<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- ------
Commission file number 0-21467
-------
FIRST PRIORITY GROUP, INC
(Exact name of small business issuer as specified in its charter)
New York 11-2750412
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
51 East Bethpage Road
Plainview, New York 11803
-------------------------
(Address of principal executive offices)
(516) 694-1010
--------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of May 14, 1999: 8,331,800 shares of common stock
--------------------------------
Transitional Small Business Format (check one)
Yes[ ] No[ X ]
<PAGE>
Part I Financial Information
Item 1. Financial Statements
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
2
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $2,681,327
Accounts receivable, less allowance for
doubtful accounts of $28,223 1,967,813
Prepaid expenses and other current assets 94,084
----------
Total current assets 4,743,224
Property and equipment, net of accumulated
depreciation of $443,658 559,984
Security deposits and other non-current assets 108,728
----------
Total assets $5,411,936
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,003,611
Accrued expenses and other current liabilities 1,193,545
Current portion of long-term debt 46,684
----------
Total current liabilities 2,243,840
----------
38,093
----------
Long-term debt
Shareholders' equity:
Common stock, $.015 par value, authorized
20,000,000 shares; issued 8,598,467 shares 128,977
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding -
Additional paid-in capital 7,762,360
Deficit (4,671,324)
----------
3,220,003
Less common stock held in treasury, at
cost, 266,667 shares 90,000
----------
Total shareholders' equity 3,130,003
----------
Total liabilities and shareholders' equity $5,411,936
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 30, March 30,
1999 1998
----------------------- -----------------------
<S> <C> <C>
Revenue $ 3,578,606 $ 4,017,501
Costs of revenue (principally charges incurred
at repair facilities for services) 2,925,486 3,358,992
----------------------- -----------------------
Gross profit 653,120 658,509
Operating expenses 904,991 978,284
----------------------- -----------------------
Loss from operations (251,871) (319,775)
----------------------- -----------------------
Other income (expense):
Interest and other income 43,929 51,350
Other expenses -- (6,771)
----------------------- -----------------------
Total other income 43,929 44,579
----------------------- -----------------------
Net loss $ (207,942) $ (275,196)
======================= =======================
Basic and diluted loss per share $ (0.02) $ (0.03)
======================= =======================
Weighted average number of common shares outstanding 8,331,800 8,092,911
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FIRST PRIORITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
THREE MONTHS ENDED
March 30, March 30,
1999 1998
------------- ------------
Cash flows from operating activities:
Net loss ($207,942) ($275,196)
---------- -----------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 42,461 32,661
Changes in assets and liabilities
Accounts receivable (256,169) (90,515)
Inventories -- (9,246)
Prepaid expenses and other current assets (27,877) 48,500
Security deposit and other assets (756) 13,590
Accounts payable (234,478) (264,690)
Accrued expenses and other liabilities 596,760 379,526
---------- -----------
Total adjustments 119,931 109,826
---------- -----------
Net cash used in operating activities (88,011) (165,370)
---------- -----------
Cash flows used in investing activities,
additions to property and equipment (1,021) (98,653)
---------- -----------
Cash flows from financing activities:
Repayment of long-term debt (11,821) --
Collection of shareholder note -- 100,000
Proceeds from issuance of common stock -- 1,000,000
---------- -----------
Net cash provided by (used in) financing
activities (11,821) 1,100,000
---------- -----------
Net increase (decrease) in cash and cash
equivalents (89,032) 835,971
Cash and cash equivalents at beginning of
period 2,782,180 3,453,864
---------- -----------
Cash and cash equivalents at end of period $2,681,327 $4,289,845
========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FIRST PRIORITY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. UNAUDITED FINANCIAL STATEMENTS
------------------------------
The information contained in the condensed consolidated financial
statements for the period ended March 31, 1999 is unaudited, but includes all
adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's annual
statements and notes. These financial statements should be read in conjunction
with the Company's annual financial statement as reported in its most recent
annual report on Form 10-KSB.
2. BUSINESS OF THE COMPANY
-----------------------
The Company, a New York corporation formed on June 28, 1985, is engaged
in automotive fleet management and administration of automotive repairs for
businesses, insurance companies and members of affinity groups.
The Company's office is located at 51 East Bethpage Road, Plainview,
New York 11803 and its telephone number is (516) 694-1010.
3. RESULTS OF OPERATIONS
---------------------
The unaudited results of operations for the three months ended March
31, 1999 are not necessarily indicative of the results to be expected for the
full year.
4. EARNINGS PER SHARE
------------------
Basic earnings (loss) per share is computed by dividing earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if common
stock equivalents, such as stock options and warrants, were exercised. During
the three month periods ended March 31, 1999 and 1998, there was no dilutive
effect from stock options and warrants.
6
<PAGE>
5. SUBSEQUENT EVENTS
-----------------
On April 13, 1999, the Company formed a new wholly owned subsidiary,
Collision Depot.com, Inc. to provide collision repair claims management services
for the insurance industry nationwide through the Internet.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Automotive Management
Revenues from services of the automotive management operations were
$3,578,606, for the three months ended March 31, 1999, as compared to $4,017,501
for the three months ended March 31, 1998, representing a decrease of $438,895,
or 10.9%. We attribute the reduction in Revenue for the quarter to a lower
national vehicle accident rate. The reduced vehicle accident rate, recognized by
various insurance industry sources, is due to: (i) increased safety conditions
on both roads and in vehicles, (ii) drivers' safety awareness and defensive
driving and (iii) moderate weather conditions. The direct cost of services
related to such revenue (principally charges from automotive repair facilities)
was $2,925,486 and $3,358,992 for the three month periods ended March 31, 1999
and 1998, respectively, resulting in a decrease of $433,506 or 12.9%. The gross
profit percentage for the three months ended March 31, 1999 and March 31, 1998
increased 1.9% to 18.3% from 16.4%. This increase represents better pricing
structures and an increase in the Affinity program sales which yields a higher
gross profit than the traditional repair services.
Total operating expenses were $904,991 for the three months ended March
31, 1999, as compared to $978,284 for the three months ended March 31, 1998,
representing a decrease of $73,293 or 7.5%. The decrease in operating expenses
is mainly attributable to pay cuts taken by upper management and a reduction in
work force.
Interest and other income was $43,929 for the three months ended March
31, 1999, as compared to $51,350 for the same period in 1998, representing a
decrease of $7,421. The decrease is primarily attributable to lower average cash
balances available during the quarter ended March 31, 1999.
As a result of the foregoing, the net loss from continuing operations
for the three months ended March 31, 1999 was $207,942 ($.02 per share) as
compared to a net loss of $275,196 ($.03 per share) for the comparable three
months in 1998.
Liquidity and Capital Resources
As of March 31, 1999, the Company had cash and cash equivalents of
$2,681,327 and working capital was $2,499,384. The Company's operating
activities used $88,011 of cash in the first quarter of 1999, an improvement of
$77,359, as compared to the first quarter of 1998 where operating activities
used $165,370 of cash.
The Company believes that its present cash position will enable the
Company to continue to support its operations for the short and longer term.
8
<PAGE>
New Business Developments
On April 19, 1999, the Company announced the formation of a new wholly
owned subsidiary, Collision Depot.com, Inc. ("Collision Depot") to provide
collision repair claims and management services for the insurance industry
nationwide through the Internet. Additionally, the Company announced that
Collision Depot retained Fahnestock & Co., Inc. to act as its exclusive
placement agent in a private offering of equity securities.
Collision Depot has since changed its name to driversshield.com Corp.
The Company holds the registered trademark of Driver's Shield(Registered) and
is in the process of assigning this trademark to its subsidiary,
driversshield.com Corp. The subsidiary will offer, in addition to the collision
repair claims and management services for the insurance industry nationwide
through the Internet, a wide array of automotive services and discounts on a
nationwide basis, some of which are already being sold wholesale through
affinity groups and financial institutions under the Company's existing Driver's
Shield(Registered) label.
Year 2000 Compliance
The Company has two computer systems and software products coded to
accept only two digit entries to represent years. For example, the year "1998"
would be represented by "98." These systems and products will need to be able to
accept four digit entries to distinguish years beginning with 2000 from prior
years. As a result, systems and products that do not accept four digit year
entries will be replaced to comply with such "Year 2000" requirements. The
Company believes that its internal systems are Year 2000 compliant or will be
replaced in connection with previously planned changes to information systems
prior to the need to comply with Year 2000 requirements. Expenses related to
Year 2000 compliance amounted to approximately $100,000 in 1998 and are expected
to amount to approximately $100,000 in 1999. The anticipated costs of any Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to the availability or cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties. In addition, there can be no assurance
that Year 2000 compliance problems will not be revealed in the future which
could have a material adverse affect on the Company's business, financial
condition and results of operations. Many of the Company's customers and
suppliers may be affected by Year 2000 issues that may require them to expend
significant resources to modify or replace their existing systems. This may
result in those customers having reduced funds to purchase the Company's
products or in those suppliers experiencing difficulties in producing or
shipping key components to the Company on a timely basis or at all.
Forward Looking Statements - Cautionary Factors
Certain information contained herein includes information that is
forward looking. The matters referred to in forward-looking statements may be
affected by the risks and uncertainties involved in the Company's business.
These forward-looking statements are qualified in their entirety by the
cautionary statements contained in the Company's Form 10-KSB for the year ended
December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Placement Agent Agreement between Fahnstock & Co., Inc. and
Collision Depot.com, Inc. dated April 14, 1999.
27 Financial Data Schedules
9
<PAGE>
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
FIRST PRIORITY GROUP, INC.
Date: May 17, 1999 By: /s/ Barry Siegel
----------------------
Barry Siegel
Chairman of the Board
of Directors, Chief Executive Officer
Treasurer, Secretary and Principal
Financial and Accounting Officer
11
<PAGE>
Index of Exhibits
Exhibit No. Description
- ---------- -----------
10.1 Placement Agent Agreement between Fahnstock & Co., Inc. and
Collision Depot.com, Inc. dated April 14, 1999.
27 Financial Data Schedules
12
<PAGE>
Exhibit 10.1
Placement Agent Agreement
April 14, 1999
Fahnestock & Co. Inc.
125 Broad St., 16th Floor
New York, NY 10004
Dear Sirs:
The undersigned, Collision Depot.com, Inc. (the "Company"), a Delaware
corporation, wholly owned by First Priority Group, Inc. ("FPGI"), hereby agrees
with Fahnestock & Co. Inc. ("Fahnestock" or "Placement Agent") as follows:
1. Best Efforts Offering. The Company hereby engages Fahnestock to act
as its exclusive agent during the term of the offering as outlined herein (the
"Offering") to sell, in an aggregate Offering of no less than five million
dollars ($5,000,000) (the "Minimum") and no more than seven million dollars
($7,000 000) (the "Maximum"), on a "best efforts" basis, shares of preferred
stock (the "Preferred Stock" or Preferred Shares") on the terms substantially
as set forth in the Term Sheet attached hereto as Exhibit A. The price per share
of Preferred Stock will be substantially determined to the mutual satisfaction
of the Company and Fahnestock. As part of the Minimum, the Company shall raise a
minimum of five hundred thousand ($500,000) and a maximum of two million dollars
($2,000,000) of Series A Preferred Stock which shall have similar terms as the
Preferred Stock. The Preferred Shares shall be offered without registration
under the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Act") pursuant to the exemption from registration
created by Regulation D thereof.
2. Business Plan. The Company shall, as soon as practicable, prepare a
Business Plan covering the proposed Offering. The Business Plan shall be in form
and substance reasonably satisfactory to Fahnestock and to the Company. The
Company agrees that it shall modify or supplement the Business Plan during the
course of the Offering to insure that the Business Plan does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
Fahnestock will not make any use of the Business Plan other than for purposes of
implementing this Agreement.
3. Compensation. You will be paid at the closing of such sales a cash
commission of eight percent (8%) of the subscription price of each Share sold
and you may reallow such part thereof to participating Soliciting Dealers on
sales effected by such Soliciting Dealers as you in your sole discretion may
determine. In addition, you will receive a non-accountable expense allowance of
fifty thousand dollars ($50,000), of which twenty-five thousand dollars
($25,000) shall be payable upon execution of this Agreement and the balance of
which shall be earned and due on the initial closing, to cover your expenses of
this Offering including your legal fees and disbursements. In addition, you
shall receive warrants to purchase Common Stock equal to ten percent (10%) of
the number of as-converted shares of Series B Preferred Stock sold in the
Offering at a 10% premium to the conversion price of the Preferred Stock. Your
compensation for the amount raised for Series A Preferred Stock shall be reduced
to the following: (i) four percent (4.0%) placement agent fee and (ii) warrants
to purchase Common Stock equal to five percent (5%) of the number of
as-converted shares of Series A Preferred Stock.
Whether or not the Offering is consummated, if during the term of the
Offering hereunder, the Placement Agent contacts an investor who purchases
within one (1) year after such introduction any private securities of the
Company, you shall be entitled to compensation which you would obtain hereunder
on the same basis as you would have been entitled if you had arranged for the
sale of a comparable dollar amount of securities offered hereunder.
<PAGE>
4. Expenses. Whether or not the Offering is successfully completed,
it shall be the Company's obligation to bear all of its expenses in connection
with the proposed Offering, including, but not limited to, the following:
filing fees, printing and duplicating costs, the Company's and your postage,
delivery and advertising expenses, registrar and transfer agent fees, counsel
and accounting fees of the Company, issue and transfer taxes, if any, and
"blue sky" counsel fees and expenses for filing in such states as may be
agreed upon. The "blue sky" registration shall be handled by the Company's
counsel at a fee payable at the time of filing of the "blue sky" applications,
plus expenses (including state filing fees which shall be advanced by or
promptly reimbursed by the Company) to be borne by the Company.
5. Further Representations and Agreements of the Company. In addition
to the terms in Exhibit A, the Company further represents and agrees that (i)
it is authorized to enter into this Agreement and to carry out the Offering
contemplated hereunder and this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
(ii) without your prior written consent, it will not prior to the termination
of the Offering, permit any indebtedness nor the number of shares of its
Common Stock outstanding or issuable under outstanding warrants, options or
conversion rights to exceed that number of Common Stock equivalents on a
fully-diluted basis to exceed $21 million of value, (iii) the Company will,
during the course of the Offering and during the period ending five (5) years
after the date of the Business Plan, solely at its expense, provide you with
all information and copies of documentation with respect to the Company's
business, financial condition and other matters as Fahnestock may reasonably
deem relevant, including copies of all documents sent to stockholders or filed
with any federal authorities, and will, during the course of the Offering,
make itself reasonably available to Fahnestock, its auditors, counsel, and
officers and directors to discuss with Fahnestock any aspect of the Company or
its business which Fahnestock may reasonably deem relevant, (iv) Fahnestock
shall have observer rights to meetings of the Board of Directors until the
Company's initial public offering and such observer shall be promptly
reimbursed for reasonable out-of-pocket expenses incurred in attending such
meetings, (v) effective upon the closing of the Minimum, Fahnestock shall have
a right of first refusal for all investment banking activities of the Company
for a period of two (2) years from the final closing of this Offering, (vi)
the Company shall make reasonable efforts to become a public company within
twenty-four (24) months from the closing of the Offering, (vii) the Company's
stock option plan shall be a maximum of 10% of the number of shares
outstanding post-offering and the formula for granting of such options shall
be determined by a committee of outside Board members that consists of one (1)
Series B representative and (viii) the Company will deliver at the closing of
sales conducted hereunder a certificate of the Company's Chief Executive
Officer to the effect that the Business Plan meets the requirements hereof and
has been modified or supplemented as required by Paragraph 2 hereof and does
not contain any untrue statement of material fact or fail to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and all necessary corporate approvals have
been obtained to enable the Company to deliver the Shares in accordance with
the terms of the Offering. Other representations and warranties shall be
contained in the stock purchase agreement for the Preferred Stock.
6. Indemnification. See Exhibit B attached hereto.
7. Breakaway Fee. Except for a termination pursuant to Paragraph 9
below, if the proposed private placement is not completed because the Company
is unwilling or unable to proceed or because the Company breaches any of the
covenants, representations or warranties of this Agreement, the Company shall
be liable to the Placement Agent for all travel and out-of-pocket expenses
incurred by the Placement Agent (including the fees and expenses of counsel)
prior to, or as a result of, the receipt of notification of the Company's
unwillingness or inability to proceed or breach of the said provisions hereof,
in addition to a fee equal to one hundred thousand dollars ($100,000) to
compensate the Placement Agent for the effort of its management and
2
<PAGE>
staff relative to the intended private placement. In addition, in all events,
the Company shall remain liable for all "blue sky" counsel fees and expenses
and "blue sky" filing fees.
8. No-Shop Provision. Until the Offering contemplated hereby
is completed, but no later than ninety (90) days from the date of the Business
Plan, the Company agrees that it will not negotiate with any other person
relating to a possible public or private offering or placement of the
Company's securities. In addition, if prior to the closing hereunder the
Company is acquired, merges, sells all or substantially all of its assets or
otherwise effects a corporate reorganization with any other entity, the
Company shall engage Fahnestock as its financial advisor and shall pay a
transaction fee to Fahnestock to be determined at that time, but in any event
such fee shall be reasonable and customary for the size and nature of such a
transaction.
9. Termination. The Company shall have the right to
terminate the Offering other than as a result of Paragraph 7 with no further
obligation to Fahnestock (except in regard to Sections 3, 4 and 8 hereof and
the indemnification provisions set forth in Exhibit B) in the event that there
is no closing of the Minimum within ninety (90) days from the date of the
Business Plan. In the event that there is a closing on the Minimum, the
Company may terminate the Offering after four (4) months from the date of the
Business Plan subject to Fahnestock's rights to compensation for securities
sold hereunder prior thereto. The Company and Fahnestock may terminate or
extend the Offering at any time by mutual written consent.
10. Competing Claims. The Company acknowledges and agrees
that no entity has any claims or is entitled to any payments for services in
the nature of a finder's fee or any other arrangements, agreements, payments,
issuances or understandings pursuant to this Offering or any future investment
banking activities of the Company. The Company represents that no other entity
has any rights of first refusal to act as placement agent in this Offering or
has any rights, claims or other agreements to be paid for any investment made
by any entity pursuant to this Offering.
11. Miscellaneous.
(a) Governing Law. This Agreement and the transactions contemplated
hereby shall be governed in all respects by the laws of the State of New York,
without giving effect to its conflict of laws principles.
(b) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(c) Notices. Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall either be (i) mailed by
certified first class mail, postage prepaid, addressed (a) if to Fahnestock,
at the address set forth at the head of this Agreement, Attention: Henry P.
Williams, Senior Vice President; and (b) if to the Company, at 51 East
Bethpage Road, Plainview, NY, 10155 Attention: Barry Siegel, Chief Executive
Officer or (ii) delivered personally or by express courier. The notice shall
be deemed given, if sent by mail, on the third day after deposit in a United
States post office receptacle, or if delivered personally or by express
courier, then upon receipt.
(d) Dispute. In the event of any action at law, suit in equity or
arbitration proceeding in relation to this Agreement or the transactions
contemplated by this Agreement, the prevailing party, or parties, shall be
paid its reasonable attorney's fees and expenses arising from such action,
suit proceeding by the other party.
3
<PAGE>
If the foregoing correctly sets forth the understanding between
Fahnestock and the Company, please so indicate in the space provided below for
that purpose whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
Collision Depot.com, Inc.
By: _______________________
Barry Siegel
Chief Executive Officer
Confirmed and agreed to:
Fahnestock & Co. Inc.
By: _____________________
Henry P. Williams
Senior Vice President
Date: ___________________
4
<PAGE>
EXHIBIT A
April 14, 1999
Collision Depot.com, Inc.
Private Placement of Convertible Preferred
Preliminary Term Sheet
- --------------------------------------------------------------------------------
I. The Offering
Issuer: Collision Depot.com, Inc. (the "Company"), a
Delaware corporation wholly-owned by First
Priority Group, Inc. ("FPGI").
Issue: Private Placement of Series B Convertible
Preferred Stock (the "Series B Preferred Stock")
offered to accredited investors only pursuant to
Regulation D.
Amount: Minimum of $5.0 million and maximum of $7.0
million. As part of the Minimum, the Company shall
raise a minimum of five hundred thousand dollars
($500,000) and a maximum of two million dollars
($2,000,000) of Series A Preferred Stock which
shall have similar terms as the Series B Preferred
Stock and shall be funded and held in escrow prior
to the marketing of the Series B Preferred Stock.
Pre-Offering Fully-diluted
Valuation: $21 million.
Use of Proceeds: Web site development, marketing expenses and
working capital. In return for its equity
ownership in the Company, FPGI shall contribute
all its tangible and intangible property and
personnel related to the internet application of
collision damage claims management, repair
facilities and damage repairs to the auto
insurance industry.
Purchase Agreement: The Series B Preferred Stock shall be purchased
pursuant to a Stock Purchase Agreement which shall
contain representations, warranties and covenants
of the Company and conditions to closing customary
for a transaction of this kind.
Estimated Closing Date: Within 60 days from the date of the Business Plan.
II. Summary of Preferred Stock Terms
Right of Conversion: Each Share of Series B Preferred Stock is
convertible at any time (at the option of the
holder) initially on a share-for-share basis into
the Company's Common Stock.
Automatic conversion: Each share of Series B Preferred Stock shall
automatically be converted into shares of Common
Stock at the closing of an initial public offering
in which the gross proceeds to the Company are not
less than $12 million and the investors of the
Series B Preferred Stock realize an internal rate
of return of at least 40% (a "Qualified Public
Offering").
1
<PAGE>
Conversion Price: The purchase price of the Series B Preferred
Stock (the "Conversion Price").
Dividend Provisions: The holders of the Series B Preferred Stock
shall be entitled to receive cumulative
dividends at the rate of 8% per annum when,
as and if declared by the Board of
Directors.
Seniority: Any future issues of preferred stock shall
not be senior to the Series B Preferred
Stock, except upon the consent of at least
67% of the then outstanding shares of the
Series B Preferred Stock.
Liquidation Preference: The holders of the Series B Preferred Stock
shall be entitled to receive, prior and in
preference to any distribution of any of the
assets of the Company or proceeds thereof
to the holders of Common Stock, an amount
equal to the purchase price of each Series B
Preferred Stock plus any accrued and unpaid
dividends (the "Liquidation Preference").
Merger, Consolidation
or Sale: Upon the consolidation or merger of the
Company in which stockholders of the Company
own less than 50% of the voting securities
of the resulting or surviving corporation,
or the sale or transfer of all or
substantially all the assets of the Company,
the holders of the Series B Preferred Stock
shall have the option to (i) receive the
Liquidation Preference plus accrued and
unpaid dividends, or (ii) participate with
the holders of Common Stock on an
as-converted basis.
Voting Rights: The holders of Series A and B Preferred
Stock shall be entitled to vote with the
Common Stock of the Company as a single
class on the basis of one vote per share of
Series A and B Preferred Stock. The Common
Stockholders shall be entitled to one vote
per share.
Registration Rights: The holders of the Series B Preferred Stock
will be entitled to certain demand and
piggyback registration rights for the Common
Stock to be received upon conversion of the
Series B Preferred Stock following an
initial public offering.
Mandatory Redemption: On or after the earlier of (i) five years
from the date of the closing hereunder or
(ii) the date at which any other series of
preferred stock is entitled to mandatory
redemption, the holders of the Series B
Preferred Stock shall have the option of
"putting" their Series B Preferred Stock
back to the Company for the Liquidation
Preference plus any accrued and unpaid
dividends.
Anti-dilution Provisions: The holders of the Series B Preferred Stock
shall have certain anti-dilution provisions
which shall be calculated on a full-ratchet
basis.
Preemptive Right
(Rights of First Refusal): Holders of the Series B Preferred Stock
shall have the same right of first refusal
providing for the purchase of shares of
future private offerings of equity
securities (or warrants or other securities
convertible into equity securities) of the
Company that will enable them to maintain
their fully-diluted percentage ownership of
the Company. This right shall terminate upon
a Qualified Public Offering.
2
<PAGE>
Tag-Along Provision
(Co-sale rights): In the event that an offer is made to purchase
shares of Common Stock owned by any officers,
directors or 5% holders of the Company, the holders
of the Series B Preferred Stock shall have the right
to sell a pro rata portion of their shares to such
purchaser.
Board of Directors: The holders of the Series B Preferred Stock, as a
class, will be entitled to designate two (2) members
of the Board of Directors which shall consist of
five (5) members.
Re-set Provision: The ownership interest of the holders of the Series B
Preferred Stock shall be adjusted based on the actual
operating performance of the Company. The ownership
interest shall increase 100% if the Company's actual
2002 EBIT is less than $11 million. In addition to
the adjustment in ownership interest, the holders of
the Series B Preferred Stock will be entitled to
designate one (1) additional member to the Board of
Directors if the Re-set Provision occurs. If the
Company completes a Qualified Public Offering, this
Re-set Provision will expire.
Negative Covenants: The following corporate actions shall require the
approval of the holders of Series B Preferred Stock's
representative to the Board of Directors: (i) any
material financing transactions including, but not
limited to, the addition of debt or issuance of
common or preferred securities, with the exception of
a Qualified Public Offering; (ii) any sale of the
Company, or any merger or similar transaction by the
Company; (iii) any material inter-company,
related-party or affiliated transactions; (iv)
formation of new corporations; and (v) other major
decisions or events outside the ordinary course
of business.
Information Rights: The holders of the Series B Preferred Stock and
Fahnestock shall have the right to promptly receive:
(i) quarterly unaudited financial statements within
50 days after the end of each quarter; (ii) annual
unaudited financial statements within 105 days after
the end of each year; (iii) a budget and operating
plan for each year at least 45 days prior to the
start of each fiscal year; (iv) copies of all reports
sent to stockholders or filed with the SEC; (v)
notification of material litigation and (vi) other
information as reasonably requested.
Amendments and
Waivers of Rights: Amendments to and waivers of the rights of the
holders of the Series A and B Preferred Stock must be
approved by the holders representing 67% of the
outstanding Series A and B Preferred Stock voting
together as one class.
III. Placement Agent Compensation
Exclusive Placement Agent: Fahnestock & Co. Inc.
Placement Agent Fee: 8% of the total amount raised.
Expense Allowance: $50,000, $25,000 of which is payable upon the
signing of a Placement Agent Agreement. The
remaining $25,000 is earned and due upon closing of
the Offering.
3
<PAGE>
Warrants: Five-year warrants to purchase Common Stock
equal to 10% of the number of as-converted
common shares underlying the Series B
Preferred Stock sold hereunder at a 10%
premium to the conversion price.
Reduced fees for
Series A Preferred Stock: Placement Agent Fee of 4.0% of total amount
raised and Warrants to purchase Common Stock
equal to 5.0% of as-converted common shares
underlying the Series A Preferred Stock.
Other: Upon closing of the Offering, Fahnestock
shall have a right of first refusal for all
investment banking activities of the Company
for a period of two years from the final
closing and shall have observer rights to
meetings of the Board of Directors. The
Fahnestock observer shall be promptly
reimbursed for reasonable out-of-pocket
expenses incurred in attending such
meetings.
4
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,681,327
<SECURITIES> 0
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0
0
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