As filed with the Securities and Exchange Commission on October ___, 2000
Registration No. ___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FIRST PRIORITY GROUP, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C> <C>
New York 7699 11-2750412
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
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51 East Bethpage Road
Plainview, New York 11803
(516) 694-1010
(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
----------------
Barry Siegel
51 East Bethpage Road
Plainview, New York 11803
(516) 694-1010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
LAWRENCE A. MUENZ, ESQ. SCOTT S. ROSENBLUM, ESQ.
Meritz & Muenz LLP Kramer Levin Naftalis & Frankel LLP
Three Hughes Place 919 Third Avenue
Dix Hills, New York 11746 New York, New York 10022
(631) 242-7384 (212) 715-9100
Approximate date of commencement of proposed sale to the public: At
such time or times as may be determined by the selling shareholders after this
registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the following
box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [X]
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If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed
Number of Shares Maximum Proposed Maximum Amount of
Title of Shares to be Offering Price Aggregate Registration
to be Registered Registered Per Share Offering Price Fee
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<S> <C> <C> <C> <C> <C>
Common stock, par value $.015 per 6,314,896 (1) (2) $ 10,000,000(3) $2,640.00
share
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Common stock, par value $.015 per 581,250 (4) $0.78125 $454,101.56 $119.88
share
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(1) Includes 5,925,926 shares that, in good faith, we anticipate we would
be required to issue to Suerez Enterprises Limited if we were to draw
down the full $10,000,000 of financing available to us pursuant to a
common stock purchase agreement with Suerez. Also includes warrants to
purchase 68,970 shares that we issued to Suerez as an initial
commitment fee under the common stock purchase agreement and warrants
to purchase 320,000 shares of common stock that, in good faith, we
anticipate we would be required to issue to Suerez and our placement
agent, Ladenburg Thalmann & Co. Inc., if we were to draw down the full
$10,000,000 under the common stock purchase agreement. The terms of the
common stock purchase agreement are discussed in more detail beginning
on page 18 of the prospectus underlying this registration statement.
(2) The price per common share will vary based on the volume-weighted
average daily price of our common stock during any draw down period
provided for in the common stock purchase agreement with Suerez. The
purchase price will be equal to 90% of the volume-weighted average
daily price for each trading day within any draw down pricing period.
The agreement allows for up to 12 draws over a period of 12 months for
amounts up to $5,000,000 per draw.
(3) Represents the maximum purchase price that Suerez Enterprises Limited
is obligated to pay us under the common stock purchase agreement. The
maximum net proceeds we can receive is $10,000,000 less a placement fee
payable to our placement agent, Ladenburg Thalmann & Co. Inc. and
$1,500 in escrow fees and expenses per draw down.
(4) These shares may be offered for sale and sold from time to time during
the period the registration statement remains effective by or for the
account of the selling shareholders listed under the section "Other
Selling Shareholders" beginning on page 23 of the prospectus underlying
this registration statement. The selling shareholders listed therein
may acquire these shares upon the exercise of a warrant issued each
selling shareholder pursuant to a private placement of our securities
in December 1997. The exercise price of these warrants is $5.75. These
warrants may be exercised until December 18, 2002.
(5) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, based on the average
of the high and low sales prices for our common stock reported on the
Nasdaq SmallCap Market on Wednesday, October 18, 2000.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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Dated __________, 2000
6,896,146 SHARES
FIRST PRIORITY GROUP, INC.
COMMON STOCK
Of the shares of common stock being registered for resale, 6,314,896
shares may be issued through a common stock purchase agreement with Suerez
Enterprises Limited, as further described in this prospectus, while the
remaining 581,250 shares are being offered by the remaining selling
shareholders, subject to the exercise of warrants underlying those shares.
First Priority's common stock is traded on the Nasdaq SmallCap Market
under the symbol "FPGP".
Investing in First Priority's common stock involves certain risks. See
"Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is ______, 2000.
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TABLE OF CONTENTS
Prospectus Summary.............................................................2
Risk Factors...................................................................3
Use of Proceeds................................................................6
Market for Common Equity.......................................................7
Management's Discussion and Analysis or Plan of Operation......................7
Description of Business........................................................8
Management and Executive Compensation.........................................11
Description of Property.......................................................13
Principal Shareholders........................................................13
Description of Securities.....................................................15
Common Stock Purchase Agreement...............................................18
Selling Shareholders..........................................................23
Plan of Distribution..........................................................25
Legal Proceeding..............................................................28
Interests of Named Experts and Counsel........................................29
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities.............................................................29
Where You Can Find More Information...........................................29
Index to Financial Statements.................................................30
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PROSPECTUS SUMMARY
This summary highlights the information we present more fully in the
rest of this prospectus. You are encouraged to read the entire prospectus
carefully.
First Priority Group, Inc.
We offer vehicle maintenance and repair management services, including
collision and general repair programs, appraisal services, subrogation services,
vehicle salvage, and vehicle rental services. We also administer automotive
collision repair referral services for self-insured fleets, insurance companies,
and affinity group members.
Our offices are located at 51 East Bethpage Road, Plainview, New York
11803 and our telephone number is (516) 694-1010.
The Offering
This prospectus covers up to 6,896,146 shares of our common stock that
we expect will be issued and sold by the selling shareholders identified in this
prospectus. The number of shares subject to this prospectus, if issued and
outstanding on October 12, 2000, would represent approximately 40% out of our
issued and outstanding common stock on that date.
Common Stock Purchase Agreement
On May 31, 2000, we entered into a common stock purchase agreement and
related agreements with Suerez Enterprises Limited, a British Virgin Islands
corporation, in which Suerez agreed to purchase from us from time to time during
the 12 months following the effective date of the agreement, upon our request,
up to $10,000,000 worth of shares of our common stock. (The effective date of
the agreement is defined as the effective date of the registration statement of
which this prospectus is a part.)
The common stock purchase agreement establishes what is sometimes
referred to as an equity draw down facility. In general, the draw down facility
operates as follows: we may request up to 12 draw downs from Suerez, each of
which would require Suerez to purchase shares of our common stock worth a stated
dollar amount, the minimum draw down being $250,000 and the maximum draw down
being the lesser of:
o $5,000,000; and
o an amount equal to 20% of the product of:
(a) the average daily price of our common stock for the 22 trading
days prior to the date of our draw down notice;
and
(b) 22 times the average trading volume of our common stock for
the 45 trading days following the date of our draw down
notice,
but in no event may the maximum draw down amount be less than $1,000,000 per
month.
The number of shares that we issue with respect to any given draw down
will be computed by dividing, for each of the 22 consecutive trading days
following the date of our draw down notice, 1/22 of the draw down amount by 90%
of the average daily price of our common stock on that trading day, and then
adding together the amounts thus computed. If the average daily price on any
given trading day is less than a "threshold price" that we specify, the draw
down will be reduced by 1/22 and the drawn down pricing period will be shortened
by eliminating that day.
In lieu of an initial minimum draw down commitment by us, we issued to
Suerez a warrant to purchase 68,970 shares of common stock, a number computed by
dividing $100,000 by the volume weighted average price of our common stock for
the trading day immediately preceding the closing date of the common stock
purchase agreement. In addition, once we have drawn down more than $5,000,000 in
the aggregate, we are required to grant to Suerez at the time of the closing of
any subsequent drawn down or partial draw down a warrant to purchase a number of
shares equal to 4% of the draw down or partial draw down divided by the
volume-weighted average price of our common stock for the trading day
immediately preceding the date of each
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closing of a draw down. Each warrant we issue will be immediately exercisable
with respect to half of the shares and exercisable six months thereafter with
respect to the remaining half of the shares. Each warrant will have a term of
three years from the date of issuance, and a strike price equal to 150% of the
volume-weighted average price of our common stock for the trading day
immediately preceding the closing date for a draw down.
We also agreed with Suerez that we would file with the Securities and
Exchange Commission a registration statement registering for resale under the
Securities Act shares issued to Suerez pursuant to this transaction and shares
issuable upon exercise of warrants issued to Suerez pursuant to this
transaction. We have performed this obligation by filing the registration
statement of which this prospectus is a part, and the shares being offered in
this prospectus represent shares that we expect to issue to Suerez in connection
with this transaction.
The per-share dollar amount Suerez pays for our common stock for each
draw down includes a 10% discount to the average daily market price of our
common stock for the 22-day period after our draw down request, weighted by
trading volume. There will be deducted from each draw down an escrow agent fee
of $1,500 and a placement fee payable to the placement agent, Ladenburg Thalmann
& Co. Inc., which introduced us to Suerez, equal to 4% of the total amount of
each draw down. Ladenburg Thalmann is a registered broker dealer.
December 1997 Private Placement
In December 1997, we raised $2,330,813 by issuing in a private
placement, at $4.01 per unit, 581,250 units, each consisting of one share of
common stock and a redeemable common stock purchase warrant with an exercise
price of $5.75 per share. In connection with this private placement, we agreed
to use our best efforts to register under the Securities Act of 1933 the shares
and warrants comprising the units, as well as the shares underlying the
warrants, and to do so within the six month following the day that our common
stock is first traded on Nasdaq National Market System or the Nasdaq SmallCap
Market. As two years have passed since this private placement, there is no need
for us to register the shares included in the units and warrants, as they may be
freely sold under Rule 144(k) promulgated under the Securities Act. The shares
underlying the warrants included in the units are not, however, freely tradable,
so we are including them the registration statement of which this prospectus is
a part.
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following risks relating to our business and our common stock,
together with the other information described elsewhere in this prospectus. The
risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties not presently known to us or that we
currently consider immaterial may also impair our operations. If any of the
following risks actually occur, our business, results of operations and
financial condition could be materially affected, the trading price of our
common stock could decline, and you might lose all or part of your investment.
Our Operations
We depend upon independently owned and operated repair shops to provide services
to our clients.
We make available to our clients the services of a network of
independently owned and operated repair shops. They are under contract to us,
but those contracts are terminable at will by either side. Our business could
suffer if a significant number of these repair shops leave our network or fail
to provide the high quality of service our customers require.
A relatively small number of clients are responsible for a substantial portion
of our business.
We have customers that control large fleets, a large number of insured
drivers, or a large number of participants in our programs. One indication of
this is that in 1999, one of our customers accounted for 10% of our business.
Losing one of these major clients could hurt our business significantly.
We may not be indemnified for all losses resulting from our vehicle repair
business.
We require that all repair shops in our network indemnify us from
claims related to their negligent acts or breach of their agreement with us,
maintain a specified amount of liability insurance coverage, and name us as an
additional insured under their liability policy. In addition, we are covered by
our own liability insurance policy. This coverage may not, however, cover all
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liabilities to which we may be subject, and our business could suffer if we need
to draw significant funds from operating revenue to pay claims that are not
covered by insurance or are in excess of insurance coverage.
Our business would likely suffer if we lose senior management or other key
personnel.
Our success depends to a significant extent on our retaining the
services of our senior management and other key personnel, particularly Barry
Siegel, our Chairman and Chief Executive Officer, and Gerald Zutler, our
President and Chief Operating Officer. Our business would likely suffer if for
any reason we failed to retain the services of Mr. Siegel or Mr. Zutler and
failed to engage a suitable replacement.
We may not be able to recruit and retain the personnel we need to succeed.
We may grow significantly over a short period of time, and if we do we
will need to attract, retain, and motivate skilled managerial employees. For
example, we do not currently have on our management team an expert on the
insurance industry. If the part of our business that serves the insurance
industry were to increase significantly, we would need to quickly hire such an
expert and may be unable to do so. In addition, if our revenues were to increase
significantly we would need to hire a treasurer or cash flow manager.
Competition for such employees is fierce, and we may experience difficulty in
hiring and retaining such employees. If we do not succeed in meeting our
personnel needs, our business will suffer.
Senior management will be able to exercise significant control over our
operations.
As of October 12, 2000, Barry Siegel, our Chairman of the Board and
Chief Executive Officer, beneficially owned and controlled the vote of
approximately 18.3% of the outstanding shares of our common stock. In addition,
Barry J. Spiegel, a director and the President of our Affinity Group Services
Division, beneficially owns and controls the vote of approximately 7.8% of the
outstanding shares of our common stock. This concentration of ownership, which
is not subject to any voting restrictions, could limit the price that investors
might be willing to pay for common stock. In addition, Mr. Siegel and Mr.
Speigel are in a position to impede transactions that may be desirable for other
shareholders. For example, they could make it more difficult for anyone to take
control of us.
The market price of our common stock could be adversely affected by future sales
of substantial amounts of common stock by existing shareholders.
The market price of our common stock could be adversely affected by
future sales of substantial amounts of common stock by existing shareholders.
Michael Karpoff, a former director and employee of First Priority, jointly owns,
together with Patricia Rothbardt, approximately 608,952 shares of our common
stock. Mr. Karpoff individually owns an additional 100,000 shares of our common
stock. Sale of those shares is subject to a lock-up agreement, which expires in
or about December 2000, after which Mr. Karpoff and Ms. Rothbardt will be free
to sell all their shares. Mr. Karpoff also holds options to purchase 400,000
shares of our common stock, which options will be exercisable within 60 days
after the date of this prospectus. In addition Frances Giarraputo and Leonard
Giarraputo (a former director) own approximately 191,000 and 100,000 shares,
respectively. These shares are not subject to restrictions and may be sold at
any time. Furthermore, Kirlin Holding Corp. and Kirlin Securities, Inc., a
subsidiary of Kirlin Holding Corp. own approximately 800,000 and 321,217 shares,
respectively, of common stock, free of any restrictions.
Issuance of our reserved shares of common stock may dilute the equity interest
of existing stockholders.
The issuance of our reserved shares under this propsectus will have the
effect of diluting the equity interest of our existing stockholders and could
have an adverse effect on the market price for our common stock. As of October
12, 2000, we had 6,896,146 shares of common stock reserved for possible future
issuance upon, other things, the issuance of common stock under our common stock
purchase agreement with Suerez Enterprises Limited and the conversion of
outstanding warrants.
Under or common stock purchase agreement, the number of shares of
common stock issued to Suerez is based on a formula tied to the market price of
our common stock prior to a draw down. Accordingly, the issuance of some or all
of the common stock under this prospectus and in accordance with the common
stock purchase agreement could result in dilution of the per share value of our
common stock held by current investors. The lower the average trading price of
our common stock at the time of a draw down, the greater the number of shares of
our common stock that will be issued. Accordingly, this causes a greater risk of
dilution. The perceived risk of dilution may cause Suerez, as other
stockholders, to sell their shares, which would contribute to the downward
movement in the price of our common stock.
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The addition of a substantial number of shares of our common stock into
the market or by the registration of any other securities under the Securities
Act may significantly and negatively affect the prevailing market price of our
common stock. Furthermore, future sales of shares of our common stock issuance
upon the exercise of outstanding warrants may have a depressive effect on the
market price of the common stock, as these warrants would be more likely to be
exercised at a time when the price of the common stock is in excess of the
applicable exercise price.
Certain provisions of our articles of incorporation and by-laws could limit the
price that investors are willing to pay for our common stock.
Our articles of incorporation and by-laws contain certain provisions
that could make it more difficult for shareholders to effect certain corporate
actions, and could make it more difficult for anyone to acquire control of us
without negotiating with our board of directors. These provisions could limit
the price that investors might be willing to pay in the future for our common
stock.
If our common stock price continues to drop, we may be delisted from the Nasdaq
SmallCap Market. This could eliminate the trading market for our common stock.
On October 12, 2000, the closing price of our common stock was $0.7812
per share. Under the rules of the Nasdaq SmallCap Market, one of the listing
standards we need to maintain is a bid price for our common stock of at least
$1.00 per share. If our common stock fails to maintain a minimum bid price
greater than or equal to $1.00 over a period of thirty (30) consecutive trading
days, our common stock may be delisted from the Nasdaq SmallCap Market, which
would eliminate the only established trading market for shares of our common
stock. Suerez can also terminate the common stock purchase agreement if we are
delisted. Our issuing shares of common stock to Suerez, or the subsequent resale
by Suerez of those shares, in either case at a discount to the market price, may
reduce the trading price of our common stock to a level below the Nasdaq minimum
bid price requirement.
Risks Related to the Internet
Consumers may be reluctant to obtain auto collision managed care services over
the Internet.
For our current business model to succeed, our clients and their
insureds must be willing to obtain auto collision managed care services over the
Internet. If they do not, our business will suffer. The market for on-line
services of this sort, particularly over the Internet, is at an early stage of
development and is evolving rapidly. We cannot be sure that a sufficiently broad
base of consumers and businesses will adopt, and continue to use, the Internet
as a medium by which to obtain auto collision managed care services, which have
traditionally been provided over the telephone and person-to-person. If the
market for auto collision managed care services over the Internet fails to
develop, or develops more slowly than expected, our business would suffer.
Use of the Internet by consumers could grow more slowly or decline.
Our business will be adversely affected if use of the Internet by
businesses and consumers, particularly those relating to the insurance industry,
does not continue to grow. A number of factors may inhibit consumers from using
the Internet. These include inadequate network infrastructure, security
concerns, inconsistent quality of service, and a lack of cost-effective
high-speed service. Even if Internet use grows, the Internet's infrastructure
may not be able to support the demands placed on it by this growth and its
performance and reliability may decline. In addition, many web sites have
experienced service interruptions as a result of outages and other delays
occurring throughout the Internet infrastructure. If these outages or delays
occur frequently in the future, use of the Internet, as well as use of our web
site, could grow more slowly or decline.
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Governmental regulation and taxation of the Internet is subject to change.
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may result in there
being enacted laws concerning various aspects of the Internet, including online
content, user privacy, access charges, liability for third-party activities, and
jurisdictional issues. These laws could harm our business by increasing our cost
of doing business or discouraging use of the Internet.
In addition, the tax treatment of the Internet and electronic commerce
is currently unsettled. A number of proposals have been made that could result
in Internet activities, including the sale of goods and services, being taxed.
The U.S. Congress passed the Internet Tax Information Act, which places a
three-year moratorium on new state and local taxes on Internet commerce. There
may, however, be enacted in the future laws that change the federal, state or
local tax treatment of the Internet in a way that is detrimental to our
business.
Some local telephone carriers claim that the increasing popularity of
the Internet has burdened the existing telecommunications infrastructure and
that many areas with high Internet use are experiencing interruptions in
telephone service. These carriers have petitioned the Federal Communications
Commission to impose access fees on Internet service providers. If these access
fees are imposed, the cost of communicating on the Internet could increase, and
this could decrease the demand for our services and increase our cost of doing
business.
Our Financial Condition and Need for Additional Funding
We may need additional capital in the future and additional financing may not be
available.
We currently anticipate that our available cash resources combined with
the maximum draw down under the common stock purchase agreement with Suerez
Enterprises Limited will be sufficient to meet our anticipated working capital
and capital expenditure requirements for at least the next 12 months. In
addition, business and economic conditions may not make it feasible to draw down
under the common stock purchase agreement at every opportunity, and we are only
allowed to request a draw down once every 22 trading days. We may need to raise
additional capital to fund more rapid expansion, to develop new services and to
enhance existing services to respond to competitive pressures, and to acquire
complementary businesses or technologies.
Furthermore, the common stock purchase agreement with Suerez prohibits
us from selling our securities for cash at a discount to market price until the
earlier of 12 months from the effective date of the registration statement of
which this prospectus is a part or the date that is 60 days after Suerez has
purchased the maximum $10,000,000 worth of common stock from us under the common
stock purchase agreement. There are certain exceptions to this limitation, which
are described in more detail under the section "Restrictions on Future
Financing" located on page 22 of this prospectus. This restriction could limit
our ability to raise capital.
We may not be able to obtain additional financing on terms favorable to
us, if at all. If adequate funds are not available or are not available on terms
favorable to us, we may not be able to effectively execute our business plan.
USE OF PROCEEDS
We will not receive any proceeds from the sale by Suerez Enterprises
Limited of shares that we issue Suerez under the common stock purchase
agreement. We also will not receive any proceeds from the sale of shares by any
other selling shareholder. We will, however, receive the sale price of any
common stock we sell to Suerez under the common stock purchase agreement
described in this prospectus and any cash exercise price paid by selling
shareholders upon exercise of warrants issued pursuant to the common stock
purchase agreement. We plan to use any such amounts for general working capital
purposes.
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MARKET FOR COMMON EQUITY
Our common stock is traded on the Nasdaq SmallCap Market. The following
table shows the high and low closing prices for the periods indicated.
High Low
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2000
First Quarter $5.4375 $2.75
Second Quarter $4.25 $1.2188
Third Quarter $2.00 $1.375
1999
First Quarter $3.50 $1.125
Second Quarter $2.0625 $1.375
Third Quarter $1.825 $0.75
Fourth Quarter $3.00 $0.75
1998
First Quarter $6.625 $4.94
Second Quarter $6.75 $5.50
Third Quarter $5.125 $2.50
Fourth Quarter $4.25 $1.50
As of October 12, 2000, the number of record holders of our common
shares was approximately 342.
We have never paid dividends on our common stock and we are not
expected to do so in the foreseeable future. Payment of dividends is within the
discretion of our board of directors and would depend on, among other factors,
our earnings, capital requirements and operating and financial condition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This discussion includes "forward-looking" statements that reflect our
current views with respect to future events and financial performance. We use
words such as we "expect," "anticipate," "believe," and "intend" and similar
expressions to identify forward-looking statements. Investors should be aware
that actual results may differ materially from our expressed expectations
because of risks and uncertainties inherent in future events, particularly those
risks identified in the "Risk Factors" section of this prospectus, and should
not unduly rely on these forward looking statements. We will not necessarily
update the information in this discussion if any forward-looking statement later
turns out to be inaccurate.
Results of Operations
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 101 (SAB 101), we have determined that the portion of our business
representing commission revenues from our subrogation and salvage services
should be displayed in the financial statements on a net basis. It was our prior
policy to report such revenues and related costs on a gross basis. Accordingly,
the three and six months ended June 30, 1999 have been reclassified to reflect
the net presentation. There was no effect on net loss or net cash flows used in
operating activities from the reclassification. Revenues and direct costs for
the three and six months ended June 30,1999 were reduced by $759,636 and
$1,347,824, respectively.
Revenues were $3,411,034 for the three months ended June 30, 2000, as
compared to $3,322,612 for the same period in 1999, representing an increase of
$88,422 or 2.7%. The direct costs of services related to such revenue
(principally charges from automotive repair facilities) were $2,433,484 for the
three months ended June 30, 2000, as compared to $2,564,971 for the same period
in 1999, representing a decrease of $131,487 or 5.1%. For the six months ended
June 30, 2000 revenues from services were $6,652,078 as compared to $6,313,030
for the same period in 1999, representing an increase of $339,048 or 5.4%. The
direct cost of services related to such revenue was $4,703,513 and $4,902,269
for the six months ended June 30, 2000 and 1999, respectively, resulting in a
decrease of $198,756 or 4.1%.
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The gross profit percentage increased 5.9% to 28.7% from 22.8% for the
three months ended June 30, 2000 and 1999. For the six months ended June 30,
2000, gross profit increased 7% to 29.3% from 22.3% for the same period in 1999.
Revenues decreased by $206,877 for our collision repair and fleet management
services, including subrogation and salvage commissions representing a decrease
of 6.5% for the three months ended June 30, 2000, as compared to the same three
months of 1999. Revenues from collision repair and fleet management services for
the six months ended June 30, 2000 decreased $251,958 or 4.1% to $5,773,751 as
compared to $6,025,709 for the same period in 1999. The decrease in revenues for
collision repair and fleet management services reflect a continuing nationwide
decline in per capita accident rates. For the three months ended June 30, 2000
Affinity Services sales increased $295,299 or 184.6% to $455,257 as compared to
$159,958 for the same period in 1999. Affinity Services sales for the six months
ended June 30, 2000 were $878,327 as compared to $287,321 for the same period in
1999 representing an increase of $591,006 or 205.7% reflecting the increased
membership enrollment. The increased gross profit percentage is a result of the
increased affinity sales, which has a lower cost of revenue than the other
programs.
Total operating expenses were $990,537 for the three months ended June
30,2000, as compared to $916,020 for the three months ended June 30, 1999,
representing an increase of $74,517 or 8.1%. For the six months ended June
30,2000, total operating expenses increased $89,625 or 4.9% to $1,910,636 as
compared to $1,821,011 for the same period of 1999. The increase in operating
expenses is mainly attributable to the additional personnel necessary for the
start-up of operations of driversshield.com and increases in Affinity Services.
Investment and other income was $29,690 and $64,887 for the three and
six months ended June 30, 2000, as compared to $35,175 and $79,104 for the same
periods in 1999, representing a decrease of $5,485 and $14,217, respectively.
The decrease is primarily attributable to lower average investment balances
available during the periods.
As a result of the foregoing, the net income for the three and six
months ended June 30, 2000 was $14,178 ($.00 per share) and $98,116 (.01 per
share) as compared to a net loss of $123,204 ($.01 per share) and $331,146 ($.04
per share) for the comparable periods in 1999.
Liquidity and Capital Resources
As of June 30, 2000, we had cash and cash equivalents of $1,146,604.
We also hold 78,377 shares of Salomon Smith Barney Adjustable Rate Government
Income Fund securities valued at $759,476 at June 30, 2000. As of June 30, 2000,
our working capital was $1,896,187. Our operating activities provided $377,261
of cash for the six months ended June 30, 2000 as compared to 1999, when our
operating activities used $261,322 of cash. This is primarily a result of the
increase in net income for 2000.
We believe that our present cash position will enable us to continue to
support our operations for the next 12 months.
DESCRIPTION OF BUSINESS
We are a New York corporation formed on June 28, 1985. Our offices are
located at 51 East Bethpage Road, Plainview, New York 11803 and our telephone
number is (516) 694-1010.
Nature of Services
We offer vehicle maintenance and repair management services, including
collision and general repair programs, appraisal services, subrogation services,
vehicle salvage, and vehicle rental services. We also administer automotive
collision repair referral services for self-insured fleets, insurance companies,
and affinity group members.
Our wholly-owned subsidiary, National Fleet Service, Inc., conducts our
fleet management business. We also provide various affinity programs for all
types of businesses.
Fleet Management Services. We have entered into contractual
arrangements with over 2,000 independently owned and operated repair shops
throughout the U.S., as well as with national chains of automobile repair shops,
to provide repair services for vehicles of our fleet management clients. The
automotive repair shops that we have under contract can handle, on a
per-incident basis, any repair that our fleet management clients may need.
Because we have made arrangements with a large number of repair shops, whenever
a client needs to repair a vehicle, the chances are excellent that a local
repair shop will be available to perform the necessary work. We are primarily
called upon to arrange for collision and glass replacement repairs, although we
also arrange for more general repairs.
8
<PAGE>
If a vehicle needs repair, the driver need only call our toll free
telephone number. Our comprehensive proprietary management system and customized
computer software allows us to direct the driver to a local repair shop that
would be able to perform the needed repair. Our staff closely oversees and
manages all aspects of the repair process. When a repair is completed, the
repair shop forwards the bill to us, and we in turn bill the client. Our
services spare the client or driver and the repair shop from having to negotiate
a price for the work performed.
As part of our fleet management services, we also offer our clients
computerized appraisal services, and salvage and subrogation services. We also
offer vehicle rentals, which permit clients to avoid driver down-time while a
vehicle is being repaired. We have also created a complete line of customized
reports, with features that allow risk managers to thoroughly assess all
variables concerning collision-related expense incurred by a given fleet of
vehicles. These systems, which are unique to us, were the main reason that in
1995 Inc. Magazine and MCI named us one of the nation's best-run service
companies.
Affinity Group Programs. Our affinity group programs consist of a
series of comprehensive vehicle-related services made available for sale to
consumers through affinity groups (such as the members of a particular
professional association, for example the American Bar Association, or the
alumni of a particular university), financial institutions, and other businesses
and organizations. These programs may be used as re-enrollment incentives or
membership premiums, or resold at a profit. Each service may be sold
individually, or a variety of services can be bundled together as a high-value
package. The following are some of our affinity group programs:
o Driver's Shield.(R) This is our premium program; it consists of the
Collision Damage Repair Program, the Driver Discount Program, and the
Auto Service Hotline, as well an auto buying service, legal defense
reimbursement, and custom trip routing services. The individual
components may be sold separately.
o Collision Damage Repair Program. This is *our corporate collision
program as modified to suit consumer needs. Drivers participating in
this program have access to our proprietary network of collision repair
shops. Additionally, First Priority's customer service department will
supervise the entire process from expediting estimates and repairs to
troubleshooting any problems or difficulties that may occur.
o Driver Discount Program. This program offers drivers discounts of up to
40% off automotive-related services in thousands of premium auto chain
facilities throughout the nation. These discounts apply to virtually
all routine maintenance costs, including oil changes, brakes,
transmissions, mufflers, shocks, tires, and glass. An option available
under this program is 24-hour emergency roadside assistance for drivers
anywhere in the U.S.
o Auto Service Hotline. This program provides drivers with their own
repair specialist who will help them determine how best to repair a
vehicle and, if necessary, will provide them with a referral to one of
thousands of independently-owned auto repair shops. Drivers who use the
repair shop to which they are referred will receive a 10% discount off
the cost of the repairs and an enhanced nationwide warranty. In
addition, drivers are offered rental replacement cars at preferred
rates, and the rental cars are delivered to and picked up from the
driver's home or office.
driversshield.com. In April 1999, we established a new Internet
enterprise, driversshield.com Corp., as a wholly owned subsidiary. We intend
that driversshield.com will be the first to offer insurance companies a complete
solution to managing customer relationships, and it will do so by combining our
Affinity Group programs and collision repair management services into an
Internet based strategy. This new business is focusing on capturing a
significant share of the North American market for managed automotive care. As
our first step in this direction, we have inaugurated a website,
http://www.driversshield.com, that aims to make management of collision repairs
more efficient by facilitating the gathering and distribution of information
required to launch the repair process. Via the website, insurance carriers will
be able to enter initial vehicle claim information and select an automobile
collision repair shop from our network of over 2,400 shops across the country,
and the insurance carrier and the insured will be able to track repairs until
they are complete.
In November 1999, driversshield.com entered into an agreement with
Electronic Data Systems Corporation, or "EDS," providing that EDS will develop
and host the website commencing September 15, 1999 through December 31, 2003.
Additionally, EDS will assist us in offering the Internet-based automobile
collision managed care program to those of EDS's customers that are in the auto
insurance business. driversshield.com will pay no more than $350,000 for the
initial development costs of the website. Once the website is operational,
driversshield.com will retain the entire net revenue, less cost of sales, until
it has recovered the fees paid to EDS for the website development. Thereafter,
EDS will receive the entire net revenue until it has recovered the development
costs in excess of $350,000, if any, up to $80,000. Thereafter, for the
remainder of the first year of the agreement, driversshield.com will pay EDS 30%
of the net revenue, while in years two, three and four, EDS will receive 35%,
42%, and 42%, respectively, of net revenue. Throughout the term of the
agreement, EDS will at no extra cost host and maintain
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<PAGE>
the website, process all transactions, maintain, secure and update all database
functions, design, develop, and build a repair-management call center, secure
all transmissions over the website, upgrade the site for additional
functionality, handle all accounting functions, fulfill customer material. and
introduce electronic data interchange throughout the repair facility network. We
have guaranteed to EDS that driversshield.com will perform its obligations under
the agreement.
The driversshield.com website officially went on line on May 31, 2000.
In June 2000, driversshield.com signed its first two clients, one a major
mid-west insurance company, the other a well-known nationwide towing company. We
have already installed driversshield.com's at one of the insurer's offices. By
year-end, we will have installed the system at our insurer's remaining offices.
In July 2000, driversshield.com signed an agreement with United
Financial Adjusting Company. The agreement provides that United Financial will
become the exclusive agent to market driversshield.com's services to the
insurance industry marketplace. United Financial, based in Cleveland, Ohio,
specializes in providing claims management services, software and e-commerce
business applications to the property and casualty insurance industry and to
self-insured corporations. United Financial and its subsidiaries serve over 500
insurance clients in the U.S. and Canada and have over 300 employees and 650
franchised offices throughout the U.S. and Canada.
Sales and Marketing
Our fleet management clients are usually companies that have a large
number of vehicles on the road over a broad geographical area. Some of our fleet
management clients include IBM, Hershey Foods, Coca-Cola, Time Warner, Media
One, and Cablevision. Our affinity program clients are organizations and
affinity groups. Through our affinity programs, we have established
relationships with Providian Financial, Assurant Group (part of the Fortis
group), Aon, Protective Life, Priceline.com and other prestigious credit card,
financial organizations and web sites. The driversshield.com clients are
property and casualty insurance companies.
Sales activities are performed by our own personnel and also by outside
agencies retained by us. We seek to make sales through referrals, cold
canvassing of appropriate prospects, direct mailings, and attendance at trade
shows.
Since we deal with a large number of independently-owned repair
facilities, we are often able to offer our fleet management clients a program
that it tailored to suit their vehicle repair needs. We believe that this
flexibility is a cornerstone of our marketing activities and will be the
principal factor driving any increase in our client base.
In 1999 and 1998, one customer accounted for approximately 10% of our
revenue.
Employees
At the end of 1999, we employed 35 full-time employees and three part
time employees. None of our employees are governed by a union contract. We
believe that our employee relationships are satisfactory.
Competition
Fleet Management Services. Some leasing companies offer fleet
management services, but most offer such services only to fleets leased by them.
There are other companies that, like us, offer fleet management services
independent of a fleet leasing arrangement. These companies include PHH
Corporation, GE Capital Auto Lease PLC, a subsidiary of GE Capital Corp., Salex
Holding Corporation, and The CEI Group. Due to the wide range in size of our
competitors, it is difficult for us to determine our competitive position within
the fleet management industry.
Affinity Group Programs. Although there are several companies providing
various types of auto club programs, we believe that there are only two other
companies offering a program providing services similar to those offered by
First Priority's Affinity Group division. These are Cendant Corporation (which
offers the Autoadvantage program) and American Information Company, Inc. (which
offers the CarClub program).
10
<PAGE>
driversshield.com. We are aware of three other companies that offer
automotive collision repair services to insurance companies. Two of those
companies are, like us, in the fleet management business, while the other is a
developer of software for vehicle valuation. We believe that our services for
insurance companies are superior to those offered by these other companies. We
believe there are three other companies that may offer similar web-site based
services, including The CEI Group, Consolidated Service Corporation, and
E-autoclaims.com, Inc.
MANAGEMENT
Executive Officer and Directors
Each member of our board of directors serves for staggered three-year
terms and until his or her successor is duly elected and qualified. Our
executive officers and directors are as follows:
Name Age Position
---- --- --------
Barry Siegel............................. 49 Chairman of the Board,
Treasurer, Secretary, Chief
Executive Officer and
Principal Accounting
Officer
Barry J.Spiegel.......................... 51 Director, President of
Affinity Services Division
Gerald M.Zutler.......................... 62 President and Chief
Operating Officer
Kenneth J.Friedman....................... 57 Director
R. Frank Mena............................ 42 Director
Barry Siegel has served as one of our directors and our Secretary since
we were incorporated. He has served as our Treasurer since January 1998, as our
Chief Executive Officer and Chairman of the Board since November 1997.
Previously, he served as our Chairman of the Board, Co-Chief Executive Officer,
Treasurer, and Secretary from August 1997 through November 1997. From October
1987 through August 1997, he served as our Co-Chairman of the Board, Co-Chief
Executive Officer, Treasurer, and Secretary. He has served for more than five
years as Treasurer and Secretary of National Fleet Service, Inc., one of our
wholly-owned subsidiaries.
Barry J. Spiegel has served as President of our Affinity Services
Division since September 1996. He served as President of American International
Insurance Associates, Inc. from January 1996 through August 1996. For more than
five years prior to August 1996, Mr. Spiegel served as Senior Vice President at
American Bankers Insurance Group, Inc.
Gerald M. Zutler has served as our President and Chief Operating
Officer since March 1998. Between 1997 and 1998, Mr. Zutler was a private
consultant. From 1993 through 1996, Mr. Zutler was President of Lockheed Martin
Canada.
Kenneth J. Friedman has served as a director of First Priority since
October 1998. Mr. Friedman has for more than five years served as President of
the Primary Group, Inc., an executive search consultant.
R. Frank Mena has served as our director since May 1999. Mr. Mena is
both a technologist and developer by background. He was a founder, Executive
Vice President and Chief Technology Officer of Cheyenne Software. He currently
acts as a consultant in the computer systems industry.
Compensation of Directors
We do not pay our directors for serving on our board. Our 1995 Stock
Incentive Plan does, however, provide that when they are elected to the board
and every anniversary thereafter as long as they serve, our non-employee
directors are to be granted non-statutory stock options to purchase 15,000
shares of our stock.
Executive Compensation
The following table summarizes the compensation we paid or compensation
accrued for services rendered for the years ended December 31, 1997, 1998, and
1999, for our Chief Executive Officer and each of the other most highly
compensated executive officers who earned more than $100,000 in salary and bonus
for the year ended December 31, 1999:
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Securities
Underlying
Name and Position(s) Year Salary ($) Options (#) Bonus ($)
-------------------- ---- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Barry Siegel...................................... 1999 $215,385 1,100,000 $0
Chairman of the Board of Directors, 1998 $279,423 500,000 $0
Treasurer, Secretary and Chief Executive Officer 1997 $198,846 100,000 $0
Gerald Zutler..................................... 1999 $137,211 415,000 $0
President 1998 $98,340 0 $0
1997 $0 0 $0
Barry J. Spiegel.................................. 1999 $104,249 330,000 $0
President, Affinity Services Division 1998 $104,499 250,000 $0
1997 $89,730 0 $0
</TABLE>
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
We are party to an employment agreement with Barry Siegel that
commenced on July 1, 1998, and expires on December 31, 2001. Mr. Siegel's annual
salary is $300,000. His employment agreement provides that following a change of
control (as defined in the agreement), we will be required to pay Mr. Siegel (1)
a severance payment of 300% of his average annual salary for the past five
years, less $100, (2) the cash value of his outstanding but unexercised stock
options, and (3) other perquisites should he be terminated for various reasons
specified in the agreement. The agreement specifies that in no event will any
severance payments exceed the amount we may deduct under the provisions of the
Internal Revenue Code.
We are party to an employment agreement with Gerald M. Zutler that
commenced on July 1, 1998, and expires on June 30, 2001. Mr. Zutler's annual
salary is $150,000. His employment agreement contains a change in control
provision that mirrors that in Mr. Siegel's employment agreement, except that
the applicable percentage for severance payment purposes is 200%. Mr. Zutler
also participates in our Corporate Compensation Program.
We are party to an employment agreement with Barry J. Spiegel that
commenced on July 1, 1998, and expires on June 30, 2001. Mr. Spiegel's annual
salary is $130,000 per annum. Mr. Spiegel also participates in our Corporate
Compensation Program. His employment agreement provides that following a change
in control (as defined in the agreement), all stock options previously granted
to him will immediately become fully exercisable.
In early 1999, each of the above-mentioned executives voluntarily
agreed to a reduction in his annual salary, with the other terms of his
employment agreement remaining unaffected. Mr. Siegel's salary was reduced by
$100,000, Mr. Zutler's by $15,000, and Mr. Spiegel's by $30,000. In
consideration for these salary reductions, we granted Mr. Siegel, Mr. Zutler,
and Mr. Spiegel options to purchase 100,000, 15,000, and 30,000 shares of our
common stock, respectively. In 2000 the salaries of the above-mentioned
executives were returned to their original levels.
Stock Options
We have awarded the following options under our 1995 Incentive Stock
Plan stock option plan during the last fiscal year to the executive officers
named in the summary compensation table:
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<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of % of Total
Securities Underlying Options/SARs Granted to Exercise of Base Expiration
Name Options/SARs Granted Employees in Fiscal Year Price ($/Share) Date
---- -------------------- ------------------------ --------------- ----
<S> <C> <C> <C> <C> <C>
Barry Siegel 300,000 (1) 12.4% $0.825 9/30/00
100,000 (1) 4.1% $0.825 9/7/02
200,000 (1) 8.2% $0.825 3/4/04
400,000 (1) 16.5% $0.825 10/8/03
100,000 (1) 4.1% $0.825 3/4/04
Gerald M. Zutler 300,000 (1) 12.4% $0.75 6/30/03
100,000 (1) 4.1% $1.25 11/23/04
15,000 (1) 0.6% $0.75 3/4/04
Barry J. Spiegel 250,000 (1) 10.3% $0.75 6/30/03
50,000 (1) 2.1% $0.75 8/18/01
30,000 (1) 1.2% $0.75 3/4/04
</TABLE>
-----------------------
(1) Options terminated and re-granted at new exercise price.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Options/SARs at FY-End Options/SARs at FY-End
Name on Exercise (#) Realized ($) (Exercised/Unexercised) (Exercisable/Unexercisable)
---- --------------- ------------ ----------------------- ---------------------------
<S> <C> <C> <C> <C>
Barry Siegel None None 899,999/300,001 $1,506,382/$503,617
Gerald M. Zutler None None 215,000/200,000 $376,250/$350,000
Barry J. Spiegel None None 163,333/166,167 $285,832/$290,792
</TABLE>
DESCRIPTION OF PROPERTY
In December 1996, we entered into a lease for approximately 12,000
square feet of new office space at 51 East Bethpage Road, Plainview, New York
11803. We relocated to this space in April 1997. This lease expires on March 31,
2002. Management believes that this property is adequately covered by insurance.
We have leased to a sublessee a portion of these premises under a sublease that
expired in June 2000 and is currently being renewed on a month-to-month basis.
PRINCIPAL SHAREHOLDERS
The following table provides information about the beneficial ownership
of our common stock as of October 12, 2000. We have listed each person who
beneficially owns more than 5% of our outstanding common stock, each of our
directors and executive officers identified in the summary compensation table,
and all directors and executive officers as a group. Unless otherwise indicated,
each of the listed shareholders has sole voting and investment power with
respect to the shares beneficially owned.
13
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Owner Common Stock (1)
--------------- ----------------- ----------------- ------------
<S> <C> <C> <C>
Common Stock Anthony J. Kirincic 1,184,967 (2) 11.4%
c/o Kirlin Holding Corp.
6901 Jericho Turnpike
Syosset, NY 11791
Common Stock David O. Lindner 1,184,967 (2) 11.4%
c/o Kirlin Holding Corp.
6901 Jericho Turnpike
Syosset, NY 11791
Common Stock Kirlin Holding Corp. 1,121,217 (3) 10.8%
6901 Jericho Turnpike
Syosset, NY 11791
Common Stock Kirlin Securities, Inc. 1,121,217 (3) 10.8%
6901 Jericho Turnpike
Syosset, NY 11791
Common Stock The Golddonet Group 845,000 (4) 8.1%
221 Main Street, Suite 250
San Francisco, CA 94105
Common Stock Michael Karpoff and 1,117,333 (5) 10.3%
Patricia Rothbardt
32 Gramercy Park South
New York, NY 10010
</TABLE>
(1) The percentages have been calculated in accordance with Instruction 3 to
Item 403 of Regulation S-B.
(2) Mr. Kirincic is the President, Chief Financial Officer, and a director of
Kirin Holding Corp., which beneficially owns 1,121,217 shares of our common
stock (see note 3 below). Mr. Lindner is the Chairman and Chief Executive
Officer of both Kirlin Holding Corp. and Kirlin Securities, Inc., a
wholly-owned subsidiary of Kirlin Holding Corp. Mr. Kirincic and Mr.
Lindner each beneficially own 63,750 shares of our common stock as a result
of their holding a warrant purchased in our private offering in December
1997. In addition, Mr. Kirincic and Mr. Lindner each individually own 23.6%
of the outstanding common stock of Kirlin Holding Corp. Accordingly,
although individually neither Mr. Kirincic nor Mr. Lindner controls Kirlin
Holding Corp., if they were to act together, they could control Kirlin
Holding Corp. and as a result, they could be deemed to share voting and
dispositive power over the shares owned directly by Kirlin Holding Corp.
and Kirlin Securities, Inc., or an aggregate of 1,121,217 additional shares
each. Accordingly, Mr. Kirincic and Mr. Lindner would then be deemed to own
1,184,967 shares of our common stock. Both Mr. Kirincic and Mr. Lindner
disclaim beneficial ownership of the shares owned by Kirlin Holding Corp.
and Kirlin Securities, Inc.
(3) Includes 800,000 shares held by Kirlin Holding Corp., the parent company of
Kirlin Securities, Inc., for which Kirlin Holding Corp. has sole power to
vote and dispose of those shares. Also includes 321,217 shares held by
Kirlin Securities, Inc., a wholly-owned subsidiary of Kirlin Holding Corp.,
with both entities sharing the right to vote and dispose of the shares.
(4) Includes 150,000 actually owned and an option to purchase an additional
695,000 shares from two of our shareholders in a private sale.
(5) Includes options to purchase 500,000 shares exercisable within 60 days of
October 12, 2000.
14
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF MANAGEMENT
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Owner Common Stock (1)
-------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
Common Stock Barry Siegel 2,084,399(2)(3)(4) 19.8%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Lisa Siegel 2,084,399(2)(3)(4) 19.8%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Gerald M. Zutler 315,500 (5) 2.96%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Barry J. Spiegel 817,842 (6) 7.86%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Kenneth J. Friedman 140,000 (7) 1.35%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock R. Frank Mena 75,000 (8) 0.72%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Directors & Officers as a 3,432,241 31.14%
group
</TABLE>
--------------------------------------------------------------------------------
(1) The percentages have been calculated in accordance with Instruction 3 to
Item 403 of Regulation S-B.
(2) Includes 3,334 shares held by Barry Siegel as custodian for two nephews and
67 shares held directly by Barry Siegel's wife, Lisa Siegel. Both Barry and
Lisa Siegel disclaim beneficial ownership of shares held by the other.
(3) Includes options held by Barry Siegel to purchase 166,666 shares of common
stock exercisable within 60 days of October 12, 2000.
(4) Includes options held by Lisa Siegel to purchase 33,333 shares of common
stock exercisable within 60 days of October 12, 2000.
(5) Includes options to purchase 315,000 shares of common stock exercisable
within 60 days of October 12, 2000.
(6) Includes options to purchase 83,333 shares of common stock exercisable
within 60 days of October 12, 2000.
(7) Includes options to purchase 30,000 shares of common stock exercisable
within 60 days of October 12, 2000.
(8) Includes options to exercise 75,000 shares of common stock within 60 days
of October 12, 2000.
DESCRIPTION OF SECURITIES
General
Our articles of incorporation authorize us to issue 20,000,000 shares
of common stock and 1,000,000 shares of preferred stock. As of October 12, 2000,
10,317,869 shares of our common stock were issued and outstanding. We have not
yet issued any shares of preferred stock.
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<PAGE>
Common Stock
Holders of shares of common stock are entitled to one vote for each
share on all matters to be voted on by the shareholders. Holders of common stock
have no cumulative voting rights. Holders of shares of common stock are entitled
to share ratably in any dividends that may be declared, from time to time by the
board of directors in its discretion, from funds legally available for
dividends. If we are liquidated dissolved or wound up, the holders of shares of
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of common stock have no preemptive rights to
purchase our common stock. There are no conversion rights or redemption or
sinking fund provisions for the common stock.
Our common stock is covered by the Securities and Exchange Commission's
penny stock rules. These rules include a rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors, generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouses. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and transaction prior
to the sale. The rule may affect the ability of broker-dealers to sell our
securities and may also affect the availability ability of purchasers of our
stock to sell their shares in the secondary market. It may also cause fewer
brokers to be willing to make a market in our common stock and it may affect the
level of news coverage we receive.
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock with
such voting rights, designations, preferences, limitations and relative rights
as the board of directors may determine. Currently there are no shares of
preferred stock outstanding.
Warrants and Options
There is currently outstanding a warrant to purchase 68,970 shares of
our common stock at a price of $2.1749 per share. We issued a warrant to Suerez
Enterprises Limited on May 31, 2000 for Suerez's commitment to enter into the
common stock purchase agreement. The warrant expires on October 31, 2003. The
holder of the warrant has the right to have the common stock issuable upon
exercise of the warrants included on any registration statement we file, other
than a registration statement covering an employee stock plan or a registration
statement filed in connection with a business combination or reclassification of
our securities.
In addition, there are currently outstanding warrants to purchase
581,250 shares of our common stock at a price of $5.75 per share issued to the
selling shareholders listed on page 23 of this prospectus in a private placement
transaction in December 1997. The warrants expire on December 18, 2002.
We also have outstanding warrants to purchase 25,000 shares of our
common stock at an exercise price of $2.00 per share, of which 12,500 are
immediately exercisable and the other 12,500 become exercisable upon the
achievement of certain performance based criteria. These warrants will expire on
July 2, 2001. In addition, we have outstanding warrants to purchase 250,000
shares of our common stock at an exercise price of $2.50 per share, of which
175,000 are immediately exercisable and the other 75,000 become exercisable on
November 10, 2000. These warrants will expire on July 9, 2005.
We have granted options to purchase 3,375,000 shares of our common
stock pursuant to our 1995 Incentive Stock Plan, of which 1,616,999 are
exercisable as of October 19, 2000 and of which 1,366,329 have already been
exercised. The exercise price of the options range from $0.75 to $3.025 per
share.
Statutory Provisions and Provisions of our Articles of Incorporation and Bylaws
A number of provisions of New York law, our amended articles of
incorporation, and our bylaws could make it more difficult for anyone to acquire
us, whether by means of a tender offer, a proxy contest, or otherwise, and make
it more difficult to remove incumbent officers and directors. These provisions
are intended to discourage certain types of coercive takeover practices and
inadequate takeover bids, even though these types of transactions may offer our
shareholders the opportunity to sell their stock at a price above the prevailing
market price. These provisions also encourage persons seeking to acquire control
of us to negotiate with us first.
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<PAGE>
We are subject to the "business combination" provisions of Section 912
of the New York Business Corporation Law and expect to continue to be so subject
if and for so long as we have a class of securities registered under Section 12
of the Exchange Act. Section 912 could prohibit or delay, and therefore
discourage, any attempt to acquire us.
Section 912 provides, with some exceptions (including, among others,
transactions with shareholders who became interested prior to the effective date
of an amendment to our articles of incorporation providing that we would be
subject to Section 912 if we did not then have a class of stock registered
pursuant to Section 12 of the Exchange Act), that a New York corporation may not
engage in a "business combination" with any "interested shareholder" for a
period of five years from the date that the person first became an interested
shareholder unless one of the following applies:
o the transaction resulting in a person becoming an interested
shareholder was approved by the board of directors of the corporation
prior to that person becoming an interested shareholder;
o the business combination is approved by the holders of a majority of
the outstanding voting stock not beneficially owned by the interested
shareholder or any affiliate or associate of the interested shareholder
at a meeting called no earlier than five years after the interested
shareholder's stock acquisition date; or
o the business combination meets certain valuation requirements for the
stock of the New York corporation.
A "business combination" includes mergers, asset sales, and other
transactions resulting in a financial benefit to the interested shareholder.
Subject to a number of exceptions, an "interested shareholder" is a person who,
together with affiliates and associates, owns, or within five years did own, 20%
or more of the corporation's outstanding voting stock. The "stock acquisition
date" means, with respect to any person and any New York corporation, the date
that the person first becomes an interested shareholder of the corporation.
In addition, some provisions of our articles of incorporation and
bylaws summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer, or prevent a tender offer or takeover
attempt that a shareholder might consider in its best interest, including those
attempts that might result in shareholders receiving for their shares a premium
over the market price.
Board Composition. Our articles of incorporation currently provide for
a board of seven directors divided into three classes, with each class serving
staggered three-year terms. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class consists of one-third of the
directors. Our having a staggered board may have the effect of delaying or
preventing changes in control or management.
Board Vacancies. Our bylaws and articles of incorporation authorize the
board of directors to fill vacant directorships or increase the size of the
board of directors. This authority may deter a shareholder from removing
incumbent directors and simultaneously gaining control of the board of
directors, in that the board could fill with its own nominees any vacancies that
are created.
Advance Notice of Shareholder Proposals and Nominees. Rules promulgated
under the Exchange Act establish an advance notice procedure for shareholders to
nominate candidates for election as directors or bring other business before any
meeting of our shareholders. Under this procedure, only persons who are
nominated by, or at the direction of, the board or by a shareholder who has
given timely written notice prior to the meeting at which directors are to be
elected, will be eligible to be elected director. In addition, under the
shareholder notice procedure the only business that may be conducted at a
shareholders' meeting is business that has been brought before the meeting by,
or at the direction of, the board of directors or by a shareholder who has given
timely written notice of his or her intention to bring that business before the
meeting.
The shareholder notice procedure provides that for notice of
shareholder nominations or other business to be made at a shareholders' meeting
to be timely, it must be received by us not less than 90 calendar days prior to
the anniversary of the date of the proxy statement for last year's annual
meeting.
A shareholder's notice to us proposing to nominate a person for
election as a director or proposing other business must contain information
specified in the rules promulgated under the Exchange Act, including a
representation that the shareholder is a record holder of our stock entitled to
vote at the meeting and information regarding each proposed nominee or each
proposed matter of business that would be required under the federal securities
laws to be included in a proxy statement soliciting proxies for the proposed
nominee or the proposed matter of business.
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<PAGE>
The shareholder notice procedure may have the effect of precluding a
contest for the election of directors or preclude consideration of shareholder
proposals if the proper procedures are not followed. and so may discourage or
deter a shareholder from conducting a solicitation of proxies to elect its own
slate of directors or to approve its own proposals, regardless of the merit of
the nominees or the proposals.
Special Meetings of Shareholders. Our bylaws provide that special
meetings of shareholders may only be called at the written request of two-thirds
of the board of directors or any officer instructed by the board to call a
special meeting, except when the shareholders are expressly entitled by the New
York Business Corporation Law to demand a meeting.
Amendment of our Articles of Incorporation. Our articles of
incorporation may only be amended by a majority vote of the directors and the
shareholders. This makes it more difficult to avoid by means of amendment the
antitakeover provisions in our articles of incorporation.
Authorized but Unissued Shares. We could use our authorized and
unissued shares of common and preferred stock for a variety of corporate
purposes, including future public offerings, corporate acquisitions, and
employee benefit plans. Our ability to issue shares of common stock and
preferred stock without shareholder approval, subject to the limitations imposed
by the Nasdaq SmallCap Market, could, however, be used to discourage an
unsolicited acquisition proposal. In addition, the possibility that we might
issue shares of preferred stock could discourage a proxy contest, make it more
difficult for anyone to acquire a substantial block of our common stock, or
limit the price investors might be willing to pay in the future for shares of
our common stock.
Transfer Agent and Registrar
The transfer agent for our common stock is North American Transfer Co.,
located in Freeport, New York.
COMMON STOCK PURCHASE AGREEMENT
Overview
On May 31, 2000, we signed a common stock purchase agreement with
Suerez Enterprises Limited, a British Virgin Islands corporation, for the future
issuance and purchase of shares of our common stock. The common stock purchase
agreement establishes what is sometimes termed an "equity line of credit" or an
"equity draw down facility." (The effective date of the agreement is defined as
the effective date of the registration statement of which this prospectus is a
part.)
In general, the draw down facility operates as follows. The investor,
Suerez, has committed to provide us with up to $10,000,000 as we request it over
a 12-month period, in return for common stock, as well as warrants to purchase
shares of common stock. Once every 22 trading days, we may request a draw down
of up to $5,000,000 of that money. The maximum amount we actually can draw down
upon each request is the lesser of (1) $5,000,000 and (2) an amount equal to 20%
of the product of (A) the average daily price of our common stock for the 22
trading days prior to the date of our draw down notice and (B) 22 times the
average trading volume of our common stock for the 45 trading days following the
date of our draw down notice, but in no event will the maximum draw down amount
be less than $1,000,000 per month. Notwithstanding the foregoing, in no event
will the minimum amount drawn down be less than $250,000.
At the end of a 22-day trading period following any draw down request,
the actual draw down amount is determined based on the volume-weighted average
stock price during that 22-day period, after which time formulas in the common
stock purchase agreement are used to determine the number of shares we will
issue to Suerez in return for that amount of money. The formulas for determining
the actual draw down amounts, the number of shares we issue to Suerez and the
price per share paid by Suerez are described in detail beginning on page 19. We
may make up to a maximum of 12 draw downs. The aggregate total of all draw downs
may not exceed $10,000,000, and no single draw may exceed $5,000,000. We are
under no obligation to request a draw for any period. The per-share dollar
amount Suerez pays for our common stock for each draw down includes a 10%
discount to the average daily market price of our common stock for the 22-day
period after our draw down request, weighted by trading volume.
The placement agent, Ladenburg Thalmann & Co. Inc., introduced us to
Suerez. We have agreed to issue to Ladenburg as a placement fee a warrant for a
number of shares equal to 2% of $5,000,000, or $100,000, divided by the volume
weighted average of our common stock on the trading date immediately preceding
the date of the closing of the initial draw down. This warrant is to be issued
half upon closing of the initial drawdown, half six months later. We have agreed
that after we have drawn down $5,000,000, we will issue to Ladenburg at the
closing of each draw down thereafter a warrant for a number of shares equal
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<PAGE>
to 2% of the draw down amount divided by the volume weighted average of our
common stock on the trading date immediately preceding the date of the
applicable closing. Each warrant will have a term of three years and an exercise
price equal to 150% of the volume weighted average price of our common stock on
the trading day immediately preceding the date of the applicable closing. The
common stock issuable upon exercise of those warrants is included in the
registration statement of which this prospectus is a part.
We have also agreed to pay Ladenburg at each closing a cash fee equal
to 4% of each draw down amount. An escrow agent fee of $1,500 will also be
deducted from each draw down amout.
Based on a review of our trading volume and stock price history and the
number of draw downs we estimate making, we are registering 5,925,926 shares of
common stock for possible issuance under the common stock purchase agreement and
388,970 shares underlying the warrants for common shares delivered to Suerez and
deliverable to Ladenburg Thalmann & Co. Inc. The listing requirements of the
Nasdaq SmallCap Market prohibit us from issuing without shareholder approval 20%
or more of our issued and outstanding common shares in a single transaction if
the shares may be issued for less than the greater of market value or book
value. Based on shares of common stock issued and outstanding on October 12,
2000, we may not issue without the approval of our shareholders more than
2,063,357 shares under the common stock purchase agreement and any Suerez
warrants and Ladenburg warrants. Because approximately 388,970 of these shares
are committed to those warrants, if we wish to draw amounts under the common
stock purchase agreement that would cause us to issue in the aggregate more than
1,674,387 shares under the common stock purchase agreement, we must receive
shareholder approval beforehand. If we ever need shareholder approval for such a
draw down, it may be that our officers and directors as a group own sufficient
shares of our common stock to approve it without requiring the affirmative vote
of any other shareholders.
In addition, the common stock purchase agreement does not permit us to
draw down funds if issuing shares of common stock to Suerez pursuant to that
draw down would result in Suerez owning more than 9.9% of our outstanding common
stock on the draw down exercise date.
The Draw Down Procedure and the Stock Purchases
We may request a draw down by faxing a draw down notice to Suerez
stating the amount of the draw down we wish to exercise and the minimum
threshold price, if any, at which we are willing to sell the shares.
Amount of the Draw Down
No draw may exceed the lesser of (1) $5,000,000 and (2) the amount that
is derived from the following formula:
o the average daily trading volume for the 45 trading days immediately
prior to the date we give notice of the draw down, multiplied by 22;
multiplied by
o the average of the volume-weighted average daily prices for the 22
trading days immediately prior to the date we give notice of the draw
down;
multiplied by
o 20%;
except that in no event will the maximum draw down amount be less than
$1,000,000 per month and the minimum draw down amount be less than $250,000.
The monthly draw down amount is reduced by 1/22 for every day in the 22
trading days after our draw down request that the volume-weighted average daily
price for a trading day is below the threshold price set by us in the request.
The lower our stock price is on any day in that 22-day period, the greater the
number of shares we will be required to issue to Suerez for that draw down.
Consequently, setting the threshold price requires balancing our need for the
draw down amount against our unwillingness to issue an inappropriately high
number of shares for that draw down amount. We cannot make another draw down
request until expiration of the 22 trading days that follow a draw down request
we have already made.
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<PAGE>
Number of Shares
The 22 trading days immediately following the draw down notice are also
used to determine the number of shares we will issue in return for the money
provided by Suerez, and thus the price per share Suerez will pay for our shares.
To determine the number of shares of common stock we must issue in
connection with a draw down, take 1/22 of the draw down amount determined by the
formulas above, and for each of the 22 trading days immediately following the
date we give notice of the draw down, divide it by 90% of the volume-weighted
average daily trading price of our common stock for that day. The 90% figure
represents Suerez's 10% discount. The sum of these 22 daily calculations
produces the number of common shares we will issue, unless the volume-weighted
average daily price for any given trading day is below the threshold amount, in
which case that day is ignored in the calculation. The price per share Suerez
ultimately pays is determined by dividing the final draw down amount by the
number of shares we issue Suerez.
Warrants
In lieu of providing Suerez with an initial minimum aggregate draw down
commitment, have issued to Suerez a warrant to purchase 68,970 shares of our
common stock with at an exercise price of $2.1749 per share, which was the
volume-weighted average share price on May 30, 2000, which was the trading day
immediate prior to the closing date. The warrant expires October 31, 2003.
In addition, once we have drawn down more than $5 ,000,000 in the
aggregate, we are required to grant to Suerez at the time of the closing of any
subsequent drawn down or partial draw down a warrant to purchase a number of
shares equal to 4% of the draw down or partial draw down divided by the
volume-weighted average price of our common stock for the trading day
immediately preceding the date of each closing of a draw down. Each such warrant
will be immediately exercisable with respect to half of the shares and
exercisable six months thereafter with respect to the remaining half of the
shares. The term of each warrant will be three years from the date of issuance,
and the strike price will be 150% of the volume-weighted average price of our
common stock for the trading day that immediately precedes the date of the
applicable closing date.
Sample Calculation of a Draw Down
The following is an example of the calculation of the draw down amount
and the number of shares we would issue to Suerez in connection with that draw
down based on hypothetical assumptions.
Sample Draw Down Amount Calculation.
Assume we provided a draw down notice to Suerez on August 24, 2000,
stating that we wanted to make a draw down, and that we specified in the notice
a threshold price of $1.60, meaning that we would not sell any shares to Suerez
below that price during the applicable draw down period.
Assume that the average daily trading volume for the 45 trading days
prior to our draw down notice of August 24, 2000. was 18,784 and that the
average of the volume-weighted average daily prices of our common stock for the
22 trading days prior to the notice is $1.75. You can apply the formula to these
hypothetical numbers as follows:
o the average trading volume for the 45 trading days prior to our draw
down notice (17,962) multiplied by 22 equals 395,169;
multiplied by
o the average of the volume-weighted average daily prices of our common
stock for the 22 trading days prior to the notice ($1.75);
multiplied by
o 20%
The maximum amount we could draw down under the formula would be capped
at $138,309, subject to further adjustments if the volume-weighted average daily
price of our common stock for any of the 22 trading days following the draw down
notice is below the threshold price we set of $1.60. For example, if the
volume-weighted average daily price of our common
20
<PAGE>
stock is below $1.60 on two of those 22 days, the $138,309 would be reduced by
1/22 for each of those days and our draw down amount would be 20/22 of $138,309,
or $125,736.
Notwithstanding the foregoing, the common stock purchase agreement
provides that in no event will the maximum draw down amount be less than
$1,000,000 per month and the minimum draw down amount be less than $250,000.
Accordingly, since the maximum draw down amount calculated under the formula is
$138,309, we would be permitted to request a maximum draw down amount of
$1,000,000 and a minimum draw down amount of $250,000.
Sample Calculation of Number of Shares
Assume that we have made a draw down request of $1,000,000, the maximum
amount we could draw down based on the foregoing sample draw down amount
calculation. In addition, assume we set a threshold price of $1.60 and that the
volume-weighted average daily price for our common stock is as set forth in the
table in the table below.
The number of shares to be issued based on any trading day during the
draw down period is calculated from the following formula:
o 1/22 of the draw down amount of $1,000,000; divided by
o 90% of the volume weighted average daily price.
For example, for the first trading day in the example in the table
below, the calculation is as follows: 1/22 of $1,000,000 is $45,454. Divide
$45,454 by 90% of the volume-weighed average daily price for that day of $1.7055
per share, to get 26,620 shares. Perform this calculation for each of the 22
measuring days, excluding any days on which the volume-weighted average daily
price is below the $1.60 threshold price, and add the results to determine the
number of shares to be issued. In the table below, there are two days which must
be excluded, namely days 14 and 15.
After excluding the days that are below the threshold price, the amount
of our draw down in this example would be $909,080 and the total number of
shares we would issue to Suerez for this draw down request would be 575,544, so
long as those shares would not cause Suerez to beneficially own more than 9.9%
of our then outstanding common stock. Suerez would pay $1.58 per share for those
shares.
Weighted-Volume Average 1/22 of Requested
Trading Day Daily Stock Price* Draw Down Amount
----------- ----------------- ----------------
1 $1.7055 $45,454.00
2 $1.8525 $45,454.00
3 $1.8472 $45,454.00
4 $1.9785 $45,454.00
5 $1.9773 $45,454.00
6 $1.8636 $45,454.00
7 $1.6311 $45,454.00
8 $1.6687 $45,454.00
9 $1.6638 $45,454.00
10 $1.6495 $45,454.00
11 $1.6301 $45,454.00
12 $1.6292 $45,454.00
13 $1.7218 $45,454.00
14 $1.5668 **
15 $1.5792 **
16 $1.6077 $45,454.00
17 $1.6152 $45,454.00
18 $1.8886 $45,454.00
19 $1.8832 $45,454.00
20 $1.9394 $45,454.00
21 $1.7923 $45,454.00
22 $1.7308 $45,454.00
-- ------- ----------
Total $909,080.00
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* The share prices are illustrative only and should not be interpreted as
a forecast of share prices or the expected or historical volatility of
the share prices of our common stock.
** Excluded because the volume-weighted average daily price is below the
threshold specified in our hypothetical draw down notice of $1.60.
We would receive the amount of our draw down ($909,080) less a 4% cash
fee paid to the placement agent, Ladenburg Thalmann & Co. Inc., of $36,363, and
less a $1,500 escrow fee, for net proceeds to us of $871,217. The delivery of
the requisite number of shares and payment of the draw will take place through
an escrow agent, Epstein, Becker & Green, P.C. of New York.
Necessary Conditions Before Suerez is Obligated to Purchase our Shares
The following conditions must be satisfied before Suerez is obligated
to purchase the common shares that we wish to sell from time to time:
o a registration statement for the shares must be declared effective by
the Securities and Exchange Commission and must remain effective and
available as of the draw down settlement date for making resales of the
common shares purchased by Suerez;
o there must be no material adverse change in our business, operations,
properties, prospects or financial condition;
o we must not have merged or consolidated with or into another company or
transferred all or substantially all of our assets to another company,
unless the acquiring company has agreed to honor the common stock
purchase agreement;
o no statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect that prohibits consummation of the
transactions contemplated by the stock purchase agreement;
o no litigation or proceeding nor any investigation by any governmental
authority may be pending or threatened against us or Suerez seeking to
restrain, prevent or change the transactions contemplated by the stock
purchase agreement or seeking damages in connection with such
transactions; and
o trading in our common shares must not have been suspended by the
Securities and Exchange Commission or the Nasdaq SmallCap Market (or
any other market or exchange on which our common stock is traded), nor
shall minimum prices have been established on securities whose trades
are reported by the Nasdaq SmallCap Market.
On each draw down settlement date for the sale of common shares, we
must deliver an opinion from our counsel about these matters.
A further condition is that Suerez may not purchase more than 19.9% of
our common shares issued and outstanding on May 31, 2000, the closing date under
the common stock purchase agreement, without us first obtaining approval from
our shareholders for such excess issuance.
Restrictions on Future Financing
The common stock purchase agreement limits our ability to raise money
by selling our securities for cash at a discount to the market price until the
earlier of 12 months from the effective date of the registration statement of
which this prospectus is a part or the date that is 60 days after Suerez has
purchased the maximum of $10,000,000 worth of common stock from us under the
common stock purchase agreement.
There are exceptions to this limitation for securities sold in the
following situations:
o in a registered public offering that is underwritten by one or more
established investment banks;
o in one or more private placements in connection with which the
purchasers do not have registration rights;
o pursuant to any currently existing or future employee benefit plan that
has been or is approved by our shareholders;
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<PAGE>
o pursuant to any compensatory plan for a full-time employee or key
consultant;
o in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise
money
o in one or more private placements, the principal purpose of which is to
raise money for an acquisition; and
o a transaction to which Suerez gives its written approval.
Costs of Closing the Transaction
At the closing of the transaction on May 31, 2000, we delivered the
requisite opinion of counsel to Suerez and paid the escrow agent, Epstein Becker
& Green P.C., $10,000 for Suerez's legal, administrative and escrow costs. In
addition, we issued a warrant to purchase 68,970 shares of our common stock to
Suerez.
Upon the closing of each draw down, we are required to issue to
Ladenburg a cash fee equal 4% of the amount of each draw down, as well as a
warrant to purchase shares of our common stock. See "Overview," above.
Termination of the Stock Purchase Agreement
Suerez may terminate the equity draw down facility under the common
stock purchase agreement if any of the following events occur:
o we suffer a material adverse change in our business, operations,
properties, or financial condition;
o there occurs any situation that would prohibit or materially interfere
with our ability to perform our obligations under the common stock
purchase agreement, the related registration rights agreement, or any
other material agreement;
o our common shares are delisted from the Nasdaq SmallCap Market (or any
other market or exchange on which our common stock is traded), unless
that delisting is in connection with the listing of such shares on a
comparable stock exchange in the U.S.; or
o we file for protection from creditors.
We may terminate the common stock purchase agreement if Suerez fails to
fund more than one properly noticed draw down within three trading days of the
date payment for such draw down is due.
Indemnification of Suerez
Suerez is entitled to customary indemnification from us for any losses
or liabilities suffered by it based upon material misstatements or omissions
from this prospectus and the registration statement of which this prospectus
forms a part, except as they relate to information supplied by Suerez to us for
inclusion in the prospectus and the registration statement.
SELLING SHAREHOLDERS
Overview
The number of shares we are registering is based in part on our good
faith estimate of the maximum number of shares we will issue to Suerez
Enterprises Limited under the common stock purchase agreement. Accordingly, the
number of shares we are registering for issuance under the common stock purchase
agreement may be higher than the number we actually issue under the common stock
purchase agreement.
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Suerez Enterprises Limited
Suerez Enterprises Limited's principal offices are located at
Aeulestrasse 74, FL-9490 Vaduz, Liechtenstein. Investment decisions for Suerez
are made by its board of directors. Other than the warrants we issued to Suerez
in connection with closing the common stock purchase agreement and any future
draw downs, Suerez does not currently own any of our securities as of the date
of this prospectus. Other than its obligation to purchase common shares under
the common stock purchase agreement, it has no other commitments or arrangements
to purchase or sell any of our securities. There are no business relationships
between Suerez and us other than the common stock purchase agreement.
Ladenburg Thalmann & Co. Inc.
Ladenburg Thalmann & Co. Inc. has acted as placement agent in
connection with the common stock purchase agreement. Ladenburg Thalmann
introduced us to Suerez and assisted us with structuring the equity line of
credit with Suerez. Ladenburg Thalmann's duties as placement agent were
undertaken on a reasonable best efforts basis only. It made no commitment to
purchase shares from us and did not ensure us of the successful placement of any
securities.
This prospectus covers 213,333 shares of common stock which we
anticipate we will be required to issue to Ladenburg Thalmann, in the form of
warrants, as a placement fee for introducing us to Suerez. Each warrant will be
exercisable at 150% of the volume weighted average price of our common stock on
the trading day immediately preceding the closing date of each draw down and
each warrant will have a term of three years. The decision to exercise any
warrants issued, and the decision to sell the common stock issued pursuant to
the warrants, will be made by Ladenburg Thalmann's officers and board of
directors. Ladenburg Thalmann does not own any of our securities as of the date
of this prospectus. Our agreement with Ladenburg Thalmann provides Ladenburg
Thalmann with a right of first refusal for one year after completion of the
offering under the common stock purchase agreement, as underwriter or placement
agent, all of our financing arrangements at terms no less favorable than we
could obtain in the market.
Other Selling Shareholders
Of the 6,896,146 shares we are registering, 581,250 shares are for the
account of the selling shareholders described in the table below. These selling
shareholders currently hold warrants to purchase unregistered shares of our
common stock that were issued on December 19, 1997 pursuant to a private
placement transaction. The 581,250 shares of common stock being registered for
resale will be issued upon exercise of these warrants.
Based on information provided to us by each selling shareholder, the
following table shows, as of October 12, 2000:
o the name of the selling shareholder; and
o the number of shares of common stock underlying the warrant held by
that selling shareholder warrant.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Except as indicated, we believe each person will possess sole voting
and investment power with respect to all of the shares of common stock
underlying the warrant owned by that person, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
Beneficial Ownership Maximum Number of Amount and Percentage of
of Common Stock as of Shares of Common Stock Common Stock Beneficially
Name October 12, 2000 Offered for Sale Owned After the Offering (1)
---- ---------------- ---------------- ------------------------
Number Percentage
------ ----------
<S> <C> <C> <C> <C> <C>
Suerez Enterprises Limited 68,970 (2) 68,970 0 *
Suerez Enterprises Limited 0 6,245,926 (3) 0 *
Michael Cohen 10,000 (4) 10,000 0 *
Anthony J. Kirincic 63,750 (4) 63,750 0 *
David O. Lindner 63,750 (4) 63,750 0 *
Robert A. Paduano 12,500 (4) 12,500 0 *
Roger Flore 25,000 (4) 25,000 0 *
Lawrence K. Fleschman 25,000 (4) 25,000 0 *
Jacqueline Knapp 12,500 (4) 12,500 0 *
Ronald I. Heller and Joyce Heller 50,000 (4) 50,000 0 *
Kae Investment 12,500 (4) 12,500 0 *
The Evan Todd Heller Trust 12,500 (4) 12,500 0 *
Anthony Charos and Kevin Charos 6,250 (4) 6,250 0 *
The Rachel Beth Heller Trust 12,500 (4) 12,500 0 *
Nagelberg Family Trust 62,500 (4) 62,500 0 *
Delaware Charter Guarantee & Trust 50,000 (4) 50,000 0 *
FBO Ronald I.
Janine Halle Nessess 50,000 (4) 50,000 0 *
Donahew Fund LP 25,000 (4) 25,000 0 *
Delaware Charter Guarantee & Trust 62,500 (4) 62,500 0 *
FBO David S. Nagelberg
Bernard Pismeny 25,000 (4) 25,000 0 *
</TABLE>
* Less than 1%.
(1) Assumes that the selling stockholder will sell all of its shares of our
common stock offered in this prospectus. We cannot assure you that the
selling stockholder will sell all or any of its shares.
(2) Represents 68,970 shares of our common stock issuable upon exercise of
outstanding warrants issued to Suerez Enterprises Limited as a commitment
fee for entering in the common stock purchase agreement.
(3) Includes (solely for purposes of this prospectus) up to an aggregate of
5,925,926 shares of our common stock that we may sell to Suerez pursuant
to our common stock purchase agreement with Suerez and 320,000 shares of
common stock underlying warrants to purchase shares of our common stock
issuable in connection with the common stock purchase agreement, but would
not be deemed beneficially owned within the meaning of Sections 13(d) and
13(g) of the Exchange Act before they were acquired by Suerez.
(4) Represents shares of our common stock issuable upon the exercise of
warrants. Each warrant has an exercise price of $5.75 and expires on
December 18, 2002.
24
<PAGE>
None of the selling shareholders have held any positions or offices or
had material relationships with us or any of our affiliates within the past
three years other than as a result their being issued a warrant exercisable for
shares of our common stock. We may amend or supplement this prospectus from time
to time to update the disclosure.
PLAN OF DISTRIBUTION
General
Suerez is offering shares of our common stock for its account as
statutory underwriter, and not for our account. We will not receive any proceeds
from the sale of common shares by Suerez. Suerez may be offering for sale up to
6,101,563 common shares acquired by it pursuant to the terms of the common stock
purchase agreement more fully described under the section above entitled "The
Common Stock Purchase Agreement" and pursuant to the warrants we issued to and
may issue to it in the future in connection with the transaction. Suerez has
agreed to be named as a statutory underwriter within the meaning of the
Securities Act in connection with such sales of common shares and will be acting
as an underwriter in its resales of the common shares under this prospectus.
Suerez has, prior to any sales, agreed not to effect any offers or sales of the
common shares in any manner other than as specified in the prospectus and not to
purchase or induce others to purchase common shares in violation of any
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Nasdaq SmallCap Market.
On October 12, 2000, there were approximately 10,317,869 shares of our
common stock outstanding. The following table shows the number of shares we
would issue to Suerez and the price it would pay for those shares given the
hypothetical variables shown in the table, if:
o we requested draw downs of the maximum amounts under the common stock
purchase agreement;
o we set a threshold price of $1.00;
o the volume-weighted average daily price in the table were the
volume-weighted average daily price of our common stock for the 22
trading days before each draw down request under the common stock
purchase agreement and the 22 trading days after each draw down
request;
o the average trading volume in the table were the average trading volume
for the 45 trading days before each draw down request; and
o we do not issue more shares to Suerez under the common stock purchase
agreement than we are currently registering for resale of the shares
issued under the common stock purchase agreement.
<TABLE>
<CAPTION>
Number of Shares Issuable to Suerez
Volume-Weighted Average Trading under Common Stock Price per share paid
Average Daily Price Volume Purchase Agreement (g) by Suerez
------------------- --------------- ------------------------ ---------
<S> <C> <C> <C> <C>
$1.0000 (a) 8,981 (d) 1,029,971 $0.90
1.7613 (b) 17,962 (e) 6,314,896 (h) 1.58
2.6240 (c) 26,943 (f) 6,314,896 (h) 2.36
</TABLE>
-----------------------------
(a) Represents the lowest price at which our shares can remain listed on the
Nasdaq SmallCap Market.
25
<PAGE>
(b) Represents the average closing price of our common stock for the 22 trading
days before August 23, 2000.
(c) Represents 150% of the average closing price of our common stock for the 22
trading days before August 23, 2000.
(d) Represents 50% of the average trading volume of our common stock for the 45
trading days preceding August 23, 2000.
(e) Represents the average trading volume of our common stock for the 45
trading days preceding August 23, 2000.
(f) Represents 150% of the average trading volume of our common stock for the
45 trading days preceding August 23, 2000.
(g) The number of shares we would issue could be limited by a provision of the
common stock purchase agreement that prevents us from issuing shares to
Suerez to the extent Suerez would beneficially own more than 9.9% of our
then-outstanding common stock.
(h) Represents all 6,314,896 shares we are registering under the common stock
purchase agreement.
To permit Suerez to resell the common shares issued to it under the
common stock purchase agreement, we agreed to register those shares and to
maintain that registration. To that end, we have agreed with Suerez that we will
prepare and file such amendments and supplements to the registration statement
and the prospectus as may be necessary in accordance with the Securities Act and
the rules and regulations promulgated thereunder to keep it effective until the
earliest of any of the following dates:
o the date after which all of the shares of our common stock held by
Suerez or its transferees that are covered by the registration
statement of which this prospectus forms a part have been sold under
the provisions of Rule 144 under the Securities Act;
o the date after which all of the shares of our common stock held by
Suerez or its transferees that are covered by the registration
statement have been transferred to persons who may trade those shares
without restriction under the Securities Act and we have delivered new
certificates or other evidences of ownership of those shares without
any restrictive legend;
o the date after which all of the shares of our common stock held by
Suerez or its transferees that are covered by the registration
statement of which this prospectus forms of part have been sold by
Suerez or its transferees pursuant to that registration statement;
o the date after which all of the shares of our common stock held by
Suerez or its transferees that are covered by the registration
statement may be sold, in the opinion of our counsel, under Rule 144
under the Securities Act irrespective of any applicable volume
limitations;
o the date after which all of the shares of our common stock held by
Suerez or its transferees that are covered by the registration
statement may be sold, in the opinion of our counsel, without any time,
volume or manner limitations under Rule 144(k) or any similar provision
then in effect under the Securities Act; or
o the date after which none of the shares of our common stock held by
Suerez that are covered by the registration statement are or may become
issued and outstanding.
Shares of common stock offered through this prospectus may be sold from
time to time by Suerez and the other Selling Shareholders. We will supplement
this prospectus to disclose the names of any pledgees, donees, transferees, or
other successors in interest that intend to offer common stock through this
prospectus.
Sales may be made on the Nasdaq SmallCap Market, on the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated private
transactions, or in a combination of these methods. The selling shareholders
will act independently of us in making decisions with respect to the form,
timing, manner and size of each sale. We have been informed by the selling
shareholders that there are no existing arrangements between any selling
shareholder and any other shareholder, broker, dealer, underwriter or agent
relating to the sale or distribution of shares of common stock which may be sold
by selling shareholders through this prospectus. Selling shareholders may be
deemed underwriters in connection with resales of their shares.
The common shares may be sold in one or more of the following manners:
26
<PAGE>
o a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account under this prospectus;
or
o ordinary brokerage transactions and transactions in which the broker
solicits purchases.
In effecting sales, brokers or dealers engaged by the selling
shareholders may arrange for other brokers or dealers to participate. Except as
disclosed in a supplement to this prospectus, no broker-dealer will be paid more
than a customary brokerage commission in connection with any sale of the common
shares by the selling shareholders. Brokers or dealers may receive commissions,
discounts or other concessions from the selling shareholders in amounts to be
negotiated immediately prior to the sale. The compensation to a particular
broker-dealer may be in excess of customary commissions. Profits on any resale
of the common shares as a principal by such broker-dealers and any commissions
received by such broker-dealers may be deemed to be underwriting discounts and
commissions under the Securities Act. Any broker-dealer participating in such
transactions as agent may receive commissions from the selling shareholders
(and, if they act as agent for the purchaser of such common shares, from such
purchaser).
Broker-dealers may agree with the selling shareholders to sell a
specified number of common shares at a stipulated price per share, and, to the
extent a broker dealer is unable to do so acting as agent for the selling
shareholders, to purchase as principal any unsold common shares at a price
required to fulfill the broker-dealer commitment to the selling shareholders.
Broker-dealers who acquire common shares as principal may thereafter resell such
common shares from time to time in transactions (which may involve crosses and
block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such common
shares commissions computed as described above. Brokers or dealers who acquire
common shares as principal and any other participating brokers or dealers may be
deemed to be underwriters in connection with resales of the common shares.
In addition, any common shares covered by this prospectus which qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus. We will not receive any of the proceeds from the sale of these
common shares, although we have paid the expenses of preparing this prospectus
and the related registration statement of which it is a part, and have
reimbursed Suerez $10,000 for its legal, administrative and escrow costs.
Suerez is subject to the applicable provisions of the Exchange Act,
including without limitation, Rule 10b-5 thereunder. Under applicable rules and
regulations under the Exchange Act, any person engaged in a distribution of the
common shares may not simultaneously engage in market-making activities with
respect to those securities for a period beginning when that person becomes a
distribution participant and ending upon that person's completion of
participation in a distribution, including stabilization activities in the
common shares to effect covering transactions, to impose penalty bids, or to
effect passive market making bids. In addition, in connection with transactions
in the common shares, Suerez and we will be subject to applicable provisions of
the Exchange Act and the rules and regulations under the Exchange Act, including
without limitation the rules set forth above. These restrictions may affect the
marketability of the common shares.
The selling shareholders will pay all commissions and their own
expenses, if any, associated with the sale of the common shares, other than the
expenses associated with preparing this prospectus and the registration
statement of which it is a part.
The price at which we will issue the common shares to Suerez under the
common stock purchase agreement will be 90% of the volume-weighted average daily
price traded on the Nasdaq SmallCap Market, for each day in the pricing period
with respect to each draw down request.
Limited Grant of Registration Rights
We granted registration rights to Suerez to enable it to sell the
common stock it purchases under the common stock purchase agreement. In
connection with any such registration, we will have no obligation:
o to assist or cooperate with Suerez in the offering or disposition of
those shares;
o to indemnify or hold harmless the holders of any such shares (other
than Suerez) or any underwriter designated by any such holders;
27
<PAGE>
o to obtain a commitment from an underwriter relating to the sale of any
such shares; or
o to include such shares within any underwritten offering we do.
We will assume no obligation or responsibility whatsoever to determine
a method of disposition for such shares or to otherwise include such shares
within the confines of any registered offering other than the registration
statement of which this prospectus is a part.
We will use our best efforts to file, during any period during which we
are required to do so under our registration rights agreement with Suerez, one
or more post-effective amendments to the registration statement of which this
prospectus is a part to describe any material information with respect to the
plan of distribution not previously disclosed in this prospectus or any material
change to such information in this prospectus. This obligation may include, to
the extent required under the Securities Act, that a supplemental prospectus be
filed, disclosing:
o the name of any broker-dealers;
o the number of common shares involved;
o the price at which the common shares are to be sold;
o the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
o that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
o any other facts material to the transaction.
Our registration rights agreement with Suerez permits us to restrict
the resale of the shares Suerez has purchased from us under the common stock
purchase agreement for a period of time sufficient to permit us to amend or
supplement this prospectus to include material information. If we restrict
Suerez for more than 30 consecutive days and our stock price declines during the
restriction period, we are required to pay to Suerez cash to compensate Suerez
for its inability to sell shares during the restriction period. The amount we
would be required to pay would be the difference between our stock price on the
first day of the restriction period and the last day of the restriction period,
for each share held by Suerez during the restriction period that has been
purchased under the common stock purchase agreement.
LEGAL PROCEEDINGS
On June 8, 1998, we were served with a summons and complaint filed by
Philip M. Panzera in the U.S. District Court for the Eastern District of New
York alleging that we wrongfully terminated his employment on January 29, 1998,
pursuant to an employment agreement dated November 14, 1997, and that we
wrongfully converted Mr. Panzera's personal property. Mr. Panzera is seeking
monetary damages in excess of $1,000,000. Mr. Panzera was our Senior Vice
President and Chief Financial Officer from November 17, 1997, through January
29, 1998. We have answered this complaint and denied all of Mr. Panzera's
allegations, stating that we properly terminated Mr. Panzera for cause pursuant
to his employment agreement. Additionally, we have filed a counterclaim against
Mr. Panzera alleging, among other things, that Mr. Panzera fraudulently induced
us to enter into the employment agreement by making false representations
concerning his educational background, employment history, experience and
skills. We are seeking monetary damages of no less than $1,000,000. The
discovery phase of this case has been completed.
Mr. Panzera recently made a motion for partial summary judgment to
dismiss a number of the affirmative defenses and the counterclaims that we
brought against him. On April 14, 2000, the court ruled in our favor and denied
Mr. Panzera's motion for partial summary judgment.
Additionally, we made a motion for partial summary judgment to dismiss
Mr. Panzera's complaint to the extent he seeks to recover on a modification to
his employment agreement. The motion was granted, dismissing Mr. Panzera's claim
against us under the employment agreement, to the extent that he relies on the
terms of the modification of the employment agreement. We believe that the
remainder of Mr. Panzera's claim is without merit, and we intend to continue to
vigorously defend this suit.
We have recently reached a settlement with Mr. Panzera whereby each
party will execute a release and stipulation dismissing this action, including
our counterclaim against Mr. Panzera, with prejudice.
28
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the shares of our common stock
offered for resale in this prospectus have been passed upon for us by Kramer
Levin Naftalis & Frankel LLP, New York, New York.
EXPERTS
Nussbaum Yates & Wolpow, P.C., independent certified public
accountants, audited the consolidated financial statements incorporated in this
prospectus, as indicated in their report with respect thereto. These documents
are incorporated herein in reliance upon the authority of Nussbaum Yates &
Wolpow, P.C. as experts in accounting and auditing in giving the report.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission relating to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or other document referred to are not necessarily complete and in
each instance we refer you to the copy of the contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference.
For further information with respect to us and the common stock we are
offering, please refer to the registration statement. A copy of the registration
statement can be inspected by anyone without charge at the public reference room
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at 7 World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street, Chicago, Illinois
60601. Please call the Commission at 1-800-SEC-0330 for further information on
the operation of the public reference room. Copies of these materials can be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a website (http://www.sec.gov) that contains information regarding
registrants that file electronically with the Commission.
Our common stock is quoted for trading on the Nasdaq SmallCap Market,
and you may inspect at the offices of the Nasdaq SmallCap Market, located at
1735 K Street, N.W., Washington, D.C. 20006, the registration statement relating
to the common stock offered by this prospectus, reports filed by us under the
Exchange Act, and other information concerning us.
29
<PAGE>
INDEX TO Financial Statements
FINANCIAL STATEMENTS
December 31, 1999
Item Page
---- ----
Independent Auditors' Report................................................F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998................F-2
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998................................................F-3
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1999 and 1998....................................F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998................................................F-5
Notes to Consolidated Financial Statements..................................F-6
FINANCIAL STATEMENTS
June 30, 2000
Condensed Consolidated Balance Sheet as of June 30, 2000 (unaudited)........F-15
Condensed Consolidated Statements of Operations for the three months
ended June 30, 2000 and 1999 (unaudited)..................................F-16
Condensed Consolidated Statements of Operations for the six
months ended June 30, 2000 and 1999 (unaudited)...........................F-17
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 (unaudited)...........................F-18
Notes to Consendsed Consolidated Financial Statements (unaudited)...........F-19
30
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999 AND 1998
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
First Priority Group, Inc.
Plainview, New York
We have audited the accompanying consolidated balance sheets of First Priority
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Priority Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
NUSSBAUM YATES & WOLPOW, P.C.
Melville, New York
March 13, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---------- ----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 542,359 $2,782,180
Accounts receivable, less allowance for doubtful
accounts of $28,223 in 1999 and 1998 1,794,740 1,171,885
Investment securities (Note 3) 1,036,263 --
Prepaid expenses and other current assets 39,376 66,207
---------- ----------
Total current assets 3,412,738 4,020,272
Property and equipment, net 689,094 601,424
Security deposits and other assets 35,288 107,972
---------- ----------
Total assets $4,137,120 $4,729,668
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 938,418 $ 698,330
Accrued expenses and other current liabilities 747,567 596,795
Current portion of long-term debt 50,513 44,672
---------- ----------
Total current liabilities 1,736,498 1,339,797
---------- ----------
Long-term debt -- 51,926
---------- ----------
Shareholders' equity:
Common stock, $.015 par value, authorized 20,000,000
shares; issued 8,598,467 shares in 1999 and 1998 128,977 128,977
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding -- --
Additional paid-in capital 7,823,916 7,762,350
Accumulated other comprehensive loss, unrealized holding
loss on investment securities ( 4,095) --
Deficit ( 5,429,014) ( 4,463,382)
---------- ---------
2,519,784 3,427,945
Less common stock held in treasury, at cost, 296,667
shares in 1999 and 266,667 shares in 1998 119,162 90,000
---------- ----------
Total shareholders' equity 2,400,622 3,337,945
---------- ----------
Total liabilities and shareholders' equity $4,137,120 $4,729,668
========== ==========
See notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------ -------------
Revenue:
<S> <C> <C>
Collision repairs and fleet management services $ 10,954,912 $ 11,366,891
Subrogation and salvage service commissions 407,260 411,200
Automobile affinity services 773,406 362,880
------------ ------------
Total revenues 12,135,578 12,140,971
Cost of revenue (principally charges incurred at repair
facilities for services) 9,338,271 9,712,316
Gross profit 2,797,307 2,428,655
------------ ------------
Operating expenses:
Selling 1,048,681 1,351,360
General and administrative 2,838,218 3,221,649
------------ ------------
Total operating expenses 3,886,899 4,573,009
------------ ------------
( 1,089,592) ( 2,144,354)
------------ ------------
Other income (expense):
Realized loss on investment ( 3,096) --
Investment and other income 152,976 245,246
Interest expense ( 6,784) ( 2,800)
------------ ------------
Total other income 143,096 242,446
------------ ------------
Loss from continuing operations before
income taxes ( 946,496) ( 1,901,908)
Income taxes, all current 19,136 7,928
------------ ------------
Loss from continuing operations ( 965,632) ( 1,909,836)
Discontinued operations,
loss on disposal of direct response marketing
division, no income tax benefit -- ( 93,922)
------------ ------------
Net loss ($ 965,632) ( $ 2,003,758)
------------ ------------
Basic and diluted loss per share:
Continuing operations ($ .12) ($ .23)
Discontinued operations -- ( .01)
------------ ------------
Net loss ($ .12) ($ .24)
------------ ------------
Weighted average number of common shares outstanding 8,324,649 8,197,827
------------ ------------
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-in Comprehensive
Shares Amount Capital Loss Deficit
------ ------ ------- ---- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 7,998,467 $ 119,977 $ 6,645,737 $ -- ($2,459,624)
Net loss -- -- -- -- (2,003,758)
Exercise of options 100,000 1,500 68,500 -- --
Exercise of warrants 500,000 7,500 992,500 -- --
Options granted for services -- -- 55,613 -- --
----------- ----------- ----------- ---------- ----------
Balance, December 31, 1998 8,598,467 128,977 7,762,350 -- (4,463,382)
Net loss -- -- -- -- ( 965,632)
Other comprehensive income (loss),
unrealized holding loss arising
during period -- -- -- ( 4,095) --
Comprehensive loss -- -- -- -- --
Purchase of treasury stock -- -- -- -- --
Options granted for services -- -- 61,566 -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 8,598,467 $ 128,977 $ 7,823,916 ($ 4,095) ($5,429,014)
=========== =========== =========== =========== ==========
</TABLE>
Total
Share-
Treasury Stock holders'
Shares Amount Equity
------ ------ ------
Balance, January 1, 1998 266,667 ($ 90,000) $ 4,216,090
Net loss -- -- ( 2,003,758)
Exercise of options -- -- 70,000
Exercise of warrants -- -- 1,000,000
Options granted for services -- -- 55,613
----------- ----------- -----------
Balance, December 31, 1998 266,667 ( 90,000) 3,337,945
Net loss -- -- ( 965,632)
Other comprehensive income (loss),
unrealized holding loss arising
during period -- -- ( 4,095)
-----------
Comprehensive loss -- -- ( 969,727)
Purchase of treasury stock 30,000 ( 29,162) ( 29,162)
Options granted for services -- -- 61,566
----------- ----------- -----------
Balance, December 31, 1999 296,667 ($ 119,162) $ 2,400,622
=========== =========== ===========
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Cash flows used in operating activities:
<S> <C> <C>
Net loss ($ 965,632) ($2,003,758)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 201,289 143,308
Gain on sale of property and equipment ( 2,500) --
Realized loss on investment 3,096 --
Provision for bad debts -- 16,723
Options granted for services 61,566 55,613
Changes in assets and liabilities:
Accounts receivable ( 622,855) ( 50,784)
Inventories -- 61,642
Prepaid expenses and other current assets 26,831 73,069
Security deposit and other assets 8,009 ( 66,644)
Accounts payable 240,088 ( 89,856)
Accrued expenses and other current liabilities 150,772 306,425
----------- -----------
Total adjustments 66,296 449,496
----------- -----------
Net cash used in operating activities ( 899,336) ( 1,554,262)
----------- -----------
Cash flows used in investing activities:
Proceeds from sale of property and equipment 2,500 --
Purchase of property and equipment ( 224,284) ( 287,422)
Purchase of investments ( 1,543,454) --
Proceeds from sale of investments 500,000 --
----------- -----------
Net cash used in investing activities ( 1,265,238) ( 287,422)
----------- -----------
Cash flows provided by (used in) financing activities:
Repayment of long-term debt ( 46,085) --
Purchase of treasury stock ( 29,162) --
Collection of shareholder note -- 100,000
Proceeds from issuance of common stock -- 1,070,000
----------- -----------
Net cash provided by (used in) financing activities ( 75,247) 1,170,000
----------- -----------
Net decrease in cash and cash equivalents ( 2,239,821) ( 671,684)
Cash and cash equivalents at beginning of year 2,782,180 3,453,864
----------- -----------
Cash and cash equivalents at end of year $ 542,359 $ 2,782,180
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 20,204 $ 2,876
----------- -----------
Cash paid during the year for interest $ 9,175 $ --
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
First Priority Group, Inc. and its subsidiaries, National Fleet Service,
Inc., driversshield.com Corp., American Automotive Trading Corp., and
First Priority Group Leasing, Inc. (collectively referred to as the
"Company") all of which are wholly owned. All material intercompany
balances and transactions have been eliminated.
Property and Equipment
Property and equipment are stated at cost. The Company provides
depreciation for machinery and equipment and for furniture and fixtures by
the straight-line method over the estimated useful lives of the assets,
principally five years. Leasehold improvements are amortized over the
estimated useful lives or the remaining term of the lease, whichever is
less.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Investment Securities
Investments consist of securities available for sale and are carried at
fair value with unrealized gains or losses reported in a separate
component of shareholders' equity. Realized gains or losses are determined
based on the specific identification method.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 101 (SAB 101), the Company has determined that the portion of
its business representing commission revenues from its subrogation and
salvage services should be displayed in the financial statements on a net
basis. It had been the Company's prior policy to report such revenues and
related costs on a gross basis. Accordingly, 1998 has been reclassified to
reflect the net presentation. There was no effect on net loss or net cash
flows used in operating activities from the reclassification. Revenues and
direct costs for 1998 were reduced by $2,417,503. Accounts receivable and
accounts payable for 1998 were reduced by $539,759.
F-6
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
2. Fair Value of Financial Instruments, Description of Business and
Concentration of Credit Risk, and Revenue Recognition
Fair Value of Financial Instruments
o Cash and Cash Equivalents
The carrying amounts approximate fair value because of the short
maturity of the instruments.
o Investments
Investments are stated at fair value as measured by quoted market
prices.
o Long-Term Debt
The carrying amount of the Company's long-term debt approximates fair
value.
Description of Business and Concentration of Credit Risk
The Company is engaged in automotive fleet management and administration
of automotive repairs for major corporate clients throughout the United
States. The Company offers computerized collision estimates and provides
its clients with a cost-effective method for repairing their vehicle. The
Company also arranges for repair of the vehicles through a nationwide
network of independently owned contracted facilities. The Company also
provides automobile affinity services for individuals.
The Company formed driversshield.com Corp. in April 1999 to provide
collision repair claims management services for the insurance industry
nationwide through a website on the Internet. At December 31, 1999, the
website was not yet operational and to date, there have been no revenues.
Sales to one customer accounted for 10% of revenue in 1999 and 1998.
The Company has no financial instruments with significant
off-balance-sheet risk or concentration of credit risk.
Revenue Recognition
The Company recognizes revenue for its collision repairs and fleet
management at the time of customer approval and completion of repair
services. The Company warrants such services for varying periods ranging
up to twelve months. Such warranty expense is borne by the repair
facilities and has not been material to the Company. The Company
recognizes commissions for its subrogation and salvage services upon
completion of the services. Automobile affinity services are recognized as
such services are rendered.
3. Investment Securities
At December 31, 1999:
<TABLE>
<CAPTION>
Unrealized
Cost Fair Value Holding Loss
---- ---------- ------------
<S> <C> <C> <C>
Available for sale, 106,721 shares of
Salomon Smith Barney Adjustable
Rate Government Income Fund $1,040,358 $1,036,263 ($4,095)
---------- ---------- ------
</TABLE>
F-7
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
4. Property and Equipment
1999 1998
----------- ------------
Machinery and equipment $ 980,894 $ 717,912
Furniture and fixtures 285,800 264,823
Leasehold improvements 19,886 19,886
----------- -----------
1,286,580 1,002,621
Less accumulated depreciation
and amortization 597,486 401,197
----------- -----------
$ 689,094 $ 601,424
----------- -----------
5. Long-Term Debt
In August 1998, the Company agreed to pay severance to its former
Co-Chairman and President in the amount of $100,000 including imputed
interest of 8.5% in quarterly installments of $12,500 commencing March 31,
1999 and ending December 31, 2000. This amount was accrued and charged to
operations in the year ended December 31, 1998.
6. Loss Per Share
Basic loss per share is computed by dividing the loss by the weighted
average number of common shares outstanding during the period. Diluted
loss per share reflects the potential dilution that could occur if common
stock equivalents, such as stock options and warrants, were exercised.
<TABLE>
<CAPTION>
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
1999:
Basic and Diluted Loss Per Share
<S> <C> <C> <C>
Loss from continuing operations ($ 965,632) 8,324,469 ($.12)
========== ========= ====
1998:
Basic and Diluted Loss Per Share
Loss from continuing operations ($1,909,836) 8,197,827 ($.23)
========== ========= ====
</TABLE>
In 1999 and 1998, options and warrants were anti-dilutive.
7. Stock Options
Stock Compensation Plan
The Company accounts for its stock option plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation
expense is recognized. In 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
(SFAS No. 123) for disclosure purposes; accordingly, no compensation
expense has been recognized in the results of operations for its stock
option plans as required by APB Opinion No. 25. The Company has two fixed
option plans, the 1995 Stock Incentive Plan, and the 1987 Incentive Stock
Option Plan. Under the plans, in the aggregate, the Company may grant
options to its employees, directors and consultants for up to 7,000,000
shares of common stock. Under both plans, incentive stock options may be
granted at no less than the fair market value of the Company's stock on
the date of grant, and in the case of an optionee who owns directly or
indirectly more than 10% of the outstanding voting stock ("an Affiliate"),
110% of the market price on the date of grant. The maximum term of an
option is ten years, except in regard to incentive stock options granted
to an Affiliate, in which case the maximum term is five years.
F-8
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
7. Stock Options (Continued)
For disclosure purposes, the fair value of each stock option grant is
estimated on the date of grant using the Black Scholes option-pricing
model with the following weighted average assumptions used for stock
options granted in 1999 and 1998, respectively: annual dividends of $-0-
for both years, expected volatility of 174% and 80%, risk-free interest
rate of 5.90% and 5.02%, and expected life of five years for all grants.
The weighted-average fair value of stock options granted in 1999 and 1998
was $1.08 and $.83, respectively.
Under the above model, the total value of stock options granted in 1999
and 1998 was $801,945 and $1,044,745, respectively, which would be
amortized ratably on a pro forma basis over the related vesting periods,
which range from immediate vesting to five years (not including
performance-based stock options granted in 1999 and 1998, see below). Had
compensation cost been determined based upon the fair value of the stock
options at grant date consistent with the method of SFAS No. 123, the
Company's loss from continuing operations and loss per share from
continuing operations would have been reduced to the pro forma amounts
indicated below:
1999 1998
------------ ----------
Loss from continuing operations:
As reported ($ 965,632) ($1,909,836)
Pro forma ( $3,293,360) ($2,994,711)
Basic and diluted loss per share from
continuing operations:
As reported ($ .12) ($ .23)
Pro forma ($ .40) ($ .37)
During 1998, the Company repriced certain options granted in 1997,
representing the right to purchase 465,000 shares of common stock. The
original 1997 grants gave the holders the right to purchase common stock
at prices ranging from $2.75 to $6.84 per share. The options were repriced
at prices ranging from $1.75 to $1.93 per share. In addition, during 1998,
the Company repriced certain options granted at earlier dates in 1998,
representing the right to purchase 1,095,000 shares of common stock. The
original 1998 grants gave the holders the right to purchase common stock
at prices ranging from $5.13 to $5.69 per share. The options were repriced
at prices ranging from $1.75 to $1.93 per share. At the date of repricing,
the new exercise price was equal to the fair market value of the shares
(110% of the fair market value in the case of an affiliate).
In March 1999, the Company repriced certain options granted to employees
and third parties in previous years, representing the right to purchase
1,665,000 shares of common stock. The original grants gave the holders the
right to purchase common stock at prices ranging from $1.25 to $5.00 per
share. The options were repriced at prices ranging from $1.13 to $3.00 per
share. The Company also granted options to employees, representing the
right to purchase 630,000 shares of common stock at prices ranging from
$1.13 to $1.24 per share. In addition, in October 1999, the Company
repriced certain options granted to employees and third parties,
representing the right to purchase 2,330,000 shares of common stock, of
which 2,235,000 were part of the March 1999 grant. The original grants
gave the holders the right to purchase common stock at prices ranging from
$1.00 to $1.24 per share. The options were repriced at prices ranging from
$.75 to $.83 per share. At the date of the repricing, the new exercise
price was equal to the fair market value of the shares (110% of the fair
market value in the case of an affiliate).
The SFAS No. 123 method of accounting does not apply to options granted
prior to January 1, 1995, and accordingly, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
F-9
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
7. Stock Options (Continued)
Performance-Based Stock Options
Under its 1995 Stock Incentive Plan, the Company had granted options to
certain key executives whose vesting was entirely contingent upon the
future profits (as defined) for the division or subsidiary or commissions
earned under the management of the related key executive. As of January 1,
1998, there were 1,100,000 of such options outstanding. During 1998, the
Company terminated and cancelled 950,000 of such options. During 1999, the
Company terminated the remainder of the options.
Non-Incentive Stock Option Agreements
The Company has non-incentive stock option agreements with five of its
directors and/or officers.
Summary
Stock options transactions (other than performance-based stock options)
are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number Exercise Average
of Price Exercise
Shares Range Price
------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Options outstanding, January1, 1998 3,765,000 .06 - 6.84 1.17
Options granted 3,242,500 1.75 - 6.63 3.38
Options expired/canceled (3,630,000) .06 - 6.84 2.79
Options exercised ( 100,000) .70 .70
----------
Options outstanding, December 31, 1998 3,277,500 .12 - 5.00 1.57
Options granted 5,035,000 .75 - 3.00 1.02
Options canceled (4,352,500) 1.00 - 5.00 1.54
---------
Options outstanding, December 31, 1999 3,960,000 .12 - 3.75 .91
---------
Options exercisable, December 31, 1998 1,552,500 .12 - 5.00 1.36
---------
Options exercisable, December 31, 1999 2,712,914 .12 - 3.75 .92
---------
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1999 other than performance-based stock options:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
Weighted Average
Range of Number Remaining Contractual Weighted Average Number Weighted Average
Exercise Price Outstanding Life (Years) Exercise Price Exercisable Exercise Price
-------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$.14 - $.22 450,000 .46 $0.19 450,000 $0.19
$.75 - $1.56 3,190,000 3.11 $0.87 1,976,248 $0.90
$1.75 - $3.75 320,000 3.33 $2.36 286,666 $2.28
</TABLE>
F-10
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
7. Stock Options (Continued)
driversshield.com Corp.
During 1999, the Company's subsidiary, driversshield.com Corp. established
the "driversshield.com Corp. 1999 Stock Option Plan." Under this plan,
options may be granted to employees of driversshield.com Corp or the
Parent or other subsidiaries of the Company, and outside directors for up
to 2,000,000 shares of common stock. Under this plan, incentive stock
options may be granted at no less than fair market value of the
driversshield.com Corp. stock at the date of grant, and in the case of an
optionee who owns directly or indirectly more than 10% of the outstanding
voting stock, 110% of the market price on the date of grant. The maximum
term of an option is ten years, except in regard to incentive stock
options granted to an Affiliate, in which case the maximum term is five
years. No options have been granted as of December 31, 1999.
8. Common Stock and Stock Warrants
In August 1997, the Company raised $1,500,000 through the private
placement issuance of 750,000 units at $2.00 per unit. Each unit consists
of one share of common stock and a redeemable common stock purchase
warrant at $2.00 per share for a period of two years. The units were
issued to an executive of the Company and a private investment group. In
response to the Notice of Redemption issued by the Company, the executive
exercised 250,000 shares of the warrants in December 1997. Thereafter, in
January 1998, the private investment group exercised 500,000 shares of the
warrants.
In December 1997, the Company raised $2,330,813 through the private
placement issuance of 581,250 units at $4.01 per unit. Each unit consists
of one share of common stock and a redeemable common stock purchase
warrant at $5.75 per share for a period of five years. Should the price of
the Company's stock exceed $11.50 per share for 20 consecutive trading
days, the Company may request redemption of the warrants at a price of
$.01 per share. The warrant holders would then have 30 days in which to
either exercise the warrant or accept the redemption offer.
In connection with the 1995 issuance of 1,000,000 shares of its common
stock, the Company issued warrants to purchase 850,000 shares of the
Company's common stock. The warrants are all presently exercisable at
prices ranging from $.125 to $.50 per share and these warrants expire in
2000. During the fiscal years ended December 31, 1999 and 1998, none of
these warrants were exercised. In lieu of the payment of the exercise
price in cash, the holders of these warrants have the right (but not the
obligation) to convert the warrants, in whole or in part, into common
stock as follows; upon exercise of the conversion rights of the warrant,
the Company shall deliver to the holder that number of shares of common
stock equal to the quotient obtained by dividing the remainder derived
from subtracting (a) the exercise price multiplied by the number of shares
of common stock being converted from (b) the market price of the common
stock multiplied by the number of shares of common stock being converted,
by the market price of the stock.
9. Preferred Stock Purchase Rights
On December 28, 1998, the Board of Directors authorized the issuance of up
to 200,000 shares of non-redeemable Junior Participating Preferred Stock
("JPPS"). The JPPS shall rank junior to all other series of preferred
stock (but senior to the common stock) with respect to payment of
dividends and any other distributions. Among other rights, the holders of
the JPPS shall be entitled to receive, when and if declared, quarterly
dividends per share equal to the greater of (a) $100 or (b) the sum of
1,000 (subject to adjustment) times the aggregate per share of all cash
and non cash dividends (other than dividends payable in common stock of
the Company and other defined distributions). Each share of JPPS shall
entitle the holders to voting rights equal to 1,000 votes per share. The
holders of JPPS shall vote together with the common shareholders.
On December 28, 1998, the Board of Directors also adopted a Rights
Agreement ("the Agreement"). Under the agreement, each share of the
Company's common stock carries with it one preferred share purchase right
("Rights"). The Rights themselves will at no time have voting power or pay
dividends. The Rights become exercisable (1) when a person or group
acquires 20% or more of the Company's common stock (10% in the case of an
Adverse Person as defined) and an additional 1% or more in the case of
acquisitions by any shareholder with beneficial ownership of 20% or more
on the record date (10% in the case of an Adverse Person as defined) or
(2) on the tenth business day after a person or group announces a tender
offer to acquire 20% or more of the Company's common stock (10% in
F-11
<PAGE>
the case of an Adverse Person as defined). When exercisable, each Right
entitles the holder to purchase 1/1000 of a share of the JPPS at an
exercise price of $27.50 per 1/1000 of a share, subject to adjustment.
10. Employee Benefit Plan
The Company has a 401(k) profit sharing plan for the benefit of all
eligible employees as defined in the plan documents. The plan provides for
voluntary employee salary contributions from 1% to 15% not to exceed the
statutory limitation provided by the Internal Revenue Code. The Company
may, at its discretion, match within prescribed limits, the contributions
of the employees. Employer contributions to the plan amounted to $8,671
and $9,632 in 1999 and 1998.
11. Commitments and Contingencies
Leases
The Company leases its executive office in Plainview, New York, expiring
in March 2002 under a noncancelable operating lease which requires minimum
annual rentals and certain other expenses including real estate taxes. A
portion of the premise is subleased under a lease expiring June 2000.
Sublease income was $39,728 for the year ended December 31, 1999. Rent
expense including real estate taxes for the years ended December 31, 1999
and 1998 aggregated $178,490 and $253,531, respectively.
As of December 31, 1999, the Company's future minimum rental commitments,
net of sublease income of $20,000 to be received in 2000, are
approximately as follows:
2000 $164,000
2001 191,600
2002 48,400
--------
$404,000
========
Employment Contracts
The Company has employment contracts with its two principal officers
expiring during 2001. The agreements provide minimum annual salaries of
$300,000 to the Chief Executive Office ("CEO") and $150,000 to the
President.
In March 1999, in consideration for several senior executives who
volunteered to temporarily reduce their salaries (without changing the
terms of employment contracts), the Company granted stock options
representing the right to purchase 145,000 shares of the Company's common
stock at prices ranging from $1.13 to $1.24. These options were
subsequently repriced in October 1999 (see Note 7). All grants were at no
less than the fair market value at date of grant or repricing. Such
temporary salary reduction amounts to approximately $145,000 on an
annualized basis, of which $100,000 is attributable to the CEO. Such
salary reductions can be terminated by the executives at any time without
forfeiture of the options. During the year ended December 31, 1999, salary
reductions were approximately $123,000.
The CEO's employment contract provides that, in the event of termination
of the employment of the officer within three years after a change in
control of the Company, then the Company would be liable to pay a lump sum
severance payment of three years' salary (average of last five years),
less $100, in addition to the cash value of any outstanding but
unexercised stock options. The President's employment contract provides
that, in the event of termination of the employment of the officer within
one year after a change in control of the Company, then the Company would
be liable to pay a lump sum severance payment of two years' salary as
determined on the date of termination or the date on which a change in
control occurs, whichever is greater. In no event would the maximum amount
payable exceed the amount deductible by the Company under the provisions
of the Internal Revenue Code.
Purchase Commitment
In September 1999, the Company entered into an agreement with a vendor for
the design, development and operational services for an Internet website.
The Company will pay the vendor the lesser of $350,000 or the actual rate
determined by the number of hours accumulated on the project as defined
for the design and development services. The operational services require
the Company to compensate the vendor with 30% of any net revenue
F-12
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
during the first contract year, provided, however, that the Company shall
be entitled to retain for itself 100% of the net revenue until it has
recouped the amount paid for the design and development services. After
the Company has recouped the amount for the design and development
services, the vendor shall be paid 100% of the revenue until it has
recouped its cost, as defined. During the remainder of the contract which
expires December 31, 2003, the vendor shall be paid between 35% to 42% of
any net revenue generated from the website. Through December 31, 1999, the
Company has expensed $168,794 for the development of the website.
Litigation
On January 29, 1998, the Company terminated the employment of its chief
financial and accounting officer, who had been employed by the Company
since November 17, 1997 pursuant to an employment contract. The employment
contract provided for a base salary of $145,000 during the first year of
the contract, $152,250 during the next year of the contract and $160,000
during the third year of the contract. The employment contract also
provided for the employee to receive incentive compensation equal to 2% of
annual pre-tax earnings of the Company, and health and other fringe
benefits. Further, the employee was granted options to purchase 120,000
shares of common stock of the Company. Such options were cancelled upon
the termination of employment. The employee has asserted a claim against
the Company in excess of $1,000,000, including, but not limited to, the
remaining unpaid portion of the employment contract and other losses
sustained. The Company has served an answer denying liability and
interposing a counterclaim to recover amounts previously paid to the
former employer. Both parties have cross-motions for partial summary
judgment pending before the Court and are awaiting a decision. Counsel for
the Company is unable to form an opinion as to the outcome of this matter,
and the Company intends to vigorously defend the action.
The Company has not provided for any loss on this matter in the
accompanying financial statements.
12. Income Taxes
The Company accounts for income taxes according to the provisions of
Statement of Financial Accounting Standards (SFAS) 109, "Accounting for
Income Taxes." Under the liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse.
At December 31, 1999, the Company has an operating loss carryforward of
approximately $4,950,000 which is available to offset future taxable
income. A valuation allowance has been recognized to offset the full
amount of the related deferred tax asset of approximately $1,880,000 and
$1,520,000 at December 31, 1999 and 1998 due to the uncertainty of
realizing the benefit of the loss carryforwards.
At December 31, 1999, the Company's net operating loss carryforwards are
scheduled to expire as follows:
Year ended December 31,
-----------------------
2002 $ 232,000
2003 24,000
2005 50,000
2008 36,000
2012 1,685,000
2018 1,973,000
2019 950,000
----------
$4,950,000
==========
F-13
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
12. Income Taxes (Continued)
The Company's effective income tax rate differs from the Federal statutory
rate as follows:
1999 1998
--------- ---------
Federal statutory rate (34.0%) (34.0%)
Valuation allowance 34.0 34.0
State income taxes 2.0 .4
------ -----
2.0% .4%
------ -----
13. Advertising Expense
Advertising expense, which is expensed as incurred, amounted to $95,947
and $125,873 in 1999 and 1998.
14. Discontinued Operations
At June 30, 1997, the Company decided to discontinue its direct-response
marketing division. Accordingly, the loss on disposal of the division has
been segregated from continuing operations and reported separately on the
statement of operations.
At the measurement date, the Company did not provide for any loss on
disposal or anticipate any continuing losses from this division.
Subsequent to the measurement date, the division reflected a loss of
$93,922 during the year ended December 31, 1998 which is reflected as a
disposal loss in the accompanying financial statements. As of December 31,
1998, there were no remaining assets or liabilities of this division.
15. Fourth Quarter Adjustments
During the fourth quarter of the year ended December 31, 1998, the Company
recorded a severance agreement (see Note 5) and an accrual for consulting
services of $50,000, applicable to earlier periods in 1998.
F-14
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $1,146,604
Accounts receivable, less allowance for doubtful
accounts of $28,223 1,450,423
Investment securities 759,476
Prepaid expenses and other current assets 37,840
----------
Total current assets 3,394,343
Property and equipment, net of accumulated
depreciation of $706,581 693,776
Security deposits and other assets 32,268
----------
Total assets $4,120,387
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 759,905
Accrued expenses and other current liabilities 699,694
Current portion of long-term debt 38,557
----------
Total current liabilities 1,498,156
----------
Shareholders' equity:
Common stock, $.015 par value, authorized 20,000,000
shares; issued 10,841,655 shares 162,625
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding --
Additional paid-in capital 8,881,203
Accumulated other comprehensive loss, unrealized holding
loss on investment securities ( 4,664)
Deficit ( 5,330,899)
----------
3,708,265
Less common stock held in treasury, at cost,
523,786 shares 1,086,034
----------
Total shareholders' equity 2,622,231
----------
Total liabilities and shareholders' equity $4,120,387
----------
</TABLE>
See notes to condensed consolidated financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2000 1999
---- ----
Revenue:
<S> <C> <C>
Collision repairs and fleet management services $2,882,976 $3,016,400
Subrogation and salvage service commissions 72,801 146,254
Automobile affinity services 455,257 159,958
---------- ----------
Total revenues 3,411,034 3,322,612
Cost of revenue (principally charges incurred at repair
facilities for services) 2,433,484 2,564,971
Gross profit 977,550 757,641
---------- ----------
Operating expenses:
Selling 97,523 120,411
General and administrative 893,014 795,609
---------- ----------
Total operating expenses 990,537 916,020
---------- ----------
(12,987) ( 158,379)
Investment and other income 29,690 35,175
---------- ----------
Income (loss) from operations before
income taxes 16,703 ( 123,204)
Income taxes, all current 2,525 -
---------- ----------
Net income (loss) $ 14,178 ($ 123,204)
---------- ----------
Basic and diluted earnings (loss) per share:
Basic $ .00 ($ .01)
Diluted $ .00 ($ .01)
---------- ----------
Weighted average number of common shares outstanding 10,192,434 8,331,800
Effect of dilutive securities, stock options, warrants 1,518,192 -
---------- ----------
Weighted average diluted common shares outstanding 11,710,626 8,331,800
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2000 1999
------------- ------------
Revenue:
<S> <C> <C>
Collision repairs and fleet management services $5,555,731 $5,765,448
Subrogation and salvage service commissions 218,020 260,261
Automobile affinity services 878,327 287,321
---------- ----------
Total revenues 6,652,078 6,313,030
Cost of revenue (principally charges incurred at repair
facilities for services) 4,703,513 4,902,269
Gross profit 1,948,565 1,410,761
---------- ----------
Operating expenses:
Selling 194,700 210,050
General and administrative 1,715,936 1,610,961
---------- ----------
Total operating expenses 1,910,636 1,821,011
---------- ----------
37,929 ( 410,250)
---------- ----------
Other income (expense):
Realized loss on investment ( 1,518) -
Investment and other income 66,405 79,104
---------- ----------
Total other income 64,887 79,104
---------- ----------
Income (loss) from operations before
income taxes 102,816 ( 331,146)
Income taxes, all current 4,700 -
---------- ----------
Net income (loss) $ 98,116 ($ 331,146)
---------- ----------
Basic and diluted earnings (loss) per share:
Basic $ .01 ($ .04)
Diluted .01 ( .04)
---------- ----------
Weighted average number of common shares outstanding 9,406,449 8,331,800
Effect of dilutive securities, stock options, warrants 2,560,186 -
---------- ----------
Weighted average diluted common shares outstanding 11,966,635 8,331,800
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2000 1999
---- ----
Cash flows provided by (used in) operating activities:
<S> <C> <C>
Net income (loss) $ 98,116 ($ 331,146)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 115,173 82,502
Realized loss on investment 1,518 --
Provision for bad debts -- --
Options granted for services 39,967 --
Changes in assets and liabilities:
Accounts receivable 344,317 ( 442,891)
Prepaid expenses and other current assets 1,536 24,709
Security deposit and other assets 3,020 ( 29,248)
Accounts payable ( 178,513) ( 231,400)
Accrued expenses and other current liabilities ( 47,873) 666,152
----------- -----------
Total adjustments 279,145 69,824
----------- -----------
Net cash provided by (used in) operating activities 377,261 ( 261,322)
----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment ( 119,855) ( 15,117)
Purchase of investments ( 25,302) --
Proceeds from sale of investments 300,000 --
----------- -----------
Net cash provided by (used in) investing activities 154,843 ( 15,117)
----------- -----------
Cash flows provided by (used in) financing activities:
Repayment of long-term debt ( 11,956) ( 15,859)
Proceeds from disgorgement of short-swing profits 75,097 --
Proceeds from issuance of common stock 9,000 --
----------- -----------
Net cash provided by (used in) financing activities 72,141 ( 15,859)
----------- -----------
Net increase (decrease) in cash and cash equivalents 604,245 ( 292,298)
Cash and cash equivalents at beginning of period 542,359 2,782,180
----------- -----------
Cash and cash equivalents at end of period $ 1,146,604 $ 2,489,882
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 4,700 $ --
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. Unaudited Financial Statements
The information contained in the condensed consolidated financial
statements for the period ended June 30, 2000 is unaudited, but includes
all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial
position and the results of operations for these periods.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's
annual statements and notes. These financial statements should be read in
conjunction with the Company's annual financial statement as reported in
its most recent annual report on Form 10-KSB.
For the six month period ending June 30, 2000, there were no significant
non-owner sources of income or expense. Accordingly, a separate statement
of comprehensive income has not been presented herein.
2. Business of the Company
The Company, a New York corporation formed on June 28, 1985, is engaged in
the administration and provision of vehicle maintenance and repair
management, including collision and general repair programs, appraisal
services, subrogation services, vehicle salvage and vehicle rentals; and
the administration of automotive collision repair referral services for
self insured fleets, insurance companies and affinity group members.
The Company's office is located at 51 East Bethpage Road, Plainview, New
York 11803 and its telephone number is (516) 694-1010.
3. Results of Operations
The unaudited results of operations for the six months ended June 30, 2000
are not necessarily indicative of the results to be expected for the full
year.
4. Earnings Per Share
Basic earnings (loss) per share is computed by dividing earnings by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur
if common stock equivalents, such as stock options and warrants, were
exercised. During the three and six month periods ended June 30, 1999 there
was no dilutive effect from stock options and warrants.
F-19
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make representations other than those contained in this
prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by us or the selling shareholders.
Neither the delivery of this prospectus nor any sale hereunder will, under any
circumstances, create an implication that the information herein is correct as
of any time subsequent to its date. This prospectus does not constitute an offer
to or solicitation of offers by anyone in any jurisdiction in which such an
offer or solicitation is not authorized or in which the person making such an
offer is not qualified to do so or to anyone to whom it is unlawful to make such
an offer or solicitation.
6,896,146 SHARES
FIRST PRIORITY GROUP, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
_________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Reference is made to Section 402(b) of the New York Business
Corporation Law (the "NYBCL"), which enables a corporation in its original
certificate or an amendment thereto to eliminate or limit the personal liability
of a director for violations of the director's fiduciary duty, except for the
liability of any director if a judgment or other final adjudication adverse to
him establishes that (i) his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law or (ii) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled or (iii) his acts violated Section 719 of the NBYCL (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions). The Registrant's articles of incorporation contains
provisions permitted by Section 402(b) of the NYBCL.
Reference also is made to Section 722 of the NYBCL which provides that
a corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement actually and
necessarily incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A New York corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
The Registrant's articles of incorporation provides for indemnification
of directors and officers of the Registrant to the fullest extent permitted by
the NYBCL. The Registrant has obtained liability insurance for each director and
officer for certain losses arising from claims or charges made against them
while acting in their capacities as directors or officers of the Registrant.
Item 25. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
Total
-----
SEC registration fee (actual) .......................................$2,762.28
Accounting fees and expenses ........................................$4,500
Legal fees and expenses..............................................$13,151.74
Printing and engraving expenses......................................$1,000
Miscellaneous expenses...............................................$1,000
Item 26. Recent Sales of Unregistered Securities
In August 1997 we raised $1,500,000 through the private placement
issuance of 750,000 units at $2.00 per unit, consisting of one share of common
stock and a redeemable common stock purchase warrant at $2.00 per share. A
private investment group and one executive participated in this placement.
In December 1997, we raised an additional $2,330,813 through the
private placement issuance of 581,250 units at $4.01 per unit, consisting of one
share of common stock and a redeemable common stock purchase warrant at $5.75
per share.
II-1
<PAGE>
Item 27. Exhibits.
(a) List of Exhibits
No. Description
--- -----------
3.1 Articles of incorporation of First Priority, as amended (incorporated
by reference to Exhibit 19.1 to First Priority's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1991).
3.2 Amendment to the articles of incorporation (incorporated by reference
to Exhibit 3.1 of First Priority's Form 10-QSB for the period ended
September 30, 1996).
3.3 Amended and restated bylaws of First Priority (incorporated by
reference to Exhibit 4 to First Priority's Current Report on Form 8-K
dated December 28, 1998).
5.1* Opinion of Kramer Levin Naftalis & Frankel LLP.
10.1 The Company's 1995 Incentive Stock Plan (incorporated by reference to
Exhibit 10.1 of First Priority's Form 10-QSB for the period ended
September 30, 1996).
10.2 Lease Agreement dated December 6, 1996 between First Priority and 51
East Bethpage Holding Corporation for lease of First Priority's
facilities in Plainview, New York (incorporated by reference to Exhibit
10.3 of First Priority's Form 10-QSB for the period ended June 30,
1997).
10.3 First Amendment to Lease Agreement dated July 14, 1997 amending the
lease dated December 6, 1996 between First Priority and 51 East
Bethpage Holding Corporation (incorporated by reference to Exhibit 10.4
of First Priority's Form 10-QSB for the period ended June 30, 1997).
10.4 Employment Agreement dated March 23, 1998 between First Priority and
Gerald M. Zutler (incorporated by reference to Exhibit 10.1 of First
Priority's Form 10-QSB for the period ended March 31, 1998).
10.5 Employment Agreement dated October 8, 1998 between First Priority and
Barry Siegel (incorporated by reference to Exhibit 10.17 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.6 Employment Agreement dated October 2, 1998 between First Priority and
Barry J. Spiegel (incorporated by reference to Exhibit 10.18 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.7 Employment Agreement dated December 14, 1998 between First Priority and
Lisa Siegel (incorporated by reference to Exhibit 10.19 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.8 Employment Agreement dated October 8, 1998 between First Priority and
Gerald M. Zutler (incorporated by reference to Exhibit 10.20 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.9 Severance Agreement dated August 17, 1998 between First Priority and
Michael Karpoff (incorporated by reference to Exhibit 10.21 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.10 Service Agreement dated November 29, 1999 between First Priority,
driversshield.com Corp., Electronic Systems Corporation and EDS
Information Services L.L.C (incorporated by reference to Exhibit 10.10
of First Priority's Form 10-KSB for the year ended December 31, 1998).
10.11 driversshield.com Corp. 1999 Stock Option Plan (incorporated by
reference to Exhibit 10.11 of First Priority's Form 10-KSB for the year
ended December 31, 1999).
10.12 * Engagement Letter dated April 6, 2000 from Ladenburg Thalmann & Co.,
Inc. to First Priority Group, Inc.
10.13 * Common Stock Purchase Agreement dated May 31, 2000 between First
Priority and Suerez Enterprises Limited, a British Virgin Islands
corporation with exhibits.
10.14 * Amendment to Common Stock Purchase Agreement dated September 29, 2000
between First Priority Group, Inc. and Suerez Enterprise Limited.
10.15 * Registration Rights Agreement dated May 31, 2000 between First Priority
Group, Inc. and Suerez Enterprises Limited.
II-2
<PAGE>
13.1 Form 10-KSB for the year ended December 31, 1999 (incorporated by
reference and previously filed with the Commission).
13.2 Form 10-QSB for the quarter ending March 31, 2000 (incorporated by
reference and previously filed with the Commission).
13.3 Form 10-QSB for the quarter ending June 30, 2000 (incorporated by
reference and previously filed with the Commission).
21 List of subsidiaries (incorporated by reference to Exhibit 21 of First
Priority's Form 10-KSB for the year ended December 31, 1999).
23.1 * Consent of Nussbaum Yates & Wolpow, P.C.
23.2 * Consent of Kramer Levin Naftalis & Frankel LLP (contained in the
opinion filed as Exhibit 5.1 hereto).
24.1* Power of Attorney (contained on the signature page of this Registration
Statement).
(b) Reports on Form 8-K
None
------------------
* Filed herewith
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement(or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that clauses (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
such clauses is contained in periodic reports file with or furnished to
the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
----------------------
1 Required?
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Plainview, New York, on October 18, 2000.
FIRST PRIORITY GROUP, INC.
By: /s/ Barry Siegel
-------------------------------------
Name: Barry Siegel
Title: Chairman of the Board, Treasurer,
Secretary, Chief Executive
Officer and Principal Accounting
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Barry Siegel his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Barry Siegel Chairman of the Board, October 18, 2000
---------------------- Treasurer, Secretary, Chief
Barry Siegel Executive Officer and Principal
Accounting Officer
/s/ Barry J. Spiegel Director, President of October 18, 2000
---------------------- Affinity Services Division
Barry J. Spiegel
/s/ Gerald M. Zutler President and Chief October 18, 2000
---------------------- Operating Officer
Gerald M. Zutler
/s/ Kenneth J. Friedman Director October 18, 2000
----------------------
Kenneth J. Friedman
----------------------- Director
R. Frank Mena
II-4
<PAGE>
EXHIBIT INDEX
No. Description
--- -----------
3.1 Articles of incorporation of First Priority, as amended (incorporated
by reference to Exhibit 19.1 to First Priority's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1991).
3.2 Amendment to the articles of incorporation (incorporated by reference
to Exhibit 3.1 of First Priority's Form 10-QSB for the period ended
September 30, 1996).
3.3 Amended and restated bylaws of First Priority (incorporated by
reference to Exhibit 4 to First Priority's Current Report on Form 8-K
dated December 28, 1998).
5.1* Opinion of Kramer Levin Naftalis & Frankel LLP.
10.1 The Company's 1995 Incentive Stock Plan (incorporated by reference to
Exhibit 10.1 of First Priority's Form 10-QSB for the period ended
September 30, 1996).
10.2 Lease Agreement dated December 6, 1996 between First Priority and 51
East Bethpage Holding Corporation for lease of First Priority's
facilities in Plainview, New York (incorporated by reference to Exhibit
10.3 of First Priority's Form 10-QSB for the period ended June 30,
1997).
10.3 First Amendment to Lease Agreement dated July 14, 1997 amending the
lease dated December 6, 1996 between First Priority and 51 East
Bethpage Holding Corporation (incorporated by reference to Exhibit 10.4
of First Priority's Form 10-QSB for the period ended June 30, 1997).
10.4 Employment Agreement dated March 23, 1998 between First Priority and
Gerald M. Zutler (incorporated by reference to Exhibit 10.1 of First
Priority's Form 10-QSB for the period ended March 31, 1998).
10.5 Employment Agreement dated October 8, 1998 between First Priority and
Barry Siegel (incorporated by reference to Exhibit 10.17 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.6 Employment Agreement dated October 2, 1998 between First Priority and
Barry J. Spiegel (incorporated by reference to Exhibit 10.18 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.7 Employment Agreement dated December 14, 1998 between First Priority and
Lisa Siegel (incorporated by reference to Exhibit 10.19 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.8 Employment Agreement dated October 8, 1998 between First Priority and
Gerald M. Zutler (incorporated by reference to Exhibit 10.20 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.9 Severance Agreement dated August 17, 1998 between First Priority and
Michael Karpoff (incorporated by reference to Exhibit 10.21 of First
Priority's Form 10-KSB for the year ended December 31, 1998).
10.10 Service Agreement dated November 29, 1999 between First Priority,
driversshield.com Corp., Electronic Systems Corporation and EDS
Information Services L.L.C (incorporated by reference to Exhibit 10.10
of First Priority's Form 10-KSB for the year ended December 31, 1998).
10.11 driversshield.com Corp. 1999 Stock Option Plan (incorporated by
reference to Exhibit 10.11 of First Priority's Form 10-KSB for the year
ended December 31, 1999).
10.12 * Engagement Letter dated April 6, 2000 from Ladenburg Thalmann & Co.,
Inc. to First Priority Group, Inc.
10.13 * Common Stock Purchase Agreement dated May 31, 2000 between First
Priority and Suerez Enterprises Limited, a British Virgin Islands
corporation with exhibits.
10.14 * Amendment to Common Stock Purchase Agreement dated September 29, 2000
between First Priority Group, Inc. and Suerez Enterprise Limited.
10.15 * Registration Rights Agreement dated May 31, 2000 between First Priority
Group, Inc. and Suerez Enterprises Limited.
II-5
<PAGE>
13.1 Form 10-KSB for the year ended December 31, 1999 (incorporated by
reference and previously filed with the Commission).
13.2 Form 10-QSB for the quarter ending March 31, 2000 (incorporated by
reference and previously filed with the Commission).
13.3 Form 10-QSB for the quarter ending June 30, 2000 (incorporated by
reference and previously filed with the Commission).
21 List of subsidiaries (incorporated by reference to Exhibit 21 of First
Priority's Form 10-KSB for the year ended December 31, 1999).
23.1 * Consent of Nussbaum Yates & Wolpow, P.C.
23.2 * Consent of Kramer Levin Naftalis & Frankel LLP (contained in the
opinion filed as Exhibit 5.1 hereto).
24.1* Power of Attorney (contained on the signature page of this Registration
Statement).
--------------------
* Filed herewith
II-6
