<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-21467
FIRST PRIORITY GROUP, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-2750412
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
51 East Bethpage Road
Plainview, New York 11803
(Address of principal executive offices)
(516) 694-1010
(Issuer's telephone number)
Check whether the issuer (1) has 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 14, 1997: 6,900,550 shares of common stock
Transitional Small Business Format (check one)
Yes[ ] No[ X ]
1
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Part I Financial Information
ITEM 1. Financial Statements
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
------------------
ASSETS
Current Assets
Cash and cash equivalents $1,144,116
Accounts receivable, less allowances for
doubtful accounts of $22,500 1,937,387
Inventories 178,118
Prepaid expenses and other current assets 46,062
------------------
Total current assets 3,305,683
Property and equipment, net of accumulated 463,312
depreciation of $236,984
Security deposits and other non-current assets 27,738
------------------
Total assets $3,796,733
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $50,004
Accounts payable and accrued expenses 1,684,334
------------------
Total current liabilities $1,734,338
Long term debt less current portion 79,161
------------------
Total liabilities 1,813,499
------------------
Shareholders' equity:
Common stock, $.015 par value, authorized
20,000,000 shares, issued 7,167,217 shares 107,508
Additional paid-in capital 3,827,393
Accumulated deficit (1,861,667)
------------------
2,073,234
Less common stock held in treasury, at
cost, 266,667 shares (90,000)
------------------
Total shareholders' equity 1,983,234
------------------
Total liabilities and shareholders'
equity $3,796,733
==================
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 3,412,788 $ 3,599,722 $ 10,289,922 $ 9,650,709
Cost of revenue 2,801,553 2,992,848 8,508,593 7,930,763
------------ ------------ ------------- ------------
Gross profit 611,235 606,874 1,781,329 1,719,946
Operating expenses:
Selling, general and administrative 730,718 475,024 2,011,747 1,422,635
------------ ------------ ------------- ------------
Income (loss) from operations (119,483) 131,850 (230,418) 297,311
------------ ------------ ------------- ------------
Other income (expense):
Interest and other income 11,047 6,502 31,985 22,287
Interest expense (6,663) -- (8,393) --
------------ ------------ ------------- ------------
Total other income 4,384 6,502 23,592 22,287
------------ ------------ ------------- ------------
Income (loss) from continuing operations
before income taxes (115,099) 138,352 (206,826) 319,598
Provision for income taxes -- 1,500 -- 3,000
------------ ------------ ------------- ------------
Income (loss) from continuing operations (115,099) 136,852 (206,826) 316,598
Discontinued operations (Note 3):
Loss from operations of discontinued division (256,511) -- (926,709) --
(No income tax benefit) ------------ ------------ ------------- ------------
Net income (loss) $ (370,610) $ 136,852 $ (1,133,535) $ 316,598
============ ============ ============= ============
Earnings (loss) per common share
(continuing operations) $ (0.02) $ 0.02 $ (0.03) $ 0.04
Earnings (loss) per common share
(discontinued operations) (0.04) -- (0.15) --
------------ ------------ ------------- ------------
Net earnings (loss) per common share $ (0.06) $ 0.02 $ (0.18) $ 0.04
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($1,133,535) $316,598
------------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Depreciation and amortization 58,967 28,305
Provision for bad debt 11,000
Changes in assets and liabilities
Accounts receivable 68,248 (163,433)
Inventories 140,280 (6,521)
Prepaid expenses and other current assets 275,836 (4,374)
Security deposit and other non-current assets 19,575 (175)
Accounts payable and accrued
expenses (28,468) 118,195
------------- -------------
Total adjustments 545,438 (28,003)
------------- -------------
Net cash provided by (used in) operating
activities (588,097) 288,595
------------- -------------
Cash flows from investing activities,
additions to property and equipment (380,455) (78,597)
------------- -------------
Cash flows from financing activities:
Repayment under line of credit financing (600,000)
Proceeds from bank loan 150,000
Principal payments on bank loan (20,835) (37,264)
Proceeds from issuance of common stock 1,900,000
------------- -------------
Net cash provided by (used in) financing activities 1,429,165 (37,264)
Net increase in cash and cash equivalents 460,613 172,734
Cash and cash equivalents at beginning of period 683,503 779,074
------------- -------------
Cash and cash equivalents at end of period $1,144,116 $951,808
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRST PRIORITY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. UNAUDITED FINANCIAL STATEMENTS
The information contained in the condensed consolidated financial
statements for the period ended September 30, 1997 is unaudited, but includes
all adjustments, consisting of normal recurring adjustments, which First
Priority Group (the "Company") considers necessary for a fair presentation of
the company's financial position, results of operations, and cash flows.
The financial statements and notes are presented as permitted by Form
10-QSB, and may not contain certain information included in the Company's annual
financial statements and notes. These interim financial statements should be
read in conjunction with the Company's annual financial statements and notes
which are included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996. Interim results for the three months and nine months
may not necessarily be indicative of the Company's annual results for fiscal
year 1997.
2. BUSINESS OF THE COMPANY
The Company, a New York corporation formed on June 28, 1985, is engaged
in automotive fleet management and administration of automotive repairs for
businesses, insurance companies and members of affinity groups. The 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 approximately 8,000 repair facilities nationwide.
The Company's office is located at 51 East Bethpage Road, Plainview,
New York 11803 and its telephone number is (516) 694-1010.
3. DISCONTINUED OPERATIONS
In September 1996, the Company's FPG Direct division began to market
consumer goods through direct mailing efforts to credit card customers of major
oil companies and retail department stores. During the second quarter of 1997,
the Company decided to discontinue its FPG Direct division. While the division
has not participated in any new promotions since June 1997, it is continuing to
fill orders (to reduce existing inventory), pay vendors, and collect
receivables. The Company does not expect to incur any additional losses during
the remaining phase out period. Losses from this division are not expected to
provide any income tax benefit during 1997, but such losses may be used to
offset income in subsequent years.
5
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4. LINES OF CREDIT
In order to provide for the working capital needs of FPG Direct and
provide liquidity for its ongoing growth, the Company entered into a short-term
line of credit agreement with its bank, providing for financing up to $750,000
through June 30, 1998. As of September 30, 1997 the Company had no borrowings
from the bank under the line of credit. Effective October 16, 1997, the Company
canceled its line of credit.
5. PRIVATE PLACEMENTS
In May 1997, the Company raised $400,000 through the private placement
issuance of 266,667 shares at $1.50 per share. Several of the Company's
executives and employees accounted for a majority of the shares issued in the
private placement. In August 1997, the Company raised an additional $1,500,000
through the private placement issuance of 750,000 units at $2.00 per unit,
consisting of one share of common stock and a warrant to purchase one share of
common stock at $2.00 per share. A private investment group and one executive
participated in this placement.
6. EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE
The computation of earnings (loss) per common and per common equivalent
share is based upon the weighted average number of outstanding common shares
during the period plus, when applicable, the dilutive effect of stock options
and warrants.
The number of common and common equivalent shares utilized in the per
share computations were 6,411,420 and 7,870,350 for the three months ended
September 30, 1997 and 1996, respectively and 6,133,944 and 7,788,453 for the
nine months ended September 30, 1997 and 1996, respectively.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The Company, prior to September 1996, conducted business in only one
segment, automotive fleet management and related operations ("Automotive
Management.") In September 1996, the Company commenced a new line of business,
under the name FPG Direct. FPG Direct marketed consumer goods to the credit card
base of customers of oil companies and retail department stores through direct
mailing efforts throughout the United States. See discussion below regarding the
discontinuance of the operations of FPG Direct.
Automotive Management
For the three months ended September 30, 1997, revenues from services
of the automotive management operations were $3,412,788, as compared to
$3,599,722 for the three months ended September 30, 1996, representing a
decrease of $186,934, or 5.2%. For the nine months ended September 30, 1997
revenues from services were $10,289,922 as compared to $9,650,709 for the nine
months ended September 30, 1996, representing an increase of $639,213, or 6.6%.
Although revenue increased for the nine month period, the Company experienced a
decrease in revenue for the three month period as a result of a reduced number
of claims received by its National Fleet Service subsidiary.
The direct cost of services related to such revenue (principally
charges from automotive repair facilities) was $2,801,553 and $2,992,848 for the
three month periods ended September 30, 1997 and 1996, respectively, resulting
in a decrease of $191,295 or 6.4%. The direct cost of services for the nine
months ended September 30, 1997 and 1996, respectively, were $8,508,593 and
$7,930,763 resulting in an increase of $577,830 or 7.3%. Changes in cost of
revenue for both reporting periods were directly proportional to the changes in
revenue for the corresponding periods.
The gross profit percentage was 17.9% and 17.3% for the three and nine
months ended September 30, 1997, respectively, as compared to 16.9% and 17.8%
for the same periods of 1996. The increased three month gross profit percentage
is mainly due to the restructuring of fees for new and renewing client
contracts. The nine month decrease of gross profit is a result of fee-based
programs offered previously to large companies at a reduced rate as an incentive
to sign long term contracts. This business practice has reduced the Company's
attrition rate.
Total operating expenses were $730,718 for the three months ended
September 30, 1997, as compared to $475,024 for the three months ended September
30, 1996, representing an increase of $255,694, or 53.8%. For the nine months
ended September 30, 1997, total operating expenses were $2,011,747, an increase
of $589,112 or 41.4% from total operating expenses of $1,422,635 for the same
period of 1996. The increases in operating expense are primarily attributable to
increased payroll and related expenses specifically associated with hiring
senior
7
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executives to head the Affinity and Direct Appraisal and Repair Programs (DARP)
business groups as well as increases in other general and administrative
expenses required to service the Company's group automotive management
operations. Operating expenses were also adversely affected by non-recurring
costs associated with the relocation of the Company's corporate offices.
As a result of the foregoing, the net loss from continuing operations
for the three months ended September 30, 1997 was $115,099 ($.02 per share) as
compared to net income of $136,852 ($.02 per share) for the comparable three
months in 1996. For the nine months ended September 30, 1997, the net loss from
continuing operations was $206,826 ($.03 per share) as compared to net income of
$316,598 ($.04 per share) for the same period in 1996.
FPG Direct (Discontinued operations)
For the three and nine months ended September 30, 1997, FPG Direct had
net sales of $216,397 and $2,511,186 and cost of goods sold of $117,697 and
$1,187,782, resulting in a three month gross profit of $98,700 (45.6%) and a
nine month gross profit of $1,323,404 (52.7%), respectively. For the three
months ended September 30, 1997, FPG Direct incurred selling, general, and
administrative expenses of $355,211, resulting in a net loss of $256,511 ($.04
per share). For the nine months ended September 30, 1997, FPG direct incurred
selling, general, and administrative expenses of $2,217,114 and interest expense
of $32,999 resulting in a nine month net loss of $926,709 ($.15 per share).
Sales related to the promotions completed and ongoing during this year did not
meet expectations, resulting in losses for the division. As a result of these
losses, management discontinued the operations of this division. FPG Direct has
not participated in any new promotions since June 1997.
The Company had previously anticipated no further losses for this
division, however, certain revenue did not materialize as a result of shipping
delays caused by the Montgomery Ward petition for reorganization under Chapter
11 of the U.S. Bankruptcy Code, therefore, unexpected losses resulted during the
third quarter. The Company does not expect to incur any additional losses during
the remaining phase out period.
Liquidity and Capital Resources
As of September 30, 1997, the Company had cash and cash equivalents of
$1,144,116. Working capital of the Company as of September 30, 1997, was
$1,571,345. The Company's operating activities used $588,097 of cash in the
first three quarters of 1997. The Company believes its existing capital
resources and cash flow from operations will be sufficient to meet the Company's
cash and capital requirements for at least the next twelve months.
In order to provide for the working capital needs of FPG Direct and
provide liquidity for its ongoing growth, the Company entered into a short-term
line of credit agreement with its bank, providing for financing up to $750,000
through June 30, 1998. As of September 30, 1997 the Company had no borrowings
from the bank under the
8
<PAGE>
line of credit. Effective October 16, 1997, the Company canceled its line of
credit.
In April 1997 the Company relocated its corporate offices to a 12,000
square foot facility in Plainview, New York. The company incurred significant
expenditures representing moving costs, new furniture and equipment, and
leasehold improvements. In April, 1997, the Company obtained a term loan of
$150,000 from its bank to finance some of these costs. On October 16, 1997, the
Company repaid the balance of the loan. As of November 14, 1997, the Company has
no outstanding debt with the bank.
In May 1997, the Company raised $400,000 through the private placement
issuance of 266,667 shares at $1.50 per share. Several of the Company's
executives and employees accounted for a majority of the shares issued in the
private placement. In August 1997 the Company raised an additional $1,500,000
through the private placement issuance of 750,000 units at $2.00 per unit,
consisting of one share of common stock and a warrant to purchase one share of
common stock at $2.00 per share. A private investment group and one executive
participated in this placement.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Form of subscription agreement executed by subscribers to the Company's
private placement dated August 26, 1997.
10.2 Form of warrant granted to subscribers to the Company's private
placement dated August 26, 1997.
(b) Reports on Form 8-K
None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FIRST PRIORITY GROUP, INC.
Date: November 14, 1997 By: /s/ Michael Karpoff
-------------------
Michael Karpoff
President and
Co-Chief Executive Officer
Date: November 14, 1997 By: /s/ Barry Siegel
----------------
Barry Siegel
Chairman of the Board
of Directors, Secretary and
Co-Chief Executive Officer
10
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.1 Form of subscription agreement executed by subscribers to 12
the Company's private placement dated August 26, 1997.
10.2 Form of warrant granted to subscribers to the Company's 31
private placement dated August 26, 1997.
</TABLE>
11
<PAGE>
Exhibit 10.1
Board of Directors
First Priority Group, Inc.
51 East Bethpage Road
Plainview, New York 11803
Re: Subscription to Purchase Shares of First Priority Group, Inc.
Common Stock and Warrant
Gentlemen:
(1) Subscription:
(A) The undersigned hereby subscribes to purchase ________ of units, or
_______. Each unit shall consist of one (1) share of the $.015 par
value common stock ("Common Stock") of First Priority Group, Inc. (the
"Company") and a warrant, as hereinafter described (the "Warrant") (the
"Unit"). The per Unit offering price shall be $2.00 and the
undersigned hereby tenders payment in the amount of_________________
for the subscribed for number of Units by certified check, bank draft
or wire transfer made payable to Muenz & Meritz, P.C. for deposit into
its Master Escrow Attorney Trust Account, into a segregated,
non-interest bearing bank account.
Each Warrant entitles the holder to purchase one (1) share of Common
Stock for $2.00 during the two year period commencing on the date the
Company issues the Common Stock purchased under this Subscription
Agreement (the "Agreement"). The Warrant will contain the other terms
and conditions set forth in the form of Warrant attached hereto as
Exhibit A.
In connection with this subscription, the undersigned hereby executes this
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 (the "Commission") for the
fiscal year ended December 31, 1996;
(ii) Quarterly Reports (Form 10-QSB) filed with the Commission for
the quarters ended March 31, 1997 and June 30, 1997;
(iii) press releases and any other public information statements
disseminated by
12
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the Company for the period since the Company's last Quarterly
Report (Form 10-QSB);
(iv) all responses either in writing or orally to the undersigned's
Due Diligence Request List provided to the Company's counsel
on July 22, 1997 by __________________ and supplemented on
August 1, 1997.
(v) all responses either in writing or orally by:
(a) Barry Siegel and Michael Karpoff, officers of the Company;
(b) Barry Spiegel, an executive of the Company;
(c) Lawrence A. Muenz, member of Muenz & Meritz, P.C., the
Company's outside counsel;
(d) Paul J. DiStefano, Harbor Capital Advisors, Inc., the
Company's financial advisor; and
(e) Stephen Wolpow, member of Nussbaum Yates & Wolpow, P.C.,
the Company's independent accounting firm; to the
undersigned's oral and/or written inquiries.
(B) The undersigned further acknowledges that, except as set forth herein
or contemplated by Section 10 and except as set forth in such reports
and information made available to the undersigned by the Company or the
parties set forth above, 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 Units and/or the economic, tax or any other
aspects or consequences of a purchase of the Units and/or the
investment made thereby. Further, the undersigned has not relied upon
any information concerning the Company, written or oral, other than
that set forth herein, contemplated by Section 10, or contained in the
aforementioned reports and information.
(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.
(D) The undersigned hereby acknowledges that the undersigned has been
informed of the Consolidated Merchandising, Inc. receivable owed to the
Company related to the FPG Direct program with Montgomery Wards.
(2) Subscriber's Representations and Warranties:
The undersigned subscriber represents and warrants to the Company:
13
<PAGE>
(A) The Units 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 Common
Stock, 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 Common Stock 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 Common Stock 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 Commission, which shall
mean any person who comes within any of the following categories:
(i) Any bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined
in section 3(a)(5)(A) of the Act whether acting in its
individual or fiduciary capacity; any broker or dealer
registered pursuant to section 15 of the Securities Exchange
Act of 1934 (the "Exchange Act"); any insurance company as
defined in section 2(13) of the Act; any investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of
that Act; Small Business Investment Company licensed by the
U.S. Small Business Administration under section 301(c) or (d)
of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions for the benefit of its employees,
if such plan has total assets in excess of $5,000,000;
employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in section
3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors;
(ii) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any 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;
(iv) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(v) Any natural person who had an individual income in excess of
$200,000 in each of the
14
<PAGE>
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;
(vi) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in ss.230.506(b)(2)(ii); and
(vii) Any 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 Agreement. If there should be any
material adverse change in any such representations or information
prior to the issuance of the Units 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 Units. If the undersigned is a corporation,
it has enclosed with this 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 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 Units and the undersigned
hereby states that the undersigned can afford a complete loss of the
investment in such Units. 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 Units 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 Units, has adequate means for providing for
the undersigned's current needs and possible contingencies
15
<PAGE>
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 Units. The undersigned has such knowledge or
experience in business and financial matters to evaluate the
information set forth in the aforementioned reports, press releases
and/or other information communicated by the Company to the
undersigned and 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 Units, 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 Agreement.
(3) Company's Representations and Warranties.
The Company, by accepting this subscription, represents and warrants to
the undersigned subscriber as follows:
(A) the information contained in the reports, press releases, and other
information distributed and/or communicated by the Company as described
in paragraph (1) of this 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 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 information distributed and/or communicated 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 is
duly qualified or registered and in good standing as a foreign
corporation duly authorized to do business in each jurisdiction in
which the failure to so qualify would have a material adverse effect on
the Company's operations or financial condition. 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.
16
<PAGE>
(D) the execution and delivery of this Agreement and the Warrants by the
Company and the performance of the obligations of the Company
contemplated hereby and thereby 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 and the
Warrants. This Agreement and the Warrants have been duly executed and
delivered by the Company. This Agreement and the Warrants constitute
the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms.
(E) the Common Stock to be issued hereunder and under the Warrants is duly
authorized, and upon issuance pursuant to the terms of this Agreement,
or the Warrant, as the case may be, 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
Common Stock is 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 and the Warrants by the
Company and the performance of the obligations of the Company
contemplated hereby and thereby 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, 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 any 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.
(G) as of the date of this Agreement, to the best knowledge of the Company,
the Company does not have any liabilities that are reasonably likely to
have, individually or in the aggregate, a material adverse effect on
the Company, other than those liabilities which are accrued or reserved
against in the balance sheets of the Company as of December 31, 1995
and 1996 and June 30, 1997. To the best knowledge of the Company, the
Company has not incurred or paid any liability since June 30, 1997,
except for such liabilities incurred or paid in the ordinary course of
business consistent with past business practice.
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<PAGE>
(H) as of the date of this Agreement, all of the agreements and contracts
to which it or one of its subsidiaries is a party are valid, binding
and fully enforceable against the respective parties thereto in
accordance with their respective terms.
(I) as of the date of this Agreement, the Company is in material compliance
with all requirements of law, Federal, state and local, and all
requirements of governmental bodies or agencies having jurisdiction
over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, and, without limiting the
foregoing, the Company has paid all monies and obtained all material
licenses, permits certificates, and authorizations needed or required
for the conduct of its business and the use of its properties and the
premises occupied by it. The Company has properly filed all material
reports and other documents required to be filed with any Federal,
state, local and foreign government or subdivision or agency thereof.
The Company has not received any notice that it has not heretofore
complied with, from any Federal, state, or municipal authority or any
insurance or inspection body that any of its properties, facilities,
equipment, or business procedures or practices, fail to comply with any
applicable law, ordinance, regulation, building, or zoning law, or
requirement of any public authority or body, that should the Company
not comply with, would have a material adverse effect upon the Company.
(4) Securities Law Restrictions on Transfers.
The undersigned understands that the offer and/or sale of the Units 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 Units under the provisions of Regulation D promulgated
by the Commission. The undersigned further understands that, except as provided
in paragraph (5) below, the Company has not agreed to register the Units 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 Units 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 Units which the
undersigned is purchasing by virtue of this 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 Common Stock that may
be sold, transferred, pledged and/or encumbered for value.
The undersigned, therefore, agrees that any certificates evidencing the
Common
18
<PAGE>
Stock received by the undersigned and the Common Stock issuable under the
Warrant, by virtue of this 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.
(5) Registration Rights.
(A) "Piggy-Back" Registration.
(i) Grant of Right. The holders of these Units shall have the
right for a period of seven years from the date this Agreement
is accepted by the Company to include all or any part of
these Units or the shares of Common Stock comprising the Units
(collectively, the "Registrable Securities") as part of any
registration of securities filed by the Company (other than on
Form S-4, 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
19
<PAGE>
holders of the Registrable Securities.
(ii) Terms. 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.
(iii) Expenses. The Company will pay all Registration Expenses
in connection with each registration of Registrable
Securities. The term "Registration Expenses" means all
expenses incident to the Company's performance of or
compliance with the provisions of this Section 5, including,
without limitation, (i) all registration, filing and NASD
fees, (ii) all fees and expenses of complying with securities
or blue sky laws, (iii) all word processing, duplicating and
printing expenses, (iv) messenger and delivery expenses, (v)
the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of
any special audits or "cold comfort" letters required by or
incident to such performance and compliance, (vi) the
reasonable fees and disbursements (not to exceed $5,000) of
any one counsel retained by the holders of Registrable
Securities requesting inclusion of such securities in a
registration statement, (vii) premiums and other costs of
policies of insurance against liabilities arising out of the
public offering of the Registrable Securities being registered
(if the Company elects to obtain any such insurance), and
(viii) any fees and disbursements of underwriters customarily
paid by issuers or sellers of securities, but excluding (x)
underwriting discounts and commissions applicable to sales of
Registrable Securities and (x) the fees and disbursements in
excess of $5,000 of legal counsel retained by the holders.
(iv) Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of
any Registrable Securities under the Securities Act as
provided in this Section 5, the Company will as expeditiously
as possible:
(a) prepare and as soon thereafter as
possible file with the Commission the requisite
registration statement to effect such registration
and thereafter use its best efforts to cause such
registration statement to become effective, provided
that before filing such registration statement or any
amendments thereto, the Company
20
<PAGE>
will furnish to counsel selected by the holders whose
Registrable Securities are to be included in such
registration copies of all such documents proposed to
be filed, which documents will be subject to the
review of such counsel;
(b) prepare and file with the Commission such
amendments and supplements to such registration
statement and the prospectus used in connection
therewith as may be necessary to keep such
registration statement continuously effective for a
period of either (A) not less than nine months from
the date that the holders of Registrable Securities
are first given the opportunity to sell all
Registrable Securities held by them, and to comply
with the provisions of the Securities Act with
respect to the disposition of all securities covered
by such registration statement until such time as all
of such securities have been disposed of in
accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such
registration statement;
(c) furnish to each seller of Registrable Securities
covered by such registration statement such number of
conformed copies of such registration statement and
of each such amendment and supplement thereto (in
each case including all exhibits, but only one copy
thereof to each such seller), such number of copies
of the prospectus contained in such registration
statement (including each preliminary prospectus and
any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities
Act, and such other documents in order to facilitate
the disposition of the Registrable Securities owned
by such seller, as such seller may reasonably
request;
(d) use its best efforts to register or qualify such
Registrable Securities and other securities covered
by such registration statement under such other
securities or blue sky laws of such jurisdictions as
each seller thereof shall reasonably request, to keep
such registration or qualification in effect for so
long as such registration statement remains in
effect, and to take any other action which may be
reasonably necessary or advisable to enable such
seller to consummate the disposition in such
jurisdictions of the securities owned by such seller,
provided that the Company shall not for any such
purpose be required to (A) qualify generally to do
business as a foreign corporation in any jurisdiction
where it would not otherwise be required to qualify
but for the requirements of this subdivision (d);
21
<PAGE>
(e) use its best efforts to cause all Registrable
Securities covered by such registration statement to
be registered with or approved by such other
governmental agencies or authorities as may be
necessary by virtue of the business and operations of
the Company to enable the seller or sellers thereof
to consummate the disposition of such Registrable
Securities;
(f) notify each seller of Registrable Securities
covered by such registration statement, at any time
when a prospectus relating thereto is required to be
delivered under the Securities Act, upon discovery
that, or upon the discovery of the happening of any
event as a result of which, the prospectus included
in such registration statement, as then in effect,
includes an untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading in the light of the
circumstances under which they were made, and at the
request of any such seller, promptly prepare and
furnish to such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material
fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading in the light of the
circumstances under which they were made; and
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission,
and make available to its security holders, as soon
as reasonably practicable, an earnings statement
satisfying the provisions of Section 11(a) of the
Securities Act, and will furnish to each such seller
of Registrable Securities at least five business days
prior to the filing thereof a copy of any amendment
or supplement to such registration statement or
prospectus and shall not file any such amendment or
supplement to which any such seller or any Requesting
Holder shall have reasonably objected on the grounds
that such amendment or supplement does not comply in
all material respects with the requirements of the
Securities Act or of the rules or regulations
thereunder; and
(h) in connection with the preparation and filing of
each registration statement under the Securities Act
pursuant to this Agreement, to give the holders of
Registrable Securities registered under such
registration statement, and their counsel and
accountants the opportunity to participate in the
preparation of such registration
22
<PAGE>
statement, each prospectus included therein or filed
with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such
access to its books and records and such
opportunities to discuss the business of the Company
with its officers and the independent public
accountants who have certified its financial
statements as shall be necessary, in the opinion of
such holders' counsel, to conduct a reasonable
investigation within the meaning of the Securities
Act.
(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,
provided that in no event shall any holder of the Registrable Securities be
required to indemnify the Company of any loss, claim, damage, expense or
liability which exceeds the amount of the actual net proceeds received by such
holder pursuant to the sale of Registrable Securities pursuant to 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
23
<PAGE>
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
and, to the extent required, one firm to act as local counsel in each
jurisdiction in which an action is pending, 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 of
Registrable Securities exceed the net proceeds, if any, earned by such holder
pursuant to the sale of Registrable Securities pursuant to such registration
statement.
(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
24
<PAGE>
(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 by the Company.
(iii) Rule 144. The Company will file the reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, will upon the request of any holder of
Registrable Securities, make publicly available other information, if such
information is readily available by the Company and can be obtained by the
Company without material expense) and will take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with such requirements.
(iv) Rule 144A. The Company covenants that, except at such times as the
Company is a reporting company under Section 13 or 15(d) of the Exchange Act,
the Company shall upon written request from any holder of Registrable
Securities, provide to any such holder and to any prospective institutional
transferee of Registrable Securities designated by such holder, such financial
and other information as is available to the Company or can be obtained by the
Company without material expense and as such holder may reasonably determine is
required to permit a transfer of such Registrable Securities to comply with the
requirements of Rule 144A promulgated by the Commission under the Securities
Act.
(v) Assignment. This provisions of this Section 5 shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective
25
<PAGE>
successors, and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the holders of Registrable Securities as such shall be for the benefit of and
enforceable by any subsequent holder of any Registrable Securities.
(vi) Nominees for Beneficial Owners. In the event that Registrable
Securities are held by a nominee for the beneficial owner hereof, the beneficial
owner thereof may, at its option and by written notice to the Company, be
treated as the holder of such Registrable Securities for the purposes of any
request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement ( or any determination of any percentage of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement).
(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 the Common
Stock or the Warrant, 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 Units and 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 the undersigned.
(8) Applicable Law.
Except when an interpretation of a federal and/or state securities laws
is necessary or such law governs, this 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
26
<PAGE>
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.
(10) Delivery of Certain Documents by Company. By signing below to accept
this subscription, the Company acknowledges that this subscription is
conditioned upon the undersigned's receipt of, and Company agrees to
deliver to the undersigned:
(A) A favorable opinion, dated the date of the Company's acceptance of this
subscription and addressed to the undersigned, from Muenz & Meritz, P.C. counsel
to the Company, in form and substance satisfactory to the undersigned, as to the
following matters: (i) the due and valid authorization and issuance and the
fully paid and nonassessable nature of the Units, the component parts thereof
and the Securities issuable upon exercise of the Warrants (the "Securities"),
(ii) the absence of any preemptive rights applicable to the issuance of the
Securities, (iii) the absence of any required governmental consents in
connection with the transactions contemplated by this Agreement and the
Warrants, (iv) the absence of conflicts with laws, judicial orders, charter
documents and material contracts in connection with the transactions
contemplated by this Agreement and the Warrants, (v) the due incorporation,
valid existence and good standing of the Company and each of its subsidiaries,
(vi) the due authorization, execution and delivery by the Company of this
Agreement and the Warrants and the binding nature thereof, and (vii) the valid
and binding nature of certain fleet contracts.
(B) A copy of the Company's Certificate of Incorporation, as amended and
certified within ten days preceding the date of the Company's acceptance of this
Agreement by the Secretary of State of the state of the Company's incorporation.
(C) A copy of the Company's By-Laws, as amended, certified as of the date of the
Company's acceptance of this Agreement, by the Secretary of the Company.
(D) A certificate of good standing, issued as of a date within ten days
preceding the date of the Company's acceptance of this Agreement by the
Secretary of State of the state of the Company's incorporation.
(E) A certificate asserting that the information contained in Parts A, B and C
of an attached U.S. Small Business Administration ("SBA") Form 1031 (Portfolio
Financing Report) and in Parts A and B of SBA Form 480 (Size Declaration
Status), in the form attached to such certificate, is true and correct in all
respects.
(11) Covenants.
(A) Use of proceeds. The Company will not use any portion of the proceeds
from the
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<PAGE>
sale of the Securities for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying, within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System (the "Board of Governors"), as
amended from time to time, any "margin stock" as defined in said Regulation U,
or any "margin stock" as defined in Regulation G of the Board of Governors, as
amended from time to time, or for the purpose of purchasing, carrying or trading
in securities within the meaning of Regulation T of the Board of Governors, as
amended from time to time, or for the purpose of reducing or retiring any
indebtedness which both (i) was originally incurred to purchase any such margin
stock or other securities and (ii) was directly or indirectly secured by such
margin stock or other securities. None of the assets of the Company or any
subsidiary of the Company has any present intention of acquiring any such
"margin stock".
(12) Press Releases.
The undersigned and the Company agree to cooperate with respect to all
press releases and other public disclosure regarding the existence of or the
terms of this subscription agreement or the Warrants or the transactions
contemplated hereby and thereby (or regarding any party in respect of any of the
foregoing) (each a "Public Disclosure"), to provide the other parties advance
copies thereof, and to consider in good faith any objection to any proposed
Public Disclosure set forth by the other party. In the event any proposed Public
Disclosure materially differs from any Public Disclosure previously made by any
party hereto, such proposed Public Disclosure must be approved by the other
party hereto, which approval shall not be unreasonably delayed or withheld.
Nothing in this Section 12 shall be deemed to prohibit any party from making any
disclosure which its disclosure counsel deems necessary or advisable in order to
satisfy such party's disclosure obligations imposed by law or the requirements
of any securities exchange on which such party's securities are traded.
IN WITNESS WHEREOF, the undersigned executes and agrees to be bound by
this Agreement by executing the signature page attached hereon on the date
thereon indicated.
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<PAGE>
THE INDIVIDUAL SUBSCRIBER SIGNATURE PAGE FOR
FIRST PRIORITY GROUP, INC.
SUBSCRIPTION AGREEMENT
Individual Subscribers Date:____________________
Number of Units Subscribed for:____________________
Amount of Subscription (at $2.00 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
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__________ Other (please indicate)
THE ENTITY SUBSCRIBER SIGNATURE PAGE FOR
FIRST PRIORITY GROUP, INC.
SUBSCRIPTION AGREEMENT
Corporate or other Entity Date:_______________
Number of Units Subscribed for:____________________
Amount of Subscription (at $2.00 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
______________ Limited 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, Chairman of the Board
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Exhibit 10.2
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, AUGUST 25, 1999
WARRANT
For the Purchase of
_________ Shares of Common Stock
of
FIRST PRIORITY GROUP, INC.
1. Warrant.
THIS CERTIFIES THAT, in consideration of $2.00 per Unit
purchased pursuant to a Subscription Agreement of the date hereof, and other
good and valuable consideration, duly paid by or on behalf of __________ or its
registered assigns ("Holder"), as registered owner of this Warrant, to First
Priority Group, Inc. ("Company"), Holder is entitled, at any time from the date
hereof (the "Commencement Date"), and at or before the earlier to occur of (i)
5:00 p.m., Eastern Time, August 25, 1999 ("Expiration Date"), or (ii) a stated
Redemption Date (hereinafter defined in Section 8) to subscribe for, purchase
and receive, in whole or in part, up to _____________ shares of Common Stock,
$.015 par value, of the Company ("Common Stock"). If the Expiration Date or a
stated Redemption Date is a day on which banking institutions are authorized by
law to close in the State of New York, 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 Section 8. This Warrant is initially exercisable at a price of $2.00 per
share of Common Stock purchased; 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.
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.
2.2 Effect of Exercise. Upon payment of the aggregate Exercise
Price (rounded up to the nearest cent) for the Securities being purchased, the
Company shall, as promptly as practicable thereafter, cause to be executed and
deliver to the Holder, or the Holder's
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nominee, a certificate or certificates representing the aggregate number of
Securities specified in the exercise form. Each stock certificate so delivered
shall be in such denomination as may be requested by the Holder, and shall be
registered in the name of the Holder or such other name as shall be designated
by the Holder. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, execution and delivery of such stock
certificates.
2.3 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"):
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.
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, or destruction
of this Warrant and of reasonably
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satisfactory indemnification, or upon surrender of this
Warrant if mutilated, 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 Securities (collectively, the
"Registrable Securities")s part of any registration
of securities filed by the Company (other than on
Form S-4, 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.
5.1.2 Terms. 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.
5.1.3 Expenses. The Company will pay all Registration
Expenses in connection with each registration of Registrable Securities. The
term "Registration Expenses" means all expenses incident to the Company's
performance of or compliance with the provisions of this Section 5, including,
without limitation, (i) all registration, filing and NASD fees, (ii) all fees
and expenses of complying with securities or blue sky laws, (iii) all word
processing, duplicating and printing expenses, (iv) messenger and delivery
expenses, (v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (vi) the reasonable fees and disbursements (not to exceed $5,000) of
any one counsel retained by the holders of Registrable Securities requesting
inclusion of such securities in a registration statement, (vii) premiums and
other costs of policies of insurance against liabilities arising out of the
public offering of the Registrable Securities being registered (if the Company
elects to obtain any such insurance),
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<PAGE>
and (viii) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding (x) underwriting discounts and
commissions applicable to sales of Registrable Securities and (x) the fees and
disbursements in excess of $5,000 of legal counsel retained by the holders.
5.1.4 Registration Procedures. If and whenever the Company
is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in this Section 5,
the Company will as expeditiously as possible:
(a) prepare and as soon thereafter as possible
file with the Commission the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such registration
statement to become effective, provided that before filing such registration
statement or any amendments thereto, the Company will furnish to counsel
selected by the holders whose Registrable Securities are to be included in such
registration copies of all such documents proposed to be filed, which documents
will be subject to the review of such counsel;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement continuously effective for a period of either (A) not less than nine
months from the date that the holders of Registrable Securities are first given
the opportunity to sell all Registrable Securities held by them, and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable
Securities covered by such registration statement such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits, but only one copy thereof to each
such seller), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, in conformity with the requirements of the Securities Act, and such other
documents in order to facilitate the disposition of the Registrable Securities
owned by such seller, as such seller may reasonably request;
(d) use its best efforts to register or qualify
such Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions as
each seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains in
effect, and to take any other action which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, provided that the Company
shall not for any such purpose be required to (A) qualify generally to do
business as a foreign corporation in any jurisdiction where it would not
otherwise be required to qualify but for the requirements of this subdivision
(d);
(e) use its best efforts to cause all
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities;
(f) notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the discovery of the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
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<PAGE>
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and at the request of any such seller, promptly prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
(g) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act, and
will furnish to each such seller of Registrable Securities at least five
business days prior to the filing thereof a copy of any amendment or supplement
to such registration statement or prospectus and shall not file any such
amendment or supplement to which any such seller or any Requesting Holder shall
have reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities Act
or of the rules or regulations thereunder; and
(h) in connection with the preparation and
filing of each registration statement under the Securities Act pursuant to this
Agreement, to give the holders of Registrable Securities registered under such
registration statement, and their counsel and accountants the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
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,
provided that in no event shall any holder of the Registrable Securities be
required to indemnify the Company of any loss, claim, damage, expense or
liability which exceeds the amount of the actual net proceeds received by such
holder pursuant to the sale of Registrable Securities pursuant to 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,
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<PAGE>
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
and, to the extent required, one firm to act as local counsel in each
jurisdiction in which an action is pending, 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 of
Registrable Securities exceed the net proceeds, if any, earned by such holder
pursuant to the sale of Registrable Securities pursuant to such registration
statement.
(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.
5.2.3 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
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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 by the Company.
5.2.4 Rule 144. The Company will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, will upon the request of any holder of
Registrable Securities, make publicly available other information, if such
information is readily available by the Company and can be obtained by the
Company without material expense) and will take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with such requirements.
5.2.5 Rule 144A. The Company covenants that, except at such
times as the Company is a reporting company under Section 13 or 15(d) of the
Exchange Act, the Company shall upon written request from any holder of
Registrable Securities, provide to any such holder and to any prospective
institutional transferee of Registrable Securities designated by such holder,
such financial and other information as is available to the Company or can be
obtained by the Company without material expense and as such holder may
reasonably determine is required to permit a transfer of such Registrable
Securities to comply with the requirements of Rule 144A promulgated by the
Commission under the Securities Act.
5.2.6 Assignment. This provisions of this Section 5 shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, ans assigns. In addition, and whether or
not any express assignment shall have been made, the provisions of this Warrant
which are for the benefit of the holders of Registrable Securities as such shall
be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities.
5.2.7 Nominees for Beneficial Owners. In the event that
Registrable Securities are held by a nominee for the beneficial owner hereof,
the beneficial owner thereof may, at its option and by written notice to the
Company, be treated as the holder of such Registrable Securities for the
purposes of any request or other action by any holder or holders of Registrable
Securities pursuant to this Warrant ( or any determination of any percentage of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Warrant).
5.3 Evidence of Rights. The Company shall execute and deliver to
any Holder who surrenders this Warrant for exercise a separate agreement or
instrument evidencing the registration rights set forth herein applicable to the
Securities purchased pursuant to such exercise.
6. Adjustments.
6.1 Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall
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(i) establish a record date for the determination of
holders of record of its Common Stock for the purpose of entitling them
to receive a dividend payable in, or other distribution of, Additional
Shares of Common Stock (defined in Section 6.12)
(ii) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into
a smaller number of shares of Common Stock.
then (I) the Securities for which this Warrant is exercisable immediately after
the occurrence of any such event shall be adjusted to equal the number of shares
of Common Stock which a record holder of the same number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the occurrence
of such event would own or be entitled to receive after the happening of such an
event, and (II) the Exercise Price shall be adjusted to equal (x) the Exercise
Price multiplied by the Securities for which this Warrant is exercisable
immediately prior to the adjustment divided by (y) the Securities for which this
Warrant is exercisable immediately after such adjustment.
6.2 Certain Other Distributions. (a) Except as provided in
Section 6.2(b), if at any time the Company shall establish a record date for the
determination of the holders of record of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of
(i) cash,
(ii) any evidence of its indebtedness, any shares of its
Common Stock or any other securities or property of any nature
whatsoever (other than cash or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its Common
Stock or any other securities or property of any nature whatsoever
(other than cash or Additional Shares of Common Stock),
then (I) the Securities for which this Warrant is exercisable shall be adjusted
to equal the product of the Securities for which this Warrant is exercisable
immediately prior to such adjustment by a fraction (x) the numerator of which
shall be the Market Price per share of Common Stock at the date of taking such
record and (y) the denominator of which shall be such Market Price per share of
Common Stock minus the amount allocable to one share of Common Stock of any such
cash so distributable and of the fair value (as determined in good faith by the
Board of Directors of the Company) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (II) the Exercise Price
shall be adjusted to equal (x) the Exercise Price multiplied by the Securities
for which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the Securities for which this Warrant is exercisable immediately
after such adjustment. A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Company to the holders of its Common Stock
of such shares of such other class of stock within the meaning of this Section
6.2 and, if the outstanding shares of the Common Stock shall be changed into a
larger or smaller number of shares of the Common Stock as part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of the Common Stock within the
meaning of Section 6.1.
(b) If at any time the Company shall establish a record date for the
determination of the holders of record of the Common Stock for the purposes of
entitling them to receive any cash dividend or other distribution of property of
any nature whatsoever (other than Additional
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Shares of Common Stock), and the amount of such cash dividend and the fair
market value of any property so distributed, when added to the amount of cash
dividends paid and the fair market value of any property so distributed during
the twelve (12) months prior to the date of such dividend or distribution,
exceeds five percent (5%) of the aggregate Market Price of all of the Common
Stock then outstanding on the Business Day immediately preceding the record date
for such dividend or distribution, each Holder of this Warrant shall be entitled
to participate in such dividend or distribution as if the Holder had already
exercised this Warrant in full, and the Holder shall receive, at the time such
dividend is paid or such property is distributed, for each share of Common Stock
into which this Warrant is then exercisable, the same kind and per-share amount
of cash or other property as is distributed to the holders of Common Stock.
6.3 Issuance of Additional Shares of Common Stock. If at any time
the Company shall (except as hereinafter provided) issue or sell any Additional
Shares of Common Stock either (A) in exchange for consideration in an amount per
Additional Share of Common Stock less than the Exercise Price in effect
immediately prior to such issuance or sale of Additional Shares of Common Stock
or (B) in exchange for consideration in an amount per Additional Share of Common
Stock less than the Market Price in effect immediately prior to such issuance or
sale of Additional Shares of Common Stock, then (I) the Securities for which
this Warrant is exercisable shall be adjusted to equal the number determined by
multiplying the Securities for which this Warrant is exercisable immediately
prior to such adjustment by a fraction (the "Adjustment Fraction"), of which
(x) the numerator shall be the number of shares of
Common Stock outstanding immediately after such issuance or sale of
Additional Shares of Common Stock, and
(y) the denominator shall be (1) the number of shares
of Common Stock outstanding immediately prior to such issuance or sale
of Additional Shares of Common Stock plus (2) the number of shares of
Common Stock which the aggregate amount of consideration, if any,
received by the Company for the total number of such Additional Shares
of Common Stock so issued or sold would purchase at the greater of (I)
the Market Price in effect immediately prior to such issuance or sale
of Additional Shares of Common Stock or (II) the Exercise Price in
effect immediately prior to such issuance or sale of Additional Shares
of Common Stock;
and (II) the Exercise Price shall be adjusted to equal the price obtained by
dividing the Exercise Price immediately prior to such adjustment by the
Adjustment Fraction, provided, that such adjustments shall be made only if the
number of Securities for which this Warrant is exercisable determined from such
adjustment shall be greater than the number of Securities for which this Warrant
is exercisable in effect immediately prior to the issuance of such Additional
Shares of Common Stock. The provisions of this Section 6.3 shall not apply to
any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 6.1 or 6.2. The provisions of this Section 6.3 shall not
apply to any issuance of Additional Shares of Common Stock to any individual who
or entity which, prior to the date of such issuance or pursuant to such
issuance, purchased directly from the Company an amount of shares of Common
Stock which, immediately after such issuance, constituted 10% or more of the
outstanding shares of Common Stock. The provisions of this Section 6.3 shall
also not apply to any issuance of Additional Shares of Common Stock to a person
or entity who, at the time of the issuance, is not (i) other than as set forth
in the immediately preceding sentence, an affiliate of the Company (as that term
is defined under the Securities Act), (ii) an officer or director of the
Company, (iii) an individual related by blood or marriage to a person referred
to in clauses (i) or (ii), or (iv) any entity in which any person referred to in
clauses (i), (ii) or (iii) are the beneficial owners of 10% or more of any class
of securities of or other equity interests in such entity.
6.4 Issuance of Warrants or Other Rights. If at any time the
Company shall establish a record date for the determination of the holders of
record of its Common Stock for the purpose of entitling them to receive a
distribution of, or shall in any manner (whether
39
<PAGE>
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any options, warrants or other rights to subscribe
for or purchase any Additional Share of Common Stock, whether or not the rights
to exchange or convert thereunder are immediately exercisable, and the
consideration received for such options, warrants or other rights shall be less
than the Exercise Price or the Market Price in effect immediately prior to the
time of such issue or sale, then the number of Securities and Exercise Price
shall be adjusted as provided in Section 6.3. No further adjustment of the
number of Securities or Exercise Price shall be made upon the actual issue of
such Common Stock upon exercise of such options, warrants or other rights.
6.5 Other Provisions Applicable to Adjustments Under this Section.
The following provisions shall be applicable to the making of adjustments to the
Securities for which this Warrant is exercisable and the Exercise Price at which
such Warrant Shares may be purchased upon exercise of this Warrant provided for
in this Section 6:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any options, warrants or other
rights to subscribe for or purchase any Additional Shares of Common
Stock shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash
received by the Company therefor, or, if such Additional Shares of
Common Stock are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock are
sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or
accrued dividends and any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with the issuance thereof). To the extent that such issuance
shall be for a consideration other than cash, then except as herein
otherwise expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors of the
Company. In case any Additional Shares of Common Stock or any options,
warrants or other rights to subscribe for or purchase such Additional
Shares of Common Stock shall be issued in connection with any merger in
which the Company issues any securities, the amount of consideration
therefor shall be deemed to be the fair value, as determined in good
faith by the Board of Directors of the Company, of such portion of the
assets and business of the non-surviving corporation as such Board in
good faith shall determine to be attributable to such Additional Shares
of Common Stock, options, warrants or other rights, as the case may be.
The consideration for any Additional Shares of Common Stock issuable
pursuant to any options, warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the Company
for issuing such options, warrants or other rights plus the additional
consideration payable to the Company upon exercise of such options,
warrants or other rights. In case of the issuance at any time of any
Additional Shares of Common Stock in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Company
shall be deemed to have received for such Additional Shares of Common
Stock a consideration equal to the amount of such dividend so paid or
satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 6 shall be made whenever and as often as any event
requiring an adjustment shall occur, except that any adjustment of the
Securities for which this Warrant is exercisable that would otherwise
be required may be postponed (except in the case of a subdivision or
combination of shares of the Common Stock, as provided for in Section
6.1) up to, but not beyond the date of exercise of this Warrant if such
adjustment by itself and with other adjustments not previously made
adds or subtracts less than 1% of the Securities for which this Warrant
is exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made on the earlier of the date of exercise or the date on which such
40
<PAGE>
adjustment, together with other adjustments required by this Section 6
and not previously made, would result in a minimum adjustment. For the
purpose of any adjustment, any event shall be deemed to have occurred
at the close of business on the date of its occurrence.
(c) Fractional Interest. In computing adjustments under this
Section 6, fractional interests in the Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall
establish a record date for the determination of the holders of record
of the Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the establishment of such record date and any
such adjustment previously made in respect thereof shall be rescinded
and annulled.
(e) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Warrant, such
determination may be challenged in good faith by the Holder and any
dispute shall be resolved by a business valuation or appraisal firm of
recognized national standing selected by the Company and acceptable to
the Holder (and if not acceptable to the Holder, an investment banking
firm of recognized national standing selected by the Company and
acceptable to the Holder). The fees of such valuation or appraisal firm
(or investment banker) shall be borne by such Holder if the Company's
calculation is determined to be correct and otherwise shall be borne by
the Company.
(f) Escrow of Property. If the Company shall establish a
record date for the determination of the holders of record of its
Common Stock for the purpose of entitling them to receive any
distribution of any kind of property whatsoever, but prior to the
payment of such distribution the Holder exercises this Warrant, upon
payment of the Exercise Price, such property shall be held in escrow
for the Holder by the Company to be issued to the Holder upon the
occurrence of such distribution and to the extent such distribution
actually takes place. Notwithstanding any other provision to the
contrary herein, if the distribution for which such record date was
established fails to occur or is rescinded, then such escrowed property
shall be returned to the Company.
6.6 Reorganization, Reclassification, Merger or Consolidation. If
the Company shall at any time reorganize or reclassify the outstanding shares of
Common Stock (other than a change in par value, or from no par value to par
value, or from par value to no par value, or as a result of a subdivision or
combination) or consolidate with or merge into another corporation (where the
Company is not the continuing corporation after such merger or consolidation),
the Holder shall thereafter be entitled to receive upon exercise of this Warrant
in whole or in part, the same kind and number of shares of stock and other
securities, cash or other property (and upon the same terms and with the same
rights) as would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger (subject to subsequent adjustments under this Section 6). The Holder
shall pay upon such exercise the Exercise Price that otherwise would have been
payable pursuant to the terms of this Warrant. If any such reorganization,
reclassification, consolidation or merger results in a cash distribution in
excess of the Exercise Price provided by this Warrant, the Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
Price, and in such case the Company shall, upon distribution to such Holder,
consider the Exercise Price to have been paid in full, and in making settlement
to such Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to such Holder. Notwithstanding anything herein to the contrary,
the
41
<PAGE>
Company will not effect any such reorganization, reclassification, merger or
consolidation unless prior to the consummation thereof, the corporation which
may be required to deliver any stock, securities or other assets upon the
exercise of this Warrant shall agree by an instrument in writing to deliver such
stock, cash, securities or other assets to the Holder. A sale, transfer or lease
of all or substantially all of the assets of the Company to another person shall
be deemed a reorganization, reclassification, consolidation or merger for the
foregoing purposes.
6.7 Exceptions to Adjustment of Exercise Price and Securities.
Anything herein to the contrary notwithstanding, the Company shall not make any
adjustment of the Exercise Price or the number of Securities in the case of the
issuance of this Warrant, any adjustment in the number of shares issuable upon
exercise of this Warrant or the exercise price therefor, or the issuance of
shares of Common Stock upon exercise of this Warrant.
6.8 Chief Financial Officer's Opinion. Upon each adjustment of the
Exercise Price and upon each change in the Securities issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder by
reason of other events herein set forth, then and in each such case, the Company
will promptly obtain an opinion of the chief financial officer of the Company,
stating the adjusted Exercise Price and the new number of Securities so
issuable, or specifying the other shares of the Common Stock, securities or
assets and the amount thereof receivable as a result of such change in rights,
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. The Company will promptly mail a copy of
such opinion to the Holder. If the Holder disagrees with such calculation, the
Company agrees to obtain within thirty (30) business days an opinion of a firm
of independent certified public accountants selected by the Company's Board of
Directors and acceptable to the Holder to review such calculation and the
opinion of such firm of independent certified public accountants shall be final
and binding on the parties and shall be conclusive evidence of the correctness
of the computation with respect to any such adjustment of the Exercise Price and
any such change in the number of Securities so issuable. The fees of such
accountants shall be borne by such Holder if the Company's calculation is
determined by such accountants to be correct and otherwise shall be borne by the
Company.
6.9 Company to Prevent Dilution. In case at any time or from time
to time conditions arise by reason of action taken by the Company, which in the
good faith opinion of its Board of Directors or the Holder are not adequately
covered by the provisions of this Section 6, and which might materially and
adversely affect the exercise rights of the Holder, the Board of Directors of
the Company shall appoint such firm of independent certified public accountants
acceptable to the Holder, which shall give such firm's opinion upon the
adjustment, if any, on a basis consistent with the standards established in the
other provisions of this Section 6, necessary with respect to the number of
Securities or the Exercise Price so as to preserve, without dilution (other than
as specifically contemplated by this Warrant), the exercise rights of the
Holder. Upon receipt of such opinion, the Board of Directors of the Company
shall forthwith make the adjustments described therein.
6.10 Notice of Certain Proposed Actions. In the event the Company
shall propose to take any action of the types described in Sections 6.1, 6.4 or
6.6, the Company shall forward, at the same time and in the same manner, to the
Holder such notice, if any, that the Company shall give to the holders of any
class or series of capital stock of the Company. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any such
action.
6.11 Treasury Shares. The sale or other disposition of any Common
Stock theretofore held in the treasury of the Company shall be deemed to be an
issuance thereof.
6.12 Definitions. As used in this Section 6, the following
capitalized terms have the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock
42
<PAGE>
(including options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock, or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, with or without payment of additional consideration in cash or
property, either immediately or upon the occurrence of a specified date or a
specified event) issued by the Company after the date hereof.
"Market Price" means the average of the daily closing prices
of one share of Common Stock for the fifteen (15) consecutive business day
period ending the day before the day in question and such average will be
adjusted for any stock dividend, split, combination or reclassification that
took effect during such fifteen (15) business day period. The "closing price"
for each day shall be determined pursuant to Section 8.1.
6.2 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 the
securities exchanges (or, if applicable on Nasdaq) on which the Common Stock is
then listed and/or quoted.
8. Redemption.
8.1 Commencing on the date hereof, the Company may, subject to the
conditions set forth herein, redeem all, but not less than all of this Warrant
then outstanding at a redemption price of $.01 for each share of the Common
Stock of the Company to which the Holder would then be entitled to purchase upon
exercise of the Warrant being redeemed upon not less than thirty (30) days prior
written notice (the "Redemption Notice") to the holder thereof that the average
closing price of the Common Stock for the 20 consecutive trading days ending
three (3) days prior to the date of the Redemption Notice is at least $6.00,
subject to adjustment for stock dividends, stock splits and other anti-dilution
provisions as provided for under Section 6 herein. For purposes of this Section
8.1, "closing price" at any date shall be deemed to be: (i) the last sale price
regular way as reported on the principal national securities exchange on which
the Common Stock is listed or admitted to trading, or (ii) if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices regular way for the Common Stock as
reported by the Nasdaq National Market or Nasdaq Small Cap Market of the Nasdaq
Stock Market, Inc. ("NASDAQ") or (iii) if the Common Stock is not listed or
admitted for trading on any national securities exchange, and is not reported by
NASDAQ, the average of the closing bid and asked prices in the over-the-counter
market as furnished by the National Quotation Bureau, Inc. or if no such
quotation is available, the fair market value of the Common Stock as determined
in good faith by the Board of Directors of the Company. The Redemption Notice
shall be deemed effective upon mailing and the time of mailing is the "Effective
Date of The Notice". The Redemption Notice shall state a redemption date not
less than thirty (30) days from the Effective Date of the Notice (the
"Redemption Date"). No Redemption Notice shall be
43
<PAGE>
mailed unless all funds necessary to pay for redemption of all Warrants then
outstanding shall have first been set aside by the Company so as to be and
continue to be available therefor. The redemption price to be paid to the
Holders will be $.01 for each share of the Common Stock of the Company to which
the Holder would then be entitled to purchase upon exercise of the Warrant being
redeemed, as adjusted from time to time as provided herein (the "Redemption
Price"). In the event the number of shares of Common Stock issuable upon
exercise of the Warrant being redeemed are adjusted pursuant to Section 6
hereof, then upon each such adjustment the Redemption Price will be adjusted by
multiplying the Redemption Price in effect immediately prior to such adjustment
by a fraction, the numerator of which is the number of shares of Common Stock
issuable upon exercise of the Warrant being redeemed immediately prior to such
adjustment and the denominator of which is the number of shares of Common Stock
issuable upon exercise of such Warrant being redeemed immediately after such
adjustment. The Holder may exercise this Warrant between the Effective Date of
The Notice and the Redemption Date, such exercise being effective if done in
accordance with Section 2 and if the Warrant Exercise Form, with form of
election to purchase duly executed and the Warrant Price, as applicable for this
Warrant subject to redemption for the Securities to be purchased is actually
received by the Company at its office located at 51 East Bethpage Road,
Plainview, New York 11803, or its current executive offices at the time of
exercise, no later than 5:00 P.M. New York Time on the Redemption Date.
8.2 If the Holder does not wish to exercise this Warrant prior to
the Redemption Date, the Holder should mail such Warrant to the Company at its
office located at 51 East Bethpage Road, Plainview, New York 11803, or its
current executive offices at the time of redemption, after receiving the
Redemption Notice required by this Section, then, on and after said Redemption
Date, notwithstanding that any Warrant subject to redemption shall not have been
surrendered for redemption, the obligation evidenced by all Warrants not
surrendered for redemption or effectively exercised shall be deemed no longer
outstanding, and all rights with respect thereto shall forthwith cease and
terminate, except only the right of the holder of each Warrant subject to
redemption to receive the Redemption Price for each share of Common Stock to
which he would be entitled if he exercised the Warrant upon receiving the
Redemption Notice of the Warrant subject to redemption held by the Holder
hereof.
9. Certain Notice Requirements.
9.1 Holder's Right to Receive Notice. Nothing herein shall be
construed as conferring upon the Holder 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 9.2 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.
9.2 Events Requiring Notice. The Company shall be required to give
the notice described in this Section 9 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.
44
<PAGE>
9.3 Transmittal of Notices. All notices, requests, consents and
other communi cations 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.
10. Miscellaneous.
10.1 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.
10.2 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.
10.3 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.
10.4 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 Eastern
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.
10.5 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.
10.6 Avoidance of Certain Actions. The Company will not, by
amendment of its articles of incorporation or through any reorganization,
transfer of assets, consolidation, merger, share exchange, issue or sale of
securities, or otherwise, avoid or take any action which would have the effect
of avoiding the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith in
carrying out all of the provisions of this Warrant and in the taking of all such
actions as may be
45
<PAGE>
necessary or appropriate in order to protect the rights of the Holder against
impairment and in particular, will not cause the par value, if any, of any share
of Common Stock to be or become greater than the then effective Exercise Price.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer as of the 26st day of August, 1997.
FIRST PRIORITY GROUP, INC.
By:
-----------------------------
Name: Barry Siegel
Title: Chairman
46
<PAGE>
WARRANT EXERCISE FORM
First Priority Group, Inc.
51 East Bethpage Road
Plainview, New York 11803
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.
------------------------------
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 ________________________________________________________
47
<PAGE>
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.
48
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778164
<NAME> First Priority Group Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,144,116
<SECURITIES> 0
<RECEIVABLES> 1,937,387
<ALLOWANCES> 22,500
<INVENTORY> 178,118
<CURRENT-ASSETS> 3,305,683
<PP&E> 700,296
<DEPRECIATION> 236,984
<TOTAL-ASSETS> 3,796,733
<CURRENT-LIABILITIES> 1,734,338
<BONDS> 0
0
0
<COMMON> 107,508
<OTHER-SE> 1,875,726
<TOTAL-LIABILITY-AND-EQUITY> 3,796,733
<SALES> 10,289,922
<TOTAL-REVENUES> 10,289,922
<CGS> 0
<TOTAL-COSTS> 8,508,593
<OTHER-EXPENSES> 2,011,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,393
<INCOME-PRETAX> (206,826)
<INCOME-TAX> 0
<INCOME-CONTINUING> (206,826)
<DISCONTINUED> (926,709)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,133,535)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
