U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number: 33-30123-A
GENERAL PARCEL SERVICE, INC.
(Name of small business issuer in its charter)
State of Florida 59-2576629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8923 Western Way, Suite 22, Jacksonville, FL 32256
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (904) 363-0089
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Exchange on which registered
Common Stock NASDAQ
Warrants (two warrants NASDAQ
entitle holder to purchase at a
price of $7.50 per share,
one share of common stock)
Check whether issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not 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. [ ]
Issuer's revenues for the year ended December 31, 1996:
$23,404,409
The aggregate market value of the voting stock held by the
non-affiliates of the registrant was $3,065,679 based on the
closing sale price reported on March 20, 1997.
There were 3,758,671 shares of the Company's common stock
outstanding as of March 31, 1997.
Documents Incorporated by Reference: Portions of the Proxy
Statement for the Registrant's 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
An index to the exhibits to this report begins on page 17 hereof.
<PAGE>
PART I
Item 1. BUSINESS
Introduction
General Parcel Service, Inc. ("GPS" or "Company"), is in the
small package shipping and delivery business. The Company's
business purpose is to offer its customers and potential
customers a more flexible just-in-time shipping alternative to
its competitors, United Parcel Service ("UPS") and Roadway
Package Service ("RPS"). GPS currently provides parcel pickup
and delivery services throughout the State of Florida and
between Florida and Atlanta, Georgia and courier delivery
services in the Charlotte, North Carolina metropolitan area.
The Company has concentrated on tailoring its services to the
commercial or business shipper. Management believes that
business to business shipping, as compared to shipping to
residential consumers, provides a greater likelihood of
multiple-package and repeat deliveries, which result in higher
revenues and lower costs per delivery.
Management believes that sociological and marketing trends have
resulted in major changes in the general method of purchasing
goods. These changes have resulted in both retail consumers and
businesses purchasing substantially more goods by telephone and
through catalogs, with a consequential decrease in historic
retail storefront operations. Generally, businesses which sell
products by telephone or through catalogs deliver purchased
items to their customers by parcel delivery services, such as
UPS, RPS or the U.S. Post Office. In addition, most business
shippers require prompt delivery of their parcels. In keeping
with the Company's motto "We Deliver Next Day, Everyday," at the
present time over 98% of all packages are delivered by GPS to
any business address in Florida "next day."
Effective January 6, 1997, the Company employed Philip A. Belyew
as President and Chief Executive Officer to replace E. Hoke
Smith, Jr., the Company's founder, who resigned for medical
reasons. Shortly thereafter, the Company adopted a new business
plan intended to restore profitability to the parcel delivery
operations and to expand the Company. To support the Company's
new strategic direction, the Company elected three new directors
to replace all existing members of the Company's Board of
Directors other than Board Chairman T. Wayne Davis.
In order to facilitate its new strategic direction, the Company
intends to reorganize into a "holding company" format. This new
corporate structure is intended to increase the Company's flexibility
to pursue the acquisition and operation of profitable
less-than-load ("LTL") and truckload motor carriers. Management
plans to center the Company's growth strategy primarily on
acquisitions of existing companies through mergers and plans to
focus on acquisitions of companies serving markets in the
Southeast. During 1997, management plans to reduce or eliminate the
losses from the Florida and Georgia parcel delivery operations by
reducing the size of the parcel delivery operations to a size that
management believes can obtain profitable operations, selling the parcel
delivery operations to an unrelated entity or discontinuing the
parcel delivery operations.
From inception, through December 31, 1996, the Company has
experienced operating losses of $18,461,764 and its working
capital deficiency at December 31, 1996, was $3,773,759.
Management's estimates of cash requirements to fund operating
losses and debt service are substantial. While revenues continue
to increase and expense containment measures have been
instituted, management is nonetheless pursuing several
strategies for raising additional resources through debt or
equity transactions.
1
Management has reassessed the operating practices at each of its
terminals and has instituted a number of changes directed toward
cost containment including elimination of unprofitable delivery
routes. Strict accountability over all costs are being
implemented at all locations through budgetary controls and
improved reporting of actual operating results to operations
managers.
Management anticipates that through its new President and Chief
Executive Officer, it will recruit and develop in fiscal 1997 a
management team with expertise in each area of the Company's business.
History and Development
GPS was incorporated on August 28, 1985, as a Florida
corporation, in order to engage in the parcel shipping and
delivery business within the State of Florida. The initial
terminal operation commenced September, 1985, from a 2,000
square foot terminal located in Jacksonville, Florida with a
single panel truck. The Company has continued to expanded its
business by increasing the number and location of terminals into
Georgia, North Carolina and South Carolina, the number of trucks
and the number of employees to meet increasing demand.
On February 10, 1995, the Company acquired certain assets of
Transit Express of Charlotte, Inc. ("TE"). TE was based in
Charlotte, North Carolina, and provided scheduled carrier and
package delivery services. The Company acquired such
assets at a purchase price of $1,408,670. To acquire these
assets, the Company paid $75,000 in cash to the seller, incurred
expenses of $76,674 and incurred liabilities of $1,256,996 by
issuing debt and assuming certain accounts and notes payable.
The acquisition of the TE assets was accounted for as a
purchase and, accordingly, the purchase price was allocated to
the acquired assets based upon their respective fair values.
The excess of the purchase price over the fair value of the net
assets acquired in the amount of $1,090,126 will be amortized
over 15 years on a straight line basis.
During 1996, the Company expanded its parcel shipping and delivery
operations in North Carolina and commenced service throughout the
state of South Carolina. The Company was not able to achieve
profitable operations in either state during 1996 and in
January, 1997, decided to cease parcel delivery operations in
both North and South Carolina as of March 31, 1997. The
Company's courier operations will continue to operate in the
metropolitan Charlotte, North Carolina area.
In connection with its initial public offering in November of
1989, the Company issued 690,000 shares of common stock and 690,000
common stock purchase warrants. In 1993, the Company issued 100,000
shares of convertible preferred stock. During 1996, the Company
issued 320,000 additional shares of convertible preferred stock
for approximately $8,000,000.
Competition
The parcel delivery business is highly competitive. The
Company's principal competition is from UPS and RPS. Management
believes that competition in the parcel delivery industry is
based primarily on service and efficiency, and to a lesser
degree, on rates. Many smaller companies serve local
geographical areas and are therefore limited in the range of
customers that they serve. While many well-known carriers, such
as Federal Express, have entered the overnight-parcel service
business, non-priority small parcel delivery has been largely
ignored by most such companies, except UPS and RPS. Since the
deregulation of the trucking industry beginning in 1980,
however, entry into the field is relatively easy, and the
Company's concept may be copied by any number of companies
already in the trucking industry. Consequently, there can be no
assurance that the Company will not encounter competition in the
future from companies in addition to UPS and RPS which have
greater resources than the Company.
2
Regulation
Federal law has eliminated most regulations formerly enforced by
the Interstate Commerce Commission. However, such matters as
weight and dimensions of equipment are subject to federal and
state regulations. Motor carrier operations also are subject to
safety requirements prescribed by the Department of
Transportation governing interstate operations and certain state
regulatory agencies.
Advertising and Marketing
The Company markets its services through its own sales force,
direct mail and by telephone. Marketing efforts are maintained
on an ongoing basis to emphasize the Company's ability to
effectively service all business shippers in Florida and
Georgia. The Company's marketing program emphasizes GPS's
flexibility, high professional delivery standards and
personalized service. As a Southeastern regional company, GPS
believes that it offers a better alternative to the large volume
business shipper when shipping within or into the
Georgia/Florida service area.
Operations
The Company's business operations are divided into three
divisions: administration, sales and operations. The operations
division is headed by the Executive Vice President and Chief
Operating Officer; the sales division is headed by a
Vice-President; and the administrative division is headed by a
Vice President and Chief Financial Officer. All division heads
report to the Board through the President and Chief Executive Officer.
The Chief Financial Officer is responsible for the general administrative,
finance, and internal and external reporting functions. The
Vice-President of Sales is responsible for marketing the
Company's package pickup and delivery services. He, in
conjunction with the President, develops and implements the
Company's marketing objectives. The Chief Operating Officer is
responsible for package delivery operations, including route
control, personnel, equipment maintenance, and delivery service
personnel control.
The Company presently operates thirteen Florida terminals
located in Jacksonville, Miami, Medley, Ft. Lauderdale, Orlando,
Tampa, Clearwater, Gainesville, Riviera Beach, Ft. Myers,
Milton, Rockledge and Tallahassee, one terminal in College Park,
Georgia (a suburb of Atlanta) and a terminal in Charlotte, North
Carolina which houses its courier operations. The principal hub
for sorting and redistribution of packages for delivery
throughout the system is located in Orlando because of its
central location.
The Company's operations are conducted through a "hub and spoke"
network with the terminal in Orlando serving as the hub. Each
day packages picked up by the origination terminals are
transferred to the hub during the night and redistributed to the
destination terminals by the following morning for next day
delivery.
Typical daily operations of the parcel division consist of a
morning sort and delivery cycle which generally occurs from 4
a.m. to 3 p.m., during which time packages are loaded onto
delivery trucks and delivered. From 2 p.m. to 6 p.m., packages
are picked up from shippers and returned to the local origin
terminal. After packages arrive at the origin terminals
(usually by 6 p.m.), they are sorted for distribution (by zip
code). Packages which are to be delivered in the local area are
separated and loaded onto the appropriate delivery trucks.
Packages which are destined for intercity delivery are loaded
onto trailers and shuttled to the hubs in Orlando and Atlanta
for redistribution. Between 6 p.m. and 3 a.m. inbound packages
are sorted at the hub by zip code and loaded onto the
appropriate outbound trailers which transfer the packages to the
destination terminals in time for the morning sort and delivery
cycle.
3
The terminals dispatch an average of approximately 14 pickup and
delivery routes each day. The average driver makes
approximately 51 pickup and delivery stops per route, and an
average of 2.3 packages are delivered per delivery stop.
Sorting operations are assisted by power belt conveyer systems
at ten terminals: Orlando, Tampa, Miami, Ft. Lauderdale,
Jacksonville, Milton, South Miami, Rivera Beach, Clearwater and
Atlanta. Gravity roller systems are used in sorting operations
at the other locations.
Package Tracking
The Company has developed a bar code tracking system to trace
the location of the package from pickup through transfer to
delivery allowing customer service representatives to provide
real time response to customer inquiries regarding the delivery
status of its shipments. The system comprises a hand held and
overhead bar code scanners in the terminals, electronic
clipboards capable of digital capture of consignees' signatures
for the delivery driver and a central computer for retention of
the data.
Customer Service
The Company's operations are designed to provide individualized
service to customers while maximizing equipment utilization.
Each of the Company's terminals serves as the base for specified
vehicles and equipment. Each terminal is supervised by a
terminal manager who oversees the response to customer orders,
the dispatch of trucks, the coordination with headquarters, the
relationship between management and drivers based at the
terminal, and the maintenance of revenue-producing equipment.
The average terminal utilizes approximately 15 delivery service
personnel, with the largest terminal having 35 delivery service
personnel. The relatively small number of delivery service
personnel at each terminal allows the Company's terminal
managers to maintain a close working relationship with the
personnel assigned to these terminals.
In order to compete successfully with UPS and RPS, the Company
must offer its customers not only a viable, but better
alternative. Management believes that GPS customers encounter
simpler paperwork, faster turnaround of C.O.D. funds, and rates
averaging approximately 10% lower than UPS. In addition to its
normal package service, the Company offers GPS Overnight service
which provides a time guarantee of delivery.
GPS has developed and implemented a parcel-processing computer
system for use by its customers' shipping departments.
This system is comprised of a personal computer and
specialized software developed by GPS. The software included in
the package provides the GPS customer with an efficient means of
recording each parcel shipped and its destination information.
The software then automatically produces a shipping manifest and
per-parcel shipping charges. Management believes that this
automated procedure substantially reduces the use of the
customer's employee time in completing such tasks.
4
Delivery Service Personnel
Because of their direct contact with customers, the Company
places great emphasis on hiring qualified "delivery service
personnel," which the Company believes is more descriptive of
their responsibilities than the term "drivers." At April 1,
1997, the Company employed 277 such personnel. The Company
hires delivery service personnel from each terminal area, which
the Company believes enhances its ability to attract qualified
personnel. Delivery service personnel are selected in
accordance with Company guidelines relating primarily to safety
record, driving experience, and a personal interview. In
addition, all delivery service personnel must pass a road test
and drug screening prior to being hired. Once selected, a
delivery service person is trained in all phases of Company
policies and operations as well as safety techniques and fuel
efficient operation of the Company's vehicles. Generally, such
training includes review of the GPS personnel manual and a
ninety day on-the-job training program with a GPS supervisor.
During the training period, each trainee is evaluated by his
supervisor and either recommended for full employment status or
termination.
As a result of its emphasis on maintaining high morale among
delivery service personnel, the Company believes that its level
of retention of such employees is very good. However, the
Company anticipates that competition for qualified employees
will intensify in the future.
Prior to closing the North and South Carolina terminals, the
Company employed a total of 760 persons. After closing the North
and South Carolina parcel delivery operation, Company employed a
total of 500 persons, of whom 277 were delivery service
personnel, 142 were sorting and maintenance personnel, 55 were
management personnel and 10 were administrative and sales
personnel. No employees are represented by a collective
bargaining unit. The Company considers relations with all of its
employees to be good.
Delivery Equipment
The Company's fleet consists of 495 owned and leased vehicles
and trailers. Step-vans are used for local delivery, and larger
trucks and tractor-trailer combinations are used for longer
distance hauls between the major terminals. The Company's policy
is to purchase equipment to standardized specification.
Standardization of equipment enables the Company to control the
cost of spare parts inventory, facilitate its preventive
maintenance program and simplify orientation for delivery
service personnel. The Company adheres to a comprehensive
maintenance program, based on the amount of use of each unit,
designed to minimize equipment down-time. Furthermore, because
each delivery service person is assigned to specific equipment,
such personnel have an incentive to keep their trucks clean and
well maintained. The Company regularly monitors the fuel
efficiency of its equipment. The following table shows
information about the Company's delivery equipment as of March
31, 1997.
5
<TABLE>
<CAPTION>
Number of
Delivery Number of Number of
Model Year Vehicles Tractors Trailers Total
- ------------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1997 38 - - 38
1996 8 - 20 28
1995 18 7 10 35
1994 19 - 40 59
1993 23 10 26 59
1992 9 7 1 17
1991 and earlier 222 8 29 259
--------- ---------- ---------- -----
Total 337 32 126 495
========= ========== ========== =====
</TABLE>
The Company typically leases or finances vehicles with a 5% or
10% deposit. The Company's policy is to replace vehicles based
on factors such as age and condition, interest rates, fuel
efficiency and the market for used equipment.
6
<PAGE>
Item 2. Properties
The Company's executive offices are located at 8923 Western Way,
Suite 22, Jacksonville, Florida 32256, and contain approximately
7,000 square feet of office space. The Company leases and
operates terminals at the following locations:
<TABLE>
<CAPTION>
Location Size
<S> <C>
Asheville, North Carolina(4) 8,445 Sq. Ft.
Charleston, South Carolina(4) 8,000 Sq. Ft.
Charlotte, North Carolina 50,000 Sq. Ft.
Clearwater, Florida 16,500 Sq. Ft.
College Park, Georgia (1) 42,560 Sq. Ft.
Columbia, South Carolina(4) 2,060 Sq. Ft.
Fayetteville, North Carolina(4) 5,000 Sq. Ft.
Florence, South Carolina(4) 1,200 Sq. Ft.
Ft. Lauderdale, Florida 13,000 Sq. Ft.
Ft. Myers, Florida 8,900 Sq. Ft.
Gainesville, Florida 6,000 Sq. Ft.
Greensboro, North Carolina(4) 6,030 Sq. Ft.
Greer, South Carolina(4) 10,800 Sq. Ft.
Jacksonville, Florida (2) 33,471 Sq. Ft.
Medley, Florida 26,300 Sq. Ft.
Miami, Florida 15,600 Sq. Ft.
Milton, Florida 7,500 Sq. Ft.
Orlando, Florida (3) 25,000 Sq. Ft.
Raleigh, North Carolina(4) 15,818 Sq. Ft.
Riviera Beach, Florida 18,000 Sq. Ft.
Rockledge, Florida 7,500 Sq. Ft.
Tallahassee, Florida 12,300 Sq. Ft.
Tampa, Florida 20,600 Sq. Ft.
Tifton, Georgia(4) 8,000 Sq. Ft.
Wilmington, North Carolina(4) 4,000 Sq. Ft.
</TABLE>
(1) Suburb of Atlanta, Georgia
(2) Includes 7,000 square feet of office space.
(3) Principal distribution hub.
(4) Terminal closed at March 31, 1997.
7
<PAGE>
Item 3. Legal Proceedings
On February 14, 1995, the Company filed a civil complaint in the
U.S. District Court, Northern District of Georgia against UPS.
The civil complaint alleges among other things, that UPS has
attempted to monopolize the market for ground-based business-to-business
parcel delivery service in Georgia and Florida, in violation of
federal and state antitrust laws and as a result of these civil
violations, GPS has suffered the loss of several customers. The
Company has cited damages in the complaint in excess of $10
million from these actions. On September 4, 1996, the court
entered a judgment ordering GPS to dismiss its action and that
GPS pay UPS their costs of defending against this action. The
Company has filed an appeal of the court's judgment.
Inforite Corporation has filed a suit against the Company,
seeking damages of $374,203 for alleged breach of a contract in
which Inforite agreed to sell the Company certain electronic
"clipboards" along with supporting accessories and computer
software. The Company has asserted that the Inforite products
are defective, and has revoked acceptance of the products
pursuant to California Commercial Code sections 2608 and 2609.
In the same action, Inforite has also alleged intentional
interference with contract and defamation, claiming an
unspecified amount of damages. The Company has denied all
material allegations and has counterclaimed against Inforite
Corporation and its parent corporations Moore Corporations
Limited, Moore Business Forms, Inc. and Toppan Moore Company,
Ltd., for breach of contract, breach of warranty, product
liability and fraud, seeking recovery of approximately $175,000
it paid for the products and for an undetermined amount in
incidental damages. Counsel for the Company has advised that at
this stage in the proceedings, no opinion can be offered as to
the probable outcome; however, in the opinion of management,
resolution of this matter will not have a material adverse
impact on the Company's financial position, results of operations
or cash flows. A trial date has been set for January 1998.
United TransNet, Inc., Corporate Express, Inc. and U.S. Delivery
Systems, Inc. filed a civil lawsuit against Philip A. Belyew in
the Superior Court of Fulton County, Georgia, on January 23,
1997. United TransNet and the other corporate plaintiffs allege
that Mr. Belyew breached non-competition and non-solicitation
covenants with the plaintiffs, committed fraud regarding his
Termination and Settlement Agreement with United TransNet and
breached his fiduciary duties to United TransNet. A temporary
restraining order was entered on January 24 and amended on
February 5 restraining Mr. Belyew from performing certain
activities for the Company. Mr. Belyew denies any liability and
moved to dissolve the temporary restraining order. Hearings
have been held on Mr. Belyew's motion and a cross motion for an
interlocutory injunction. As of this date, the court has not
ruled on the motions. Management is unable to predict whether an
outcome unfavorable to Mr. Belyew is either probable or remote.
Mr. Belyew intends to defend this matter vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
None
8
(PAGE>
PART II
Item 5. Market for Registrant's Common Equity
The Company's Common Stock is traded on the NASDAQ System under
the trading symbol "GPSX". The Company's Warrants are also
traded on the NASDAQ System, under the trading symbol "GPSXW".
As of March 31, 1997, there were 160 shareholders of record of
the common stock and 14 warrant holders of record, not including
individuals and entities holding shares in street name. The
closing sale price for the Company's Common Stock on March 31,
1997, was $ 4.25, and the closing sale price of the Company's
Warrants was $ 0.9375
The quarterly high and low closing bid prices of the Company's
Common Stock are as shown below:
<TABLE>
<CAPTION>
Market Price of Common Stock - GPSX
-----------------------------------------
1996 1995
------------ ------------
Quarter High Low High Low
- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First 3 15/16 2 1/2 6 4 1/2
Second 3 1/4 2 1/4 5 3/8 3 3/8
Third 2 3/8 1 7/8 3 7/8 3
Fourth 3 1 5/8 3 7/8 3 5/8
</TABLE>
The quarterly high and low closing bid prices of the Company's
Warrants are shown below:
<TABLE>
<CAPTION>
Market Price of Warrants - GPSXW
--------------------------------------
1996 1995
------------ ------------
Quarter High Low High Low
- ----------- ------ ------ ------ -----
<S> <C> <C> <C> <C>
First 1/4 1/4 9/16 1/2
Second 1/4 1/4 9/16 1/2
Third 1/4 1/4 9/16 3/8
Fourth 5/16 3/16 5/16 5/16
</TABLE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion should be read in conjunction with the
Consolidated Financial Statements including the footnotes and is
qualified in its entirety by the forgoing and other more
detailed financial information appearing elsewhere herein.
Historical results of operations and the percentage
relationships among any amounts included in the Consolidated
Statements of Earnings, and any trends which may appear to be
inferable therefrom, should not be taken as being necessarily
indicative of trends in operations or results of operations for
any future periods.
Comments in this Management's Discussion and Analysis of
Financial Condition and Results of Operations regarding the
Company's business which are not historical facts are forward
looking statements that involve risks and uncertainties. Among
these risks are the Company is in a highly competitive business,
has a history of operating losses, and is pursuing a growth
strategy that relies in part on the completion of acquisitions
of companies in the trucking industry. There can be no
assurance that in its highly competitive business environment,
the Company will successfully improve its operating
profitability or consummate such acquisitions.
9
Liquidity and Capital Resources
Except for the year ended December 31, 1993, the Company has
experienced negative operating cash flows since its inception.
Expansion of operations and operating losses since inception
have been funded from six major sources: (i) private placements
of restricted shares of common and preferred stock to its
principal shareholders, (ii) proceeds from its initial public
offering of common stock in November, 1989, (iii) installment
loans and leases from third party lenders collateralized by
equipment acquired to support business growth, (iv) a bank line
of credit collateralized by accounts receivable and stock owned
by a major shareholder and his affiliates, (v) short term
borrowings from banks and shareholders, (vi) debt issued and
liabilities assumed in connection with the acquisition of the
assets of Transit Express of Charlotte, Inc. ("TE").
As of December 31, 1996, the Company had raised net equity
capital of $8,145,052 from private placements of restricted
common shares, $10,417,489 from private placements of preferred
stock, $2,715,700 from its initial public offering of November
2, 1989 and $150,000 from the sale of unrestricted common
shares. When combined with cumulative operating losses since
inception of $18,461,766 and $953,804 of dividends paid and
accrued on preferred stock, the Company's net stockholders'
equity as of December 31, 1996 was $2,012,671. The Company
issued 320,000 shares of preferred stock during 1996 resulting
in an $8,000,000 increase in stockholders' equity during the
year. There were no issuances of the Company's restricted
common stock in 1996.
As of December 31, 1996, the Company was contractually obligated
to repay $4,881,257 of indebtedness to equipment lessors, banks
and other secured lenders and $300,000 to holders of its
convertible debentures. In addition, the Company owed
$2,669,936 to suppliers of goods and services necessary for the
conduct of ongoing business including amounts represented by
issued and outstanding checks, and had accrued salaries and
other expenses of $1,317,165, which were unpaid at the end of
the year.
As discussed above, the Company has experienced negative
operating cash flows. Cash used in operations in 1996 was
$1,528,449 as compared to cash used in operations in 1995 of
$724,084. The net cash used in operations resulted primarily
from the net loss partially offset by the non-cash expense of
depreciation and amortization and an increase in accounts
payable. The Company increased cash and cash equivalents by
$29,220 in 1996 as a result of proceeds from financing
activities. The Company decreased its borrowings under its bank
lines of credit by $3,285,900 during 1996. Because of the cash
provided by the sale of preferred stock the aggregate bank
credit facility of $5,700,000 at December 31, 1995 decreased to
an aggregate bank facility of $3,250,000 at December 31, 1996.
At December 31, 1996, $1,313,100 was outstanding under the
facility. During 1996, the Company issued 320,000 shares of
cumulative convertible preferred stock to an affiliate of the
Company's Chairman for $8,000,000 which was used to repay the
$3,000,000 bank term loan and provide working capital.
The revolving credit agreement provides for interest payable
monthly for advances of $1,000,000 or greater at the lower
interest of the thirty day LIBOR rate plus .75% or the Bank's
prime interest rate less .75% and for all other advances at the
Bank's prime interest rate less .75%. The loan is
collateralized by the Company's accounts receivable and certain
stock certificates pledged by the Company's Chairman. As of
December 31, 1996, the Company had borrowed $1,313,100 against
the line of credit and had $1,936,900 of credit available. As
of March 31, 1997, the Company has borrowed $3,250,000 against
the line of credit.
10
On March 27, 1997 and April 7, 1997, an affiliate of the Company's
Chairman loaned the Company $150,000 and $500,000, respectively. Both
loans are unsecured, payable on demand and bear interest at 10 perecnt
per annum payable quarterly. Proceeds from the loans were used for
working capital.
Management estimates that its net loss for the first quarter of 1997
will approximate $3,000,000, relating both from expenses related to
closing the North and South Carolina parcel delivery facilities and
operating losses at various Florida and Georgia facilities. Cash
requirements to fund operating losses and debt service are substantial.
All of these factors raise the question as to whether the Company
will continue to operate as a going concern. While expense
containment measures have been instituted, management is nonetheless
pursuing several strategies for reducing costs and raising
additional resources through debt or equity transactions.
Management believes, but can offer no assurances, that it can
improve operating performance and cash flows through the
following measures:
*Closing the North Carolina and South Carolina Facilities.
--------------------------------------------------------
A large portion of the Company's expenses since
inception have been related to efforts to develop its
marketing, distribution and service network. The Company has
developed extensive distribution networks in Florida and in
Atlanta, Georgia and attempted to develop such networks in the
North and South Carolina service areas in 1996 resulting in substantial
losses. Closing the North and South Carolina facilities is expected
to reduce the losses and negative cash flows long term.
*Decreasing or Eliminating Parcel Delivery Operations in Florida and Georgia.
---------------------------------------------------------------------------
During 1997, management plans to reduce or eliminate the losses
from the Florida and Georgia parcel delivery operations by reducing
the size of the parcel delivery operations to a size that can achieve
profitable operations, selling the parcel delivery operations to an
unrelated entity or discontinuing the parcel delivery operations.
*Establishing a New Corporate Structure to Acquire Profitable Trucking
---------------------------------------------------------------------
Operations.
- ----------
The Company intends to reorganize into a " holding company" format
to be based in Atlanta, Georgia. This new corporate structure is intended
to increase the Company's flexibility to pursue the
acquisition and operation of profitable less-than-load (LTL) and
truckload motor carriers. The Company's intent is to
identify and acquire mid-size trucking companies, primarily
with annual revenues between $10 million and $100 million, that
possess strong market positions, sound management and a
commitment to a high level of service and quality.
*Relying on Equity Sales to or Loans from a Major Shareholder.
------------------------------------------------------------
No commitment has been received by the Company from any shareholder
to provide cash to fund operations losses or debt service. Although
there can be no assurances of any continued funding, management
will continue to explore funding opportunities from its major shareholders.
11
Financial Condition
As of December 31, 1996, the Company's working capital deficit
(current liabilities less current assets) was $3,773,759, which
was an increase of $559,540 from the $3,214,219 working capital
deficit at December 31, 1995. Total current assets of
$2,807,363 included cash of $35,959, accounts receivable of
$2,370,834, prepaid insurance premiums of $114,174, inventories
of tires, parts, uniforms and supplies of $170,064 and other
prepaid expenses of $116,332.
Current liabilities of $6,581,122 included current obligations
under leases and other lending agreements of $2,594,021, amounts
owed to trade creditors of $2,669,936, including amounts
represented by issued and outstanding checks, and other accrued
expenses of $1,317,165.
Total assets as of December 31, 1996, increased by $217,893 (or
1.9%) during the year ended December 31, 1996 to $11,470,358,
primarily from an increase in accounts receivable. Accounts
receivable increased by $301,859 (or 14.6%) during the year
ended December 31, 1996 to $2,370,834 because of a longer
collection period. The number of weeks sales in outstanding
receivables was 6.0 at December 31, 1996, compared to 5.2 at
December 31, 1995. Other current assets of $400,570 increased
by $20,480 (or 5.4%) primarily because of an increase in prepaid
expenses.
The net book value of equipment decreased by $90,392 (or 1.2%)
to $7,503,234 during the year as a result of depreciation of
$1,927,657 and disposals of $50,761 exceeding additions of
$1,888,026. The additions included $1,032,864 for twenty-eight
new delivery vans, $42,493 for one new straight truck, $18,263
for one automobile, $411,363 for other rolling stock equipment,
$189,749 for conveyor equipment, electronic clipboards, and
other terminal equipment and $193,294 for computers and other
office equipment. Other assets increased by $27,406 (or 14.6%)
to $214,657 because of advance rental payments and security
deposits related to new facilities lease agreements.
Total liabilities of $9,457,687 decreased by $2,028,946 (or
17.7%) during the year ending December 31, 1996. This resulted
primarily from a decrease in total bank and other debt of
$3,816,631 (or 60.3 %) to $2,512,019, partially offset by an
increase in accounts payable by $716,468 (or 36.7%) to
$2,669,936 and an increase in accrued expenses of $578,761 (or
78.4%) to $1,317,165.
Capital lease obligations of $2,669,238 increased by $203,127
(or 8.2%) during 1996 as a result of $1,093,632 of new additions
in excess of $890,505 of scheduled principal payments. The
additions to capitalized leases were for 28 new delivery vans,
one automobile, and one straight truck. Long term debt of
$898,919 decreased $3,530,731 (or 79.7%) as a result of
repayment of the $3,000,000 term loan and $530,731 of scheduled
principal payments. Short term borrowings decreased by a net of
$285,900 to $1,313,100 at December 31, 1996 resulting from
repaying $5,000,000 of short term borrowings with proceeds from
the sale of preferred stock and $120,000 from short term cash
flows and borrowing $4,834,100 to fund operations, service long
term debt and make lease payments.
The Company's stockholders' equity increased during 1996 by
$2,246,839 to $2,012,671 at December 31, 1996, as a result of
the sale of additional preferred stock offset by the net loss
and the accrual and payment of dividends.
13
Results of Operations - 1996 Versus 1995
The Company's operations for 1996 resulted in a loss of
$5,149,357 as compared to the 1995 net loss of $3,004,981.
Although the Company's revenues increased by 13.8% in 1996 to
reach $23,404,409, operating expense increased by 21.9% from
$22,827,848 in 1995. During the first six months of 1996,
revenue increased primarily in the Company's core Florida and
Georgia market areas. In the last six months of 1996, the
Company's revenue increases came primarily in the North Carolina
and South Carolina Market areas as the Company expanded to
provide services to most of North Carolina and all of South
Carolina.
Total operating expenses (excluding interest expense) of
$27,836,519 for 1996 increased by $5,008,671 (or 21.9%)
compared to the 1995 total. The operating ratio (total operating
expenses excluding interest as a percentage of revenue), was
118.9 % in 1996 compared to 111% in 1995.
Operating salaries and benefits increased from $11,199,966 or
54.5 percent of revenue in 1995 to $13,377,163 or 57.2% of
revenue for 1996. This increase of $2,177,197 resulted
primarily from the increase in the Company's work force by
approximately 36% during the last six months of 1996 to serve
the needs of customers shipping into North Carolina and South
Carolina.
Fuel costs increased from the 1995 level of $1,231,251 by
$422,177 (or 34.3%) to $1,653,428 and from 6% of revenue in 1995
to 7.1% of revenue in 1996. This increase in fuel expense
resulted from both increases in the price of fuel and additional
fuel purchased to cover the North Carolina and South Carolina
delivery areas. Tires and maintenance expense of $899,086
increased by $109,913 (or 13.9%) from the 1995 level and
represented 3.8% of revenue in both 1996 and 1995. Insurance
costs decreased by $289,330 (or 16.4%) to $1,470,219 (or 6.2% of
revenue in 1996 as compared to 8.6% of 1995 revenue). The
decrease in insurance costs resulted from continued success of
the safety control program.
The fixed components of operating cost (depreciation and
amortization, facilities and terminal expense) increased in 1996
because of an increase in the number of vehicles in service for
the full year and the opening of new terminals in North Carolina
and South Carolina. Depreciation and amortization attributable
to operations of $1,856,920 increased by $76,894 (or 4.3%) and
was 7.9% of revenue in 1996 compared to 8.7% in 1995. Facilities
expense (rent plus utilities) of $1,755,629 increased by
$480,371 (or 37.7%) and was 7.5% of 1996 revenue versus 6.2% in
1995. Terminal expense increased by $77,207 (or 21.2%) to
$441,770 which was 1.9% of revenue in 1996 versus 1.8% of
revenue in 1995.
Purchased transportation, which includes amounts paid to
trucking companies to bring packages from customers'
distribution points outside the Company's geographical operating
area to the Company's terminals for delivery, increased to
$397,912 in 1996, from $291,836 for 1995. The $106,076 (or
36.4%) increase was a result of additional packages brought into
the Company's distribution area from outside.
Selling and administrative expense of $5,335,483 was 35.7%
higher than the 1995 level and increased as a percentage of
revenue from 19.1% in 1995 to 22.8% in 1996. The $1,403,336
increase relates primarily to additional legal expenses
associated with the UPS and Inforite litigation, additional
taxes assessed during a Florida sales tax audit and a charge of
$707,167 attributable to the Resignation Agreement between the
Company and its former President. Interest expense of $717,247
decreased by $27,384 (or 3.7%) compared to 1995 as the Company
funded its needs for working capital through preferred stock
sales in 1996.
13
Inflation
Inflation and changing prices have not had a material effect on
the Company's operations, except to the extent of fluctuating
fuel costs.
Item 7. Financial Statements and Supplementary Data
Financial Statements are submitted in Item 13 (a) of this Form
10-KSB.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On February 17, 1997, General Parcel Service, Inc. engaged Price
Waterhouse LLP to succeed Grenadier, Collins, Mencke & Howard,
LLP as its Independent Accountants. The change in Independent
Accountants resulted from the Registrant's announced plans to
form an Atlanta based holding company and seek to acquire other
trucking companies. The auditor's reports for the last two
fiscal years did not contain adverse opinions or disclaimers of
opinion, nor were they modified as to uncertainty, audit scope,
or accounting principles. The decision to change accountants
has been approved by the Board of Directors. There were no
disagreements with Grenadier, Collins, Mencke & Howard, LLP on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. The
Company previously filed a Form 8-K with respect to this matter.
On October 17, 1995, Coopers & Lybrand L.L.P. resigned as auditors
for the Registrant. The auditor's reports for the last two fiscal
years did not contain adverse opinions or disclaimers of opinion,
nor were they modified as to uncertainty, audit scope, or accounting
principles. There were no disagreements with Coopers & Lybrand L.L.P.
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
In January, 1996, the Company engaged Grenadier, Collins, Mencke & Howard
to audit the Company's financial statements for the year ended December 31,
1995.
14
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
The information regarding directors contained under the caption
"Election of Directors - Nominees" in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders is
incorporated herein by reference.
The information regarding executive officers contained under the
caption "Election of Officers - Executive Officers" in the
Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders is incorporated herein by reference.
Item 10. Executive Compensation
The information contained under the caption "Election of
Directors - Executive Compensation" in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information contained under the caption "Voting Securities
and Principal Holders Thereof - Security Ownership of Certain
Beneficial Owners" in the Company's Proxy Statement for the 1997
Annual Meeting of Shareholders is incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions
The information contained under the caption "Election of
Directors - Certain Transactions" in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders is
incorporated herein by reference.
15
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
Pages
(a) Financial Statements
(1) Reports of Independent Accountants 24 - 25
(2) Financial Statements 26 - 29
(3) Notes to Financial Statements 30 - 40
(b) Exhibits required by Item 601, Regulation S-B
The following documents heretofore filed by the Company
with the commission are hereby incorporated by
reference herein.
3. Articles of Incorporation and By-Laws
3.1 Articles of Incorporation, as amended, (incorporated
by reference from Exhibit 3.1 to the Registrant's Form S-18,
Registration No. 33-30123A).
3.2 By-Laws, as amended and restated, (incorporated by
reference from Exhibit 3.2 to the Registrant's Form S-18,
Registration No. 33-30123A).
3.3 Certificate of Amendment to the Articles of
Incorporation of General Parcel Service, Inc., dated May 14,
1992, (incorporated by reference from Exhibit F to
the Registrant's 1992 Form 10-KSB, Registration
No. 33-30123A).
3.4 Certificate of Amendment to the Articles of
Incorporation of General Parcel Service, Inc., dated December
29, 1993, (incorporated by reference from Exhibit C to the
Registrant's 1993 Form 10-KSB, Registration No. 33-30123A).
3.5 Certificate of Amendment to the Articles of
Incorporation of General Parcel Service, Inc.,
dated March 5, 1996, 1996 (incorporated by reference from
Exhibit A to the Registrant's Form 8-K, dated March 5, 1996).
3.6 Certificate of Amendment to the Articles of
Incorporation of General Parcel Service, Inc.,
dated September 30, 1996 (incorporated by reference from
Exhibit A to the Registrant's Form 8-K, dated September 18,
1996).
3.7 Certificate of Amendment to the Articles of
Incorporation of General Parcel Service, Inc.,
dated December 20, 1996 (incorporated by reference from
Exhibit A to the Registrant's Form 8-K, dated December 20,
1996).
16
4. Instruments defining the Rights of Security holders
4.1 Specimen Stock Certificate (incorporated by
reference from Exhibit 4.1 to the Registrant's Form S-18,
Registration No. 33-30123A).
4.2 Warrant granting stock purchase warrants to J. Ray
Gatlin (incorporated by reference from Exhibit 4.2 to the
Registrant's Form S-18, Registration No. 33-30123A).
4.3 Warrant granting stock purchase rights to T. Wayne
Davis (incorporated by reference from Exhibit 4.3 to
Registrant's Form S-18, Registration No. 33-30123A).
4.4 Warrant granting stock purchase rights to T. Wayne
Davis (incorporated by reference from Exhibit 4.4 to
Registrant's Form S-18, Registration No. 33-30123A).
4.5 Warrant granting stock purchase rights to Drue B.
Linton (incorporated by reference from Exhibit 4.5 to
Registrant's Form S-18, Registration No. 33-30123A).
4.6 Warrant granting stock purchase rights to Steven C.
Koegler (incorporated by reference from Exhibit 4.7 to
Registrant's Form S-18, Registration No. 33-30123A).
4.7 Warrant granting stock purchase rights to J. Ray
Gatlin (incorporated by reference from Exhibit 4.8 to
Registrant's Form S-18, Registration No. 33-30123A).
4.8 Form of Warrant issued (incorporated by reference
from Exhibit 4.9 to Registrant's Form S-18, Registration
No. 33-30123A).
4.9 Form of Warrant Agreement between the Company and
American Transtech, Inc., as Warrant Agent (incorporated by
reference from Exhibit 4.10 to Registrant's Form S-18,
Registration No. 33-30123A).
4.10 Preferred Stock Purchase Agreement and specimen stock
certificate between the Company and T. Wayne Davis
(incorporated by reference from Exhibit Z to Registrant's
1993 Form 8-K, Registration No. 33-30123A).
10. Material Contracts
10.1 Incentive Stock Option Plan (incorporated by
reference from Exhibit 10.2 to Registrant's
Form S-18, Registration No. 33-30123A).
10.2 Lease Agreement governing GPS's lease of its terminal
in Jacksonville, Florida dated November 12, 1986, between
GPS and Lakepoint Joint Venture, (incorporated by
reference from Exhibit 10.9 to Registrant's Form S-18,
Registration No. 33-30123A).
10.3 First Amendment to Lease Agreement governing GPS's
lease of its terminal in Jacksonville, Florida dated
December 8, 1988, between GPS and Lakepoint Joint Venture,
(incorporated by reference from Exhibit 10.10 to Registrant's
Form S-18, Registration No. 33-30123A).
17
10.4 Lease Agreement governing GPS's terminal in
Gainesville, Florida, dated June 25, 1990, between GPS and
W. Marvin Gresham (incorporated by reference from Exhibit B to
Registrant's 1990 Form 10-K, Registration No. 33-30123A).
10.5 Lease Agreement governing GPS's terminal in Riviera
Beach, Florida, dated July 9, 1990, between GPS and Gary,
Sands, McClosky-Bills, Partnership (incorporated by
reference from Exhibit D to Registrant's 1990 Form 10-K,
Registration No. 33-30123A).
10.6 Lease Agreement governing GPS's terminal in
Tallahassee, Florida, dated December 19,1991,
between GPS and Barnett Bank of Tallahassee, (incorporated by
reference from Exhibit A to Registrant's 1991 Form 10-K,
Registration No. 33-30123A).
10.7 Lease Agreement governing GPS's terminal in
Rockledge, Florida, dated October 21, 1991,
between GPS and Robert Carl Cook and Sara E. Cook,
(incorporated by reference from Exhibit B to Registrant's
1991 Form 10-K, Registration No. 33-30123A).
10.8 Lease Agreement governing GPS's terminal in Ft.
Lauderdale, Florida, dated December 18, 1991, between GPS
and C. E. Pickering Investments, Inc., (incorporated by
reference from Exhibit D to Registrant's 1991 Form 10-K,
Registration No. 33-30123A).
10.9 Lease Agreement governing GPS's terminal in Orlando,
Florida, dated December 20, 1992, between GPS and
Michel Kurban (incorporated by reference from Exhibit B to
Registrant's 1992 10-KSB, Registration No. 33-30123A).
10.10 Lease Agreement governing GPS's terminal in
Clearwater, Florida, dated January 20, 1993, between GPS
and Robert P. Gorby Incorporated by reference from Exhibit C to
Registrant's 1992 10-KSB, Registration No. 33-30123A).
10.11 Lease Agreement governing GPS's terminal in Fort
Myers, Florida, dated February 25, 1993,
between GPS and C.S.L. & G. Development, Ltd. (incorporated by
reference from Exhibit D to Registrant's 1992 10-KSB,
Registration No. 33-30123A).
10.12 Lease Agreement governing GPS's terminal in Medley,
Florida, dated March 16, 1993, between GPS and
Gran Central Corporation (incorporated by reference from Exhibit
E to Registrant's 1992 10-KSB, Registration No. 33-30123A).
10.13 Employment Agreement between the Company and Gayle
Smith, dated April 5, 1993, (incorporated by reference from
Exhibit A to Registrant's 1993 10-KSB, Registration No
33-30123A).
10.14 Lease Agreement governing GPS's terminal in Miami,
Florida, dated June 1, 1993, between GPS and Arango
Development Corporation (incorporated by reference from
Exhibit D to Registrant's 1993 10-KSB, Registration No.
33-30123A).
10.15 Lease Agreement governing GPS's terminal in
College Park, Georgia. dated August 23, 1993, between GPS
and General Cinema Beverages of Georgia, Inc. (incorporated by
reference from Exhibit E to the Registrant's 1993 Form
10-KSB, Registration No. 33-30123A).
18
10.16 Lease Agreement governing GPS's terminal in Tifton,
Georgia, dated October 7, 1993, between GPS and National
Foods, Inc. (incorporated by reference from Exhibit G to
Registrant's 1993 10-KSB, Registration No. 33-30123A).
10.17 Lease agreement governing GPS's terminal
in Milton, Florida, dated June 30, 1994, between GPS and Scott
Steel, Inc. (incorporated by reference from Exhibit B to
Registrant's 1994 10-KSB, Registration No. 33-30123A)
10.18 Lease agreement governing GPS's terminal
in Greensboro, North Carolina, dated December 31, 1995,
between GPS and Koury Corporation, (incorporated by reference
from Exhibit 10.3 to Registrant's 1995 10-KSB, Registration
No. 33-30123A).
10.19 Lease Agreement governing GPS's terminal
in Columbia, South Carolina dated May 31, 1996 between GPS and
Angoria Columbia Enterprises. (incorporated by reference from
Exhibit 10.1 to Registrant's June 30, 1996 10-QSB, Registration
No. 33-30123A).
10.20 Assignment of Lease Agreement governing
GPS's terminal in Greensboro, North Carolina dated June 13, 1996
between GPS, ABF Freight System, Inc., Bob G. Gibson and Defco
Company (incorporated by reference from Exhibit 10.2 to
Registrant's June 30, 1996 10-QSB, Registration No. 33-30123A).
10.21 Lease Agreement governing GPS's terminal
in Greenville, South Carolina dated June 20, 1996 between GPS
and Real Estate Partners (incorporated by reference from Exhibit
10.3 to Registrant's June 30, 1996 10-QSB, Registration No.
33-30123A).
10.22 Lease Agreement governing GPS's terminal
in Asheville, North Carolina dated July 8, 1996 between GPS and
J. C. Swicegood, Jr. (incorporated by reference from Exhibit
10.4 to Registrant's June 30, 1996 10-QSB, Registration No.
33-30123A).
10.23 Lease Agreement governing GPS's terminal
in Fayetteville, North Carolina dated July 1, 1996 between GPS
and Eugene and Jean G. Hair(incorporated by reference from
Exhibit 10.5 to Registrant's June 30, 1996 10-QSB,
Registration No. 33-30123A).
10.24 Lease Agreement governing GPS's terminal
in Charlotte, North Carolina dated July 30, 1996 between GPS and
Lincoln National Life Insurance Company (incorporated by
reference from Exhibit 10.7 to Registrant's June 30, 1996
10-QSB, Registration No. 33-30123A).
19
10.25 Lease Agreement governing GPS's terminal
in Charleston, South Carolina dated July 9, 1996 between GPS and
J. P. Gaillard, ET AL. (incorporated by reference from Exhibit
10.8 to Registrant's June 30, 1996 10-QSB, Registration No.
33-30123A).
10.26 Lease Agreement governing GPS's terminal
in Raleigh, North Carolina dated July 9, 1996 between GPS and
Parker-Raleigh Development I, Limited Partnership (incorporated
by reference from Exhibit 10.9 to Registrant's June 30, 1996
10-QSB, Registration No. 33-30123A).
10.27 Lease Agreement governing GPS's terminal
in Tampa, Florida dated November 30, 1994 and amended on
January 26, 1996 and February 19, 1996 between GPS and Scott
Steel, Inc. (incorporated by reference from Exhibit 10.1 to
Registrant's September 30, 1996 10-QSB, Registration No.
33-30123A).
10.28 Lease Agreement governing GPS' terminal
in Greensboro, North Carolina, dated December 31, 1995 between
GPS and Koury Corporation (incorporated by reference from
Exhibit 10.3 to the Registrant's 1995 Form 10-KSB).
10.29 Purchase Agreement governing purchase by
GPS Acquisition Corp. from TE of certain assets of TE, dated
February 6, 1995 (incorporated by reference from Exhibit 10.5 to
Registrant's 1995 10-KSB, Registration No. 33-30123A).
10.30 Security Agreement securing indebtedness
of GPS Acquisition Corp. to Stephen L. Lit and Gerianne P. Lit,
dated February 6, 1995 (incorporated by reference from Exhibit
10.6 to Registrant's 1995 10-KSB).
10.31 Resignation agreement dated December 20, 1996 between GPS,
E. Hoke Smith, Jr., and T. Wayne Davis as guarantor.
11. Statement re: Computation of Per Share Earnings. Page 31, Note 1
21. Subsidiaries of the Registrant. Page 30, Note 1
27. Financial Data Schedules. (for SEC purposes only)
20
(c) Reports filed on Form 8-K
1. The Company filed a Form 8-K dated December 20,
1996, reporting that the Registrant's Board of Directors
approved an amendment to the Company's Articles of
Incorporation, creating a new Class A Series 4 Preferred
Stock ("Series 4 Preferred") The Series 4 Preferred
is identical to the Company's Class A Series 3 Preferred
except that price at which the Preferred Stock can be converted
into Common Shares is $2.00 per share rather than $2.50.
The Company issued 80,000 shares of the newly authorized
Series 4 Preferred to an affiliate of the Chairman of the
Board of the Registrant for a total purchase price of $2,000,000
or $25.00 per share on December 30, 1996.
2. The Company filed a Form 8-K dated February 17,
1997, stating that the Registrant had engaged Price Waterhouse
LLP to succeed Grenadier, Collins, Mencke & Howard, LLP as
its Independent Accountants. There were no disagreements with
Grenadier, Collins, Mencke & Howard, LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENERAL PARCEL SERVICE, INC.
BY: /s/ Philip A. Belyew
-------------------------
Philip A. Belyew, President,
Chief Executive Officer, and
Director
Date April 30, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant in the capacities and on the date
indicated.
Signature Title Date
/s/ T. Wayne Davis Chairman of the Board April 30, 1997
- ---------------------
T. Wayne Davis of Directors
/s/ Philip A. Belyew Director, President, April 30, 1997
- ---------------------
Philip A. Belyew and Chief Executive Officer
/s/ John B. Ellis Director April 30, 1997
- ---------------------
John B. Ellis
/s/ Derek E. Dewan Director April 30, 1997
- ---------------------
Derek E. Dewan
/s/ Wayne N. Nellums Chief Financial Officer April 30, 1997
- ---------------------
Wayne N. Nellums
22
<PAGE>
GENERAL PARCEL SERVICE, INC.
AND SUBSIDIARY
1996 CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS Pages
<S> <C>
Reports of Independent Accountants 24 - 25
Consolidated Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and 1995 26
Consolidated Statements of Operations
for the years ended December 31, 1996
and 1995 27
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for the
years ended December 31, 1996 and 1995 28
Consolidated Statements of Cash Flows
for the years ended December 31, 1996
and 1995 29
Notes to Consolidated Financial Statements 30 - 40
</TABLE>
23
<PAGE>
Report of Independent Accountants
- ---------------------------------
To the Board of Directors and Stockholders of
General Parcel Service, Inc.
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of income, of changes in
shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of General
Parcel Service, Inc. and its subsidiary (the "Company") at
December 31, 1996, and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles. 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 audit. We conducted our audit of these
statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company has
suffered recurring losses from operations that raise substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
(Signed) Price Waterhouse LLP
PRICE WATERHOUSE LLP
Atlanta, Georgia
April 14, 1997
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of
General Parcel Service, Inc. and Subsidiary as of December 31,
1995, and the related consolidated statements of operations,
changes in stockholders' equity (deficit), and cash flows for
the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the
consolidated 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of General Parcel Service, Inc. and Subsidiary as of
December 31, 1995, and the results of their operations and cash
flows for the years then ended in conformity with generally
accepted accounting principles. We have not audited the
consolidated financial statements of General Parcel Service,
Inc. for any period subsequent to December 31, 1995.
(Signed) GRENADIER, APPLEBY, COLLINS & COMPANY
Jacksonville, Florida
March 6, 1996
25
<PAGE>
<TABLE>
<CAPTION>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 35,959 $ 6,739
Accounts receivable (net of
allowance for doubtful accounts
of $19,039 and $7,846 at December 31,
1996 and December 31, 1995, respectively) 2,370,834 2,068,975
Other current assets 400,570 380,090
------------- -------------
Total current assets 2,807,363 2,455,804
------------- -------------
Long term assets:
Equipment, at net book value 7,503,234 7,593,626
Goodwill 945,104 1,015,784
Other assets 214,657 187,251
------------- -------------
Total long term assets 8,662,995 8,796,661
------------- -------------
Total assets $ 11,470,358 $ 11,252,465
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term borrowings $ 1,313,100 $ 1,599,000
Current obligations under capital leases 982,360 860,309
Current maturities of long-term debt 298,561 518,842
Accounts payable 2,669,936 1,953,468
Accrued expenses and other current
liabilities 1,317,165 738,404
------------- -------------
Total current liabilities 6,581,122 5,670,023
------------- -------------
Long term liabilities:
Long-term obligations under capital leases 1,686,878 1,605,802
Long-term debt 600,358 3,910,808
Convertible debentures 300,000 300,000
Other long-term liabilities 289,329 --
------------- -------------
Total long-term liabilities 2,876,565 5,816,610
------------- -------------
Total liabilities 9,457,687 11,486,633
------------- -------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 800,000
shares authorized, 420,000 issued
and outstanding at December 31, 1996,
100,000 issued and outstanding
at December 31, 1995, liquidation
preference $10,500,000 4,200 1,000
Common stock, $.01 par value, 10,000,000
shares authorized, 3,758,671 shares
issued and outstanding at December 31,
1996 and 1995 37,586 37,586
Additional paid-in capital 21,386,455 13,389,655
Deficit (19,415,570) (13,662,409)
------------- -------------
Total stockholders' equity (deficit) 2,012,671 (234,168)
------------- -------------
Total liabilities and stockholders'
equity (deficit) $ 11,470,358 $ 11,252,465
============= =============
<FN>
Read accountants report and accompanying notes
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Revenue $ 23,404,409 $ 20,567,498
------------- -------------
Operating expenses
Operations salaries & benefits 13,377,163 11,199,966
Fuel 1,653,428 1,231,251
Equipment rental 508,296 52,475
Insurance 1,470,219 1,759,549
Tires & maintenance 899,086 789,173
Depreciation & amortization 1,856,920 1,780,026
Facilities expense 1,755,629 1,275,258
Terminal expense 441,770 364,563
Purchased transportation 397,912 291,836
Other operating costs 140,613 151,604
Selling and administrative expense 5,335,483 3,932,147
------------- -------------
Total operating expense 27,836,519 22,827,848
------------- -------------
Operating loss (4,432,110) (2,260,350)
Interest expense (717,247) (744,631)
------------- -------------
Net loss (5,149,357) (3,004,981)
Preferred stock dividend requirement (428,806) (175,000)
------------- -------------
Loss applicable to common
shareholders $ (5,578,163) $ (3,179,981)
============= =============
Net loss per common share
(primary and fully diluted) $ (1.48) $ (0.85)
============= =============
Weighted average number of common
shares outstanding 3,758,671 3,758,671
============= =============
<FN>
Read accountants report and accompanying notes
</TABLE>
27
<PAGE>
<TABLE>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Years Ended December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Preferred stock:
Beginning balance (100,000 shares) $ 1,000 $ 1,000
Issuance of preferred stock
(320,000 shares in 1996) 3,200 --
------------ ------------
Ending balance (420,000 in 1996,
100,000 in 1995) 4,200 1,000
------------ ------------
Common stock (3,758,671 shares) 37,586 37,586
------------ ------------
Additional paid-in capital:
Beginning balance 13,389,655 13,389,655
Issuance of preferred stock 7,996,800 --
------------ ------------
Ending balance 21,386,455 13,389,655
------------ ------------
Deficit:
Beginning balance (13,662,409) (10,482,428)
Net loss (5,149,357) (3,004,981)
Dividends on preferred stock (603,804) (175,000)
------------ ------------
Ending balance (19,415,570) (13,662,409)
------------ ------------
Total stockholders' equity (deficit) $ 2,012,671 $ (234,168)
============ ============
<FN>
Read accountants report and accompanying notes
</TABLE>
28
<PAGE>
<TABLE>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,149,357) $ (3,004,981)
Adjustments to reconcile net loss to cash
used in operating activities:
Loss on disposal of fixed assets 1,303 26,992
Depreciation and amortization 1,998,337 1,847,960
Changes in assets and liabilities:
Increase in accounts receivable (301,859) (414,028)
Decrease (increase) in other current assets (20,480) 315,494
Increase in other assets (27,406) (5,408)
Increase (decrease) in accounts payable 1,102,919 205,860
Increase in accrued expenses 578,761 304,027
Increase in other long-term liabilities 289,329 --
------------- -------------
Total adjustments 3,620,904 2,280,897
------------- -------------
Net cash used in operating activities (1,528,453) (724,084)
------------- -------------
Cash flows from investing activities:
Business combination -- (151,674)
Proceeds from disposal of equipment 47,967 59,462
Purchase of equipment (792,992) (920,783)
------------- -------------
Net cash used in investing activities (745,025) (1,012,995)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 8,000,000 --
Dividends paid on preferred stock (603,804) (175,000)
Increase in short-term borrowings 4,834,100 99,000
Repayment of short-term borrowings (5,120,000) --
Increase in long-term debt -- 3,000,000
Repayment of long-term debt (3,530,731) (652,474)
Principal payments under capital lease obligations (890,505) (1,101,396)
Increase (decrease) in bank overdraft (386,362) 568,113
------------ --------------
Net cash provided by financing activities 2,302,698 1,738,243
============ ==============
Increase (decrease) in cash 29,220 1,164
Cash, beginning of year 6,739 5,575
------------ --------------
Cash, end of year $ 35,959 $ 6,739
============ ==============
Supplemental cash flow data
Cash paid during the year for interest $ 643,828 $ 694,176
============ ==============
Supplemental schedules of noncash investing and
financing activities
Capital lease and notes payable obligations
for new vehicles and equipment $ 1,093,632 $ 756,000
============ ==============
Business combination
Fair value of assets acquired $ -- $ 1,408,670
Fair value of liabilities assumed -- (1,256,996)
------------ --------------
Net cash payments $ -- $ 151,674
============ ==============
<FN>
Read accountants report and accompanying notes
</TABLE>
29
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
------------------------------------------
Business Description
- --------------------
General Parcel Service, Inc. (the "Company") was formed in
August, 1985, and is engaged in the business of delivering small
parcels in Florida and Georgia. In 1995, the Company formed
GPS Acquisition Corp. to acquire the assets of Transit
Express of Charlotte, Inc. ("TE") and engage in the courier
business in Charlotte, North Carolina.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary GPS Acquisition
Corp., collectively referred to as the Company. The accounts
and operations of GPS Acquisition Corp. are included since the
date of its incorporation on February 10, 1995. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
- ----------------
The process of preparing financial statements requires the use
of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of
the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Revenue Recognition
- -------------------
Revenue from parcel delivery is recorded when parcels have been
picked up for delivery.
Income Taxes
- ------------
The Company applies Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS
109, the deferred tax liability or asset is determined based on
the difference between the financial statement and tax bases of
assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. The
measurement of deferred taxes is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence,
are not expected to be realized (i.e. valuation allowance).
Cash
- ----
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents. The Company's cash management program utilizes zero
balance accounts. Accordingly, all bank overdraft balances have
been reclassified to accounts payable.
Equipment
- ---------
Equipment is stated at cost, net of accumulated depreciation and
amortization. Except for life extending repair costs (such as
engine overhauls), all equipment maintenance and repair costs
are charged to operating expense as incurred. Depreciation is
30
provided using the straight-line method over the estimated
useful life of the asset. Leased equipment is amortized over
varying periods not in excess of the estimated useful life of
the asset or lease term depending on the type of capital lease.
Gain or loss upon retirement or disposal of equipment is
recorded as income or expense. The ranges of depreciable lives
principally used for financial statement purposes are:
Years
-------
Autos, trucks and life extending repairs 2 to 9
Office equipment and furniture 3 to 10
Terminal equipment 3 to 10
Goodwill
- --------
Goodwill was recorded in connection with the TE acquisition and is being
amortized using the straight-line method over 15 years.
Amortization expense for each of 1996 and 1995 was approximately
$70,000. The Company periodically reviews the value of its
goodwill to determine if an impairment has occurred. The
Company measures the potential impairment of recorded goodwill
by the undiscounted value of expected future operating cash
flows in relation to its net capital investment in the acquired
business. Based on its review, the Company does not believe
that an impairment of its goodwill has occurred.
Net Loss per Common Share
- -------------------------
Net loss applicable to common shares is based on the weighted
average number of shares outstanding during the periods
reported. Any assumption of conversion of common stock
equivalents, such as options and warrants, as described in Note
12, is anti-dilutive and has not been considered in determining
net loss per share or the weighted average number of shares
outstanding.
2. Company Operations:
------------------
From inception through December 31, 1996, the Company has
experienced operating losses of $18,461,764 and its working
capital deficiency at December 31, 1996 was $3,773,759.
Management estimates that its net loss for the first quarter of 1997
will approximate $3,000,000, resulting both from expenses related to
the closing of the North and South Carolina parcel delivery facilities
and operating losses at various Florida and Georgia facilities.
Cash requirements to fund operating losses and debt service are substantial.
All of these factors raise the question as to whether the Company will
continue to operate as a going concern. While revenues continue to increase
and expense containment measures have been instituted, management is
nonetheless pursuing several strategies for reducing costs and
raising additional resources through debt or equity transactions.
Management believes, but can offer no assurances, that it can
improve operating performance and cash flows through the
following measures:
*Closing the North Carolina and South Carolina Facilities.
---------------------------------------------------------
A large portion of the Company's expenses since inception have
been related to efforts to develop its marketing, distribution and
service network. The Company has developed extensive distribution
networks in Florida and in Atlanta, Georgia and attempted to develop
31
such networks in the North and South Carolina service areas in 1996
resulting in substantial losses. The North and South Carolina
parcel delivery facilities were closed March 31, 1997.
Closing the North and South Carolina facilities is expected to
reduce the losses and negative cash flows long term.
*Decreasing or Eliminating Parcel Delivery Operations in Florida and Georgia.
---------------------------------------------------------------------------
During 1997, the Company plans to reduce or eliminate the losses from the
Florida and Georgia parcel delivery operations by reducing the size of the
parcel delivery operations to a size that can achieve profitable operations,
selling the parcel delivery operations to an unrelated entity or discontinuing
the parcel delivery operations.
*Establishing a New Corporate Structure to Acquire Profitable
------------------------------------------------------------
Trucking Operations.
-------------------
The Company intends to reorganize into a "holding Company" format
to be based in Atlanta, Georgia. This new corporate structure is
intended to increase the Company's flexibility to pursue
the acquisition and operation of profitable less-than-load (LTL) and
truckload motor carriers. The Company's intent is to
identify and acquire mid-size trucking companies, primarily
with annual revenues between $10 million and $100 million, that
possess strong market positions, sound management and a
commitment to a high level of service and quality.
*Relying on Equity Sales to or Loans from a Major Shareholder.
------------------------------------------------------------
On March 27, 1997 and April 7, 1997, an affiliate of the Company's
Chairman loaned the Company $150,000 and $500,000, respectively.
Both loans are unsecured, payable on demand and bear interest at
10 percent per annum payable quarterly. Proceeds from these loans
were used for working capital. No commitment has been received by
the Company from any shareholder to provide any additional cash to fund
operations losses or debt service. Although there can be no
assurances of any continued funding, management will continue to explore
funding opportunities from its major shareholders.
3. Business Combination:
--------------------
On February 10, 1995, the Company acquired certain assets of TE,
which was based in Charlotte, North Carolina, and provided
scheduled carrier and package delivery services. The Company
acquired such assets at a purchase price of $1,408,670. To
acquire these assets, the Company paid $75,000 in cash to the
seller, incurred expenses of $76,674 and incurred liabilities of
$1,256,996 by issuing debt and assuming certain accounts and
notes payable. The acquisition of the TE assets was accounted
for as a purchase and, accordingly the purchase price was
allocated to the acquired assets based upon their fair market
values. The excess of the purchase price over the fair value of
the net assets acquired in the amount of $1,090,126 has been
recorded as goodwill which is being amortized over 15 years on a
straight line basis.
Proforma Financial Statements
- -----------------------------
The following unaudited pro forma statement of combined results
of the Company for the years ended December 31, 1995 and 1994
account for the acquisition as if it had occurred on January 1, 1995
and 1994, respectively. The pro forma results give effect to the
amortization of goodwill and the effects of additional interest
expense.
32
<TABLE>
Unaudited Pro Forma Combined Results of Operations
For the Years Ended December 31,
<CAPTION>
1995 1994
Pro Forma Pro Forma
Combined Combined
-------------- ------------
<S> <C> <C>
Sales $ 20,752,210 $ 21,878,776
============= =============
Net loss $ (3,029,464) $ (931,750)
============= =============
Net loss per common share $ ($0.85) $ ($0.29)
============= =============
</TABLE>
34
The above pro forma statements do not purport to be indicative
of the results of operations which would have occurred had the
acquisition been made on January 1, 1995 or 1994.
4. Related Party Transactions:
--------------------------
The Company incurred fees related to legal services provided to
the Company by a firm owned in part by a director of the Company
of $24,800 and $39,633 in 1996 and 1995 respectively. As of
December 31, 1996, the Company owed this Director $1,703. The
Company leased aircraft transportation services under an informal
agreement from the former President of the Company. The expenses for
this lease were $113,557 and $103,438 in 1996 and 1995, respectively. At
December 31, 1996, the Company had paid all amounts outstanding.
5. Equipment:
---------
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
-------------- ----------------
<S> <C> <C>
Autos, trucks and life extending repairs $ 12,287,409 $ 10,800,131
Office equipment and furniture 806,535 616,017
Terminal equipment 2,645,679 2,487,612
------------- -------------
15,739,623 13,903,760
Less: accumulated depreciation (8,236,389) (6,310,134)
------------- -------------
$ 7,503,234 $ 7,593,626
============= =============
</TABLE>
Autos and trucks included $6,226,953 and $5,426,413 of vehicles
under capital leases at December 31, 1996 and 1995,
respectively. During 1996, the Company exercised its option to
acquire the residual value of leased vehicles with an original
cost of $626,261 and accumulated amortization of $361,830.
Accumulated amortization for vehicles under capital leases at
December 31, 1996 and 1995 totaled $1,679,065 and $1,632,372,
respectively and is included in accumulated depreciation shown
above. Amortization expense was $714,496 and $646,211 for 1996 and 1995,
respectively. Depreciation expense for owned equipment was $1,071,744 and
$1,127,407 for 1996 and 1995, respectively. Depreciation expense of
$141,417 and $67,934 was included in selling and administrative expense
for 1996 and 1995, respectively.
33
6. Short Term Borrowings:
---------------------
Short term borrowings consist of the following:
December 31,
-------------------
1996 1995
----------- ------------
$3,250,000 line of credit to a bank
due upon demand, interest paid
monthly at .75% over LIBOR rate
collateralized by accounts
receivable and certain stock
certificates pledged by the Company's
Chairman $ 1,313,100 $ 1,599,000
========== ==========
On August 12, 1994, the Company entered into a $2,000,000
revolving credit loan agreement ("Line of Credit") with a bank.
The aggregate principal amount due under the Line of Credit was
increased during 1995 and the form of the debt was modified to
include a $3,000,000, five year term loan and a $2,700,000
revolving credit loan at December 31, 1995. The Company
repaid the term loan and increased its line of credit to
$3,250,000 in the first quarter of 1996. The term loan and the
revolving credit agreement provide for interest payable monthly
for advances of $1,000,000 or greater at the lower interest of
the thirty day LIBOR rate plus .75% or the Bank's prime interest
rate less .75% and for all other advances at the Bank's prime
interest rate less .75%. The loan is collateralized by the
Company's accounts receivable and certain stock certificates
pledged by the Company's Chairman. As of December 31, 1996,
the Company had borrowed $1,313,100 against the line of credit
and had $1,936,900 of credit available. As of March 31, 1997,
the Company has borrowed $3,250,000 against the line of credit.
7. Notes Payable and Long Term Debt:
--------------------------------
Long-term debt and notes payable are due in installments through
2000, bear interest at rates ranging from 8.7% to 12.0% and are
collateralized by vehicles and equipment. Long term debt
maturing in each of the five subsequent years as of December 31,
1996 is as follows:
<TABLE>
<CAPTION>
Installment
Years Ended Notes
December 31, Payable
-------------- -------------
<S> <C> <C>
1997 $ 298,561
1998 296,486
1999 226,531
2000 77,341
2001 --
---------
Total long term debt 898,919
Less: current portion (298,561)
---------
Long term portion of long term debt $ 600,358
=========
</TABLE>
On August 1, 1993, the Company issued $300,000 in nonredeemable
7% convertible senior subordinated debentures which are due in
2000. The initial conversion price was $4.75. During 1996, the
34
Company breached a covenant of the debentures, however, the
breach has been waived by the debenture holders through December 31, 1997.
8. Capital Leases:
--------------
The Company has entered into certain lease agreements, which
have been accounted for as capital leases. Substantially all of
the capital leases are for vehicles. The minimum future lease
payments and the present value of such commitments for the
capital leases are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
- ------------
<S> <C>
1997 $ 1,235,133
1998 876,234
1999 458,386
2000 343,031
2001 285,534
------------
Total minimum obligations 3,198,318
Less: amount representing interest (529,080)
------------
Present value of net minimum
obligations 2,669,238
Less: current portion (982,360)
------------
Long term obligations $ 1,686,878
===========
</TABLE>
The present values of minimum future obligations shown above are
calculated based on interest rates (the majority ranging from
9.5% to 16%) determined to be applicable at the inception of the
leases. Interest expense on outstanding obligations under
capital leases was $252,835 and $344,361 for the
years ended December 31, 1996 and 1995, respectively.
9. Operating Leases:
----------------
The Company leases terminal and office facilities under
noncancellable operating lease agreements. Lease terms range
from one to fifteen years and provide that the Company will pay
real estate taxes, maintenance, insurance and certain other
expenses. The noncancelable operating leases are payable
through 2010. These lease obligations at December 31, 1996 are
as follows:
35
<TABLE>
<CAPTION>
Years Ended
December 31,
- ------------
<S> <C>
1997 $ 1,771,072
1998 1,482,431
1999 1,077,600
2000 1,086,108
2001 970,018
2002 and beyond 5,763,128
------------
Total $ 12,150,357
============
Total rent expense under all operating leases was $1,525,638
and 0$1,210,785 for the years ended December 31,
1996 and 1995, respectively.
10. Fair Values of Financial Instruments:
-------------------------------------
Disclosure of fair value information about certain financial
instruments, whether or not recognized in the balance sheet for
which it is practicable to estimate that value, is required by
Statement of Financial Accounting Standards (SFAS) 107,
Disclosure about Fair Value of Financial Instruments. The
following methods and assumptions were used in estimating fair
values:
Cash, Accounts Receivable and Accounts Payable:
- ----------------------------------------------
The carrying amount reported in the balance sheet approximates fair value
because of the short maturity of these instruments.
Short and long term debt:
- ------------------------
The carrying amounts of the Company's borrowings under its
revolving credit agreements, as well as all short-term borrowings,
approximate their fair values. The fair values of the Company's
long term debt were estimated using discounted cash flow analysis,
based on the Company's current incremental borrowing rates for
similar arrangements.
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1996 are as follows:
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1996
----------------------------
Carrying Estimated
Amount Fair Value
------------ --------------
<S> <C> <C>
Cash $ 35,959 $ 35,959
Accounts receivable 2,370,834 2,370,834
Accounts payable 2,669,936 2,669,936
Short term borrowings 1,313,100 1,313,100
Long term debt 898,919 889,015
Convertible debentures 300,000 300,000
</TABLE>
36
11. Preferred Stock
---------------
On December 29, 1993, the Board of Directors amended the
articles of incorporation to provide for 200,000 shares of a new
issue of Class A, Series 1 cumulative convertible preferred
stock. On December 30, 1993, 100,000 shares were sold for a
total purchase price of $2,500,000. The preferred shares are
nonvoting and generally provide for a conversion into common
stock at a rate of $3.00 per share and a cumulative dividend of
$1.75 per year per share.
On February 28, 1996, the Board of Directors amended the
Articles of Incorporation to provide for 300,000 shares of Class
A, Series 2 Cumulative Preferred Stock ("Series 2 Preferred").
On March 4, 1996, 120,000 shares were sold for a total price of
$3,000,000 to an affiliate of the Company's Chairman. Proceeds
from the sale were used to retire $3,000,000 of bank debt. On
June 25, 1996, 60,000 shares were sold at a total price of
$1,500,000 to the same affiliate of the Company's Chairman.
Proceeds from the June 25, 1996 sale were used to fund working
capital requirements. The Series 2 Preferred shares are
non-voting and generally provide for a conversion into common
stock at a rate of $2.50 per share, and provide for a cumulative
dividend of $1.75 per annum, paid quarterly.
38
On September 18, 1996, the Board of Directors amended the
Articles of Incorporation to provide for 300,000 shares of Class
A, Series 3 Cumulative Preferred Stock ("Series 3 Preferred").
On September 30, 1996, 60,000 shares were sold for a total price
of $1,500,000 to an affiliate of the Company's Chairman.
Proceeds from the September 30, 1996 sale were used to fund
working capital requirements. The Series 3 Preferred shares are
non-voting and generally provide for a conversion into common
stock at a rate of $2.50 per share, and provide for a cumulative
dividend of $2.00 per annum, paid quarterly.
On December 20, 1996, the Board of Directors approved an
amendment to the Company's Articles of Incorporation, to provied
for 300,000 shares of Class A Series 4 Preferred Stock ("Series 4
Preferred"). The Series 4 Preferred is identical to the Company's
Class A Series 3 Preferred except that the price at which the
Preferred Stock can be converted into common shares is $2.00 per
share rather than $2.50. The Company issued 80,000 shares of the newly
authorized Series 4 Preferred to an affiliate of the Company's
Chairman for a total purchase price of $2,000,000 million or
$25.00 per share on December 30, 1996.
At December 31, 1996, the Company had accrued preferred stock
dividends included in accounts payable of $281,750. No
dividends were accrued at December 31, 1995.
12. Stock Options and Warrants:
--------------------------
The Company has granted options and warrants to acquire its
common stock at various times under various plans, contracts and
employment agreements that approximated or exceeded fair market
value at the date of issue. Options and warrants may be
exercised over periods ranging from three to ten years and
generally expire in five to ten years.
37
A summary of outstanding options and warrants is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
---------- ---------------- ---------- ------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,282,725 $3.14 853,975 $3.45
Granted during the year 7,500 $2.16 428,750 $2.54
Exercised or canceled during year -- --
--------- ---------
Outstanding, end of year 1,290,225 $3.14 1,282,725 $3.14
========= =========
</TABLE>
Options and warrants outstanding at December 31, 1996 had a
weighted average remaining contractual life of 5.1 years and
were exercisable at prices ranging from $1.43 to $5.50. All
stock options and warrants are noncompensatory.
Additionally, in conjunction with the initial public offering
(Note 2), the Company issued 690,000 warrants. Two warrants
entitle the holder thereof to purchase at a price of $7.50 per
share, one share of common stock at any time until November 16, 1998.
The warrants are subject to redemption by the Company at $.05 per
warrant at any time on 30 days' written notice, provided that the
closing bid price of the common stock on NASDAQ is at least $8.50
for ten consecutive trading days ending five days prior to the date
of the notice of redemption.
The Company has adopted FAS No,123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of FAS 123,
the Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, " and related
Interpretations in accounting for its stock option and warrant
grants. If the Company had elected to recognize compensation
expense based upon the fair value at the grant dates for awards
under this plan consistent with the methodology prescribed by
FAS 123, the Company's net loss and net loss per share would be
reduced to the unaudited pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net loss As Reported $ (5,149,357) $ (3,004,981)
Pro forma (5,161,747) (3,778,307)
Net loss per share As Reported (1.48) (0.85)
Pro forma (1.48) (1.05)
</TABLE>
The fair value of each option and warrant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995,
respectively; expected volatility of 97 % and 89% and risk-free
interest rates of 6.49% and 5.44%. An expected option term of 5
years for both periods was developed based on historical grant
information.
Because the Company's stock options and warrants have
characteristics significantly different from those of traded
options and warrants, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options and warrants.
38
13. Income Taxes:
------------
The following reflects the deferred income tax effects of
temporary differences between the tax bases of assets and
liabilities and the respective financial statement amounts for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 7,550,378 $ 5,591,992
Reserve for bad debts 4,250 2,973
------------- ------------
7,554,628 5,594,965
Deferred tax liability:
Excess of tax over book depreciation 625,129 604,818
------------ ------------
Net deferred tax asset 6,929,499 4,990,147
Valuation allowance (6,929,499) (4,990,147)
------------ ------------
Net deferred tax recognized $ -- $ --
============ ============
</TABLE>
The valuation allowance was established to eliminate the net
deferred tax asset due to the uncertainty of the Company's
ability to utilize the net operating loss carryforwards before
they expire. Because of this uncertainty, no benefit was
provided for the current year. The Company's income tax expense
differed from the statutory federal rate of 34% as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Statutory rate applied to loss
before income taxes $ (1,750,781) $ (1,021,694)
Increase (decrease) in income taxes
resulting from:
State income taxes (202,314) (117,362)
Change in deferred tax asset
valuation allowance 1,939,352 1,145,407
Other 13,743 (6,351)
-------------- --------------
Income tax expense $ -- $ --
============== ==============
</TABLE>
At December 31, 1996, the Company has $19,883,599 of net
operating loss carryforwards potentially available to offset
taxable income which expire during the years 2000 to 2012. The
Company has not given recognition to tax benefits of net
operating loss carryforwards in the financial statements
because management believes the Company's history of operating
losses diminishes the Company's immediate ability to demonstrate
that it is more likely than not that the future benefits will be
realized. Additionally, these net operating loss carryforwards
are subject to limitation in any given year in the event of
significant changes in ownership as set forth in the Internal
Revenue Code and related Treasury Regulations. Consequently, a
determination has not been made as to the amount, if any, of the
reduction in the net operating loss carryforwards available
against potential future taxable income. The valuation
allowance increased by $ 1,939,352 during 1996. Tax loss
carryforwards at December 31, 1996 expire as follows:
<TABLE>
<CAPTION>
Year of Expiration Federal State
- ------------------ ------------- -----------
<S> <C> <C>
2000 $ 67,771 $ 67,771
2001 312,180 312,180
2002 684,625 684,625
2003 651,378 651,378
2004 1,475,420 1,475,420
2005 2,712,465 2,696,980
2006 2,138,152 2,125,475
2007 1,574,149 1,562,086
2008 1,129,421 1,069,463
2009 1,111,777 1,119,038
2010 2,917,866 2,796,533
2011 5,108,395 4,895,973
----------- -----------
$ 19,883,599 $ 19,456,922
=========== ===========
</TABLE>
41
14. Contingencies:
-------------
On February 14, 1995, the Company filed a civil complaint in the
U.S. District Court, Northern District of Georgia against UPS.
The civil complaint alleges among other things, that UPS has
attempted to monopolize the market for ground-based business-to-business
parcel delivery service in Georgia and Florida, in violation of
federal and state antitrust laws and as a result of these civil
violations, GPS has suffered the loss of several customers. The
Company has cited damages in the complaint in excess of $10
million from these actions.
On September 4, 1996, the court entered a judgment ordering GPS
to dismiss its action and that GPS pay UPS their costs of defending
against this action. The Company has filed an appeal of the court's
judgment.
Inforite Corporation has filed a suit against the Company,
seeking damages of $374,203 for alleged breach of a contract in
which Inforite agreed to sell the Company certain electronic
"clipboards" along with supporting accessories and computer
software. The Company has asserted that the Inforite products
are defective, and has revoked acceptance of the products
pursuant to California Commercial Code sections 2608 and 2609.
In the same action, Inforite has also alleged intentional
interference with contract and defamation, claiming an
unspecified amount of damages. The Company has denied all
material allegations and has counterclaimed against Inforite
Corporation and its parent corporations Moore Corporations
Limited, Moore Business Forms, Inc. and Toppan Moore Company,
Ltd., for breach of contract, breach of warranty, product
liability and fraud, seeking recovery of approximately $175,000
it paid for the products and for an undetermined amount in
incidental damages. Outside counsel for the Company has advised
that at this stage in the proceedings, no opinion can be offered
as to the probable outcome; however, in the opinion of management,
resolution of this matter will not have a materially adverse
impact on the Company's financial position, results of operations
or cash flows. A trial date has been set for January 1998.
40
RESIGNATION AGREEMENT
This Resignation Agreement ("Agreement) is made and entered into
as of this 20th day of December, 1996, by and between General
Parcel Services, Inc., a Florida corporation ("Company"), E.
Hoke Smith, Jr., an individual ("Employee") and T. Wayne Davis,
an individual ("Guarantor").
BACKGROUND FACTS
A. Employee and Corporation entered into that certain
Employment Agreement dated April 20, 1989, regarding Employee's
employment with the Company (the "Employment Agreement").
B. Due to medical reasons, Employee has elected to resign
his employment with the Company and the Company desires to
accept the Employee's resignation subject to the terms and
conditions as hereinafter set forth.
NOW, THEREFORE, in consideration of mutual covenants and
agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
I . Back Ground Facts. The background facts as recited
above are agreed to be true and correct and are incorporated
herein by this reference.
2. Effective Date of Resignation. Effective as of January
3, 1997, Employee resigns as an employee and director of the
Company.
3. Company's Payment Obligations. In recognition of
Employee's personal efforts and valuable contributions to the
Company, the Company shall pay to Employee, pursuant to the
terms herein, the following:
a. The Company shall continue to pay to Employee in
semi-monthly installments Employee's full salary through the
period ending January 3, 1997, with the last installment payment
to be paid to Employee no later than January 10, 1997.
b. On January 2, 1997 the Company shall pay Employee a cash
payment of Three Hundred Seventy-Five Thousand and 00/100
Dollars ($375,000.00).
c. Commencing January 4, 1997 through June 26, 2009, the
Company shall pay to Employee or, upon his death to his estate,
Five Hundred Ninety and 00/100 Dollars ($590.00) per week
payable in weekly installments. Employee shall provide Company
with written instructions regarding payment of these weekly
installments.
4. Stock Options. The Company hereby acknowledges and
agrees to honor the stock options previously granted to the
employee as set forth on Exhibit 'A" attached hereto, in
accordance with the terms thereof-.
5. Reimbursement of Expenses. No later than January 15,
1997, the Company shall either pay directly or reimburse to
Employee all reimbursable business expenses incurred by Employee
through December 31, 1996, which are reimbursable pursuant to
Section 4.3 of the Employment Agreement. No later than January
15, 1997, the Company shall also pay directly to Employee all
legal fees and expenses incurred by Employee in connection with
this Agreement or the subject matter herein.
6. Insurance. The Company shall maintain in full force and
effect for Employee's continued benefit until June 26, 2009, all
current life insurance, medical, health and accident, and
disabilities plans, programs or arrangements in which Employee
is participating in or entitled to participate in as of the date
hereof. In the event that Employee's participation in any such
plan, program or arrangement is now or hereafter barred, the
Company shall arrange to
2
provide Employee with benefits substantially similar to those
which Employee is entitled to receive under such plans, programs
or arrangements. In addition, through June 26, 2009, the
Company shall pay all premiums and/or payments due with respect
to Employee's $750,000.00 life insurance policy with Sunlife
Insurance Company.
7. Indemnification of Real Estate Leases. The Company has
entered into certain leases of real estate located in Milton,
Tampa and Orlando, Florida (collectively, the 'Leases").
Employee has personally guaranteed the Company's payment and
performance of the Company's obligations under the Leases. The
Company agrees to undertake reasonable best efforts to obtain
Employee's release from each of his guarantees of the Leases,
and additionally, the Company agrees to indemnify Employee and
hold Employee harmless from and against any loss, cost, claim,
liability, damage or expense arising out of the Leases and or
his guarantees of the Leases.
8. Confidentiality. Guarantor and Company agree to maintain
the terms of this Agreement and all negotiations relating to the
subject matter of this Agreement confidential between the
Company, Guarantor and Employee and their respective attorneys.
Notwithstanding the foregoing, Company shall be entitled to
issue a one-time written press release and/or make any other
disclosures required by law disclosing Employee's resignation
for medical reasons; provided, however, that prior to the
Company's issuance of said written press release, Employee must
have provided his written approval to the Company of the content
of said written press release.
9. Guaranty. Guarantor does hereby unconditionally and
irrevocably guarantee to Employee, the prompt payment of all of
the Company's monetary obligations, now or hereafter owed to
Employee pursuant to the terms of this Agreement, and does
hereby agree that if any
3<PAGE>
payment obligation of the Company under the terms of this
Agreement is not paid by the Company in accordance with the
terms herein, the Guarantor will make such payment upon written
demand by Employee. Upon any default in payment, Employee shall
first proceed against the Company, taking all reasonable steps
short of litigation and may then proceed directly against the
Guarantor for the payment of any of the Company's obligations
under the Agreement.
10. Release of Employee. The Company agrees to indemnify
and hold Employee harmless from and against any loss, cost,
claim, liability, damage or expense asserted by any party
against Employee with respect to Employee's employment with the
Company; provided, however, that no such indemnity is given by
the Company in respect of conduct of Employee discovered after
the date hereof (i) which evidences illegal activity or fraud by
the Employee in connection with the conduct of the business of
the Company or (ii) for which indemnification by the Company is
not permitted under the Florida General Corporation Act, the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, or some other provision of law.
11. Release of Company and Guarantor. For and in
consideration of (i) the Company's payment and performance of
the obligations it has undertaken hereunder and (ii) the
Guarantor's payment obligation he has undertaken hereunder and
in the attached Guaranty of Payment executed in favor of the
wife of the Employee, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
the Employee and any entity owned or controlled, in whole or in
part, by Employee hereby agrees to release, acquit and forever
discharge, and to indemnify and hold harmless, the Company and
its officers
4
and directors and every other person who may be deemed to be a
"control person" with respect to the Company as such term is
defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and the Guarantor
(any such person being hereinafter referred to as a "Releasee"),
from and against, any and all claims, losses, liabilities and
damages (including reasonable attorneys' fees in respect of any
of the foregoing) (collectively, 'claims"), known or unknown,
matured or unmatured, or discoverable or undiscoverable, that
exist as of the effective date hereof, whether such claims arise
in tort or contract or have a statutory basis or otherwise,
including but not limited to claims made for breach of the
Employee's Employment Agreement and claims made pursuant to 42
U.S.C. Section 2000(e) et seq., as amended, The Age
Discrimination in Employment Act of 1967, as amended, the
Americans With Disabilities Act, and all other claims of age,
race, gender, disability or other discrimination under any
federal, state or local law. The foregoing is intended as a
general release by the Employee and any entity owned or
controlled, in whole or in part, by Employee of each Releasee.
Insofar as the foregoing release relates to claims the Employee
may have under the Age Discrimination in Employment Act, the
Employee understands that he has 21 calendar days to consider
his release of such claims; the Employee acknowledges that he
was advised by the Company to have this Agreement reviewed by
legal counsel; and the Employee understands that he has seven
calendar days from the date hereof (the date of execution of
this Agreement) to revoke this Agreement.
In addition to the foregoing, the Employee and any entity owned
or controlled, in whole or in part, by Employee agree not to sue
any of the Releasees with respect to any claim released
5
above, and further agrees that any breach of this covenant would
cause any Releasee irreparable injury that would not and could
not be reasonably or adequately compensated by damages in an
action at law. Therefore, the Employee agrees that each
Releasee shall be entitled, in addition to any other remedies it
may have under this Agreement at law or otherwise, to immediate
injunctive and other equitable relief to prevent or curtail any
breach of this covenant not to sue given by the Employee.
12. Preparation of Agreement. This Agreement should not be
construed more strongly against either party regardless of who
is responsible for its preparation. The parties acknowledge
that each of the parties contributed to it and are equally
responsible for its preparation.
13. Amendment. Neither this Agreement nor any of the
provisions hereof can be changed, waived, discharged or
terminated, except by management, in writing, signed by the
party against whom enforcement of the change, waiver, discharge
or termination is sought.
14. Attorney's Fees. In the event of litigation relating to
this Agreement, the prevailing party shall be entitled to have
its reasonable attorney's fees paid by the non-prevailing party.
15. Further Assurances. The parties agree to execute such
further documents, notices and agreements as each other may
reasonably request in furtherance of the purpose as set forth
herein and/or confirm the agreements made herein.
16. Successors and Assigns. This Agreement will inure to
the benefit of and bind the respective heirs, personal
representatives, successors and assigns of the parties hereto.
6
17. Governing Law. This Agreement shall be interpreted and
construed under the laws of the State of Florida.
18. Notices. Any notice, demand or communication required
or permitted to be given by any provision of this Agreement
shall be deemed to have been given when delivered personally to
the person designated to receive such notice or, if sent
certified mail, return receipt requested, on the date noted on
the return receipt. Notices shall be directed to the following
addresses or to such other or additional addressees as any party
might designate by written notice to the other parties:
As to Employee: E. Hoke Smith. Jr.
(Signed) E. Hoke Smith, Jr.
- ---------------------------
7737 Hunters Grove Road
Jacksonville, Fl 32256
with a copy to:
Foley & Lardner
Attn: Steven A. Werber, Esquire
200 Laura Street
Jacksonville, FL 32202
As to Company:
General Parcel Services, Inc.
8923 Western Way, Suite 150
Jacksonville, FL 32216
As to Guarantor:
T. Wayne Davis
1910 San Marco Boulevard
Jacksonville, FL 32207
COMPANY:
General Parcel Services, a Florida corporation
By: (Signed) T. Wayne Davis
-----------------------
Its: Chairman
7
GUARANTY OF PAYMENT
The undersigned Guarantor does hereby unconditionally and
irrevocably guarantee to GAYLE S. SMITH, ("Employee"), the
prompt payment of all GENERAL PARCEL SERVICES, INC., ("Company")
monetary obligations, now or hereafter owed to Employee pursuant
to the terms of the Employment Agreement, between Employee and
Company dated April 5, 1993, and does hereby agree that if any
payment obligation of the Company under the terms of that
Agreement is not paid by the Company in accordance with the
terms herein, the Guarantor will make such payment upon written
demand by Employee. Upon any default in payment, Employee shall
first proceed against the Company, taking all reasonable steps
short of litigation and may then proceed directly against the
Guarantor for the payment of any of the Company's obligations
under the Agreement.
DATED this 20th day of December, 1996.
(Signed) T. Wayne Davis
- -----------------------
T. WAYNE DAVIS, Guarantor
GENERAL RELEASE
For and in consideration of (i) the Company's payment
and performance of the obligations it has undertaken to the
Employee's spouse (which obligations enure to the benefit of the
(Employee) under the Resignation Agreement with such spouse of
<PAGE>
even date herewith, and (ii) the Guarantor's payment obligation
he has undertaken hereunder and in such Resignation Agreement,
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Employee and
any entity owned or controlled, in whole or in part, by Employee
hereby agrees to release, acquit and forever discharge, and to
indemnify and hold harmless, the Company and its officers and
directors and every other person who may be deemed to be a
"control person" with respect to the Company as such term is
defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and the Guarantor
(any such person being hereinafter referred to as a "Releasee"),
from and against, any and all claims, losses, liabilities and
damages (including reasonable attorneys' fees in respect of any
of the foregoing)(collectively, "claims"), known or unknown, or
discoverable or undiscoverable, that exist as of the effective
date hereof, whether such claims arise in tort or contract or
have a statutory basis or otherwise, including but not limited
to claims made for breach of the Employee's Employment Agreement
and claims made pursuant to 42 U.S.C. Section 2000(e) et seq.,
as amended, The Age Discrimination in Employment Act of 1967, as
amended, the Americans With Disabilities Act, and all other
claims of age, race, gender, disability or other discrimination
under any federal, state or local law. The foregoing is
intended as a general release by the Employee and any entity
owned or controlled, in whole or in part, by Employee of each
Releasee.
Insofar as the foregoing release relates to claims the Employee
may have under the Age Discrimination in Employment Act, the
Employee understands that he has 21 calendar days to consider
his release of such claims; the Employee acknowledges that
She was advised by the Company to have this Agreement reviewed by
legal counsel; and the Employee understands that he has seven
calendar days from the date hereof (the date of execution of
this Agreement) to revoke this Agreement.
In addition to the foregoing, the Employee and any entity owned
or controlled, in whole or in part, by Employee agree not to sue
any of the Releasees with respect to any claim released above,
and further agrees that any breach of this covenant would cause
any Releasee irreparable injury that would not and could not be
reasonably or adequately compensated by damages in an action at
law. Therefore, the Employee agrees that each Releasee shall be
entitled, in addition to any other remedies it may have under
this Agreement at law or otherwise, to immediate injunctive and
other equitable relief to prevent or curtail any breach of this
covenant not to sue.
DATED 20th day of December, 1996.
(Signed) Gayle S. Smith
- -----------------------
GAYLE S. SMITH, Releasor
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the consolidated Statements of Operations and Balance
Sheet and is qualified in its entirety by reference to such
financial statements.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<PERIOD-START> JAN-1-1996
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END>DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 35,959
<SECURITIES> 0
<RECEIVABLES> 2,389,873
<ALLOWANCES> 19,039
<INVENTORY> 0
<CURRENT-ASSETS> 2,807,363
<PP&E> 15,739,623
<DEPRECIATION> 8,236,389
<TOTAL-ASSETS> 11,470,358
<CURRENT-LIABILITIES> 6,581,122
<BONDS> 0
<COMMON> 37,586
0
4,200
<OTHER-SE> 1,970,885
<TOTAL-LIABILITY-AND-EQUITY> 11,470,358
<SALES> 0
<TOTAL-REVENUES> 23,404,409
<CGS> 0
<TOTAL-COSTS> 27,836,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717,247
<INCOME-PRETAX> (5,149,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,149,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,149,357)
<EPS-PRIMARY> (1.48)
<EPS-DILUTED> (1.48)
</TABLE>