SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
(x) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-1665
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DCAP GROUP, INC.
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(Name of small business issuer in its charter)
Delaware 36-2476480
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
90 Merrick Avenue, East Meadow, New York 11554
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (516) 794-6300
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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none
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No .
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.( )
State issuer's revenues for its most recent fiscal year: $9,149,909
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $4,371,784 as of February 29, 2000
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes No .
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 14,299,176 shares as of
February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None
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INDEX Page No.
Forward Looking Statements.................................................2
PART I
Item 1. Description of Business.......................................2
Item 2. Description of Property.......................................14
Item 3. Legal Proceedings.............................................15
Item 4. Submission of Matters to a Vote of Security Holders...........15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters......16
Item 6. Management's Discussion and Analysis or Plan of Operation.....17
Item 7. Financial Statements..........................................19
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................19
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............20
Item 10. Executive Compensation........................................22
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions................29
PART IV
Item 13. Exhibits and Reports on Form 8-K..............................36
Signatures
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PART I
Forward Looking Statements
Certain statements contained herein are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, and are
subject to the safe harbor created by that act. The Company cautions readers
that certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements
which may be deemed to have been made in this Annual Report or which are
otherwise made by or on behalf of the Company. For this purpose, any statements
contained in this Annual Report that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the generality of
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate," or "continue" or the negative variations of those
words or comparable terminology are intended to identify forward-looking
statements. Factors which may affect the Company's results include, but are not
limited to, the risks and uncertainties associated with undertaking different
lines of business, the lack of experience in operating certain new business
lines, the volatility of insurance premium pricing, government regulation,
competition from larger, better financed and more established companies, the
possibility of tort reform and a resultant decrease in the demand for insurance,
the uncertainty of the litigation with regard to the Company's hotel lease, the
dependence on the Company's executive management, and the ability of the Company
to raise additional capital which may be required in the near term. The Company
is also subject to other risks detailed herein or detailed from time to time in
the Company's Securities and Exchange Commission filings.
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Background
Prior to February 25, 1999, the sole business of DCAP Group, Inc. (formerly
EXTECH Corporation) (the "Company") was the operation, through a wholly-owned
subsidiary, IAH, Inc., of the International Airport Hotel in San Juan, Puerto
Rico (the "Hotel"). See "International Airport Hotel" in Item 1(b) hereof.
DCAP Acquisition
On February 25, 1999, pursuant to an Agreement, dated as of May 8, 1998, by
and among the Company, Morton L. Certilman, Jay M. Haft, Kevin Lang and Abraham
Weinzimer (Messrs. Lang and Weinzimer are sometimes referred to collectively as
the "DCAP Shareholders"), as amended (the "DCAP Agreement"), the Company
acquired from the DCAP Shareholders all of the issued and outstanding shares of
Common Stock of DCAP Insurance Agencies, Inc. (then known as Dealers Choice
Automotive Planning Inc.) ("DCAP") as well as interests held by them in certain
companies affiliated with DCAP (collectively with DCAP, the "DCAP Companies").
The DCAP
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Companies are engaged primarily in placing various types of insurance, including
automobile, motorcycle, boat, life, business and homeowner's insurance, and
excess coverage, with insurance underwriters on behalf of their customers. In
addition, the DCAP Companies offer income tax return preparation services and
automobile club services for roadside emergencies. The DCAP Companies also
provide premium financing services for their customers.
Between November 1997 (at the time of the execution of a letter of intent
with respect to the acquisition of the DCAP Companies (the "DCAP Acquisition"))
and the closing, the Company loaned to DCAP the aggregate net sum of $885,000
for working capital purposes.
At the closing of the DCAP Agreement, and pursuant to the terms thereof,
the following transactions and events, among others, occurred:
(i) Messrs. Lang and Weinzimer transferred all of the
outstanding shares of Common Stock of DCAP as well as
all of their holdings in the other DCAP Companies
(generally ranging between 50% and 100%)
(collectively, the "DCAP Shares") to the Company, and
the Company issued 1,650,000 Common Shares to each of
them (an aggregate of 3,300,000 Common Shares).
(ii) Messrs. Lang and Weinzimer each purchased from the
Company 475,000 Common Shares (an aggregate of
950,000 Common Shares) at a purchase price of $.25
per share.
(iii) Messrs. Certilman and Haft (or their designees) each
purchased from the Company 226,000 Common Shares (an
aggregate of 452,000 Common Shares) at a purchase
price of $.25 per share.
(iv) Messrs. Certilman, Haft, Lang and Weinzimer (or
their designees) each purchased 450,000 Common
Shares of the Company (an aggregate of 1,800,000
Common Shares) (the "Sterling Foster Shares"),
beneficially owned by Sterling Foster Holding Corp.
("Sterling Foster") and held by Mr. Certilman as
voting trustee pursuant to a voting trust
agreement with Sterling Foster, at a purchase price
of $.25 per share. Mr. Certilman did not receive any
portion of such purchase price. Concurrently with
the purchase of the Sterling Foster Shares,
the voting trust agreement terminated.
(v) The Company loaned to each of Messrs. Lang and
Weinzimer the sum of $112,500 (an aggregate of
$225,000) (the "Closing Loans"). The proceeds of the
Closing Loans were used by Messrs. Lang and Weinzimer
solely for the purpose of acquiring their respective
Sterling Foster Shares.
(vi) Messrs. Certilman, Haft, Lang and Weinzimer entered
into employment agreements with the Company and were
granted stock options in connection therewith.
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(vii) The size of the Board of Directors of the Company was
initially increased to four, Leon Lapidus resigned as
a director of the Company, and Messrs. Lang and
Weinzimer were appointed as directors thereof.
(viii) Messrs. Lang and Weinzimer were appointed President
and Executive Vice President of the Company. Messrs.
Certilman and Haft, formerly President and Chairman
of the Board, respectively, were appointed Chairman
of the Board and Vice Chairman of the Board,
respectively.
(ix) The Company changed its name to DCAP Group, Inc.
Concurrently with the closing of the DCAP Agreement, pursuant to a
Subscription Agreement, dated as of October 2, 1998, as amended (the "Eagle
Agreement"), the Company issued and sold to Eagle Insurance Company ("Eagle")
1,486,893 Common Shares for an aggregate purchase price of approximately
$1,000,000, or $.67 per share (the "Eagle Issuance").
Eagle is a New Jersey insurance company wholly-owned by The Robert Plan
Corporation ("The Robert Plan"), an insurance holding company that is engaged in
providing services to insurance companies. Pursuant to separate agency
agreements between certain DCAP Companies and certain insurance company
subsidiaries of The Robert Plan, such DCAP Companies have been appointed agents
of the insurance companies with regard to the offering of automobile and other
insurance products.
Pursuant to the Eagle Agreement, at the closing of the DCAP Agreement, the
size of the Board of Directors of the Company was increased further to five and
Robert M. Wallach, Eagle's Vice President and the President, Chairman and Chief
Executive Officer of The Robert Plan, was appointed as a member of the Board of
Directors.
Reference is made to Items 10 and 12 hereof for further information with
regard to the DCAP Agreement and the Eagle Issuance.
Private Placement
On June 2, 1999, the Company sold, through Aegis Capital Corp., 33.5 Units,
each Unit consisting of 45,453 Common Shares, 15,151 Class A Common Stock
Purchase Warrants ("Class A Warrants"), 15,151 Class B Common Stock Purchase
Warrants ("Class B Warrants") and 15,151 Class C Common Stock Purchase Warrants
("Class C Warrants"), at a price of $50,000 per Unit (or an aggregate of
$1,675,000), to 43 accredited investors.
As indicated above, each Unit was comprised of 45,453 Common Shares, 15,151
Class A Warrants, 15,151 Class B Warrants and 15,151 Class C Warrants. The
number of Common Shares included with a Unit was determined by dividing the per
Unit purchase price of $50,000 by two- thirds of $1.65 (the approximate closing
price of the Company's Common Shares, as reported by the NASD OTC Electronic
Bulletin Board (the "Bulletin Board"), at or about the date of the commencement
of the offering). Such price of $1.65 per share is referred to as the "Base
Market Value". For each three Common Shares included within a Unit, one Class A
Warrant, one Class B Warrant and one Class C Warrant were also included.
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If, at the time any of the issued Common Shares become publicly saleable
(either pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or because a registration statement filed under
the Securities Act covering such shares is declared effective by the Securities
Exchange Commission), the preceding 30 trading day average of the closing prices
of the Common Shares (as reported by the Bulletin Board, The Nasdaq Stock Market
or a securities exchange, depending upon where the Company's Common Shares are
then traded or listed) (the "Later Market Value") is less than the Base Market
Value, the purchasers of the Units shall be entitled to receive additional
Common Shares and Warrants as if the offering had been based upon the Later
Market Value instead of the Base Market Value, i.e., two-thirds of the Later
Market Value being used instead of two-thirds of the Base Market Value (but in
no event more than an additional 50% of the original Common Shares and Warrants
issued).
Each Class A Warrant, Class B Warrant and Class C Warrant is exercisable
until June 2, 2004, subject to earlier redemption, under certain circumstances,
as discussed below.
The Class A Warrants are exercisable at a price of $1.65 per share; the
Class B Warrants are exercisable at a price of $2.06 per share; and the Class C
Warrants are exercisable at a price of $2.48 per share. The respective exercise
prices were determined based upon the Base Market Value. The exercise prices of
the Class A Warrants, Class B Warrants and Class C Warrants are equal to 100%,
125% and 150%, respectively, of the Base Market Value. In the event the Later
Market Value is less than the Base Market Value, then the exercise prices of the
Class A Warrants, Class B Warrants and Class C Warrants shall be adjusted to
equal 100%, 125% and 150%, respectively, of the Later Market Value (except that
none of the respective exercise prices may be reduced by more than one- third).
Any such readjustment in the exercise prices of the Warrants shall only apply to
the unexercised portion of the Warrants.
Each of the Warrants is subject to redemption by the Company, at a price of
$.001 per Warrant, in the event the average of the closing prices of the
Company's Common Shares during any 30 consecutive trading day period is at least
125% of the exercise price of the particular Warrants and a registration
statement filed under the Securities Act is in effect covering the resale of the
Common Shares underlying the particular Warrants. The Company shall be required
to give 30 days notice of any such redemption. During the 30 day notice period,
the holders of the particular Warrants shall be entitled to exercise their right
to acquire the underlying Common Shares by paying the exercise price.
Acquisitions of Joint Venture Interests
Pursuant to various agreements entered into by the Company in December
1999, the Company acquired the interests of its joint venture partners in 15
DCAP retail insurance stores, in exchange for the issuance of approximately
850,000 Common Shares of the Company. These acquisitions are part of the
Company's plan to phase out joint ventures in the DCAP system and to concentrate
on wholly-owned and franchise operations.
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(b) Business of Issuer
General
The Company, through the DCAP Companies, is engaged primarily in placing
various types of insurance, including automobile, motorcycle, boat, life,
business and homeowner's insurance, and excess coverage, with insurance
underwriters on behalf of its customers. In addition, the DCAP Companies offer
income tax return preparation services and automobile club services for roadside
emergencies. The DCAP Companies also provide premium financing for their
customers.
The Company is compensated for its insurance-related services by
commissions paid by insurance companies; the commission is usually a percentage
of the premium paid by the insured. The Company does not engage in underwriting
activities and therefore does not assume underwriting risks.
There are 51 existing "DCAP" offices in the New York metropolitan area.
Sixteen are wholly-owned by the Company (each a "wholly-owned office"). Eight
are owned partially by the Company (ranging between 50% and 80%) and partially
by other persons who generally operate the location (the "joint venture
partner") (each a "joint venture office"). Twenty-seven are franchises (each a
"franchise"), in which the Company has no equity interest; the franchisor, DCAP
Management Corp., however, is wholly-owned by the Company. During the last four
months of 1999 and first quarter of 2000, the Company sold an aggregate of 21
franchises. One of these opened for business in February 2000. It is anticipated
that the remaining 20 franchised stores will open during the second quarter of
2000. In April 1999, DCAP obtained a license from the State of Connecticut to
sell insurance in that State, and expects to begin placing policies there in the
near future.
The Company, through IAH, also operates the International Airport Hotel in
San Juan, Puerto Rico.
DCAP Companies
Insurance Brokerage
Commissions and other fees received in connection with the selling of
automobile insurance policies, as well as other types of property and casualty
insurance, represent approximately 88% of the revenues of the DCAP Companies.
Initially, the DCAP Companies specialized in offering assigned-risk and
nonstandard insurance policies. Assigned-risk and nonstandard policies are
issued after an analysis of such factors as the driver's accident record, the
kind of car being insured, the age and credit risk of the driver, where the
insured lives, and other items. Over the last several years, the DCAP Companies
have also been marketing and selling standard and preferred policies;
commissions and other amounts received in connection with the issuance of
standard and preferred
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policies now represent approximately 15% to 20% of their auto insurance
revenues. Because DCAP has insurance underwriting relationships with several
nationally known insurance carriers, including Chubb, Travelers, Progressive
Casualty, CNA, AIG, and The Robert Plan (see "Eagle" in Item 12 hereof), the
DCAP Companies, serving as either brokers or agents, can offer their customers
many carrier and premium options.
The DCAP Companies have established a presence in all five New York City
boroughs, Westchester, Nassau and Suffolk Counties, New York and New Jersey (see
"Locations"). Locations are selected to maximize the attraction of "walk-in"
retail customers, i.e., customers without an established relationship with the
DCAP Companies and who come to the store without an appointment. Such customers
constitute the majority of the DCAP Companies' business.
In addition to automobile insurance brokerage, the DCAP Companies offer
property and casualty insurance for motorcycles and boats, life insurance,
commercial property insurance, homeowner's insurance and excess coverage. The
DCAP Companies also provide premium financing services (see "Premium Financing"
below) for their customers.
DCAP has obtained the right to receive calls placed to "1-800-INSURANCE" in
the states of New York, New Jersey, Connecticut and Pennsylvania (except for one
area code in Pennsylvania) as a means to increase its insurance brokerage
business.
Income Tax Return Preparation
Income tax return preparation services have been provided by a small number
of the DCAP Companies since 1997 and are now provided by nearly half of them.
The tax return preparation service allows the DCAP Companies to offer an
additional service to the walk-in customers who comprise the bulk of their
customer base, as well as to existing customers. DCAP has also obtained the
right to receive calls placed to "1-800-INCOME TAX" nationwide as a means to
increase its tax preparation business.
The participating DCAP Companies gather information from filers and forward
it to an unaffiliated third party, which processes the information, generates
returns to be submitted to the Internal Revenue Service and other taxing
authorities, manually or electronically files the returns and processes any
refunds. DCAP uses a wholly-owned subsidiary as an intermediary between the
various DCAP Companies and the third party processor. DCAP management believes
that the provision of this service not only increases the revenues of the DCAP
Companies, but also enhances their presence in the various markets that they
serve and aids in customer retention. The Company expects that greater emphasis
will be placed upon this business operation in the near future.
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Premium Financing
Clients who purchase insurance policies are often unable to pay the premium
in a lump sum or to make the required down payment, and, therefore, require
financing. The DCAP Companies until recently out sourced premium financing for
their clients. Based upon the perceived need for premium financing, Payments,
Inc., a wholly-owned subsidiary, was formed and became licensed by the New York
State Banking Department as a premium finance company.
In September 1999, Payments, Inc., Flatiron Credit Company, Inc.
("Flatiron") and Westchester Premium Acceptance Corp. ("WPAC") executed a Sale
and Assignment Agreement pursuant to which Flatiron, through WPAC (its licensed
premium finance affiliate), has agreed to purchase Payments, Inc.'s premium
finance receivables up to $3,000,000 (the "Flatiron Agreement"). Pursuant to the
Flatiron Agreement, Payments, Inc. is entitled to be paid, in addition to the
amount of the receivable purchased, $20 with respect to each such receivable.
The Flatiron Agreement terminates on September 1, 2002, and either party may
voluntarily terminate the Flatiron Agreement upon 90 days written notice.
Payments, Inc. is not liable to WPAC with respect to uncollected receivables;
however, the Company must repurchase any premium finance contract that WPAC
determines does not meet the requirements of the Flatiron Agreement.
Automobile Club
As a complement to the automobile insurance operations, the DCAP Companies
offer automobile club services for roadside emergencies. Memberships are offered
by the DCAP Companies for such services, and arrangements are made by a third
party with service stations and towing companies to fulfill service call
requirements.
Locations
The following reflects the locations of the DCAP offices, the nature of the
ownership (i.e., wholly-owned, joint venture or franchise) and the services
currently being provided by the office:
<TABLE>
<CAPTION>
Office Location Nature of Ownership Services Provided
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New York State
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Nassau County
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<S> <C> <C>
1905 Hempstead Tpke. Insurance Brokerage
East Meadow Wholly-owned Tax Preparation
17-19 West Sunrise Highway Insurance Brokerage
Freeport Joint Venture Tax Preparation
53 Forest Avenue
Glen Cove Franchise Insurance Brokerage
28 Main Street Insurance Brokerage
Hempstead Wholly-owned Tax Preparation
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Office Location Nature of Ownership Services Provided
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418 South Broadway Insurance Brokerage
Hicksville Wholly-owned Tax Preparation
535 Burnside Avenue
Inwood Franchise Insurance Brokerage
8 West Park Avenue
Long Beach Franchise Insurance Brokerage
416 Hillside Avenue
New Hyde Park Franchise Insurance Brokerage
3789 Merrick Road Insurance Brokerage
Seaford Wholly-owned Tax Preparation
290 W. Merrick Road
Valley Stream Franchise Insurance Brokerage
149 Post Avenue
Westbury Franchise Insurance Brokerage
310 Willis Avenue
Mineola Franchise Insurance Brokerage
Suffolk County
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709 North Broadway Insurance Brokerage
Amityville Wholly-owned Tax Preparation
779 Suffolk Avenue Insurance Brokerage
Brentwood Joint Venture Tax Preparation
809 Jericho Tpke Insurance Brokerage
Huntington Franchise Tax Preparation
2690 Rte. 112 Insurance Brokerage
Medford Wholly-owned Tax Preparation
1472 Deer Park Avenue
North Babylon Franchise Insurance Brokerage
1116 Middle Country Road
Selden Franchise Insurance Brokerage
861 Montauk Highway
Shirley Franchise Insurance Brokerage
105 East Main Street
Smithtown Franchise Insurance Brokerage
79 Main Street
West Sayville Franchise Insurance Brokerage
New York City
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Queens
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29-28 Hoyt Avenue South
Astoria Franchise Insurance Brokerage
43-04A Bell Blvd. Insurance Brokerage
Bayside Joint Venture Tax Preparation
159-03 Northern Blvd. Insurance Brokerage
Flushing Joint Venture Tax Preparation
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Office Location Nature of Ownership Services Provided
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176-69 Union Tpke. Insurance Brokerage
Fresh Meadows Franchise Tax Preparation
89-13 37th Avenue Insurance Brokerage
Jackson Heights Joint Venture Tax Preparation
167-10A Hillside Avenue Insurance Brokerage
Jamaica Wholly-owned Tax Preparation
120-01 Liberty Avenue Insurance Brokerage
Richmond Hill Wholly-owned Tax Preparation
59-30 Myrtle Avenue Insurance Brokerage
Ridgewood Joint Venture Tax Preparation
86-56 Woodhaven Blvd. Insurance Brokerage
Woodhaven Wholly-owned Tax Preparation
Bronx
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1980 East Tremont Avenue Wholly-owned Insurance Brokerage
Tax Preparation
660 East Fordham Road Franchise Insurance Brokerage
Brooklyn
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2300 86th Street
Bensenhurst Franchise Insurance Brokerage
5110 16th Avenue
Borough Park Franchise Insurance Brokerage
2875 West 8th Street
Coney Island Franchise Insurance Brokerage
318A Utica Avenue
Crown Heights Franchise Insurance Brokerage
483 Hudson Avenue Insurance Brokerage
Downtown Brooklyn Wholly-owned Tax Preparation
330 McGuiness Blvd.
Greenpoint Franchise Insurance Brokerage
4501 5th Avenue
Sunset Park Franchise Insurance Brokerage
1336 Myrtle Avenue Franchise Insurance Brokerage
Wyckoff Heights
Staten Island
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2048 Victory Blvd. Wholly-owned Insurance Brokerage
Tax Preparation
Manhattan
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90 Worth Street Insurance Brokerage
Downtown Wholly-owned Tax Preparation
667 Amsterdam Avenue Insurance Brokerage
Uptown Wholly-owned Tax Preparation
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Office Location Nature of Ownership Services Provided
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790 11th Avenue
West Side Franchise Insurance Brokerage
203 Dyckman Street
Washington Heights Franchise Insurance Brokerage
Westchester County
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680 Main Street
New Rochelle Franchise Insurance Brokerage
728 Central Avenue
Scarsdale Franchise Insurance Brokerage
200 Hamilton Avenue Insurance Brokerage
White Plains Wholly-owned Tax Preparation
6KA Mall Walk Insurance Brokerage
Yonkers Wholly-owned Tax Preparation
New Jersey
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119-131 Rte. 22 East Insurance Brokerage
Greenbrook Joint Venture Tax Preparation
109 Main Street Insurance Brokerage
Hackensack Joint Venture Tax Preparation
</TABLE>
Structure and Operations
As indicated above, of the 51 existing "DCAP" offices, 16 are wholly-owned
offices, 8 are joint venture offices and 27 are franchises. The joint venture
offices and franchises consist of both "conversion" operations, i.e., where an
existing insurance brokerage with an established business becomes a DCAP office,
and "startup" operations, i.e., where an entrepreneur commences business
operations as a DCAP office. The wholly-owned offices are managed by persons
employed by the respective DCAP Company; each joint venture office is managed
either by the joint venture partner or a person employed by the DCAP Company;
and each franchise is managed by or under the supervision of the franchisee.
To promote consistency and efficiency, all DCAP office managers (including
a joint venture partner, if a manager) are trained by DCAP. The DCAP training
program covers marketing, sales and underwriting training, office and logistics
training, and extensive computer training, including training with regard to the
DCAP Management System described below.
DCAP provides the administrative services and functions of a "central
office" to the wholly- owned and joint venture offices. Among the services
rendered to these storefront offices are sales training, bookkeeping and
accounting, processing services and customer service functions provided
primarily in connection with insurance policy brokerage. DCAP has approximately
24 employees engaged in the provision of "central office" services. Franchises
operate without the assistance of DCAP's "central office" functions.
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The DCAP staff also provides to all stores management support services that
include assistance with regard to the hiring of employees and the writing of
local advertising, and advice concerning appropriate potential carriers for
particular customers. DCAP also manages the cooperative advertising program in
which all of the DCAP offices participate.
In addition to the above services, DCAP provides to all DCAP offices a
direct business relationship with nationally-known and local insurance carriers
that would otherwise be beyond the reach of small, privately-owned retail
insurance operations. As a result, an individual DCAP office can offer policy
and premium options to its customers that other local insurance brokerages
cannot. This direct relationship is enhanced by a software system, known as the
DCAP Management System ("DMS"), that provides a direct link to certain carrier
databases. DMS enables each DCAP office that utilizes it to access policy
coverage and cost information, application requirements, and other kinds of
information. It also enables the DCAP offices' brokers to search various
databases to obtain pertinent information about potential customers.
Strategy
The Company seeks to achieve an increase in market share through a
three-pronged strategy of (i) increasing name recognition, (ii) expanding and
diversifying the products and services offered by the DCAP offices, and (iii)
utilizing toll-free telephone numbers.
Increased name recognition will be pursued through the establishment of
additional DCAP storefront sites (both conversion and start-up types), combined
with increased marketing activities. In addition, the cooperative advertising
program will continue to use the aggregated buying power of the DCAP offices to
advertise in various editions of directories and in automobile sales and other
publications, and intends to initiate television advertising.
The second strategy, expanding and diversifying the products and services
offered, will capitalize on the nature of the typical DCAP customer. It is
contemplated that such person, the "walk-in" customer, will be offered not only
a variety of automobile insurance products, but, as noted above, additional
types of insurance currently offered, including life, commercial property and
homeowner's insurance, and excess coverage, and other services, including an
income tax return processing program, a premium financing service and consumer
finance services including personal and automobile loans.
The final strategy entails utilizing toll-free telephone numbers. Telephone
calls received are routed to the DCAP office nearest the call (based on the zip
code of the caller) for handling. DCAP is promoting "1-800-INSURANCE" and
"1-800-INCOME TAX" in its current markets and intends to utilize such numbers in
the future as its market expands.
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International Airport Hotel
General
The Company, through IAH, operates the International Airport Hotel in San
Juan, Puerto Rico (the "Hotel"). The Hotel is located on the site of the San
Juan International Airport (the "Airport") and occupies the third and fifth
floors of the main terminal building. In addition to its 57 guest rooms, the
Hotel has a lobby area. The Hotel caters generally to commercial and tourist
travelers in transit; it is marketed through brochures, local advertising and
in-airport advertising. IAH also operates a video game room on the terminal
level of the Airport. The operations of the Hotel are highly seasonal, with a
disproportionate share of its revenues generated during the first several months
of the calendar year. Approximately 13% of the total room sales for the Hotel
for 1999 were attributable to one customer, American Airlines. During 1999, the
Hotel's average occupancy rate was approximately 64%. From 1995 to 1998, the
average occupancy rate was approximately 60%. The Hotel's average room rate
during 1999 was approximately $73.
The Hotel is the only hotel actually located on the site of the Airport. As
such, it has little direct competition for the tourist trade or commercial
travelers seeking only sleeping accommodations at the Airport. The Puerto Rico
Ports Authority (the "Ports Authority"), the owner of the Airport, had
authorized the construction of an additional hotel in the parking lot of the
Airport; however, the Ports Authority has advised IAH that it has abandoned that
plan and instead has determined to upgrade and expand the Hotel. No assurance
can be given, however, that an additional hotel or hotels will not be developed
at the site of, or near, the Airport, in which case IAH could encounter
significant competition with respect to the operations of the Hotel.
Dispute with Ports Authority
On July 22, 1988, IAH entered into a lease agreement with the Ports
Authority pursuant to which the Ports Authority granted IAH a lease to operate
the Hotel for five years until June 30, 1993, plus, at the option of IAH, an
additional five year term to end June 30, 1998 (subject to agreement as to the
rental amount payable, which the parties agreed to negotiate in good faith).
In 1992, in accordance with the lease agreement, IAH exercised its right
for a five year extension of its lease. At the time, the Ports Authority was
uncertain as to whether it wished to build a new hotel in the parking lot of the
Airport or upgrade the Hotel and, therefore, requested that IAH accept a 30
month extension of the then existing term. IAH agreed to a 30 month extension
and signed a supplemental lease agreement with the Ports Authority in May 1992
extending the lease term to December 31, 1995. IAH is of the belief that,
pursuant to the supplemental lease agreement, it retained the option to continue
the lease for a period of five years to December 31, 2000.
In July 1993, the Assistant Director of Operations of the Ports Authority
forwarded to IAH a letter containing the terms of a proposed ten year lease
extension (the "Proposed Extension Letter") which IAH approved, signed and
returned to the Ports Authority. Although the Proposed Extension
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<PAGE>
Letter does not make the Ports Authority's approval conditional upon the
approval of its Board of Directors, the Ports Authority has taken such position
and, since Board of Directors approval was not obtained, the Ports Authority
contends that the extension is not in effect. IAH is of the belief that a ten
year agreement has been entered into between IAH and the Ports Authority
pursuant to the Proposed Extension Letter or that, alternatively, it exercised
its right to extend the term of the lease to December 31, 2000.
Based upon IAH's refusal to acknowledge that, effective January 1, 1996, it
occupied the Hotel on a month-to-month basis, in February 1996, the Ports
Authority requested that IAH vacate, surrender and deliver the premises by
February 29, 1996. Following the receipt of such request, on February 26, 1996,
IAH brought an action in the Superior Court of San Juan, Puerto Rico for
declaratory judgment and possessory injunction against the Ports Authority with
respect to the Hotel. The action seeks a declaratory judgment that IAH exercised
an option with respect to its lease for the Hotel for an extension of the term
of five years commencing on January 1, 1996 or, in the alternative, that the
Ports Authority executed a new lease agreement for a ten year period commencing
on such date. IAH has continued to operate the Hotel during the pendency of the
action. The trial of the action is scheduled to begin on May 31, 2000.
In seeking to protect its interests under the original lease agreement, as
extended, in April 1997, IAH purchased a bank certificate of deposit in the
amount of $40,000 and pledged it to the Ports Authority as security for the
payment of amounts due under the lease agreement, as required by the terms
thereof (but which previously had not been delivered).
Employees
The Company and its subsidiaries employ approximately 93 persons; seven of
them (all of whom are employees of IAH) are represented by a collective
bargaining organization. The Company believes that its relationship with its
employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
The executive offices of the Company are located at 90 Merrick Avenue, East
Meadow, New York where approximately 200 square feet of space are occupied on a
month-to-month basis at a monthly rental of $500.
DCAP's executive offices are located at 2545 Hempstead Turnpike, East
Meadow, New York. The 24 wholly-owned or joint venture "DCAP" offices (and
DCAP's executive offices) are operated pursuant to leases that expire from time
to time through 2006 and provide for an aggregate base rental of approximately
$747,000 per annum.
The Hotel is leased by IAH from the Ports Authority. The annual rental
obligation for the Hotel equals the greater of $169,400 or 20% of annual gross
revenues, as defined. Total rent
14
<PAGE>
expense under the lease amounted to $196,119 for 1999 as compared to $184,634
for 1998. See "International Airport Hotel - Dispute with Ports Authority" in
Item 1(b) hereof.
Reference is made to "International Airport Hotel - Dispute with Ports
Authority" in Item 1(b) hereof for a discussion of certain pending litigation
with regard to IAH's lease rights in the Hotel.
ITEM 3. LEGAL PROCEEDINGS
In November, 1996, an action was commenced in the United States District
Court for the Eastern District of Pennsylvania by Regent National Bank
("Regent") against DCAP and Payments, Inc. alleging that DCAP and Payments, Inc.
breached a certain contract in connection with Regent's agreement to provide
funding to finance the purchase of automobile insurance for customers of DCAP,
Payments, Inc. and affiliated agencies. Subsequently, Regent amended its
pleading to add Kevin Lang and Abraham Weinzimer, DCAP's principals, as
defendants. Regent claims that the defendants are liable to it for the losses
Regent allegedly suffered as a result of unpaid loans made through DCAP
agencies. Regent claims damages in excess of $800,000. DCAP and Payments, Inc.
have interposed several affirmative defenses and have asserted counterclaims
against Regent for breach of contract and fraud. DCAP and Payments, Inc. seek
damages of $40,000. This matter has been placed on the list of matters to be
scheduled for trial, but no date has been set for a trial. DCAP believes that it
has meritorious defenses to Regent's claims and intends to defend and pursue its
counterclaim vigorously. In March 1997, DCAP, Payments, Inc. and their
affiliated agencies brought a separate action against Regent, among others, in
the Supreme Court of the State of New York alleging, among other things, breach
of contract, negligence and fraud and seeking damages of at least $2,000,000 as
well as punitive damages in the amount of $2,000,000. Such action has been
stayed pending the resolution of the Pennsylvania action.
Reference is made to "International Airport Hotel - Dispute with Ports
Authority" in Item 1(b) hereof for a discussion of a certain action brought with
respect to the term of the Hotel lease.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the stockholders of the
Company during the last quarter of the fiscal year ended December 31, 1999.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's Common Shares are traded on the NASD OTC Electronic Bulletin
Board (the "Bulletin Board") under the symbol "DCAP". The following table sets
forth, for the periods indicated, the high and low closing bid prices for the
Company's Common Shares as reported by the Bulletin Board:
1998 Calendar Year High Low
First Quarter $ .75 $ .69
Second Quarter .81 .62
Third Quarter 1.81 .69
Fourth Quarter 2.19 1.47
1999 Calendar Year High Low
First Quarter $ 2.41 $1.47
Second Quarter 1.75 1.19
Third Quarter 1.62 1.00
Fourth Quarter 1.28 .75
The above quotations reflect interdealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
(b) Holders
As of April 7, 2000, there were approximately 2,328 record holders of the
Company's Common Shares.
(c) Dividends
Holders of the Company's Common Shares are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. The Company has not declared or paid any dividends in the past and
does not currently anticipate declaring or paying any dividends in the
foreseeable future. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition
16
<PAGE>
and capital requirements, and general business conditions and other factors.
Therefore, there can be no assurance that dividends will ever be paid.
(d) Recent Sales of Unregistered Securities
Pursuant to various agreements entered into by the Company in December
1999, the Company acquired the interests of its joint venture partners in 15
DCAP retail insurance stores, in exchange for the issuance of approximately
850,000 Common Shares of the Company. These acquisitions are part of the
Company's plan to phase out joint ventures in the DCAP system and to concentrate
on wholly-owned and franchise operations.
The securities offered in these transactions have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered or sold in the United States absent registration under the Securities
Act or an exemption from the registration requirements thereof.
These transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
pursuant to Rule 505 or 506 of Regulation D promulgated thereunder. The
certificates representing the Common Shares issued in connection with these
transactions bear restrictive legends permitting the transfer thereof only upon
registration of such securities or pursuant to an exemption under the Securities
Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Results of Operations:
The Company's net loss for the year ended December 31, 1999 was $450,042 as
compared to a net loss of $111,581 for the year ended December 31, 1998. The
results of operations for the year ended December 31, 1999 included the results
of operations of the DCAP Companies from February 25, 1999, the date of the
acquisition by the Company of the DCAP Companies. The results of operations for
the year ended December 31, 1998 do not reflect any of the operations of the
DCAP Companies. During the year ended December 31, 1999, revenues from the
operations of the DCAP Companies were $8,045,737 while Hotel revenues for such
year were $1,014,950.
The increase in the loss for the year ended December 31, 1999 as compared
to the year ended December 31, 1998 was the result primarily of the operations
of the DCAP Companies from February 25, 1999, which, on a stand-alone basis,
generated a net loss of $173,160, and $260,000 of amortization relating to
goodwill and other intangible assets generated primarily by the DCAP
Acquisition, which was accounted for under the purchase method of accounting.
The operations of the Hotel during the year ended December 31, 1999, on a
stand-alone basis, generated a net income of $149,080. Corporate-level expenses
of $227,496 for the year ended December 31, 1999, not allocable to either the
DCAP Companies or the Hotel, contributed to the net loss for the year ended
December 31, 1999.
During the year ended December 31, 1999, the Company had higher room rental
revenues from the Hotel of $62,299 as compared to the year ended December 31,
1998. Such increase was offset by higher rent expense of $11,785 (since the
Hotel's rental expense is based upon revenues received) and higher general and
administrative operating expenses of $38,878 (without regard to the DCAP
Companies).
Liquidity and Capital Resources
As of December 31, 1999, the Company had $943,176 in cash and cash
equivalents and a working capital deficiency of $211,777. As of December 31,
1998, the Company had $353,431 in cash and cash equivalents and a working
capital surplus of $1,064,590.
Cash and cash equivalents increased between December 31, 1998 and December
31, 1999 due to the following: (i) on February 25, 1999, concurrently with the
closing of the DCAP acquisition, the Company received proceeds from the sale of
stock in the amount of $1,118,718 (substantially all of which was used to
satisfy accrued liabilities of the DCAP Companies), and (ii) on June 2, 1999,
the Company received $1,675,000 in gross proceeds from the sale of its
securities in a private placement, as discussed under Item 1 hereof.
The reduction in working capital between December 31, 1998 and December 31,
1999 was primarily the result of the following: (i) the Company's working
capital surplus as of December 31,
17
<PAGE>
1998 included $846,362, which represented a note receivable (including accrued
interest) from DCAP; such amount was eliminated in consolidation since DCAP is
now a wholly-owned subsidiary of the Company; (ii) as of February 25, 1999, the
combined working capital deficiency of the DCAP Companies (exclusive of amounts
owed to the Company) was approximately $888,730; and (iii) the loss incurred
during 1999. The reduction was offset partially by the receipt of the private
placement proceeds discussed under Item 1 hereof.
Reference is also made to Item 1(b) hereof for a discussion of certain
litigation with the Ports Authority with regard to the Hotel.
Other
In April 1999, DCAP obtained a license form the State of Connecticut to
sell insurance in that State. The Company is in the process of contacting
carriers and expects to begin placing policies in Connecticut in the near
future. The Company intends to add consumer finance products to its portfolio of
services and products, including auto loans and personal loans, personal lines
of credit, and extended auto warranty insurance, among others. These products
are expected to generate new revenues for DCAP.
In addition, an aggregate of 21 new franchises were sold in the last four
months of 1999 and the first quarter of 2000. One of these opened for business
in February 2000, and the Company anticipates that the remaining 20 franchised
stores will open during of the second quarter of 2000, which would bring the
total number of DCAP locations to 71.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item 7 are included in this
Annual Report on Form 10-KSB following Item 13 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants due to disagreements on accounting and
financial disclosure during the twenty-four month period ended December 31,
1999.
19
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
Executive Officers and Directors
The names and ages of, and the positions held by, the executive officers
and directors of the Company are set forth below.
Name Age Position Held
---- --- -------------
Morton L. Certilman 68 Chairman of the Board
and Director
Jay M. Haft 64 Vice Chairman of the Board
and Director
Kevin Lang 42 President and Director
Abraham Weinzimer 42 Executive Vice President
and Director
Robert M. Wallach 47 Director
Brian K. Ziegler 45 Secretary
Morton L. Certilman
Mr. Certilman was elected Chairman of the Board of the Company in February
1999 concurrently with the closing of the DCAP Acquisition. Prior thereto and
from October 1989, he served as the Company's President. He has also served as a
director of the Company since October 1989. Mr. Certilman has been engaged in
the practice of law since 1956 and is a member of the law firm of Certilman
Balin Adler & Hyman, LLP. Mr. Certilman is Chairman of the Long Island Regional
Planning Board, the Nassau County Coliseum Privatization Commission, and the
Northrop/Grumman Master Planning Council, and is a director of the Long Island
Association and the Long Island Sports Commission. Mr. Certilman has lectured
extensively before bar associations, builders' institutes, title companies, real
estate institutes, banking and law school seminars, The Practicing Law
Institute, The Institute of Real Estate Management and at annual conventions of
such organizations as the National Association of Home Builders, the Community
Associations Institute and the National Association of Corporate Real Estate
Executives. He was a member of the faculty of the American Law
Institute/American Bar Association, as well as the Institute on Condominium and
Cluster Developments of the University of Miami Law Center. Mr. Certilman has
written various articles in the condominium field, is the author of the New York
State Bar Association
20
<PAGE>
Condominium Cassette and the Condominium portion of the State Bar Association
book on "Real Property Titles." Mr. Certilman received an LL.B. degree, cum
laude, from Brooklyn Law School.
Jay M. Haft
Mr. Haft was elected Vice Chairman of the Board of the Company in February
1999 concurrently with the closing of the DCAP Acquisition. Prior thereto and
from October 1989, he served as the Company's Chairman of the Board. He has also
served as a director of the Company since October 1989. Mr. Haft has been
engaged in the practice of law since 1959 and since 1994 has served as counsel
to Parker Duryee Rosoff & Haft. From 1989 to 1994, he was a senior corporate
partner of such firm. Mr. Haft is a strategic and financial consultant for
growth stage companies. He is active in international corporate finance, mergers
and acquisitions, as well as in the representation of emerging growth companies.
He has actively participated in strategic planning and fund raising for many
high-tech companies, leading edge medical technology companies and technical
product, service and marketing companies. Mr. Haft is a Managing General Partner
of Gen Am "1" Venture Fund, an international venture capital fund. He is also a
director of numerous public and private corporations, including Robotic Vision
Systems, Inc., NCT Group, Inc., Encore Medical Corporation, PC Service Source,
Inc., DUSA Pharmaceuticals, Inc., Oryx Technology Corp., and Thrift Management,
Inc, all of whose securities are traded in the over-the-counter market, and
serves as Chairman of the Board of NCT Group, Inc. Mr. Haft is a past member of
the Florida Commission for Government Accountability to the People, and a
national trustee of the Miami Ballet, as well as a trustee of Florida
International University. Mr. Haft received B.A. and LL.B. degrees from Yale
University.
Kevin Lang
Mr. Lang was elected President and a director of the Company in February
1999 concurrently with the closing of the DCAP Acquisition. He has served as
President of DCAP since its inception in 1982. Mr. Lang also serves as an
officer and director of each of the other DCAP Companies.
Abraham Weinzimer
Mr. Weinzimer was elected Executive Vice President and a director of the
Company in February 1999 concurrently with the closing of the DCAP Acquisition.
He has served as Vice President of DCAP since its inception in 1982. Mr.
Weinzimer also serves as an officer and director of each of the other DCAP
Companies.
Robert M. Wallach
Mr. Wallach was elected a director of the Company in February 1999
concurrently with the Eagle Issuance. He has served since 1993 as President,
Chairman and Chief Executive Officer of The Robert Plan Corporation ("The Robert
Plan"), an insurance company holding company that is engaged in providing
services to insurance companies.
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<PAGE>
Brian K. Ziegler
Mr. Ziegler has served as Secretary of the Company since 1991. He also
served as Treasurer of the Company from 1991 to February 1999. He has been
engaged in the practice of law since 1979 and is a member of the law firm of
Certilman Balin Adler & Hyman, LLP. Mr. Ziegler received a B.S. degree, cum
laude, from the Wharton School of the University of Pennsylvania, and a J.D.
degree and an LL.M. degree in Taxation from the University of Miami School of
Law.
Mr. Ziegler is Mr. Certilman's son-in-law. There are no other family
relationships among any of the Company's executive officers and directors.
Each director will hold office until the next annual meeting of
stockholders and until his successor is elected and qualified or until his
earlier resignation or removal. Each executive officer will hold office until
the initial meeting of the Board of Directors following the next annual meeting
of stockholders and until his successor is elected and qualified or until his
earlier resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on a review of written
representations that no reports were required during the fiscal year ended
December 31, 1999, all Section 16(a) filing requirements applicable to the
Company's officers, directors and 10% stockholders were complied with, except
that Mr. Wallach failed to file his Form 3.
ITEM 10. EXECUTIVE COMPENSATION
(a) Summary Compensation Table
The following table sets forth certain information concerning the
compensation of Messrs. Certilman, Lang and Weinzimer, the Company's Chairman of
the Board, President and Executive Vice President, respectively (the "Named
Executive Officers"), for the fiscal years ended December 31, 1999, 1998 and
1997. No other executive officer of the Company as of December 31, 1999 had a
total salary and bonus for the year then ended in excess of $100,000.
22
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Name and Annual Compensation Awards All Other
Principal Position Year Salary Shares Underlying Options Compensation
<S> <C> <C> <C> <C>
Morton L. Certilman
Chairman of the Board 1999 $129,167 225,000 -0-*
1998 150,000 - -0-*
1997 150,000 - -0-*
Kevin Lang
President 1999 $208,000(1) 200,000 -
1998 - - -
1997 - - -
Abraham Weinzimer
Executive Vice President 1999 $208,000(1) 200,000 -
1998 - - -
1997 - - -
</TABLE>
- --------------------
* Excludes fees payable during 1997, 1998 and 1999 by the Company to
Certilman Balin Adler & Hyman, LLP, a law firm of which Mr. Certilman
is a member. See Item 12 hereof.
(1) Represents salary paid from February 25, 1999, the date of the DCAP
Acquisition.
(b) Option Grants
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999
Number of Common Percentage of Total
Shares Underlying Options Granted To
Name Options Granted Employees in Fiscal Year Exercise Price Expiration Date
----- --------------- ------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Morton L. Certilman 225,000 26.5% $2.69(1) February 25, 2004
Jay M. Haft 225,000 26.5% $2.69% February 25, 2004
Kevin Lang 200,000 23.5% $2.69% February 25, 2004
Abraham Weinzimer 200,000 23.5% $2.69% February 25, 2004
</TABLE>
- -------------
(1) Such price represents 110% of the fair market value of
the Common Shares on the date of grant.
23
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED DECEMBER 31, 1999 AND FISCAL YEAR-END OPTION VALUES
Number of Shares
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options
Shares Acquired Value December 31, 1999 at December 31, 1999
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ---------------- -------- ------------------------- --------------------------
<S> <C> <C> <C>
Morton L. Certilman - N/A 0/225,000 N/A
Jay M. Haft - N/A 0/225,000 N/A
Kevin Lang - N/A 0/200,000 N/A
Abraham Weinzimer - N/A 0/200,000 N/A
</TABLE>
(d) Long-Term Incentive Plan Awards
No awards were made to any of the Named Executive Officers during the
fiscal year ended December 31, 1999 under any long-term incentive plan.
(e) Compensation of Directors
Directors of the Company are not entitled to receive any compensation for
their services as such.
(f) Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
At the closing of the DCAP Acquisition, the Company entered into employment
agreements with Messrs. Certilman, Haft, Lang and Weinzimer (collectively, the
"Employment Agreements") pursuant to which Mr. Certilman is employed as the
Company's Chairman of the Board, Mr. Haft as its Vice Chairman, Mr. Lang as its
President and Mr. Weinzimer as its Executive Vice President.
General
The Employment Agreements entered into by Messrs. Certilman, Haft, Lang and
Weinzimer are identical in all respects, except as discussed below under
"Special Provisions for Lang and Weinzimer."
Term
The term of each Employment Agreement is five years commencing February 25,
1999 (the "Initial Term"), with an automatic three year renewal term (the
"Extended Term") unless, at least 90 days prior to the expiration of the Initial
Term, the Company, by vote of 75% of all of the
24
<PAGE>
members of its Board of Directors (including, for purposes of determining the
number of members of the Board, the particular employee, if a member) (as
provided for in the Company's By-Laws) notifies the employee of its desire not
to extend the term of the Employment Agreement. In the event the Company makes
such election, the employee generally shall be entitled to receive, as
termination payments, his then annual base salary for a period of two additional
years (the "Severance Amount"). See "DCAP Agreement - Agreement as to Voting" in
Item 12 hereof with regard to a By-Law provision that requires a unanimous vote
of the members of the Board under certain circumstances.
Devotion of Time
During the term of the Employment Agreement, Messrs. Lang and Weinzimer are
required to expend all of their working time for the Company. Messrs. Certilman
and Haft are to perform such part-time services as are reasonably necessary for
them to fulfill their responsibilities as Chairman and Vice Chairman,
respectively.
Salary
During the employment period, Messrs. Lang and Weinzimer each will be
entitled to receive a salary of $250,000 per annum, while Messrs. Certilman and
Haft are to receive annual salaries of $125,000 and $22,500, respectively. Each
employee will also be entitled to such additional compensation as may be
determined by the Board of Directors of the Company in its sole discretion.
Termination
Pursuant to the terms of the Employment Agreements, an employee's
employment terminates automatically on his death and, at the Company's option,
if the employee becomes disabled. In addition, an employee's employment may be
terminated at any time for "cause." Pursuant to the terms of the Employment
Agreements and the Company's By-Laws, the Company may terminate an employee's
employment based upon a claim of "cause" only if a majority of all of the
members of its Board of Directors (including, for purposes of determining the
number of members of the Board, the particular employee, if a member) shall have
approved the action. As provided for in the Employment Agreements and the
Company's By-Laws, if the Company desires to terminate an employee's employment
not based upon a claim of "cause," then 75% of all of the members of the Board
of Directors (including, for purposes of determining the number of members, the
particular employee, if a member) must approve the action. See "DCAP Agreement -
Agreement as to Voting" in Item 12 hereof with regard to a By-Law provision that
requires a unanimous vote of the members of the Board under certain
circumstances.
In the event of termination of an employee's employment without "cause,"
the employee will be entitled to receive, as liquidated damages, an amount equal
to all compensation that he would have been entitled to receive for the
remainder of the term, including the Extended Term, as if his employment had not
terminated; however, if the termination notice is given (i) prior to 90 days
before the expiration of the Initial Term, or (ii) subsequent to such time, but
after the date the
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<PAGE>
Company has given timely notice of its desire not to extend the Initial Term,
the terminated employee shall be entitled to receive the Severance Amount. The
terminated employee is not required to seek other employment after termination
of his employment without "cause;" however, any amounts paid or payable to the
terminated employee from other employment or other services will reduce, dollar
for dollar, the amounts otherwise payable to him pursuant to his Employment
Agreement.
Restrictive Covenants
For a period of two years after the expiration or termination of the
Employment Agreement, without the prior written consent of the Company, the
terminated employee is restricted, within a radius of five miles of any office
or franchise of the Company, from, among other things, directly or indirectly,
engaging or participating in a business which is similar to or competitive with
the business activities of the Company. The restrictive covenants, however, do
not apply if the Employment Agreement is terminated based on a disability of the
employee and will cease to apply if:
(i) the Company defaults in any obligation to pay any post-termination
amounts that are payable pursuant to the provisions of the Employment
Agreement and such default continues for a period of 20 days following
receipt by the Company of written notice thereof; or
(ii) if all of the following conditions exist: (a) the term of the
Employment Agreement is extended for the Extended Term; (b) prior to
the expiration of the Extended Term, the employee is not offered a
further two-year extension, with the same base annual salary and
substantially the same terms as provided for in the Employment
Agreement; (c) the employee's employment is not terminated for "cause"
during the Extended Term and he does not voluntarily terminate his
employment; and (d) the employee's employment ends on the last day of
the Extended Term.
Stock Options
At the closing of the DCAP Acquisition, each of Messrs. Certilman and Haft
was granted options to purchase up to 225,000 Common Shares of the Company and
each of Messrs. Lang and Weinzimer was granted options to purchase up to 200,000
Common Shares of the Company. Such options were granted upon the following
terms:
(i) the exercise price of such options was $2.69 per share (110% of
the fair market value of the Common Shares on the date of the grant);
(ii) the options will expire five years from the date of grant; and
26
<PAGE>
(iii) the options will vest to the extent of one-half thereof on the
first anniversary of the date of grant and one-half on the second
anniversary.
Special Provisions for Lang and Weinzimer
Loans
For each of the twelve-month periods of the Initial Term, the Company will
be obligated, upon the written request of each of Messrs. Lang and Weinzimer, to
lend to him up to $20,000. The right of Messrs. Lang and Weinzimer to obtain
such $20,000 annual loan is assignable by each to the other. Each such loan is
to be evidenced by a promissory note in the principal amount of the loan and is
to provide for, among other things, the following:
(i) interest at the prime rate (as published in the Wall Street
Journal); and
(ii) payment of principal and interest in four equal annual
installments, commencing one year from the date of each loan (but in
no event after the seventh anniversary of the closing of the DCAP
Acquisition), subject to acceleration to the extent that the borrower
receives any proceeds from the sale or other disposition of any Common
Shares (see "DCAP Agreement - Sale of Company Shares" in Item 12
hereof).
The repayment of all amounts due under each such note is to be secured by
the pledge by the borrower, pursuant to a pledge agreement, of five Common
Shares of the Company for each one dollar loaned. To date, no loans have been
made to either Mr. Lang or Mr. Weinzimer.
Bonus
In the event that the Company's Pre-Tax Net Income (as such term is defined
in the Employment Agreements) for any fiscal year of the Employment Agreement of
Mr. Lang or Mr. Weinzimer (but commencing only with the fiscal year ending
December 31, 2000 and continuing only through the fiscal year ending December
31, 2005) is at least $100,000, he will be entitled to receive a bonus in the
amount of $37,500 for each such year. No bonus will be payable for a particular
fiscal year if no amounts are then payable by Mr. Lang or Mr. Weinzimer to the
Company pursuant to his Additional Shares Note (as described under "DCAP
Agreement - Acquisition of Common Shares" in Item 12 hereof). Furthermore, the
amount of any bonus payable may never exceed the amount payable by Mr. Lang or
Mr. Weinzimer pursuant to his Additional Shares Note, and the Company will be
entitled to offset against any such bonus any amount so payable.
27
<PAGE>
Automobile Allowance
Each of Messrs. Lang and Weinzimer is entitled to the use of a
Company-leased automobile during the employment period for business purposes.
The Company's lease obligation is not to exceed $1,200 per month per automobile.
In addition, the Company is responsible for all insurance premiums with respect
to the automobile (not to exceed $3,000 per year per automobile) as well as all
expenses for gasoline, maintenance and repairs.
Disability Insurance Policy
Pursuant to the Employment Agreements, the Company is obligated to obtain a
disability insurance policy on behalf of each of Messrs. Lang and Weinzimer and
maintain such policy in effect during the employment period. The maximum amount
of premiums for each policy is to be $6,500 per annum.
1998 Stock Option Plan
In November 1998, the Company's Board of Directors adopted, and in February
1999 the stockholders of the Company approved, the Company's 1998 Stock Option
Plan (the "1998 Plan"). Pursuant to the 1998 Plan, the Company has reserved for
issuance 2,000,000 Common Shares.
The 1998 Plan provides for the grant of options intended to qualify as
"incentive stock options" ("ISOs") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and options that are not intended to so
qualify ("Nonstatutory Stock Options").
The 1998 Plan is presently administered by the Board of Directors of the
Company, which selects the eligible persons to whom options shall be granted,
determines the number of Common Shares subject to each option, the exercise
price therefor and the periods during which options are exercisable, interprets
the provisions of the 1998 Plan and, subject to certain limitations, may amend
the 1998 Plan. Each option granted under the 1998 Plan is evidenced by a written
agreement between the Company and the optionee.
ISOs may be granted to all employees (including officers) of the Company or
any subsidiary of the Company. Nonstatutory Stock Options may be granted to all
such employees as well as non- employee directors of, and certain consultants
and advisors to, the Company or any subsidiary thereof.
The per share exercise price for ISOs granted under the 1998 Plan may not
be less than the per share fair market value of the Common Shares on the date
the option is granted, except that the per share exercise price of ISOs granted
to 10% stockholders of the Company may not be less than 110% of such fair market
value. The exercise price for Nonstatutory Stock Options is determined by the
Board of Directors. ISOs granted under the 1998 Plan have a maximum term of ten
years, except for 10% stockholders who are subject to a maximum term of five
years. The term of Nonstatutory Stock Options is determined by the Board of
Directors. Options granted under the
28
<PAGE>
1998 Plan are not transferable, except by will and the laws of descent and
distribution. The total number of ISOs that may be granted to any individual
person in any calendar year is limited; however, there is no limit as to
Nonstatutory Stock Options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of February 29, 2000
with respect to the beneficial ownership of the outstanding Common Shares of the
Company by (i) each holder of more than 5% of the outstanding Common Shares;
(ii) each of the Company's directors; and (iii) the directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Name and Address Common Shares
of Beneficially Approximate
Beneficial Owner Owned Percentage of Class
--------------------- ------ -------------------
<S> <C> <C>
Kevin Lang 2,675,000(1)(2) 15.7%
2545 Hempstead Turnpike (3)
East Meadow, New York
Abraham Weinzimer 2,675,000(1)(2) 15.7%
2545 Hempstead Turnpike (3)
East Meadow, New York
Jay M. Haft 1,676,393(2)(3) 10.5%
1001 Brickell Bay Drive (4)
Miami, Florida
Eagle Insurance Company 1,486,893(5) 9.4%
c/o The Robert Plan
Corporation
999 Stewart Avenue
Bethpage, New York
Morton L. Certilman 1,223,505(2)(3) 7.9%
The Financial Center (6)
at Mitchel Field
90 Merrick Avenue
East Meadow, New York
29
<PAGE>
Number of
Name and Address Common Shares
of Beneficially Approximate
Beneficial Owner Owned Percentage of Class
--------------------- ------ -------------------
Robert M. Wallach -0- (7) -
c/o The Robert Plan
Corporation
999 Stewart Avenue
Bethpage, New York
All executive officers 9,900,138(1)(2) 67.2%
and directors as a group (3)(4)
(6 persons) (6)(8)
(9)
</TABLE>
- ---------
(1) Includes for each of Messrs. Lang and Weinzimer 100,000 shares
issuable upon the exercise of currently exercisable options. Of the
shares beneficially owned by each of Messrs. Lang and Weinzimer,
1,020,000 shares are pledged to the Company as security for the
payment of certain promissory notes. See "DCAP Agreement - Acquisition
of Common Shares" in Item 12 hereof.
(2) Reference is made to "DCAP Agreement - Agreement as to Voting" in
Item 12 hereof for a discussion of a certain agreement as to voting
among Messrs. Lang, Weinzimer, Certilman and Haft.
(3) Messrs. Lang, Weinzimer, Certilman and Haft have filed a Schedule
13D under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to their respective equity interests in
the Company. In view of the voting agreement referenced in footnote
(2) hereof, Messrs. Lang, Weinzimer, Certilman and Haft may be deemed
a group. Accordingly, the group of Messrs. Lang, Weinzimer, Certilman
and Haft beneficially owns 8,249,898 Common Shares. Such amount
represents approximately 56.0% of the outstanding Common Shares of the
Company. However, each of Messrs. Lang, Weinzimer, Certilman and Haft
independently makes his own decisions with respect to the acquisition
and disposition of the Common Shares directly owned by him, as well as
with respect to the voting of Common Shares on matters not covered by
the voting agreement, and neither Mr. Lang, Mr. Weinzimer, Mr.
Certilman nor Mr. Haft has any economic interest in the Common Shares
directly owned by any of the others.
(4) Includes 112,500 shares issuable upon the exercise of currently
exercisable options and 15,380 shares held in a retirement trust for
the benefit of Mr. Haft.
(5) Eagle is a wholly-owned subsidiary of The Robert Plan. See "Eagle"
under Item 12 hereof.
30
<PAGE>
(6) Includes 112,500 shares issuable upon the exercise of currently
exercisable options and 902,452 shares held in a retirement trust for
the benefit of Mr. Certilman.
(7) Excludes shares owned by Eagle, of which Mr. Wallach, a director
of the Company, is a Vice President. Eagle is a wholly-owned
subsidiary of The Robert Plan, of which Mr. Wallach is President,
Chairman and Chief Executive Officer.
(8) Includes 28,423 shares held by an executive officer and 134,924
shares held by trusts for the benefit of such officer's minor children
and by such executive officer's wife. Such executive officer disclaims
beneficial ownership of the shares owned by such trusts and his wife.
(9) Includes shares owned by Eagle, of which Mr. Wallach, a director
of the Company, is a Vice President. Mr. Wallach is also President,
Chairman and Chief Executive Officer of The Robert Plan, Eagle's
parent.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DCAP Agreement
On February 25, 1999, pursuant to the terms of an Agreement dated as of May
8, 1998 among the Company and Messrs. Lang, Weinzimer, Certilman and Haft, as
amended (the "DCAP Agreement"), the Company acquired the DCAP Shares. The
following is a summary of the material terms of the DCAP Agreement.
Acquisition of Common Shares
Pursuant to the DCAP Agreement, the Company acquired the DCAP Shares. At
the closing of the DCAP Acquisition, the following Common Shares of the Company
were issued:
(i) 3,300,000 Common Shares to Messrs. Lang and Weinzimer
(1,650,000 Common Shares to each) (the "Acquisition Shares") in
consideration for the transfer of the DCAP Shares;
(ii) 950,000 Common Shares to Messrs. Lang and Weinzimer (475,000
Common Shares to each) (the "950,000 Additional Shares") at a
purchase price of $.25 per share (an aggregate of $237,500), paid
as follows:
(a) an amount in cash equal to the par value of the 950,000
Additional Shares (an aggregate of $9,500); and
(b) the balance by the delivery by each of Messrs. Lang and
Weinzimer of a promissory note in the principal amount of
$114,000 (an aggregate of $228,000) (collectively, the
"Additional Shares Notes").
31
<PAGE>
The Additional Shares Notes provide for, among other things,
the following:
(I) interest at the rate of 6% per annum; and
(II) payment of principal and interest in six equal annual
installments commencing April 15, 2001 and continuing
through April 15, 2006, subject to acceleration to the
extent that Mr. Lang or Mr. Weinzimer receives any proceeds
from the sale or other disposition of any Common Shares (see
"Sale of Company Shares"); and
(iii) 452,000 Common Shares to Messrs. Certilman, Haft and
Ziegler or their designees (208,500 Common Shares to each of
Messrs. Certilman and Haft or his retirement trust and an
aggregate of 35,000 Common Shares to Mr. Ziegler and his
wife) (the "Company Management Additional Shares") at a
purchase price of $.25 per share (an aggregate of $113,000),
paid in cash.
At the closing of the DCAP Agreement, each of Messrs. Haft, Lang and
Weinzimer and Mr. Certilman's retirement trust also purchased 450,000 Common
Shares of the Company (1,800,000 Common Shares in the aggregate) (the "Sterling
Foster Shares"), beneficially owned by Sterling Foster Holding Corp. ("Sterling
Foster") and held by Mr. Certilman as voting trustee pursuant to a Voting Trust
Agreement with Sterling Foster, at a purchase price of $.25 per share. Mr.
Certilman did not receive any portion of such purchase price. Upon such
purchase, the Voting Trust Agreement was terminated.
Pursuant to the DCAP Agreement, at the closing, the Company loaned $112,500
to each of Messrs. Lang and Weinzimer (an aggregate of $225,000) (the "Closing
Loans"). The proceeds of the Closing Loans were used by Messrs. Lang and
Weinzimer solely for the purpose of purchasing their Sterling Foster Shares.
Each of the Closing Loans is evidenced by a promissory note (the "Closing Loan
Notes") that provides for, among other things, the following:
(i) interest at the rate of 6% per annum;
(ii) payment of principal and interest in six equal annual
installments commencing April 15, 2001 and continuing
through April 15, 2006, subject to acceleration to
the extent that Mr. Lang or Mr. Weinzimer receives
any proceeds from the sale or other disposition of
any Common Shares (see "Sale of Company Shares");
(iii) non-recourse against Messrs. Lang and Weinzimer,
i.e., Messrs. Lang and Weinzimer will not be
personally liable for the payment of the Closing Loan
Notes; instead, in the event of a default, the
Company's sole remedy will be
32
<PAGE>
pursuant to a pledge by Messrs. Lang and Weinzimer
of their Sterling Foster Shares, as discussed below;
and
(iv) the right of each of Messrs. Lang and Weinzimer to
satisfy the amounts due under his respective Closing
Loan Note by delivering Common Shares of the Company
valued at the greater of (A) $.25 per share or (B)
the average market price of the Company's Common
Shares for the 20 trading days immediately preceding
the date of delivery of the shares.
The payment of all amounts due under the Additional Shares Notes is secured
by a pledge by each of Messrs. Lang and Weinzimer to the Company of 570,000
Common Shares of the Company pursuant to pledge agreements that were entered
into at the closing of the DCAP Agreement. The payment of all amounts due under
the Closing Loan Notes is secured by a pledge by each of Messrs. Lang and
Weinzimer to the Company of the Sterling Foster Shares acquired by him, pursuant
to pledge agreements that were entered into at the closing of the DCAP
Agreement.
Restrictive Covenant Agreements
At the closing of the DCAP Agreement, each of Messrs. Lang and Weinzimer
executed and delivered to the Company a restrictive covenant agreement
(collectively, the "Restrictive Covenant Agreements") pursuant to which each
agreed that he will not, within five years of the date of the closing, without
the prior written consent of the Company, directly or indirectly, anywhere
within five miles of the location of any office of any of the DCAP Companies or
any franchisee, among other things, engage or participate in a business that is
similar to or competitive with, directly or indirectly, the DCAP Business (as
defined in the DCAP Agreement). The restrictive covenants shall cease to apply
in the event (i) the employment of Mr. Lang or Mr. Weinzimer with the Company is
terminated by the Company without "cause" (see "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements - Termination" in
Item 10 hereof), or (ii) the Company defaults in its obligation to make any
post-termination payments as provided for in the Employment Agreement and such
default continues for a period of 20 days following receipt by the Company of
written notice thereof. The restrictive covenants contained in the Restrictive
Covenant Agreements are separate and independent from the restrictive covenants
contained in the Employment Agreements discussed in Item 10 hereof.
Agreement as to Voting
Pursuant to the DCAP Agreement, each of Messrs. Certilman, Haft, Lang and
Weinzimer has agreed that, during the eight year period following the closing of
the DCAP Agreement, (i) he will vote his respective shares of stock of the
Company in favor of each of the others as a director of the Company provided
that the particular person in whose favor the vote would be remains in the
employ of the Company, (ii) in the event Mr. Certilman or Mr. Haft dies or
otherwise ceases to serve as a director of the Company, Messrs. Lang and
Weinzimer will vote their respective shares of stock of the Company in favor of
the designee of the survivor of Mr. Certilman or Mr. Haft (or, in the case
33
<PAGE>
of a reason other than death, the one remaining as a director), (iii) in the
event Mr. Lang or Mr. Weinzimer dies or otherwise ceases to serve as a director
of the Company, Messrs. Certilman and Haft will vote their respective shares of
stock of the Company in favor of the designee of the survivor of Mr. Lang or Mr.
Weinzimer (or, in the case of a reason other than death, the one remaining as a
director) and (iv) he will not vote his shares to (a) increase the size of the
Board of Directors of the Company or (b) amend the Certificate of Incorporation
or By-Laws of the Company, in each case without the written approval of the
others. In the event of the death or other cessation of directorship of any of
Messrs. Certilman, Haft, Lang or Weinzimer during such period, the Company has
agreed that, unless the Board vacancy is otherwise filled as provided for above,
it will promptly call a special meeting of stockholders to fill such vacancy.
At the closing of the DCAP Agreement, the Company's By-Laws were amended to
provide that, in the event the number of directors in office is less than four,
any action taken by the Board of Directors requires the approval of all of the
directors then in office. During such time as the number of directors in office
is less than four, the Company may be unable to take actions that a majority of
its Board members deems desirable.
Sale of Company Shares
Pursuant to the DCAP Agreement, while any loan made to either Mr. Lang or
Mr. Weinzimer pursuant to his Employment Agreement is outstanding, he will be
obligated to sell, as soon as legally permissible, the maximum number of Common
Shares that he is permitted by law to sell, and to use the proceeds thereof to
satisfy his obligations under his respective notes. Until the foregoing notes,
the Additional Shares Notes and the Closing Notes have been satisfied in full,
neither Mr. Lang nor Mr. Weinzimer may sell or otherwise dispose of any of his
Company Common Shares for less than $.25 per share (subject to adjustment for
stock splits and the like) without the prior written consent of the Company.
Eagle
Concurrently with the closing of the DCAP Agreement, pursuant to a
Subscription Agreement (the "Eagle Agreement"), the Company issued and sold to
Eagle 1,486,893 Common Shares for an aggregate purchase price of approximately
$1,000,000, or $.67 per share (the "Eagle Issuance").
Eagle is a New Jersey insurance company wholly-owned by The Robert Plan,
one of the largest insurers of assigned-risk drivers in the United States.
Pursuant to separate agency agreements between certain DCAP Companies and
certain insurance company subsidiaries of The Robert Plan, such DCAP Companies
have been appointed agents of the insurance companies with regard to the
offering of automobile and other insurance products.
Pursuant to the Eagle Agreement, at the closing of the DCAP Agreement, the
size of the Board of Directors of the Company was increased to five and Robert
M. Wallach, Eagle's Vice
34
<PAGE>
President and the President, Chairman and Chief Executive Officer of The Robert
Plan, was appointed as a member of the Board of Directors. The Company has
agreed that, during the five year period following the closing, provided that
Eagle remains the beneficial owner of at least 1,000,000 Common Shares (subject
to adjustment for stock splits and the like), the Company shall continue to
nominate Mr. Wallach as a director.
Other
Contemplated Transaction
Four of the DCAP Companies (the "Related Stores") are owned one-half by Mr.
Certilman's daughter. The Company is contemplating entering into an agreement
with Mr. Certilman's daughter or Mr. Certilman (the "Related Party") pursuant to
which the Company would sell its 50% interest in each of the Related Stores to
the Related Party. The terms of the agreement have not been finalized and there
can be no assurance that the Company and the Related Party will in fact enter
into such an agreement. As presently contemplated by the parties, the material
terms and conditions of such agreement would include the following:
(i) The purchase price for the Company's interest in the Related
Stores would be approximately $141,000, after certain credits.
(ii) The purchase price would be payable as follows: (a) $66,000
would be payable at the rate of $6,000 per month, starting on
the first anniversary of the closing, and (b) the balance of
the purchase price would be payable over five years, together
with 6% interest, in equal monthly installments commencing on
the second anniversary of the closing.
(iii) The Company would waive all indebtedness owing by the Related
Stores to the Company. As of March 31, 2000, the approximate
amount of such indebtedness was $238,000.
(iv) The Related Stores would become conversion franchisees, and
the first annual franchise charge of $18,000 per store would
be paid in full at the closing in consideration for a waiver
of the annual franchise charges during the second year.
(v) The Related Stores would enter into franchise agreements with
the Company, which would be similar in most respects to the
Company's standard conversion franchise agreement (including
standard territorial rights), except that (a) the Related
Stores would have a right of first refusal with regard to
franchise locations to be offered in zip codes adjoining those
in which the Related Stores are located, and (b) in the event
the Company sells another franchise to be located in the
territory with respect to which a Related Store currently has
certain rights (which is more expansive than contemplated to
be granted pursuant to the franchise agreements), the annual
franchise fee for the particular Related Store would be waived
for six months.
(vi) Certain license fees totaling $40,000 previously prepaid by
the Related Party would be retained by the Company, to be
applied generally against franchise fees for any new
franchises granted to the Related Party.
35
<PAGE>
Relationship
Certilman Balin Adler & Hyman, LLP ("Certilman Balin"), a law firm of which
Mr. Certilman is a member, serves as counsel to the Company. It is presently
anticipated that such firm will continue to represent the Company and its
subsidiaries and affiliates and will receive fees for its services at rates and
in amounts not greater than would be paid to unrelated law firms performing
similar services. Certilman Balin has also served as counsel to DCAP and The
Robert Plan with respect to certain matters; however, such firm did not serve as
counsel to DCAP or Messrs. Lang and Weinzimer in connection with the DCAP
Agreement or to Eagle in connection with the Eagle Agreement. In addition, it is
not contemplated that Certilman Balin will serve as counsel to either the
Company or the Related Party in connection with the contemplated transaction
discussed above under Item 12.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
3(a) Certificate of Incorporation, as amended(1)
(b) By-laws, as amended(2)
10(a) Agreement, dated July 22, 1988, between the Ports Authority and IAH(3)
10(b) Resolution of Board of Directors of Ports Authority, dated August 10,
1994, regarding rental obligation of the Hotel(4)
10(c) 1998 Stock Option Plan(2)
10(d) License and Royalty Agreement, dated July 1991, among the Company, IFTI
Capital Appreciation Management Corporation, and NPS Products, Inc.(5)
10(e) Agreement, dated as of May 8, 1998, by and among the Company and Morton
L. Certilman, Jay M. Haft, Kevin Lang and Abraham Weinzimer, as
amended(2)
10(f) Promissory Note, dated February 25, 1999, from Kevin Lang to the
Company in the principal amount of $114,000(2)
36
<PAGE>
10(g) Pledge Agreement, dated February 25, 1999, between the Company and
Kevin Lang ($114,000 Note)(2)
10(h) Promissory Note, dated February 25, 1999, from Kevin Lang to the
Company in the principal amount of $112,500(2)
10(i) Pledge Agreement, dated February 25, 1999, between the Company and
Kevin Lang ($112,500 Note)(2)
10(j) Promissory Note, dated February 25, 1999, from Abraham Weinzimer to the
Company in the principal amount of $114,000(2)
10(k) Pledge Agreement, dated February 25, 1999, between the Company and
Abraham Weinzimer ($114,000 Note)(2)
10(l) Promissory Note, dated February 25, 1999, from Abraham Weinzimer to the
Company in the principal amount of $112,500(2)
10(m) Pledge Agreement, dated February 25, 1999, between the Company and
Abraham Weinzimer ($112,500 Note)(2)
10(n) Employment Agreement, dated February 25, 1999, between the Company
and Morton L. Certilman(2)
10(o) Employment Agreement, dated February 25, 1999, between the Company and
Jay M. Haft(2)
10(p) Employment Agreement, dated February 25, 1999, between the Company and
Kevin Lang(2)
10(q) Employment Agreement, dated February 25, 1999, between the Company and
Abraham Weinzimer(2)
10(r) Stock Option Agreement, dated February 25, 1999, between the Company
and Morton L. Certilman(2)
10(s) Stock Option Agreement, dated February 25, 1999, between the Company
and Jay M. Haft(2)
10(t) Stock Option Agreement, dated February 25, 1999, between the Company
and Kevin Lang(2)
37
<PAGE>
10(u) Stock Option Agreement, dated February 25, 1999, between the Company
and Abraham Weinzimer(2)
10(v) Subscription Agreement, dated as of October 2, 1998, between the
Company and Eagle Insurance Company and amendments thereto(2)
10(w) Form of Subscription Agreement with regard to private offering of
Units, dated June 2, 1999
10(x) Form of Registration Rights Agreement with regard to private offering
of Units, dated June 2, 1999
10(y) Form of Warrant Agreement with regard to private offering of Units,
dated June 2, 1999
10(z) Sale and Assignment Agreement, dated as of September 1, 1999, among
Payments, Inc., Flatiron Credit Company, Inc. and Westchester Premium
Acceptance Corp.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(1) Denotes document filed as exhibits to the Company's Annual Reports on
Form 10-KSB for the years ended December 31, 1993 and 1998 and
incorporated herein by reference.
(2) Denotes document filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998 and incorporated
herein by reference.
(3) Denotes document filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1993 and incorporated
herein by reference.
(4) Denotes document filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994 and incorporated
herein by reference.
(5) Denotes document filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference.
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the last quarter
of the fiscal year ended December 31, 1999.
38
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
REPORT ON AUDITS OF
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 1999
<PAGE>
Item 7. Consolidated Financial Statements
INDEX
Page
----
Independent auditors' report F-2
Consolidated balance sheet F-3
Consolidated statements of operations F-4
Consolidated statement of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-18
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
DCAP Group, Inc.
East Meadow, New York
We have audited the accompanying consolidated balance sheet of DCAP Group, Inc.
and Subsidiaries as of December 31, 1999 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DCAP Group, Inc. and
Subsidiaries as of December 31, 1999 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1999 in conformity with generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
April 7, 2000
F-2
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 943,176
Accounts receivable, net of allowance for
doubtful accounts of $53,000 529,986
Notes receivable (Note 4) 141,500
Prepaid expenses and other current assets 47,826
--------------
Total current assets 1,662,488
PROPERTY AND EQUIPMENT, net (Note 5) 1,427,479
GOODWILL, net (Note 3) 3,789,143
OTHER INTANGIBLES, net (Note 3) 564,028
NOTES RECEIVABLE (Note 4) 413,896
RECEIVABLE FROM STOCKHOLDERS (Note 3) 225,000
DEPOSITS AND OTHER ASSETS (Note 6) 133,728
--------------
$ 8,215,762
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Notes 7 and 8) $ 1,369,363
Current portion of long-term debt (Note 10) 49,169
Current portion of capital lease obligations (Note 11) 301,533
Debentures payable (Note 9) 154,200
--------------
Total current liabilities 1,874,265
--------------
LONG-TERM DEBT (Note 10) 286,575
--------------
CAPITAL LEASE OBLIGATIONS (Note 11) 311,466
--------------
DEFERRED REVENUE 39,787
--------------
MINORITY INTEREST 600,348
--------------
COMMITMENTS (Note 14)
STOCKHOLDERS' EQUITY: (Notes 3 and 15)
Common stock, $.01 par value; authorized 25,000,000 shares;
issued and outstanding 14,299,176 shares 142,992
Capital in excess of par 9,752,597
Deficit (4,564,268)
-------------
5,331,321
Subscription receivable (228,000)
--------------
5,103,321
--------------
$ 8,215,762
==============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1999 1998
------------- ---------
<S> <C> <C>
REVENUES:
Commissions and fees $8,045,737 $ -
Rooms 967,744 905,445
Other operating departments 55,430 38,062
Interest (Notes 3 and 4) 80,998 87,526
------------- --------------
Total revenues 9,149,909 1,031,033
------------- -------------
COSTS AND EXPENSES:
General and administrative expenses (Note 18) 7,307,976 440,192
Provision for bad debts 44,497 37,180
Departmental 396,872 389,082
Depreciation and amortization 721,998 40,492
Interest 135,715 -
Lease rentals (Notes 12 and 14) 1,012,647 184,634
Property operation and maintenance 33,819 46,704
------------- -------------
Total costs and expenses 9,653,524 1,138,284
------------- -------------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (503,615) (107,251)
INCOME TAXES (Note 13) 7,239 4,330
------------- -------------
LOSS BEFORE MINORITY INTEREST (510,854) (111,581)
MINORITY INTEREST 60,812 -
------------- -------------
NET LOSS $ (450,042) $ (111,581)
============= =============
NET LOSS PER COMMON SHARE (Note 15)
<PAGE>
Basic $ (.04) $ (.02)
============== ==============
Diluted $ (.04) $ (.02)
============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 11,729,970 5,591,367
============== ==============
Diluted 11,729,970 5,591,367
============== ==============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital
----------------------------- in Excess Subscription
Shares Amount of Par Deficit Receivable Total
-------------- ----------- -------------- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 5,591,367 $ 55,914 $ 5,264,950 $ (4,002,645) $ - $1,318,219
Net loss for the year - - - (111,581) - (111,581)
------------- ----------- ------------- ------------ ------------- -------------
Balance, December 31, 1998 5,591,367 55,914 5,264,950 (4,114,226) - 1,206,638
Securities issued in connection
with business acquisitions
(Notes 3 and 15) 6,188,893 61,889 2,109,829 - (228,000) 1,943,718
Securities issued to acquire
intangible property 150,000 1,500 195,375 - - 196,875
Securities issued in private
placement, net of expenses
(Note 15) 1,522,684 15,227 1,344,673 - - 1,359,900
Securities issued in connection
with acquisition of shares of
affiliates (Note 3) 846,232 8,462 837,770 - - 846,232
Net loss for the year - - - (450,042) - (450,042)
------------- ----------- ------------- ------------ ------------- -----------
Balance, December 31, 1999 14,299,176 $ 142,992 $ 9,752,597 $ (4,564,268) $ (228,000) $5,103,321
============= =========== ============= ============ ============= ===========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1999 1998
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (450,042) $ (111,581)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 721,998 40,492
Bad debt expense (recovery) 8,000 (1,700)
Minority interest (60,812) -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (127,092) (38,916)
Prepaid expenses and other assets (111,065) (120,513)
Deposits and other assets 40,545 -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 73,570 51,359
Deferred revenue (101,662) -
------------- -------------
Net cash used in operating activities (6,560) (180,859)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (124,528) (15,053)
Notes receivable - net (1,468,173) (491,046)
Net cash acquired from business combinations 39,065 -
------------- -------------
Net cash used in investing activities (1,553,636) (506,099)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (328,677) -
Proceeds from issuance of stock 2,478,618 -
------------- -------------
Net cash provided by financing activities 2,149,941 -
------------- -------------
Net increase (decrease) in cash and cash equivalents 589,745 (686,958)
Cash and cash equivalents, beginning of year 353,431 1,040,389
------------- -------------
Cash and cash equivalents, end of year $ 943,176 $ 353,431
============= =============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
DCAP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Organization and Nature of Business:
-----------------------------------
DCAP Group, Inc. and Subsidiaries (the "Company") operates a network of
retail offices engaged in the sale of retail auto, motorcycle, boat, life,
business, and homeowner's insurance. The Company also provides tax preparation
services, automobile club services for roadside emergencies, and premium
financing services. In addition, the Company operates the International Airport
Hotel in San Juan, Puerto Rico (the "Hotel") through its wholly-owned
subsidiary, IAH, Inc. The Hotel caters generally to commercial and tourist
travelers in transit.
On February 25, 1999, the Company acquired all of the outstanding stock of
Dealers Choice Automotive Planning, Inc. ("DCAP") as well as interests in the
other related companies ("DCAP Companies"). The Company's consolidated
statements of operations include the results of operations of the DCAP Companies
from the date of acquisition to December 31, 1999.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
all subsidiaries in which the Company exercises significant influence over all
decision making related to the ongoing major operations. All significant
intercompany accounts and transactions have been eliminated.
b. Revenue recognition
-------------------
The Company recognizes commission revenue from insurance policies at the
beginning of the contract period, on income tax preparation when the services
are completed and on automobile club dues equally over the contract period.
Franchise fee revenue is recognized when substantially all the Company's
contractual requirements under the franchise agreement are completed. Refunds of
commissions on the cancellation of insurance policies are reflected at the time
of cancellation. Premium financing fee revenue is recognized when financing is
provided to the insured.
Revenues from room sales are recorded at the time services are performed.
c. Goodwill and intangible assets
------------------------------
The excess of the fair value paid over the net assets from the Company's
acquisitions of DCAP and interests in other DCAP Companies has been allocated to
goodwill and other intangible assets, including its workforce, restrictive
covenants and customer lists. Accordingly, a significant portion of the purchase
price of each acquisition is considered to relate to goodwill. In determining
the period in which to amortize goodwill, management considered the effects of
obsolescence, demand, competition, the rate of technological change, expected
changes in distribution channels and barriers to entry. Goodwill and other
intangibles recorded in connection with the Company's acquisitions is amortized
on a straight-line basis over a period of five to fifteen years (Note 3).
F-7
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
------------------------------------------
d. Property and equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are being amortized using the straight-line method over
the estimated useful lives of the related assets or the remaining term of the
lease.
e. Concentration of credit risk
----------------------------
The Company invests its excess cash in deposits and money market accounts
with major financial institutions and has not experienced losses related to
these investments.
A majority of the Company's receivables are derived from commissions earned
from insurance companies. Concentration of credit risk with respect to its
receivables is considered to be limited due to its regulated customer base.
f. Statement of cash flows
-----------------------
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments with a maturity of three months or
less, as well as bank money market accounts, to be cash equivalents.
g. Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
h. Loss Per Share:
--------------
The Company's net loss per share was calculated by dividing net loss by the
weighted average number of common shares outstanding.
i. Advertising costs:
-----------------
Advertising costs are charged to operations when the advertising first
takes place.
j. Impairment of long-lived assets:
-------------------------------
In accordance with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," an impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
k. Reclassifications
-----------------
Certain reclassifications have been made to the consolidated financial
statements for the year ended December 31, 1998 to conform with the
classifications used in 1999.
F-8
<PAGE>
3. Business Combinations:
a. Acquisition of DCAP
-------------------
On February 25, 1999, the Company acquired all of the outstanding stock of
DCAP, as well as interests in DCAP Companies. The aggregate purchase price of
DCAP was approximately $1,055,000, consisting of the issuance of 3,300,000
shares of the Company's common stock, valued at $825,000, plus related expenses
of approximately $230,000. This acquisition was accounted for under the purchase
method of accounting.
The historical carrying amounts of the assets acquired and liabilities
assumed approximated their fair values on the date of acquisition. Approximately
$3,242,000 and $450,000 of intangible assets generated by the acquisition were
allocated to goodwill and other intangible assets, respectively. These assets
are being amortized over their estimated useful lives. The components of
goodwill and other intangible assets are as follows:
<TABLE>
<CAPTION>
Amount Life
<S> <C> <C>
Workforce $ 250,000 8 years
Restrictive Covenants 100,000 10 years
Customer Lists 100,000 2 years
Goodwill - Insurance Business 3,215,000 15 years
Goodwill - Income Tax Business 27,000 5 years
</TABLE>
Additionally, the Company also issued 950,000 common shares to certain of
the DCAP shareholders in exchange for $9,500 in cash and $228,000 in promissory
notes. These notes bear interest at 6% per annum and are payable in six equal
annual installments of $49,881, including principal and interest commencing
April 15, 2001 and continuing through April 15, 2006. The due dates are subject
to acceleration to the extent that these same shareholders receive any proceeds
from the sale or other disposition of any of the Company's common shares.
Additionally, the Company received non-recourse promissory notes
aggregating $225,000 from the DCAP shareholders in consideration of loans made
to them in such aggregate amount. The notes bear interest at 6% per annum and
are payable in six equal annual installments of $49,225, including principal and
interest commencing April 15, 2001 and continuing through April 15, 2006. The
due dates are subject to acceleration to the extent that the shareholders
receive any proceeds from the sale or other disposition of any of the Company's
common shares. The proceeds of the loans were used to purchase 900,000 common
shares from an existing shareholder. Interest income accrued on these loans
approximated $23,000 for the year ended December 31, 1999.
The promissory notes received at the closing of the DCAP agreement are
secured by 2,040,000 common shares of the Company.
An independent valuation was performed primarily using the asset
accumulation method for valuing the stock exchanged in the acquisition.
F-9
<PAGE>
3. Business Combinations: (Cont'd)
---------------------
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the business combination described above and
acquisitions of joint venture interests described below, had occurred on January
1, 1998:
Years Ended
December 31,
---------------------------------
1999 1998
-------------- -------------
Revenues $ 10,287,261 $ 8,872,928
Loss from operations (925,932) (1,703,967)
Net loss (873,735) (1,781,367)
Basic net loss per share (.07) (.14)
Diluted net loss per share (.07) (.14)
The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma results do not necessarily
represent results which would have occurred if the business combination had
taken place as of January 1, 1998 and on the basis assumed above.
b. Acquisitions of joint venture interests
---------------------------------------
During 1999, the Company acquired the interests in various DCAP Retail
Insurance Stores in exchange for 846,232 shares of common stock, valued at
$846,232, plus $57,400 in cash. These transactions have been accounted for under
the purchase method of accounting.
The historical carrying amounts of the tangible assets and liabilities
approximated their fair values on the date of acquisition. Approximately
$730,000 of the aggregate purchase price was allocated to goodwill and is being
amortized over its estimated useful life of fifteen years.
4. Notes Receivable:
----------------
Included in notes receivable at December 31, 1999, is $87,000 of notes due
from various DCAP franchises. The notes are payable in monthly installments of
approximately $7,600, including interest at 8.5%, through December 2000.
In June 1998, the Company sold all potential future commissions on renewal
policies belonging to one of its DCAP stores for $20,000 in cash and a note for
$65,000. As of December 31, 1999, the balance on the note approximated $34,000
and is payable in monthly installments of $2,000, including interest at 8%,
through June 2001.
Included in notes receivable at December 31, 1999, are amounts due from
stockholders approximating $359,000. The notes are due on December 31, 2003,
together with accrued interest at the rate of 6.6% per annum. Interest income
accrued on such notes for the year ended December 31, 1999 approximated $22,000.
F-10
<PAGE>
5. Property and Equipment:
----------------------
<TABLE>
<CAPTION>
<S> <C>
At December 31, 1999, property and equipment consists of the following:
Furniture, fixtures and equipment $ 845,732
Office equipment 422,307
Leasehold improvements 711,972
Operating equipment 11,463
Computer hardware and software 1,606,107
Transportation equipment 31,047
Entertainment facility 200,538
-------------
3,829,166
Less accumulated depreciation and amortization 2,401,687
-------------
$ 1,427,479
=============
</TABLE>
6. Deposits and Other Assets:
-------------------------
In April 1998, the Company purchased a bank certificate of deposit in the
amount of $40,000, which is included in deposits and other assets at December
31, 1999. This amount is pledged to the Puerto Rico Ports Authority ("Ports
Authority") as security for payment of amounts due under the lease agreement.
7. Accounts Payable and Accrued Expenses:
-------------------------------------
At December 31, 1999, accounts payable and accrued expenses consist of
the following:
Accounts payable $ 660,777
Payroll and related costs 191,349
Deferred revenue 81,000
Professional fees 204,912
Rent 66,199
Premiums payable 93,341
Other 71,785
-------------
$ 1,369,363
=============
8. Deferred Compensation:
---------------------
The Company has an agreement to pay special compensation to certain IAH
employees who at the date of retirement have accumulated 20 years of
uninterrupted service. Maximum amount payable per employee is $3,000. There are
seven employees covered by this plan, four of them with
<PAGE>
15 years of accumulated service. Compensation is accrued pro-ratably from the
inception of the plan to the date each employee is eligible for benefits.
9. Debentures Payable:
------------------
In 1971, the Company, pursuant to a plan of arrangement, issued a series of
debentures which matured in 1977. As of December 31, 1999, $154,200 of these
debentures have not been presented for payment. Accordingly, this balance has
been included as a current liability in the accompanying consolidated balance
sheet. Interest has not been accrued on the remaining debentures payable. In
addition, no interest, penalties or other charges have been accrued with regard
to any escheat obligation of the Company.
F-11
<PAGE>
10. Long-Term Debt:
--------------
At December 31, 1999, long-term debt is comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to former stockholders, due in monthly installments
aggregating $3,178, including interest at rates ranging from 6% to
10%, maturing at varying dates through September 2002. $ 60,306
Note payable to franchisee, due in varying monthly installments ranging
from $1,700 to $2,000 per month through April 2003, including interest
at approximately 24% per annum. 56,134
Mortgage payable, due in monthly installments of $1,803, including
interest at 9%, per annum through May 2017. The obligation is
collateralized by the Company's entertainment facility having a book
value of $170,000. 190,091
Other 29,213
------------
335,744
Less current maturities 49,169
------------
$ 286,575
============
</TABLE>
Long-term debt matures as follows:
Year Ended December 31,
-------------
2000 $ 49,000
2001 69,000
2002 35,000
2003 14,000
2004 7,000
Thereafter 162,000
11. Capitalized Lease Obligations:
-----------------------------
Included in computer and office equipment are certain assets having a book
value of approximately $1,580,000, leased under capital leases. The future
minimum lease payments of these capital leases and the present value of the net
minimum lease payments as of December 31, 1999 are as follows:
Year Ended December 31,
-----------
2000 $ 379,175
2001 187,332
2002 101,065
2003 63,298
2004 32,787
-----------
<PAGE>
Minimum lease payment 763,657
Less amount representing interest 150,658
-----------
Present value of net minimum lease payments 612,999
Less current maturities 301,533
-----------
Present value of net minimum lease payments $ 311,466
===========
F-12
<PAGE>
12. Related Party Transaction:
-------------------------
During the years ended December 31, 1999 and 1998, the Company leased its
corporate office facility from a partnership of which a stockholder/officer is a
member. Rent expense amounted to $6,000 for each of the years ended December 31,
1999 and 1998.
13. Income Taxes:
------------
The Company files a consolidated U.S. Federal Income Tax return that
includes all wholly-owned subsidiaries. State tax returns are filed on a
consolidated, or separate basis depending on applicable laws.
The 1999 and 1998 income of IAH, Inc., a wholly-owned subsidiary, has been
calculated excluding the loss of DCAP Group, Inc., as it is separately taxed
under the laws of Puerto Rico. For 1999 and 1998, a provision of approximately
$7,000 and $4,000 has been made for this tax liability, respectively.
The provision for income taxes is comprised of the following:
Years Ended
December 31,
------------------------
1999 1998
------------ ------------
Benefit at Federal statutory rates $ (171,229) $ (36,465)
Loss in excess of available benefit 178,468 40,795
------------ -----------
$ 7,239 $ 4,330
============ ===========
At December 31, 1999, the Company had net operating loss carryforwards for
tax purposes of approximately $3,600,000. The tax loss carryforwards expire at
various dates through 2019.
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a greater
than 50 percentage point change in ownership occurs. Accordingly, the actual
utilization of the net operating loss and carryforwards for tax purposes may be
limited annually to a percentage (approximately 6%) of the fair market value of
the Company at the time of any such ownership change.
Deferred tax assets at December 31, 1999 consist of the following:
Deferred tax assets:
Net operating loss carryovers $ 1,439,900
Other 55,000
-------------
Total deferred tax asset 1,494,900
Less valuation allowance (1,494,900)
----------
Net deferred tax assets $ -
=============
F-13
<PAGE>
14. Commitments:
-----------
a. IAH, Inc. leases the International Airport Hotel (the "Hotel") property
pursuant to an operating lease with the Ports Authority, which expired in
December 1995. As discussed below, IAH is of the belief that pursuant to a
supplemental lease agreement, it retained the option to continue the lease for a
period of five years to December 31, 2000, which right it exercised, or
alternatively, that the Ports Authority executed a new lease agreement for a ten
year term commencing on January 1, 1996. The lease agreement provides for the
annual rental payments to be equal to the greater of $169,400 or 20% of the
annual gross revenues, as defined, effective January 1, 1994. Total rent expense
under this lease amounted to approximately $196,000 for 1999 and $185,000 for
1998.
Based upon IAH's refusal to acknowledge that, effective January 1, 1996, it
occupied the Hotel on a month-to-month basis, in February 1996, the Ports
Authority requested that IAH vacate, surrender and deliver the premises by
February 29, 1996. Following the receipt of such request, IAH brought an action
in the Superior Court of San Juan, Puerto Rico for declaratory judgment and
possessory injunction against the Ports Authority with respect to the Hotel. The
action seeks a declaratory judgment that, among other alternatives, IAH
exercised an option with respect to its lease for the Hotel for an extension of
the term of five years commencing on January 1, 1996 or that the Ports Authority
executed a new lease agreement for a ten year period commencing on such date.
Certain discovery proceedings have taken place, and the action is still pending.
Management is of the opinion that the Company will prevail on the declaratory
judgment; therefore, management will vigorously defend its position.
b. The Company and each of its affiliates lease office space under
noncancellable operating leases expiring at various dates through the year 2006.
Many of the leases include additional rent for real estate taxes and other
operating expenses. The minimum future rentals under these lease commitments for
leased facilities and office equipment are as follows:
Year Ended
December 31,
------------
2000 $ 747,000
2001 617,000
2002 491,000
2003 334,000
2004 134,000
Thereafter 144,000
Rental expense approximated $816,000 for the year ended December 31, 1999.
c. Employment agreements
---------------------
In connection with the DCAP acquisition, the Company entered into five-year
employment agreements with certain directors/officers and DCAP shareholders
commencing February 25, 1999. The agreements provide for a three-year renewal
term, which is automatic unless the Company, by vote of 75% of all of the
members of the Board of Directors, as defined, determines otherwise. Certain
agreements provide for bonuses based upon profitability. In the event that the
Company does not extend an employment agreement, the employee will generally
receive an additional two years of his base salary. Total annual compensation
provided for under these agreements is $647,000. During the initial term of the
employment agreements, the Company is obligated to make loans of up to $20,000
per year to each of the DCAP shareholders.
F-14
<PAGE>
14. Commitments: (Cont'd)
-----------
c. Litigation
----------
The Company is involved in various lawsuits and claims incidental to its
business. In the opinion of management, the ultimate liabilities, if any,
resulting from such lawsuits and claims will not materially affect the financial
position of the Company.
15. Stockholders' Equity:
-------------------
a. Private placement of securities
-------------------------------
On June 2, 1999, the Company sold, through a private placement, 33.5 Units
(each consisting of 45,453 common shares and 15,151 Class A, 15,151 Class B and
15,151 Class C warrants) at a purchase price of $50,000 per Unit for net
proceeds of $1,360,000 net of closing costs approximating $315,000. Each Class
A, B and C warrant is exercisable at $1.65, $2.06 and $2.48, respectively and
expires June 2, 2004. All warrants issued in connection with the private
placement were outstanding at December 31, 1999. Each of the warrants is subject
to redemption by the Company at $.001 per warrant in the event the average
closing price of the Company's common stock is at least 125% of the exercise
price for 30 consecutive trading days.
b. Stock options
-------------
The Company maintains a stock option plan which provides for the granting
of options to individuals rendering service to the Company to purchase up to
300,000 shares of common stock of the Company. Such options may be either
incentive stock options or non-statutory stock options. No options are
outstanding as of December 31, 1999.
In November 1998, the Company adopted the 1998 Stock Option Plan (approved
by stockholders in February 1999) which provides for the issuance of incentive
stock options or non- statutory stock options. Under this plan, options to
purchase not more than 2,000,000 shares of common stock may be granted, at a
price to be determined by the Board of Directors or the Stock Option Committee
at the time of grant. Incentive stock options granted under this plan expire ten
years from date of grant (except five years for a grant to a 10% stockholder of
the Company). The Board of Directors or the Stock Option Committee will
determine the expiration date with respect to non-statutory options granted
under this plan.
A summary of the status of the Company's stock option plans of December 31,
1999, and changes during the year then ended is presented below:
Weighted
Average
Exercise
Fixed Stock Options Share Price
------------------- ----- ----------
Outstanding, beginning of year - $ -
Granted 950,000 2.51
Expired - -
Forfeited - -
--------- -------
Outstanding, end of year 950,000 $ 2.51
========= =======
Weighted-average fair value
of options granted during year $.28
====
F-15
<PAGE>
15. Stockholders' Equity: (Cont'd)
--------------------
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
- -------------- --------------- ---------------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C>
$1.00 - $2.69 950,000 3.85 yrs. $2.51 100,000 $1.00
</TABLE>
The Company has elected the disclosure-only provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("FASB 123") in accounting for its employee stock options. Accordingly, no
compensation expense has been recognized. Had the Company recorded compensation
expense for the stock options based on the fair value at the grant date for
awards in the year ended December 31, 1999, consistent with the provisions of
SFAS 123, the Company's net loss and net loss per share would not have been
impacted.
The fair value of each option grant is estimated on the date of grant using
the Black- Scholes option-pricing model. The following range of weighted-average
assumptions were used for grants during the year ended December 31, 1999:
Dividend yield 0.00%
Volatility 8.00%
Risk-free interest rate 5.50%
Expected life 2-5 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
b. Eagle Insurance Agreement
-------------------------
On February 25, 1999, the Company issued 1,486,893 common shares to Eagle
Insurance Company for proceeds of approximately $1,000,000.
d. Common shares reserved
----------------------
Warrants 1,522,710
=========
Stock Option Plans 2,300,000
=========
F-16
<PAGE>
16. Business Segments:
-----------------
The Company currently has two reportable business segments: Insurance and
Hotel. The Insurance segment sells retail auto, motorcycle, boat, life,
business, and homeowner's insurance. In addition, this segment offers tax
preparation services, automobile club services for roadside emergencies,
services with regard to obtaining insurance premium financing, and automobile
loans from third parties. The Hotel segment operates the International Airport
Hotel in San Juan, Puerto Rico. The Hotel caters generally to commercial and
tourist travelers in transit. The Company's revenues are derived from activities
within the United States, and all long-lived assets are located within the
United States.
Revenue, operating income, capital expenditures, and depreciation and
amortization pertaining to the industries in which the Company operates are
presented below.
<TABLE>
<CAPTION>
Year Ended
December 31,1999 Insurance Hotel Other (1) Total
- ----------------------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues from external
customers $ 8,045,737 $ 1,014,950 $ 8,224 $ 9,068,911
Interest income 25,850 - 55,148 80,998
Interest expense 135,715 - - 135,715
Depreciation and amortization 402,871 45,158 273,969 721,998
Segment profit (loss) (173,160) 149,080 (425,962) (450,042)
Segment assets 2,744,681 307,580 2,099,203 5,151,464
Expenditures for segment assets 450,892 52,239 - 503,431
</TABLE>
The following is a reconciliation of reportable segment assets and
expenditures for segment assets to consolidated totals:
Assets
Total assets for reportable segments $ 5,151,464
Goodwill and other intangibles,
not allocated to segments 3,064,298
-------------
Consolidated total $ 8,215,762
=============
Expenditures for Segment Assets
Total expenditures for segment assets $ 503,431
Non-cash acquisitions of assets (378,903)
-------------
Consolidated total $ 124,528
=============
(1) Column represents corporate-related items and, as it relates to
segment profit (loss), income, expense and assets not allocated to
reportable segments.
Segment information is not provided for 1998 as the Company was primarily
in the Hotel business.
F-17
<PAGE>
17. Fair Value of Financial Instruments:
-----------------------------------
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash,
current receivables and payables and certain other short-term
financial instruments approximate their fair value.
Long-Term Debt: The fair value of the Company's long-term debt,
including the current portion, was estimated using a discounted cash
flow analysis, based on the Company's assumed incremental borrowing
rates for similar types of borrowing arrangements. The carrying amount
of variable and fixed rate debt at December 31, 1999 approximates fair
value.
18. Advertising Costs:
-----------------
Included in selling, general and administrative expenses are advertising
costs of $760,800 for the year ended December 31, 1999.
19. Supplementary Information - Statement of Cash Flows:
---------------------------------------------------
Cash paid during the years for:
Years Ended
December 31,
------------
1999 1998
---- ----
Supplemental disclosures:
Interest 211,911 -
========== =========
Income Taxes $ 64,660 $ 5,870
========== =========
Non-cash financing and investment activities:
Common stock issued for acquisitions and
intangible property $2,096,107 $ -
========== =========
Acquisitions of property and equipment
through capital leases $ 298,795 $ -
========== =========
F-18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DCAP GROUP, INC.
Dated: April 14, 2000 By:/s/ Morton L. Certilman
-----------------------
Morton L. Certilman
Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signatures Capacity Date
Chairman of the Board
and Director (Principal
Executive, Financial and
/s/ Morton L. Certilman Accounting Officer) April 14, 2000
- -----------------------------
Morton L. Certilman
Vice Chairman of the Board
/s/ Jay M. Haft and Director April 14, 2000
- ------------------------------
Jay M. Haft
/s/ Kevin Lang President and Director April 14, 2000
- ------------------------------
Kevin Lang
Executive Vice President
/s/ Abraham Weinzimer and Director April 14, 2000
- ------------------------------
Abraham Weinzimer
Director April 14, 2000
- -----------------------------
Robert M. Wallach
39
<PAGE>
SUBSCRIPTION AGREEMENT
DCAP GROUP, INC.
Subscription Agreement for the Purchase of Units consisting of
Common Stock, Class A Warrants, Class B, Warrants and Class C Warrants
The undersigned (the "Investor") hereby subscribes for the number of units
("Units") set forth on page 13 hereof of DCAP Group, Inc. (the "Company"), each
Unit consisting of (i) 45,453 shares of the Company's common stock ("Common
Stock"); (ii) 15,151 Class A Common Stock purchase warrants (the "Class A
Warrants"), each Warrant entitling the holder thereof to purchase one share of
Common Stock at an exercise price that is equal to $1.65; (iii) 15,151 Class B
Common Stock purchase warrants (the "Class B Warrants"), each Warrant entitling
the holder thereof to purchase one share of Common Stock at an exercise price
that is equal to $2.06; and (iv) 15,151 Class C Common Stock purchase warrants
(the "Class C Warrants"), each Warrant entitling the holder thereof to purchase
one share of Common Stock at an exercise price that is equal to $2.48. The Class
A Warrants, the Class B Warrants and the Class C Warrants shall hereinafter
collectively be referred to as the "Warrants." The Units are being offered in
connection with the Company's private placement (the "Offering") of a minimum of
$1,000,000 (the "Minimum Offering") and a maximum of $2,000,000 (the "Maximum
Offering") of Units at a price of $50,000 per Unit. The Minimum Offering shall
be on a "best efforts, all or none basis," and any additional Units up to the
Maximum Offering shall be offered on a "best efforts" basis.
The number of shares of Common Stock included with a Unit was determined by
dividing the per Unit purchase price of $50,000 by $1.10. For each three shares
of Common Stock included
1
<PAGE>
within a Unit, one Class A Warrant, one Class B Warrant and one Class C Warrant
were also included.
At the time any of the Common Stock issued to the Investor initially
becomes publicly saleable (either pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or because a
registration statement filed under the Securities Act covering such shares is
declared effective by the Securities and Exchange Commission (the "SEC")), if
the preceding 30 trading day average of the closing prices of the Common Stock
(as reported by the Bulletin Board, The Nasdaq Stock Market or a securities
exchange, depending upon where the Company's Common Stock is then traded or
listed) (the "Later Market Value") is less than $1.65 per share (the "Base
Market Value"), the Investor shall be entitled to receive additional shares of
Common Stock and Warrants as if the Offering had been based upon the Later
Market Value (rounded up to the next whole cent) (but in no event more than an
additional 50% of the original shares of Common Stock and Warrants issued). The
right to receive additional Common Stock and Warrants shall not be deemed
attached to the purchased Common Stock and Warrants, and shall not be considered
transferred to any person who acquires such originally purchased Common Stock
and Warrants.
At any time during the two year period following the first anniversary of
the final closing of the Offering (the "Final Closing") (with respect to demand
registration rights) and during the four year period following the first
anniversary of the Final Closing (with respect to piggyback registration
rights), the Investor will be entitled to exercise demand and piggyback
registration rights pursuant to the terms of a Registration Rights Agreement to
be executed simultaneously herewith.
2
<PAGE>
In connection with the Offering, the placement agent, Aegis Capital Corp.
(the "Placement Agent"), shall be entitled to receive a commission of 10% of the
gross proceeds derived from the sale of Units and warrants to purchase up to 10%
of the aggregate amount of Units sold in the Offering (the "Placement Agent's
Warrants"), except that the Placement Agent shall not be entitled to receive a
commission or any Placement Agent's Warrants in connection with a sale of Units
to Eagle Insurance Company (a principal stockholder of the Company) or an
affiliate thereof. The Company will pay all costs and expenses reasonably
incurred by the Placement Agent in connection with the Offering up to $35,000,
including all legal fees and disbursements. In addition, the Placement Agent
will perform consulting services to the Company for a period of two years for a
aggregate fee of $50,000 which is payable upon the first closing of the
Offering.
The undersigned agrees to pay an aggregate of $50,000 as a subscription for
each Unit being purchased hereunder. The entire purchase price is due and
payable upon the execution of this Subscription Agreement, and shall be payable
by wire transfer or check subject to collection, to the order of "Continental
Stock Transfer & Trust Company, as Agent for DCAP Group, Inc." The wire transfer
instructions are as follows:
<TABLE>
<CAPTION>
<S> <C>
Name: Continental Stock Transfer & Trust Company, as Escrow Agent for
DCAP Group, Inc.
Account Number: 777581744
Bank: Chase Bank, 52 Broadway, New York, NY
ABA Number: 021 000 021
</TABLE>
The Company and the Placement Agent shall each have the right to reject
this subscription in whole or in part.
3
<PAGE>
The undersigned acknowledges that the Unit(s) being purchased hereunder
have not been registered under the Securities Act, or the securities laws of any
state, that, absent an exemption from registration contained in those laws, the
Unit(s) and the securities underlying the Unit(s) would require registration,
and that the Company's reliance upon such exemption is based upon the
undersigned's representations, warranties, and agreements contained in this
Subscription Agreement, the Registration Rights Agreement between the Company
and the undersigned and the accompanying Confidential Prospective Purchaser
Questionnaire (collectively, the "Subscription Documents").
1. The undersigned represents, warrants, and agrees as follows:
a. The undersigned agrees that this Subscription Agreement is and
shall be irrevocable.
b. The undersigned has carefully read the Confidential Private
Offering Memorandum, dated April 5, 1999, and exhibits thereto (the
"Memorandum"), and the Subscription Documents (collectively, the
"Offering Materials"), all of which the undersigned acknowledges has
been provided to the undersigned. The undersigned has been given the
opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of this Offering and the Offering
Materials and to obtain such additional information, to the extent the
Company possesses such information or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of
same as the undersigned reasonably desires in order to evaluate the
investment. The undersigned understands the Offering Materials, and
the undersigned has had the opportunity to discuss any questions
regarding any of the Offering Materials with his counsel or other
advisor. Notwithstanding the foregoing, the only information upon
which the undersigned has
4
<PAGE>
relied is that set forth in the Offering Materials. The undersigned
has received no representations or warranties from the Company, its
employees, agents or attorneys in making this investment decision
other than as set forth in the Offering Materials. The undersigned
does not desire to receive any further information.
c. The undersigned is aware that the purchase of the Unit(s) is a
speculative investment involving a high degree of risk, that there is
no guarantee that the undersigned will realize any gain from this
investment, and that the undersigned could lose the total amount of
this investment. The undersigned has specifically reviewed the section
in the Memorandum entitled "Risk Factors."
d. The undersigned understands that no federal or state agency has
made any finding or determination regarding the fairness of this
Offering, or any recommendation or endorsement of this Offering.
e. The undersigned is purchasing the Unit(s) for the undersigned's own
account, with the intention of holding the Unit(s) and with no present
intention of dividing or allowing others to participate in this
investment or of reselling or otherwise participating, directly or
indirectly, in a distribution of the Unit(s), and shall not make any
sale, transfer, or pledge thereof without registration under the
Securities Act and any applicable securities laws of any state or
unless an exemption from registration is available under those laws.
f. The undersigned represents that he is an "accredited investor," as
such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act. The Investor is referred to the section of the
Memorandum entitled "Plan of Offering - Investor Suitability" for a
full explanation of such term.
5
<PAGE>
g. The undersigned represents that, if an individual, he has adequate
means of providing for his or her current needs and personal and
family contingencies and has no need for liquidity in this investment
in the Unit(s). The undersigned has no reason to anticipate any
material change in his or her personal financial condition for the
foreseeable future.
h. The undersigned is financially able to bear the economic risk of
this investment, including the ability to hold the Unit(s)
indefinitely, or to afford a complete loss of his investment in the
Unit(s).
i. The undersigned represents that the undersigned's overall
commitment to investments which are not readily marketable is not
disproportionate to the undersigned's net worth, and the undersigned's
investment in the Unit(s) will not cause such overall commitment to
become excessive. The undersigned understands that the statutory basis
on which the Unit(s) are being sold to the undersigned and others
would not be available if the undersigned's present intention were to
hold the Unit(s) for a fixed period or until the occurrence of a
certain event. The undersigned realizes that, in the view of the SEC,
a purchase now with a present intent to resell by reason of a
foreseeable specific contingency or any anticipated change in the
market value, or in the condition of the Company, or that of the
industry in which the business of the Company is engaged or in
connection with a contemplated liquidation, or settlement of any loan
obtained by the undersigned for the acquisition of the Unit(s), and
for which such Unit(s) may be pledged as security or as donations to
religious or charitable institutions for the purpose of securing a
deduction on an income tax return, would, in fact, represent a
purchase with an intent inconsistent with the undersigned's
representations to the Company, and the SEC would then regard such
sale as a sale for which the
6
<PAGE>
exemption from registration is not available. The undersigned will not
pledge, transfer or assign this Subscription Agreement.
j. The undersigned represents that the funds provided for this
investment are either separate property of the undersigned, community
property over which the undersigned has the right of control, or are
otherwise funds as to which the undersigned has the sole right of
management. The undersigned is purchasing the Unit(s) with the
undersigned's funds and not with the funds of any other person, firm,
or entity and is acquiring the Unit(s) for the undersigned's account.
No person other than the undersigned has any beneficial interest in
the Unit(s) being purchased hereunder.
k. FOR PARTNERSHIPS, CORPORATIONS, TRUSTS, OR OTHER ENTITIES ONLY: If
the undersigned is a partnership, corporation, trust or other entity,
(i) the undersigned has enclosed with this Subscription Agreement
appropriate evidence of the authority of the individual executing this
Subscription Agreement to act on its behalf (e.g., if a trust, a
certified copy of the trust agreement; if a corporation, a certified
corporate resolution authorizing the signature and a certified copy of
the articles of incorporation; or if a partnership, a certified copy
of the partnership agreement), (ii) the undersigned represents and
warrants that it was not organized or reorganized for the specific
purpose of acquiring the Unit(s), (iii) the undersigned has the full
power of such entity to make the representations and warranties made
herein on its behalf, and (iv) this investment in the Company has been
affirmatively authorized, if required, by the governing board of such
entity and is not prohibited by the governing documents of the entity.
7
<PAGE>
l. The address shown under the undersigned's signature at the end of
this Subscription Agreement is the undersigned's principal residence
if he or she is an individual, or its principal business address if it
is a corporation or other entity.
m. The undersigned has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of an investment in the Units.
n. The undersigned acknowledges that the certificates for the Common
Stock underlying the Units, which the undersigned will receive, will
contain a legend substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION
OR RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS AND UNTIL REGISTERED UNDER THE ACT, OR AN OPINION OF
COUNSEL FOR THE COMPANY IS RECEIVED THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT. THE SECURITIES WHICH ARE REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A
SUBSCRIPTION AGREEMENT, DATED JUNE 2, 1999, BETWEEN THE HOLDER
AND THE COMPANY, A COPY OF WHICH IS AVAILABLE AT THE OFFICES
OF THE COMPANY.
The undersigned further acknowledges that a stop transfer order will
be placed upon the certificates for the securities in accordance with
the Securities Act. The undersigned further acknowledges that the
Company is under no obligation to aid the undersigned in obtaining any
exemption from registration requirements.
2. The undersigned expressly acknowledges and agrees that the Company is
relying upon the undersigned's representations contained in the Subscription
Documents.
8
<PAGE>
3. The undersigned irrevocably appoints and authorizes the Placement Agent
to take such action as agent and attorney-in-fact on his behalf and to exercise
such power and authority as said agent and attorney-in-fact would have if
personally acting, with respect to all matters arising in connection with
securing the Company's obligations under the Registration Rights Agreement of
even date hereof, with full power and authority to execute, deliver and enforce
for and on behalf of the undersigned all such agreements, consents and
documents. Neither the Placement Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or not taken in
connection with the authority granted pursuant to the preceding sentence, or
incur any liability by acting in reliance upon any notice, consent, certificate,
statement or other writing believed by it or them to be genuine. The undersigned
shall indemnify the Placement Agent against any cost, expense (including counsel
fees and disbursements), claim, demand, action, loss or liability (except any
thereof arising out of the gross negligence or willful misconduct of the
Placement Agent) that Placement Agent may suffer or incur in connection with any
action or inaction pursuant to the foregoing appointment as agent and
attorney-in-fact.
4. The undersigned agrees that he will not sell or transfer the Common
Stock or Warrants, or the shares of Common Stock underlying the Warrants, for a
period of twelve months from the first closing date of the Offering without the
prior written consent of the Placement Agent. The undersigned also agrees that
he will be subject to any lock-up imposed by NASDAQ or any other regulatory
agency.
5. The Company has been duly and validly incorporated and is validly
existing and in good standing as a corporation under the laws of the State of
Delaware. The Company has all requisite power and authority, and all necessary
authorizations, approvals and orders required as
9
<PAGE>
of the date hereof to own its properties and conduct its business as described
in the Memorandum and to enter into this Subscription Agreement and to be bound
by the provisions and conditions hereof.
6. Except as otherwise specifically provided for hereunder, no party shall
be deemed to have waived any of his rights hereunder or under any other
agreement, instrument or papers signed by any of them with respect to the
subject matter hereof unless such waiver is in writing and signed by the party
waiving said right. Except as otherwise specifically provided for hereunder, no
delay or omission by any party in exercising any right with respect to the
subject matter hereof shall operate as a waiver of such right or of any such
other right. A waiver on any one occasion with respect to the subject matter
hereof shall not be construed as a bar to, or waiver of, any right or remedy on
any future occasion. All rights and remedies with respect to the subject matter
hereof, whether evidenced hereby or by any other agreement, instrument, or
paper, will be cumulative, and may be exercised separately or concurrently.
7. The parties have not made any representations or warranties with respect
to the subject matter hereof not set forth herein, and this Subscription
Agreement, together with any instruments executed simultaneously herewith,
constitutes the entire agreement between them with respect to the subject matter
hereof. All understandings and agreements heretofore had between the parties
with respect to the subject matter hereof are merged in this Subscription
Agreement and any such instruments executed simultaneously herewith, which alone
fully and completely expresses their agreement.
10
<PAGE>
8. This Subscription Agreement may not be changed, modified, extended,
terminated or discharged orally, but only by an agreement in writing, which is
signed by all of the parties to this Subscription Agreement.
9. The parties agree to execute any and all such other further instruments
and documents, and to take any and all such further actions reasonably required
to effectuate this Subscription Agreement and the intent and purposes hereof.
10. This Subscription Agreement shall be governed by and construed in
accordance with the laws of the State of New York, excluding choice of law
principles thereof, and the undersigned hereby consents to the jurisdiction of
the courts of the State of New York and the United States District Courts
situated therein, without giving effect to the actual domiciles of the parties.
11. Any reference in this Subscription Agreement to the male gender shall
be deemed to refer to the feminine or neuter where applicable.
12. This Subscription Agreement may be executed in counterparts each of
which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
13. Upon the execution and delivery of this Subscription Agreement by the
Investor, this Subscription Agreement shall become a binging obligation of the
Investor with respect to the purchase of the Units as herein provided.
14. Any notice or other communication given hereunder shall be deemed
sufficient if in writing and hand delivered or sent by registered or certified
mail, return receipt requested, or overnight mail or delivery, addressed to the
Company at 90 Merrick Avenue, East
11
<PAGE>
Meadow, New York 11554 Attention: Chairman of the Board, and to the Investor at
his address indicated on the signature page of this Subscription Agreement.
Notices shall be deemed to have been given on the date of mailing, except
notices of change of address, which shall be deemed to have been given when
received.
12
<PAGE>
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ___ day of ________ , 1999.
x ($50,000 Per Unit) = $
- ---------------------- -------------------------------
Units Subscribed
1. o Individual 8. o As a Custodian for
2. o Joint Tenants with Right of Survivorship ____________________
3. o Community Property Under the Uniform Gift
4. o Tenants in Common to Minors Act of the
5. o Corporation/Partnership State.
6. o IRA of
-------------------------------- 9. o Married with Separate
7. o Trust Property
10. o Keogh
Date Opened__________________
13
<PAGE>
EXECUTION BY SUBSCRIBER WHO IS A NATURAL PERSON
- --------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Name (Please Print)
- --------------------------------------------------------------------------------
Residence: Number and Street
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Social Security Number
Accepted this 2nd day of June 1999, on behalf of:
DCAP GROUP, INC.
By:_____________________________
14
<PAGE>
EXECUTION BY SUBSCRIBER WHO IS A CORPORATION,
PARTNERSHIP, TRUST, ETC.
- --------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Name (Please Print)
- --------------------------------------------------------------------------------
Title of Signatory
- --------------------------------------------------------------------------------
Business Address: Number and Street
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Employer or NASD affiliation
- --------------------------------------------------------------------------------
Tax Identification Number
Accepted this 2nd day of June, 1999, on behalf of:
DCAP GROUP, INC.
By:_____________________________
15
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated [________], 1999 (the "Agreement"), by
and between DCAP Group, Inc., a Delaware corporation (the "Company"), and
_______________, the holder of ______ units of the Company sold in connection
with the Company's Private Placement (as defined below) (individually a "Holder"
and collectively with the holders of other Units, the "Holders").
WHEREAS, the Company has proposed to offer, pursuant to the Company's
private placement offering (the "Private Placement"), a minimum of $1,000,000
and a maximum of $2,000,000 of units of the Company (the "Units"), each Unit
consisting of (i) 45,453 shares of the Company's common stock ("Common Stock");
(ii) 15,151 Class A Common Stock purchase warrants (the "Class A Warrants"),
each Warrant entitling the holder thereof to purchase one share of Common Stock
at an exercise price that is equal to $1.65; (iii)15,151 Class B Common Stock
purchase warrants (the "Class B Warrants"), each Warrant entitling the holder
thereof to purchase one share of Common Stock at an exercise price that is equal
to $2.06; and (iv) 15,151 Class C Common Stock purchase warrants (the "Class C
Warrants"), each Warrant entitling the holder thereof to purchase one share of
Common Stock at an exercise price that is equal to $2.48. The Class A Warrants,
the Class B Warrants and the Class C Warrants shall hereinafter collectively be
referred to as the "Warrants;" and
WHEREAS, pursuant to the terms of, and in order to induce the Holder to
enter into, a certain subscription agreement dated the date hereof between the
Company and the Holder (the "Subscription Agreement") to purchase the Units, the
Company and the Holder have agreed to enter into this Agreement; and
WHEREAS, Aegis Capital Corp. has acted as placement agent (the "Placement
Agent") in connection with the offering of the Units (the "Offering"); and
WHEREAS, the Placement Agent has agreed to use its best efforts to solicit
and receive offers to purchase the Units but shall have no obligation to
purchase any of the Units. The term of this Agreement shall commence on the date
of the consummation of the Offering with respect to the Holder and shall
terminate five years following the consummation of the final closing of the
Offering.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Company and the Holder hereby agree as follows:
1. Registration Rights. The Holders of the Common Stock, shares of Common
Stock issuable upon exercise of the Warrants, and shares of Common Stock
issuable pursuant to the anti-dilution provisions discussed in the Warrant
Agreement (together with the shares of Common Stock issuable to the Placement
Agent pursuant to the warrants issued to the Placement Agent in connection with
the Offering, collectively, the "Registerable Securities"), will be entitled
<PAGE>
to exercise demand and piggyback registration rights as provided herein:
a. Piggyback Registration Rights. If, at any time during the four (4)
year period commencing upon the first anniversary of the final closing
of the Offering, the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "1933
Act") (other than pursuant to Form S-4 or S-8 or other comparable
form), the Company shall give written notice to all Holders of its
intention to file such registration statement at least twenty (20)
days prior to the filing thereof and of such Holders' rights with
regard to the inclusion therein of the Registerable Securities. Upon
the written request of a majority of the Holders delivered to the
Company within ten (10) days after giving of such notice (which
request shall specify the Registerable Securities intended to be
disposed of by such Holders, the number of shares of Common Stock and
other securities of the Company beneficially owned by the Holders and
the intended method of disposition thereof), the Company shall include
in such registration statement the Registerable Securities held by
each such Holder requested to be included therein; provided, however,
that, if, at any time after giving such written notice of the
Company's intention to register any of the Holder's Registerable
Securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay the
registration of such Registerable Securities or to withdraw any filed
registration statement, the Company may give written notice of such
determination to each Holder and thereupon shall be relieved of its
obligation to register any Registerable Securities issued or issuable
in connection with such registration (but not from its obligation to
pay registration expenses in connection therewith or to register the
Registerable Securities in a subsequent registration); and in the case
of a determination to delay a registration, shall thereupon be
permitted to delay registering any Registerable Securities for the
same period as the delay in respect of securities being registered for
the Company's own account.
b Demand Registration Rights. The Company agrees that, on one
occasion, at any time during the two (2) year period commencing upon
the first anniversary of the final closing of the Offering, upon the
written request of the Holders of a majority of the Registerable
Securities that the Company register under the 1933 Act any or all of
the Registerable Securities (which notice shall specify the
Registerable Securities intended to be disposed of by the Holders, the
number of shares of Common Stock and other securities of the Company
beneficially owned by the Holders, and the intended method of
disposition thereof), the Company shall promptly, but no later than
six weeks after receipt of such request, file a registration statement
pursuant to the 1933 Act, so that such requested Registerable
Securities may be publicly sold under the 1933 Act as promptly as
practicable thereafter, and the Company will use its best efforts to
cause such registration statement to become effective (including the
taking of such steps as are reasonably necessary to obtain the removal
of any stop order) within ninety (90) days after the filing thereof.
Within ten (10) days after receiving any such request pursuant to this
paragraph, the Company shall give notice to any other Holders,
advising that the Company has received such request and, subject to
the provisions of this paragraph (b), offering to include in the
registration statement the Registerable Securities held by the other
Holders, provided that they shall furnish the Company, within ten (10)
days after the giving of such notice, with the information required to
be included in the notice of the demanding Holders. Notwithstanding
the foregoing, the Company shall not be obligated to file or use its
best efforts to cause to become effective a registration statement
under this paragraph (b) during any period (i) commencing with the
date the Company files a registration statement relating
2
<PAGE>
to the sale or exchange by it of its securities in either an
underwritten offering or in an offering involving a merger,
acquisition, combination or reorganization, and (ii) ending on the
ninetieth (90th) day following the consummation of any such
underwritten offering or other such transaction, or if, in its
judgment, such filing or registration may interfere with or affect the
negotiation or completion of any transaction that is being
contemplated by the Company (whether or not a final decision has been
made to undertake such transaction) at the time the right to delay is
exercised, or involve initial or continuing disclosure obligations
that might not be in the best interest of the Company's stockholders.
Following the conclusion of such period or commencing upon such time
as the filing or registration would not be so disruptive or
detrimental, the Company's obligation to file or use its best efforts
to cause to become effective a registration statement shall
recommence.
All costs and expenses of such registration statements including, but not
limited to, legal, accounting, printing and mailing fees shall be borne by the
Company which shall maintain such registration statement current under the 1933
Act for a period of at least 180 days from the effective date thereof, subject
to the provisions of Section 5 hereof. The Company shall supply prospectuses,
and such other documents as the Holders may reasonably request in order to
facilitate the public sale or other disposition of the Registerable Securities,
use its best efforts to register and qualify any of the Registerable Securities
for sale in such states as such Holders reasonably designate and furnish
indemnification as hereinafter provided.
2. Underwriter's discretion to limit Registration Rights; Availability of
Other Public Sales. The underwriter of any offering pursuant to which the
Holders may opt to exercise their registration rights, may, in its discretion,
limit the number of Registerable Securities (to zero, if necessary) to be
included in the registration statement covering the offering of securities if,
in the underwriter's opinion, at the time such registration is required to be
filed, or at the time the Company is required to exercise its best efforts to
cause such registration statement to become effective, such a cutback is
advisable and in the best interests of the Company because of the prevailing
market conditions, or because the inclusion of such securities may have a
substantial dilutive and harmful effect on the market value of the securities,
or because the inclusion of the Registerable Securities is likely to affect
adversely the success of the underwritten offering or the price that would be
received.
3. Mandatory Registration. In the event the Holders were precluded from
selling all of their Registerable Securities in connection with a registration
statement filed pursuant to Section 1 of this Agreement due to an underwriter
cutback as provided in Section 2 hereof, the Company shall use its best efforts
to effect the registration of all remaining Registerable Securities as soon as
practicable, but not later than six (6) months after the effective date of such
registration statement. This paragraph shall constitute a demand for
registration pursuant to the provisions of Section 1(b) hereof.
4. Option to Include Registerable Securities in Offering. Notwithstanding
anything contained in Section 1 of this Agreement, the Company shall not be
required to include any of the Holders' Registerable Securities in an
underwritten offering of the Company's securities unless such Holders accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided such terms are usual and customary for
selling stockholders) and the Holders agree to execute and/or deliver such
documents in connection with such registration
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<PAGE>
as the Company or the managing underwriter may reasonably request.
5. Cooperation with Company; Suspension of Sales. The Holders will
cooperate with the Company in all respects in connection with this Agreement,
including, timely supplying all information reasonably requested by the Company
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registerable Securities. If, after a
registration statement becomes effective, the Company advises the Holders of
Registerable Securities that the Company considers it appropriate for the
registration statement to be amended, the Holders of such Registerable
Securities shall suspend any further sales of their Registerable Securities
until the Company advises them that the registration statement has been amended.
6. Registration Procedures. If and whenever the Company is required by any
of the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registerable Securities under the 1933 Act, the
Company shall (except as otherwise provided in this Agreement), as expeditiously
as possible:
a. prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement and shall use its best efforts
to cause such registration statement to become effective and remain
effective until all the Registerable Securities are sold or become
capable of being publicly sold without registration under the 1933
Act;
b. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the 1933 Act
with respect to the sale or other disposition of all securities
covered by such registration statement whenever the Holder or Holders
of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration
statement pursuant to Rule 415 of the Commission);
c. furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as such Holder
may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such Holder;
d. use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or blue sky
laws of such jurisdictions as each Holder shall reasonably request,
and do any and all other acts and things which may be necessary or
advisable to enable such Holder to consummate the public sale or other
disposition in such jurisdiction of the securities owned by such
Holder, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process, or subject the Company to any
material tax in any such jurisdiction where it is not then so subject;
e. use its best efforts to list such securities on any securities
exchange on which any securities of the Company is then listed, if the
listing of such securities is then
4
<PAGE>
permitted under the rules of such exchange;
f. enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and
customary form, with the managing underwriter or underwriters of such
underwritten offering;
g. notify each Holder of Registerable Securities covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered
under the 1933 Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing; and
h. furnish, at the request of any Holder on the date such Registerable
Securities are delivered to the underwriters for sale pursuant to such
registration or, if such Registerable Securities are not being sold
through underwriters, on the date the registration statement with
respect to such Registerable Securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for
the purpose of such registration, addressed to the underwriters, if
any, and to the Holder making such request, covering such legal
matters with respect to the registration in respect of which such
opinion is being given as the Holder of such Registerable Securities
may reasonably request and are customarily included in such an opinion
and (ii) letters, dated, respectively, (1) the effective date of the
registration statement and (2) the date such Registerable Securities
are delivered to the underwriters, if any, for sale pursuant to such
registration from a firm of independent certified public accountants
of recognized standing selected by the Company, addressed to the
underwriters, if any, and to the Holder making such request, covering
such financial, statistical and accounting matters with respect to the
registration in respect of which such letters are being given as the
Holder of such Registerable Securities may reasonably request and are
customarily included in such letters; and
i. take such other actions as shall be reasonably requested by any
Holder to facilitate the registration and sale of the Registerable
Securities; provided, however, that the Company shall not be obligated
to take any actions not specifically required elsewhere herein which
in the aggregate would cost in excess of $5,000.
7. Restrictions on Transfer of Registerable Securities. The Holder agrees
that he will not sell or transfer any of the Registerable Securities for a
period of twelve months from the Effective Date of any registration statement in
which such Registerable Securities are included without the prior written
consent of the Placement Agent.
8. Expenses. All expenses incurred in any registration of the Holders'
Registerable Securities under this Agreement shall be paid by the Company,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Company, expenses of any audits to which the Company shall agree
or which shall be necessary to comply with governmental requirements in
connection with any such registration, all registration and filing fees for the
Holders' Registerable Securities under federal and a state securities laws, and
expenses of complying with the
5
<PAGE>
securities or blue sky laws of any jurisdictions pursuant to Section 5(d);
provided, however, the Company shall not be liable for (a) any discounts or
commissions to any broker, dealer or underwriter; (b) any stock transfer taxes
incurred with respect to Registerable Securities sold in the Offering or (c) the
fees and expenses of counsel for any Holder, provided that the Company will pay
the costs and expenses of Company counsel when the Company's counsel is
representing any or all selling security holders.
9. Indemnification. In the event any Registerable Securities are included
in a registration statement pursuant to this Agreement:
a. Company Indemnity. Without limitation of any other indemnity
provided to any Holder, either in connection with the Offering or
otherwise, to the extent permitted by law, the Company shall indemnify
and hold harmless each Holder, the affiliates, officers, directors and
partners of each Holder, any underwriter (as defined in the 1933 Act)
for such Holder, and each person, if any, who controls such Holder or
underwriter (within the meaning of the 1933 Act or the Securities
Exchange Act of 1934 (the "Exchange Act"), against any losses, claims,
damages or liabilities (joint or several) to which they may become
subject under the 1933 Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any alleged untrue statement of a material fact
contained in such registration statement including any preliminary
prospectus (if used prior to the effective date of the registration
statement) or final prospectus contained therein or any amendments or
supplements thereto, (ii) the alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein, (iii) any violation or alleged violation by the
Company of the 1933 Act, the Exchange Act, or any state securities law
or any rule or regulation promulgated under the 1933 Act, the Exchange
Act or any state securities law, and the Company shall reimburse each
such Holder, affiliate, officer or director or partner, underwriter or
controlling person for any legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall
not be liable to any Holder in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection
with such registration by or on behalf of any such Holder or any other
affiliate, officer, director, partner, underwriter or controlling
person thereof.
b. Holder Indemnity. Each Holder shall indemnify and hold harmless the
Company, its affiliates, its counsel, officers, directors,
shareholders and representatives, any underwriter (as defined in the
1933 Act) and each person, if any, who controls the Company or the
underwriter (within the meaning of the 1933 Act) against any losses,
claims, damages or liabilities (joint or several) to which they may
become subject under the 1933 Act, the Exchange Act or any state
securities law, and the Holder shall reimburse the Company, affiliate,
officer or director or partner, underwriter or controlling person for
any legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; insofar as such losses, claims, damages or liabilities (or
actions and respect thereof) arise out of or are based upon any
statements or information provided by or on behalf of such Holder to
the Company in connection with the offer or sale of Registerable
Securities.
6
<PAGE>
c. Notice; Right to Defend. Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action
(including any governmental action), such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying
party under this Section 8 deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall
have the right to participate in and if the indemnifying party agrees
in writing that it will be responsible for any costs, expenses,
judgments, damages and losses incurred by the indemnified party with
respect to such claim, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Agreement only if and to the extent that such failure is
prejudicial to its ability to defend such action.
d. Contribution. If the indemnification provided for in this Agreement
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage
or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of
such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party
on the one hand and the indemnified party on the other hand in
connection with the statements or omissions which resulted in such
loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the
indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing, the amount any Holder shall
be obligated to contribute pursuant to the Agreement shall be limited
to an amount equal to the proceeds to such Holder of the Registerable
Securities sold pursuant to the registration statement which gives
rise to such obligation to contribute (less the aggregate amount of
any damages which the Holder has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any
substantially similar loss, claim, damage, liability or action arising
from the sale of such Registerable Securities).
e. Survival of Indemnity. The indemnification provided by this
Agreement shall be a continuing right to indemnification and shall
survive the registration and sale of any Registerable Securities by
any person entitled to indemnification hereunder and the expiration or
termination of this Agreement.
11. Limitation on Other Registration Rights. Except as otherwise set forth
in this
7
<PAGE>
Agreement, the Company shall not, without the prior written consent of the
Holders of Registerable Securities representing a majority thereof held by all
the Holders, file any registration statement filed on behalf of any person
(including the Company) other than a Holder to become effective during any
period when the Company is not in compliance with this Agreement.
12. Remedies.
a. Time is of Essence. The Company agrees that time is of the essence
of each of the covenants contained herein and that, in the event of a
dispute hereunder, this Agreement is to be interpreted and construed
in a manner that will enable the Holders to sell their Registerable
Securities as quickly as possible after such Holders have indicated to
the Company that they desire their Registerable Securities to be
registered. Any delay on the part of the Company not expressly
permitted under this Agreement, whether material or not, shall be
deemed a material breach of this Agreement.
b. Remedies Upon Default or Delay. The Company acknowledges the breach
of any part of this Agreement may cause irreparable harm to a Holder
and that monetary damages alone may be inadequate. The Company
therefore agrees that the Holder shall be entitled to injunctive
relief (referring to paragraph 9 above) or such other applicable
remedy as a court of competent jurisdiction may provide. Nothing
contained herein will be construed to limit a Holder's right to any
remedies at law, including recovery of damages for breach of any part
of this Agreement.
13. Notices.
a. All communications under this Agreement shall be in writing and
shall be mailed by certified mail, postage prepaid, return receipt
requested, or telecopied with confirmation of receipt or delivered by
hand or by overnight delivery service:
If to the Company, at:
DCAP Group, Inc.
90 Merrick Avenue
East Meadow, NY 11554
Attention: Morton Certilman, Chairman
If to the Placement Agent at:
Aegis Capital Corp.
70 East Sunrise Highway, Suite 415
Valley Stream, New York 11581-1264
Attention: Robert J. Eide
If to any Holder of any Registerable
Securities, to the address of such Holder as
it appears in the stock or warrant ledger of
the Company.
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<PAGE>
b. Any notice so addressed, when mailed by registered or certified
mail shall be deemed to be given three days after so mailed, when
telecopied shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when hand
delivered or on the day following deposit with the overnight delivery
service.
14. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the Company and each of the Holders.
15. Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, but only with the written consent
of the Company and the Holders of securities representing a majority of the
Registerable Securities; provided, however, that no such amendment or waiver
shall take away any registration right of any Holder of Registerable Securities
or reduce the amount of reimbursable costs to any Holder of Registerable
Securities in connection with any registration hereunder without the consent of
such Holder; further provided, however, that without the consent of any other
Holder of Registerable Securities, any Holder may from time to time enter into
one or more agreements amending, modifying or waiving the provisions of this
Agreement if such action does not adversely affect the rights or interest of any
other Holder of Registerable Securities. No delay on the part of any party in
the exercise of any right, power or remedy shall operate as a waiver thereof,
nor shall any single or partial exercise by any party of any right, power or
remedy preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy.
16. Counterparts. One or more counterparts of this Agreement may be signed
by the parties, each of which shall be an original but all of which together
shall constitute one and same instrument.
17. Governing Law. This Agreement shall be construed in accordance with and
governed by the internal laws of the State of New York, without giving effect to
conflicts of law principles thereof or the actual domiciles of the parties.
18. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
19. Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
20. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes any and all
prior or contemporaneous understandings with respect thereto.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
FOR INDIVIDUALS:
-----------------------------
(Print Name)
-----------------------------
(Print Name, if more than one
subscriber)
Dated: , 1999
-------------
(Signature)
------------------------------
(Signature, if more than one
subscriber)
FOR CORPORATIONS:
-----------------------------
Name of Company
-----------------------------
Name and Title of Executive
Officer executing Questionnaire
Dated: , 1999
-------------
Signature of Officer
FOR PARTNERSHIPS:
-----------------------------
Name of Partnership
-----------------------------
Name of General Partner executing
Questionnaire
Dated: , 1999
-------------
Signature of General Partner
executing Questionnaire
10
<PAGE>
REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE
FOR TRUSTS:
-----------------------------
Name of Trust
-----------------------------
Name of Authorized Trustee
Executing Questionnaire
Dated: , 1999 ___________________________
-------------
Signature of Authorized
Trustee
FOR QUALIFIED PENSION PLANS:
---------------------------
-----------------------------
Name of Qualified Pension Plan
and
-----------------------------
Name of Plan Fiduciary
executing Questionnaire
Dated: , 1999 ____________________________
------------- Signature of Plan Fiduciary
executing Questionnaire
or
----------------------------
Name of Plan Beneficiary
executing Questionnaire
and
Dated: , 1999 ____________________________
-------------- Signature of Plan Beneficiary
executing Questionnaire
11
<PAGE>
ACCEPTED AND AGREED
this ______ day of _________, 1999
DCAP Group, Inc.
By:____________________________
Name:
Title:
12
<PAGE>
WARRANT AGREEMENT
DCAP GROUP, INC.
WARRANT AGREEMENT, dated [________], 1999 (the "Agreement"), by and between
DCAP Group, Inc., a Delaware corporation (the "Company"), and _______________,
the holder of ______ units of the Company sold in connection with the Company's
Private Placement (as defined below) (individually a "Holder" and collectively
with the holders of other Units, the "Holders").
WHEREAS, the Company has proposed to offer, pursuant to the Company's
private placement offering (the "Private Placement"), a minimum of $1,000,000
and a maximum of $2,000,000 of units of the Company (the "Units"), each Unit
consisting of (i) 45,453 shares of the Company's common stock ("Common Stock");
(ii) 15,151 Class A Common Stock purchase warrants (the "Class A Warrants"),
each Warrant entitling the holder thereof to purchase one share of Common Stock
at an exercise price that is equal to $1.65; (iii)15,151 Class B Common Stock
purchase warrants (the "Class B Warrants"), each Warrant entitling the holder
thereof to purchase one share of Common Stock at an exercise price that is equal
to $2.06; and (iv) 15,151 Class C Common Stock purchase warrants (the "Class C
Warrants"), each Warrant entitling the holder thereof to purchase one share of
Common Stock at an exercise price that is equal to $2.48. The Class A Warrants,
the Class B Warrants and the Class C Warrants shall hereinafter collectively be
referred to as the "Warrants;" and
WHEREAS, Aegis Capital Corp. has acted as placement agent (the "Placement
Agent") in connection with the offering of the Units (the "Offering"); and
WHEREAS, purchasers of the Units have been issued Warrant Certificates
evidencing the Warrants; and
WHEREAS, the Warrant Certificates incorporate by reference the terms of
this Warrant Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Company and the Holder hereby agree as follows:
1. Exercise of Warrant. Each Class A Warrant shall entitle the Holder
thereof to purchase one share of Common Stock at an exercise price of $1.65 (the
"Class A Exercise Price"). Each Class B Warrant shall entitle the Holder thereof
to purchase one share of Common Stock at an exercise price of $2.06 (the "Class
B Exercise Price"). Each Class C Warrant shall entitle the Holder thereof to
purchase one share of Common Stock at an exercise price of $2.48 (the "Class C
Exercise Price" and together with the Class A Exercise Price and Class B
Exercise Price, the "Exercise Price"). The Warrants may be exercised in whole or
in part at any time or from time to time during the period commencing on
[______], 1999 and expiring at 5:00 p.m., New York City time, on [_____], 2004
(the "Exercise Term"), or if such day is a day on which banking institutions in
the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender of
the Warrant Certificate evidencing the Warrant to
1
<PAGE>
be exercised to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Exercise Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares specified in such form. If any Warrant should be exercised in part only,
the Company shall, upon surrender of the Warrant Certificates for cancellation
and presentment of the Exercise Form, execute and deliver new a Warrant
Certificate or Certificates, as the case may be, evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable thereunder.
Upon receipt by the Company of a Warrant Certificate at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise
and accompanied by the appropriate payment for the shares of Common Stock
underlying the Warrants (the "Warrant Shares"), the Holder shall be deemed to be
the holder of record of such Warrant Shares, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder. Certificates for the Warrant Shares shall be delivered to the Holder
within a reasonable time, not to exceed five (5) business days, following the
exercise of the Warrants in accordance with the foregoing.
2. Alternative Exercise Provisions. Anything contained herein to the
contrary notwithstanding, the Holder, at his option, may exercise the Warrants,
in whole or in part, during the Exercise Term by delivering to the Company a
confirmation slip issued by a brokerage firm that is a member of the National
Association of Securities Dealers, Inc. with respect to the sale of those number
of Warrant Shares for which the Warrants are being exercised, and, in such case,
the Company shall deliver certificates representing such Warrant Shares on
settlement date at the office of the Company's stock transfer agent against
payment for such Warrant Shares by such brokerage firm or its clearing broker,
made payable to the Company or made payable to the order of the Holder and
endorsed by the Holder to the Company.
3. Redemption of Warrants. The Company may at any time elect to redeem all
the Warrants of a particular class at a price of $.00l for each Warrant in the
event a current registration under the Securities Act of 1933, as amended (the
"Act"), is then in effect with respect to the shares of Common Stock issuable
upon exercise of the particular Warrants and the average of the closing prices
for the Company's Common Stock, as reported by the securities exchange on which
the Common Stock is listed, The Nasdaq Stock Market ("Nasdaq"), the NASD OTC
Electronic Bulletin Board (the "Bulletin Board") or National Quotation Bureau,
Incorporated ("NQB") or other reporting agency, as the case may be, for thirty
(30) consecutive trading days equals or exceeds 125% of the Exercise Price for
the particular class. If the Company shall elect to redeem the Warrants of a
particular class as permitted by this Section 3, notice of redemption shall be
given to the holders of all outstanding Warrants of such class by mailing, by
first class mail, a notice of such redemption not less than thirty (30) days
prior to the date fixed by the Company for redemption to their last addresses as
they shall appear upon the Warrant registry books, but failure to give such
notice by mailing to the holder of any Warrant of such class, or any defect
therein, shall not affect the validity of the proceedings for the redemption of
any other Warrants of such class. Such notice shall specify the date fixed for
redemption and the redemption price at which the Warrants of the particular
class are to be redeemed, and shall state that payment of the redemption price
of the Warrants will be made at the office of the Company, or any Warrant agent,
upon presentation and surrender of such Warrants within thirty (30) days
following the redemption date, shall also state that the right to exercise the
particular Warrants will terminate at the close of business on the business day
preceding
2
<PAGE>
the date fixed for redemption (stating the date of such termination) and shall
state the Exercise Price for the particular class of Warrants being redeemed.
4. Reservation and Listing of Shares. The Company hereby agrees that at all
times there shall be reserved for issuance and delivery upon exercise of the
Warrants, such number of shares of its Common Stock as shall be required for
issuance and delivery upon exercise of the Warrants. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants to be listed on
Nasdaq or a national securities exchange, if such shares of Common Stock, as a
class, are theretofore so listed.
5. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of the Warrants. Subject to Section
8(f) hereof, any fraction of a share called for upon any exercise hereof shall
be canceled.
6. Exchange, Transfer, Assignment or Loss of Warrant. The Warrants are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of the Warrant Certificates evidencing such Warrants to the
Company at its office or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Common Stock as are
purchasable thereunder at the same respective Exercise Price. Subject to Section
11 hereof, upon surrender of the Warrant Certificates to the Company at its
principal office or at the office of its stock transfer agent, if any, with a
duly executed Assignment Form which is annexed hereto and funds sufficient to
pay the applicable transfer tax, if any, the Company shall, without charge,
execute and deliver new Warrant Certificates in the name of the assignee named
in such instrument of assignment and the original Warrant Certificate shall
promptly be canceled. The Warrants may be divided or combined with other
Warrants which carry the same rights upon presentation of the Warrant
Certificate evidencing such Warrants at the office of the Company or at the
office of its stock transfer agent, if any, together with a written notice
signed by the Holder hereof specifying the names and denominations in which new
Warrant Certificates are to be issued. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of the
Warrants, and, in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, and upon surrender and cancellation of the
Warrants, if mutilated, the Company will execute and deliver new Warrant
Certificates of like tenor and date. Any such new Warrant Certificates, when
executed and delivered, shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant Certificates so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
7. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company until exercise of any
Warrants.
8. Adjustments of Purchase Price and Number of Shares.
(a) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock by way of
stock split, reverse stock split or the like, the Exercise Prices
shall forthwith be proportionately increased or decreased.
3
<PAGE>
(b) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the
number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by
the number of Shares issuable upon exercise of the Warrants
immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination),
or in the case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or
merger in which the Company is the surviving corporation and which
does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision
or combination of such shares or a change in par value, as aforesaid),
or in the case of a sale or conveyance to another corporation of all
or a substantial part of the property of the Company, the Holder shall
thereafter have the right to purchase the kind and number of shares of
stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance as
if the Holder were the owner of the shares of Common Stock underlying
the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the
Warrants and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Warrants.
(d) Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to its shareholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another person or entity,
or any other thing of value, the Holder of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise thereof, to
receive, upon the exercise of such Warrants, the same monies,
property, assets, rights, evidences of indebtedness, securities or any
other thing of value that they would have been entitled to receive at
the time of such dividend or distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Subsection
8(d).
(e) Effect of Market Price of the Common Stock. At the time any of the
Common Stock issued to the Holder pursuant to the Offering initially
becomes publicly saleable (either pursuant to Rule 144 promulgated
under the Act or because a registration statement filed under the Act
covering such shares is declared effective by the Securities and
Exchange Commission), if the preceding 30 trading day average of the
closing prices of the Common Stock (as reported by the securities
exchange on which the Common Stock is then listed, Nasdaq, the
Bulletin Board, NQB or other reporting agency, as the case may be)
(the "Later Market Value") is less than the Class A Exercise Price,
then the Class A Exercise Price, Class B Exercise Price and
4
<PAGE>
Class C Exercise Price shall be adjusted to equal 100%, 125% and 150%,
respectively, of the Later Market Value (except that none of the
respective Exercise Prices may be reduced by more than one- third).
Any such readjustment in the Exercise Prices of the Warrants shall
only apply to the unexercised portion of the Warrants.
(f) Fractional Shares. As to any fraction of a share which the Holder
of the Warrants would be entitled to purchase upon exercise of the
Warrants, the Company shall pay, in lieu of such fractional interest,
an amount in cash equal to the current market value of such fractional
interest, to the nearest one-hundredth of a share computed on the
basis of the Market Price, as set forth below. The Holder, by his
acceptance hereof, expressly waives any right to receive any
fractional share of stock or fractional Warrant upon exercise of the
Warrants.
As used in this paragraph (f), the phrase "Market Price" at any date
shall be deemed to be the average of the last reported sale prices for
the last three (3) trading days prior to such date, in either case, as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or as reported in
Nasdaq, or, if the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted on Nasdaq, the average
of the closing bid prices for the last three (3) trading days prior to
such date as furnished by the Bulletin Board or the National
Association of Securities Dealers, Inc., through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, as determined in good faith
by resolution of the Board of Directors of the Company, based on the
best information available to it.
(g) Warrant Certificate After Adjustment. Irrespective of any change
pursuant to this Section 8 in the Exercise Price or in the number,
kind or class of shares or other securities or other property
obtainable upon exercise of the Warrants, the Warrants may continue to
express as the Exercise Price and as the number of shares obtainable
upon exercise, the same price and number of shares as are stated
herein.
(h) Statement of Calculation. Whenever the Exercise Price shall be
adjusted pursuant to the provisions of this Section 8, the Company
shall forthwith file at its principal office, a statement signed by an
executive officer of the Company specifying the adjusted Exercise
Price determined as above provided in such section. Such statement
shall show in reasonable detail the method of calculation of such
adjustment and the facts requiring the adjustment and upon which the
calculation is based. The Company shall forthwith cause a notice
setting forth the adjusted Exercise Price to be sent by certified
mail, return receipt requested, postage prepaid, to the Holder.
9. Definition of "Common Stock." For the purpose of the Warrants, the term
"Common Stock" shall mean, in addition to the class of stock designated as the
Common Stock, $.01 par value, of the Company on the date hereof, any class of
stock resulting from successive changes or reclassifications of the Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. If at any time, as a result of an adjustment
made pursuant to one or more of the provisions of Section 8 hereof, the shares
of stock or other securities or property obtainable upon exercise of the
Warrants shall include securities of the Company other than shares of Common
Stock or securities of another corporation, then thereafter the amount of such
other securities so obtainable shall be subject to adjustment from time to time
in a manner and upon terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained
5
<PAGE>
in Section 8 hereof and all other provisions of the Warrants with respect to
Common Stock shall apply on like terms to any such other shares or other
securities.
10. Registration Under the Securities Act of 1933. The Warrant Shares
issuable upon exercise of the Warrants are subject to a Registration Rights
Agreement of even date herewith, the terms of which are incorporated by
reference into this Warrant Agreement as if such terms are set forth at length
herein.
11. Transfer to Comply with the Act. Neither Warrants nor the Warrant
Shares nor any other security issued or issuable upon exercise of the Warrants
may be sold or otherwise disposed of except as follows:
(a) to a person who, in the opinion of counsel for the Company, is a
person to whom the Warrants or Warrant Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Act with respect thereto and then only against
receipt of a letter from such person in which such person represents
that he is acquiring the Warrants or Warrant Shares for his own
account for investment purposes and not with a view to distribution
and provides any other information and representations required by the
Company, and in which such person agrees to comply with the provisions
of this Section 11 with respect to any resale or other disposition of
such securities; or
(b) to any person upon delivery of a prospectus then meeting the
requirements of the Act relating to such securities and the offering
thereof for such sale or disposition.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holder or Holders the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) The Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) The Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any warrant, right or option to subscribe therefor; or
(c) A dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business shall be
proposed; or
(d) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with another entity,
6
<PAGE>
then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books
for the determination of the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription
rights, warrants or options, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as
the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with
the declaration or payment of any such dividend or distribution, or
the issuance of any convertible or exchangeable securities or
subscription rights, warrants or options, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices. (a) All communications under this Agreement shall be in
writing and shall be mailed by certified mail, postage prepaid, return receipt
requested, or telecopied with confirmation of receipt or delivered by hand or by
overnight delivery service:
If to the Company, at:
DCAP Group, Inc.
90 Merrick Avenue
East Meadow, NY 11554
Attention: Morton Certilman, Chairman
If to the Placement Agent at:
Aegis Capital Corp.
70 East Sunrise Highway, Suite 415
Valley Stream, New York 11581-1264
Attention: Robert J. Eide
If to the Holder, to the address of such
Holder as it appears in the stock or warrant
ledger of the Company.
(b) Any notice so addressed, when mailed by registered or certified
mail shall be deemed to be given three days after so mailed, when
telecopied shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when hand
delivered or on the day following deposit with the overnight delivery
service.
14. Successors. All the covenants and provisions of this Warrant Agreement
by or for the benefit of the Holder shall inure to the benefit of his successors
and assigns hereunder.
15. Termination. This Warrant Agreement will terminate on the earlier (a)
the expiration date of the Warrants or (b) the date all of the Warrants shall
have been exercised.
7
<PAGE>
16. Governing Law. This Warrant Agreement shall be deemed to be made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State, excluding choice of law principles
thereof.
17. Entire Agreement; Amendment; Waiver. This Warrant Agreement and all
attachments hereto and all incorporation by references set forth herein, set
forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them. This Warrant
Agreement may be amended, the Company may take any action herein prohibited or
omit to take any action herein required to be performed by it, and any breach of
any covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Holder. No course of
dealing between or among any persons having any interest in this Warrant
Agreement will be deemed effective to modify, amend or discharge any part of
this Warrant Agreement or any rights or obligations of any person under or by
reason of this Warrant Agreement.
DCAP GROUP, INC.
By:-------------------------
Name:
Title:
Dated:
--------------, 1999
Attest:
- ---------------------
8
<PAGE>
WARRANT AGREEMENT SIGNATURE PAGE
FOR INDIVIDUALS:
-----------------------------
(Print Name)
-----------------------------
(Print Name, if more than one subscriber)
Dated: , 1999
------------ -----------------------------
(Signature)
------------------------------
(Signature, if more than one subscriber)
FOR CORPORATIONS:
-----------------------------
Name of Company
-----------------------------
Name and Title of Executive
Officer executing Questionnaire
Dated: , 1999
------------ -----------------------------
Signature of Officer
FOR PARTNERSHIPS:
-----------------------------
Name of Partnership
-----------------------------
Name of General Partner executing
Questionnaire
Dated: , 1999
------------ -----------------------------
Signature of General Partner
executing Questionnaire
9
<PAGE>
WARRANT AGREEMENT SIGNATURE PAGE
FOR TRUSTS:
-----------------------------
Name of Trust
-----------------------------
Name of Authorized Trustee
Executing Questionnaire
Dated: , 1999
------------ -----------------------------
Signature of Authorized
Trustee
FOR QUALIFIED PENSION PLANS:
-----------------------------
Name of Qualified Pension Plan
and
-----------------------------
Name of Plan Fiduciary
executing Questionnaire
Dated: , 1999
------------ -----------------------------
Signature of Plan Fiduciary
executing Questionnaire
or
----------------------------
Name of Plan Beneficiary
executing Questionnaire
and
Dated: , 1999
------------ -----------------------------
Signature of Plan Beneficiary
executing Questionnaire
10
<PAGE>
DCAP GROUP, INC.
CLASS A WARRANT ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(Name and address of assignee must be printed or typewritten)
the rights of the undersigned with respect to the Class A Warrant Certificate
surrendered herewith to the extent of _____________________ (_______) shares of
Common Stock, $.01 par value per share, of DCAP Group, Inc. (the "Company"),
hereby irrevocably constituting and appointing _______________, attorney to make
such transfer on the books of the Company, with full power of substitution in
the premises.
Dated: -----------------------------------
--------------, ---- Signature of Registered Holder
Signature(s) Guaranteed: -----------------------------------
Signature of Registered Holder, if
more than one
- -------------------------
-----------------------------------
Name of Registered Holder
-----------------------------------
Name of Registered Holder, if more
than one
Note: The above
signature(s) must
correspond with the
name(s) as it (they)
appear(s) upon the
Warrant Certificate
in every particular,
without alteration or
enlargement or any
change whatever.
<PAGE>
DCAP GROUP, INC.
CLASS B WARRANT ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Name and address of assignee must be printed or typewritten)
the rights of the undersigned with respect to the B Warrant Certificate
surrendered herewith to the extent of _____________________ (_______) shares of
Common Stock, $.01 par value per share, of DCAP Group, Inc. (the "Company"),
hereby irrevocably constituting and appointing _______________, attorney to make
such transfer on the books of the Company, with full power of substitution in
the premises.
Dated:
-------------, ---- ----------------------------------
Signature of Registered Holder
Signature(s) Guaranteed:
----------------------------------
Signature of Registered Holder, if
more than one
- -------------------------
----------------------------------
Name of Registered Holder
----------------------------------
Name of Registered Holder, if more
than one
Note: The above
signature(s) must
correspond with the
name(s) as it (they)
appear(s) upon the
Warrant Certificate
in every particular,
without alteration or
enlargement or any
change whatever.
<PAGE>
DCAP GROUP, INC.
CLASS C WARRANT ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(Name and address of assignee must be printed or typewritten)
the rights of the undersigned with respect to the Class C Warrant Certificate
surrendered herewith to the extent of _____________________ (_______) shares of
Common Stock, $.01 par value per share, of DCAP Group, Inc. (the "Company"),
hereby irrevocably constituting and appointing _______________, attorney to make
such transfer on the books of the Company, with full power of substitution in
the premises.
Dated:
-------------, ---- ---------------------------------
Signature of Registered Holder
Signature(s) Guaranteed:
---------------------------------
Signature of Registered Holder, if
more than one
- ------------------------- ----------------------------------
Name of Registered Holder
----------------------------------
Name of Registered Holder, if more
than one
Note: The above
signature(s) must
correspond with the
name(s) as it (they)
appear(s) upon the
Warrant Certificate
in every particular,
without alteration or
enlargement or any
change whatever.
<PAGE>
DCAP GROUP, INC.
CLASS A WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the Class A Warrant Certificate for, and to purchase thereunder,
__________ shares of Common Stock, $.01 par value per share, of DCAP Group, Inc.
(the "Shares"), and requests that certificates for the Shares be issued in the
name of: _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print name, address and social security number)
and, if said number of Shares shall not be all the Shares purchasable
thereunder, that a new Class A Warrant Certificate for the balance of the Shares
purchasable under the Class A Warrant be registered in the name of the
undersigned Warrantholder or his or her Assignee as below indicated and
delivered to the address stated below.
Dated:________________, ____
Name of Warrantholder or Assignee: ____________________________________
(Please print)
Address: ________________________________________________________
_________________________________________________________
_________________________________________________________
------------------------------
Signature of Registered Holder
------------------------------
Signature of Registered Holder, if
more than one
------------------------------
Signature(s) Guaranteed: Name of Registered Holder
------------------------------
Name of Registered Holder, if more
- ------------------------- than one
Note: The above signature(s) must correspond with the name(s)
as it (they) appears upon the Warrant Certificate in every
particular, without alteration or enlargement or any
change whatever.
<PAGE>
DCAP GROUP, INC.
CLASS B WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the Class B Warrant Certificate for, and to purchase thereunder,
__________ shares of Common Stock, $.01 par value per share, of DCAP Group, Inc.
(the "Shares"), and requests that certificates for the Shares be issued in the
name of: _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print name, address and social security number)
and, if said number of Shares shall not be all the Shares purchasable
thereunder, that a new Class B Warrant Certificate for the balance of the Shares
purchasable under the Class B Warrant be registered in the name of the
undersigned Warrantholder or his or her Assignee as below indicated and
delivered to the address stated below.
Dated:________________, ____
Name of Warrantholder or Assignee: ____________________________________
(Please print)
Address: ________________________________________________________
_________________________________________________________
_________________________________________________________
------------------------------
Signature of Registered Holder
------------------------------
Signature of Registered Holder, if
more than one
------------------------------
Signature(s) Guaranteed: Name of Registered Holder
------------------------------
_________________________ Name of Registered Holder, if more
than one
Note: The above signature(s) must correspond with the name(s)
as it (they) appears upon the Warrant Certificate in every
particular, without alteration or enlargement or any
change whatever.
<PAGE>
DCAP GROUP, INC.
CLASS C WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the Class C Warrant Certificate for, and to purchase thereunder,
__________ shares of Common Stock, $.01 par value per share, of DCAP Group, Inc.
(the "Shares"), and requests that certificates for the Shares be issued in the
name of: _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print name, address and social security number)
and, if said number of Shares shall not be all the Shares purchasable
thereunder, that a new Class C Warrant Certificate for the balance of the Shares
purchasable under the Class C Warrant be registered in the name of the
undersigned Warrantholder or his or her Assignee as below indicated and
delivered to the address stated below.
Dated:________________, ____
Name of Warrantholder or Assignee: ____________________________________
(Please print)
Address: ________________________________________________________
________________________________________________________
________________________________________________________
------------------------------
Signature of Registered Holder
------------------------------
Signature of Registered Holder, if
more than one
------------------------------
Signature(s) Guaranteed: Name of Registered Holder
------------------------------
_________________________ Name of Registered Holder, if more
than one
Note: The above signature(s) must correspond with the name(s)
as it (they) appears upon the Warrant Certificate in every
particular, without alteration or enlargement or any
change whatever.
<PAGE>
SALE AND ASSIGNMENT AGREEMENT
between
PAYMENTS, INC.,
FLATIRON CREDIT COMPANY, INC.
and
WESTCHESTER PREMIUM ACCEPTANCE CORP.
Dated as of September 14, 1999
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions.......................................................1
Section 2. Sale of Conveyed Property.........................................7
Section 3 Termination.......................................................9
Section 4. Purchase Price and Payment Terms for Conveyed
Property/Right of Set-off........................................10
Section 5. Notification of Sale.............................................10
Section 6. Repurchase of Conveyed Property..................................10
Section 7. Delivery to WPAC of Proceeds; Power of Attorney..................11
Section 8. Verification, Notification and Collection of Premium Receivables.11
Section 9. Financial Statements and Books and Records.......................11
Section 10. Seller's General Representations and Warranties..................11
Section 11. Seller's Representations and Warranties With Respect to the
Conveyed Property................................................14
Section 12. Additional Covenants of Seller...................................17
Section 13. Taxes ........................................................19
Section 14. Further Assurances and Substituted Performance...................19
Section 15. Indemnification..................................................20
Section 16. Default..........................................................20
Section 17. Remedies.........................................................21
Section 18. Waiver...........................................................22
Section 19. Counterparts/Facsimiles..........................................22
Section 20. Essence of Time..................................................22
Section 21. Assignment.......................................................22
Section 22. Standard of Care.................................................23
Section 23. Costs and Expenses/Attorneys Fees................................23
Section 24. Notices..........................................................23
Section 25. Successors and Assigns...........................................23
Section 26. Severability.....................................................23
Section 27. Force Majeure....................................................24
Section 28. Governing Law....................................................24
Section 29. Jurisdiction and Waiver of Certain Damages.......................24
Section 30. Entire Agreement.................................................25
Section 31. Waiver of Jury Trial.............................................25
<PAGE>
SALE AND ASSIGNMENT AGREEMENT
This Sale and Assignment Agreement is dated as of the 14 day of September,
1999 by Payments, Inc. ("Seller"), whose address is 2545 Hempstead Turnpike,
East Meadows, New York, New York 11554 and Flatiron Credit Company, Inc.
("Flatiron"), whose address is 600 Seventeenth Street Suite 1900S, Denver,
Colorado 80202 and Westchester Premium Acceptance Corp. ("WPAC"), a Texas
corporation whose address is 2700 NE Loop 410, #360, San Antonio, Texas 78217.
RECITALS:
A. Seller originated and/or owns Premium Receivables evidenced by Premium
Finance Agreements to finance payments by Obligors of premiums for the purchase
of insurance policies and, in connection therewith, Seller has a security
interest arising under statutory authority or otherwise in unearned premiums,
dividends and loss payments with respect to such insurance policies and in state
or industry guaranty funds for the reimbursement of unearned premiums from
cancelled insurance policies and failed insurance companies; and
B. Seller wishes to sell from time to time during the Term of this
Agreement and WPAC wishes to purchase Seller's Eligible Premium Receivables and
related interests delivered under the terms and conditions described in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. The following terms shall be defined in this
Agreement:
"Additional Provisions" means the Additional Provisions of this Agreement
as set forth in Schedule A attached hereto.
"Amount Financed" means, with respect to each Premium Receivable Sold to
WPAC, an amount equal to 100% of the premium and other financeable amounts
relating to the insurance policy that gives rise to the Premium Receivable less
any down payment made at the inception of the Premium Finance Agreement.
"Affiliate" of any specified Person means any other Person controlling or
controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means any Person licenced and qualified to sell or arrange for the
sale of insurance in the state in which any Premium Receivable is originated.
<PAGE>
"Agent Statement Unpaid Balance" means the amounts due from any Agent as
shown on the applicable Agent statement maintained by the Servicer.
"Agent Statement Unpaid Balance Trigger" shall have the meaning set forth
in Schedule A attached hereto.
"Agreement" means this Agreement together with all schedules, and all
amendments, modifications, replacements or substitutions thereto and together
with all documents and instruments contemplated to be executed pursuant to this
Agreement.
"Allowable Endorsement Additions" means any increase to a Premium
Receivable arising out of an increase in the premium payable under an insurance
policy relating to a change in the coverage thereof so long as the following
criteria is met:
(a) The Insured is current as to all payments due on the existing Contract;
(b) The Insured pays an additional down payment in accordance with WPAC
down payment schedule (with a minum of 20% if Accounts Payable is received
within 30 days of origination date and such additional down payment shall
increase 10% for each additional 30 day period); and
(c) There are at least three payments remainnig on the Contract.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in New York, New York or Denver, Colorado
are authorized or obligated by law or executive order to be closed.
"Cancelled Premium Receivable" means each Premium Receivable for which a
request for cancellation has been sent to the Issuing Insurance Company, and for
which a reinstatement notice has not been received by the Servicer from such
insurance company.
"Collections" shall mean all amounts received daily by WPAC, or the
Servicer on behalf of WPAC, on all Premium Receivables Sold under this Agreement
including, but not limited to: (a) payments from Obligors, (b) return of
unearned commission from agents, (c) return of unearned premium from Issuing
Insurance Companies, and (d) amounts received from a guaranty fund or other
amounts paid by or on behalf of the Obligor, agent or Issuing Insurance Company.
The amounts referred to as "Collections" shall exclude Obligor's down payment
amounts, correction amounts or amounts not lawfully eligible under applicable
law to be applied to the payment of amounts due under the Premium Receivables.
"Concentration Limits" means the Premium Receivable concentration limits
set forth in Schedule B attached hereto.
"Conveyed Property" means all of the Seller's right, title and interest in,
to and under the Premium Receivables Sold pursuant to this Agreement, all
related Premium Finance Agreements
<PAGE>
and all related documents including, without limitation, all loan documents and
servicer documents, and all of the Seller's rights to any payment from the
Obligors and any and all rights against any Obligor with respect to such Premium
Receivables, all collateral and guaranties with respect to such Premium
Receivables, all other related rights and assets, and all proceeds of the
foregoing.
"Default" shall have the meaning specified in Section 16 of this Agreement.
"Default Rate" shall mean the annual rate of interest as set forth in
Schedule A attached hereto.
"Defaulted Premium Receivable" means (without duplication) any Premium
Receivable which (a) has an amount due and unpaid for 180 days, or (b) is a
Cancelled Premium Receivable and has an unpaid principal balance after
application of all expected unearned premium received by or on behalf of the
Issuing Insurance Company, or (c) has been written off by the Servicer.
"Down Payment Requirement" shall have the meaning set forth in Schedule A
attached hereto.
"Effective Date" shall have the meaning set forth in Schedule A attached
hereto.
"Eligible Insurance Company" means (a) an insurance company which is
licensed and in good standing to do business in the State in which the policy to
which a Premium Receivable relates is issued by such insurance company, (b) a
joint underwriting organization, intercompany insurance pool or intercompany
reinsurance pool which is licensed or otherwise permitted to do business in the
state in which the policy to which a Premium Receivable relates is issued by
such joint underwriting organization or intercompany insurance pool, (c) a
foreign or alien insurance company which is authorized or approved to issue
insurance on a nonadmitted basis, through a licensed surplus or excess lines
broker, in the state in which the policy to which a Premium Receivable relates
is issued by such foreign or alien insurance company. No such insurer may be an
Eligible Insurance Company (i) if such insurer is the subject of a
rehabilitation or liquidation proceeding commenced by a state or foreign
insurance regulatory authority, or (ii) if such insurer is not, in the judgment
of WPAC, a creditworthy Person which WPAC has full expectations will return, on
a timely basis, unearned premiums on Cancelled Premium Receivables.
"Eligible Premium Receivable" has the meaning defified in Section 11.
"Endorsement Refunds" means all funds returned by an insurance company to
the Seller or any other Person arising out of a reduction in the premium payable
under an insurance policy relating to a change in the coverage thereof.
"WPAC Principal Balance" means for any day of determination, the sum of the
Up-front Purchase Price paid by WPAC for the Premium Receivables under this
Agreement, less the sum of (a) all Collections received by WPAC representing
principal payments, and (b) the principal amount of repurchases of Premium
Receivables by the Seller under Section 6 of this Agreement.
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"GAAP" means generally accepted accounting principles applied in the United
States of America in effect from time to time which are recognized by the
American Institute of Certified Public Accountants.
"Guarantor" means each guarantor of Seller's repurchase obligations as
described in Section 6(b) of this Agreement listed in Schedule A attached
hereto, if any.
"Independent Public Accountants" means any firm of public accountants
acceptable to WPAC; provided, that such firm is independent with respect to the
Seller and WPAC within the meaning of the Securities Act of 1933, as amended.
"Issuing Insurance Company" means, with respect to any Premium Receivable,
the insurance company which issued the insurance policy related to such Premium
Receivable.
"Interest Rate" means the rate of interest set forth in Schedule A attached
hereto.
"Lien" means any statutory, judicial, contractual or other lien, security
interest, encumbrance or claim of any kind.
"Loss" shall mean (i) with respect to Defaulted Premium Receivables, an
amount equal to the outstanding principal balance on such Defaulted Premium
Receivable, (ii) with respect to any Repurchase Property not reacquired by
Seller, an amount equal to the Repurchase Price, and (iii) with respect to
amounts due from Agents, any Agent Statement Unpaid Balance amount over sixty
(60) days past due.
"Loss Ratio" shall mean for any consecutive three month period the
percentage resulting from dividing (a) Loss incurred in such three month period
by (0)the average WPAC Principal balance for such three month period.
"Loss Ratio Trigger" shall have the meaning set forth in Schedule A
attached hereto.
"Material Adverse Change" shall mean any material and adverse change either
individually or in the aggregate, in the business, prospects, management,
financial position, results of operations or general condition of Seller or any
of its Affiliates as determined by WPAC in its reasonable discretion.
"Maximum Purchase Commitment" means the maximum outstanding principal
balance of the Eligible Premium Receivables Sold under this Agreement, at the
time of calculation, not to exceed the amount set forth in Schedule A attached
hereto.
"Obligor" means, with respect to any Premium Finance Agreement, the obligor
or account debtor thereunder.
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"Person" means an individual, partnership, limited liability company,
corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Premium Finance Agreement" means the premium finance agreement or
agreements which evidence a Premium Receivable in the form prescribed under
applicable law. The Premium Finance Agreements shall be in form and substance
acceptable to WPAC in its sole discretion.
"Premium Receivable" means the entire interest in a Premium Finance
Agreement, all security interests relating thereto, all moneys due or to become
due thereon subsequent to the Sale of such Premium Receivable to WPAC, all
related Realization Provisions, all related Endorsement Refunds all Allowable
Endorsement Additions relating thereto which have been acquired by WPAC pursuant
to this Agreement and any related documents and the proceeds of any and all of
the foregoing.
"Prohibited Agent" means any Agent that has been identified by written
notice from WPAC to the Originator as being prohibited from producing insurance
policies financed by Premium Receivables that are subject to purchase by WPAC
pursuant to this Agreement.
"Purchase Premium" means the portion of the Purchase Price as set forth in
Schedule A attached hereto.
"Purchase Price" means the price paid by WPAC for each Eligible Premium
Receivable equal to the sum of the (a) Up-front Purchase Price plus (b) the
Purchase Premium.
"Realization Provisions" means, with respect to any Premium Receivable,
collectively: (a) the security interest granted or assigned by an Obligor,
pursuant to the terms of the documents creating and evidencing the respective
Premium Receivable at the time of execution thereof to the originator of such
Premium Receivable, in all unearned premiums, dividends, loss payments which
reduce the unearned premiums under the respective insurance policy or policies,
(b) any interest arising under a state guaranty fund for all unearned premiums
from the cancelled policy or policies in the event the Issuing Insurance Company
becomes insolvent, (c) Endorsement Refunds with respect to such Premium
Receivable, (d) if applicable to such Premium Receivable, all broker or agent
guarantee agreements with respect thereto, and (e) if applicable to such Premium
Receivable, any interest thereof in a cash collateral account established with
respect to such Premium Receivable.
"Required Documents" means the original signed Premium Finance Agreement,
the original of the check or draft relating thereto, the signed power of
attorney of the insured (if a power of attorney signed by the insured is not
included in the Premium Finance Agreement), a copy of the motor vehicle report
run at the time of policy origination, and all other documents necessary for the
legal origination of the Premium Finance Agreement.
"Repurchase Price" shall have the meaning set forth in Schedule A attached
hereto.
"Repurchase Property" shall have the meaning defined in Section 6(a).
<PAGE>
"Sale" or "Sell" or "Sold" means to absolutely sell, transfer, assign or
otherwise convey property.
"Servicer" means Input 1 LLC or such other servicer as approved by
Flatiron.
"Servicing Agreement" means the Premium Receivable Servicing Agreement
between Input 1, LLC and WPAC.
"Servicing Fee" means the fee to be paid to the Servicer pursuant to the
Servicing Agreement
"Tangible Net Worth" shall mean the tangible net worth, determined in
accordance with GAAP, to be maintained by Seller in the amount set forth in
Schedule A attached hereto. For purposes of this definition (i) Tangible Net
Worth may be in the form of common or preferred equity or unsecured debt, the
terms and conditions of which shall be satisfactory to WPAC in its sole
discretion ("Subordinated Debt"), and (li) tangible assets used to calculate net
worth shall exclude all intangible assets, goodwill and intercompany or
Affiliate indebtedness of any nature.
"Term" means the term of this Agreement as defined in Schedule A attached
hereto.
"Up-front Purchase Price" means the portion of the Purchase Price paid by
WPAC for a Premium Receivable as set forth in Schedule A attached hereto.
"Walk-In Payment Ratio" Flatiron will calculate monthly ("ginning in the
second month following origination) the percentage of total payments received at
agency "walk-in" (insured making payment at a DCAP agency) to total payments
made including the P.O. Box. For each month, the Walk-In Payment Ratio will be
calculated and a corresponding adjustment if any, made to the "No Risk
Origination Fee".
Section 2. Sale of Conveyed Property.
(a) During the Term of this Agreement, Seller irrevocably agrees to
Sell to WPAC some or all of the Eligible Premium Receivables
originated, acquired or otherwise owned by Seller and WPAC agrees to
purchase up to the amount of the maximum Purchase Commitment the
Seller's Eligible Premium Receivables in accordance with the terms and
conditions of this Agreement. The parties agree that WPAC shall have
the first right of refusal, during the Term of this Agreement, to
purchase Eligible Premium Receivables originated, acquired or
otherwise owned by Seller, which are not retained by Seller or an
affiliate in its internal capacity.
(b) WPAC's obligation to be bound by the terms of this Agreement is
subject to the satisfaction of each of the following conditions by
evidence in form and substance satisfactory to WPAC in its reasonable
discretion:
(i) Seller shall provide evidence that it has the necessary
authority and has secured any required consents to execute and
deliver this Agreement and to enter into
<PAGE>
the transactions contemplated by this Agreement, which evidence
shall include, at a minimum, good standing certificate of Seller,
officers' certificates regarding (together with copies of the
articles and bylaws of Seller (or other organizational documents
as may be applicable) and any amendments thereto, UCC searches
regarding the Seller, proof of Seller's license to originate the
Premium Finance Agreements, the form of the Premium Finance
Agreements to be originated by Seller, and such other evidence as
WPAC may require in its reasonable discretion including, without
limitation, any legal opinions that WPAC may require regarding
Seller and Seller's ability to enter into and perform under this
Agreement;
(ii) WPAC shall have completed its due diligence of the Seller
and determined that the findings of such due diligence are
acceptable to WPAC in its sole discretion;
(iii) Seller shall have provided evidence that there are no prior
Liens or existing Uniform Commercial Code financing Statements
granting to any party a security interest in any of Seller's
Premium Receivables or other Conveyed Property; and
(iv) Seller shall have provided to WPAC Uniform Commercial Code
financing statements in form and substance acceptable to WPAC
establishing a first priority ownership interest in favor of WPAC
in the Premium Receivable and related Conveyed Property.
(c) Each Sale of a Premium Receivable hereunder is subject to the
satisfaction to WPAC of each of the following conditions at Seller's
sole cost and expense:
(i) All covenants and conditions of this Agreement have been
complied with by Seller and no default (or event which, with the
passage of time or notice or both would constitute a default)
exists hereunder;
(ii) No Material Adverse Change has occurred;
(iii) Bach of the Loss Ratio Trigger and Maximum Purchase
Commitment shall not be exceeded;
(iv) The availability to WPAC of funding from WPAC's funding
source for the transactions contemplated hereby;
(v) The Concentration Limits established from time to time by
WPAC, with respect to concentrations with Issuing Insurance
Companies, originators or Agents shall not be exceeded;
(vi) The Premium Receivables shall be Eligible Premium
Receivables; and
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(vii) Seller shall provide such additional evidence, documents
and instruments as WPAC may reasonably request to consummate the
Sale of the Conveyed Property in accordance with the terms and
provisions of this Agreement.
(d) In connection with the Sale of each Premium Receivable hereunder,
Seller shall timely take the following actions:
(i) Deliver to WPAC the Required Documents relating to each
Premium Finance Agreement, which delivery shall be made by the
tenth (10th) calendar day after the date of origination of the
Premium Finance Agreement; and
(e) The Sale of any Conveyed Property shall be effective (i) with
respect to the Conveyed Property Sold to WPAC on the Effective Date,
upon delivery to WPAC of an assignment in form and substance
acceptable to WPAC or by other method of transfer as may be directed
by WPAC, and (ii) with respect to all Conveyed Property Sold after the
Effective Date, upon the origination by the Originator of each Premium
Finance Agreement giving rise to the Premium Receivable and other
Conveyed Property without the need for execution and delivery of any
further assignments or instruments of transfer unless specifically
requested in writing by WPAC. The Originator shall cooperate with WPAC
and the Servicer in immediately supplying to the Servicer the Premium
Receivable data needed to enter the Premium Receivables on the
Servicer's data processing system. All Sales shall be deemed to take
place at the offices of WPAC described on the first page of this
Agreement or such other location as Seller and WPAC may agree in
writing.
(f) Seller and WPAC intend and agree that each purchase and Sale
hereunder shall be treated as a true and absolute Sale of all of
Seller's right, title and interest in, to and under the Conveyed
Property and not a transfer intended as a security interest. However,
if, notwithstanding such intention, a determination is made by a court
or other body with appropriate jurisdiction over the matter that such
transfer shall not be treated as a true and absolute Sale, this
Agreement shall be deemed to constitute a security agreement and the
transaction effected hereby shall be deemed to constitute a secured
financing, and Seller hereby pledges and grants to WPAC a first
priority Lien on, and security interest in, to and under, all of
Seller's right, title and interest in, to and under the Premium
Receivables and all other related Conveyed Property as collateral for
and as security for all amounts paid and to be paid by WPAC to Seller
in connection with the Conveyed Property and for all amounts due and
owing and all obligations arising under this Agreement.
Section 3. Termination. Seller or WPAC shall have the right to terminate
this Agreement upon ninety (90) days prior written notice to the other party.
Upon a termination, WPAC shall continue to own all Premium Receivables acquired
by WPAC to the date of termination and the Servicer shall service the portfolio
of Conveyed Property in the normal course of its business and, in connection
therewith, all provisions of this Agreement or any Servicing Agreement with
respect to such existing portfolio shall remain in full force and effect and
shall survive the termination of
<PAGE>
this Agreement under this Section 3, including, without limitation, the
repurchase obligations of Seller or Guarantor relating to such existing
portfolio.
Section 4. Purchase Price and Payment Terms for Conveyed Property/Right of
Set-Off WPAC shall pay Seller the Purchase Price for the Conveyed Property
pursuant to the terms and conditions set forth in this Agreement. The Up-front
Purchase Price shall be paid to Seller or a third party acceptable to WPAC upon
satisfaction of the conditions set forth in Section 2(c). The Purchase Premium,
if any, shall be paid to Seller monthly in arrears, not later than the sixth
(6th) Business Day of each month. WPAC shall have a right to off-set from such
Purchase Price amounts due to Seller any amounts due WPAC from Seller or
Guarantor under this Agreement including, without limitation, any Repurchase
Price amounts due under Section 6.
Section 5. Notification of Sale. WPAC shall send or cause to be sent notice
of the Sale of the Premium Receivables to WPAC, (i) to each Obligor to the
effect that the Premium Receivables have been Sold to WPAC and that all payments
with respect thereto are required to be made payable as specified in such
notice, and (ii) to each Issuing Insurance Company to the effect that the
Premium Receivables have been Sold to WPAC and that all payments with respect
thereto are required to be paid to the Servicer as specified in such notice. The
Seller shall promptly respond to reasonable inquiries from WPAC or third parties
confirming the Sale of the Conveyed Property hereunder.
Section 6. Repurchase of Conveyed Property.
(a) Not later than five (5) Business Days after notice from WPAC,
Seller shall repurchase from WPAC any Premium Receivables and other
related Conveyed Property (collectively, the "Repurchase Property")
(i) that does not comply in all respects with Seller's representations
and warranties described in Section 11 of this Agreement or (ii) for
which the Required Documents have not been timely delivered to WPAC.
The amount payable by Seller to WPAC for the Repurchase Property shall
be equal to the Repurchase Price. Upon its receipt of the Repurchase
Price, WPAC shall convey to Seller all of its right, title and
interest in such Repurchase Property on an "AS IS, WHERE IS" basis
without recourse and without any warranties, written or oral, express
or implied of any kind including, but not limited to warranties of
TITLE; MERCHANTABILITY OR ABSENCE FROM LIENS.
(b) Each Guarantor jointly and severally hereby agrees to repurchase
(i) the Repurchase Property referred to in Section 6(a) upon the
failure of Seller to do so, and (ii) any Premium Receivable originated
in a fraudulent manner. Upon its receipt of all of the amounts due
under this Section, WPAC shall convey to Guarantor all of its right,
title and interest in such Repurchase Property on an "AS IS, WHERE IS"
basis without recourse and without any warranties, written or oral,
express or implied, of any kind including, but not limited to,
warranties of TITLE; MERCHANTABILITY OR ABSENCE FROM LIENS.
Section 7. Delivery to WPAC of Proceeds; Power of Attorney. WPAC shall be
the owner of any Conveyed Property including any proceeds thereof. Following the
Sale of any Conveyed
<PAGE>
Property, if any proceeds of such Conveyed Property are received by Seller,
Seller shall hold such proceeds in trust for WPAC separate and apart from its
own property and, at its own cost, inunediately endorse (if necessary) and
deliver such proceeds, as WPAC directs. Seller hereby constitutes and appoints
WPAC as its true and lawful attorney with the power to endorse the name of
Seller upon any instrument or other document pertaining to the Conveyed Property
and and related proceeds. This power is coupled with an interest and is
irrevocable.
Section 8. Verification, Notification and Collection of Premium
Receivables. WPAC shall be entitled, in its own or any other name and in form
determined by WPAC, to contact any Obligor or any other Person and verify the
payment of or inquire about any other issue pertaining to any Conveyed Property
that has been or is to be Sold to WPAC. Upon the Sale of any of Conveyed
Property, WPAC shall be entitled to notify and, upon the request of WPAC, Seller
shall notify the Obligors, insurance companies and any other Persons that WPAC
is the owner of such Conveyed Property and direct such Persons to pay WPAC any
amounts owing with respect to such Conveyed Property.
WPAC, as the owner of the Conveyed Property, shall be entitled to amend,
compromise, modify, release or settle the indebtedness and obligations of the
Obligors with respect to the Conveyed Property that is Sold to WPAC hereunder,
and to take any legal action to collect any amounts owing with respect to such
Conveyed Property and to take or refrain from taking any additional action with
respect to such Conveyed Property in good faith, without notice to or the
consent of Seller and without affecting any obligation of Seller to repurchase
such Conveyed Property as may be required by WPAC under this Agreement. Seller,
at its own cost, shall execute and deliver to WPAC any documents and take any
actions deemed necessary or desirable by WPAC to assist WPAC in exercising any
right or remedy pertaining to the Conveyed Property.
Section 9. Financial Statements and Books and Records. Seller shall keep
accurate and complete books and Financial records pertaining to the Conveyed
Property in accordance with GAAP and shall disclose the Sale of any Conveyed
Property to WPAC and the respective date of such Sale in Seller's books and
records. Flatiron or its designated representative shall have the right, upon
written notice to Seller and during regular business hours, to inspect, audit
and copy Seller's books and records relating to the Conveyed Property.
Section 10. Seller's General Representations and Warranties. Seller hereby
represents and warrants to and for the benefit of WPAC on the date of this
Agreement and on any date of Sale of Premium Receivables hereunder that:
(a) Seller is duly organized and is validly existing as a corporation
in good standing under the laws of the state of its organization with
full power and authority to execute and deliver this Agreement and to
Sell the Conveyed Property to WPAC and otherwise to perform the terms
and provisions thereof;
(b) Seller is duly qualified to do business as a domestic or foreign
business entity in good standing, and has obtained all required
licenses and approvals, if any, in all jurisdictions in which the
conduct of its business requires such qualifications, and has
<PAGE>
complied with all federal state and local laws and regulations in
connection with the origination of the Premium Receivables and the
Sale of the Conveyed Property under this Agreement;
(c) The execution and delivery by Seller of this Agreement and
Seller's performance of the terms and conditions thereof have been
duly authorized by all necessary action of Seller, do not require any
approval or consent of any governmental agency or authority or any
other Person, and do not and will not conflict with or result in a
breach or (with or without notice or lapse of time) a default under
any agreement, law or governmental regulation binding upon or
applicable to Seller or the Conveyed Property;
(d) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is presently pending or threatened,
against Seller or its properties which have not been previously
disclosed in writing to WPAC;
(e) This Agreement and any related documents to which Seller or any
Guarantor is a party constitute valid, legal and binding obligations
of Seller and any such Guarantor, enforceable against Seller and any
such Guarantor in accordance with the terms thereof, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the enforcement of creditor's rights generally
and to general principles of equity, regardless of whether such
enforcement is considered in a proceeding in equity or at law;
(f) Seller does not have material liabilities or obligations other
than those previously disclosed in writing to WPAC;
(g) No information, certificate, statement or report furnished by or
on behalf of Seller or any Guarantor to WPAC contains any untrue
statement of a material fact or omits a material fact necessary to
make such information, certificate, statement or report not
misleading. There is no fact peculiar to Seller or any Affiliate of
Seller or, to its knowledge, any Conveyed Property or Obligor, which
it has not disclosed to WPAC in writing which could adversely affect
Seller's ability to perform the transactions contemplated by this
Agreement and any related documents to which Seller is a party;
(h) All tax returns required to be filed by Seller, any of its
Affiliates, subsidiaries or any Guarantor in any jurisdiction have in
fact been filed, and all taxes, assessments, fees, claims and other
governmental charges upon Seller, such Affiliate or subsidiary, such
Guarantor or any of their respective properties, income or franchises,
shown to be due and payable on such returns have been paid; provided,
that neither Seller nor such Affiliate or subsidiary or Guarantor
shall be required to pay or discharge any such tax, assessment, fee,
claim or other charge which is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained in accordance with GAAP. To the best of Seller's
<PAGE>
knowledge, all such tax returns were true and correct and Seller does
not know of any contemplated or proposed additional tax assessment
against Seller or any of its subsidiaries in any material amount or of
any basis therefor;
(i) The provisions for taxes on Seller's and its subsidiaries' books
are in accordance with GAAP;
(j) At the close of any Sale of Conveyed Property, Seller had a
positive tangible net worth;
(k) The principal executive office of Seller is located at the address
described on the first page of this Agreement, and has been located at
such address for a period of not less than four months preceding the
date of this Agreement or since its formation;
(l) "Payments, Inc." is the only legal name under which Seller is
operating its business upon the execution of this Agreement. Seller
has not changed its name in the last six years (or such shorter period
of time during which Seller was in existence) and does not have any
other trade names, fictitious names, assumed names or "doing business
as" names other than those that have been previously disclosed in
writing to WPAC;
(m) The transactions contemplated by this Agreement are in the
ordinary course of Seller's business and Seller has valid business
reasons for selling the related Conveyed Property rather than
obtaining a secured loan with the Conveyed Property as collateral. At
the time of each Sale: (i) Seller Sold the related Conveyed Property
to WPAC without any intent to hinder, delay or defraud any current or
future creditor of Seller; (ii) Seller was not insolvent or did not
become insolvent as a result of any Sale; (iii) Seller was not engaged
and was not about to engage in any business or transaction for which
any property remaining with Seller would constitute unreasonably small
capital or for which the remaining assets of Seller are unreasonably
small in relation to the business of Seller or the transaction; (iv)
Seller did not intend to incur, and did not believe or reasonably
should not have believed, that it would incur, debts beyond its
ability to pay as they become due; and (v) the consideration paid by
WPAC to Seller for the Conveyed Property was equivalent to the fair
market value of such Conveyed Property;
(n) No Material Adverse Change has occurred since the previous Sale of
Conveyed Property;
(o) Each Sale of Conveyed Property contemplated by this Agreement and
any related documents constitutes a true sale and not a pledge of
collateral in connection with a financing and such Conveyed Property
shall not be part of Seller's property for any purpose under state or
federal law;
<PAGE>
(p) Each Sale of Conveyed Property (including all payments due or to
become due thereunder) by Seller pursuant to this Agreement to the
best of Seller's knowledge is not subject to and will not result in
any tax, fee or governmental charge payable by Seller or WPAC to any
federal, state or local government;
(q) The consideration to be received by Seller in exchange for each
Sale of Conveyed Property (including the right to receive all payments
due or to become due thereunder) (i) is fair consideration having
value equivalent to or in excess of the fair market value of the
Conveyed Property and, except with respect to the Purchase Premium
(ii) is or will be paid in full to Seller upon the consummation of
each Sale thereof, and (iii) no provision exists whereby the
consideration will be modified after the date of such Sale; and
(r) Any drafts provided by WPAC to Seller shall be used exclusively
for the purchase of Eligible Premium Receivables in accordance with
the terms and conditions for use of such drafts that may be provided
to Seller by WPAC from time to time.
The foregoing representations and warranties shall be continuing in nature
and shall survive the termination of this Agreement.
Section 11. Seller's Representations and Warranties With Respect to the
Conveyed Property. Upon each Sale of Conveyed Property, each Premium Receivable
Sold to WPAC shall have all of the following characteristics as of the date of
Sale (such Premium Receivables having all of such characteristics shall be
referred to herein as "Eligible Premium Receivables"):
(a) Each Premium Receivable represents the genuine, legal, valid and
binding payment obligation in writing of the Obligor thereon,
enforceable by the holder thereof in accordance with its terms;
(b) Each Premium Receivable arises under a Premium Finance Agreement
which contains customary and enforceable provisions such that the
rights and remedies of the holder thereof are adequate to enforce the
Realization Provisions;
(c) Each Premium Receivable is not subject to any proceedings or
investigations pending or threatened, before any court, regulatory
body, administrative agency or other governmental instrumentality
having jurisdiction over Seller or its properties: (i) asserting the
invalidity of such Premium Receivable; (ii) seeking to prevent the
enforcement of such Premium Receivable; or (iii) seeking any
determination or ruling that may adversely affect the payment on or
enforceability of such Premium Receivable;
(d) Each Premium Receivable was originated in a state where Seller is
licensed (if required to be licensed) to do business as an insurance
premium finance company;
<PAGE>
(e) Each Premium Receivable does not (and did not at the time of
origination) contravene any federal, state or local laws, rules or
regulations applicable thereto or contract between Seller and WPAC
applicable thereto, and no party to any such contract is in
contravention of any such law, rule or regulation;
(f) Each Premium Receivable was originated in the United States of
America by Seller or purchased by Seller from another premium finance
company in the ordinary course of Seller's business of financing
insurance premiums written through independent insurance agents and
brokers or insurance companies directly, in either case, through the
application of and consistent with Seller's standard procedures in a
fashion not less stringent taken as a whole than those other Premium
Receivables owned by Seller;
(g) Each Premium Receivable is payable in U.S. Dollars by an Obligor
who at time of policy origination is located within the United States
of America;
(h) Each Premium Receivable is evidenced by only one original
contract, in the form of a Premium Finance Agreement, properly
completed and executed without variations, with notation of the Sale
to WPAC, on or before the Sale of such Premium Receivable;
(i) Each Premium Receivable provides, according to its original or
modified terms, that the amount payable thereunder will be paid in
consecutive equal monthly payments that fully amortize such Premium
Receivable by its stated terms and which amount will be paid in a
maximum of nine (9) payments (if financing an annual policy), and a
maximum of four (4) payments (if financing a six-month policy) with
the first payment due not later than 31 days following the inception
date of the related insurance policy;
(j) Each Premium Receivable relates to an insurance policy issued by
an Eligible Insurance Company;
(k) Each Premium Receivable relates to an insurance policy for which
the insured has paid a down payment amount of not less than the Down
Payment Requirement;
(1) Each Premium Receivable is evidenced by proof of payment to the
Issuing Insurance Company or its designated general Agent equal to an
amount not less than the original principal amount of such Premium
Receivable and the related down payment due under the Premium Finance
Agreement has been paid in full by, or on behalf of, the related
Obligor;
(m) The information and related documents regarding the Premium
Receivables being Sold to WPAC is true and correct in all material
respects as of the opening of business on the date of Sale and no
selection procedures reasonably believed to be
<PAGE>
adverse to WPAC have been utilized in selecting the Premium
Receivables for sale to WPAC;
(n) No Premium Receivable or related Premium Finance Agreement has
been satisfied, cancelled or is more than 30 days past due or is
subject to a right of rescission, setoff, counterclaim, subordination,
recoupment or defense which has been asserted or threatened with
respect to such Premium Receivable nor have the Realization Provisions
securing such Premium Receivable been released from the Lien granted
by the Obligor;
(o) Except for assignments or pledges to lenders who have provided
financing to Seller and which assignments and pledges have been
released prior to the Sale of the Premium Receivables to WPAC, no
Premium Receivable has been Sold or pledged by Seller to any Person
other than WPAC; immediately prior to any Sale contemplated by this
Agreement Seller had good title to the Premium Receivable sold to WPAC
free and clear of all Liens and, immediately upon any Sale of the
Premium Receivables contemplated by this Agreement WPAC will have good
title to the Premium Receivables Sold to WPAC free and clear of all
Liens;
(p) No Premium Receivable has terms which have been extended or
modified other than through Allowable Endorsement Additions, the
originals of which have been included in the Premium Finance Agreement
loan documents delivered to WPAC;
(q) No Premium Receivable has any Liens or claims which have been
filed or claims that would be Liens prior to or equal to the
Realization Provisions granted by the Obligor pursuant to such Premium
Receivable;
(r) At the time of Sale of any Premium Receivable which finances a
commercial line insurance policy, to the best of Seller's knowledge,
the Obligor with respect to such Premium Receivable is not subject to
any bankruptcy or insolvency proceeding;
(s) No Premium Receivable relates to an insurance policy which is
deemed fully earned in the case of a claim;
(t) No Premium Receivable has been originated by a Prohibited Agent;
and
(u) No Premium Receivable has been originated in, nor is subject to
the laws of, any jurisdiction under which the Sale of such Premium
Receivable would be unlawful, void or voidable.
(v) If the total Capital Equity of the DCAP Group (calculated in
accordance with generally accepted accounting principals) falls below
$4,000,000, Flatiron will require a Fidelity Bond in the amount of
$500,000 to be obtained by Payments, Inc. for the benefit of Flatiron.
<PAGE>
The foregoing and any additional representations, warranties and covenants
contained in this Agreement shall be continuing in nature and shall survive the
termination of this Agreement.
Section 12. Additional Covenants of Seller. During the Term of this
Agreement,
(a) Seller shall cause all Uniform Commercial Code termination
statements, or releases, as the case may be, with respect to Liens on
the Conveyed Property to be filed on the date of Sale of the Conveyed
Property.
(b) Seller shall cause all Uniform Commercial Code financing
statements, continuation statements and any other documents,
reasonably requested by WPAC, establishing the right, title and
interest of WPAC, to and under the Conveyed Property, to be promptly
executed and filed by Seller.
(c) At least thirty (30) days prior to Seller making any change in its
name, identity or organizational structure which would make any
termination statement, financing statement or continuation statement
filed by WPAC or Seller seriously misleading within the applicable
provisions of the Uniform Commercial Code or any title statute, Seller
shall give WPAC notice of any such change and shall execute and file
such financing statements or amendments as may be necessary or
reasonably required by WPAC to continue the perfection of the
respective interests of WPAC in the Conveyed Property.
(d) Except for the Sale to WPAC of the Conveyed Property and Liens
granted or caused by WPAC in such Conveyed Property, Seller shall not
Sell to any other Person, or grant, incur, assume or suffer to exist
any Lien on such Conveyed Property or on any interest therein, and
Seller shall defend the right, title and interest of WPAC in, to and
under such Conveyed Property against all claims of third parties
claiming through or under Seller.
(e) Seller shall not impair WPAC's right, title and interest in, to
and under any of the Conveyed Property.
(f) Seller shall maintain Tangible Net Worth of not less than the
amount set forth in Schedule A attached hereto.
(g) Seller shall furnish to Flatiron and WPAC:
(i) upon written request after the end of each of the first three
fiscal quarters of Seller (commencing with the first fiscal
quarter ending after the date hereof) an unaudited balance sheet
and income statement (prepared in accordance with GAAP without
accompanying notes) for Seller and its subsidiaries covering the
preceding quarter, in each case certified by the president or
principal financial officer of Seller to be true, accurate and
complete copies of such financial statements;
<PAGE>
(ii) on the earlier of (A) ninety (90) days after the end of each
fiscal year of Seller beginning at the end of the first fiscal
year after the date hereof or (B) if financial statements are
prepared by an Independent Public Accountant, fifteen (15) days
after delivery by an Independent Public Accountant, a balance
sheet and income statement (prepared in accordance with GAAP) for
Seller and its subsidiaries covering the preceding fiscal year,
in each case certified by the president or principal financial
officer of Seller to be true, accurate and complete copies of
such financial statements;
(iii) such other information respecting the condition or
operations, financial or otherwise, of Seller, any of its
subsidiaries and any Guarantor as WPAC may from time to time
reasonably request; and
(iv) prompt notice to WPAC but in no event more than three (3)
Business Days following) of any Material Adverse Change.
(h) Seller shall provide prompt written notice to Flatiron and WPAC
if:
(i) Seller ceases to be managed and controlled by the Person or
Persons who manage and control Seller as of the date of this
Agreement;
(ii) any such Person which is a corporation, partnership, trust
or other entity is dissolved or liquidated or merged with or into
any other Person or for any period of more than ten (10) days
ceases to exist in its present form and (where applicable) in
good standing and duly qualified under the laws of the
jurisdiction of its incorporation or formation and any
jurisdiction in which such standing or qualification is necessary
or advisable in connection with the conduct of business; or
(iii) Seller commences a sale of all or substantially all of its
assets, except for the Sale of Conveyed Property by Seller to
WPAC under this Agreement and any related documents.
(i) Seller shall not dissolve or liquidate in whole or in part.
(j) Seller shall not voluntarily institute any proceedings to
adjudicate WPAC or any of its Affiliates bankrupt or insolvent,
consent to the institution of bankruptcy or insolvency proceedings
against WPAC or any of its Affiliates, file a petition seeking or
consenting to reorganization or relief under any applicable federal or
state law relating to bankruptcy, consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of WPAC or any of its Affiliates or a substantial
part of its or their property or admit its or their inability to pay
its or their debts generally as they become due or authorize any of
the foregoing to be done or taken on behalf of WPAC or any of its
Affiliates,
<PAGE>
(k) Seller shall maintain at its own expense, a blanket fidelity bond
or an errors and omissions insurance policy, in form and content and
in amounts acceptable to WPAC and naming WPAC as an additional loss
payee or beneficiary thereunder.
Section 13. Taxes. Seller shall pay when due all present and future taxes
and property taxes levied by or required to be paid to any governmental or
quasi-governmental authority and pertaining to Seller, its business operations,
its assets or the Conveyed Property (except for WPAC's income taxes) and provide
WPAC with written proof of such payment upon written request of Flatiron.
Section 14. Further Assurances and Substituted Performance. Seller shall
take or cause any third party to take any actions and execute or cause any third
party to execute any additional documents (including, but not limited to,
Uniform Commercial Code filings) reasonably deemed necessary or desirable by
WPAC to carry out the intent or purposes of this Agreement and any related
documents. WPAC shall be entitled, but not required, to take any action and
execute any document that was required to be, but not, taken or executed by
Seller under this Agreement and any related documents. This power is coupled
with an interest and is irrevocable. Upon demand, Seller shall reimburse WPAC
for any amounts, attorneys' fees, expenses and costs paid by WPAC in connection
with such actions. No action taken by WPAC shall be deemed to relieve Seller's
obligation to take such action or cure Seller's default under this Agreement.
Section 15. Indemnification. Seller shall indemnify and hold WPAC and its
Affiliates harmless from all claims, defenses, offsets, counterclaims, loss,
costs, damages, liabilities, causes of action, actions and suits (including, but
not limited to, attorneys' fees, expenses and costs) arising from (i) Seller's
breach of any representation, warranty or covenant contained in this Agreement
or any related documents, (ii) the unauthorized use of drafts provided by WPAC
to Seller for the funding of Premium Finance Agreements, or (iii) the failure of
the Premium Receivables Sold hereunder to be originated in compliance with all
requirements of law. These indemnity provisions are in addition to any other
obligations that the Seller may otherwise have hereunder and shall survive the
termination of this Agreement.
Section 16. Default. Seller shall be deemed in default (a "Default") under
this Agreement upon the occurrence of any one or more of the following:
(a) Seller fails to pay any indebtedness, fails to perform any
obligation, or breaches any covenant, representation or warranty
(other than a breach of any representation or warranty under Section
11 of this Agreement) to WPAC under this Agreement and/or any related
documents and any other present or future agreement with WPAC;
(b) Seller breaches any representation or warranty by Seller under
Section 11 of this Agreement pertaining to Conveyed Property and
Seller fails to repurchase such Conveyed Property within five (5)
Business Days from the date of written notification by WPAC of such
breach in accordance with the terms and conditions of Section 6 of
this Agreement;
<PAGE>
(c) Seller permits the entry or service of any garnishment, judgment,
tax levy, attachment or lien against it or any of its property and not
remedied within ten (10) days;
(d) Seller or any Guarantor becomes insolvent or unable to pay its
debts in a timely manner for at least ten (10) calendar days;
(e) Seller or any Guarantor makes a general assignment for the benefit
of its creditors, a receiver or trustee is appointed for all or a
substantial portion of Seller's or Guarantor's respective assets, or a
bankruptcy, insolvency, liquidation or reorganization proceeding is
commenced by or against Seller or Guarantor in any state or federal
court;
(f) Seller challenges the validity of the true Sale of the Premium
Receivables hereunder or the priority, validity or enforceability of
any ownership interest granted by Seller in the Conveyed Property to
WPAC;
(g) Seller ceases to operate its business, or is dissolved or
terminated for any reason;
(h) Any Guarantor dies or any Guarantor fails to perform any
obligation to WPAC under this Agreement or challenges the validity of
its guaranty provision of this Agreement or provides WPAC with notice
of its intent to terminate any guaranty provision of this Agreement to
WPAC or its future obligations under such guaranty provisions for any
reason; or
(i) WPAC, in good faith, believes that Seller's or any Guarantor's
ability to pay and perform any of the obligations described in this
Agreement or any related documents is or shall be impaired or
otherwise deems itself reasonably insecure for any reason and provides
ten (10) day prior written notice thereof to Seller.
(j) An event of default by the Servicer not cured within the permitted
remedy period as stated under the provisions of the Servicing
Agreement.
Section 17. Remedies. In the event of Seller's default under this
Agreement, WPAC may exercise one or more of the following cumulative remedies
without notice or demand of any kind:
(a) terminate immediately any of its remaining obligations under this
Agreement;
(b) collect all amounts due from Seller to WPAC under this Agreement
or any other agreement, together with interest thereon at the Default
Rate until paid, with or without resorting to legal process;
<PAGE>
(c) change Seller's mailing address as it relates to the Conveyed
Properly only, open Seller's mail, endorse Seller's name on checks,
bills of exchange, notes, acceptances, money orders, drafts or other
documents or forms of payment and retain any proceeds of the Conveyed
Property;
(d) terminate any Servicing Agreement or lock box agreement pertaining
to the Conveyed Property and change such servicers and lock box
arrangements;
(e) notify Obligors to make payment on Premium Receivables Sold under
this Agreement directly to WPAC or its designee;
(f) enter Seller or any Affiliate's premises during normal business
hours and not less than 24 hours notice to take possession of any
Conveyed Property;
(g) require Seller, at its expense, to deliver and make available to
WPAC any Conveyed Property Sold to WPAC at a place reasonably
convenient to WPAC;
(h) commence a suit for the turnover or replevin of the Conveyed
Property;
(i) collect, compromise, settle, sell or otherwise dispose of any
Conveyed Property that Seller was required to, but did not, repurchase
from WPAC;
(j) set-off Seller's and any Guarantor's obligations owing to WPAC
under this Agreement any other written agreement or by operation of
law against any amounts owed by WPAC to such Persons under this
Agreement or any related documents, respectively, including, but not
limited to, moneys, instruments and other property deposited or
maintained with WPAC or any third party for the benefit of WPAC; and
(k) exercise all other rights available to WPAC under any other
present or future agreement or applicable law.
WPAC 's rights and remedies are cumulative and may be exercised together,
separately and in any order.
Section 18. Waiver. No party hereto shall be deemed to have waived any
right or remedy described in this Agreement unless either party has executed and
delivered to the other party a written waiver thereof. A waiver of a right or
remedy on one occasion shall not act as a waiver of that or any other right or
remedy on a future occasion. Without limiting the foregoing, either party's
delay in exercising any right or remedy shall not constitute a waiver of that or
any other right or remedy described in this Agreement.
Section 19. Counterparts/Facsimiles. This Agreement may be executed by
facsimile signature and in one or more counterparts, each of which when taken
together shall constitute one complete Agreement.
<PAGE>
Section 20. Essence of Time. Seller and WPAC agree that time is of the
essence.
Section 21. Assignment. WPAC shall be entitled to assign or grant a Lien on
its interests hereunder, and the obligations, rights and remedies under this
Agreement to any Person in its sole discretion. Such Persons shall be deemed to
be third party beneficiaries hereunder and shall be entitled to rely on the
provisions hereof for the benefit of WPAC including, without limitation, the
indemnification provisions of Section 15. Any assignee or designee of WPAC shall
be entitled to enforce the provisions of this Agreement against Seller. Seller
shall not be entitled to assign or grant a security interest in any of its
obligations, rights or remedies under this Agreement to any Person without the
prior written consent of WPAC, or its assignees or designees, which consent may
be withheld in the sole discretion of WPAC. No person shall be deemed a third
party beneficiary of Seller.
Section 22. Standard of Care. WPAC shall not be liable to Seller for any
action taken or not taken by WPAC in good faith in connection with this
Agreement. WPAC shall not be deemed a fiduciary of Seller or be required to
perform any of Seller's obligations to WPAC or any third party under any
circumstances.
Section 23. Costs and Expenses/Attorneys Fees.
(a) Seller shall pay all costs and expenses incident to the
performance of its obligations under this Agreement;
(b) Seller shall pay on demand WPAC's reasonable attorneys' fees and
other costs and expenses incurred before tria1, at trial and on appeal
in the enforcement (whether through negotiations, legal proceedings or
otherwise) of this Agreement, including without limitation, all costs,
expenses and attorneys fees incurred by WPAC in connection with any
bankruptcy or insolvency proceeding involving the Seller.
Section 24. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered personally
or mailed by first-class registered and certified mail, postage prepaid or by
telephonic facsimile transmission, electronic mail or overnight delivery
service, postage prepaid, to the parties at the following addresses or such
other addresses that they may provide each other with written notice of in the
future:
If to Seller: Payments, Inc.
2545 Hempstead Turnpike
East Meadows, NY 11554
Attn: Abe Weinzimer
Facsimile: (516) 735-2900
If to WPAC, Inc.: 600 Seventeenth Street, Suite 1900S
Denver, Colorado 80202
Attn: President
Facsimile: (303) 571-1811
<PAGE>
Such notices shall be effective upon the earlier of (i) receipt or (ii) two (2)
Business Days after the confirmed delivery by overnight delivery service.
Section 25. Successors and Assigns. Except as provided in Section 21 hereof
limiting assignments by Seller, this Agreement shall inure to the benefit of and
be binding upon the successors, assigns, trustees, receivers, heirs and personal
representatives of the parties hereto.
Section 26. Severability. Any part, provision, agreement, representation,
warranty or covenant of this Agreement which is prohibited or unenforceable or
is held to be void or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties waive any provision of law which
prohibits or renders void or unenforceable any provision hereof. If the
invalidity of any part, provision, agreement, representation, warranty or
covenant of this Agreement shall deprive any party of the economic benefit
intended to be conferred by this Agreement, the parties shall negotiate in good
faith to develop a structure the economic effect of which is as nearly as
possible the same as the economic effect of the transactions contemplated
hereunder without regard to such invalidity.
Section 27. Force Majeure. Neither party shall be liable for damages due to
delay or failure to perform any obligation under this Agreement if such delay or
failure results directly or indirectly from circumstances beyond the control of
such party. Such circumstances shall include, but shall not be limited to, acts
of God, acts of war, civil commotions, riots, strikes, lockouts, acts of the
government, disruption of telecommunications transmissions accident, fire, water
damages, flood, earthquake or other natural catastrophes.
Section 28. Governing Law. THIS AGREEMENT AND ANY RELATED DOCUMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF COLORADO WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS.
Section 29. Jurisdiction and Waiver of Certain Damages. THE PARTIES HERETO
HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF COLORADO AND THE UNITED STATES DISTRICT COURT OF COLORADO IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE PARTIES
HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING AND
IRREVOCABLY CONSENT TO THE SERVICE OF ANY SUMMONS AND COMPLAINT AND ANY OTHER
PROCESS BY THE MAILING OF COPIES OF SUCH PROCESS TO THEM AT THEIR RESPECTIVE
ADDRESSES AS SPECIFIED IN THIS AGREEMENT. THE PARTIES HEREBY
<PAGE>
AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF
WPAC TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY
ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, NO CLAIM MAY BE MADE BY THE SELLER AGAINST WPAC OR ANY OF ITS
AFFILIATES FOR ANY LOST PROFITS, OR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES IN RESPECT TO ANY BREACH OR WRONGFUL CONDUCT (OTHER THAN WILLFUL
MISCONDUCT CONSTITUTING FRAUD) ARISING OUT OF OR IN ANY WAY RELATED TO THE
TRANSACTIONS CONTEMPLATED HEREUNDER.
Section 30. Entire Agreement. This Agreement (including any Servicing
Agreement between Seller and WPAC ) contains the complete and integrated
understanding and agreement between the parties and their respective Affiliates
pertaining to the subject matter hereof, and all other prior and contemporaneous
discussions, negotiations, agreements and proposal letters, written or oral,
express or implied shall be of no force and effect.
Section 31. Waiver of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the undersigned duly authorized officers of the parties
have executed this Agreement as of the day first stated above.
PAYMENTS, INC.
By: /s/ Abraham W. Weinzimer
-------------------------
Abraham W. Weinzimer
Title: Vice President
FLATIRON CREDIT COMPANY, INC.
By: /s/ Bruce I. Lundy
-------------------------
Name: Bruce I. Lundy
Title: President
<PAGE>
WESTCHESTER PREMIUM
ACCEPTANCE CORP.
By:
Name:
Title:
AGREED TO WITH RESPECT TO SECTION 6(b):
DCAP GROUP, INC.
By: /s/ Morton L. Certilman
Name: Morton L. Certilman
Title: Chairman
<PAGE>
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the undersigned duly authorized officers of the parties
have executed this Agreement as of the day first stated above.
PAYMENTS, INC.
By:________________________
Name:______________________
Title: ____________________
FLATIRON CREDIT COMPANY, INC.
By /s/ Bruce I. Lundy
---------------------
Name: Bruce I. Lundy
Title: President
WESTCHESTER PREMIUM
ACCEPTANCE CORP.
By /s/ Shelby A. Najvar
-----------------------
Name: SHELBY A. NAJVAR
----------------
Title: VICE PRESIDENT
AGREED TO WITH RESPECT TO SECTION 6(b):
- -----------------------------
Kevin S. Lang
- -----------------------------
Abraham W. Weinzimer
<PAGE>
SCHEDULE A
This Schedule A forms a part of the Sale and Assignment Agreement
("Agreement") to which it is attached and is incorporated therein.
Section A-1. Definitions. The following definitions shall have the
following meanings:
"Agent Statement Unpaid Balance Trigger" shall mean an Agent Statement
Unpaid Balance in excess of $100 that remains unpaid by the Agent for a period
in excess of 90 days.
"Down Payment Requirement" means (i) twelve and one-half percent (12.5%) in
the case of a twelve (12) month Premium Finance Agreement policy, and (ii)
twenty-five percent (25%) in the case of a six month Premium Finance Agreement
policy.
"Effective Date" means the Effective Date of this Agreement which shall be
____________________ 1999.
"Guarantor" means, collectively, DCAP Group, Inc., a Delaware corporation
whose headquarters are located at 2545 Hempstead Turnpike, East Meadows, New
York, New York 11554.
"Loss Ratio Trigger" shall be one percent (1.0%).
"Maximum Purchase Commitment" shall be $3,000,000.
"Purchase Premium" The Purchase Premium shall be equal to the following
amount:
(a) for Premium Finance Agreements re1ating to the financing of annual
automobile insurance policies, the Purchase Premium shall be payable as
follows:
Down Payment Level Base Amount Paid
------------------ ----------------
15% and higher $20.00
12.50% - 14.99% $20.00*
Less than 12.50% -0-
* For a down-payment level of 12.50% - 14.99%, it is
agreed that at the sixty (6th) month following the
Closing, Flatiron will analyze the performance of
such contracts and if unsatisfactory to Flatiron,
then Flatiron and Seller shall mutually agree on such
other Base Amount. If agreement is not reached, then
Flatiron may notify Seller that beginning on the
225th day following the Closing, WPAC will pay $10.00
for Eligible Contracts with a down payment falling in
the 12.50% to 14.99% range.
No Purchase Premium will be due or paid for Contracts relating
to (i) Additional Premium financing on an existing financed
insured (ii) Amounts Financed less than
<PAGE>
$500, or (iii) for any insured who is financed within
forty-five (45) days of a prior "no-pay" cancellation of that
insured.
For Prior Month Walk-In Reduction to Per Contract
Percentage Origination Fee
0-12.5% -0-
12.5%-25.0% ($5.00)
25.1% and higher ($10.00)
This calculation will not start until 60 days after the closing of the
transaction. The adjustment to the contract price, if applicable, will
be calculated every 30 days thereafter and apply to the following
month's origination.
(b) for 6-month Premium Finance Agreements relating to the financing
of automobile insurance, the Purchase Premium shall be $10.00.
"Repurchase Price" means the sum of (a) the lesser of (i) the Up-front
Purchase Price paid to Seller by FPF for the Premium Receivables and other
related Conveyed Property or (ii) the amount owing by the Obligors at the time
of repurchase under the applicable Premium Finance Agreement(s) with respect to
the Repurchase Property, plus (b) interest due under the Premium Receivables
from the date that FPF advanced funds to purchase the Premium Receivables less
interest payments received by FPF on the Premium Receivables to the date of
payment by Seller of the Repurchase Price, plus (c) the Purchase Premium paid to
Seller, if any.
"Tangible Net Worth" shall not be the greater of $25,000 or the minimum
amount required by the New York Department of Banking.
"Term" means the Term of this Agreement commencing on the Effective Date
and, if not earlier terminated as provided in this Agreement, terminating on
September 1, 2002.
"Up-front Purchase Price" shall mean 100% of the Amount Financed.
Section A-2. Additional Provision. The following Additional Provisions
shall be a part of this Agreement.
<PAGE>
Schedule B
Concentration Limits
Each Eligible Insurance Company shall be subject to the following concentration
test limits:
A. For Eligible Insurance Companies admitted and covered by a state guaranty
association acceptable to WPAC, the following allocations shall apply:
Insurance Company's Maximum % of Eligible
A.M. Contracts Outstanding
Best Rating per Carrier
"A-" or better no limit
"B++" or "B+" 25.0%
"B" or "B-" 17.5%
all others* 5.00%
*Note: Under "All others" above, "C", "D", "E", "F", "N/F", "S"
are not eligible.
B. For companies not covered by a state guaranty association acceptable to
Flatiron, no more than 15% of the Contracts outstanding may be written
by such insurance companies and the following per company allocations
shall apply:
Insurance Company's Maximum % of Eligible
A.M. Contracts Outstanding
Best Rating per Carrier
"A-" or better 7.5%
"B++" or "B+" 5.0%
WPAC shall provide notice to Seller when any insurance company concentration
levels are nearing or exceed the above criteria.
<PAGE>
Name of Subsidiary State of Incorporation
AAA DCAP Agency, Inc. New York
AADCAP Greenbrook Inc.(1) New Jersey
AADCAP Hackensack Inc.(1) New Jersey
A DCAP Brokerage, Inc. New York
A DCAP Services, Inc. New York
DCAP Agency, Inc.(1) New York
DCAP Bayshore, Inc. New York
DCAP Bayside, Inc.(1) New York
DCAP Brentwood Inc. (2) New York
DCAP East Meadow, Inc. New York
DCAP Flushing, Inc.(3) New York
DCAP Freeport, Inc.(1) New York
DCAP Garden City Park Inc. New York
DCAP Hari, Inc. New York
DCAP Hicksville, Inc. New York
DCAP Insurance Agencies, Inc. New York
DCAP Management Corp. New York
DCAP Manhattan Inc. New York
DCAP Medford Inc. New York
DCAP Queens Agency, Inc. New York
DCAP Ridgewood, Inc. (1) New York
DCAP Seaford, Inc. New York
DCAP White Plains Inc. New York
DCAP Woodhaven, Inc. New York
DCAP Woodside, Inc.(4) New York
Diversified Coverage Asset Planning Inc. New York
FASK Agency Inc. New York
Fulton Street Agency, Inc. New York
<PAGE>
IAH, Inc. Delaware
Intandem Corporation New York
MC DCAP, Inc. (1) New York
Payments Inc. New York
The Bronx Agency, Inc. New York
The Manhattan Agency Inc. New York
The White Plains Agency, Inc. New York
The Yonkers Agency Inc. New York
(1) Company owns 50% of outstanding Common Stock.
(2) Company owns 80% of outstanding Common Stock.
(3) Company owns 66.7% of outstanding Common Stock.
(4) Company owns 50% of outstanding Common Stock.
MC DCAP owns 50% of outstanding Common Stock.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000033992
<NAME> DCAP Group, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 943,176
<SECURITIES> 0
<RECEIVABLES> 671,486
<ALLOWANCES> 53,000
<INVENTORY> 0
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<PP&E> 3,829,166
<DEPRECIATION> 2,401,687
<TOTAL-ASSETS> 8,215,762
<CURRENT-LIABILITIES> 1,874,265
<BONDS> 598,041
0
0
<COMMON> 142,992
<OTHER-SE> 4,960,329
<TOTAL-LIABILITY-AND-EQUITY> 8,215,762
<SALES> 9,068,911
<TOTAL-REVENUES> 9,149,909
<CGS> 0
<TOTAL-COSTS> 9,517,809
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,715
<INCOME-PRETAX> (503,615)
<INCOME-TAX> 7,329
<INCOME-CONTINUING> (510,615)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (450,042)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
