<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission File Number 33-00412-NY
FIRST PRIORITY GROUP, INC.
(Name of small business issuer in its charter)
NEW YORK 11-2750412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Duffy Avenue
Hicksville, New York 11801
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 938-1010
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act : None
Page 1 of 61 pages.
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year $10,150,086
The aggregate market value of the issuer's voting stock held by non-affiliates
of the issuer as of March 28, 1996, based upon the average bid and asked prices
was $2,336,672 and $2,670,483, respectively.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of March 27, 1995, the issuer had outstanding a total of 5,883,883
common shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one):
Yes ____ No X
THE REMAINING PORTION OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
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Part I
Item 1. DESCRIPTION OF BUSINESS
First Priority Group, Inc. (the "Company"), a New York corporation
formed in October 1983, is engaged directly and through its wholly-owned
subsidiaries in automotive fleet management and administration of automotive
repairs for businesses, insurance companies and members of affinity groups. The
services provided by the Company include the computerized compilation and
analysis of vehicle usage and maintenance data and the repair and maintenance of
vehicles through thousands of contracted repair facilities nationwide. The
Company's office is located at 270 Duffy Avenue, Hicksville, New York 11801 and
its telephone number is (516) 938-1010.
Nature of Services
The services offered by the Company consist of vehicle maintenance and
repair management, including collision and general repair programs, subrogation
services, vehicle salvage and vehicle rentals; and the administration of
automotive collision repair referral services for insurance companies.
The Company's wholly-owned subsidiary, National Fleet Service, Inc.,
conducts the Company's fleet management business. The Company itself provides
the ServiceGram program and the automotive collision repair referral services
provided to insurance companies.
Fleet Management. The Company has entered into contractual arrangements
with thousands of independently owned and operated repair shops throughout the
United States, as well as with national chains of automobile repair shops, to
provide repair services for the Company's fleet management clients' vehicles.
The automotive repair shops with which the Company has contracted can handle, on
a per incident basis, any repair which the Company's fleet management clients'
drivers may encounter. Because the Company has made arrangements with a large
number of repair shops, whenever a repair to a client's vehicle is needed, the
chances are excellent that a local repair shop will be available to perform the
required repair work. The repairs provided consist primarily of collision and
glass replacement repairs although general repairs can also be provided. In the
event that a repair is needed, the driver need only call the Company's toll free
telephone number. Upon receipt of the call, the driver is directed to a local
repair shop to which the driver may take the vehicle for repair. The repair is
billed to the Company which in turn bills the client. There is no need for
independent negotiations between the repair shop and the client or the driver.
As part of its fleet management services, the Company also offers its clients
salvage and subrogation services, and offers vehicle rentals to permit clients
to avoid driver down-time while a client's vehicle is being repaired.
Affinity Group Programs. These programs are a series of comprehensive
vehicle-related services for consumers that are provided through affinity
groups, financial institutions, corporations and organizations. These programs
may be used as re-enrollment incentives and/or membership premiums, or resold at
a profit, and may be sold individually, or a variety of services can be bundled
together as a high-value package.
Collision Damage Repair Program (CDR). - This is the corporate
collision program modified to suit consumer needs. Drivers participating in this
program may utilize the Company's proprietary network of collision body repair
shops. Additionally, the Company's customer service department will supervise
the entire process from expediting estimates and repairs, to troubleshooting any
problems or difficulties that may occur.
Driver Discount Program (DDP). This program offers drivers
discounts of up to twenty percent off automotive-related services through
thousands of premium auto chain facilities throughout the nation. It applies
these discounts to virtually all routine maintenance including oil changes,
brakes, transmissions,
3
<PAGE>
mufflers, shocks, and tires. An option to this program also provides 24 hour
emergency roadside assistance for drivers anywhere in the U.S.
Auto Service Hotline (ASH). This program provides drivers with
their own repair specialist who will help the driver determine a course of
action to repair the vehicle, and if necessary, provide a referral to one of
thousands of independently owned auto repair facilities. Drivers will receive a
ten percent discount off repairs and an enhanced warranty when utilizing the
shop to which they were referred. Additionally, drivers will be offered rental
replacement cars at preferred rates that are delivered to and picked up from the
driver's home or office.
ServiceGram. This program is a computerized tracking and
notification program that generates maintenance reminders in accordance with
manufacturer's specifications. ServiceGram archives a vehicle's history
including mileage and repairs that provides an accurate record for tax purposes,
warranty validation or to increase resale value.
Direct Appraisal and Repair Service (DARP). In 1992 the Company entered
into the business of providing automotive collision repair services for insured
persons referred to the Company by insurance companies. The Company believes
that provision of such services to persons referred to the Company by insurance
companies can be an important source of revenue for the Company because of the
high volume of collision repair referrals that insurance companies can provide.
The Company has entered into agreements with several insurance companies whereby
such insurance companies have agreed to refer their insured persons to the
Company for repair services. The Company proposes to try to expand its insurance
company referral business, and to that end has retained several marketing
agencies to market the Company's repair services to insurance companies.
Recent Developments.
The Company has been attempting to increase the number of insurance
companies participating in the insurance company referral program and to expand
the volume of referrals provided by existing participants in the program.
Additionally, the Company has begun marketing consumer oriented auto club
programs through a network of outside marketing agents. The Company has recently
entered into agreements with several marketing agencies and affinity groups and
is providing fee based services. Several of these agreements provide for clients
to meet minimum participation guarantees.
Sales and Marketing. The Company's fleet maintenance clients generally
consist of companies having a large number of vehicles on the road over a broad
geographical area. The Company's clients for ServiceGram are organizations and
affinity groups. The Company's clients for the insurance company referral
program are auto insurance companies.
Sales activities are performed by the Company's own personnel, except
that the Company has retained several marketing agencies to market the Company's
service of furnishing collision repairs to persons referred to the Company by
insurance companies. Sales are made through referrals, cold canvassing of
appropriate prospects and direct mailings. The Company also attends trade shows
in order to increase its client base.
Since the Company deals with a large number of independently owned
repair facilities, it is often able to offer to its fleet management clients a
custom tailored program to suit their needs for vehicle repairs and maintenance.
The Company believes that this flexibility is important in its marketing
activities and in increasing its client base.
4
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During the years 1995 and 1994, none of the Company's customers
accounted for more than 10 percent of the Company's revenues.
Employees
At year end, the Company employed 29 employees, 27 being full-time
employees. None of the Company's employees are governed by a union contract and
the Company believes that its employee relationships are satisfactory.
Competition
Fleet Management. Some leasing companies offer fleet management
services, but most offer such services only to fleets leased by them. The
Company is aware of three other companies that, like the Company, offer fleet
management services independent of a fleet leasing arrangement.
Affinity Group Programs. The Company believes that there are no other
companies that offer a program providing all of the services offered pursuant to
the Company's Affinity Group Programs.
Insurance Company Referral Business. The Company is aware of two other
companies that offer automotive collision repair services to persons referred by
insurance companies. One of such companies is, like the Company, in the fleet
management business, while the other is in the vehicle valuation business. The
Company believes that its services for persons referred to it by insurance
companies are superior to those offered by such other companies.
Item 2. DESCRIPTION OF PROPERTY
In September 1990, the Company entered into a lease for new office
space at 270 Duffy Avenue, Hicksville, New York 11801. The space consists of
approximately 5,400 square feet of office space. The Company exercised an option
to renew the lease for an additional three year term at an annual rent of
$74,220. The Company holds several options of cancellation during the lease
term. The office space leased by the Company is in good condition.
Item 3. LEGAL PROCEEDINGS
There is no pending legal proceeding which could have a material effect upon the
Company's financial position and/or operating results.
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5
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common shares are traded in the over-the- counter market.
The following table shows the high and low bid quotations for the periods
indicated, based upon information received from National Quotation Bureau
Incorporated of Cedar Grove, New Jersey. Such quotations represent prices
between dealers without retail markup, markdown or commission and may not
necessarily represent actual transactions.
Bid Price($)
High Low
---- ---
1995
First Quarter $.05 $.05
Second Quarter .09 .05
Third Quarter .69 .09
Fourth Quarter 1.03 .06
1994
First Quarter $.06 $.03
Second Quarter .06 .05
Third Quarter .05 .05
Fourth Quarter .05 .05
The number of record holders of the Company's common shares as of March
27, 1996 was 463.
The Company has never paid dividends on its common stock and is not
expected to do so in the foreseeable future. Payment of dividends is within the
discretion of the Company's Board of Directors and would depend on, among other
factors, the earnings, capital requirements and operating and financial
condition of the Company.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Company's revenues increased $2,272,991 (28.9 %) to $10,150,086 in
1995 from $7,877,095 in 1994. Increased revenues reflect the Company's continued
success in acquiring several large additional accounts and increasing the
revenues generated by existing customers in 1995. Additionally, the Company has
improved its customer retention rate reflecting the high service level that it
provides its customers.
Gross profit in 1995 increased $368,214 (25.4%) as compared to 1994.
Gross profit was $1,817,599 in 1995, a 17.9 gross profit percentage, while gross
profit in 1994 was $1,449,385, a 18.4 gross profit percentage. The slight
reduction in gross profit percentage reflects the Company's added emphasis in
attracting larger corporate
6
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customers that offer substantial increases in revenue and market share, but
require very competitive fee based pricing that results in a increased gross
profit dollars, but reduced gross profit as a percentage of revenue.
Selling, general and administrative expenses ("SG&A") increased
$255,476 (19.1%) to $1,593,280 in 1995 from $1,337,804 in 1994. However, SG&A as
a percentage of sales decreased to 15.7 percent in 1995, as compared to 17.0 in
1994. This was primarily attributable to fixed overhead being absorbed by the
increase in revenue, more efficient use of personnel and the installation of a
technologically advanced telephone system that provided the Company greater cost
savings in long distance telephone rates.
Net income increased $122,852 (114.3%) over 1994 to $230,334, or $.04
per share, as compared to $107,482, or $.02 per share.
Liquidity and Capital Resources
The Company's cash flow improved in 1995 reflecting its profitable
operations and the Company believes that it can continue to meet its cash
requirements for both the short and long term from internally generated sources.
On December 18, 1995, the Company sold, through a private placement, 1 million
shares of common stock generating net proceeds of $435,000. These funds will be
applied to the working capital needs of the Company.
The Company does not presently have any material commitments for
capital expenditures.
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7
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Item 7. FINANCIAL STATEMENTS
THE REMAINING PORTION OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
8
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[Letterhead of Nussbaum Yates & Wolpow, P.C.]
Report of Independent Certified Public Accountants
Board of Directors
First Priority Group, Inc.
Hicksville, New York
We have audited the accompanying consolidated balance sheets of First Priority
Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Priority Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ Nussbaum Yates & Wolpow, P.C.
Melville, New York
March 15, 1996
F-1
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<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 779,074 $ 126,918
Accounts receivable, less allowance for doubtful
accounts of $11,500 in 1995 and 1994 1,069,786 744,708
Other current assets 10,940 14,155
------------- -----------
Total current assets 1,859,800 885,781
Property and equipment, net (Notes 3 and 4) 116,039 63,850
Security deposits 10,575 10,575
------------- -----------
$ 1,986,414 $ 960,206
============= ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Note payable (Note 4) $ 37,264 -
Accounts payable 720,375 $ 434,616
Accrued expenses, taxes and other current liabilities 338,913 301,062
------------- -----------
Total current liabilities 1,096,552 735,678
------------- -----------
Commitments and contingency (Notes 7 and 8)
Shareholders' equity (Notes 5, 6 and 10):
Common stock, $.015 par value, authorized
8,000,000 shares; issued 6,150,550 shares
in 1995 and 5,150,550 in 1994 92,258 77,258
Additional paid-in capital 1,929,310 1,509,310
Deficit ( 1,041,706) (1,272,040)
------------- -----------
979,862 314,528
Less common stock held in treasury, at cost,
266,667 shares 90,000 90,000
------------- -----------
889,862 224,528
------------- -----------
$ 1,986,414 $ 960,206
============= ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- ----------
<S> <C> <C>
Revenue $10,150,086 $7,877,095
Cost of revenue (principally charges incurred
at repair facilities for services) 8,332,487 6,427,710
----------- ----------
Gross profit 1,817,599 1,449,385
----------- ----------
Operating expenses:
Selling 509,206 434,052
General and administrative 1,084,074 903,752
----------- ----------
1,593,280 1,337,804
----------- ----------
Income from operations 224,319 111,581
Interest and other income 7,554 2,753
----------- ----------
Income before income taxes 231,873 114,334
Income taxes, all current (Note 9) 1,539 6,852
----------- ----------
Net income $ 230,334 $ 107,482
=========== ==========
Income per common share $ .04 $ .02
=========== ==========
Weighted average number of common shares
outstanding 4,922,239 4,883,883
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
Common Stock Additional Treasury Stock Total
------------------ Paid-in ---------------- Shareholders'
Shares Amount Capital Deficit Shares Amount Equity
------ ------ --------- ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 5,150,550 $77,258 $1,509,310 ($1,379,522) 266,667 $90,000 $117,046
Net income 107,482 107,482
--------- ------- ---------- ----------- ------- ------- --------
Balance, December 31, 1994 5,150,550 $77,258 $1,509,310 ($1,272,040) 266,667 $90,000 $224,528
Issuance of common stock (Note 10) 1,000,000 15,000 420,000 - - - 435,000
Net income - - - 230,334 - - 230,334
--------- ------- ---------- ----------- ------- ------- --------
Balance, December 31, 1995 6,150,550 $92,258 $1,929,310 ($1,041,706) 266,667 $90,000 $889,862
========= ======= ========== =========== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $230,334 $107,482
-------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 32,940 26,311
Changes in assets and liabilities:
Accounts receivable (325,078) (144,120)
Other current assets 3,215 (4,159)
Security deposit - 952
Accounts payable 285,759 25,136
Accrued expenses, taxes and other current liabilities 37,851 173,999
-------- --------
Total adjustments 34,687 78,119
-------- --------
Net cash provided by operating activities 265,021 185,601
-------- --------
Cash flows used in investing activities,
additions to property and equipment (85,129) (35,344)
-------- --------
Cash flows provided by (used in) financing activities:
Repayment of notes payable - (67,500)
Proceeds from bank loan 41,600 -
Principal payments on bank loan (4,336) -
Proceeds from issuance of common stock 435,000 -
-------- --------
Net cash provided by (used in) financing activities 472,264 (67,500)
-------- --------
Net increase in cash 652,156 82,757
Cash and cash equivalents at beginning of year 126,918 44,161
-------- --------
Cash and cash equivalents at end of year $779,074 $126,918
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 5,346 $ 1,789
======== ========
Cash paid during the year for interest $ 1,407 $ -
======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
First Priority Group, Inc. and its subsidiaries, National Fleet Service,
Inc., American Automotive Trading Corp., and First Priority Group Leasing,
Inc. (collectively referred to as the "Company") all of which are wholly
owned. All material intercompany balances and transactions have been
eliminated.
Revenue Recognition
The Company recognizes revenue at the time of customer approval and
completion of repair services. The Company warrants such services for
varying periods ranging up to twelve months. Such warranty expense is
borne by the repair facilities and has not been material to the Company.
Property and Equipment
Property and equipment are stated at cost. The Company provides
depreciation primarily by the straight-line method over the estimated
useful lives of the assets, ranging from three to five years.
Cash
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Per Share Data
Income per share data is based upon the weighted average number of common
shares plus, in 1995, 820,500 common equivalent shares. Common equivalent
shares were anti-dilutive in 1994.
F-6
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates are used in accounting for income taxes.
Future Effect of Recently Issued Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 123, Accounting for Stock Based
Compensation (SFAS 123). SFAS 123 requires entities to disclose the fair
value of their employee stock options. Disclosure requirements are
effective for 1996.
2. Description of Business and Concentration of Credit Risk
The Company is engaged in automotive management, including fleet
management, for major corporate clients. The Company provides computerized
compilation and analysis of vehicle usage and maintenance data and the
repair and maintenance of vehicles through over 3,000 independently
contracted repair facilities nationwide.
The Company also has a service called the Direct Appraisal Repair Program.
The program provides automotive collision repair and appraisal services to
insurance companies. The Company receives commissions from participating
body shop vendors for referring clients of the insurance companies to
them.
F-7
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
3. Property and Equipment
1995 1994
-------- --------
Machinery and equipment $197,047 $167,960
Furniture and fixtures 56,904 39,336
-------- --------
253,951 207,296
Less accumulated depreciation 137,912 143,446
-------- --------
$116,039 $ 63,850
======== ========
4. Note Payable
In July 1995, the Company borrowed $41,600 under a term note from a bank
used to purchase equipment which was pledged as collateral. The note was
interest bearing at a rate of 1 1/2% above prime. On March 15, 1996, the
balance of this note was paid off.
5. Stock Options
1987 Incentive Stock Option Plan
The Company has an incentive stock option plan effective since October 2,
1987 ("The 1987 Plan"). The 1987 Plan authorizes up to 1,000,000 options
to be granted to employees at an exercise price equal to 100% (or 110% if
the optionee owns directly or indirectly more than 10% of the outstanding
voting stock) of the fair market value of the shares on the date of the
grant. No charge to income is made in connection with the grant of options
granted under The 1987 Plan. Options are to be exercisable over a period
not to exceed five years. During 1994, no options were granted, 200,000
options expired and 75,000 options were canceled. During 1995, the Company
granted 200,000 options to the Company's two principal officers, 150,000
options to employees and 33,333 options expired. No options have been
exercised to date. As of December 31, 1995, options for 175,000 shares
were exercisable and 300,000 options are available for future grant.
F-8
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. Stock Options (Continued)
1995 Incentive Stock Plan
On October 1, 1995, the Board of Director adopted and authorized a new
stock option plan ("The 1995 Plan"). The plan is subject to shareholder
approval. In the event that shareholder approval is not obtained, any
options granted under The 1995 Plan will be voided. The 1995 Plan, if
approved by the shareholders, authorizes up to 3,000,000 stock options
(both incentive and non-statutory stock options) to be granted to
employees, officers, directors and others. Those options granted under The
1995 Plan which are incentive stock options, are to be granted at an
exercise price equal to 100% (or 110% if the optionee owns directly or
indirectly more than 10% of the outstanding voting stock) of the fair
market value of the shares on the date of the grant. No charge to income
is made in connection with the grant of incentive stock options granted
under The 1995 Plan. Options granted are to be exercisable over a period
not to exceed ten years (five years if the optionee owns directly or
indirectly more than 10% of the outstanding voting stock). On October 1,
1995, 600,000 incentive stock options were granted to the Company's two
principal officers. None of the options granted in 1995 were exercisable
at December 31, 1995.
Under the terms of The 1995 Plan, annually, each non-employee Director
shall be granted options to purchase 15,000 shares of common stock
commencing in 1996.
Non-Incentive Stock Option Agreements
The Company has non-incentive stock option agreements with four of its
directors and/or officers. Under these agreements, the Company, as of
December 31, 1993 had granted 700,000 options. The options were granted at
the fair market value as of the date of the grant. During 1994, 300,000
options expired. During 1995, the Company granted an additional 100,000
options to a director of the Company.
The options under the non-incentive stock option agreements are
exercisable in whole or in part at any time prior to their expiration
dates, which range from 1996 to 2000.
F-9
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. Stock Options (Continued)
Summary
All option activity is summarized as follows:
Exercise Price Range
--------------------
Outstanding at January 1, 1994 1,358,333 $0.06-$0.25
Canceled and expired during 1994 (575,000) $0.06-$0.1375
---------
Outstanding at December 31, 1994 783,333 $0.06-$0.25
Granted during 1995 1,050,000 $0.12-$0.41
Expired during 1995 (33,333) $0.25
---------
Outstanding at December 31, 1995 1,800,000 $0.06-$0.41
=========
6. Stock Warrants
In connection with the 1995 issuance of 1,000,000 shares of its common
stock (Note 10), the Company issued 850,000 warrants to purchase 850,000
shares of the Company's common stock. The warrants are all presently
exercisable at prices ranging from $.125 to $.50 per share.
During the fiscal year ended December 31, 1995, none of these warrants
were exercised. All warrants expire in 2000.
In lieu of the payment of the exercise price in cash, the holders have the
right (but not the obligation) to convert the warrants, in whole or in
part, into common stock as follows; upon exercise of the conversion rights
of the warrant, the Company shall deliver to the holder that number of
shares of common stock equal to the quotient obtained by dividing the
remainder derived from subtracting (a) the exercise price multiplied by
the number of shares of common stock being converted from (b) the market
price of the common stock multiplied by the number of shares of common
stock being converted, by the market price of the stock.
F-10
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. Employee Benefit Plan
During 1995, the Company instituted a new 401(k) profit sharing plan. This
plan is for the benefit of all eligible employees as defined in the plan
documents.
The plan provides for voluntary employee salary contributions from 1% to
15% not to exceed the statutory limitation provided by the Internal
Revenue Code. The Company may, at its discretion, match within prescribed
limits, the contributions of the employees. Employer contributions to the
plan amounted to $4,513 in 1995.
The 401(k) profit sharing plan which was in effect in the previous year,
was frozen during 1995. Employer contributions to the frozen plan amounted
to none in 1995 and $3,420 in 1994.
8. Commitments and Contingency
Leases
The Company is obligated through January 1999 under a noncancelable
operating lease for its premises, which requires minimum annual rentals
and certain other expenses including real estate taxes. Rent expense
including real estate taxes for the years ended December 31, 1995 and 1994
aggregated approximately $80,000 and $71,000.
As of December 31, 1995, the Company's approximate future minimum rental
commitments are as follows:
1996 $ 68,000
1997 74,000
1998 74,000
1999 6,000
--------
$222,000
========
F-11
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
8. Commitments and Contingency (Continued)
Employment Contracts
The Company has employment contracts with its two principal officers
expiring on December 31, 1998. The agreements provide for minimum annual
salaries each of $175,000 effective January 1, 1996; $192,500 effective
January 1, 1997; and $211,750 effective January 1, 1998. The agreements
also provide for additional incentive compensation based on a stated
percentage of earnings, as defined in the agreements. Incentive
compensation for the year ended December 31, 1995 totaled $23,542.
Each employment contract provides that, in the event of termination of the
employment of the officer within three years after a change in control of
the Company, then the Company would be liable to pay a lump sum severance
payment of three years' salary (average of last five years), less $100, in
addition to the cash value of any outstanding, but unexercised stock
options. In no event would the maximum amount payable exceed the amount
deductible by the Company under the provisions of the Internal Revenue
Code.
9. Income Taxes
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes (SFAS 109).
At December 31, 1995, the Company has an operating loss carryforward of
approximately $660,000 which is available to offset future taxable income.
At December 31, 1994 the Company had an operating loss carryforward of
approximately $910,000. A valuation allowance has been recognized to
offset the full amount of the related deferred tax asset of approximately
$250,000 at December 31, 1995 and $363,000 at December 31, 1994 due to the
uncertainty of realizing the benefit of the loss carryforwards.
At December 31, 1995, the Company's net operating loss carryforwards are
scheduled to expire as follows:
Year ended December 31,
-----------------------
2002 $552,000
2003 24,000
2005 50,000
2008 34,000
--------
$660,000
========
F-12
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. Income Taxes (Continued)
The Company's effective income tax rate differs from the Federal statutory
rate as follows:
1995 1994
---- ----
Federal statutory rate 34.0% 34.0%
Utilization of net operating loss carryforwards (34.0) (34.0)
State income taxes .7 6.0
----- -----
.7% 6.0%
===== =====
10. Common Shares
On December 18, 1995, the Company issued 1,000,000 shares of its common
stock to Kirlin Securities, Inc. and several of its executive officers for
$.50 per share and received net proceeds of $435,000 after underwriting
commissions of $65,000 (see Note 6 for warrants issued).
The total number of shares obtainable upon potential exercise of all
outstanding options and warrants would, when added to the presently
outstanding shares, require the Company to issue more shares than it is
previously authorized to issue. Accordingly, it is the intention of the
Company to seek shareholder approval at the 1996 shareholder meeting to
obtain authorization to issue the required shares. If such approval is not
granted, options to purchase 600,000 shares will be voided, thereby curing
the requirement to issue more shares than the Company is presently
authorized to issue (Note 5).
11. Transactions With Related Parties
In December 1994, the Company repaid outstanding notes totaling $67,500 to
officers and directors of the Company. The notes were payable on demand
within thirty days and were non-interest bearing. Proceeds of the notes
were used to establish a Payment Fund as defined. Withdrawals from the
payment Fund were made solely for the purpose of allowing the Company to
take advantage of discounts (additional commission income) offered by
vendors for early payment of accounts payable. The notes provided that the
additional commission income earned by the use of funds from other than
the Payment Fund would be fully retained by the Company. Additional
commissions earned from the Payment Fund were allocated 20% to the Company
and 80% (Loan Fees) to the holders of the notes. Loan fees totaled $16,482
in 1994.
F-13
<PAGE>
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following schedule sets forth the name and age of each director and
executive officer of the Company and the title of all positions and offices with
the Company presently held by him or her.
Name Age Position
- ---- --- --------
Michael Karpoff 52 Co-Chairman of the Board of Directors,
Co-Chief Executive Officer, and President
Barry Siegel 44 Co-Chairman of the Board of Directors, Co-Chief
Executive Officer, Secretary, and Treasurer
Lisa Siegel 35 Vice President of Operations
Leonard Giarraputo 51 Director
The directors of the Company are elected by the Company's shareholders
or by the other members of the Board of Directors, and the Company's officers
are elected annually by the Board of Directors. Each officer devotes his full
business time to the Company.
Michael Karpoff has been President of the Company since June, 1986.
Mr. Karpoff became a director of the Company at its inception and became
Co-Chairman of the Company's Board of Directors and Co-Chief Executive Officer
in October, 1987. Mr. Karpoff was President of National Fleet Service, Inc. from
August, 1984 until January, 1991. On October 22, 1992, Mr. Karpoff was again
elected President of National Fleet Service, Inc. and has continued to hold this
position through the present date.
Barry Siegel became a director of the Corporation at its inception and
became Co-Chairman of the Board of Directors and Co-Chief Executive Officer in
October, 1987. Mr. Siegel was the Executive Vice-President of the Company from
June, 1986 until October, 1987. He became the Company's Treasurer in June, 1986,
and its Secretary in November, 1987. He was the Executive Vice-President of
National Fleet Service, Inc. from February 1984 until October, 1987, and he has
been the Treasurer of National Fleet Service, Inc., since February, 1984 and the
Secretary of National Fleet Service, Inc., since January, 1991. He is married to
Lisa Siegel.
Lisa Siegel was elected Vice President of Operations of the Company and
its wholly owned subsidiary, National Fleet Service, Inc. in February, 1994.
Previously, she held the position of Manager of Subrogation Services. She has
held various management positions in the Company since its inception. She is
married to Barry Siegel.
Leonard Giarraputo was elected a director of the Company in September,
1988. He has also been a director of National Fleet Service, Inc. since
February, 1984. Since March, 1972, he has been Vice President of Block Trading
with Paine Webber Incorporated, a member of the New York Stock Exchange.
There are no arrangements or understandings between any of the
Company's directors or officers, or anyone else, pursuant to which directors or
officers were, or are, to be selected for a particular office or position.
22
<PAGE>
The issuer does not have a class of securities registered under Section
12 of the Exchange Act.
Item 10. EXECUTIVE COMPENSATION
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------
(a) (b) (c) (d)
Name and
Principal Position Year Salary($) Bonus($)
- ------------------ ---- --------- --------
Michael Karpoff 1995 $125,000 $11,771 (1)
Co-Chairman of the 1994 $122,319 $ 6,229 (2)
Board of Directors, 1993 $120,000 $ 0
Co-Chief Executive
Officer and President
Barry Siegel 1995 $125,000 $11,771 (1)
Co-Chairman of the 1994 $122,319 $ 6,229 (2)
Board of Directors, 1993 $120,000 $ 0
Co-Chief Executive
Officer, Treasurer
and Secretary
(1) Incentive compensation for the year ended December 31, 1995 was paid in
1996.
(2) Incentive compensation for the year ended December 31, 1994 was paid in
1995.
THE REMAINING PORTION OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
23
<PAGE>
(Cc) Option/SAR Grants Table
Individual Grants
- -----------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- -----------------------------------------------------------------------------
Michael Karpoff 100,000 10.5 $.22 7/19/00
300,000 (1) 31.6 $.41 9/30/00
Barry Siegel 100,000 10.5 $.22 7/19/00
300,000 (1) 31.6 $.41 9/30/00
Lisa Siegel 75,000 7.9 $.14 6/11/00
- ------------
(1) Options granted under 1995 Incentive Stock Plan (the "Plan") which is
subject to shareholder approval within twelve months of adoption by the
Company. Should the shareholders not approve this Plan within the
requisite period, this option grant will be voided.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End ($)
Acquired on Value
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------
Michael Karpoff None None 150,000/450,000 $134,500/283,500
Barry Siegel None None 150,000/450,000 $134,500/283,500
Lisa Siegel None None 37,500/112,500 $33,750/95,250
(f) Compensation of Directors
No compensation is paid to the directors in consideration of the
director's service on the board.
24
<PAGE>
(g) Employment contracts and termination of employment and change in control
arrangements.
The Company has employment agreements with its two principal officers,
Barry Siegel and Michael Karpoff. The Company entered into employment agreements
that expire on December 31, 1998. The agreements provide for minimum annual
salaries each of $175,000 effective January 1, 1996; $192,500 effective January
1, 1997; and $211,750 effective January 1, 1998. Each contract provides for
options to purchase 300,000 shares of the Company's common stock under the 1995
Incentive Stock Option Plan. Additionally, the agreements also provide for
additional incentive compensation based on a stated percentage of earnings as
defined in the agreements. Incentive compensation for the year ended December
31, 1995 totaled $23,542.
These employment agreements also contain a change in control provision
whereby the executive, following a change of control as defined in the
agreement, would receive: (a) a severance payment of 300 percent of the average
annual salary for the past five years, less $100; (b) the cash value of the
outstanding, but unexercised stock options, and (c) other perquisites, should
the executive be terminated for various reasons as defined in the agreement. The
agreements provide that in no event, shall the severance payment exceed the
amount deductible by the Company under the provisions of the Internal Revenue
Code.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is as of March 28, 1996.
(a) Security ownership of certain beneficial owners.
(1) (2) (3) (4)
Name and Amount and
Title Address of Nature of Percent of
of Class Beneficial Owner Beneficial Owner Common Stock(1)
- -------------------------------------------------------------------------
Common Kirlin Holding Corp. 1,140,000 (2) 15.60
6901 Jericho Turnpike
Syosset, NY. 11791
Common Kirlin Securities, Inc. 1,140,000 (2) 15.60
6901 Jericho Turnpike
Syosset, NY. 11791
Common Frances Giarraputo 1,005,999 (3) 13.76%
6 Fox Hunt Court
Huntington, NY 11743
- ------------
(1) The percentages set forth in this Annual Report on Form 10-KSB have been
calculated in accordance with Instruction 3 to Item 403 of Regulation S-B.
(2) Includes 800,000 shares owned directly by Kirlin Holding Corp. and warrants
to purchase 40,000 and 300,000 shares of the Company's common stock that are
exercisable in full, held by Kirlin Securities, Inc.
(3) Includes 749,000 owned directly by Frances Giarraputo, 56,999 shares owned
directly or as custodian for others by Leonard Giarraputo, and 200,000
shares representing options that are exercisable within sixty
25
<PAGE>
days by Leonard Giarraputo to purchase the common stock of the Company.
Leonard and Frances Giarraputo are husband and wife. Each disclaims
beneficial ownership of shares held by the other.
(b) Security ownership of management.
(1) (2) (3) (4)
Name and Amount and
Title Address of Nature of Percent of
Class Beneficial Owner Beneficial Owner Common Stock(1)
- --------------------------------------------------------------------------
Common Michael Karpoff 952,333 (3) 13.03%
32 Gramercy Park South
New York, NY 10010
Common Barry Siegel 992,568 (4) 13.58%
8 Indian Well Court
Huntington, NY 11743
Common Leonard Giarraputo 1,005,999 (2) 13.76%
6 Fox Hunt Court
Huntington, NY 11743
Common Lisa Siegel 992,568 (4) 13.58%
8 Indian Well Court
Huntington, NY 11743
Common Directors and officers 2,950,900 40.37%
as a group
(1) The percentages set forth in this Annual Report on Form 10-KSB have
been calculated in accordance with Instruction 3 to Item 403 of Regulation S-B.
(2) Includes 749,000 owned directly by Frances Giarraputo, 56,999
shares owned directly or as custodian for others by Leonard Giarraputo, and
200,000 shares representing options that are exercisable within sixty days by
Leonard Giarraputo to purchase the common stock of the Company. Leonard and
Frances Giarraputo are husband and wife. Each disclaims beneficial ownership of
shares held by the other.
(3) Owned jointly with another. Includes 150,000 shares representing
options that are exercisable within sixty days by Michael Karpoff to purchase
the common stock of the Company.
(4) Includes options exercisable by Barry Siegel within sixty days to
purchase 150,000 shares, 3,334 shares held by Barry Siegel as custodian for two
nephews, 67 shares held directly by Barry Siegel's wife, Lisa Siegel, and 37,500
shares representing options held by her that are exercisable within sixty days.
Both Barry and Lisa Siegel disclaim beneficial ownership of shares held by the
other.
(c) Changes in control. None.
26
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1992, certain directors, officers and employees of the Company
loaned National Fleet Service, Inc. $60,000 in the aggregate in order to permit
National Fleet Service, Inc. to create a fund that National Fleet Service, Inc.
could use to pay certain of its accounts payable prior to their due dates where,
and only where, such early payment would result in National Fleet Service,
Inc.'s receiving a discount on the amount payable. To compensate the persons
making such loans for doing so, National Fleet Service, Inc. agreed to pay to
each such lender, on a pro rata basis, a fee equal to 80 percent of the amount
of any discounts obtained as the result of any such early payments made with the
proceeds of such loans (the "Loan Fees"). National Fleet Service, Inc. is not
required to use money from the fund created by such loans to pay its accounts
payable early, and may use any other funds available to it to do so in any
instance, in which case such lenders will not receive any fee with respect to
such early payment. (In this regard, since the date that the loans referred to
above were made, National Fleet Service, Inc.'s practice has been to apply
$75,000 from its operating funds each month to the prepayment of its accounts
payable before applying the proceeds of such loans for such purpose.) Except for
the fee referred to above, no other amount (including interest) is payable to
the makers of such loans in respect of such loans. The principal amount of each
such loan is subject to repayment in full upon 30 days' notice from the maker
thereof.
The Company determined to obtain the loans referred to above for
National Fleet Service, Inc. from the directors, executive officers and
employees of the Company who made such loans only after the Company determined
that National Fleet Service, Inc. would not have sufficient cash flow to enable
it to take full advantage of the opportunities available to it to pay its
accounts payable early and after it determined that it would not be able to
obtain financing from commercial sources to permit it to take full advantage of
such opportunities.
In July, 1992, the persons making such loans to National Fleet Service,
Inc. loaned, in the aggregate, an additional $30,000 to National Fleet Service,
Inc., such additional loans being upon the same terms and conditions, and for
the same purpose, as the earlier loans.
The names of the persons making the loans referred to above, their
offices in the Company and the total amount loaned by each, are as follows:
Michael Karpoff, Co-Chairman of the Company, $22,500; Barry Siegel, Co-Chairman,
Treasurer and Secretary of the Company, and his wife, Lisa Siegel, Vice
President of Operations of the Company, $22,500 in the aggregate; Leonard
Giarraputo, a director of the Company, $22,500. The entire $22,500 principal
amount owed to one participant was repaid when his employment with the Company
terminated in October, 1992. In December, 1994 the Company repaid the
outstanding notes totaling $67,500 to officers and directors of the Company.
Loan Fees totaled $16,482 in 1994 and $12,960 in 1993
The Company entered into an Investment Banking Agreement with Kirlin
Securities, Inc. ("Kirlin") (the "Investment Banking Agreement") on August 1,
1995. For a term of eighteen months, Kirlin will provide financial consulting
and investment banking services to the Company. It is anticipated that Kirlin
will assist the Company in exploring the possibility of raising additional
capital through the issuance of additional shares of its common stock. In
consideration, Kirlin has been granted a warrant to purchase 750,000 shares of
the Company's Common Stock which is exercisable at various prices.
On December 18, 1995, the Company sold through a private placement,
1 million shares of common stock generating net proceeds of $435,000. Kirlin
Holding Corp. parent of its wholly owned subsidiary Kirlin Securities, and the
principal shareholders of Kirlin Holding Corp., were the sole purchasers of the
1 million shares of this private placement. Kirlin earned a placement agent fee
from this private placement, under the Investment Banking Agreement, of $50,000,
non-accountable expenses of $15,000, and a warrant to purchase 100,000 shares of
the Company's common stock.
27
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Certificate of incorporation of the Company, as amended,
incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1991.
3.2 By-laws of the Company, incorporated by reference to Exhibit 19.2
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1991.
10.1 Sample employment agreement executed between the Barry Siegel and
Michael Karpoff dated January 18, 1996 filed with this Report.
10.2 Sample subscription agreement executed by subscribers to the
Company's private placement dated December 18, 1995.
10.3 Sample warrant granted to transferees of Kirlin Securities, Inc.,
placement agent to the private placement, dated December 18, 1995.
13.1 Form 10-QSB for the quarter ending March 31, 1995 incorporated by
reference dated and previously filed.
13.2 Form 10-QSB for the quarter ending June 30, 1995 incorporated by
reference and previously filed with the Commission.
13.3 Form 10-QSB for the quarter ending September 30, 1995 incorporated
by reference and previously filed with the Commission.
21 Subsidiaries of the Company, incorporated by reference to Exhibit
22 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990.
(b) Reports on Form 8-K
None
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST PRIORITY GROUP, INC.
By: /s/ Michael Karpoff
Michael Karpoff, Co-Chairman of the Board of Directors and President
Date: 3/29/96
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Michael Karpoff
Michael Karpoff, Co-Chairman of the Board of Directors, Co-Chief Executive
Officer, President and Director
Date: 3/29/96
By: /s/ Barry Siegel
Barry Siegel, Co-Chairman of the Board of Directors, Co-Chief Executive
Officer, Treasurer, Secretary and Director (Principal Financial and
Accounting Officer)
Date: 3/29/96
By: /s/ Leonard Giarraputo
Director
Date: March 29, 1996
29
Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 18, 1996, by and between FIRST PRIORITY GROUP,
INC., a New York corporation (hereinafter referred to as the "Company"), having
an office at 270 Duffy Avenue, Hicksville, New York 11801 and ,
residing at (hereinafter referred to as the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to engage the services of the Executive, and the
Executive desires to render such services;
NOW, THEREFORE, in consideration of the premises, the parties agree as
follows:
1. Employment. The Company hereby employs the Executive as Co-Chairman
of the Board of Directors, Co-Chief Executive Officer, Secretary and Treasurer,
and the Executive hereby accepts such employment, subject to the terms and
conditions hereinafter set forth.
2. Term. The term of the Executive's employment hereunder shall
commence on October 1, 1995 and shall continue to December 31, 1998.
Notwithstanding this provision, the employment may be terminated by the Company
for cause as hereinafter provided.
3. Duties. The Executive agrees that the Executive will serve the
Company on a full-time basis faithfully and to the best of his ability as the
Co-Chairman of the Board of Directors, Co-Chief Executive Officer, Secretary and
Treasurer of the Company, subject to the general supervision of the Board of
Directors of the Company. The Executive agrees that the Executive will not,
during the term of this Agreement, engage in any other business activity which
interferes with the performance of his obligations under this Agreement. The
Executive further agrees to serve as a director of the Company and/or of any
parent, subsidiary or affiliate of the Company if the Executive is elected to
such directorship.
Upon the Date of Termination, the Executive shall resign as an officer
and director of the Company and any of its subsidiaries.
4. Compensation.
(a) In consideration of the services to be rendered by the Executive
hereunder, including, without limitation, any services rendered by the Executive
as director of the Company or of any parent, subsidiary or affiliate of the
Company, the Company agrees to pay the Executive, and the Executive agrees to
accept fixed compensation at the rate as set forth below:
(i) Effective October 1 ,1995 at the rate of compensation presently
being paid to the Executive as provided for in the Employment
Agreement dated January 1, 1990, as amended on December 28, 1992
and August 5, 1993.
(ii) Effective January 1, 1996 at the rate of One Hundred
Seventy-Five Thousand Dollars ($175,000.00) per annum.
(iii) Effective January 1, 1997 at the rate of One Hundred Ninety-Two
Thousand and Five Hundred Dollars ($192,500) per annum.
(iv) Effective January 1, 1998 at the rate of Two Hundred Eleven
Thousand and Seven Hundred Fifty Dollars ($211,750) per annum.
(b) The Executive shall also be entitled to five weeks vacation,
unlimited sick leave and fringe benefits in accordance with Company policies and
plans in effect, from time to time, for Executive officers of the Company.
(c) The Executive will receive an incentive stock option of three
hundred thousand (300,000) shares of common stock of the Company exercisable
over a five year period at an exercise price and pursuant to such terms and
provisions of the 1995 Incentive Stock Plan as approved by the Company's Board
of Directors.
(d) Except as hereinafter provided in Section 5(a), the Company shall
pay the Executive, for any period during which the Executive is unable fully to
perform his duties because of physical or mental illness or incapacity, an
amount equal to the fixed compensation due the Executive for such period less
the aggregate amount of all income disability benefits which the Executive may
receive or to which the Executive may be entitled under or by reason of (i) any
group health and/or disability insurance plan provided by the Company; (ii) any
applicable state disability law; (iii) the Federal Social Security Act; (iv) any
applicable worker's compensation law or similar law; and (v) any plan towards
which the Company or any parent, subsidiary or affiliate of the Company has
contributed or for which it has made payroll deductions, such as group accident,
health and/or disability policies.
(e) The Executive shall receive additional compensation (hereinafter
called "Incentive Compensation") as calculated by the formula as set forth
below: The Executive shall receive throughout the Term of this Agreement
Incentive Compensation equal to Five percent (5%) of the Company's net pre-tax
income for each fiscal year that shall end during the Term of this Agreement.
Should this Agreement be terminated for any reason, other than Termination for
Cause, the Executive shall receive such Incentive Compensation pro-rated by
multiplying the total Incentive Compensation, that would have been earned had
the Agreement not been terminated prior to the completion of the current fiscal
year, by that fraction using as the numerator the total number of quarters that
were completed for the fiscal year just prior to the Executive's termination,
and as denominator the number four.
The Executive shall not receive any Incentive Compensation should the
Executive be terminated for Termination for Cause.
(f) Such Incentive Compensation for the particular fiscal year shall be
paid to the Executive no later than upon the filing of the Company's Form
10-KSB, or equivalent form.
5. Compensation Upon Termination.
Upon termination of the Executive's employment or during a period of
Disability the Executive shall be entitled to the following benefits:
(a) Termination for Cause, Disability, Death or Retirement etc.
(i) If the Executive's employment shall be terminated by the Company
for Termination for Cause, or by the Company or the Executive for
Disability, or by either the Company or the Executive for
Retirement, the Company shall pay to the Executive the Executive's
full base salary through the Date of Termination at the rate in
effect at the date that Notice of Termination is given, plus all
other amounts to which the Executive is entitled under any
compensation plan of the Company in effect on the date the
payments are due, in addition to any other benefits set forth in
this Agreement, and the Company shall have no further obligations
to the Executive under this Agreement. If the Executive's
employment shall be terminated by the Company for Death, the
Company shall pay to the estate of the Executive the Executive's
full base salary through the period of four (4) months following
the Date of Termination at the rate in effect at the date that
Notice of Termination is given, plus all other amounts to which
the Executive is entitled under any compensation plan of the
Company in effect on the date the payments are due, in addition to
any other benefits set forth in this Agreement, and the Company
shall have no further obligations to the Executive under this
Agreement.
(ii) If the Executive's employment shall be terminated by the Executive
for any reason other than for Termination for Cause, Death,
Disability, Retirement or Good Reason after a Change in Control,
the Company shall pay to the Executive the Executive's full base
salary through the Term of this Agreement, or for one (1) year
following the Date of Termination, which ever is less, at the rate
in effect at the date that Notice of Termination is given, plus
all other amounts to which the Executive is entitled under any
compensation plan of the Company in effect on the date the
payments are due , in addition to any other benefits set forth in
this Agreement, and the Company shall have no further obligations
to the Executive under this Agreement
(b) Severance Benefits. If the Executive's employment shall be
terminated by the Company within three (3) years after a Change in Control of
the Company, for reasons other than for Termination for Cause, Retirement, Death
or Disability, or terminated by the Executive for Good Reason within three (3)
years after a Change in Control of the Company, then, subject to the limitations
set forth in Subparagraph 5(d) below, the Executive shall be entitled to the
benefits provided below:
(i) the Company shall pay the Executive the Executive's full base
salary through the Date of Termination at the rate equal to the
greater of the rate in effect on the date prior to the Change of
Control and the rate in effect at the time Notice of Termination
is given, plus all other amounts to which the Executive is
entitled under any compensation plan of the Company in effect on
the date, the payments are due, except as otherwise provided
below;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, except as provided
in Paragraph 5(d) below, the Company shall pay as severance pay
to the Executive a lump sum severance payment equal to 300% of an
average amount actually paid by the Company or any parent or
subsidiary of the Company to the Executive and included in the
Executive's gross income for services rendered in each of the
five prior calendar years (or shorter period during which the
Executive shall have been employed by the Company or any parent
or subsidiary of the Company), less $100;
(iii) in consideration of the surrender on the Date of Termination of
the then outstanding options ("Options") granted to the
Executive, if any, under the stock option plans of the Company,
or otherwise, for shares of common stock of the Company ("Company
Shares"), except as provided in Paragraph 5(d) below, the
Executive shall receive an amount in cash equal to the product of
(A) the excess of, (x) in the case of options granted after the
date of this Agreement that qualify as incentive stock options
("ISOs") under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"), the closing price on or nearest the Date
of Termination of Company Shares as reported in the principal
consolidated transaction reporting system with respect to
securities as reported in the principal consolidated transaction
reporting system with respect to securities listed on the
principal national securities exchange on which the Company's
Shares are listed or admitted to trading or, if the Company
Shares are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
or such other system then in use, or, if on any such date the
Company Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Company Shares
selected by the Board of Directors of the Company, and (y) in the
case of all other Options, the higher of such closing price or
the highest per share price for any Company Shares actually paid
in connection with any Change in Control of the Company, over the
per share exercise price of each Option held by the Executive
(irrespective of whether or not such Option is then fully
exercisable), times (B) the number of Company Shares covered by
each such Option (irrespective of whether or not such Option is
then fully exercisable). The parties hereto acknowledge and
agree that the benefits afforded to the Executive under this
Subparagraph (iii) do not, and shall not be deemed to, materially
increase the benefits accruing to the Executive under any stock
option plan under which any such Options are granted. Insofar as
the Executive receives full payment under this Subparagraph (iii)
with respect to the surrender of all such Options, such Options
so surrendered shall be canceled upon the Executive's receipt of
such payment. However, if pursuant to the limitations set forth
under Paragraph 5(d) below, the full amount described under this
Subparagraph 5(b)(iii) cannot be paid, the number of Options
which are canceled shall be reduced so that the ratio of the
value of the canceled Options to the value of all such Options
equals the ratio of the amount payable under this Subparagraph
5(b)(iii) after the application of the limitation described under
Paragraph 5(d), to the amount that otherwise would have been paid
under this Subparagraph 5(b)(iii) in the absence of such
limitations. The Options canceled pursuant to the immediately
preceding sentence shall be those Options providing the smallest
"excess amounts" as determined under Subparagraph 5(b)(iii)(A);
and
(iv) The Company shall also pay to the Executive all legal fees and
expenses incurred by the Executive as a result of such
termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by
this Agreement or in connection with any tax audit or proceeding
to the extent attributable to the application of Section 499 of
the Code to any payment or benefit provided hereunder).
(c) Date Benefits Due. The payments provided for in Paragraph 5(b)
above shall be made not later than the fifth day following the Date of
Termination, provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 7872(f)(2) of the Code)
as soon as the amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive repayable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 7872(f)(2) of the Code).
(d) Reduction to Avoid Non-Deductibility. Any of the other provisions
of this Agreement notwithstanding, if any payment to be made by the Company
pursuant to this Agreement to the Executive or for the Executive's benefit (the
"Payments") otherwise would not be deductible by the Company for Federal income
tax purposes due to the provisions of Code Section 280G, the aggregate present
value (determined as of the date of the Change in Control) of the Payments shall
be reduced (but not to a negative amount) to an amount expressed in the present
value as of such date (the "Reduced Amount") that maximizes the present value of
the Payments without causing any payment to be nondeductible by the Company due
to Code Section 280G. The determination of the Reduced Amount and the
accompanying reduction in Payments shall be made by the independent certified
public accountants for the Company. Any such decrease in Payments shall be
applied to the amounts to be paid to the Executive or for the Executive's
benefit hereunder in the following order but only to the extent such amounts
would be taken into account in determining whether the Payments constitute
"parachute payments" within the meaning of Code Section 280G(b)(2)(A): (i) to
decrease the amounts payable to the Executive pursuant to Subparagraph 5(b)(ii);
(ii) to decrease the amounts payable to the Executive pursuant to Subparagraph
5(b)(iv); (iii) to decrease the amounts payable to the Executive pursuant to
Section 5(j); (iv) to decrease the amounts payable to the Executive pursuant to
Section 5(a); and (v) to decrease the amounts payable to the Executive pursuant
Subparagraph 5(b)(iii).
(e) Determination of Reduced Amount. The determination of the Reduced
Amount and of the reduction in the Payments shall be communicated to the
Executive in writing by the Company. If the Executive does not agree with such
determinations, the Executive may give written notice of such disagreement to
the Board within five (5) days of the Executive's receipt of the determination,
and within fifteen (15) days after the Executive's notice of disagreement, the
Executive shall deliver to the Board the Executive's calculation of the
reduction in Payments. If the Executive fails to give notice of disagreement or
to furnish the Executive's calculation in accordance with the provisions of the
immediately preceding sentence, the Executive shall be conclusively deemed to
have accepted the determinations made by the independent public accountants for
the Company. If the accountants for the Company and the Executive's accountants
are unable to agree upon the reduction of Payments within ten (10) days of the
receipt of the Board of the Executive's calculation, the determination of the
reduction in Payments shall be made by a third accounting firm picked by the
Company's accountants and the Executive's accountants (the "Arbiter") whose
determination shall be final and binding upon the Executive and the Company,
except to the extent provided below. The Company shall withhold for income tax
purposes all amounts that the Company's independent certified public accountants
believe that the Company is required to withhold.
(f) Arbiter to Resolve Disputes. If the Arbiter's and the Company's
accountant's fees shall be borne solely by the Company. The Executive's
accountant's fees shall be borne by the Executive.
(g) Final Payment. As promptly as practicable after the final
determination of the reduction in Payments, the Company shall pay to the
Executive or for the Executive's benefit the amounts determined to be payable.
(h) IRS Ruling. In the event there is a final determination by the
Internal Revenue Service or by a court of competent jurisdiction that any
portion of the Payments are not deductible by the Company by reason of Section
280G, then the amount of the Payments that exceeds the amount deductible by the
Company shall be deemed to be a loan by the Company to the Executive, which
shall be repaid by the Executive five (5) days after delivery of a demand by the
Company therefor together with interest from the date paid by the Company to the
date repaid by the Executive at the rate provided for a demand loan in Section
7872(f)(2) of the Code.
(i) Interpretation. The provisions of this Section 4 shall be
interpreted in a manner that will avoid the disallowance of a deduction to the
Company pursuant to Section 280G and the imposition of excise taxes on the
Executive under Section 4899 of the Code.
(j) Additional Fringe Benefits. If the Executive's employment shall be
terminated by the Company other than for Termination for Cause, Retirement,
Death or Disability or by the Executive within three years after a Change of
Control of the Company for Good Reason, then for a three (3) year period after
such termination, the Company shall arrange to provide the Executive with life,
disability, and accident insurance benefits substantially similar to those that
the Executive was receiving immediately prior to the Notice of Termination. In
addition to the benefits set forth above, the Company shall reimburse the
Executive for the cost of leasing, insuring and maintaining (including the cost
of fuel) a luxury automobile of the Executive's choice similar to the Infiniti
Q45 or the Lexus LS400, during the three (3) year period following the
Executive's termination.
Benefits otherwise receivable by the Executive pursuant to this
Paragraph 5(j) shall be reduced to the extent comparable benefits are otherwise
received by the Executive during the three (3) year period following the
Executive's termination and any such benefits otherwise received by the
Executive shall be reported to the Company.
(k) No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Paragraph 5 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Paragraph 5 be reduced by any compensation earned by the Executive
as the result of the Executive's employment by another employer, by any
retirement benefits, by offset against any amount claimed to be owing by the
Executive to the Company, or otherwise, except as specifically provided in this
Paragraph 5.
(l) The benefits provided in this Paragraph 5 shall replace benefits
provided to the Executive other than in this Agreement only in the circumstances
set forth herein, and under all other circumstances, the Executive's benefits
will be determined in accordance with other agreements between the Company and
the Executive and other plans, arrangements and programs of the Company in which
the Executive participates.
(m) Notwithstanding anything in this Agreement, the Company shall
arrange to provide the Executive and his immediate family with health insurance
benefits substantially similar to those that the Executive was receiving,
immediately prior to the Notice of Termination, for the remainder of his and his
spouse's life.
6. Termination for Cause. Termination by the Company of the Executive's
employment for cause (hereinafter referred to as "Termination for Cause), shall
mean termination upon (i) the willful and continued failure by the Executive to
substantially perform the Executive's material duties with the Company (other
than any such failure resulting from the Executive's incapacity due to physical
or mental illness or any such failure after the issuance by the Executive for
Good Reason of a Notice of Termination (as the terms "Good Reason" and "Notice
of Termination" are defined in this Agreement) after a written demand for
substantial performance is delivered to the Executive by the Board, which demand
specifically identifies the material duties that the Board believes that the
Executive has not substantially performed, or (ii) the willful engaging by the
Executive in conduct that is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this Paragraph 6, no act, or
failure to act, on the Executive's part, shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Company, or (iii) the conviction of the Executive of a felony, including the
plea of nolo contendere, or (iv) the commission of any act by the Executive
against the Company that may be construed as the crime of embezzlement, larceny,
and/or grand larceny. Any other provision in this paragraph to the contrary
notwithstanding, the Executive shall not be deemed to have been terminated for
Termination for Cause unless and until the Board duly adopts a resolution by the
affirmative vote of no less than three-quarters (3/4) of the entire membership
of the Board, at a meeting of the Board called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that in the good faith opinion of the Board, the Executive was guilty of conduct
described in Subparagraphs (i), (ii) or (iv) of this paragraph and specifying
the particulars thereof in detail and a certified copy of such resolution is
delivered to the Executive.
7. Non-Disclosure of Confidential Information and Non-Competition
(a) The Executive acknowledges that the Executive has been informed
that it is the policy of the Company to maintain as secret and confidential all
information (i) relating to the products, processes, designs and/or systems used
by the Company and (ii) relating to the customers and employees of the Company
(all such information hereafter referred to as "confidential information"), and
the Executive further acknowledges that such confidential information is of
great value to the Company. The parties recognize that the services to be
performed by the Executive are special and unique, and that by reason of his
employment by the Company, the Executive has and will acquire confidential
information as aforesaid. The parties confirm that it is reasonably necessary to
protect the Company's goodwill, and accordingly the Executive does agree that
the Executive will not directly or indirectly (except where authorized by the
Board of Directors of the Company for the benefit of the Company):
A. At any time during his employment by the Company or after the
Executive ceases to be employed by the Company, divulge to any
persons, firms or corporations, other than the Company (hereinafter
referred to collectively as "third parties"), or use or allow or
cause or authorize any third parties to use, any such confidential
information; and
B. At any time during his employment by the Company and for a period of
one (1) year after the Executive ceases to be employed by the
Company, solicit or cause or authorize directly or indirectly to be
solicited, for or on behalf of the Executive or third parties, any
business from persons, firms, corporations or other entities who
were at any time within one (1) year prior to the cessation of his
employment hereunder, customers of the Company; and
C. At any time during his employment by the Company and for a period of
one (1) year after the Executive ceases to be employed by the
Company, accept or cause or authorize directly or indirectly to be
accepted, for or on behalf of the Executive or third parties, any
business from any such customers of this Company; and
D. At any time during his employment by the Company and for a period of
one (1) year after the Executive ceases to be employed by the
Company, solicit or cause or authorize directly or indirectly to be
solicited for employment, for or on behalf of the Executive or third
parties, any persons (excluding any individuals residing in the same
immediate primary residence as the Executive, and/or the Executive's
immediate family) who were at any time within one year prior to the
cessation of his employment hereunder, employees of the Company; and
E. At any time during his employment by the Company and for a period of
one year after the Executive ceases to be employed by the Company,
employ or cause or authorize directly or indirectly to be employed,
for or on behalf of the Executive or third parties, any such
employees of the Company; and
F. At any time during his employment by the Company and for a period of
one (1) year after the Executive ceases to be employed by the
Company, compete with the Company in any fashion or work for,
advise, be a consultant to or an officer, director, agent or
employee of or otherwise associate with any person, firm,
corporation or other entity which is engaged in or plans to engage
in a business or activity which competes with any business or
activity engaged in by the Company, or which is under development or
in a planning stage by the Company.
Notwithstanding the above, should the Executive not be receiving
compensation from the Company either in a lump sum, or on a regular basis for a
period at least equal to one (1) year, as set forth in this Agreement following
his Date of Termination, then Subparagraphs 7(C), 7(E) and 7(F) shall be
ineffective. Additionally, Subparagraphs 7(C), 7(D), and 7(E) shall be
ineffective as it relates to the spouse of the Executive.
(b) The Executive agrees that, upon the expiration of his employment by
the Company for any reason, the Executive shall forthwith deliver up to the
Company any and all records, drawings, notebooks, keys and other documents and
material, and copies thereof in his possession or under his control which is the
property of the Company or which relate to any confidential information or any
discoveries of the Company.
(c) The Executive agrees that any breach or threatened breach by the
Executive of any provision of this Section 7 shall entitle the Company, in
addition to any other legal remedies available to it, to enjoin such breach or
threatened breach through any court of competent jurisdiction. The parties
understand and intend that each restriction agreed to by the Executive
hereinabove shall be construed as separable and divisible from every other
restriction, and that the unenforceability, in whole or in part, of any
restriction will not affect the enforceability of the remaining restrictions,
and that one or more or all of such restrictions may be enforced in whole or in
part as the circumstances warrant.
(d) For the purposes of this Section, the term "Company" shall mean and
include any and all subsidiaries, parents and affiliated corporations of the
Company in existence from time to time.
8. Change in Control.
(a). Effectiveness of Change in Control Provisions. The terms set forth
in this Paragraph 8, shall be effective should a Change in Control of the
Company, as defined below, have occurred during the term of this Agreement, or
during any extensions thereof, and shall continue in effect for a period of
thirty-six (36) months beyond the month in which such Change in Control
occurred. However, the definitions set forth in Subparagraph 8(c) shall apply
throughout this Agreement.
(b) Change in Control. No benefits shall be payable hereunder unless an
event as set forth below, shall have occurred (hereinafter called a "Change in
Control"):
(i) Any person including any individual, firm, partnership or other
entity, together with all Affiliates and Associates (as defined
by ss.240.12b-2 of the regulations promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
of such person, directly or indirectly acquires securities of
the Company's then outstanding securities representing Twenty
percent (20%) or more of the voting securities of the Company,
such person being hereinafter referred to as an Acquiring Person;
or, but excluding:
(A) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the
Company, or
(B) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of the Company, or
(C) the Company or any Subsidiary of the Company, is or becomes
the Beneficial Owner (as defined in Rule 13d-3 under the
Exchange Act), or
(D) a person who acquires securities of the Company directly from
the Company pursuant to a transaction that has been approved
by a vote of at least a majority of the Incumbent Board, or
(ii) Individuals who, on the date hereof, constitute the Incumbent
Board shall cease for any reason to constitute a majority of the
Board; or
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least 80% of the combined voting power of the voting
securities of the Company or such other surviving entity
outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(c) Definitions. For the purposes of this Agreement, the following
terms shall mean:
(i) "Incumbent Board" shall mean the members of the Board, who were
members of the Board prior to the date of this Agreement.
(ii) "Subsidiary" shall mean any corporation of which an amount of
voting securities sufficient to elect at least a majority of the
directors of such corporation is beneficially owned, directly or
indirectly, by the Company, or is otherwise controlled by the
Company.
(iii) "Good Reason" shall mean, without the Executive's express
written consent, the occurrence of any of the following
circumstances unless, such circumstances are fully corrected
prior to the Date of Termination specified in the Notice of
Termination, as defined in Paragraphs 8(c)(iv) and (v),
respectively, given in respect thereof:
(A) the assignment to the Executive of any duties inconsistent
with the Executive's status as Co-Chairman of the Board,
Co-President, and/or Co-Chief Executive Officer of the
Company, or a substantial adverse alteration in the nature
or status of the Executive's responsibilities from those in
effect immediately prior to a Change in Control of the
Company;
(B) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board
salary reductions similarly affecting all senior executives
of the Company and all senior executives of any person in
control of the Company;
(C) the relocation of the Company's principal executive offices
to a location which is not within the boundaries of New
York, Queens, Nassau and Suffolk (being no further East than
Route 110) counties within the state of New York or the
Company requiring the Executive to be based anywhere other
than the Company's principal executive offices, except for
required travel on the Company's business to an extent
substantially consistent with the Executive's present
business travel obligations, or the adverse and substantial
alteration of the office space or secretarial or support
services provided to the Executive for the performance of
the Executive's duties;
(D) the failure by the Company, without the Executive's consent,
to pay to the Executive any portion of the Executive's
current compensation, except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
person in control of the Company, or the failure by the
Company to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days
of the date such compensation is due;
(E) the failure by the Company to continue in effect any
compensation plan in which the Executive participates that
is material to the Executive's total compensation, including
but not limited to the Company's Incentive Stock Option
Plan, 401(k) plan, cafeteria or salary reduction plan, or
any other or substitute plans adopted prior to a Change in
Control of the Company, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein
(or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
benefits provided and the level of the Executive's
participation relative to other participants, than the
Executive's participation as it existed at the time of a
Change in Control of the Company;
(F) unless such action is pursuant to an across-the-board
reduction in benefits similarly affecting all senior
executives of the Company and all senior executives of any
person in control of the Company, the failure by the Company
to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance,
automobile reimbursement, Company credit card, medical,
health and accident, or disability plans, if any, in which
the Executive was participating at the time of a Change in
Control of the Company, or the taking of any action by the
Company that would directly or indirectly materially reduce
any of such benefits or deprive the Executive of any
material fringe benefit enjoyed by the Executive at the time
of a Change in Control of the Company, or the failure by the
Company to provide the Executive with the number of paid
vacation or sick days to which the Executive is entitled
under this Agreement at the time of a Change in Control of
the Company;
(G) the failure of the Company to obtain a satisfaction
agreement from any successor to assume and agree to perform
this Agreement, as contemplated in Paragraph 5 hereof; or
(H) any purported termination of the Executive's employment
that is not affected pursuant to a Notice of Termination
satisfying the requirements of Subparagraph 8(c)(iv) below
(and, if applicable, the requirement of Paragraph 6 above);
for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's
employment pursuant to this paragraph shall not be affected
by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not
constitute consent to, or a waiver of right with respect to,
any circumstances constituting Good Reason hereunder.
(iv) "Notice of Termination" shall mean a notice that shall indicate
the specific termination provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(v) "Date of Termination" shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is
given (provided, that the Executive shall not return to the
full-time performance of the Executive's duties during such
thirty (30) day period), or (B) if employment is terminated due
to Death of the Executive, upon receipt of Notice of Termination
or (C) if employment is terminated pursuant to any other
provision in this Agreement, the date specified in Notice of
Termination (which, in the case of a termination pursuant to any
provision of this Agreement other than for Disability and Death
shall not be less than fifteen (15) nor more than sixty (60)
days, respectively, from the date such Notice of Termination is
given).
Notwithstanding the above, provided, that if within
fifteen (15) days after any Notice of Termination is given to
the Executive or prior to the Date of Termination (as determined
without regard to this provision) the Executive receiving such
Notice of Termination notifies the Company that a dispute exists
concerning such termination, that during the pendency of any
such dispute, the Company will continue to pay the Executive his
full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary)
and continue the Executive as a participant in all compensation,
benefit, and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved. However, should
final resolution of the dispute result in the Notice of
Termination being affirmed in whatever forum was utilized for
resolving said dispute, then the Executive shall be liable to
the Company for all compensation, benefit, and insurance plans
paid and/or provided to the Executive during the period that the
Notice of Termination was in dispute.
Amounts paid under this subparagraph are prior to all
other amounts due under this Agreement and shall not reduce any
other amounts due under this Agreement, which other amounts
shall be in addition to, and shall not be offset by, amounts due
under this subparagraph.
Anything to the contrary herein notwithstanding,
twenty-four hours after written notice to the Executive, the
Company may relieve the Executive of authority to act on behalf
of, or legally bind, the Company, provided, that any such action
by the Company shall be without prejudice to the Executive's
right to the compensation and benefits provided under this
Agreement and the Executive's right to termination hereunder
under such circumstances and with the compensation and benefits
following such termination as provided in this Agreement.
(vi) "Disability" - If the Executive, due to physical or mental
illness or incapacity, is unable fully to perform his duties
herein for twelve (12) consecutive months.
(vii) "Death" - If the Executive shall die during the term of this
Agreement.
(viii) "Retirement" - Shall mean termination in accordance with the
Company's retirement policy, if any, including early retirement,
generally applicable to its salaried employees or in accordance
with any retirement arrangement established with the Executive's
consent with respect to the Executive.
(d) Termination Following Change in Control. If any of the events
described in Paragraph 8(b) hereof constituting a Change in Control of the
Company shall have occurred, the Executive shall be entitled to the benefits
provided in Paragraph 5 hereof upon the subsequent termination of the
Executive's employment during the term of this Agreement unless such termination
is (i) because of the Executive's Death, Disability or Retirement, (ii) by the
Company for Termination for Cause, or (iii) by the Executive for Good Reason
within three years after a Change in Control shall have occurred.
(e) Notice of Termination. Any purported termination of the Executive's
employment by the Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Paragraph 15
hereof.
9. Successors; Binding Agreement.
(a) Assumption by Successor. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle the Executive to compensation from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive terminates the Executive's employment for Good Reason
following a Change in Control of the Company, except that for purposes of
implementing this paragraph, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid that assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) Successors. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Executive (except by will or intestate
succession) or any successor to the Executive's interest, nor shall it be
subject to attachment, execution, pledge or hypothecation, but this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representative, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there is no such designee, to the Executive's
estate.
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party that are not set forth in
this Agreement. All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Company under
Paragraph 5 shall survive the expiration of the term of this Agreement.
11. Severance and Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or terminated orally. No
change, termination or attempted waiver of any of the provisions hereof shall be
binding unless in writing and signed by the party to be bound; provided,
however, that the Executive's compensation and benefits may be increased at any
time by the Company without in any way affecting any of the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force and effect.
14. Negotiated Agreement. This Agreement has been negotiated and shall
not be construed against the party responsible for drafting all or parts of this
Agreement.
15. Notices. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or received by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service providing for a signed
return receipt, addressed to the Executive at the Executive's home address set
forth in the Company's records and to the Company at the address set forth on
the first page of this Agreement, provided that all notices to the Company shall
be directed to the attention of the Board with a copy to counsel to the Company,
at Muenz & Meritz, P.C., 3 Hughes Place, Dix Hills, New York 11746, Attention:
Lawrence A. Muenz, Esq., or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
16. Governing Law and Resolution of Disputes. All matters concerning
the validity and interpretation of and performance under this Agreement shall be
governed by the laws of the State of New York. Any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Garden City, New York, in accordance with the rules of the
American Arbitration Association ("AAA") then in effect. Any judgment rendered
by the arbitrator as above provided shall be final and binding on the parties
hereto for all purposes and may be entered in any court having jurisdiction;
provided, however, that the Executive shall be entitled to seek specific
performance of the Executive's right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The Company share bear the total cost of filing fees for
the initial Demand of Arbitration, as well as all charges billed by the AAA,
regardless of which party shall commence the action. Each party shall be
responsible for their respective legal fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FIRST PRIORITY GROUP, INC.
By:___________________________ Dated:______________________
Title:________________________
EXECUTIVE
By:___________________________ Dated:______________________
Exhibit 10.2
Board of Directors
First Priority Group, Inc.
270 Duffy Avenue
Hicksville, New York 11801
Re: Subscription to Purchase Shares of
First Priority Group, Inc. Common Stock
Gentlemen:
(1) Subscription:
(A) The undersigned hereby subscribes to purchase _______ shares of the $.015
par value common stock of First Priority Group, Inc. (the "Company") at $.50
per share (the "Shares") and hereby tenders payment in the amount of
$_______ for the subscribed for number of Shares by certified check, bank
draft or wire transfer made payable to Kirlin Securities, Inc., the
Company's Placement Agent, for deposit into a segregated, non-interest
bearing bank account. In connection with this subscription, the undersigned
hereby executes this Subscription Agreement and acknowledges that the
undersigned has received, read, understands and is familiar with:
(i) the Company's Annual Report (Form 10-KSB) filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994;
(ii) Quarterly Reports (Form 10-QSB) filed with the Securities and
Exchange Commission for the quarters ended March 31, 1995, June 30,
1995 and September 30, 1995;
(iii) press releases and any other public information statements
disseminated by the Company for the period since the Company's last
Quarterly Report (Form 10-QSB);
(B) The undersigned further acknowledges that, except as set forth in such
reports made available to the undersigned by the Company, no representations
or warranties have been made to the undersigned, or to the undersigned's
advisors by the Company, or by any person acting on behalf of the Company,
with respect to the offer or sale of the Shares and/or the economic, tax or
any other aspects or consequences of a purchase of the Shares and/or the
investment made thereby. Further, the undersigned has not relied upon any
information concerning the Company, written or oral, other than that
contained in the aforementioned reports.
(C) The undersigned hereby acknowledges that the undersigned has had an
opportunity to ask questions of, and receive answers from persons acting on
behalf of the Company to verify the accuracy and completeness of the
information set forth in such reports prior to sale and the undersigned
hereby acknowledges that the undersigned has not requested the Company to
provide any additional information which the Company possesses or can
acquire without unreasonable effort or expense that is necessary to verify
the accuracy and completeness of the information made available.
(2) Subscriber's Representations and Warranties:
The undersigned subscriber represents and warrants to the Company:
(A) The Shares are being issued to the undersigned by the Company for investment
only, for the undersigned's own account, and are not being purchased by the
undersigned with a view to distribution of such Shares, or for the offer
and/or sale in connection with any distribution thereof. The undersigned is
not participating, directly or indirectly, in an underwriting of the Shares
or in any similar undertaking. The undersigned has no present plans to enter
into any contract, undertaking, agreement, or arrangement which would entail
an underwriting of such Shares or any similar distribution thereof;
(B) The undersigned is an "accredited investor" as that term is defined in Rule
501 of Regulation D promulgated by the Securities and Exchange Commission,
in that
(i) the undersigned is a natural person whose net worth or joint net
worth, taking the undersigned's spouse into consideration, at the time
of the undersigned's purchase of these Shares herein, exceeds One
Million Dollars ($1,000,000), or
(ii) the undersigned is a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same
income level in the current year whose income in each of the last two
years exceeded Two Hundred Thousand Dollars ($200,000); or
(iii) the undersigned is a organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000; or
(iv) the undersigned is an entity in which all of the equity owners are
accredited investors.
(C) All of the representations and information provided in the undersigned's
Confidential Purchaser Questionnaire, and any additional information that
the undersigned has furnished to the Company with respect to the
undersigned's financial position are accurate and complete as of the date of
this Subscription Agreement. If there should be any material adverse change
in any such representations or information prior to the issuance of the
Shares to the undersigned, the undersigned will immediately furnish accurate
and complete information concerning any such material change to the Company.
(D) The undersigned has not been organized or reorganized for the specific
purpose of acquiring the Shares. If the undersigned is a corporation, it has
enclosed with this Subscription Agreement copies of its Articles of
Incorporation, Bylaws and the corporate resolution authorizing the
individual executing the signature page so to act on behalf of the
corporation, all of which have been certified by the Secretary or an
Assistant Secretary of the corporation as being true and correct copies
thereof and in full force and effect. If the undersigned is a partnership,
trust, limited liability company or other entity, the undersigned has
enclosed with this Subscription Agreement a copy of its Partnership
Agreement or Certificate of Formation (or other governing agreement) or a
copy of its Declaration of Trust (or other governing instrument), as the
case may be and, in the case of a limited liability company, resolutions
authorizing the individual executing the signature page so to act on behalf
of the limited liability company. All such documentation is complete,
current and correct as of the date hereof.
(E) The undersigned understands that there is no guarantee of profits or against
loss as a result of purchasing the Shares and the undersigned hereby states
that the undersigned can afford a complete loss of the investment in such
Shares. The undersigned further warrants that the undersigned's present
financial condition is such that the undersigned has no present or perceived
future need to dispose of any portion of the Shares to satisfy any existing
or contemplated undertaking, obligation, need or indebtedness.
Consequently, the undersigned represents that the undersigned has sufficient
liquid assets to pay the full purchase price for the Shares, has adequate
means for providing for the undersigned's current needs and possible
contingencies and has no current need to liquidate any of the undersigned's
investment in the Company.
(F) The undersigned has been represented by such legal counsel and other
advisors, each of whom has been personally selected by the undersigned, as
the undersigned has found necessary to consult, concerning the purchase of
the Shares, and such representation has included an examination of
applicable documents and an analysis of all relevant tax, financial,
recording and securities law aspects of an investment in the Shares. The
undersigned, the undersigned's counsel, advisors, and such other persons
with whom the undersigned has found it necessary or advisable to consult,
have represented to the undersigned that they have knowledge or experience
in business and financial matters to evaluate the information set forth in
the aforementioned reports, press releases and/or other public information
statements issued by the Company, the risks associated with this investment,
and to make an informed investment decision with respect hereto. To the
extent that the undersigned has found it necessary to consult with any such
counsel and/or advisors concerning the purchase of the Shares, the
undersigned has relied upon their advice and counsel in making such
investment decision.
(G) the undersigned is a resident of the jurisdiction set forth below the
undersigned's name on the signature page of this Subscription Agreement.
(3) Company's Representations and Warranties.
The Company represents and warrants to the undersigned subscriber:
(A) the information contained in the reports, press releases, and other public
information statements distributed by the Company as described in paragraph
(1) of this Subscription Agreement contain no untrue statements of material
fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading;
(B) as of the date of the Subscription Agreement, there have been no material,
adverse changes in the Company's operations or financial condition since the
applicable dates of the aforementioned reports, press releases, and other
public information distributed by the Company.
(C) the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. The Company has all
requisite legal power and authority to own or lease and operate its
properties and assets and to carry on its business as now conducted.
(D) the execution and delivery of this Agreement by the Company and the
performance of the obligations of the Company contemplated hereby have been
duly and validly authorized by all necessary corporate action. The Company
has the right, power and authority to enter into and perform this Agreement.
This Agreement constitutes the valid and binding obligations of the Company,
enforceable against the Company in accordance with its respective terms,
except to the extent that its enforceability may be subject to limitations
imposed by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity) and to the
effect of applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws of general application relating to or affecting creditors'
rights, including, without limitation, the effect of statutory or other laws
regarding fraudulent conveyances and preferential transfers.
(E) upon issuance with the terms of this Agreement, the Shares will be duly and
validly issued and will be fully paid and nonassessable, and the holders
thereof will not be subject to personal liability by reason of being such
holders, the Shares are not subject to preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company.
(F) the execution and delivery of this Agreement by the Company and the
performance of the obligations of the Company contemplated hereby do not and
will not, with or without the giving of notice or the lapse of time or both,
(1) result in a breach of, of conflict with any terms and provisions of, or
constitute a default under, or result in the creation, modification,
termination, or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any material
indenture, mortgage, deed of trust, loan or credit agreement, or any other
material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company is
a party or by which the Company may be bound or to which any of the
material, property or assets of the Company is subject; (2) result in any
violation of the provision of the Certificate of Incorporation or the
By-laws of the Company; (3) violate any existing applicable law, rule,
regulation, judgement, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business; or (4) have a material adverse effect on any
material permit, license, certificate, registration, approval, consent,
license or franchise concerning the Company.
(4) Securities Law Restrictions on Transfers.
The undersigned understands that the offer and/or sale of the Shares to
the undersigned is not required to be registered under the Securities Act of
1933, as amended (the "Securities Act") by reason of a specific exemption for
the offer and sale of the Shares under the provisions of Regulation D
promulgated by the Securities and Exchange Commission. The undersigned further
understands that, except as provided in paragraph (5) below, the Company has not
agreed to register the Shares for distribution and/or resale in accordance with
the provisions of the Securities Act or the Securities Exchange Act of 1934 (the
"Exchange Act"), or to register the Shares for distribution and/or resale under
any applicable state securities laws. Hence, it is the undersigned's
understanding that by virtue of the provisions of certain rules respecting
"restricted securities" promulgated under such federal and/or state laws, unless
such secondary distribution and/or resale is registered as provided in paragraph
(5) below, the Shares which the undersigned is purchasing by virtue of this
Subscription Agreement must be held indefinitely and may not be sold,
transferred, pledged, hypothecated or otherwise encumbered for value, unless and
until such secondary distribution and/or resale is subsequently registered under
such federal and/or state securities laws or unless an exemption from
registration is available, in which case the undersigned still may be limited as
to the amount of the Shares that may be sold, transferred, pledged and/or
encumbered for value.
The undersigned, therefore, agrees that any certificates evidencing the
Shares received by the undersigned by virtue of this Subscription Agreement
shall be stamped or otherwise imprinted with a conspicuous legend to give notice
of the securities law transfer restrictions set forth herein and the undersigned
acknowledges that the Company may cause stop transfer orders to be placed on the
undersigned's account. The legend shall be in substantially the following form:
NO SALE, OFFER TO SELL, OR TRANSFER OF THE COMMON SHARES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE PROPOSED
TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
IS IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
(5) Registration Rights.
(A) "Piggy-Back" Registration.
(i) Grant of Right. The holders of these Shares shall have the right for a
period of seven years from the date this Subscription Agreement is
accepted by the Company to include all or any part of these Shares
(collectively, the "Registrable Securities") as part of any
registration of securities filed by the Company (other than in
connection with a transaction contemplated by Rule 145(a) promulgated
under the Act or pursuant to Form S-8 or any equivalent form);
provided, however, that if, in the written opinion of the Company's
managing underwriter or underwriters, if any, for such offering (the
"Underwriter"), the inclusion of the Registrable Securities, when added
to the securities being registered by the Company or the selling
stockholder(s), will exceed the maximum amount of the Company's
securities which can be marketed (a) at a price reasonably related to
their then current market value, or (b) without materially and
adversely affecting the entire offering, the Company shall nevertheless
register all or any portion of the Registrable Securities required to
be so registered but such Registrable Securities shall not be sold by
the holders until 90 days after the registration statement for such
offering has become effective or for such longer period as the managing
underwriter may require; and provided further that, if any securities
are registered for sale on behalf of other stockholders in such
offering and such stockholders have not agreed to defer such sale until
the expiration of such period, the number of securities to be sold by
all stockholders in such public offering during such period shall be
apportioned pro rata among all such selling stockholders, including all
holders of the Registrable Securities, according to the total amount of
securities of the Company owned by said selling stockholders, including
all holders of the Registrable Securities.
(ii) Terms. The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the holders shall pay any
and all underwriting commissions and the expenses of any legal counsel
selected by the holders to represent them in connection with the sale
of the Registrable Securities. In the event of such a proposed
registration, the Company shall furnish the then holders of outstanding
Registrable Securities with not less than thirty days written notice
prior to the proposed date of filing of such registration statement.
Such notice to the holders shall continue to be given for each
registration statement filed by the Company until such time as all of
the Registrable Securities have been sold by the holder. The holders
of the Registrable Securities shall exercise the "piggy-back" rights
provided for herein by giving written notice, within twenty days of the
receipt of the Company's notice of its intention to file a registration
statement. The Company agrees to use its best efforts to cause the
registration statement that is filed to become effective and to qualify
or register the Registrable Securities in such states as are reasonably
requested by the holders; provided however, that in no event shall the
Company be required to register the Registrable Securities in a state
in which such registration would cause (a) the Company to be obligated
to register or become licensed to do business in such state, or (b) the
principal stockholders of the Company to be obligated to escrow their
shares of capital stock of the Company. The Company shall cause any
registration statement filed pursuant to the above "piggyback" rights
to remain effective for at least nine months from the date that the
holders of the Registrable Securities are first given the opportunity
to sell all of such securities.
(B) General Terms.
(i) Indemnification.
(a) The Company shall indemnify the holder(s) of the Registrable
Securities to be sold pursuant to any registration statement hereunder and each
person, if any, who controls such holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such registration statement. The holder(s) of the Registrable
Securities to be sold pursuant to such registration statement, and their
successors and assigns, shall severally, and not jointly, indemnify the Company,
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such holders, or their successors or assigns, in
writing, for specific inclusion in such registration statement.
(b) If any action is brought against a party hereto, ("Indemnified
Party") in respect of which indemnity may be sought against the other party
("Indemnifying Party"), such Indemnified Party shall promptly notify
Indemnifying Party in writing of the institution of such action and Indemnifying
Party shall assume the defense of such action, including the employment and fees
of counsel reasonably satisfactory to the Indemnified Party, and the payment of
actual expenses. Such Indemnified Party shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the employment of
such counsel shall have been authorized in writing by Indemnifying Party in
connection with the defense of such action, or (ii) Indemnifying Party shall not
have employed counsel to defend such action, or (iii) such Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to it which may result in a conflict between the Indemnified Party and
Indemnifying Party (in which case Indemnifying Party shall not have the right to
direct the defense of such action on behalf of the Indemnified Party), in any of
which events, the reasonable fees and expenses of not more than one additional
firm of attorneys designated in writing by the Indemnified Party shall be borne
by Indemnifying Party. Notwithstanding anything to the contrary contained
herein, if Indemnified Party shall assume the defense of such action as provided
above, Indemnifying Party shall not be liable for any settlement of any such
action effected without its written consent.
(c) If the indemnification or reimbursement provided for hereunder is
finally judicially determined by a court of competent jurisdiction to be
unavailable to an Indemnified Party (other than as a consequence of a final
judicial determination of willful misconduct, bad faith or gross negligence of
such Indemnified Party), then Indemnifying Party agrees, in lieu of indemnifying
such Indemnified Party, to contribute to the amount paid or payable by such
Indemnified Party (i) in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by Indemnifying Party on
the one hand and by such Indemnified Party on the other or (ii) if (but only if)
the allocation provided in clause (i) of this sentence is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
Indemnifying Party and of such Indemnified Party; provided, however, that in no
event shall the aggregate amount contributed by a holder exceed the profit, if
any, earned by such holder as a result of the sale by him of the underlying
shares of Common Stock.
(d) The rights accorded to Indemnified Parties hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
(ii) Documents Delivered to Holders. The Company shall furnish to each
holder participating in any of the foregoing offerings and to each
Underwriter of any such offering, if any, a signed counterpart,
addressed to such holder or Underwriter, of (a) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under any underwriting agreement
related thereto), and (b) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes
an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities. The
Company shall also deliver promptly to each holder participating in the
offering requesting the correspondence and memoranda described below
and to the managing underwriter copies of all correspondence between
the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each holder and
underwriter to do such investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation
shall include access to books, records and properties and opportunities
to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such holder shall reasonably
request. The cost for the opinion of counsel and the "cold comfort"
letter referenced in this section shall be borne equally by the Company
and the holder.
(6) Notices.
All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly made on the
date of delivery if delivered personally or sent by overnight courier, with
acknowledgment of receipt to the party to whom notice is given, or on the fifth
day after mailing if mailed to the party to whom notice is to be given, by
registered or certified mail, return receipt requested, postage prepaid and
properly addressed as follows: (A) if to the registered holder of these Shares,
to the address of such holder as shown on the books of the Company, or (B) if to
the Company, to its principal executive office.
(7) Successors and Assigns.
This subscription for Shares and Subscription Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to the successors
and assigns of the Company and to the personal and legal representatives of the
undersigned, and to the extent applicable, his spouse or children.
(8) Applicable Law.
Except when an interpretation of a federal and/or state securities laws is
necessary or such law governs, this Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(9) Certification with Respect to Federal Dividend and Interest Payments:
Back-up Withholding
Under penalties of perjury, the undersigned, if he is a national or
resident of the United States, hereby certifies to the Company as follows:
(A) The number shown below is the undersigned's Social Security or other
taxpayer identification number and such number is the undersigned's correct
taxpayer identification number; and
(B) the undersigned is not subject to back-up withholding either because the
undersigned has not been notified by the Internal Revenue Service that the
undersigned is subject to back-up withholding as a result of failure to
report all interest or dividends, or the Internal Revenue Service has
notified the undersigned that the undersigned is no longer subject to
back-up withholding.
IN WITNESS WHEREOF, the undersigned executes and agrees to be bound by
this Subscription Agreement by executing the signature page attached hereon on
the date thereon indicated.
THE INDIVIDUAL SUBSCRIBER SIGNATURE PAGE FOR
FIRST PRIORITY GROUP, INC.
SUBSCRIPTION AGREEMENT
Individual Subscribers Date:____________________
Number of Shares Subscribed for:____________________
Amount of Subscription (at $.50 per share) $_______________
_____________________ __________________________________________
Social Security No. Print Name of Purchaser No. 1
__________________________________________
Signature of Purchaser No. 1
__________________________________________
Street Address
__________________________________________
City, State, Zip Code
_____________________ __________________________________________
Social Security No. Print Name of Purchaser No. 2
__________________________________________
Signature of Purchaser No. 2
__________________________________________
Street Address
__________________________________________
City, State, Zip Code
Manner in which Units are to be held (check one):
__________ Individual Ownership
__________ Tenants-in-Common
__________ Joint Tenant with Right of Survivorship
__________ Community Property
__________ Separate Property
__________ Other (please indicate)
THE ENTITY SUBSCRIBER SIGNATURE PAGE FOR
FIRST PRIORITY GROUP, INC.
SUBSCRIPTION AGREEMENT
Corporate or other Entity Date:_______________
Number of Shares Subscribed for:____________________
Amount of Subscription (at $.50 per share) $_______________
____________________ __________________________________________
Federal ID No. Print Name of Entity
By:_____________________________
Name:
Title:
__________________________________________
Street Address
__________________________________________
City, State, Zip Code
Manner in which Units are to be held (check one):
______________ Partnership
______________ Corporation
______________ Trust
______________ Limited Liability Company
______________ Limited Liability Partnership
______________ Other (please specify)
BY SIGNING BELOW THE UNDERSIGNED ACCEPTS THE FOREGOING SUBSCRIPTION AND AGREES
TO BE BOUND BY ITS TERMS.
FIRST PRIORITY GROUP, INC.
By: ______________________________________ Date of Acceptance:___________
Barry Siegel, Co-Chairman of the Board
Exhibit 10.3
THE REGISTERED HOLDER OF THIS WARRANT, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT
WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT EXCEPT AS HEREIN PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, JULY 31, 2000.
WARRANT
For the Purchase of
750,000 Shares of Common Stock
of
FIRST PRIORITY GROUP, INC.
1. Warrant.
THIS CERTIFIES THAT, in consideration of $10.00 and other good and valuable
consideration, duly paid by or on behalf of Kirlin Securities, Inc. ("Holder"),
as registered owner of this Warrant, to First Priority Group, Inc. ("Company"),
Holder is entitled, at any time or from time to time at or after the dates set
forth below in this Section 1 (each a "Commencement Date"), and at or before
5:00 p.m., Eastern Time, July 31, 2000 ("Expiration Date"), but not thereafter,
to subscribe for, purchase and receive, in whole or in part, up to Seven Hundred
Fifty Thousand (750,000) shares of Common Stock of the Company ("Common Stock").
If the Expiration Date is a day on which banking institutions are authorized by
law to close, then this Warrant may be exercised on the next succeeding day
which is not such a day in accordance with the terms herein. During the period
ending on the Expiration Date, the Company agrees not to take any action that
would terminate the Warrant, except as expressly provided below in this Section
1. This Warrant is initially exercisable at a price per share of Common Stock
purchased set forth below in this Section 1; provided, however, that upon the
occurrence of any of the events specified in Section 6 hereof, the rights
granted by this Warrant, including the exercise price and the number of shares
of Common Stock to be received upon such exercise, shall be adjusted as therein
specified. The term "Exercise Price" shall mean the initial exercise price or
the adjusted exercise price, depending on the context, of a share of Common
Stock. The term "Securities" shall mean the shares of Common Stock issuable upon
exercise of this Warrant.
This Warrant shall become exercisable as follows:
(i) The right to purchase 125,000 shares of Common Stock shall become
exercisable, at an initial exercise price per share of $.25 upon the
execution date of the Investment Banking Agreement dated August 1,
1995 (the "Consulting Agreement") between the Company and Kirlin
Securities, Inc. ("Kirlin");
(ii) The right to purchase 125,000 shares of Common Stock shall become
exercisable, at an initial exercise price per share of $.125, on
December 31, 1995, provided that prior to that date the Company shall
have not terminated the Consulting Agreement with Kirlin;
(iii) The right to purchase 350,000 shares of Common Stock shall become
exercisable, at an initial exercise price per share of $.25, on
January 31, 1997, provided that prior to that date the Company shall
have not terminated the Consulting Agreement;
(iv) The right to purchase 150,000 shares of Common Stock shall become
exercisable, at an initial exercise price of $.375, on July 31, 1996,
provided that prior to that date the Company shall have not terminated
the Consulting Agreement; and
(v) Notwithstanding (b), (c) and (d) above, should Kirlin successfully
complete the sale of 1,000,000 shares of the Company's Common Stock
under the terms set forth in paragraph 4(b) of the Consulting
Agreement, then at that time, the Holder shall have the right to
purchase all of the remaining shares available under this Warrant that
were not yet exercisable.
Once a portion of this Warrant has first become exercisable, it shall
remain exercisable until the Expiration Date.
2. Exercise.
a. Exercise Form. In order to exercise this Warrant, the exercise form
attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price for
the Securities being purchased. If the subscription rights represented
hereby shall not be exercised at or before 5:00 p.m., Eastern time, on
the Expiration Date, this Warrant shall become and be void without
further force or effect, and all rights represented hereby shall cease
and expire.
b. Legend. Each certificate for Securities purchased under this Warrant
shall bear a legend as follows, unless such Securities have been
registered under the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act") or applicable state
law. The securities may not be offered for sale, sold or otherwise
transferred except pursuant to an effective registration statement under
the Act, or pursuant to an exemption from registration under the Act and
applicable state law."
c. Conversion Right.
i. Determination of Amount. In lieu of the payment of the Exercise
Price in cash, the Holder shall have the right (but not the
obligation) to convert this Warrant, in whole or in part, into Common
Stock ("Conversion Right"), as follows: upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without
payment by the Holder of any of the Exercise Price) that number of
shares of Common Stock equal to the quotient obtained by dividing (x)
the "Value" (as defined below) of the portion of the Warrant being
converted at the time the Conversion Right is exercised by (y) the
Market Price. The "Value" of the portion of the Warrant being
converted shall equal the remainder derived from subtracting (a) the
Exercise Price multiplied by the number of shares of Common Stock
being converted from (b) the Market Price of the Common Stock
multiplied by the number of shares of Common Stock being converted.
As used herein, the term "Market Price" at any date shall be deemed
to be the last reported sale price of the Common Stock on such date,
or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately
preceding three trading days, in either case as officially reported
by the principal securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed
or admitted to trading on any national securities exchange or if any
such exchange on which the Common Stock is listed is not its
principal trading market, the last reported sale price as furnished
by the National Association of Securities Dealers, Inc. ("NASD")
through the Nasdaq National Market or SmallCap Market, or, if
applicable, the OTC Bulletin Board, or if the Common Stock is not
listed or admitted to trading on any of the foregoing markets, or
similar organization, as determined in good faith by resolution of
the Board of Directors of the Company, based on the best information
available to it.
ii. Exercise of Conversion Right. The Conversion Right may be
exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by
delivering the Warrant with a duly executed exercise form attached
hereto with the conversion section completed to the Company,
exercising the Conversion Right and specifying the total number of
shares of Common Stock the Holder will purchase pursuant to such
conversion.
3. Transfer.
a. General Restrictions. The registered Holder of this Warrant, by its
acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Warrant to anyone except upon compliance with, or
pursuant to exemptions from, applicable securities laws. In order to make
any permitted assignment, the Holder must deliver to the Company the
assignment form attached hereto duly executed and completed, together
with this Warrant and payment of all transfer taxes, if any, payable in
connection therewith. The Company shall immediately transfer this Warrant
on the books of the Company and shall execute and deliver a new Warrant
or Warrants of like tenor to the appropriate assignee(s) expressly
evidencing the right to purchase the aggregate number of shares of Common
Stock purchasable hereunder or such portion of such number as shall be
contemplated by any such assignment.
b. Restrictions Imposed by the Securities Act. This Warrant and the
Securities underlying this Warrant shall not be transferred unless and
until (i) the Company has received the opinion of counsel for the Holder
that such securities may be sold pursuant to an exemption from
registration under the Act, and applicable state law, the availability of
which is established to the reasonable satisfaction of the Company, or
(ii) a registration statement relating to such Securities has been filed
by the Company and declared effective by the Securities and Exchange
Commission and compliance with applicable state law.
4. New Warrants to be Issued.
a. Partial Exercise or Transfer. Subject to the restrictions in Section
3 hereof, this Warrant may be exercised or assigned in whole or in part.
In the event of the exercise or assignment hereof in part only, upon
surrender of this Warrant for cancellation, together with the duly
executed exercise or assignment form and funds (or conversion equivalent)
sufficient to pay any Exercise Price and/or transfer tax, the Company
shall cause to be delivered to the Holder without charge a new Warrant of
like tenor to this Warrant in the name of the Holder evidencing the right
of the Holder to purchase the aggregate number of shares of Common Stock
and Warrants purchasable hereunder as to which this Warrant has not been
exercised or assigned.
b. Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant and of reasonably satisfactory indemnification, the Company shall
execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute a substitute contractual
obligation on the part of the Company.
5. Registration Rights.
a. "Piggy-Back" Registration.
i. Grant of Right. The Holders of this Warrant shall have the right
for a period of seven years from the Commencement Date to include all
or any part of this Warrant and the shares of Common Stock underlying
this Warrant (collectively, the "Registrable Securities") as part of
any registration of securities filed by the Company (other than in
connection with a transaction contemplated by Rule 145(a) promulgated
under the Act or pursuant to Form S-8 or any equivalent form);
provided, however, that if, in the written opinion of the Company's
managing underwriter or underwriters, if any, for such offering (the
"Underwriter"), the inclusion of the Registrable Securities, when
added to the securities being registered by the Company or the
selling stockholder(s), will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably
related to their then current market value, or (ii) without
materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Registrable
Securities required to be so registered but such Registrable
Securities shall not be sold by the Holders until 90 days after the
registration statement for such offering has become effective or for
such longer period as the managing underwriter may require; and
provided further that, if any securities are registered for sale on
behalf of other stockholders in such offering and such stockholders
have not agreed to defer such sale until the expiration of such
period, the number of securities to be sold by all stockholders in
such public offering during such period shall be apportioned pro rata
among all such selling stockholders, including all holders of the
Registrable Securities, according to the total amount of securities
of the Company owned by said selling stockholders, including all
holders of the Registrable Securities.
ii. Terms. The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the Holders shall pay any
and all underwriting commissions and the expenses of any legal
counsel selected by the Holders to represent them in connection with
the sale of the Registrable Securities. In the event of such a
proposed registration, the Company shall furnish the then Holders of
outstanding Registrable Securities with not less than thirty days
written notice prior to the proposed date of filing of such
registration statement. Such notice to the Holders shall continue to
be given for each registration statement filed by the Company until
such time as all of the Registrable Securities have been sold by the
Holder. The holders of the Registrable Securities shall exercise the
"piggy-back" rights provided for herein by giving written notice,
within twenty days of the receipt of the Company's notice of its
intention to file a registration statement. The Company agrees to use
its best efforts to cause the registration statement that is filed to
become effective and to qualify or register the Registrable
Securities in such states as are reasonably requested by the holders;
provided however, that in no event shall the Company be required to
register the Registrable Securities in a state in which such
registration would cause (i) the Company to be obligated to register
or become licensed to do business in such state, or (ii) the
principal stockholders of the Company to be obligated to escrow their
shares of capital stock of the Company. The Company shall cause any
registration statement filed pursuant to the above "piggyback" rights
to remain effective for at least nine months from the date that the
Holders of the Registrable Securities are first given the opportunity
to sell all of such securities.
b. General Terms.
i. Indemnification.
(a) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement hereunder and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such registration statement. The Holder(s) of the Registrable
Securities to be sold pursuant to such registration statement, and their
successors and assigns, shall severally, and not jointly, indemnify the Company,
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, in
writing, for specific inclusion in such registration statement.
(b) If any action is brought against a party hereto, ("Indemnified
Party") in respect of which indemnity may be sought against the other party
("Indemnifying Party"), such Indemnified Party shall promptly notify
Indemnifying Party in writing of the institution of such action and Indemnifying
Party shall assume the defense of such action, including the employment and fees
of counsel reasonably satisfactory to the Indemnified Party, and the payment of
actual expenses. Such Indemnified Party shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the employment of
such counsel shall have been authorized in writing by Indemnifying Party in
connection with the defense of such action, or (ii) Indemnifying Party shall not
have employed counsel to defend such action, or (iii) such Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to it which may result in a conflict between the Indemnified Party and
Indemnifying Party (in which case Indemnifying Party shall not have the right to
direct the defense of such action on behalf of the Indemnified Party), in any of
which events, the reasonable fees and expenses of not more than one additional
firm of attorneys designated in writing by the Indemnified Party shall be borne
by Indemnifying Party. Notwithstanding anything to the contrary contained
herein, if Indemnified Party shall assume the defense of such action as provided
above, Indemnifying Party shall not be liable for any settlement of any such
action effected without its written consent.
(c) If the indemnification or reimbursement provided for hereunder is
finally judicially determined by a court of competent jurisdiction to be
unavailable to an Indemnified Party (other than as a consequence of a final
judicial determination of willful misconduct, bad faith or gross negligence of
such Indemnified Party), then Indemnifying Party agrees, in lieu of indemnifying
such Indemnified Party, to contribute to the amount paid or payable by such
Indemnified Party (i) in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by Indemnifying Party on
the one hand and by such Indemnified Party on the other or (ii) if (but only if)
the allocation provided in clause (i) of this sentence is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
Indemnifying Party and of such Indemnified Party; provided, however, that in no
event shall the aggregate amount contributed by a Holder exceed the profit, if
any, earned by such Holder as a result of the exercise by him of the Warrants
and the sale by him of the underlying shares of Common Stock.
(d) The rights accorded to Indemnified Parties hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
ii. Exercise of Warrants. Nothing contained in this Warrant shall be
construed as requiring the Holder(s) to exercise their Warrants
prior to or after the initial filing of any registration statement
or the effectiveness thereof.
iii. Documents Delivered to Holders. The Company shall furnish to
each Holder participating in any of the foregoing offerings and to
each Underwriter of any such offering, if any, a signed counterpart,
addressed to such Holder or Underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under any
underwriting agreement related thereto), and (ii) a "cold comfort"
letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in
such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of such accountants'
letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities. The
Company shall also deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described
below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and
all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and permit each
Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties
and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and
at such reasonable times and as often as any such Holder shall
reasonably request. The cost for the opinion of counsel and the "cold
comfort" letter referenced in this section shall be borne equally by
the Company and the Holder.
6. Adjustments.
a. Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of shares of Common Stock underlying this Warrant
shall be subject to adjustment from time to time as hereinafter set
forth:
i. Stock Dividends - Recapitalization, Reclassification, Split-Ups.
If, after the date hereof, and subject to the provisions of Section
6.2 below, the number of outstanding shares of Common Stock is
increased by a stock dividend on the Common Stock payable in shares
of Common Stock or by a split-up, recapitalization or
reclassification of shares of Common Stock or other similar event,
then, on the effective date thereof, the number of shares of Common
Stock issuable on exercise of this Warrant shall be increased in
proportion to such increase in outstanding shares.
ii. Aggregation of Shares. If after the date hereof, and subject to
the provisions of Section 6.3, the number of outstanding shares of
Common Stock is decreased by a reverse stock split, consolidation,
combination or reclassification of shares of Common Stock or other
similar event, then, upon the effective date thereof, the number of
shares of Common Stock issuable on exercise of this Warrant shall be
decreased in proportion to such decrease in outstanding shares.
iii. Adjustments in Exercise Price. Whenever the number of shares of
Common Stock purchasable upon the exercise of this Warrant is
adjusted, as provided in this Section 6.1, the Exercise Price shall
be adjusted (to the nearest cent) by multiplying such Exercise Price
immediately prior to such adjustment by a fraction (x) the numerator
of which shall be the number of shares of Common Stock purchasable
upon the exercise of this Warrant immediately prior to such
adjustment, and (y) the denominator of which shall be the number of
shares of Common Stock so purchasable immediately thereafter.
iv. Replacement of Securities upon Reorganization, etc. In case of
any reclassification or reorganization of the outstanding shares of
Common Stock other than a change covered by Section 6.1.1 hereof or
which solely affects the par value of such shares of Common Stock, or
in the case of any merger or consolidation of the Company with or
into another corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does not
result in any reclassification or reorganization of the outstanding
shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an
entirety or substantially as an entirety in connection with which the
Company is dissolved, the Holder of this Warrant shall have the right
thereafter (until the expiration of the right of exercise of this
Warrant) to receive upon the exercise hereof, for the same aggregate
Exercise Price payable hereunder immediately prior to such event, the
kind and amount of shares of stock or other securities or property
(including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution
following any such sale or other transfer, by a Holder of the number
of shares of Common Stock of the Company obtainable upon exercise of
this Warrant immediately prior to such event; and if any
reclassification also results in a change in shares of Common Stock
covered by Sections 6.1.1 or 6.1.2, then such adjustment shall be
made pursuant to Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4.
The provisions of this Section 6.1.4 shall similarly apply to
successive reclassifications, reorganizations, mergers or
consolidations, sales or other transfers.
v. Changes in Form of Warrant. This form of Warrant need not be
changed because of any change pursuant to this Section, and Warrants
issued after such change may state the same Exercise Price and the
same number of shares of Common Stock and Warrants as are stated in
the Warrants initially issued pursuant to this Agreement. The
acceptance by any Holder of the issuance of new Warrants reflecting a
required or permissive change shall not be deemed to waive any rights
to a prior adjustment or the computation thereof.
b. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock upon the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the
intent of the parties that all fractional interests shall be eliminated
by rounding any fraction up or down to the nearest whole number of shares
of Common Stock or other securities, properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon exercise of this Warrant, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable
upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all
shares of Common Stock and other securities issuable upon such exercise shall
be duly and validly issued, fully paid and non-assessable and not subject to
preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges (or, if applicable
on Nasdaq) on which the Common Stock is then listed and/or quoted.
8. Certain Notice Requirements.
a. Holder's Right to Receive Notice. Nothing herein shall be construed
as conferring upon the Holders the right to vote or consent or to receive
notice as a stockholder for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the
Company. If, however, at any time prior to the expiration of the Warrants
and their exercise, any of the events described in Section 8.2 shall
occur, then, in one or more of said events, the Company shall give
written notice of such event at least fifteen days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend,
distribution, conversion or exchange of securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation,
winding up or sale. Such notice shall specify such record date or the
date of the closing of the transfer books, as the case may be.
b. Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following
events: (i) if the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company, or (ii) the Company shall offer to all the
holders of its Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for shares of
capital stock of the Company, or any option, right or warrant to
subscribe therefor, or (iii) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation or merger) or
a sale of all or substantially all of its property, assets and business
shall be proposed.
c. Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to
Section 6 hereof, send notice to the Holders of such event and change
("Price Notice"). The Price Notice shall describe the event causing the
change and the method of calculating same and shall be certified as being
true and accurate by the Company's Chief Financial Officer.
d. Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed
to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgment of receipt to the party to
which notice is given, or on the fifth day after mailing if mailed to the
party to whom notice is to be given, by registered or certified mail,
return receipt requested, postage prepaid and properly addressed as
follows: (i) if to the registered Holder of this Warrant, to the address
of such Holder as shown on the books of the Company, or (ii) if to the
Company, to its principal executive office.
9. Miscellaneous.
a. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Warrant.
b. Entire Agreement. This Warrant (together with the other agreements
and documents being delivered pursuant to or in connection with this
Warrant) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements
and understandings of the parties, oral and written, with respect to the
subject matter hereof.
c. Binding Effect. This Warrant shall inure solely to the benefit of
and shall be binding upon, the Holder and the Company and their
respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Warrant or
any provisions herein contained.
d. Governing Law; Submission to Jurisdiction. This Warrant shall be
governed by and construed and enforced in accordance with the law of the
State of New York, without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out
of, or relating in any way to this Warrant shall be brought and enforced
in the courts of the State of New York or of the United States of America
for the Southern District of New York, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company hereby
waives any objection to such exclusive jurisdiction and that such courts
represent an inconvenient forum. Any process or summons to be served upon
the Company may be served by transmitting a copy thereof by registered or
certified mail, return receipt requested, postage prepaid, addressed to
it at the address set forth in Section 8 hereof. Such mailing shall be
deemed personal service and shall be legal and binding upon the Company
in any action, proceeding or claim. The Company agrees that the
prevailing party(ies) in any such action shall be entitled to recover
from the other party(ies) all of its reasonable attorneys' fees and
expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
e. Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Warrant shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect
the validity of this Warrant or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of
this Warrant. No waiver of any breach, non-compliance or non-fulfillment
of any of the provisions of this Warrant shall be effective unless set
forth in a written instrument executed by the party or parties against
whom or which enforcement of such waiver is sought; and no waiver of any
such breach, non-compliance or non-fulfillment shall be construed or
deemed to be a waiver of any other or subsequent breach, non-compliance
or non-fulfillment.
f. Execution in Counterparts. This Warrant may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement, and
shall become effective when one or more counterparts has been signed by
each of the parties hereto and delivered to each of the other parties
hereto.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer as of the 1st day of August, 1995.
FIRST PRIORITY GROUP, INC.
By: _______________________________
Name: Barry Siegel
Title: Co-Chairman
Form to be used to exercise Warrant:
First Priority Group, Inc.
270 Duffy Avenue
Hicksville, New York 11801
Date: _________________
The undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase ____ shares of Common Stock of First Priority
Group, Inc. and hereby makes payment of $____________ (at the rate of $_________
per share of Common Stock) in payment of the Exercise Price pursuant thereto.
Please issue the Common Stock as to which this Warrant is exercised in
accordance with the instructions given below.
or
The undersigned hereby elects irrevocably to convert its right
to purchase ___________ shares of Common Stock purchasable under the within
Warrant into _________ shares of Common Stock of _______________________________
(based on a "Market Price" of $______ per share of Common Stock). Please issue
the Common Stock in accordance with the instructions given below.
_____________________________________
Signature
______________________________
Signature Guaranteed
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ___________________________________________________________
(Print in Block Letters)
Address ________________________________________________________
Form to be used to assign Warrant:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer
of the within Warrant):
FOR VALUE RECEIVED,____________________________________ does
hereby sell, assign and transfer unto_______________________ the right to
purchase _______________________ shares of Common Stock of _____________________
("Company") evidenced by the within Warrant and does hereby authorize the
Company to transfer such right on the books of the Company.
Dated: ___________________, 199__
_____________________________________
Signature
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever.
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 779,074
<SECURITIES> 0
<RECEIVABLES> 1,069,786
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,859,800
<PP&E> 253,951
<DEPRECIATION> 137,912
<TOTAL-ASSETS> 1,986,414
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0
0
<COMMON> 92,258
<OTHER-SE> 797,604
<TOTAL-LIABILITY-AND-EQUITY> 1,986,414
<SALES> 10,150,086
<TOTAL-REVENUES> 10,157,640<F1>
<CGS> 0
<TOTAL-COSTS> 8,332,487
<OTHER-EXPENSES> 1,593,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 231,873
<INCOME-TAX> 1,539
<INCOME-CONTINUING> 230,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,334
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>
Includes interest and other income of $7,554.
</TABLE>
