities of the Company directly from the Company pursuant
to a transaction that has been approved by a vote of at least a majority of the
Incumbent Board, or
(b) Individuals who, on the date hereof, constitute the Incumbent
Board shall cease for any reason to constitute a majority of the Board; or
(c) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
that would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the voting securities of
the Company or such other surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
24. Legal Fees
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<PAGE>
The Company shall bear the cost of the Executive's legal fees regarding any
dispute or controversy arising under or in connection with this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date written below.
FIRST PRIORITY GROUP, INC. GERALD M. ZUTLER
By: By:
----------------------------- -----------------------------
Title: Dated:
-------------------------- --------------------------
Dated:
--------------------------
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<PAGE>
Exhibit 10.21
Severance Agreement
This Severance Agreement (the "Severance Agreement) dated August 17, 1998
between First Priority Group, Inc., a New York corporation with offices at 51
East Bethpage Road, Plainview, New York 11803 (the "Company") and MICHAEL
KARPOFF, an individual residing at 32 Gramercy Park South, New York, NY. 10003
(hereinafter referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company and the Executive wish not to renew the employment
agreement of the Executive; and
WHEREAS, the Company agrees to make severance payments to the Executive;
and
WHEREAS, the Company wishes to limit the sale of the Executive's holdings
in the common stock of the Company; and
WHEREAS, the Executive agrees to accept the severance payment; NOW,
THEREFORE, in consideration of the mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Effective December 31, 2000, the Executive's employment with the Company
shall terminate (the "Termination Date"). While the Company has no established
policy with regard to severance and the Executive acknowledges that the payment
of any severance is at the Company's discretion, the Company will, on the terms
and conditions as set forth herein, provide the Executive with total payments of
One Hundred Thousand Dollars ($100,000) (the "Severance Payment") due and
payable quarterly in equal installments of Twelve Thousand and Five Hundred
Dollars ($12,500) (the "Quarterly Severance Payment"), subject to normal payroll
withholdings,
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<PAGE>
commencing on March 31, 1999, with additional payments due and payable on June
30, 1999, September 30, 1999, December 31, 1999, March 31, 2000, June 30, 2000,
September 30, 2000, and December 31, 2000.
Additionally, the Company agrees to maintain the Executive's present health
insurance through December 31, 1998, and to the extent that his stock options
remain exercisable, the Executive shall have the right to exercise all stock
options previously granted to him through the Termination Date and such
additional period of time as provided for in each stock option agreement
following the termination of employment.
2. During the period commencing on the date hereof and ending on December
31, 2000 (the "Severance Period"), the Executive shall have no obligation to
report to work and have no defined employment duties and/or responsibilities.
During the Severance Period, the Executive agrees that he will make himself
available, upon reasonable notice to the Executive, from time to time as the
Company reasonably requests, to permit employees, agents or advisors of the
Company to consult with the Executive on business matters.
The Company agrees to unconditionally make The Severance Payment
contemplated herein subject only to Paragraphs 4 and 10 of this Severance
Agreement and Paragraph 7 of the Employment Agreement, to the extent that such
restricted business activity is related to automotive products and/or services.
The Severance Payment will be paid irrespective of whether the Executive has
accepted employment with another company.
3. Effective on the date hereof, the Company and the Executive agree to the
termination of the Employment Agreement dated January 18, 1996, as amended (the
"Employment Agreement") with all rights and obligations of both parties
terminating on the date hereof, except for Paragraph 7 of the Employment
Agreement, which shall survive the termination of the Employment Agreement.
Additionally, the Executive agrees to resign from the Board of Directors and as
an officer of the Company and any of its subsidiaries on the date hereof. Such
resignation from the Board of Directors of the Company shall be for "without
cause".
4. The Executive confirms that the Severance Payment constitutes good and
valuable consideration. In consideration of the Severance Payment, the Executive
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<PAGE>
hereby agrees that following the date hereof, after expiration of the
Consideration Period and the Recision Period, he shall execute a release
substantially in the form as attached as Exhibit A (the "Release"). Execution of
this Release shall be a condition precedent to the Executive receiving any
portion of the Severance Payment set forth herein.
5. The Company agrees from the date hereof not to make any disparaging
statements concerning the Executive. The Executive also agrees not to make any
disparaging statements concerning the Company or any of its officers, directors,
employees or any of the Company's affiliated companies or their officers,
directors and employees.
6. The Release provides for the waiver by the Executive of his/her rights
or claims under the Age Discrimination in Employment Act of 1967, as amended
("ADEA"), and the waiver of these rights or claims are in exchange for
consideration that was not due the Executive by law and/or contract.
7. The Executive will not at any time (i) testify or give evidence in any
forum concerning the Executive's employment with the Company, unless the
Executive is: (i) required by law to do so, or (ii) requested to do so in
writing by an authorized official of the Company.
8. The Executive agrees not sell or transfer any of his holdings, or those
held jointly with another, in the common stock of the Company ("Common Stock"),
presently held or acquired after the date hereof, through December 31, 2000
except as set forth below:
(a) For the period commencing on the date hereof through December 31, 2000,
but no earlier than January 1, 1999, for any twelve (12) month period, the
Executive may not sell: (i) more than 35,000 shares of Common Stock, or (ii)
more than the number of shares of Common Stock having an aggregate value, on the
date of sale, of One Hundred Twenty-five Thousand Dollars ($125,000), whichever
is greater.
(b) To the extent that Barry Siegel is able to sell a portion of his
holdings in the Common Stock, the Executive shall be notified and permitted to
sell his holdings to the same purchaser to the extent that Barry Siegel, the
Executive and all other sellers sharing such sale rights, shall sell their
Common Stock on an equal pro rata basis.
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<PAGE>
(c) To the extent that the Executive transfers shares of Common Stock to
the Company in lieu of payment of the exercise price for the exercise of stock
options held by the Executive.
(d) To the extent that all shareholders of the Company are offered an
opportunity to sell, transfer or exchange their shares of Common Stock.
(e) As permitted by the Board of Directors of the Company.
(f) To the extent that the Executive transfers shares of Common Stock in a
private sale, as long as the transferee shall be bound by the same restrictions
of transfer as set forth above.
(g) Nothwithstanding the above, the Executive shall be able to sell to
Gerald M. Zutler Common Stock valued at $100,000 within sixty (60) days of the
date hereof, which sale shall not affect the limitation in Subparagraph 8(a).
For the period commencing on the date hereof through December 31, 2000,
the Executive agrees to deliver all stock certificates representing ownership in
the Common Stock, including those shares held in street name or issued pursuant
to the exercise of a stock option, to the Company's counsel so that a
restrictive legend may be place upon the certificate in substantially the form
as set forth below
(A) for one certificate of 35,000 shares of Common Stock:
The shares represented by this certificate shall be
restricted from transfer pursuant to the Agreement dated
August 17, 1998 between the Company and Michael Karpoff (the
"Agreement") which restriction shall expire on December 31,
1998. Such restriction shall not be removed without an
opinion of counsel of the Company that such restriction has
lapsed or is permitted pursuant to this Agreement.
(B) for all other certificates of Common Stock:
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<PAGE>
The shares represented by this certificate shall be
restricted from transfer pursuant to the Agreement dated
August 17, 1998 between the Company and Michael Karpoff (the
"Agreement") which restriction shall expire on December 31,
2000. Such restriction shall not be removed without an
opinion of counsel of the Company that such restriction has
lapsed or is permitted pursuant to this Agreement.
Following the placement of the restrictive legend upon the certificate, the
certificate shall be returned to the previous holder.
9. The Executive agrees to return forthwith to the Company all Company
property, if any, in the Executive's possession, including but not limited to,
any and all account records, checks, credit cards, papers, presentations, plans,
documents, files, price lists, product information, drawings, financial
statements, notes, whatsoever, including all photocopies thereof, at the time of
executing this Agreement.
10. The Executive agrees that for the period in which the Executive is
receiving the Severance Payment and for one year thereafter, the Executive
agrees not to 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 in any business of
the Company, or its subsidiaries, or in any business that was planned by the
Company or its subsidiaries prior to the Termination Date, to the extent such
business is related to automotive products and/or services.
11. It is hereby irrevocably agreed that all actions, suits or proceedings
between or among the parties hereto, or any of them, 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 County or
the United States District Court for the
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<PAGE>
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 any 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.
12. It is mutually understood and agreed that in the event of any breach of
this Severance Agreement by the Company or the Executive, either party shall be
entitled to equitable relief by way of injunction or otherwise, in addition to
money damages that the aggrieved party may be entitled to recover. In the event
that either party to this Agreement shall commence any action against the other
and such action results in a final judgement being rendered by a court of
competent jurisdiction, the prevailing party shall have their legal fees and
disbursements necessary for the prosecution or defense of such action paid by
the non-prevailing party.
13. Any notice, request, or other communication given hereunder shall be in
writing and if given by the Executive to the Company shall be sent by certified
or registered mail, postage prepaid, addressed to the Company and if given by
the Company to the Executive, shall be sent by certified or registered mail,
postage prepaid, addressed to the Executive. In each instance, the proper
mailing address shall be to: (i) the Company, at 51 East Bethpage Road,
Plainview, New York 11803, Attention: Barry Siegel, with a copy to Lawrence A.
Muenz, Esq., Muenz & Meritz, P.C., 3 Hughes Place, Dix Hills, New York 11746,
and (ii) the Executive, at 32 Gramercy Park South, New York, NY. 10003, with a
copy to Eric J. Lobenfeld, Esq., Chadbourne & Parke, 30 Rockefeller Plaza, New
York, New York 10112.
14. This Agreement sets forth the entire agreement between the Executive
and the Company concerning the above subject matter and supersedes any and all
other agreements between us, whether written or oral, on the subject matter. The
terms of this Agreement may not be changed or modified except by an instrument
in writing duly signed by the Executive and by an authorized representative of
the Company.
15. This Agreement shall be governed by and construed under the laws of the
State of New York.
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<PAGE>
16. If any portion of this Agreement is held invalid or unenforceable by a
court of competent jurisdiction or any governmental agency, that portion only
shall be deemed deleted as though it had never been included herein, but the
remainder of this Agreement shall remain in full force and effect. However, if
the Release portion of the Agreement is held invalid or unenforceable by a court
of competent jurisdiction or any governmental agency, any payments accepted and
retained by the Executive under this Agreement shall be returned immediately to
the Company.
Agreed and Accepted:
First Priority Group, Inc. Michael Karpoff
By: By:
---------------------------------- -----------------------------
Name: Date:
-------------------------------- ---------------------------
Title:
-------------------------------
Date:
--------------------------------
96
<PAGE>
Exhibit A
CONSULT WITH A LAWYER BEFORE SIGNING THIS AGREEMENT. BY SIGNING THIS AGREEMENT
YOU GIVE UP AND WAIVE IMPORTANT LEGAL RIGHTS.
This Severance Agreement (the "Severance Agreement) dated August 17, 1998
between First Priority Group, Inc., a New York corporation with offices at 51
East Bethpage Road, Plainview, New York 11803 (the "Company") and MICHAEL
KARPOFF, an individual residing at 32 Gramercy Park South, New York, NY. 10003
(hereinafter referred to as the "Executive").
1. This Exhibit A (the "Release") shall be considered an integral part of
the Severance Agreement and hereby incorporated by reference. The Executive
confirms that the Severance Payment constitutes good and valuable consideration.
In consideration of the Severance Payment, the Executive hereby releases the
Company, any subsidiaries or affiliated companies, and their respective past and
present officers, directors, agents and employees ("Released Parties") from all
claims (other than claims for payments provided for under this Release), causes
of action or liabilities of any kind and nature whatsoever that may have arisen
up through the date of this Release, including but not limited to all claims,
causes of action or liabilities arising from the Executive's employment with the
Company; Worker's Compensation or disability claims under state of local law;
claims of discrimination under Title VII of the Civil Rights Act of 1991,
including the Equal Employment Opportunity Act of 1972; the Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the Americans with Disabilities
Act of 1990; the National Labor Relations Act, as amended; the Employee
Retirement Income Security Act of 1974, as amended; the Worker Adjustment and
Retraining Notification Act of 1988; 42 U.S.C. ss.1981; and state or local law,
rules or regulations, claims relating to wages and hours under the Fair Labor
Standards Act, and regulations or equivalent state or local wage and hour laws
and regulations, and claims under any express or implied contract, tortious
conduct, libel, slander or defamation.
The Executive intends to waive and release any rights the Executive may have
under these and other laws, but the Executive does not intend to, nor is the
Executive waiving any rights or claims that may arise under the Age
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<PAGE>
Discrimination in Employment Act of 1967, as amended ("ADEA") after the date
that the Executive signs this
Agreement
2. This Release provides for the waiver by the Executive of his/her rights
or claims under the ADEA, and the waiver of these rights or claims are in
exchange for consideration that was not due the Executive by law and/or
contract.
3. The Executive represents that the Executive has not filed any complaints
or charges against the Released Parties with any local, state or federal agency
or court, and that Executive will not at any time hereafter file any complaints
or charges arising from the Executive's termination, nor, has the Executive or
will the Executive contact any local, state or federal agency regarding the
activities of the Company in operating its business. Should any such agency or
court assume jurisdiction of any such complaint or charge, or commence any
investigation or inquiry concerning the business practices of the Company, the
Executive will immediately request such agency or court not to exercise such
jurisdiction and will in no event participate personally or otherwise in any
such proceeding, nor voluntarily respond to any agency inquiries without being
compelled to respond under applicable law.
4. The Executive was given a copy of this Release on __________________.
The Executive has had an opportunity to consult with an attorney before signing
this Release and was given a period of at least twenty-one (21) days, or
______________ to consider this Release (the "Consideration Period").
The Executive has seven (7) days to revoke this Release after the Executive
signs it. This Release will not become effective or enforceable until seven (7)
days after the Company has received the Executive's signed copy of this Release.
Please write the following in the space provided below, if it is true and
correct:
The Executive has read this Release and the Executive understands all of
its terms. The Executive hereby enters into and signs this Release knowingly and
voluntarily, with full knowledge of what it means.
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------------
Agreed and Accepted:
First Priority Group, Inc. Michael Karpoff
By: By:
-------------------------------- ----------------------------------
Name: Date:
------------------------------ --------------------------------
Title:
-----------------------------
Date:
------------------------------
99
<PAGE>
Exhibit 21
List of Subsidiaries
Subsidiary State of Incorporation
National Fleet Service, Inc. New York State
Driver's Shield, Inc. New York
FPG Acquisition Corp. Arizona
100
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,782,180
<SECURITIES> 0
<RECEIVABLES> 1,739,867
<ALLOWANCES> 28,223
<INVENTORY> 0
<CURRENT-ASSETS> 4,580,031
<PP&E> 1,002,621
<DEPRECIATION> 401,197
<TOTAL-ASSETS> 5,269,427
<CURRENT-LIABILITIES> 1,879,566
<BONDS> 0
0
0
<COMMON> 128,977
<OTHER-SE> 3,298,968
<TOTAL-LIABILITY-AND-EQUITY> 5,289,427
<SALES> 14,568,474
<TOTAL-REVENUES> 14,568,474
<CGS> 0
<TOTAL-COSTS> 12,129,189
<OTHER-EXPENSES> 4,573,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,901,908)
<INCOME-TAX> 7,928
<INCOME-CONTINUING> (1,908,836)
<DISCONTINUED> (93,922)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,003,758)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
