<PAGE>
SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement / / Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
First Priority Group, Inc.
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(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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<PAGE>
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE>
FIRST PRIORITY GROUP, INC.
51 East Bethpage Road
Plainview, New York 11803
-----------------------
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 2, 2000.
To the Shareholders of First Priority Group, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of First Priority Group, Inc. (the "Company") will be held at
Danfords on the Sound, 25 East Broadway, Port Jefferson, New York 11777 on
October 2, 2000 at 11:00 A.M., local time, to consider and act upon the
following matters:
(1) The ratification and approval to amendments to the By-laws of
the Company.
(2) The approval of an Amendment to the Certificate of Incorporation
to change the name of the Company.
(3) The ratification and approval of a common stock purchase
agreement.
(4) The approval of an Amendment to the Certificate of Incorporation
to increase the authorized shares of common stock.
(5) The election of four nominees to the Board of Directors.
(6) The ratification and approval of the appointment of Nussbaum,
Yates & Wolpow, P.C. as the Company's independent certified
public accountants for the fiscal year ending December 31, 2000;
and
(7) The transaction of such other business as may properly come
before the Meeting or any adjournments or postponements thereof.
The enclosed form of proxy has been prepared at the direction of the
Board of Directors of the Company and is sent to you at its request. The persons
named in said proxy have been designated by the Board of Directors.
Information regarding the matters to be acted upon at the Meeting is
contained in the accompanying Proxy Statement.
IF YOU DO NOT EXPECT TO BE PRESENT PERSONALLY AT THE MEETING AND YOU WISH YOUR
SHARES TO BE VOTED AT THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED
PROXY BY MAIL IN THE POSTAGE-PAID ENVELOPE SENT TO YOU HEREWITH FOR THAT
PURPOSE. IF YOU LATER FIND THAT YOU CAN BE PRESENT AT THE MEETING OR FOR ANY
OTHER REASON DESIRE TO REVOKE OR CHANGE YOUR PROXY, YOU MAY DO SO AT ANY TIME
BEFORE IT IS VOTED.
The Board of Directors has fixed the close of business on August 31,
2000 as the time when shareholders entitled to notice of and to vote at the
Meeting shall be determined and all persons who are holders of record of the
Company's Common Stock at such time, and no others, shall be entitled to notice
of and to vote at the Meeting or any adjournments or postponements thereof.
Holders of a majority of the outstanding shares of the Company's Common Stock
must be present in person or by proxy in order for the Meeting to be held.
A copy of the Company's Annual Report to Shareholders containing the
financial statements of the Company for the fiscal year ended December 31, 2000
accompanies this Notice.
<PAGE>
By Order of the Board of Directors,
Barry Siegel
Chairman of the Board, Secretary and
Chief Executive Officer
Plainview, New York
September 13, 2000
<PAGE>
First Priority Group, Inc.
51 East Bethpage Road
Plainview, New York 11803
Proxy Statement
This Proxy Statement, expected to be mailed on or about
September 11, 2000, is furnished in connection with the Annual Meeting of
Shareholders to be held on October 2, 2000 at 11:00 A.M., at Danfords on the
Sound, 25 East Broadway, Port Jefferson, New York 11777 and at any adjournment
thereof, for the purposes set forth in the Notice of Annual Meeting.
Only the holders of the Company's common stock of record at
the close of business on August 31, 2000 will be entitled to notice of and to
vote at the Annual Meeting. As of August 31, 2000, there were outstanding
10,317,869 shares of the Company's common stock. Each share of common stock is
entitled to one (1) vote on each matter to be voted on, and a majority of the
shares entitled to vote, represented in person or by proxy, is required to
constitute a quorum for the transaction of business.
Each of the matters to be voted on at the Annual Meeting
requires the affirmative vote of the holders of a majority of the issued and
outstanding shares of the Company's common stock represented and voting at the
meeting. Each of the nominees must receive receiving a plurality of the votes
cast for election of directors of the Company will be elected as directors of
the Company.
The Board of Directors recommends a vote FOR each of the Proposals
discussed in this Definitive Proxy Statement and FOR each of the persons
nominated to be elected directors of the Company.
PROPOSAL 1
AMENDMENTS TO THE BY-LAWS OF THE COMPANY
On December 28, 1998, we adopted a Shareholders Rights Plan and announced the
implementation of a classified board of directors and certain other amendments
to its By-laws relating to matters governing Shareholder Meetings. Two of the
amendments to the By-laws were adopted subject to shareholder approval at the
next meeting of shareholders. Therefore, these amendments are presented to the
shareholders for approval at this Annual Meeting of Shareholders.
Article II Section 1 was amended to implement a classified board of directors.
The directors will be classified, with respect to the term for which they hold
office, into three classes, as nearly equal as possible. One class of directors
(consisting of one director) shall be elected for a term expiring at the annual
meeting to have been held in 1999, another class (consisting of two directors)
shall be elected for a term expiring at the annual meeting to be held in 2000,
and another class (consisting of two directors) shall be elected for a term
expiring at the annual meeting to be held in 2001. At each succeeding annual
meeting, the successors of the class of directors whose term expires at that
meeting shall be elected by a plurality vote of all votes cast at such meeting
to hold office for a term expiring at the annual meeting held in the third year
following the year of their election.[See Exhibit A]
The Classified Board is so designed to assure that all of the Company's
shareholders receive fair and equal treatment in the event of any proposed
takeover of the Company by restricting the ability of a hostile acquirer from
effecting a rapid takeover of the Board. In addition, the Classified Board
insures that at all times at least a majority of the board has a minimum of one
year's experience and familiarity with the Company.
<PAGE>
Article IX Section 1 was amended to require that the By-laws may only be amended
or repealed by the shareholders by an affirmative vote of at least sixty-six and
two-thirds percent (66-2/3%) of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a class. This
By-law amendment is intended to continue to provide Shareholders with an
opportunity to submit proposals for consideration at Shareholders' meetings
while promoting stability, enhanced public disclosure and an appropriate period
of time to permit all the Shareholders to consider shareholder proposals. [See
Exhibit B]
PROPOSAL 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE
CORPORATION
The Board of Directors of the Company has decided to change the name of the
Company to driversshield.com Corp. Presently, this is the name of our subsidiary
that has developed the Company's Internet website www.drivershield.com. We
believe that as our Internet strategy will provide us the strongest growth
opportunities in the future, it is appropriate that our name reflect this
business strategy. Following approval by the shareholders of this Amendment to
the Certificate of Incorporation, it is the intention of the management of the
Company to have all of the Company's subsidiaries bear the driversshield.com
branding as well. National Fleet Service Inc. the Company's largest subsidiary,
will be changed to driversshield Fleet Services, Inc. and the driversshield
affinity auto services club will become, driversshield Auto Services and
Discounts Program.
Therefore, we propose that the Article First of the Certificate of Incorporation
be amended the change the name of the Company to driversshield.com Corp.
PROPOSAL 3
RATIFICATION BY SHAREHOLDERS OF COMMON STOCK PURCHASE AGREEMENT
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." [See Exhibit C]
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 million 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. 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
2
<PAGE>
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.
Based on a review of our trading volume and stock price history and the
number of draw downs we estimate making, we are registering under a Form SB-2,
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 the placement agent. 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 August 31, 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 placement agent 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.
PROPOSAL 4
Amendment to the Company's Certificate of Incorporation to Increase Authorized
Stock
The Company presently has authorized for issuance 20 million common stock
shares. On August 31, 2000, the Company had 10,317,869 shares issued and
outstanding. The Company has granted warrants and options, accounting for a
total of approximately 1.7 million shares. Additionally, the 1995 Incentive
Stock Plan (the "Plan") requires 6 million shares be reserved for the Plan.
Additionally, we believe that the Common Stock Purchase Agreement, subject to
shareholder approval in Proposal 3 above, could require us to issue up to an
additional 6,314,896 common stock shares. Therefore, the Board has recommended
that the Company be authorized to issue a total of 30 million common stock
shares by amending Article Fourth of the Certificate of Incorporation.
[See Exhibit D]
PROPOSAL 5
ELECTION OF DIRECTORS
Four persons have been nominated as Directors of the Company. All of
the nominees are currently Directors of the Company. Should the shareholders
approve Proposal 1 ratifying the amendment to the By-laws of the Company that
created three classes of directors, the nominees to the Board will then have
been divided into three classes of Directors. Class I, Class II and Class III,
each serving for an initial term that shall expire at the 2002, 2003, and 2001,
respectively:
Class I: Barry Siegel
Class II: Barry J. Spiegel
Kenneth Friedman
Class III: R. Frank Mena
3
<PAGE>
Should Proposal 1 be defeated, then each nominee shall be nominated to serve as
a member of the Board of Directors until such time as their successor is duly
nominated, elected and qualified.
The names of the four nominees, the age and principal occupation of
each and the period during which each has served as a Director of the Company
are set forth below:
Four Nominees to the Board of Directors:
Barry Siegel 49
Barry Siegel has served as a director of the Company since its
inception. In January 1998, Mr. Siegel again assumed the position of Treasurer
of the Company. Mr. Siegel became Chief Executive Officer of the Company in
November 1997, and continued to serve as Chairman of the Board and Secretary to
the Company. Previously, he served as Chairman of the Board of Directors,
Co-Chief Executive Officer, Treasurer and Secretary of the Company from August
1997 through November 1997. From October 1987 through August 1997, he served as
Co-Chairman of the Board of Directors, Co-Chief Executive Officer, Treasurer and
Secretary to the Company. He has served as Treasurer and Secretary of National
Fleet Service, Inc. for more than five years. Mr. Siegel is married to Lisa
Siegel.
Barry J. Spiegel 51
Barry J. Spiegel has served as President of the Company's Affinity Services
Division since September 1996. Previously, he served as President of American
International Insurance Associates, Inc. from January 1996 through August 1996.
For more than five years prior thereto, Mr. Spiegel served as Senior Vice
President at American Bankers Insurance Group, Inc.
Kenneth J. Friedman 46
Kenneth J. Friedman was elected to the Board of Directors in October 1998. For
more than five years, Mr. Friedman has been President of the Primary Group,
Inc., an executive search consultant.
R. Frank Mena 42
R. Frank Mena was elected to the Board of Directors on May 13, 1999. Mr. Mena is
both a technologist and developer by background. He was a founder and Executive
Vice President and Chief Technology Officer of Cheyenne Software. Presently, he
acts as a consultant in the computer systems industry.
Other Executive Officers:
Gerald M. Zutler 62
Gerald M. Zutler was appointed President and Chief Operating Officer in March
1998. Between 1997 and 1998, Mr. Zutler was a private consultant. From 1993
through 1996, Mr. Zutler was President of Lockheed Martin Canada.
Compliance With Section 16(a) of the Exchange Act
Barry Siegel held stock options for the right to purchase an aggregate of
1,100,000 shares of the Company's
4
<PAGE>
common stock that were repriced on October 4, 1999. He did not file a Form 4 on
a timely basis. Instead, he reported these option grants in the Form 5.
Barry J. Spiegel held stock options for the right to purchase 330,000 shares
that were repriced on October 4, 1999. He did not file a Form 4 on a timely
basis. Instead, he reported these option grants in the Form 5.
Gerald M. Zutler held stock options for the right to purchase 415,000 shares
that were repriced on October 4, 1999. He did not file a Form 4 on a timely
basis. Instead, he reported these option grants in the Form 5.
Lisa Siegel held stock options for the right to purchase 175,000 shares that
were repriced on October 4, 1999. She did not file a Form 4 on a timely basis.
Instead, she reported these option grants in the Form 5.
Kenneth J. Friedman held stock options for the right to purchase up to 30,000
shares and stock options for the right to purchase up to 100,000 shares through
his ownership and control of the Primary Group, Inc., all that were repriced on
October 4, 1999. He did not file a Form 4 on a timely basis. Instead, he
reported these option grants in the Form 5.
R. Frank Mena held stock options for the right to purchase up to 15,000 shares
that were repriced on October 4, 1999. Additionally, Mr. Mena was granted stock
options for the right to purchase up to 60,000 shares in lieu of cash for
consulting services provided to the Company. He reported these options grants in
Form 5.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has the responsibility to serve as the
representative of the Shareholders. The Board establishes broad corporate
policies and oversees the overall performance of the Company. However, the Board
is not involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business activities through discussion with the Chief
Executive Officer, by reviewing analyses and reports sent to them by management
and by participating in board meetings. At present, the Board of Directors has
one standing committee, the Audit Committee. Presently, the members of the Audit
Committee are Kenneth J. Friedman, R. Frank Mena and Barry J. Spiegel. The Audit
Committee did not meet in 1999.
During 1999 the Board of Directors did not hold any meetings that were
attended by members of the Board either in person or via telephone, but the
Board approved resolutions with unanimous written consent in lieu of a meeting
on seven occasions in 1999. Directors received no compensation for their service
on the Board of Directors. However, non-employee directors receive an annual
stock option grant of 15,000 shares of the Company's common stock.
5
<PAGE>
Item 10. Executive Compensation
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (c) (d)
Name
and
Principal
Position Year Salary($) Bonus($)
Barry Siegel 1999 $215,385 $0
Chairman 1998 $279,423 $0
of the Board 1997 $198,846 $0
of Directors,
Treasurer,
Secretary and
Chief Executive
Officer
Gerald Zutler 1999 $137,211 $0
President 1998 $98,340 $0
1997 $0 $0
Barry J. Siegel 1999 $104,249 $0
President, 1998 $104,499 $0
Affinity Services 1997 $89,730 $0
Division
----------------------
(c) Options/SAR Grants Table
Option/SAR Grants in Last Fiscal Year
Individual Grants
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(a) (b) (c) (d)
(e)
Number of % of Total
Securities Options/SARs
6
<PAGE>
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
--------------------------------------------------------------------------------
Barry Siegel 300,000 12.4% $.825 9/30/00
Barry Siegel 100,000 4.1% $.825 9/7/02
Barry Siegel 200,000 8.2% $.825 3/4/04
Barry Siegel 400,000 16.5% $.825 10/8/03
Barry Siegel 100,000 4.1% $.825 3/4/04
Gerald M. Zutler (1) 300,000 12.4% $.75 6/30/03
Gerald M. Zutler (1) 100,000 4.1% $1.25 11/23/04
Gerald M. Zutler (1) 15,000 .6% $.75 3/4/04
Barry J. Spiegel (1) 250,000 10.3% $.75 6/30/03
Barry J. Spiegel (1) 50,000 2.1% $.75 8/18/01
Barry J. Spiegel (1) 30,000 1.2% $.75 3/4/04
-------------------------
(1) Options terminated and re-granted at new exercise price.
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
<TABLE>
<CAPTION>
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(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barry Siegel None None 899,333/300,667 $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>
(f) Compensation of Directors
No compensation is paid to the directors in consideration of the
director's service on the board. However, the 1995 Stock Incentive Plan provides
that non-employee directors of the Company shall be granted non-statutory stock
options for 15,000 shares of the Company's common stock on the date of election
to the Board and upon every successive anniversary date of his or her initial
election.
(g) Employment contracts and termination of employment and change in control
arrangements.
The Company has employment agreements with its two principal officers,
Barry Siegel and Gerald M. Zutler. Mr.
7
<PAGE>
Siegel's employment agreement commenced on July 1, 1998 and expires on December
31, 2001. The agreement provides for an annual salary of $300,000. Mr. Zutler's
employment agreement commenced on July 1, 1998 and expires on June 30, 2001.
Mr. Zutler's annual base salary is $150,000. Both executives participate in
the Company's Corporate Compensation Program.
Mr. Siegel's employment agreement contains a change in control
provision whereby Mr. Siegel, following a change of control as defined in the
agreement, would receive: (a) a severance payment of 300 percent of the average
annual salary for the past five years, less $100; (b) the cash value of the
outstanding, but unexercised stock options, and (c) other perquisites, should
the executive be terminated for various reasons as defined in the agreement. The
agreements provide that in no event, shall the severance payment exceed the
amount deductible by the Company under the provisions of the Internal Revenue
Code.
Mr. Zutler's employment agreement contains a change in control
provision whereby Mr. Siegel, following a change of control as defined in the
agreement, would receive: (a) a severance payment of 200 percent of the average
annual salary for the past five years, less $100; (b) the cash value of the
outstanding, but unexercised stock options, and (c) other perquisites, should
the executive be terminated for various reasons as defined in the agreement. The
agreements provide that in no event, shall the severance payment exceed the
amount deductible by the Company under the provisions of the Internal Revenue
Code.
The Company entered into an employment agreement with Barry J. Spiegel
that commenced on July 1, 1998 and expires on June 30, 2001. The agreement
provides for a base salary of $130,000 per annum. Additionally, Mr. Spiegel
participates in the Company's Corporate Compensation Program. Mr. Spiegel's
employment agreement provides that should a "Change in Control" occur, as
defined in the agreement, all stock options previously granted shall immediately
become fully exercisable.
In early 1999, several executives agreed to a voluntary reduction in
their annual salaries (without changing the terms of their employment contracts.
Mr. Siegel reduced his salary by $100,000, Mr. Zutler by $15,000 and Mr. Spiegel
by $30,000. In consideration for these salary reductions, the Company granted
Mr. Siegel a stock option for 100,000 shares, Mr. Zutler a stock option for
15,000 shares and Mr. Spiegel a stock option of 30,000 shares.
(h) Report on repricing of options/SARs
The Company repriced all employee stock options that had an exercise price
greater than the fair market value of the Company's stock on October 4, 1999,
$.75. The Company canceled the existing options and re-granted and repriced them
with the lower exercise price. The term and the exercise schedule of the new
repriced option was identical to the option that it replaced. Mr. Siegel held
stock options for the right to purchase up to 1,100,000 shares that were
canceled, re-granted and repriced with an exercise price of $.825, 110% of the
fair market value on the date of grant. Mr. Spiegel held stock options for the
right to purchase 330,000 shares that was canceled, re-granted and repriced with
an exercise price of $.75. Mr. Zutler held stock options for the right to
purchase 415,000 shares that was canceled, re-granted and repriced with an
exercise price of $.75.
The Board of Directors decided to re-price all outstanding employee stock
options that had exercise prices higher than the fair market value on October 4,
1999. The Board of Directors believes that stock options are an integral
component of executive compensation and must offer the executive the opportunity
to benefit from appreciation of the stock price as the Company grows.
Item 11. Security Ownership of Certain Beneficial Owners and Management
8
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The following information is as of August 31, 2000.
(a) Security ownership of certain beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
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, New York 10010
</TABLE>
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(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 within 60 days.
9
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Owner Common Stock
--------------- ----------------- ----------------- ------------
<S> <C> <C> <C>
Common Stock Barry Siegel 1,884,400 (2) 18.2%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Lisa Siegel 1,884,400 (2) 18.2%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Gerald M. Zutler 215,000 (3) 2.0%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Barry J. Spiegel 763,333 (4) 7.39%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Kenneth J. Friedman 140,000 (5) 1.35%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock R. Frank Mena 75,000 (6) 0.72%
c/o First Priority Group, Inc.
51 East Bethpage Road
Plainview, NY 11803
Common Stock Directors & Officers as a 3,077,733 29.82%
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 to purchase 215,000 shares exercisable within 60 days.
(4) Includes options to purchase 163,333 shares exercisable within 60 days.
(5) Includes options to purchase 30,000 shares exercisable within 60 days.
(6) Includes options to purchase 75,000 shares within 60 days.
(c) Changes in control. None.
10
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PROPOSAL 6
RATIFY THE SELECTION OF THE COMPANY'S INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Nussbaum Yates & Wolpow, P.C.,
independent certified public accountants, as the auditors for the 2000 fiscal
year. The Company has been advised by Nussbaum Yates & Wolpow, P.C. that neither
the firm nor any of its associates has any material relationship with the
Company or any of its subsidiaries. In accordance with a resolution of the Board
of Directors, such selection is being presented to the shareholders for
ratification at the Annual Meeting. If the foregoing proposal is not approved by
a majority vote of the shareholders present, in person or by proxy, at the
Annual Meeting or if prior to the Annual Meeting, Nussbaum Yates & Wolpow, P.C.
shall decline to serve, then the Board of Directors will designate another firm
to audit the financial statements of the Company for 2000 fiscal year, whose
continued employment thereafter will be subject to ratification by the
shareholders.
It is not expected that a representative of Nussbaum Yates & Wolpow,
P.C. will be present at the Annual Meeting.
Nussbaum Yates & Wolpow, P.C. is the accounting firm which examined and
reported on the Company's financial statements for the last two fiscal years.
The opinion on the 1999 and 1998 financial statements contained no disclaimer
and were unqualified.
PROPOSALS OF SHAREHOLDERS
Proposals of any shareholders of the Company which are to be presented
at the Company's 2001 Annual Meeting of Shareholders which such shareholder
wishes to be included in the Company's Information Statement or Proxy Statement
relating to such Annual Meeting, must be received by the Company not less than
60 days nor more than 90 days prior to the anniversary date of the immediately
preceding Annual Meeting (the "Anniversary Date"); provided, however, that in
the event the annual meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date. It
is anticipated that the Company's 2001 Annual Meeting of Shareholders will be
held on June 25, 2001.
OTHER BUSINESS
The Annual Meeting is called for the purposes set forth in the Notice
of Annual Meeting of Shareholders. The Board of Directors does not intend to
present, and knows of no one who intends to present, any matter for action by
shareholders at such meeting other than the matters referred to in that Notice.
Barry Siegel
Chairman of the Board,
Treasurer, Secretary and
Chief Executive Officer
First Priority Group, Inc.
51 East Bethpage Road
Plainview, New York 11803
September 13, 2000
11
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Exhibit A
ARTICLE II. DIRECTORS
Section 1. - Number and Term.
The number of directors constituting the entire board of directors of
this Corporation shall not be less than three (3) or more than seven (7).
However, the number of directors constituting the entire board of directors is
hereby fixed at five (5). The directors shall be classified, with respect to the
term for which they severally hold office, into three classes, as nearly equal
in number as possible. One class of directors (consisting of one director) shall
be elected for a term expiring at the annual meeting to be held in 1999, another
class (consisting of two directors) shall be elected for a term expiring at the
annual meeting to be held in 2000, and another class (consisting of two
directors) shall be elected for a term expiring at the annual meeting to be held
in 2001. Members of each class shall hold office until their successors are duly
elected and qualified or until their earlier death, disqualification,
resignation or removal. At each succeeding annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting held in the third year following the year of
their election.
The number of directors may be increased or decreased within the range
of the foregoing limitations by amendment of these by-laws by vote of the
shareholders as hereinafter provided in Article IX, dealing generally with
by-law amendments. The number of directors may likewise be increased or
decreased by action of the board of directors upon a vote of a majority of the
entire board subject to shareholder approval at the next annual meeting of
shareholders, and provided that special notice be given to shareholders of
record in connection with the notice otherwise required by these by-laws of
shareholders' meetings or otherwise at least ten (10) days in advance of the
meeting, that a proposal to increase or decrease the number of directors, and
in either case, to what extent, will be brought before the meeting for
consideration and approval or disapproval.
12
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Exhibit B
ARTICLE IX. AMENDMENTS
Section 1. - By Shareholders.
These by-laws may be amended or repealed at any annual meeting
of shareholders, or special meeting of shareholders called for such purpose, by
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the total votes eligible to be cast on such amendment or repeal by holders of
voting stock, voting together as a single class; provided, however, that if the
Board of Directors recommends that shareholders approve such amendment or repeal
at such meeting of shareholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
13
<PAGE>
Exhibit C
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is
dated as of May 31, 2000 by and between First Priority Group, Inc., a New York
corporation (the "Company"), and Suerez Enterprises Limited (the "Purchaser").
The parties hereto agree as follows:
1
DEFINITIONS
2 Certain Definitions.
3 "Average Daily Price" shall be the price based
on the VWAP of the Company on the Principal Market.
(a) "Draw Down" shall have the meaning assigned to such
term in Section 6.1(a) hereof.
(b) "Draw Down Exercise Date" shall have the meaning
assigned to such term in Section 6.1(b) hereof.
(c) "Draw Down Pricing Period" shall mean a period of
twenty-two (22) consecutive Trading Days preceding a Draw Down Exercise Date.
(d) "Effective Date" shall mean the date the
Registration Statement of the Company coveringthe Shares being subscribed for
hereby is declared effective.
(e) "Material Adverse Effect" shall mean any adverse
effect on the business, operations, properties or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or situation
that would prohibit or otherwise materially interfere with the ability of the
Company to perform any of its material obligations under this Agreement or the
Registration Rights Agreement or to perform its obligations under any other
material agreement.
(f) "Principal Market" shall mean initially the Nasdaq
SmallCap Market, and shall include the American Stock Exchange, Nasdaq National
Market or the New York Stock Exchange if the Company is listed and trades on
such market or exchange. Principal Market shall not include the OTC Bulletin
Board without the express written consent of the Purchaser.
(g) "Registration Statement" shall mean the
registration statement under the Securities Act of 1933, as amended, to be filed
with the Securities and Exchange Commission for the registration of the Shares
pursuant to the Registration Rights Agreement attached hereto as Exhibit A.
14
<PAGE>
(h) "SEC Documents" shall mean the Company's latest
Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K
filed thereafter, and the Proxy Statement for its latest fiscal year as of the
time in question until such time as the Company no longer has an obligation to
maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
(i) "Shares" shall mean, collectively, the shares of
Common Stock of the Company being subscribed for hereunder and those shares of
Common Stock issuable to the Purchaser upon exercise of the Warrants.
(j) "Threshold Price" is the lowest Average Daily Price
at which the Company will sell its Common Stock with respect to this Agreement.
(k) "Trading Day" shall mean any day on which the
Principal Market is open for business.
(l) "VWAP" shall mean the daily volume weighted average
price of the Company's Common Stock on the Nasdaq SmallCap Market or on any
Principal Market as reported by Bloomberg Financial using the AQR function.
4
PURCHASE AND SALE OF COMMON STOCK
5 Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may issue and sell to the Purchaser
and the Purchaser shall purchase from the Company up to Ten Million Dollars
$10,000,000 of the Company's Common Stock, $0.015 par value per share (the
"Common Stock"), based on up 12 Draw Downs of up to Five Million Dollars
($5,000,000) per Draw Down.
6 The Shares. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock to cover the Shares to be
issued in connection with all Draw Downs requested under this Agreement.
Anything in this Agreement to the contrary notwithstanding, (i) at no time will
the Company request a Draw Down which would result in the issuance of a number
of shares of Common Stock pursuant to this Agreement which exceeds 19.9% of the
number of shares of Common Stock issued and outstanding on the Closing Date
without obtaining stockholder approval of such excess issuance, and (ii) the
Company may not make a Draw Down to the extent that, after such purchase by the
Purchaser, the sum of the number of shares of Common Stock beneficially owned by
the Purchaser and its affiliates would result in beneficial ownership by the
Purchaser and its affiliates of more than 9.9% of the then outstanding shares of
Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
and Exchange Act of 1934, as amended.
Section 1.2. Purchase Price and Closing. The Company agrees
to issue and sell to the Purchaser and, in consideration of and in express
reliance upon the representation, warranties, covenants, terms and conditions of
this Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The closing under this Agreement shall
take place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New
York, New York 10177 (the "Closing") within fifteen (15) days from the date
hereof, or (ii) such other time and place or on such date as the Purchaser and
the Company may agree upon (the "Closing Date"). Each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Closing.
15
<PAGE>
7
REPRESENTATIONS AND WARRANTIES
Section 1.3. Representation and Warranties of the Company.
The Company hereby makes the following representations and warranties to the
Purchaser:
8 Organization, Good Standing and Power. The Company is
a corporation duly incorporated validly existing and in good standing under the
laws of the State of New York and has all requisite corporate authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted. The Company does not have any subsidiaries and does not own
more that fifty percent (50%) of or control any other business entity except as
set forth in the SEC Documents. The Company is duly qualified and is in good
standing as a foreign corporation to do business in every jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect on the Company's financial condition.
8 Authorization, Enforcement. (i) The Company has the
requisite corporate power and corporate authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement and to issue the Draw Down Shares pursuant to their respective terms,
(ii) the execution, issuance and delivery of this Agreement, the Registration
Rights Agreement and the Escrow Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, and (iii) this
Agreement, the Registration Rights Agreement and the Escrow Agreement have been
duly executed and delivered by the Company and at the initial Closing shall
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the issuance of the Draw Down Shares.
10 Capitalization. The authorized capital stock of the
company consists of 20,000,000 shares of Common Stock, $0.015 par value per
share, of which 8,598,467 shares are issued and outstanding and 1,000,000 shares
of preferred stock, $0.01 par value per share, of which none are issued and
outstanding. All of the outstanding shares of the Company's Common Stock have
been duly and validly authorized and are fully-paid and non-assessable. Except
as set forth in this Agreement and the Registration Rights Agreement and as set
forth in the SEC Documents, or on Schedule 3.1(c) hereto, no shares of Common
Stock are entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and as set forth in the SEC Documents or
on Schedule 3.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company and is not a party to
any agreement granting registration rights to any person with respect to any of
its equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth in the SEC Documents or on
Schedule 3.1(c) hereto, the offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable federal and state securities laws, and no
stockholder has a right of rescission or damages with respect
16
<PAGE>
thereto which would have a Material Adverse Effect on the Company's financial
condition or operating results. The Company has made available to the Purchaser
true and correct copies of the Company's Charter as in effect on the date hereof
(the "Charter"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws"). The Company has not received any notice from the Principal Market
questioning or threatening the continued inclusion of the Common Stock on such
market.
11 Issuance of Shares. The Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Shares shall be
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock.
12 No Conflicts. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any provision
of the Company's Charter or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal and state or securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under any federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than any
filings which may be required to be made by the Company with the Securities and
Exchange Commission (the "Commission") or state securities administrators
subsequent to the Closing and any registration statement which may be filed
pursuant hereto); provided that, for purpose of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
13 Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
in the SEC Documents or on Schedule 3.1(f) hereto, the Company has timely filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the Commission pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the
Exchange Act (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "Commission Documents"). The Company has
delivered or made available to the Purchaser true and complete copies of the
Commission Documents filed with the Commission since December 31, 1998. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such documents, and, as of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Documents comply as to form in all material respects with
17
<PAGE>
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
14 Subsidiaries. The SEC Documents or Schedule 3.1(g)
hereto sets forth each subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such subsidiary. For
the purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
non-assessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is a party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.
15 No Material Adverse Effect. Since December 31, 1999,
no Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents or on Schedule 3.1(h) hereof.
16 No Undisclosed Liabilities. Except as disclosed in the
SEC Documents or on Schedule 3.1(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
which are not disclosed in the Commission Documents, other than those incurred
in the ordinary course of the Company's or its subsidiaries respective
businesses since such date and which, individually or in the aggregate, do not
or would not have a Material Adverse Effect on the Company or its subsidiaries.
17 No Undisclosed Events or Circumstances. Since December
31, 1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
18 Indebtedness. The SEC Documents or Schedule 3.1(k)
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$250,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar
18
<PAGE>
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $250,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
19 Title to Assets. Each of the Company and the
subsidiaries has good and marketable title to all of its real and personal
property reflected in the Commission Documents, free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except for those
indicated in the SEC Documents or on Schedule 3.1(1) hereto or such that do not
cause a Material Adverse Effect on the Company's financial condition or
operating results. All said leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
20 Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the SEC Documents or
on Schedule 3.1(m) hereto, there is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened, against or
involving the Company, any subsidiary or any of their respective properties or
assets. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any subsidiary.
21 Compliance with Law. The business of the Company and
the subsidiaries has been and is presently being conducted in accordance with
all applicable federal, state and local governmental laws, rules, regulations
and ordinances, except as set forth in the SEC Documents or on Schedule 3.1(n)
hereto or such that do not cause a Material Adverse Effect. The Company and each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of their respective businesses as now being conducted by them unless the
failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
22 Taxes. The Company and each subsidiary has filed all
Tax Returns which it is required to file under applicable laws; all such Tax
Returns are true and accurate and has been prepared in compliance with all
applicable laws; the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax Return)
and have withheld and paid over to the appropriate taxing authorities all Taxes
which it is required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since December 31, 1998, the
charges, accruals and reserves for Taxes with respect to the Company (including
any provisions for deferred income taxes) reflected on the books of the Company
are adequate to cover any Tax liabilities of the Company if its current tax year
were treated as ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method,
19
<PAGE>
or has any application pending with any taxing authority requesting permission
for any changes in accounting methods that relate to the business or operations
of the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election under ss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
23 Certain Fees. Except as set forth on Schedule 3.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
24 Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchaser by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.
25 Operation of Business. The Company and each of the
subsidiaries owns or possesses all patents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the SEC Documents
and on Schedule 3.1(r) hereto, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without any
conflict with the rights of others.
26 Regulatory Compliance. The Company has all necessary
licenses, registrations and permits to conduct its business as now being
conducted in all states where the Company conducts its business.
27 Books and Records. The records and documents of the
Company and its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
subsidiary.
28 Material Agreements. Except as set forth in the SEC
Documents, or on Schedule 3.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument, agreement,
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commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-1 or other applicable form (collectively, "Material Agreements") if the
Company or any subsidiary were registering securities under the Securities Act
of 1933, as amended (the "Securities Act"). The Company and each of its
subsidiaries has in all material respects performed all the obligations required
to be performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge are not in default
under any Material Agreement now in effect, the result of which could cause a
Material Adverse Effect. No written or oral contract, instruments, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary
limits or shall limit the payment of dividends on the Company's Common Stock.
29 Transactions with Affiliates. Except as set forth in
the SEC Documents or on Schedule 3.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $100,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning any capital stock of
the Company or any subsidiary or any member of the immediately family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.
30 Securities Act of 1933. The Company has complied and
will comply with all applicable federal and state securities laws in connection
with the offer, issuance and sale of the Shares hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy the Shares or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares and/or Warrants under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Shares.
31 Governmental Approvals. Except as set forth in the SEC
Documents or on Schedule 3.1(x) hereto, and except for the filing of any notice
prior or subsequent to the Closing that may be required under applicable federal
or state securities laws (which if required, shall be filed on a timely basis),
including the filing of a registration statement or statements pursuant to this
Agreement, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares, or for the
performance by the Company of its obligations under this Agreement.
32 Employees. Neither the Company nor any subsidiary has
any collective bargaining arrangements or agreements covering any of its
employees, except as set forth in the SEC Documents or on Schedule 3(y) hereto.
Except as set forth in the SEC Documents or on Schedule 3(y) hereto, neither the
Company nor any subsidiary is in breach of any employment contract, agreement
regarding proprietary information, non- competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by the Company or such subsidiary. Since
the date of the December 31, 1998, Form 10-K, no officer, consultant or key
employee of the Company or any subsidiary whose termination, either individually
or in the aggregate, could have a Material Adverse Effect, has terminated or, to
the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any subsidiary.
(a) Absence of Certain Developments. Except as
provided in SEC Documents or in Schedule 3.1(z) hereto, since December 31, 1999,
neither the Company nor any subsidiary has:
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(i) issued any stock, bonds or other corporate
securities or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become
subject to any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of
cash or other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other
tangible assets, or canceled any debts or claims, except in the ordinary course
of business;
(vi) sold, assigned or transferred any patent
rights, trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchaser or its representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation
except in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $500,000;
(x) entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
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(xii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the
foregoing kind which in the aggregate would be material to the Company or its
subsidiaries.
(aa) Use of Proceeds. The proceeds from the sale of the
Shares will be used by the Company and its subsidiaries for general corporate
purposes.
(bb) Acknowledgment Regarding Purchaser's Purchase of
Shares. Company acknowledges and agrees that Purchaser is acting solely in the
capacity of arm's length purchaser with respect to this Agreement and the
transactions contemplated hereunder. The Company further acknowledges that the
Purchaser is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Purchaser or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereunder is merely incidental to the Purchaser's purchase of the
Shares. The Company further represents to the Purchaser that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its own representatives and counsel.
1 Representations and Warranties of the Purchaser. The
Purchaser hereby makes the following representations and warranties to the
Company:
2 Organization and Standing of the Purchaser. The
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of British Virgin Islands.
3 Authorization and Power. The Purchaser has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action.
4 No Conflicts. The execution, delivery and
performance of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in a violation of such Purchaser's charter documents or bylaws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement, indenture
or instrument to which the Purchaser is a party, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to the Purchaser or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a Material Adverse Effect on Purchaser). The Purchaser is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or to purchase
the Shares in accordance with the terms hereof, provided that for purposes of
the representation made in this sentence, the Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
5 Financial Risks. The Purchaser acknowledges that
it is able to bear the financial risks associated with an investment in the
Shares and that it has been given full access to such records of the Company and
the subsidiaries and to the officers of the Company and the subsidiaries as it
has deemed necessary or appropriate to conduct its due diligence investigation.
The Purchaser is capable of evaluating the risks and merits of
23
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an investment in the Shares by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters and
the Purchaser is capable of bearing the entire loss of its investment in the
Shares.
6 Accredited Investor. The Purchaser is an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act.
7 Compliance With Law. The Purchaser's trading and
distribution activities with respect to the Shares will be in compliance with
all applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market.
8 General. The Purchaser understands that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the suitability of the Purchaser to acquire
the Shares.
9
COVENANTS
The Company covenants with the Purchaser as follows:
10 Securities Compliance.
The Company shall notify The NASD, in accordance with their
rules and regulations, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and the Warrants to the Purchaser or subsequent holders.
11 Registration and Listing. The Company will cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein. The Company will
take all action necessary to continue the listing or trading of its Common Stock
on the Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and the Principal Market.
12 Registration Statement. The Company shall cause to be
filed the Registration Statement, which Registration Statement shall provide for
the sale of the Shares to the Purchaser and resale by the Purchaser to the
public in accordance with this Agreement. The Company shall cause such
Registration Statement to be declared effective by the Commission as
expeditiously as practicable. Before the Purchaser shall be obligated to accept
a Draw Down request from the Company, the Company shall have caused a sufficient
number of shares of Common Stock to be registered to cover the Shares to be
issued in connection with such Draw Down.
13 Escrow Arrangement. The Company and the Purchaser
shall enter into an escrow arrangement with Epstein Becker & Green, P.C. (the
"Escrow Agent") in the Form of Exhibit B hereto respecting payment against
delivery of the Shares.
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14 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could have a Material Adverse Effect.
15 Keeping of Records and Books of Account. The Company
shall keep and cause each subsidiary to keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
16 Amendments. The Company shall not amend or waive any
provision the Charter, Bylaws of the Company in any way that would adversely
affect the dividend rights or voting rights of the holders of the Shares.
17 Other Agreements. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the right
to perform of the Company or any subsidiary under this Agreement or the Charter
of the Company.
18 Notice of Certain Events Affecting Registration;
Suspension of Right to Request a Draw Down. The Company will immediately notify
the Purchaser upon the occurrence of any of the following events in respect of
the Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the Commission or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement the response to which would require any amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any statement made in the Registration Statement or
related prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in the Registration Statement, related prospectus or documents so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Purchaser any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the foregoing events.
19 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
or by operation of law the obligation to deliver to the Purchaser such shares of
stock and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
20 Limitation on Future Financing. The Company agrees
that, except as set forth below, it will not enter into any sale of its
securities for cash at a discount to the current market price until the earlier
of (i) twelve (12) months from the effective date of the Registration Statement
or (ii) sixty (60) days after the entire $10,000,000 of Shares has been
purchased by Purchaser. The foregoing shall not prevent or limit the Company
from engaging in any sale of securities (i) in a registered public offering by
the Company which is underwritten by one or more established investment banks,
(ii) in one or more private placements where the purchasers do not have
registration rights, (iii)
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pursuant to any presently existing or future employee benefit plan which plan
has been or is approved by the Company's stockholders, (iv) pursuant to any
compensatory plan for a full-time employee or key consultant, (v) in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money (which shall include piggy-back
registration rights to the Registration Rights Agreement), (vi) in one or more
private placements, the principal purpose of which is to raise money for an
acquisition (which shall include piggy-back registration rights to the
Registration Rights Agreement) or (vii) to which Purchaser gives its written
approval. Further, the Purchaser shall have a right of first refusal, to elect
to participate, in such subsequent transaction in the case of (vi) and (vii)
above. Such right of first refusal must be exercised in writing within seven (7)
Trading Days of the Purchaser's receipt of notice of the proposed terms of such
financing.
21
CONDITIONS TO CLOSING AND DRAW DOWNS
22 Conditions Precedent to the Obligation of the Company
to Sell the Shares. The obligation hereunder of the Company to issue and sell
the Shares to the Purchaser is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
23 Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing and as of each Draw Down Exercise Date as though made at that time,
except for representations and warranties that speak as of a particular date.
24 Performance by the Purchaser. The Purchaser
shall have performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Closing and as of each Draw Down Exercise Date.
25 No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
26 Conditions Precedent to the Obligation of the Purchaser
to Close. The obligation hereunder of the Purchaser to enter this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in its sole discretion.
27 Accuracy of the Company's Representations and
Warranties. Each of the representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing as though made at that time (except for representations and warranties
that speak as of a particular date).
28 Performance by the Company. The Company shall
have performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.
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29 No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
30 No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Purchaser or the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary seeking
to restrain, prevent or change the transactions contemplated by this Agreement,
or seeking damages in connection with such transactions.
31 Opinion of Counsel, Etc. At the Closing, the
Purchaser shall have received an opinion of counsel to the Company, dated the
date of Closing, in the form of Exhibit C hereto, and such other certificates
and documents as the Purchaser or its counsel shall reasonably require incident
to the Closing.
32 Warrants. In lieu of a minimum Draw Down
commitment by the Company, the Purchaser shall receive a warrant certificate at
the initial closing to purchase up to a number of shares of Common Stock equal
to $100,000 divided by the VWAP on the Trading Day immediately prior to the date
of the Closing (the "Initial Warrant"). One half of such Warrants shall be
exercisable immediately and the other half shall be exercisable six months
thereafter. As to any Draw Downs or any portion of a Draw Down made by the
Company after the Company has drawn down, or in excess of Five Million Dollars
($5,000,000) in the aggregate under this Agreement, the Purchaser shall also
receive, at each applicable Draw Down closing, a warrant certificate
representing 4% warrant coverage (using the same formula set forth above) of any
such Draw Down or portion thereof (each, a "Draw Down Warrant" and collectively
with the Initial Warrant, the "Warrants"). The term of the Warrants shall be
three (3) years from the date of their issuance. The Strike Price of the
Warrants shall be 150% of the VWAP on the Trading Days immediately prior to the
applicable closing date. The Common Stock underlying the Warrants will be
registered in the Registration Statement referred to in Section 4.3 hereof. The
Warrants shall be in the form of Exhibit E hereto.
33 Conditions Precedent to the Obligation of the Purchaser
to Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction or waiver, at or before each Draw Down Exercise
Date, of each of the conditions set forth below. The conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
34 Satisfaction of Conditions to Closing.
The Company shall have satisfied, or the Purchaser shall have waived, the
conditions set forth in Section 5.2 hereof
35 Effective Registration Statement. The
Registration Statement registering the Shares shall have been declared effective
by the Commission and shall remain effective on each Draw Down Exercise Date.
36 No Suspension. Trading in the Company's Common
Stock shall not have been suspended by the Commission or the Principal Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to each Draw Down request),
and, at any time prior to such request, trading in securities generally as
reported on the Principal Market shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported on the Principal Market.
37 Material Adverse Effect. No Material Adverse
Effect and no Consolidation Event shall have occurred.
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38 Opinion of Counsel. The Purchaser shall have
received a "down-to-date" letter from the Company's counsel, confirming that
there is no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change.
39
DRAW DOWN TERMS
40 Draw Down Terms. Subject to the satisfaction of the
conditions set forth in this Agreement, the parties agree as follows:
41 The Company, may, in its sole discretion, issue
and exercise a draw down (a "Draw Down") during each Draw Down Pricing Period,
which Draw Down the Purchaser will be obligated to accept for a period of 12
months after on the Effective Date.
(b) Only one Draw Down shall be allowed in each Draw
Down Pricing Period. The price per share paid by the Purchaser shall be based on
the Average Daily Price on each separate Trading Day during the Draw Down
Pricing Period. The number of shares of Common Stock purchased by the Purchaser
with respect to each Draw Down shall be determined on a daily basis during each
Draw Down Pricing Period and settled at the election of the Purchaser on a
weekly basis. In connection with each Draw Down Pricing Period, the Company may
set an Average Daily Price below which the Company will not sell any Shares (the
"Threshold Price"). If the Average Daily Price on any day within the Draw Down
Pricing Period is less than the Threshold Price, the Company shall not sell and
the Purchaser shall not be obligated to purchase the Shares otherwise to be
purchased for such day, except that, the Purchaser may, in its sole discretion,
purchase any such Shares at the Threshold Price.
(c) The minimum Draw Down shall be $250,000, unless
otherwise agreed by Purchaser.
(d) The maximum dollar amount of each Draw Down
during any Draw Down Pricing Period shall be limited pursuant to the following
formula: Average Stock Price: Average of the Average Daily Prices for the 22
Trading Days prior to the Draw Down Notice date. Average Trading Volume: Average
daily trading volume for the 45 Trading Days prior to the Draw Down Notice date.
Maximum dollar amount of each Draw Down: 20% of (Average Stock Price x (Average
Trading Volume x 22)) the number of Shares of Common Stock to be issued in
connection with each Draw Down shall be equal to the sum of the quotients (for
each trading day within the Draw Down Pricing Period) of (x) 1/22nd of the Draw
Down amount and (y) 90% of the Average Daily Price of the Common Stock on each
Trading Day within the Draw Down Pricing Period. If the Average Daily Price on a
given Trading Day is less than the Threshold Price, then the Purchaser's Draw
Down will be reduced by 1/22nd and that day shall be withdrawn from the Draw
Down Pricing Period.
(e) The Company must inform the Purchaser by
delivering a Draw Down Notice, in the form of Exhibit D hereto, via facsimile
transmission as to the amount of the Draw Down the Company wishes to exercise
before the first day of the Draw Down Pricing Period (the "Draw Down Notice").
The Company may set the Threshold Price, if any, prior to each Draw Down
request. At no time shall the Purchaser be required to purchase more than the
scheduled Draw Down amount for a given Draw Down Pricing Period so that if the
Company chooses not to exercise the maximum permitted Draw Down in a given Draw
Down Pricing Period the Purchaser is not obligated to purchase more than the
scheduled maximum amount in a subsequent Draw Down Pricing Period.
Notwithstanding the above, in no event shall the maximum Draw Down dollar amount
be less than $1 million per month.
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(f) On or before three (3) Trading Days after each
Draw Down Exercise Date, the Shares purchased by the Purchaser shall be
delivered to The Depository Trust Company ("DTC") on the Purchaser's behalf. The
Shares shall be credited by the Company to the DTC account designated by the
Purchaser upon receipt by the Escrow Agent of payment for the Draw Down into the
Escrow Agent's trust account as provided in the Escrow Agreement. The Escrow
Agent shall be directed to pay 96% of the purchase price to the Company, net of
One Thousand Five Hundred Dollars ($1,500) as escrow expenses to the Escrow
Agent, and 4% to the placement agent. The delivery of the Shares into the
Purchaser's DTC account in exchange for payment therefor shall be referred to
herein as "Settlement".
42
TERMINATION
43 Termination by Mutual Consent. The term of this
Agreement shall be twelve (12) months. This Agreement may be terminated at any
time by mutual consent of the parties.
44 Other Termination. The Purchaser may terminate this
Agreement upon one (1) Trading Day's notice if (i) an event resulting in a
Material Adverse Effect has occurred, (ii) the Common Stock is de-listed from
the Principal Market unless such de-listing is in connection with the listing of
the Common Stock on the Nasdaq National Market, Nasdaq SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, (iii) the Company files
for protection from creditors under any applicable law, (iv) the Company
completes any financing prohibited by Section 4.11, (v) the Registration
Statement is not effective by September 30, 2000 or (vi) or in the event that
the officers and directors of the Company shall own less than 35% of the
outstanding Common Stock of the Company that such officers and directors of the
Company own on the date hereof.
45 The Company may terminate this Agreement (i) upon
one (1) Trading Day's notice if the Purchaser shall fail to fund more than one
properly noticed Draw Down within three (3) Trading Days of the date payment for
such Draw Down is due.
46 Effect of Termination. In the event of termination by
the company or the Purchaser, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights to the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
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47
INDEMNIFICATION
48 General Indemnity. The Company agrees to indemnify and
hold harmless the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein. The Purchaser agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable attorneys
fees, charges and disbursements) incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Purchaser herein. Notwithstanding anything to the contrary herein, the
Purchaser shall be liable under this Section 8.1 for only that amount as does
not exceed the net proceeds to such Purchaser as a result of the sale of Shares
pursuant to the Registration Statement.
49 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VIII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VIII shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, within ten (10) Trading Days of written notice thereof to the
indemnifying party so long as the indemnified party irrevocably agrees to refund
such moneys if it is ultimately
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determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to.
50
MISCELLANEOUS
51 Fees and Expenses. The Company shall pay all fees and
expenses related to the transactions contemplated by this Agreement; provided,
that the Company shall pay, at the Closing, all attorneys and escrow fees and
expenses (exclusive of disbursements and out-of-pocket expenses) incurred by the
Purchaser of $10,000 in connection with the preparation, negotiation, execution
and delivery of this Agreement and the transactions contemplated hereunder. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any amendments, modifications or waivers of this
Agreement or the Registration Rights Agreement or incurred in connection with
the enforcement of this Agreement and the Registration Rights Agreement,
including, without limitation, all reasonable attorneys fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto.
52 Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
53 Entire Agreement; Amendment. This Agreement, together
with the Registration Rights Agreement and the Escrow Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representations, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
54 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 51 East Bethpage Road
Plainview, NY 11803
Telephone (516) 694-1010
Fax: (516) 694-1202
Attention: Barry Siegel
With copies to: Muenz Meritz P.C.
3 Hughes Place
Dix Hills, N.Y. 11746
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Tel: (631) 242-7384
Fax: (631) 242 6715
Attention: Lawrence A. Muenz
If to Purchaser: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Telephone Number:
Fax: 011-075-236-0405
Attention: Hans Gassner
with copies to: Epstein Becker & Green P.C.
250 Park Avenue
New York, New York 10177-1211
Telephone: (212) 351-3771
Attention: Robert F. Charron
Any party hereto may from time to time change its address for
notices by giving written notice of such changed address to the other party
hereto in accordance herewith.
55 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
56 Headings. The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.
57 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment. After Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.
58 No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
59 Governing Law/Arbitration. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to the choice of law provisions. Any dispute
under this Agreement or any Exhibit attached hereto shall be submitted to
arbitration under the American Arbitration Association (the "AAA") in New York
City, New York, and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (hereinafter referred
to as the "Board of Arbitration") selected as according to the rules governing
the AAA. The Board of Arbitration shall meet on consecutive business days in New
York City, New York, and shall reach and render a decision in writing (concurred
in by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State
32
<PAGE>
of New York. To the extent practical, decisions of the Board of Arbitration
shall be rendered no more than thirty (30) calendar days following commencement
of proceedings with respect thereto. The Board of Arbitration shall cause its
written decision to be delivered to all parties involved in the dispute. The
Board of Arbitration shall be authorized and is directed to enter a default
judgment against any party refusing to participate in the arbitration proceeding
within thirty days of any deadline for such participation. Any decision made by
the Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the parties
to the dispute, and entitled to be enforced to the fullest extent permitted by
law and entered in any court of competent jurisdiction. The prevailing party
shall be awarded its costs, including attorneys' fees, from the non-prevailing
party as part of the arbitration award. Any party shall have the right to seek
injunctive relief from any court of competent jurisdiction in any case where
such relief is available. The prevailing party in such injunctive action shall
be awarded its costs, including attorney's fees, from the non- prevailing party.
60 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart. Execution may be made by
delivery by facsimile.
61 Publicity. Prior to the Closing, neither the Company
nor the Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement. After the Closing, the
Company may issue a press release or otherwise make a public statement or
announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement; provided, that prior to issuing any
such press release, making any such public statement or announcement, the
Company obtains the prior consent of the Purchaser, which consent shall not be
unreasonably withheld or delayed.
62 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
63 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
64 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Closing in
Article I of the Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorize officer as of this
day of 31st May, 2000.
33
<PAGE>
First Priority Group, Inc.
By:
---------------------------------------
Barry Siegel, Chairman & CEO
Suerez Enterprises Limited
By:
---------------------------------------
Hans Gasser, Authorized Signatory
34
<PAGE>
Exhibit D
FOURTH: The aggregate number of shares which the corporation shall
have the authority to issue is thirty-one million (31,000,000), divided into two
classes. The designation of each class, the number of share of each class, and
the par value of the shares of each class, are as follows:
Number of Shares Class Par Value per Share, if any
---------------- ----- ---------------------------
Twenty Million (30,000,000) Common $.015
One Million (1,000,000) Preferred $.01
The relative rights, preferences and limitations of the shares of
each class are as follows:
A. Authorized Shares.
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 31,000,000 shares of which 1,000,000 shares
shall be Preferred Stock, having a par value of $0.01 per share ("Preferred
Stock"), and 30,000,000 shall be Common Stock, having a par value of $0.015 per
share (Common Stock"). The Board of Directors is expressly authorized to provide
for the classification and reclassification of any unissued shares of Preferred
Stock or Common Stock and issuance thereof in one or more classes or series
without the approval of the stockholders of the Corporation.
35
<PAGE>
PROXY PROXY FIRST PRIORITY GROUP, INC. PROXY
This Proxy is solicited on behalf of the Board of Directors
PROXY for Annual Meeting of Shareholders - October 2, 2000
The undersigned shareholder of common stock of FIRST PRIORITY GROUP, INC. hereby
constitutes and appoints Barry Siegel and Barry J. Spiegel, each of them, as
proxies for the undersigned, each with full power of substitution, to vote and
otherwise represent all of the shares of the undersigned of the 2000 Annual
Meeting of Shareholders of the Company to be held at the Danfords on the Sound,
25 East Broadway, Port Jefferson, New York 11777, 11:00 A.M., local time, and at
any adjournments or postponements thereof, as if the undersigned were present
and voting the shares, in the following manner:
(1) The ratification and approval to amendments to the By-laws of the Company.
/ / FOR / / AGAINST / / ABSTAIN
--------------------------------------------------------------------------------
(2) The approval of an Amendment to the Certificate of Incorporation to change
the name of the Company.
/ / FOR / / AGAINST / / ABSTAIN
--------------------------------------------------------------------------------
(3) The ratification and approval of a common stock purchase agreement.
/ / FOR / / AGAINST / / ABSTAIN
--------------------------------------------------------------------------------
(4) The approval of an Amendment to the Certificate of Incorporation to
increase the authorized shares of common stock.
/ / FOR / / AGAINST / / ABSTAIN
--------------------------------------------------------------------------------
(5) The election of four nominees to the Board of Directors.
/ / FOR ALL nominees listed below / / WITHHOLD AUTHORITY
(except as indicated to the contrary to vote for all nominees listed
below) below
NOMINEES: Barry Siegel, Barry J. Spiegel, Kenneth Friedman and R. Frank Mena.
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
--------------------------------------------------------------------------------
(6) The ratification and approval of the appointment of Nussbaum,
Yates & Wolpow, P.C. as the Company's independent certified public
accountants for the fiscal year ending December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
--------------------------------------------------------------------------------
(7) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
PROXY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 5 AND FOR
PROPOSALS 1, 2, 3, 4 AND 6..
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Meeting, Proxy Statement and Annual Report to Shareholders of the fiscal year
ended December 31, 1999 and hereby revokes any proxy or proxies previously
given.
Dated: , 2000
---------------------
----------------------------------
Signature
----------------------------------
Signature
Please date and sign exactly as name appears hereon. If signing as attorney,
executor, administrator, trustee, or guardian, please indicate the capacity in
which your are acting. Proxies executed by corporations should be signed in the
corporation's full name by a duly authorized officer. Proxies executed by
partnerships should be signed in the partnership name by an authorized person.
If shares are held jointly, each shareholder named should sign.
PLEASE MARK, SIGN AND DATE THIS PROXY AND PROMPTLY RETURN IT
IN THE ENVELOPE PROVIDED.
