SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement |_| Confidential, for Use
|_| Definitive proxy statement of the Commission Only
|_| Definitive additional materials (as permitted by Rule
|_| Soliciting material pursuant to 14a-6(e)(2))
Rule 14a-11(c) or Rule 14a-12
DRIVERSSHIELD.COM CORP.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) filing proxy statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No Fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
DRIVERSSHIELD.COM CORP.
51 East Bethpage Road
Plainview, New York 11803
January __, 2002
Dear Shareholder:
You are cordially invited to attend the annual meeting of
shareholders of driversshield.com Corp. to be held at 10:00 a.m. New York time
on February 15, 2002, at __________________________________.
At the annual meeting, our shareholders will be voting on proposals
to do the following:
o to approve our sale of all outstanding shares of capital stock of our
wholly owned subsidiary driversshield.com FS Corp. and issuance, as
part of that transaction, of shares of our Series A preferred stock;
o to approve our amending our certificate of incorporation to change our
name to "DriverShield Corp.";
o to approve our amending our certificate of incorporation to reduce the
shareholder vote required to approve certain transactions;
o to elect John M. McIntyre as member of our board of directors;
o to ratify our board of directors' selection of Nussbaum Yates &
Wolpow, P.C. to audit our financial statements for the fiscal year
ending December 31, 2001; and
o to transact such other business as may properly come before the annual
meeting and any one or more adjournments thereof.
These proposals are more fully described in the enclosed proxy
statement. Our board of directors unanimously recommends that you vote in favor
of each of them.
To ensure that you are represented at the annual meeting, whether or
not you plan to attend, please read carefully the enclosed proxy statement,
which describes the matters to be voted upon, and complete, sign, date the
enclosed proxy card and return it as soon as possible in the accompanying
postage-prepaid return envelope. If you receive more than one proxy card because
your shares are registered in different names or with addresses, please return
each of them to ensure that all your shares are voted. If you hold your shares
in street name and decide to attend the annual meeting and vote your shares in
person, please notify your broker to obtain a ballot so that you may vote your
shares. If you are a holder of record of driversshield.com shares and submit the
enclosed proxy card and then vote by ballot, your proxy vote will be revoked
automatically and only your vote by ballot will be counted. Your prompt return
of your proxy card will assist us in preparing for the annual meeting.
By Order of the Board of Directors,
Barry Siegel
Chief Executive Officer
Plainview, New York
QUESTIONS AND ANSWERS ABOUT OUR SALE OF FS
A number of proposals will be voted on at the annual meeting, and
they are described in detail in this proxy statement. We would, however, like to
provide below a brief overview of the proposal relating to our sale of all
outstanding shares of capital stock of driversshield.com FS Corp.
Q: What am I being asked to vote on in that proposal?
A: You are being asked to approve our sale of all outstanding shares
of capital stock of our wholly owned subsidiary driversshield.com FS Corp. We
are not required by law to seek shareholder approval of this sale, since it is
our position that our sale of FS clearly does not constitute sale of
substantially all our assets. Nevertheless, at our request it was made a
condition to the closing that our shareholders have approved the transaction.
Q: Why do you want to sell FS?
A: The collision-claims-management business, in which FS has been
engaged since 1983, is a mature industry, with consolidation resulting in FS
having fewer, and larger, competitors. Additionally, we have found that the FS
business does not offer us the same opportunities for growth as our other,
higher-growth businesses. We believe that our sale of FS will afford us a unique
opportunity to devote additional resources to our other businesses, while a
strategic alliance with the purchaser of the sort envisaged in the purchase
agreement would help us expand the CRM business to meet existing and future
customer demands.
Q: What is the purchase price?
A: The purchase price for the shares of FS is $6,300,000, of which
$175,000 would be held in escrow for a year from closing. In addition, at the
closing the purchaser would purchase 1,000 shares of our Series A preferred
stock for a subscription price of $1,000,000. Those share would be entitled to
antidilution and other protective rights, as described in the proposed form of
our restated and amended certificate of incorporation attached as Exhibit A to
this proxy statement.
Q: What are the risks to the sale of FS?
A: Our businesses other than FS currently generate only limited
revenues. Consequently, for us to become profitable after we sell FS we would
need to expand our other businesses or succeed in acquiring or developing
additional new businesses. Our current cash resources plus the proceeds of our
sale of FS would provide us with limited resources for accomplishing these
goals. In addition, if we are unable to enter into a strategic alliance of the
sort envisaged in the purchase agreement, our ability to expand our other
businesses could be adversely affected.
Q: Has driversshield.com's board of directors approved the
sale of FS?
A: Our board of directors has unanimously approved the sale of
our shares of capital stock of FS.
Q: When do you expect the sale to be completed?
A: We plan to complete the transaction as soon as possible
after the annual meeting, assuming we obtain the required
shareholder approval. Closing of the transaction is subject
to a number of closing conditions.
Q: What are the tax consequences of the transaction?
A: We currently anticipate that, upon closing, we will
recognize a significant gain on the sale of FS, reflecting
the difference between the sale price and the value on our
books of the assets being sold. We expect that $4.7 million
of the gain that would be recognized upon our sale of FS
would be offset by net-operating-loss carryovers and that
the balance of the purchase price, $1.6 million, would be
recognized as a gain and taxed at
normal corporate rates. Under current tax law, our sale of
FS will not have any federal income tax consequences to our
shareholders.
Q: When and where will the annual meeting of shareholders take
place?
A: The annual meeting is being held at 10:00 a.m. New York
time on February 15, 2002, at _______________.
Q: What do I need to do now?
A: Just complete, sign, date the enclosed proxy card and
return it as soon as possible in the accompanying
postage-prepaid return envelope so as to ensure that your
shares are represented at the annual meeting. See the proxy
statement for information regarding matters such as your
ability to revoke a proxy.
Q: If I am not in favor of the sale of FS, what are my rights?
A: It is our position that our sale of FS does not constitute sale of
substantially all our assets. Consequently, you do not have the right under New
York law to demand payment of the fair value of your shares. Your only recourse
is to vote against the transaction or to abstain (which would have the same
effect as a vote against the transaction).
DRIVERSSHIELD.COM CORP.
51 East Bethpage Road
Plainview, New York 11803
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 15, 2002
General Information for Shareholders
We are soliciting proxies on behalf of the board of directors of
driversshield.com Corp., a New York corporation, for use at the annual meeting
of shareholders to be held at 10:00 a.m. New York time on February 15, 2002, at
_______________________________________, and at any adjournment. This proxy
statement is being first sent to our shareholders on or about January __, 2002.
Record Date and Voting
The proposals to be voted on at the annual meeting are described in
detail in this proxy statement. Shareholders of record at the close of business
on January 9, 2002, are entitled to notice of, and to vote at, the annual
meeting. At the close of business on that date, there were outstanding and
entitled to vote ___________ shares of our common stock. Each holder of common
stock is entitled to one vote for each share of common stock held by that
shareholder on the record date.
If a choice as to the matters coming before the annual meeting has
been specified by a shareholder on a returned proxy card, the shares will be
voted accordingly. If no choice is specified, the shares will be voted in favor
of the proposals described in the notice of annual meeting sent to shareholders
and in this proxy statement.
Abstentions and broker non-votes (that is, shares voted by means of a
proxy card submitted by a broker or nominee that specifically indicates the lack
of discretionary authority to vote on the proposals) are counted for purposes of
determining the presence or absence of a quorum at the annual meeting. For
purposes of determining whether a majority of votes present at the annual
meeting have approved a given proposal, abstentions will have the same effect as
negative votes, whereas broker non-votes will not be counted.
To ensure that your shares are voted at the annual meeting, please
complete, date, and sign the enclosed proxy card and return it as soon as
possible in the accompanying postage-prepaid return envelope.
Revocability of Proxies
Any shareholder giving a proxy pursuant to this solicitation may
revoke it at any time before it is exercised. A shareholder may revoke a proxy
either by filing with our corporate secretary at our principal executive offices
at 51 East Bethpage Road, Plainview, New York 11803, a duly executed proxy card
bearing a later date or by attending the annual meeting and voting that
shareholder's shares in person. Persons who hold shares of our common stock in
street name may revoke their proxy by contacting their broker to obtain a legal
ballot and filing that ballot bearing a later date with our corporate secretary
at our principal executive offices or by attending the annual meeting and voting
that ballot in person.
Solicitation
We will pay all expenses related to soliciting proxies in connection
with the annual meeting, including the cost of preparing, assembling, printing,
and mailing all materials being sent to our shareholders. We will furnish copies
of those materials to any brokerage house, fiduciary, or custodian holding in
its name shares that are beneficially owned by others so that they may forward
those materials to the beneficial owners. To ensure that a quorum is present in
person or by proxy at the annual meeting, it may be necessary for certain of our
officers,
directors, employees, or other agents to solicit proxies by telephone,
facsimile, or other means. Currently we do not intend to solicit proxies other
than by mail.
Shareholder Proposals
If you wish to present a shareholder proposal at the next meeting of
shareholders that we hold after the meeting to be held on February 15, 2002, you
must send us that proposal by _________, 2002 [120 calendar days before the
first anniversary of the date of this proxy statement]. If, however, the date of
the next annual meeting is changed by more than 30 days from February 15, 2003,
then the deadline is a reasonable time before we begin to print and mail our
proxy materials.
Additional Materials
We are mailing with this proxy statement a copy of our annual report
on Form 10-KSB for the year ended December 31, 2000, and our quarterly report on
Form 10-QSB for the period ended September 30, 2001. These documents are
incorporated in, and constitute a part of, this proxy statement.
Other Matters
Other than the proposals described in this proxy statement, we know
of no matters that will be presented for consideration at the annual meeting. If
any other matters properly come before the annual meeting, it is the intention
of the persons named in the enclosed form of proxy to vote as our board of
directors recommends the shares they represent by signing and returning the
enclosed proxy card, you are granting the named persons discretionary authority
with respect to such other matters.
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING
Proposal 1
SALE OF DRIVERSSHIELD.COM FS CORP.,
INCLUDING ISSUANCE OF SHARES OF SERIES A PREFERRED STOCK
The Transaction
On October 29, 2001, driversshield.com and its wholly-owned
subsidiary, driversshield.com FS Corp. ("FS"), entered into a stock purchase
agreement with PHH Vehicle Management Services, LLC ("PHH"), a subsidiary of
Cendant Corporation, in which driversshield.com agreed to sell to PHH all of the
outstanding shares of FS (that agreement, the "Purchase Agreement"). FS manages
collision claims for self-insured corporate and municipal vehicle fleets. Its
assets and liabilities consist primarily of its customer list and its contract
rights and obligations, as well as accounts receivable and accounts payable and
other accrued liabilities.
The purchase price for the shares of FS is $6,300,000, of which
$175,000 will be held in escrow for a year from the closing date and will be
used to pay any substantiated PHH claims for indemnification.
In addition, at the closing of the FS sale, PHH will purchase 1,000
shares of our Series A convertible preferred stock for a subscription price of
$1,000,000; the conversion price will be $2.00, subject to antidilution
adjustment, and shares of Series A preferred stock will not be entitled to a
special dividend. driversshield.com and PHH agreed in the Purchase Agreement to
use commercially reasonable efforts to enter into a strategic alliance.
The Purchase Agreement and ancillary documents are attached as
exhibits to our quarterly report on Form 10-QSB filed with the SEC on November
14, 2001. While the terms of our sale of FS and our issuance of shares of Series
A preferred stock to PHH are described in greater detail below, for a more
complete understanding of these transactions you should refer to the complete
documents.
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Sale of FS would leave us with two businesses. In mid 2001, our
subsidiary driversshield.com CRM Corp. ("CRM") launched its web site providing
auto insurance companies with Internet-based collision-repair and
claims-management services designed to speed the repair process, reduce costs,
and boost customer satisfaction. Our other business, Automotive Discounts and
Services ("ADS"), provides auto-club programs to member of affinity groups,
primarily through financial institutions and insurance companies.
FS has in the past accounted for the bulk of our revenues. In the
year ended December 31, 2000, our total revenues were approximately $14.5
million; FS accounted for approximately $12.7 million and our ADS business
accounted for the balance, $1.8 million. In the fiscal year ended December 31,
2001, our total revenues were approximately $15.8 million; FS accounted for
approximately $14.1 million and our ADS business accounted for the balance, $1.7
million. We anticipate that in fiscal year 2002, revenues of our CRM business
will equal or exceed revenues lost by our sale of FS and revenues from our ADS
business will show a moderate increase over 2001 revenues.
Information Regarding the Purchaser
PHH, doing business as PHH Arval, provides integrated leasing,
management, and card payment solutions to corporate, government, and
service-related fleets. PHH is part of Cendant Corporation's Vehicle Services
Division, which is a leader in the vehicle management industry. Cendant
Corporation is a diversified global provider of business and consumer services,
primarily within the real estate and travel sectors.
Our Consideration of Alternative Transactions
In the past few years, several competitors of FS have expressed to us
an interest in acquiring FS. However, we considered that each of these overtures
was either not serious or did not offer sufficient value to our shareholders.
These discussions did, however, enable us to recognize a trend towards
consolidation in the fleet management industry.
In the spring of 2001, we entered into a letter of intent with a
company in the telematics industry providing for merger of this company into a
wholly owned subsidiary of driversshield.com. (Telematics refers to any kind of
vehicle service that relies on a wireless communication link and is intended to
promote safety, productivity, mobility, and convenience.) This controlling
shareholder of this company had strong ties to senior executives within both the
insurance and automotive industries and also would have given us access to
capital markets; in particular, it would have assisted us in obtaining $5
million of equity capital concurrently with the merger. After conducting
extensive due diligence, we were uncertain how the market would receive an
aftermarket telematics offering and so we concluded that it would be imprudent
for us to proceed with this transaction.
Also in the spring of 2001, PHH approached us to discuss various
strategic alliances between the two companies. In the course of these
discussions, the notion of our selling FS to PHH was raised. Thereafter, PHH
conducted due diligence and the parties negotiated the terms of our sale of FS
to PHH.
Reasons for the Transaction
The collision-claims-management business, in which FS has been
engaged since 1983, is a mature industry, with consolidation resulting in FS
having fewer, and larger, competitors. Additionally, we have found that the FS
business does not offer us the same opportunities for growth as our two other
businesses, the CRM and ADS businesses. We believe that our sale of FS will
afford us a unique opportunity to devote additional resources to those higher
growth areas, particularly our CRM unit, while a strategic alliance with PHH
would help us expand the CRM business to meet existing and future customer
demands.
Subsequent to our negotiations with PHH, CRM signed contracts with
three major insurance companies. We anticipate that these contracts will begin
to generate significant revenues in the first quarter of 2002.
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Risks Inherent in the Transaction
Our CRM and ADS businesses currently generate only limited revenues.
Consequently, for us to become profitable after we sell FS we would need to
expand our CRM and ADS businesses or succeed in acquiring or developing
additional new businesses. Our current cash resources plus the proceeds of our
sale of FS would provide us with limited resources for accomplishing these
goals. If we are not able to accomplish these goals before our cash resources
are depleted, we would need to obtain additional financing in order to continue
in business, and we cannot guarantee that we would be able to obtain any
additional financing on acceptable terms.
In addition, we cannot guarantee that we will succeed in entering
into a strategic alliance of the sort envisaged in the Purchase Agreement. This
could adversely affect our ability to expand our CRM and ADS businesses.
No Right to Demand Payment of Fair Value
Our shareholders do not have the right under New York law to demand
payment of the fair value of their shares, as in our view our sale of FS clearly
does not constitute sale of substantially all our assets.
Accounting Treatment; Certain Federal Income Tax Consequences of the Proposed
Sale
In accordance with generally accepted accounting principles, any gain
or loss on the sale will be recognized as of the date the sale is consummated.
The following describes the material federal income tax consequences
of sale of our shares of FS capital stock to PHH. It does not attempt to provide
tax advice to any particular shareholder. It does not address state or local tax
consequences nor does it address tax consequences to specialized types of
shareholders such as foreign investors or tax-exempt shareholders. We urge each
shareholder to discuss the tax consequences of the proposed transaction with his
or her own tax advisor.
Tax Consequences at the Corporate Level. On the sale of a company's
assets, that company will generally recognize gain for federal income tax
purposes to the extent that the amount realized on the sale exceeds the
company's basis in the assets being sold. We currently anticipate that, upon
closing, we will recognize a significant gain on the sale of FS, reflecting the
difference between the sale price and the value on our books of the assets being
sold. We expect that $4.7 million of the gain that would be recognized upon our
sale of FS would be offset by net-operating-loss carryovers and that the balance
of the purchase price, $1.6 million, would be recognized as a gain and taxed at
normal corporate rates.
Tax Consequences at the Shareholder Level. Under current tax law, our
sale of FS will not have any federal income tax consequences to our
shareholders.
Purchase Agreement
In addition to specifying the consideration for the outstanding
shares of FS capital stock, in the Purchase Agreement the parties make
representations that are standard for transactions of this kind.
The Purchase Agreement also contains standard provisions governing
our conduct and that of FS during the period prior to closing.
For the year following the closing, PHH is required to cause FS to
provide its employees with salaries and benefits substantially comparable in the
aggregate to the salaries and benefits provided by FS on the date of the
Purchase Agreement.
In the Purchase Agreement, we agreed that for the five years
following the closing driversshield.com and its affiliates would not, and for
the three years following the closing Barry Siegel, our chairman and chief
executive officer, would not, directly or indirectly own or operate or become an
employee of any company engaged in the
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business of providing vehicle repair or accident management services directly to
corporate or government vehicle fleets. This does not, however, prevent us from
providing collision repair management services directly to the insurance
industry, an activity that CRM is currently engaged in. In addition, we are
subject to certain restrictions regarding our soliciting for employment, or
employing, employees of PHH or FS.
We are also restricted from seeking to engage in an alternative
takeover transaction, except when necessary to permit our board to comply with
its fiduciary obligations. If we receive a takeover proposal that our board
considers to be superior to our transaction with PHH, we are required to
negotiate with PHH to revise the terms of the Purchase Agreement.
driversshield.com and FS are together party to certain contracts with
numerous automobile collision repair shops. Certain of those contracts are
listed in an exhibit to the Purchase Agreement and are referred to collectively
as the "Active Group." Prior to the closing, we are required to either (1)
obtain from automobile collision repair shops party to at least 70% of the
Active Group contracts an acknowledgement that driversshield.com and each of its
subsidiaries, FS and CRM, will be solely (and not jointly, severally, or jointly
and severally) responsible for their own purchases of goods and services from
the automobile collision repair shops, or (2) terminate the contracts with those
automobile collision repair shops and cause them to enter into new contracts
with PHH and FS on the same or better terms. We have satisfied this condition by
obtaining acknowledgements from a sufficient number of automobile collision
repair shops.
Closing of the transaction is subject to a range of standard closing
conditions. In addition, it is a condition to PHH's obligation to consummate the
transaction that FS have made at least $465,000 in gross profits for the
three-month period ending December 31, 2001, and that FS clients representing at
least 85% of FS revenues for the nine-month period ended September 30, 2001,
have continued, as of the closing date, to actively assign accident claims to FS
and have not expressed their intention to cease doing so. If FS fails to make at
least $465,000 in gross profits for the three-month period ending December 31,
2001, it will instead be a condition to closing that FS have made at least
$465,000 in gross profits for the three-month period ending January 31, 2002. It
is also a condition to PHH's obligation to consummate the transaction that our
shareholders approve the transaction.
driversshield.com and PHH have indemnification obligations under the
Purchase Agreement. We have agreed to indemnify PHH and its affiliates and
certain other indemnitees for claims arising out of any inaccuracy in our
representations in the Purchase Agreement or any breach of our obligations under
the Purchase Agreement. Similarly, PHH has agreed to indemnify us and our
affiliates and certain other indemnitees for claims arising out of any
inaccuracy of any of their representations or any breach of their obligations.
With certain exceptions, these indemnification obligations apply only with
respect to notices of claim that are submitted no later than three years from
the closing date.
The Purchase Agreement can be terminated by either driversshield.com
or PHH on the grounds of one or more inaccurate representations or breach of one
or more obligations that is not timely cured. Either of them can also terminate
if the closing has not taken place by February 20, 2002, unless failure of the
closing to take place is that party's responsibility. Furthermore, if the
closing is delayed beyond February 20, 2002, due to FS's failure to make at
least $465,000 in gross profits for the three-month period ending December 31,
2001, the drop-dead date is pushed back to March 20, 2002.
PHH can terminate the Purchase Agreement if any event has had a
material adverse effect (as defined in the Purchase Agreement) on FS's business.
Such an event includes FS's failure to make at least $465,000 in gross profits
for the three-month period ending January 31, 2002, as long as PHH gives notice
of termination within 10 days of its receiving sufficient financial information
to ascertain that failure. PHH can also terminate the Purchase Agreement if our
shareholders fail to approve the transaction. We can terminate the Purchase
Agreement, subject to certain conditions, if our board determines that it is
necessary to do so in light of a superior takeover proposal.
If PHH terminates the Purchase Agreement because of one or more
inaccurate representations or breach of one or more obligations that is not
timely cured, or because our shareholders fail to approve the transaction, of if
we terminate the Purchase Agreement to take advantage of a superior takeover
proposal, we will be required to pay PHH a termination fee of $250,000.
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Preferred Stock Purchase Agreement
Under the Purchase Agreement, PHH and driversshield.com are to enter
into a preferred stock purchase agreement providing for purchase by PHH of 1,000
shares of our Series A convertible preferred stock for a subscription price of
$1,000,000 (that agreement, the "Preferred Stock Purchase Agreement"). The
closing is to take place immediately following the closing of the sale of FS.
In the Preferred Stock Purchase Agreement, the parties make
representations that are standard for private placement transactions of this
kind. In addition, the Preferred Stock Purchase Agreement provides that for as
long as PHH owns at least 500 shares of our Series A preferred stock (as
adjusted for stock splits, recapitalizations, and the like), it will have the
right to elect a member of our board of directors, who must be either the chief
executive officer or chief operating officer of PHH or an individual nominated
by PHH and consented to by us. PHH will on the same basis be entitled to have an
employee of PHH or one of its affiliates attend our board meetings as a
non-voting observer. At the closing and upon each anniversary of that director's
serving on our board, we are required to grant that director options to acquire,
at the market price on the date of the grant, 50,000 shares of our common stock.
During the year following the closing, PHH can demand that we
register for resale under the Securities Act of 1933 the shares of our common
stock underlying the shares of Series A preferred stock issued to PHH. We have
also granted PHH piggyback registration rights with respect to those shares of
common stock.
Rights of Our Series A Preferred Stock
If our shareholders approve proposal 1, we will amend our certificate
of incorporation to add the rights of Series A convertible preferred stock.
These rights are summarized below, and are stated in full in Article Fourth,
Section E of the form of restated and amended certificate of incorporation
attached as Exhibit A to this proxy statement; for a more complete understanding
of these rights you should refer to the restated and amended certificate of
incorporation.
Initial Value. The initial value of each share of Series A preferred
stock (the "Series A Initial Value") is $1,000, subject to adjustment for stock
dividends, combinations, splits, recapitalizations and the like with respect to
the Series A preferred stock.
Dividends. Each share of Series A preferred stock is entitled to
receive, on an as-converted basis, dividends payable to holders of shares of our
common stock.
Liquidation. Upon occurrence of a liquidation event, each holder of
shares of Series A preferred stock will be entitled to receive out of our
remaining assets, before any distribution of assets to holders of our common
stock or other stock ranking junior to the Series A preferred stock, an amount
per share of Series A preferred stock equal to 125% of the Series A Initial
Value plus an amount equal to all accumulated and unpaid dividends. A
reorganization, consolidation or merger or a sale or other disposition of all or
substantially all our assets will, at the election of holders of a majority of
the then-outstanding shares of Series A preferred stock, constitute a
liquidation event for these purposes.
Optional Conversion. Each share of Series A preferred stock is
convertible at the option of the holder into a number of shares of common stock
determined by dividing the Series A Initial Value by the conversion price for
the Series A preferred stock (the "Conversion Price") in effect on the date the
certificate is surrendered for conversion. The Conversion Price is initially
$2.00, but is subject to adjustment.
Adjustment to Conversion Price. If we issue, after the date upon
which any shares of Series A preferred stock were first issued (the "Original
Issue Date"), any shares of common stock (with certain exceptions, including
stock options issued under a stock option plan approved by our board of
directors) without consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to that issuance, the Conversion
Price in effect immediately prior to each such issuance will automatically be
adjusted to the price paid per share for
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that additional stock. (This provision provides holders of shares of Series A
preferred stock with what is commonly known as "full-ratchet" antidilution
protection.)
Voting Rights. Each holder of shares of Series A preferred stock is
entitled to one vote for each share of common stock into which each share of
Series A preferred stock could then be converted and is entitled to vote,
together with holders of common stock and not as a separate class (except as
required by law), with respect to any question upon which holders of common
stock have the right to vote. Any adjustment to the Conversion Price pursuant to
the Series A preferred stock's antidilution protection will not affect these
voting rights.
Protective Rights. We may not do any of the following without the
approval of holders of shares representing a majority of the shares of Series A
preferred stock then outstanding:
o amend our certificate of incorporation or bylaws in a way that would
affect the rights of holders of Series A preferred stock in their
capacity as such;
o authorize or issue any equity or debt security on a parity with or
having priority over the Series A preferred stock as to liquidation
preferences, dividend rights, voting rights, or otherwise;
o declare any dividend with respect to, or repurchase, any shares of
capital stock (except that we may repurchase shares of common stock
from employees or consultants at the original purchase price);
o authorize or issue any equity or debt security with a liquidation
preference in excess of the amount paid for that security; and
o incur, or cause any affiliate to incur, any indebtedness for borrowed
money, or assume or guarantee, or cause any affiliate to assume or
guarantee, the indebtedness of any other person or entity, in excess
of $5,000,000 in the aggregate.
Board Representation. Until such time as PHH Vehicle Management
Services, LLC ("PHH VMS") and its affiliates no longer own at least 500 shares
of Series A preferred stock (as may be adjusted), PHH VMS has the right to elect
one member of our board of directors of the Corporation and to have an employee
of PHH VMS or any of its affiliates participate as an observer at meetings of
our board of directors.. The director must be either the chief executive officer
or chief operating officer of PHH VMS or an individual who is nominated by PHH
VMS and consented to by us.
Right of Participation. Each holder of one or more shares of Series A
preferred stock is entitled to purchase that holder's Pro Rata Portion of any
new securities that the Corporation from time to time issues (with certain
exceptions, including stock options issued under a stock option plan approved by
our board of directors). The "Pro Rata Portion" of any new securities means,
with respect to any holder of shares of Series A preferred stock, a proportion
of those new securities equal to the proportion of (1) the sum of (A) all of
shares of common stock then outstanding, (B) all shares of common stock issuable
upon conversion of all shares of Series A preferred stock then outstanding and
any other securities of the Corporation then outstanding that are convertible
into shares of common stock, and (C) all shares of common stock issuable upon
exercise of any warrants or options then outstanding, that is represented by (2)
all shares of common stock then issuable upon conversion of all shares of Series
A preferred stock then outstanding held by that holder.
Information Rights. We are required to promptly send to each holder
of shares of Series A preferred stock annual audited financial statements and
quarterly unaudited financial statements, annual budgets, any notice of
shareholder meetings required by New York law, and such other information as a
holders of a majority of outstanding shares of Series A preferred stock
reasonably request.
If proposals 1, 2, and 3 are approved by our shareholders, we will
file the restated and amended certificate of incorporation with the Secretary of
State of New York. If proposal 1 is approved by our shareholders but one or both
of proposals 2 and 3 is not approved, we will either revise those parts of the
restated and amended certificate of incorporation that relate to the proposals
that are not approved or we will instead file a certificate of amendment
relating only to those matters that were approved. By law our board of directors
is not required to obtain
7
shareholder approval to create the Series A preferred stock, but we will not
create the Series A preferred stock unless our shareholders approve proposal 1
and thereby approve the sale of our shares of FS capital stock.
Other Ancillary Documents
In a voting agreement dated as of ________, 2001, Barry Siegel and
Lisa Siegel agreed that at any meeting of our shareholders at which those
matters are voted on, they would vote in favor of our sale to PHH of all
outstanding shares of FS capital stock and issuance of shares of our Series A
preferred stock to PHH. They each also agreed to grant PHH a proxy with respect
to their shares of our common stock. Mr. Siegel and Ms. Siegel are not receiving
any additional compensation for entering into this voting agreement. This
agreement expires upon the earlier to occur of the closing of the sale of FS and
termination of the Purchase Agreement. On January 9, 2001, Barry Siegel and Lisa
Siegel together owned __% of our outstanding common stock.
At the closing of the Purchase Agreement, we will enter into a
transition services agreement with PHH in which we agree to provide to PHH
certain transition services so as to permit transfer of our clients to PHH's
facilities and platform in an orderly fashion. We will also be granting PHH a
non-exclusive, non-transferable, royalty-free license to certain proprietary
software and granting PHH and its subsidiaries an exclusive royalty-free license
to use, in connection with the business of FS, certain trade names, trademarks
(including the "driversshield" trademark), domain names, logos, and services
marks.
The Purchase Agreement provides that at the closing of our sale of FS
or as soon thereafter as reasonably practicable, driversshield.com and PHH shall
use commercially reasonable efforts to enter into one or more multi-year
agreements representing a strategic alliance, and that any such strategic
alliance may include one or more of the following, at fees to be negotiated:
o PHH performing IT software and systems development for us
o PHH assisting us in marketing our CRM services to PHH's base of
insurance clients
o our turning over certain CRM call-center functions to PHH
o our moving certain CRM application software to data-center hosting of
PHH or a PHH affiliate
o our turning over to PHH the "Mechanics Hotline" function of our ADS
call center
o our undertaking with PHH joint efforts to combine and manage
vehicle-maintenance-and-repair networks and to facilitate assignment
of claims to a network location, processing of claims through network
members, and payment of network members
By giving us access to PHH's enormous technological capabilities,
such a strategic alliance would allow us to market our CRM services to potential
clients without our having to acquire, in advance of our securing that new
business, the technology that would allow us to rapidly provide a high volume of
services to those potential clients. We expect this would allow us to avoid
significant expenditures.
Regulatory Approvals
We are not required to comply with any federal or state regulatory
requirements or obtain approval from any federal or state agency in connection
with our sale of FS. We have not made any inquiries as to whether PHH or Cendant
Corporation is required to company with any such requirements or obtain approval
from any such agencies.
Pro Forma Financial Statements
The following pro forma financial information is intended to recast
our historic financial condition at September 30, 2001, and our results of
operations for the year ended December 31, 2000 and the nine months ended
September 30, 2001, as if we had already sold the FS business to PHH. These
unaudited pro forma financial statements are not necessarily indicative of the
results that would have occurred had this transaction been in effect,
8
nor are they necessarily indicative of the operating results that we will
achieve in the future. Specifically, our insurance industry business under our
subsidiary, driversshield.com CRM Corp., commenced earning revenues in the
fourth quarter of 2001, and the pro forma information does not reflect any
future financial impact of this business.
The adjustments related to the pro forma balance sheet assume that
the transaction was consummated on September 30, 2001, while the adjustments to
the pro forma statements of operations assume the transaction was consummated in
January 1, 2000, thereby yielding results excluding the FS business for the year
ended December 31, 2000 and the nine months ended September 30, 2001.
These statements should be read in conjunction with the proposed sale
of the business, described elsewhere in this proxy statement and the financial
statements included in our Form 10-KSB for 2000 and our Form 10-QSB for the nine
months ended September 30, 2001.
Pro Forma Unuadited Balance Sheet at September 30, 2001
Reported Historic Adjustments to Adjustments to Pro Forma
Data Remove Business Reflect Proceeds --------
(Note 1) (Note 2) (Note 3)
-------- -------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 288,459 $ 73,122 $ 7,300,000 $ 7,515,337
Accounts receivable, net $ 1,190,769 $ 1,041,701 $ 149,068
Investment Securities $ 1,902,592 $ 1,902,592
Prepaid expenses and other currrent assets $ 177,946 $ 2,450 $ 175,496
-------------------------------------------------------------------------------
Total current assets $ 3,559,766 $ 1,117,273 $ 7,300,000 $ 9,742,493
Property, plant and equipment, net $ 744,741 $ - $ - $ 744,741
Security deposits $ 27,563 $ - $ - $ 27,563
-------------------------------------------------------------------------------
Total assets $ 4,332,070 $ 1,117,273 $ 7,300,000 $10,514,797
-------------------------------------------------------------------------------
LIABILITES AND SHAREHOLDERS' EQUITY
Current Liabilites:
Accounts payable $ 889,287 $ 670,403 $ - $ 218,884
Accrued expenses and other current liabilites $ 543,562 $ 291,087 $ 640,000 $ 892,475
-------------------------------------------------------------------------------
Total liabilites $ 1,432,849 $ 961,490 $ 640,000 $ 1,111,359
Shareholders' Equity:
Common Stock, par value $ 172,750 $ - $ 172,750
Preferred Stock, par value $ - $ - $ 10 $ 10
Additional paid in capital $ 9,728,852 $ - $ 999,990 $10,728,842
Accumulated other comprehensive income $ 8,468 $ 8,468
Deficit $(5,527,815) $ 155,783 $ 5,660,000 $ (23,598)
-------------------------------------------------------------------------------
$ 4,382,255 $ 155,783 $ 6,660,000 $10,886,472
Less common stock held in treasury, at cost $(1,483,034) $ - $(1,483,034)
-------------------------------------------------------------------------------
Total shareholders' equity $ 2,899,221 $ 155,783 $ 6,660,000 $ 9,403,438
-------------------------------------------------------------------------------
Total liabilites and shareholders' equity $ 4,332,070 $ 1,117,273 $ 7,300,000 $10,514,797
-------------------------------------------------------------------------------
Notes to the Pro Forma Balance Sheet
1. Reflects the unuadited financial data as reported in our Form
10-QSB for the nine months ended September 30, 2001.
2. These adjustments reflect amounts that would have been transferred
to PHH if consummation of our sale of the FS business had occurred on September
30, 2001. The amounts on the effective date of the sale may differ somewhat from
those shown.
3. These adjustments reflect proceeds in the amount of $6.3 million
and an estimate of $640,000 for taxes and other expenses related to the gain on
the sale. We expect that $4.7 million of the gain that would be recognized upon
our sale of FS would be offset by an equivalent amount of net-operating-loss
carryovers. In addition, as part of the transaction we are selling to PHH 1,000
shares of Series A preferred stock for $1.0 million.
Pro Forma Statements of Operations
For the Nine Months ended September 30, 2001 and Year
Ended December 31, 2000
Historic Yr.
------------
Historic YTD-2001 Adjustments Pro Forma YTD 2000 Adjustments Pro Forma 2000
----------------- ----------- ------------ ------ ------------ -------------
(Note 1) (Note 2) (Note 3) (Note 1) (Note 2) (Note 3)
-------- -------- -------- -------- -------- --------
Revenue:
Collisision repairs and fleet management
services $10,243,952 $ 10,243,952 $ - $12,139,992 $12,139,992 $ -
Subrogation and salvage service commisisons $ 441,051 $ 441,051 $ - $ 470,956 $ 470,956 $ -
Automobille affinity member fees and servcies $ 1,299,836 $ - $ 1,299,836 $ 1,840,155 $ - $ 1,840,155
------------------------------------------- -----------------------------------------
Total revenue $11,984,839 $ 10,685,003 $ 1,299,836 $14,451,103 $12,610,948 $ 1,840,155
Cost of revenue, principally charges
incurred at repair facilities for
services. $ 8,867,109 $ 8,867,109 $ - $10,368,412 $10,368,412 $ -
------------------------------------------- -----------------------------------------
Gross Profit $ 3,117,730 $ 1,817,894 $ 1,299,836 $ 4,082,691 $ 2,242,536 $ 1,840,155
Operating Expenses:
Sales and marketing $ 655,321 $ 213,397 $ 441,924 $ 1,180,102 $ 273,240 $ 906,862
General and Administrative $ 2,440,757 $ 903,203 $ 1,537,554 $ 2,500,724 $ 985,040 $ 1,515,685
Non-cash compensation $ 189,801 $ - $ 189,801 $ - $ - $ -
Depreciation and amortization $ 258,710 $ - $ 258,710 $ 282,051 $ - $ 282,051
------------------------------------------- -----------------------------------------
Total operating expenses $ 3,544,589 $ 1,116,600 $ 2,427,989 $ 3,962,877 $ 1,258,280 $ 2,704,598
Other income (expense):
Realized loss on investment $ - $ - $ - $ (1,518) $ (1,518)
Investment and other income $ 162,407 $ - $ 162,407 $ 141,231 $ - $ 141,231
Interest expense $ - $ - $ - $ (4,500) $ (4,500)
Other expense(shares issued for restriction $ - $ -
agreement) $ (77,438) $ - $ (77,438) $ -
------------------------------------------- -----------------------------------------
Total other income $ 84,969 $ - $ 84,969 $ 135,213 $ - $ 135,213
Income (loss) before taxes $ (341,890) $ 701,294 $(1,043,184) $ 255,027 $ 984,257 $ (729,230)
Income taxes $ 4,663 $ - $ 4,663 $ 7,275 $ 7,275
Net income(loss) $ (346,553) $ 701,294 $ 1,047,847) $ 247,752 $ 984,257 $ (736,505)
=========================================== =========================================
Earnings (loss) per share
Basic $ (0.03) $ (0.10) $ 0.02 $ (0.07)
Diluted $ (0.03) $ (0.10) $ 0.02 $ (0.07)
Weighted average number of common shares 10,679,497 10,679,497 9,956,892 9,956,892
------------------------------------------- -----------------------------------------
Weighted average diluted shares outstanding 10,679,497 10,679,497 11,577,216 9,956,892
------------------------------------------- -----------------------------------------
Notes to the Pro Forma Statements of Operations
1. Reflects the unuadited financial data as reported in our Form
10-QSB for the nine months ended September 30, 2001, and the audited financial
data for the year ended December 31, 2000, as reported in our Form 10-KSB for
2000.
2. The pro forma adjustments reflect elimination of the FS business
and, pursuant to a transition services agreement with PHH, certain costs of
rent, utilities, and supplies that PHH will reimburse. Interest income on the
net proceeds of $6.7 million, which we believe may be $200,000 or more, has been
excluded.
3. The columns above, designated as "Pro Forma YTD" and "Pro Forma
2000," reflect the business that we will retain after we sell the FS business,
principally our ADS business. However, the pro forma data do not reflect
revenues from our CRM business, which commenced earning revenues in the fourth
quarter of 2001, and as a result the pro forma data are not representative of
our future revenues.
Vote Required
Whereas we are not required by law to seek shareholder approval of
sale of our shares of FS capital stock, at our request it was made a condition
to the closing that our shareholders have approved the transaction. The
affirmative vote of a majority of all shares present at the annual meeting,
whether in person or by proxy, is required to approve proposal 1.
Our board of directors recommends that you vote FOR our sale of FS to
PHH.
9
Proposal 2
FILING OF A RESTATED CERTIFICATE OF INCORPORATION
TO CHANGE OUR NAME TO "DRIVERSSHIELD CORP."
On October 29, 2001, our board of directors authorized, subject to
approval by our shareholders, amending our certificate of incorporation to
change our name to "DriverShield Corp." This change is reflected in Article
First of the form of restated and amended certificate of incorporation attached
as Exhibit A to this proxy statement. If proposals 1, 2, and 3 are approved by
our shareholders, we will file this restated and amended certificate of
incorporation with the Secretary of State of New York. If proposal 2 is approved
by our shareholders but one or both of proposals 1 and 3 is not approved, we
will either revise those parts of the restated and amended certificate of
incorporation that relate to the proposals that are not approved or we will
instead file a certificate of amendment relating only to those matters that were
approved.
Name Change
The aim of this name change is to make our name more concise. It is
also intended to reflect that since the Internet is no longer a novelty but has
instead become part of the mainstream of the business world, there is no need to
signal to the world, by means of a "dot-com" name, the Internet component of our
operations. Indeed, retaining the "dot-com" element would likely make us more
vulnerable to investment community's undiscriminating backlash against investing
in Internet companies.
Shareholders will not be required to submit their stock certificates
for exchange. Following effectiveness of the name change, all new stock
certificates that we issue will be overprinted with our new name.
Vote Required
The affirmative vote of a majority of all shares outstanding on the
record date is required to approve this proposal.
Our board of directors recommends that you vote FOR filing a restated
and amended certificate of incorporation in order to change our name.
PROPOSAL 3
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
TO REDUCE THE SHAREHOLDER VOTE REQUIRED
TO APPROVE CERTAIN TRANSACTIONS
Prior to February 22, 1998, the New York Business Corporation Law
(the "BCL") provided that (1) a plan of merger or consolidation involving a New
York corporation, (2) a sale, lease, exchange or other disposition of all or
substantially all of a corporation's assets not in the ordinary course of
business, and (3) a binding share exchange all required approval by a two-thirds
vote of all outstanding shares of that corporation entitled to vote thereon.
Effective February 22, 1998, the BCL was amended to provide that for a
corporation formed after that date, any such transaction need only be authorized
by a majority vote of all outstanding shares entitled to vote thereon unless the
corporation's certificate of incorporation provides for a greater vote. The BCL
as so amended also provides that for a corporation in existence on February 22,
1998 (such as driversshield.com), any such transaction will continue to require
a two-thirds vote unless its certificate of incorporation expressly provides for
majority approval.
We believe that majority approval for these extraordinary
transactions is consistent with currently accepted principles of corporate
democracy as reflected in the amended BCL. The corporate laws of most states
require only majority approval for these transactions. Consequently, on October
29, 2001, our board of directors authorized, subject to approval by our
shareholders, an amendment to our certificate of incorporation specifying that a
majority vote of outstanding shares is required to approve (1) a plan of merger
or consolidation to which driversshield.com is party, (2) the sale, lease,
exchange or other disposition of all or substantially all of the assets of
driversshield.com, or
10
(3) a plan for a binding share exchange. (This amendment is unrelated to our
sale of FS, since it is our position that our sale of FS clearly does not
constitute sale of substantially all our assets.)
This change is reflected in Article Tenth of the form of restated and
amended certificate of incorporation attached as Exhibit A to this proxy
statement. If proposals 1, 2, and 3 are approved by our shareholders, we will
file this restated and amended certificate of incorporation with the Secretary
of State of New York. If proposal 3 is approved by our shareholders but one or
both of proposals 1 and 2 is not approved, we will either revise those parts of
the restated and amended certificate of incorporation that relate to the
proposals that are not approved or we will instead file a certificate of
amendment relating only to those matters that were approved.
The affirmative vote of a majority of all shares outstanding on the
record date is required to approve this proposal.
Our board of directors recommends that you vote FOR this amendment to
our certificate of incorporation in order to reduce the shareholder vote
required to approve certain transactions.
PROPOSAL 4
ELECTION OF DIRECTORS
Nominees for Election
Our bylaws provide that our board of directors must be divided into
three classes as nearly equal in size as possible, with the term of office of
one class expiring each year. Accordingly, in any given year only those
directors belonging to one class may be changed and it would take elections in
three consecutive years to change the entire board of directors. At the upcoming
annual meeting, one director will be elected to serve a three-year term (until
the third succeeding annual meeting, in 2004) and until his successor is duly
elected and qualified. Unless authority to vote for the election of directors is
withheld, the enclosed proxy will be voted FOR the election of the nominee named
below. (Note that in referring to future annual meetings, we are assuming that a
second annual meeting will be held later in 2002, as the annual meeting to which
this proxy statement pertains would have been held in 2001, but for delays
attributable to our electing to delay the meeting until we could include in this
proxy statement a proposal relating to sale of our shares of FS capital stock.
John M. McIntyre has been nominated by the board of directors to fill
the seat currently held by R. Frank Mena. No other nominations were submitted.
Barry Siegel has been elected to serve until the 2003 annual meeting
of shareholders. Barry J. Spiegel and Kenneth J. Friedman have been elected to
serve until the 2002 annual meeting of shareholders.
While our bylaws provide for a seven-person board of directors, upon
election of John M. McIntyre our board of directors will have four members. Upon
the closing of the sale of FS and issuance to PHH of shares of our Series A
preferred stock, PHH will be entitled to name a member of our board of
directors, as described under "Preferred Stock Purchase Agreement" in our
discussion of proposal 1. Our board has determined that it is in our best
interest that at this time no additional directors be nominated to fill the
remaining two vacancies, as retaining these vacancies will give our board
greater flexibility to seek and appoint one or two appropriate directors in the
future.
John M. McIntyre will be elected to our board of directors if the
number of votes cast at the annual meeting in favor of his election exceeds the
number of votes cast to withhold authority in connection with his election.
Information Concerning Directors and Officers
You will find below background information with respect to the
nominee for election and the directors whose terms of office will continue after
the upcoming annual meeting. See "Security Ownership of Certain Beneficial
Owners and Management" for information regarding their holdings of our common
stock.
11
Nominee for Director Whose Term Expires in 2004 (Class III)
John M. McIntyre, [age], has spent the last 20 years working in the
auto repair industry. In 1981, he founded Apple Auto Body Incorporated, a
privately held, multiple-location group of auto repair shops based in
Massachusetts, and from 19__ to 19__ acted as its ____________. In 1989 he
founded Trust Group Inc., a privately held property and casualty insurer based
in Massachusetts. Since 2000, Mr. McIntyre has also been sole shareholder and
___________ of Barefoot Properties of Hilton Head, a rental-property broker
based in Hilton Head, South Carolina. Since 1977, he has also served as a
financial consultant to TeleSouth a division of RHS Communications. Mr. McIntyre
holds a Bachelor of Science in Public Administration From Bentley College,
Waltham, MA.
Our board of directors recommends that you vote FOR election of the
nominee named above.
Director Whose Terms Expire in 2003 (Class I)
Barry Siegel, 50, has served as one of our directors and our
secretary since we were incorporated. He has served as our treasurer since
January 1998 and as our chief executive officer and chairman of the board since
November 1997. Previously, he served as our chairman of the board, co-chief
executive officer, treasurer, and secretary from August 1997 through November
1997. From October 1987 through August 1997, he served as our co-chairman of the
board, co-chief executive officer, treasurer, and secretary. He has served for
more than five years as treasurer and secretary of national fleet service, Inc.,
one of our wholly-owned subsidiaries.
Directors Whose Terms Expire in 2002 (Class II)
Barry J. Spiegel, 53, has served as president of our Affinity
Services Division since September 1996. He served as president of American
International Insurance Associates, Inc. from January 1996 through August 1996.
For more than five years prior to August 1996, Mr. Spiegel served as senior vice
president at American Bankers Insurance Group, Inc.
Kenneth J. Friedman, 48, has served as one of our directors since
October 1998. Mr. Friedman has for more than five years served as president of
the Primary Group, Inc., an executive search consulting firm.
Relationships
There are no family relationships among the executive officers or
directors of driversshield.com, except that Lisa Siegel, our
vice-president--administration, is the wife of Barry Siegel, our chief executive
officer and chairman of the board.
Board of Directors and Committees
Our board of directors serves as the representative of our
shareholders. The board establishes broad corporate policies and oversees our
overall performance. The board is not, however, involved in day-to-day operating
details. Members of the board are kept informed of our business activities
through discussion with the chief executive officer, by reviewing analyses and
reports sent to them by management, and by participating in board meetings.
During 2000, our board held one meeting attended by members of the
board either in person or via telephone, and on seven occasions approved
resolutions by unanimous written consent in lieu of a meeting.
Our board currently has one standing committee, the Audit Committee.
The current members of the Audit Committee are Kenneth J. Friedman, R. Frank
Mena, and Barry J. Spiegel. Neither Mr. Friedman nor Mr. Mena is currently an
officer of driversshield.com or any of its subsidiaries, and both are
"independent" under the Nasdaq listing requirements as currently in effect. The
Audit Committee did not meet in 2000.
The Audit Committee operates pursuant to a charter approved by our
board of directors. A copy of this charter is attached to this proxy statement
as Exhibit B.
12
Audit Committee Report
In fulfilling its oversight duties, the Audit Committee reviewed and
discussed with management and our independent auditors, Nussbaum Yates & Wolpow,
P.C., our audited financial statements for the fiscal year ended December 31,
2000. The Audit Committee also discussed with our auditors the matters required
to be discussed by Statement on Auditing Standards No. 61 (Communications with
Audit Committees). These matters include the independent auditors' judgments as
to the quality, not just the acceptability, of our accounting principles, as
well as such other matters as our auditors are required to discuss with the
Audit Committee under generally accepted auditing standards. The Audit Committee
received the written disclosures and letter from our auditors required by
Independence Standards Board Standard No. 1 (Independence Discussion with Audit
Committees) and discussed with our auditors their independence.
During the fiscal year ended December 31, 2000, our auditors did not
provide us with non-audit services.
Based upon the above review and discussions with management and our
independent auditors, the Audit Committee recommended to our board of directors
that our audited financial statements be included in our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2000, for filing with the SEC. The
Audit Committee and our board of directors have also recommended, subject to
shareholder ratification, selection of Nussbaum Yates & Wolpow, P.C. as our
independent auditors for fiscal year 2001 (see proposal 5).
Respectfully submitted,
THE AUDIT COMMITTEE
Kenneth J. Friedman
R. Frank Mena
Barry J. Spiegel
The foregoing report of the Audit Committee may not be deemed
incorporated by reference in any previous or future documents filed by us with
the SEC under the Securities Act or the Securities Exchange Act, except to the
extent we specifically incorporates it by reference in any such document.
Compensation of Directors
We do not pay our directors for serving on our board of directors.
However, under our 1995 Stock Incentive Plan we issue to each of our directors
upon their initial election to the board, and on each anniversary thereafter as
long as they serve, options to acquire 15,000 shares of our common stock.
Other Executive Officers
Gerald M. Zutler, 63, was appointed our president and chief operating
officer in March 1998. Between 1997 and 1998, Mr. Zutler was a private
consultant. From 1993 through 1996, Mr. Zutler was president of Lockheed Martin
Canada.
Philip B. Kart, 52, has served as chief financial officer since
October 2000. From February 1998 through September 2000, he was vice president
and chief financial officer of Forward Industries, Inc., a Nasdaq SmallCap
listed company, and prior to that, from March 1993 to December 1997, chief
financial officer of Ongard Systems, Inc. Mr. Kart has also held financial
management positions with Agrigenetics Corporation and Union Carbide and was
with the accounting firm PriceWaterhouseCoopers. Mr. Kart is a CPA.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
We are party to an employment agreement with Barry Siegel that
commenced on July 1, 1998, and expires on December 31, 2001. Mr. Siegel's annual
salary is $300,000. His employment agreement provides that following a change of
control (as defined in the agreement), we will be required to pay Mr. Siegel (1)
a severance payment of
13
300% of his average annual salary for the past five years, less $100, (2) the
cash value of his outstanding but unexercised stock options, and (3) other
perquisites should he be terminated for various reasons specified in the
agreement. The agreement specifies that in no event will any severance payments
exceed the amount we may deduct under the provisions of the Internal Revenue
Code.
Our employment agreements with Gerald M. Zutler and Barry J. Spiegel
expired on June 30, 2001. We are currently negotiating new employment agreements
with each of Mr. Siegel, Mr. Zutler, and Mr. Spiegel.
In early 1999, each of the above-mentioned executives voluntarily
agreed to a reduction in his annual salary, with the other terms of his
employment agreement remaining unaffected. Mr. Siegel's salary was reduced by
$100,000, Mr. Zutler's by $15,000, and Mr. Spiegel's by $30,000. In
consideration for these salary reductions, we granted Mr. Siegel, Mr. Zutler,
and Mr. Spiegel options to purchase 100,000, 15,000, and 30,000 shares of our
common stock, respectively. In 2000, the salaries of the above-mentioned
executives were returned to their original levels.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934 requires our
directors and officers and persons who own more than 10% of any class of our
equity securities to file with the SEC reports of their ownership of our
securities and any changes in ownership. The SEC also requires us to identify in
this proxy statement any person who failed to file any such report on a timely
basis. Based on a review of copies of reports furnished to us and written
representations that no reports were required, we believe that everyone subject
to Section 16(a) filed the required reports on a timely basis.
Executive Compensation
Summary Compensation
The following table summarizes the compensation we paid or
compensation accrued for services rendered for the years ended December 31,
1998, 1999, and 2000, for our Chief Executive Officer and each of the other most
highly compensated executive officers who earned more than $100,000 in salary
and bonus for the year ended December 31, 2000:
14
SUMMARY COMPENSATION TABLE
Securities
Underlying Options
Name and Position(s) Year Salary ($) (#)
- -------------------- ---- ---------- ---
Barry Siegel
Chairman of the Board of Directors, 2000 276,492 200,000
Treasurer, Secretary and Chief Executive 1999 215,385 1,100,000
Officer 1998 279,423 500,000
Gerald Zutler
President 2000 145,540 150,000
1999 137,211 415,000
1998 98,340 0
Barry J. Spiegel
President, driversshield.com ADS Corp. 2000 122,154 150,000
1999 104,249 330,000
1998 104,499 250,000
Option Grants
During the 2000 fiscal year we awarded the following options under
our 1995 Stock Incentive Plan to the executive officers named in the summary
compensation table.
OPTION/SAR GRANT IN LAST FISCAL YEAR
(Individual Grants)
% of Total
Options/SARs
Number of Securities Granted to Exercise of
Underlying Employees in Base Price
Name Options/SARs Grants Fiscal Year ($/Share) Expiration Date
- ---- ------------------- ----------- --------- ---------------
Barry Siegel 200,000 14.9% $0.34 12/27/05
Gerald M. Zutler 150,000 11.2% $0.31 12/27/05
Barry J. Spiegel 150,000 11.2% $0.31 12/27/05
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth information regarding the exercise of
stock options during the last fiscal year by the officers named in the summary
compensation table above and the fiscal year-end value of unexercised options.
15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE
Number of
Securities Underlying Value of Unexercised
Options/SARs In-The-Money Options/SARs
Shares Acquired on at FY-End (Exercisable/ at FY-End (Exercisable/
Name Exercise (#) Value Realized (1) Unexercisable) Unexercisable)
- ---- ------------ -------------- -------------- --------------
Barry Siegel 899.999 $3,142,997 366,667/133,333 $19,500/0
Gerald M. Zutler None -- 465,000/100,000 $19,125/0
Barry J. Spiegel 163,333 $570,500 233,333/83,333 $19,125/0
(1) Represents the aggregate market value, on the date of exercise, of the
shares underlying the exercised options, less the aggregate exercise price
paid by the executive.
(2) Assumes a fair market value for driversshield.com's common stock of $___,
the closing market price per share of driversshield.com's common stock as
reported by NASDAQ on ___________.
Principal Shareholders
The following table provides information about the beneficial
ownership of our common stock as of ________, 2001. We have listed each person
who beneficially owns more than 5% of our outstanding common stock, each of our
directors and executive officers identified in the summary compensation table,
and all directors and executive officers as a group. Unless otherwise indicated,
each of the listed shareholders has sole voting and investment power with
respect to the shares beneficially owned.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Owner Common Stock (1)
- -------------- ------------------- ------------------- ----------------
Common stock Michael Karpoff and ________ (2) ___%
Patricia Rothbardt
32 Gramercy Park South
New York, NY 10010
(1) The percentages have been calculated in accordance with Instruction 3 to
Item 403 of Regulation S-B. Percentage of beneficial ownership is
calculated assuming _____ shares of common stock were outstanding on
________, 2001.
(2) Includes options to purchase 500,000 shares exercisable within 60 days of
________, 2001.
16
SECURITY OWNERSHIP OF MANAGEMENT
Name and Address of Beneficial Amount and Nature of Percentage of
Title of Class Owner Beneficial Owner Common Stock (1)
- --------------- ------ ----------------- ------------
Common stock Barry Siegel ________ (2)(3)(4) ___%
c/o driversshield.com Corp.
51 East Bethpage Road
Plainview, NY 11803
Common stock Lisa Siegel ________ (2)(3)(4) ___%
c/o Barry Siegel
driversshield.com Corp.
51 East Bethpage Road
Plainview, NY 11803
Common stock Gerald M. Zutler ________ (5) ___%
c/o driversshield.com Corp.
51 East Bethpage Road
Plainview, NY 11803
Common stock Barry J. Spiegel ________ (6) ___%
c/o driversshield.com Corp.
51 East Bethpage Road
Plainview, NY 11803
Common stock Kenneth J. Friedman ________ (7) ___%
c/o driversshield.com Corp.
51 East Bethpage Road
Plainview, NY 11803
Common Stock R. Frank Mena ________ (8) ___%
c/o driversshield.com Corp.
51 East Bethpage Road
Plainview, NY 11803
Common stock All directors & officers as a ________ ___%
group
(3) The percentages have been calculated in accordance with Instruction 3 to
Item 403 of Regulation S-B. Percentage of beneficial ownership is
calculated assuming _____ shares of common stock were outstanding on
________, 2001.
(4) Includes 3,334 shares held by Barry Siegel as custodian for two nephews
and 67 shares held directly by Barry Siegel's wife, Lisa Siegel. Both
Barry and Lisa Siegel disclaim beneficial ownership of shares held by the
other.
(5) Includes options held by Barry Siegel to purchase 366,667 shares of common
stock exercisable within 60 days of ________, 2001.
(6) Includes options held by Lisa Siegel to purchase 33,333 shares of common
stock exercisable within 60 days of ________, 2001.
(7) Includes options to purchase 465,000 shares of common stock exercisable
within 60 days of ________, 2001.
(8) Includes options to purchase 233,333 shares of common stock exercisable
within 60 days of ________, 2001.
(9) Includes options to purchase 45,000 shares of common stock exercisable
within 60 days of ________, 2001.
(10) Includes option to purchase 78,000 shares of common stock exercisable
within 60 days of ______, 2001.
17
PROPOSAL 5
RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
Our board has appointed the firm of Nussbaum Yates & Wolpow, P.C.,
independent certified public accountants, to audit our financial statements for
the year ending December 31, 2001, and is asking the shareholders to ratify this
appointment. Nussbaum Yates & Wolpow, P.C. has audited our financial statements
for the past three fiscal years. Nussbaum Yates & Wolpow, P.C. has advised us
that neither the firm nor any of its associates has any material relationship
with driversshield.com or any of its subsidiaries.
If our shareholders fail to ratify appointment of Nussbaum Yates &
Wolpow, P.C., the board will reconsider its selection. Even if the selection is
ratified, the board in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the board believes that
such a change would be in the best interests of driversshield.com and its
shareholders.
No representative of Nussbaum Yates & Wolpow, P.C. will be present at
the annual meeting.
The affirmative vote of a majority of all shares present at the
annual meeting, whether in person or by proxy, is required to approve this
proposal.
Audit Fees
Nussbaum Yates & Wolpow, P.C. billed us an aggregate of $____ in fees
for professional services rendered for the audit of our annual financial
statements for fiscal year 2000 and reviews of the financial statements included
in our Forms 10-QSB for that year.
Our board of directors recommends that shareholders vote in favor of
ratification of the selection of Nussbaum Yates & Wolpow, P.C. to serve as
driversshield.com's independent auditors for the year ended December 31, 2001.
OTHER MATTERS
We know of no other matters that will be presented for consideration
at the annual meeting. If any other matters properly come before the annual
meeting or any adjournment or postponement, it is the intention of the persons
named in the enclosed form of proxy card to vote the shares they represent as
the board may recommend.
FORWARD-LOOKING STATEMENTS
Many statements made in this proxy statement are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and are not based on
historical facts. The words "expects," "anticipates," "believes," and similar
expressions are intended to identify forward-looking statements. You should be
aware that actual results may differ materially from our expressed expectations
because of risks and uncertainties inherent in our business, particularly those
risks identified in the "Forward-Looking Statements--Cautionary Factors" section
of our Annual Report on Form 10-KSB for the year ended December 31, 2000, and
you should not rely unduly on these forward looking statements.
THE BOARD OF DIRECTORS
Dated: January __, 2001
18
PROXY CARD
DRIVERSSHIELD.COM CORP.
Annual meeting of SHAREHOLDERs
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned shareholder of driversshield.com Corp. hereby (1)
revokes all previous proxies that the undersigned has granted with respect to
the undersigned's shares of driversshield.com Corp. capital stock, (2)
acknowledges receipt of the notice of annual meeting of shareholders to be held
at 10:00 a.m. New York time on February 15, 2002, at driversshield.com Corp.'s
offices at _____________________________________ and at any adjournments
thereof, and the related proxy statement, and (3) appoints each of [name] and
[name] and as proxies of the undersigned, with full power of substitution to
vote all shares of common stock of driversshield.com Corp. that the undersigned
is entitled to vote at the annual meeting of shareholders. The shares
represented by the proxy may only be voted on the following proposals in the
manner specified below.
1. To approve our sale to PHH of all outstanding shares of capital stock
of our wholly owned subsidiary driversshield.com FS Corp. and
issuance, as part of the transaction, of shares of our Series A
preferred stock.
FOR |_| AGAINST |_| ABSTAIN |_|
2. To approve our filing a restated and amended certificate of
incorporation to change our name to "DriverShield Corp."
FOR |_| AGAINST |_| ABSTAIN |_|
3. To approve our amending our certificate of incorporation to reduce the
shareholder vote required to approve certain transactions.
FOR |_| AGAINST |_| ABSTAIN |_|
4. To elect John M. McIntyre as a member of our board of directors.
FOR |_| TO WITHHOLD AUTHORITY |_|
5. To ratify our board of directors' selection of Nussbaum Yates &
Wolpow, P.C. to audit our financial statements for the fiscal year
ending December 31, 2001.
FOR |_| AGAINST |_| ABSTAIN |_|
6. To transact such other business as may properly come before the annual
meeting and any one or more adjournments thereof.
The board of directors recommends you vote FOR the above proposals.
This proxy, when properly, executed will be voted in the manner
directed above. In the absence of direction for the above proposals, this proxy
will be voted FOR the proposals.
(Continued on the other side.)
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please print the shareholder name exactly as it appears on your stock
certificate. If the shares are registered in more than one name, the signature
of each person in whose name the shares are registered is required. A
corporation should sign in its full corporate name, with a duly authorized
officer signing on behalf of the corporation and stating his or her title.
Trustees, guardians, executors, and administrators should sign in their official
capacity, giving their full title as such. A partnership should sign in its
partnership name, with an authorized person signing on behalf of the
partnership.
Dated:______________, 2002
------------------------------------
(Print Name)
------------------------------------
(Authorized Signature)
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DRIVERSSHIELD.COM, INC.
Under Section 807 of the Business Corporation Law
driversshield.com, Inc., a corporation organized and existing under the
laws of the State of New York (the "Corporation"), hereby certifies as
follows:
1. The name of the corporation is driversshield.com, Inc. The
Corporation was originally incorporated under the name Unisearch, Inc.
2. The certificate of incorporation of the Corporation was filed by
the Department of State on the June 28, 1985.
3. The restatement of the certificate of incorporation herein
certified was authorized by the Board of Directors of the Corporation.
4. The text of the certificate of incorporation is hereby amended
and restated to read as follows:
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DRIVERSHIELD CORP.
Under Section 402 of the Business Corporation Law
FIRST: The name of the corporation (the "Corporation") is DriverShield
Corp. The Corporation was originally incorporated under the name Unisearch,
Inc.
SECOND: The certificate of incorporation of the Corporation was filed
by the Department of State on June 28, 1985.
THIRD: The offices of the Corporation are located in the Town of
Hempstead, County of Nassau, State of New York.
FOURTH: The aggregate number of shares which the corporation has the
authority to issue is twenty-one million (21,000,000), divided into two classes.
The designation of each class, the number of share of each class, and the par
value of the shares of each class, are as follows:
Number of Shares Class Par Value per Share, if any
- ---------------- ----- ---------------------------
Twenty Million (20,000,000) Common $.015
One Million (1,000,000) Preferred $.01
The relative rights, preferences and limitations of the shares of each
class are as follows:
A. Authorized Shares.
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 21,000,000 shares of which 1,000,000 shares
shall be Preferred Stock, having a par value of $0.01 per share ("Preferred
Stock"), and 20,000,000 shall be Common Stock, having a par value of $0.015 per
share (Common Stock"). The Board of Directors is expressly authorized to provide
for the classification and reclassification of any unissued shares of Preferred
Stock or Common Stock and issuance thereof in one or more classes or series
without the approval of the stockholders of the Corporation.
B. Common Stock.
1. Relative Rights. The Common Stock shall be subject to all of the
rights, privileges, preferences and priorities of the Preferred Stock as set
forth in the certificate or certificates of designation filed to establish the
respective series of Preferred Stock. Each share
-2-
of Common Stock shall have the same relative rights as and be identical in all
respects to all the other shares of Common Stock.
2. Voting Rights. Each holder of shares of Common Stock shall be entitled
to attend all special and annual meetings of the stockholders of the Corporation
and, share for share and without regard to class, together with the holders of
all other classes of stock entitled to attend such meeting and to vote (except
any class or series of stock having special voting rights), to cast one vote for
each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders, except as otherwise provided in
this Certificate of Incorporation or by applicable law.
3. Dividends. Whenever there shall have been paid or declared and set
aside for payment, to the holder of shares of any class of stock having
preference over the Common Stock as to the payment of dividends, the full amount
of dividends and of sinking fund or retirement payments, if any, to which such
holders are respectively entitled in preference to the Common Stock, then the
holders of record of the Common Stock and any class or series of stock entitled
to participate therewith as to dividends, shall be entitled to receive
dividends, when, as, and if declared by the Board of Directors, out of any
assets legally available for the payment of dividends thereon.
4. Dissolution, Liquidation, Winding Up. In the event of any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
the holders of record of the Common Stock then outstanding, and all holders of
any class or series of stock entitled to participate in the distribution of any
assets of the Corporation remaining after the Corporation shall have paid, or
set aside for payment, to the holders of any class of stock having preference
over the Common Stock in the event of dissolution, liquidation or winding up,
the full preferential amount (if any) to which they are entitled, and shall have
paid or provided for payment of all debts and liabilities of the Corporation.
C. Preferred Stock.
1. Issuance, Designations, Powers, Etc. The Board of Directors expressly is
authorized, subject to limitations prescribed by the New York Business
Corporation Law and the Provisions of this Certificate of Incorporation, to
provide, by resolution and by filing an amendment to the Certificate of
Incorporation pursuant to the New York Business Corporation Law, for the
issuance from time to time of the shares of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each series, and to fix the designation, powers, preferences and other rights of
the shares of each such series and to fix the qualifications, limitations and
restrictions thereon, including, but without limiting the generality of the
foregoing, the following:
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights
of priority, if any or payment of dividends on shares of that series;
-3-
(c) whether that series shall have voting rights, in addition to voting rights
provided by law, and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such retention, including the dates upon or
after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and
at different redemption dates;
(f) whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(g) the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that
series; and
(h) any other relative powers, preferences and rights of that series, and
qualifications, limitations or restrictions on that series.
2. Dissolution, Liquidation, Winding Up. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Preferred Stock of each series shall be entitled to receive only
such amount or amounts as shall have been fixed by the certificate or
designations or by the resolution or resolutions of the Board of Directors
providing for the issuance of such series.
D. Junior Participating Preferred Stock.
1. Designation and Amount; Rank. The shares of such series shall be
designated as "Junior Participating Preferred Stock" (the "Junior Preferred
Stock") and the number of shares constituting such series shall be 200,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of shares of
Junior Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion or exchange of
any outstanding securities issued by the Corporation convertible into or
exchangeable for Junior Preferred Stock. The Junior Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, junior to all other
series of Preferred Stock and to all other classes preferred or special stock,
and all series of any thereof, and senior to the Common Stock.
2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock and of any shares of any other class of
preferred or special stock, and
-4-
any series of any thereof, ranking prior and superior to the shares of Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of Common Stock, par value $.015
per share, of the Corporation and of any other junior stock, shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
fifteenth day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Junior Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $100.00 and (b)
the sum of (i) the Adjustment Number (as defined below) times the aggregate per
share amount of all cash dividends, and (ii) the Adjustment Number times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Junior Preferred Stock. The "Adjustment Number" shall be 1000, as adjusted from
time to time pursuant to this paragraph (A). In the event the Corporation shall
at any time after December 28 , 1998 (i) declare or pay any dividend on the
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock into a greater number of shares, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Junior Preferred Stock as provided in paragraph (a) of this Article Four Section
D immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in like shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $100.00 per share on
the Junior Preferred Stock shall, when, as and if declared by the Board of
Directors out of funds legally available for such purpose, nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Junior Preferred Stock, unless the
date of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Junior Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Junior Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such
-5-
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
3. Voting Rights. The holders of shares of Junior Preferred Stock shall
have the following voting rights:
(a) Each share of Junior Preferred Stock shall entitle the holder
thereof to a number of votes equal to the Adjustment Number (as adjusted from
time to time pursuant to Article Four Section D hereof) on all matters submitted
to a vote of the shareholders of the Corporation.
(b) Except as otherwise provided herein, in the Restated Certificate
or by-laws, the holders of shares of Junior Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of shareholders of the Corporation.
(c) (i) If at any time dividends on any Junior Preferred Stock shall
be in arrears in an amount equal to six quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") that shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly period on all shares of Junior Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, (1) the number of Directors shall be increased by two,
effective as of the time of election of such Directors as herein provided, and
(2) the holders of Junior Preferred Stock and the holders of other Preferred
Stock upon which these or like voting rights have been conferred and are
exercisable (the "Voting Preferred Stock") with dividends in arrears equal to
six quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect such two Directors.
(ii) During any default period, such voting right of the
holders of Junior Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Article Four Section D or
at any annual meeting of shareholders, and thereafter at annual meetings of
shareholders, provided that such voting right shall not be exercised unless the
holders of at least one-third in number of the shares of Voting Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Voting Preferred Stock of such voting right.
(iii) Unless the holders of Voting Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any shareholder or
shareholders owning in the aggregate not less than 10% of the total number of
shares of Voting Preferred Stock outstanding, irrespective of series, may
request, the calling of a special meeting of the holders of Voting Preferred
Stock, which meeting shall thereupon be called by the Chairman of the Board, the
President, the Chief Executive Officer, any Vice President or the Secretary of
the Corporation. Notice of such
-6-
meeting and of any annual meeting at which holders of Voting Preferred Stock are
entitled to vote pursuant to this paragraph (3)(C)(iii) shall be given to each
holder of record of Voting Preferred Stock by mailing a copy of such notice to
him at his last address as the same appears on the books of the Corporation.
Such meeting shall be called for a time not earlier than 10 days and not later
than 60 days after such order or request or, in default of the calling of such
meeting within 60 days after such order or request, such meeting may be called
on similar notice by any shareholder or shareholders owning in the aggregate not
less than 10% of the total number of shares of Voting Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph (3)(C)(iii), no
such special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
shareholders.
(iv) In any default period, after the holders of Voting
Preferred Stock shall have exercised their right to elect Directors voting as a
class, (x) the Directors so elected by the holders of Voting Preferred Stock
shall continue in office until their successors shall have been elected by such
holders or until the expiration of the default period, and (y) any vacancy in
the Board of Directors may be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class or classes of stock
which elected the Director whose office shall have become vacant. References in
this paragraph (3)(C)(iv) to Directors elected by the holders of a particular
class or classes of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x)
the right of the holders of Voting Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Voting
Preferred Stock as a class shall terminate and (z) the number of Directors shall
be such number as may be provided for in or pursuant to the Restated Certificate
or By-Laws irrespective of any increase made pursuant to the provisions of this
paragraph (3)(C)(v) (such number being subject, however, to change thereafter in
any manner provided by law or in the Restated Certificate or By-Laws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
Directors.
(d) Except as set forth herein, holders of Junior Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
4. Certain Restrictions. (a) Whenever quarterly dividends or other
dividends or distributions payable on the Junior Preferred Stock as provided in
Article Four Section D are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Junior
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends on, or make any other distributions on, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any shares
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up)
-7-
with the Junior Preferred Stock, except dividends paid ratably on the
Junior Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (as to dividends and upon dissolution,
liquidation or winding up) to the Junior Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Junior
Preferred Stock, or any shares of stock ranking on a parity with the
Junior Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section D(4), purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Junior Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock,
without serial designation, and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (A)
to the holders of Common Stock or shares of other stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the Junior
Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred
Stock shall have received per share an amount equal to the Adjustment Number
times $1.00, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(B) to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
7. Consolidation, Merger, Etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Junior
Preferred Stock then outstanding shall at the same time be
-8-
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. The shares of Junior Preferred Stock shall not be
redeemable.
9. Amendment. The Certificate of Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Junior Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds of the
outstanding shares of Junior Preferred Stock, voting together as a single class.
10. Fractional Shares. At the Corporation's sole discretion, Junior
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Junior Preferred Stock.
E. Series A Convertible Preferred Stock.
1. Designation and Amount. Of the 1,000,000 authorized shares of Preferred
Stock, 1,000 shares are hereby designated "Series A Convertible Preferred Stock"
(the "Series A Preferred Stock") and possess the rights and preferences set
forth below:
2. Initial Value. The initial value of each share of Series A Preferred
Stock (the "Series A Initial Value") is $1,000, subject to adjustment for stock
dividends, combinations, splits, recapitalizations and the like with respect to
the Series A Preferred Stock.
3. Dividends. Each share of Series A Preferred Stock is entitled to
receive dividends in an amount equal to dividends declared and paid with respect
to that number of shares of Common Stock into which one share of Series A
Preferred Stock is then convertible, which dividends are payable as and when
paid to holders of Common Stock.
4. Liquidation. (a) Upon occurrence of a liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary (any such event,
a "Liquidating Event"), each holder of shares of Series A Preferred Stock will
be entitled to receive out of the remaining assets of the Corporation available
for distribution to stockholders, before any distribution of assets is made to
holders of Common Stock or any other stock of the Corporation ranking junior to
the Series A Preferred Stock as to dividends or liquidation rights, including
without limitation the Junior Preferred Stock, an amount per share of Series A
Preferred Stock (this amount, the "Series A Liquidation Amount") equal to 125%
of the Series A Initial Value plus an amount equal to all accumulated and unpaid
dividends (whether or not declared by the board of directors) on each share up
to the date fixed for distribution. After payment of the full Series A
Liquidation Amount, holders of shares of Series A Preferred Stock will not be
entitled to participate any further in any distribution of assets by the
Corporation. If upon occurrence of a Liquidating Event the assets of the
Corporation available for distribution to its stockholders are insufficient to
pay the holders of the Series A Preferred Stock the full Series A Liquidation
Amount, holders of Series A Preferred Stock will share ratably in any
distribution of assets so
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that each such holder receives, per share, the same percentage of the Series A
Liquidation Amount.
(b) Subject to applicable law, any non-cash assets of the
Corporation that are legally available for distribution upon liquidation,
dissolution, or winding up of the Corporation must be promptly liquidated by a
liquidating trust or similar entity.
(c) A reorganization, consolidation or merger of the Corporation or
a sale or other disposition of all or substantially all the assets of the
Corporation will, at the election of holders of a majority of the
then-outstanding shares of Series A Preferred Stock, constitute a Liquidating
Event for purposes of this Section E.4.
5. Optional Conversion. Each share of Series A Preferred Stock is
convertible at the option of the holder into a number of fully paid and
nonassessable shares of Common Stock determined by dividing the Series A Initial
Value by the conversion price for the Series A Preferred Stock (the "Conversion
Price") in effect on the date the certificate is surrendered for conversion as
provided in Section E.5(b). The Conversion Price is initially $2.00, but is
subject to adjustment as provided in Section E.6.
(b) Any holder of one or more shares of Series A Preferred Stock may
exercise the conversion right under Section E.5(a) as to any one or more of
those shares by delivering to the Corporation during regular business hours, at
the office of the Corporation or any transfer agent of the Corporation for the
Series A Preferred Stock as may be designated by the Corporation, the one or
more certificates for the shares to be converted, duly endorsed or assigned in
blank or to the Corporation (if required by it), accompanied by written notice
stating that the holder is electing to convert those shares and stating the name
or names (with address) in which the one or more certificates for shares of
Common Stock are to be issued. Conversion will be deemed to have been effected
on the date when a holder delivers as required by the previous sentence the one
or more certificates for the shares to be converted (that date, the "Conversion
Date"). As promptly as practicable thereafter, but in any event not later than
10 business days following the Conversion Date, the Corporation shall issue and
deliver to or upon the written order of the holder, to the place designated by
the holder, the one or more certificates representing the shares of Common Stock
to which the holder is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock as provided in Section E.5(c). The Person in
whose name one or more certificates for Common Stock are to be issued will be
deemed to have become a Common Stock holder of record on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event that Person will be deemed to have become a holder of
record on the next succeeding date on which the transfer books are open, but the
applicable Conversion Price will be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series A Preferred Stock surrendered for conversion, the
Corporation shall at its expense issue and deliver to or upon the written order
of the holder of the certificate so surrendered for conversion, in addition to
one or more certificates representing the shares of Common Stock to which shares
of Series A Preferred Stock of the holder were converted, a new certificate
(dated so as not to result in any loss of dividends) covering the number of
shares of the Series A Preferred Stock representing the unconverted portion of
the certificate so surrendered.
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(c) The Corporation will not issue any fractional shares of Common
Stock or scrip upon conversion of shares of Series A Preferred Stock. If more
than one share of Series A Preferred Stock is surrendered for conversion at any
one time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof must be computed on the basis of the aggregate number of
shares of Series A Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the Corporation shall pay a cash amount
equal to the then Current Market Price of a share of Common Stock on the trading
day immediately preceding the Conversion Date multiplied by the fractional
interest. Fractional interests are not entitled to dividends and holders of
fractional interests are not entitled to any rights as stockholders of the
Corporation in respect of those fractional interests. If the Corporation cannot
legally pay any such cash amount, the Corporation shall pay it as soon
thereafter as funds are legally available.
(d) The Corporation shall pay all documentary or stamp taxes
attributable to issuance or delivery of shares of Common Stock upon conversion
of any shares of Series A Preferred Stock, if issued in the name of the record
holder.
(e) The Corporation shall reserve, free from preemptive rights, out
of its authorized but unissued shares of Common Stock and solely for the purpose
of effecting conversion of the shares of Series A Preferred Stock sufficient
shares to provide for the conversion of all outstanding shares of Series A
Preferred Stock.
(f) All shares of Common Stock issued upon conversion of shares of
Series A Preferred Stock will, upon issuance by the Corporation, be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership thereof, and free from all taxes, liens or charges with respect
thereto.
(g) As used in this Section E.5, "Current Market Price" means, with
respect to the Common Stock as of any date, the following:
(1) the mean between the highest and lowest quoted selling prices on the
Nasdaq SmallCap Market (or any other securities exchange or trading market
where the Common Stock is listed or traded) for that date or, if there are
no sales on that date, the nearest preceding date on which there were one
or more sales; or
(2) if the Common Stock is not listed or traded on any securities exchange or
trading market, the fair market value of a share of Common Stock,
determined as follows:
(A) the board of directors shall determine the fair market value, and
the Corporation shall give to holders of shares of Series A
Preferred Stock written notice of that determination and the
methodology used by the board of directors in arriving at that
determination (that notice, a "Value Notice");
(B) if the Corporation and holders of a majority of the shares of Series
A Preferred Stock then outstanding agree in writing, no later than
15 days after the date of the Value Notice, that the board of
director's determination represents the fair market value, then that
determination will apply;
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(C) if there is no such agreement, then no later than 21 days after the
date of the Value Notice the Corporation, on the one hand, and
holders of a majority of the shares of Series A Preferred Stock then
outstanding, on the other hand, shall jointly select an independent
appraiser whose determination of value will be binding on the
Corporation and each holder of shares of Series A Preferred Stock;
(D) if the Corporation and holders of a majority of the shares of Series
A Preferred Stock then outstanding are unable to agree upon the
selection of an appraiser, then no later than 28 days after the date
of the Value Notice the Corporation, on the one hand, and holders of
a majority of the shares of Series A Preferred Stock then
outstanding, on the other hand, shall deliver to the other a list of
three independent appraisers, who must be recognized investment
banks, and shall select, by written notice to the other, one
appraiser from the list delivered by the other;
(E) if either party fails to timely deliver a list of appraisers or
select an appraiser from the list provided by the other party, the
other party may select an appraiser from its list and that appraiser
will serve as the sole appraiser;
(F) the appraiser or appraisers selected must, within 15 days of being
selected, determine the value of the consideration other than cash;
(G) if two appraisers are selected and the lower of the two appraisals
is at least 90% of the higher appraisal, then the value will equal
the average of the two appraisals, but if the lower of the two
appraisals is less than 90% of the higher appraisal, then the two
appraisers must appoint a third independent appraiser no later than
seven days after the end of the 15-day period, and that third
appraiser must, within 15 days of being selected, determine the
value, which will be equal to the average of all three appraisals;
(H) any determination of the value in accordance with this clause (2)
will be binding on the Corporation and each holder of Series A
Preferred Stock; and
(I) the Corporation shall bear all expenses and fees incurred in
connection with the appraisal process.
6. Adjustment to Conversion Price. The Conversion Price is subject to
adjustment from time to time as follows:
(a) If the Corporation issues, after the date upon which any shares
of Series A Preferred Stock were first issued (the "Original Issue Date"), any
shares of Common Stock other than Excluded Securities (as defined below)
("Additional Stock") without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to that issuance of
Additional Stock, the Conversion Price in effect immediately prior to each such
issuance will automatically be adjusted to the price paid per share for that
Additional Stock. For purposes of any adjustment of the Conversion Price
pursuant to this Section E.6(a), the following provisions apply:
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(1) In the case of issuance of Additional Stock for cash, the consideration
will be deemed to be the amount of cash paid therefor after deducting any
reasonable discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in
connection with the issuance.
(2) In the case of issuance of Additional Stock for a consideration in whole
or in part other than cash, the value of consideration other than cash
will be deemed to be its fair value, determined as follows:
(A) the board of directors shall determine the fair value of that
consideration, and the Corporation shall give to holders of shares
of Series A Preferred Stock written notice of that determination and
the methodology used by the board of directors in arriving at that
determination (that notice, a "Value Notice");
(B) if the Corporation and holders of a majority of the shares of Series
A Preferred Stock then outstanding agree in writing, no later than
15 days after the date of the Value Notice, that the board of
director's determination represents the fair value of that
consideration, then that determination will apply;
(C) if there is no such agreement, then no later than 21 days after the
date of the Value Notice the Corporation, on the one hand, and
holders of a majority of the shares of Series A Preferred Stock then
outstanding, on the other hand, shall jointly select an independent
appraiser whose determination of value will be binding on the
Corporation and each holder of shares of Series A Preferred Stock;
(D) if the Corporation and holders of a majority of the shares of Series
A Preferred Stock then outstanding are unable to agree upon the
selection of an appraiser, then no later than 28 days after the date
of the Value Notice the Corporation, on the one hand, and holders of
a majority of the shares of Series A Preferred Stock then
outstanding, on the other hand, shall deliver to the other a list of
three independent appraisers, who must be recognized investment
banks, and shall select, by written notice to the other, one
appraiser from the list delivered by the other;
(E) if either party fails to timely deliver a list of appraisers or
select an appraiser from the list provided by the other party, the
other party may select an appraiser from its list and that appraiser
will serve as the sole appraiser;
(F) the appraiser or appraisers selected must, within 15 days of being
selected, determine the value of the consideration other than cash;
(G) if two appraisers are selected and the lower of the two appraisals
is at least 90% of the higher appraisal, then the value will equal
the average of the two appraisals, but if the lower of the two
appraisals is less than 90% of the higher appraisal, then the two
appraisers must appoint a third independent appraiser no later than
seven days after the end of the 15-day period, and that third
appraiser must, within 15 days of being selected, determine the
value, which will be equal to the average of all three appraisals;
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(H) any determination of the value in accordance with this clause (2)
will be binding on the Corporation and each holder of Series A
Preferred Stock; and
(I) the Corporation shall bear all expenses and fees incurred in
connection with the appraisal process.
(3) In the case of issuance of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable
for Common Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions apply:
(A) the aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for
Common Stock will be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Sections
E.6(a)(1) and E.6(a)(2)), if any, received by the Corporation upon
the issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common Stock
covered thereby;
(B) the aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for any such convertible or exchangeable
securities and subsequent conversion or exchange thereof will be
deemed to have been issued at the time those securities were issued
or those options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for those
securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus
the additional minimum consideration, if any, to be received by the
Corporation upon the conversion or exchange of those securities or
the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in Sections
E.6(a)(1) and E.6(a)(2));
(C) on any change in the number of shares of Common Stock deliverable
upon exercise of any such options or rights or conversion of or
exchange for any such convertible or exchangeable securities or any
change in the consideration to be received by the Corporation upon
the exercise of any such options or rights or conversion of or
exchange for any such convertible or exchangeable securities, other
than a change resulting from the antidilution provisions thereof,
the Conversion Price will forthwith be readjusted to the Conversion
Price as would have obtained had the adjustment made upon the
issuance of those options, rights or securities not exercised,
converted or exchanged prior to that change or options or rights
related to those securities not exercised, converted or exchanged
prior to such change been made upon the basis of that change; and
(D) on expiration of any such options or rights, termination of any such
rights to convert or exchange, or expiration of any options or
rights related to such convertible or exchangeable securities, the
Conversion Price will forthwith be
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readjusted to the Conversion Price as would have obtained had the
adjustment made upon the issuance of such options, rights,
securities or options or rights related to such securities been made
upon the basis of the issuance of only the number of shares of
Common Stock actually issued upon exercise of those options or
rights, upon conversion or exchange of those securities or upon the
exercise of the options or rights related to those securities and
subsequent conversion or exchange thereof.
(b) If, at any time after the Original Issue Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, upon the record date fixed for determining holders of Common Stock
entitled to receive that stock dividend or upon the date of that subdivision or
split-up, as applicable, the Conversion Price will be appropriately decreased so
as to increase the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock in proportion to that increase in
outstanding shares of Common Stock.
(c) If, at any time after the Original Issue Date, the number of
shares of Common Stock outstanding is decreased by a combination or reverse
split of the outstanding shares of Common Stock, then, upon the date of that
combination or reverse split, the Conversion Price will be appropriately
increased so as to decrease the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock in proportion to that
decrease in outstanding shares of Common Stock.
(d) Subject to the provisions in Section 4(c), in the event, at any
time after the Original Issue Date, of any capital reorganization or any
reclassification of the stock of the Corporation (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or consolidation or merger of the Corporation with or into another Person (other
than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any change in or any change in
ownership of the Common Stock) or of sale or other disposition of all or
substantially all the properties and assets of the Corporation as an entirety to
any other Person, each share of Series A Preferred Stock will after that
reorganization, reclassification, consolidation, merger, sale or other
disposition be convertible into the kind and number of shares of stock or other
securities or property of the Corporation, or of the corporation resulting from
that consolidation or surviving that merger or to which those properties and
assets were sold or otherwise disposed, to which the holder of the number of
shares of Common Stock deliverable (immediately prior to the time of that
reorganization, reclassification, consolidation, merger, sale or other
disposition) upon conversion of those shares of Series A Preferred Stock would
have been entitled upon such reorganization, reclassification, consolidation,
merger, sale or other disposition. The provisions of this Section E.6 will
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, or other dispositions.
(e) Whenever the Conversion Price is adjusted as provided in this
Section E.6, the Corporation shall forthwith file, at the office of the
Corporation or any transfer agent designated by the Corporation for the Series A
Preferred Stock, a statement, signed by its chief financial officer, showing in
detail the facts requiring that adjustment, the Conversion Price then in effect,
and computations demonstrating how the adjusted Conversion Price was arrived at.
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The Corporation shall also cause a copy of such statement to be sent by
first-class certified mail, return receipt requested, postage prepaid, to each
holder of shares of Series A Preferred Stock at its address appearing on the
Corporation's records. Where appropriate, this copy may be given in advance and
may be included as part of a notice required to be mailed under the provisions
of Section E.6(f).
(f) If the Corporation proposes to take any action of the types
described in Section E.6(d), the Corporation shall give notice to each holder of
shares of Series A Preferred Stock, in the manner set forth in Section E.6(e),
specifying the record date, if any, with respect to that action and the date on
which that action is to take place and setting forth any facts reasonably
necessary to indicate the effect of that action (to the extent that effect may
be known at the date of that notice) on the Conversion Price and the number,
kind, or class of shares or other securities or property deliverable or
purchasable upon occurrence of that action or deliverable upon conversion of
shares of Series A Preferred Stock. In the event of any action that would
require the fixing of a record date, any notice required under this Section
E.6(f) must be given at least 20 days prior to the date so fixed, and in case of
all other actions, any such notice must be given at least 30 days prior to the
action is taken. Failure to give such notice, or any defect therein, will not
affect the legality or validity of any such action.
(g) As used in this Section E.6, "Excluded Securities" means as
follows:
(1) options to purchase or rights to subscribe for shares of Common Stock that
the Corporation issues to any director, officer, or employee of, or
consultant to, the Corporation or any subsidiary of the Corporation under
any stock option plan of the Corporation approved by the board of
directors;
(2) shares of Common Stock issued upon the conversion of other securities
of the Corporation;
(3) shares of Common Stock issued as a stock dividend or upon any stock split
or other subdivision or combination of Common Stock; and
(4) shares of Common Stock issued pursuant to a firm-commitment underwritten
public offering under an effective registration statement.
7. Voting Rights. Each holder of shares of Series A Preferred Stock is
entitled to one vote for each share of Common Stock into which each share of
Series A Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to that vote, each holder has full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock and
is entitled to vote, together with holders of Common Stock and not as a separate
class (except as required by law), with respect to any question upon which
holders of Common Stock have the right to vote. Any adjustment to the Conversion
Price pursuant to Section E.6 will not affect the voting rights provided for in
this Section E.7.
8. Protective Rights. The Corporation shall not do any of the following
without the approval (given by written consent in lieu of a meeting or by vote
at a meeting for which notice has been given in the manner specified in the
bylaws of the Corporation) of holders of shares representing a majority of the
shares of Series A Preferred Stock then outstanding:
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(1) amend, alter, or repeal any provision of the Corporation's certificate of
incorporation or bylaws if that amendment, alteration, or repeal would
affect the rights, powers, or preferences of holders of Series A Preferred
Stock in their capacity as such;
(2) authorize or issue any equity or debt security on a parity with or having
preference or priority over the Series A Preferred Stock as to liquidation
preferences, dividend rights, voting rights, or otherwise;
(3) declare and pay, or set aside funds for the payment of, any dividend with
respect to, or redeem, repurchase, or otherwise acquire for value (or pay
into or set aside for a sinking fund for that purpose), any shares of
capital stock, except for repurchase shares of Common Stock from employees
or consultants of the Corporation at the original purchase price thereof
pursuant to vesting agreements approved by the board of directors;
(4) authorize or issue any equity or debt security with a liquidation
preference in excess of the amount paid for that security; and
(5) incur, or cause any Affiliate to incur, any indebtedness for borrowed
money, or assume or guarantee, or cause any Affiliate to assume or
guarantee, the indebtedness of any other Person, in excess of $5,000,000
in the aggregate.
9. Board Representation. (a) Until such time as PHH Vehicle Management
Services, LLC ("PHH VMS") and its Affiliates no longer own at least 500 shares
of Series A Preferred Stock (as adjusted to give effect to stock dividends,
stock splits, recapitalizations, and the like with respect to the Series A
Preferred Stock), PHH VMS has the right to elect one director of the Corporation
(herein referred to as the "Series A Director"). The Series A Director must be
either the chief executive officer or chief operating officer of PHH VMS or an
individual who is nominated by PHH VMS and consented to by the Corporation.
(b) The Series A Director must be elected by the affirmative vote of
the holders of record of a majority of the outstanding shares of Series A
Preferred Stock, either at a meeting of stockholders at which directors are
elected or at a special meeting of holders of shares of Series A Preferred Stock
or by written consent without a meeting in accordance with the Corporation's
bylaws and applicable law. The Series A Director will serve for a term of one
year and until his successor is elected and qualified. Any vacancy in the
position of the Series A Director must be elected by the affirmative vote of the
holders of record of a majority of the outstanding shares of Series A Preferred
Stock.
(c) To the extent permitted by applicable law, the Series A Director
may, during his term of office, only be removed, with or without cause, by the
affirmative vote of the holders of record of a majority of the outstanding
shares of Series A Preferred Stock, either at a special meeting of holders of
shares of Series A Preferred Stock or by written consent without a meeting in
accordance with the Corporation's bylaws and applicable law. Any vacancy created
by removal of the Series A Director may also be filled at any such meeting or by
any such consent in accordance with this Section E.9.
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(d) For as long as the Series A Preferred Stock is entitled to elect
the Series A Director, the Series A Preferred Stock is entitled to have an
employee of PHH VMS or any of its Affiliates participate as an observer at
meetings of the Corporation's board of directors.
10. Right of Participation. Each holder of one or more shares of Series A
Preferred Stock is entitled to purchase that holder's Pro Rata Portion of any
New Securities that the Corporation from time to time issues.
(b) The "Pro Rata Portion" of any New Securities means, with respect
to any holder of shares of Series A Preferred Stock, a proportion of those New
Securities equal to the proportion of (1) the sum of (A) all of shares of Common
Stock then outstanding, (B) all shares of Common Stock issuable upon conversion
of all shares of Series A Preferred Stock then outstanding and any other
securities of the Corporation then outstanding that are convertible into shares
of Common Stock, and (C) all shares of Common Stock issuable upon exercise of
any warrants or options then outstanding, that is represented by (2) all shares
of Common Stock then issuable upon conversion of all shares of Series A
Preferred Stock then outstanding held by that holder.
(c) "New Securities" means (1) any shares of Common Stock or
Preferred Stock, (2) any rights, options, or warrants to purchase shares of
Common Stock or Preferred Stock, (3) any securities that are or may become
convertible into or exchangeable for shares of Common Stock or Preferred, or (4)
any rights, options, or warrants to purchase such convertible or exchangeable
securities that, in each case, the Corporation issues after ________, 2002, but
does not include Excluded Securities.
(d) If the Corporation proposes to issue New Securities, it shall
give each holder of shares of Series A Preferred Stock written notice of that
issuance, describing the type of New Securities and the price and general terms
upon which the Corporation proposes to issue them. If a holder of shares of
Series A Preferred Stock wishes to purchase any New Securities, it must within
15 days of its receipt of any such notice provide the Corporation with a written
notice stating that it wishes to purchase New Securities for the price and upon
the terms specified in the notice and stating how many New Securities (not to
exceed that holder's Pro Rata Portion) it wishes to purchase.
(e) If any holder of shares of Series A Preferred Stock exercises
its right under Section E.10(a), the closing of the purchase by that holder of
the New Securities with respect to which it has exercised its right must take
place within 30 days after the holder of shares of Series A Preferred Stock
gives notice of its exercise. This period of time will be extended if necessary
to permit the Corporation or that holder to comply with applicable law. Upon any
exercise by any holder of shares of Series A Preferred Stock of its right under
Section E.10(a), the Corporation and that holder shall use commercially
reasonable efforts to consummate the purchase contemplated thereby and shall use
all reasonable efforts to secure any approvals required in connection therewith.
(f) If any holder of shares of Series A Preferred Stock fails to or
elects not to exercise its right under Section E.10(a) within the 15-day period
specified in Section E.10(d), the remaining holders of shares of Series A
Preferred Stock that have elected to purchase their Pro
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Rata Portions will be entitled to purchase any New Securities that remain
unpurchased. Each such holder will have the right to purchase those New
Securities in the proportion their respective Pro Rata Portions. All such
purchases must be made within the period specified for closing specified in
Section E.10(e). If after that period any New Securities remain unpurchased, the
Corporation may within 90 days sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby will be closed, if at all,
within 60 days from the date of that agreement) to sell those New Securities at
the price and upon the terms specified in the notice delivered by the
Corporation pursuant to Section E.10(d). If the Corporation has not sold the New
Securities or entered into an agreement to sell the New Securities within that
90-day period (or sold and issued New Securities in accordance with the
foregoing within 60 days of the date of any agreement to sell those New
Securities), the Corporation may not thereafter issue or sell any New Securities
without first offering those New Securities to the holders of shares of Series A
Preferred Stock in the manner provided in this Article 3. Any offer by the
Corporation of New Securities in addition to those specified in the notice
described in Section E.10(d), whether on the same or different terms as are
specified therein, must comply with the terms of this Section E.10.
11. Information Rights. The Company shall promptly send to each holder of
shares of Series A Preferred Stock annual audited financial statements and
quarterly unaudited financial statements, annual budgets, any notice of
shareholder meetings required by New York law, and such other information as a
holders of a majority of outstanding shares of Series A Preferred Stock
reasonably request.
12. Definitions. As used in this Article Fourth Section E, the following
terms have the following meanings:
"Affiliate" means, with respect to any given Person, any other Person at
the time directly or indirectly controlling, controlled by or under common
control with that Person. For purposes of this definition, "control" means the
possession, directly or indirectly, and solely or with others, of the power to
direct or cause the direction of the management and policies of a Person through
ownership of voting securities.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, governmental
authority or other entity.
FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is:
First Priority Group c/o Lawrence Muenz, Esq., 51 E Bethpage Road, Plainview, NY
11803.
SIXTH: The duration of the Corporation is to be perpetual
SEVENTH: The following provisions are inserted for the regulation and
conduct of the affairs of the Corporation and it is expressly provided that they
are intended to be in furtherance and not in limitation or exclusion of the
powers conferred by statute:
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(a) Meetings of the shareholders or directors of the Corporation for
all purposes may be held at its office or elsewhere within or without the State
of New York, at such place or places as may from time to time be designated in
the by-laws, or by unanimous resolution of the board of directors.
(b) All corporate powers except those which by law expressly require
the consent of the shareholders shall be exercised by the board of directors.
(c) The board of directors shall have the power from time to time to
fix and determine and vary the amount of the working capital of the Corporation,
and to direct and determine the use and disposition of any surplus or net
profits over and above its capital, and in its discretion, the board of
directors may use and apply any such surplus or accumulated profits in
purchasing or acquiring bonds or other obligations of the corporation or its own
capital shares, to such extent and in such manner and upon such terms as the
board of directors shall deem expedient, but any such capital shares so
purchased or acquired may be resold unless such shares shall have been retired
in the manner provided by law for the purpose of decreasing the Corporation's
capital.
(d) Any one or more or all of the directors may be removed with or
without cause, at any time, by the vote of the shareholders holding a majority
of the shares of the Corporation entitled to vote at any special meeting and
thereupon the term of such director or directors who shall have been so removed
shall forthwith terminate, and there shall be a vacancy or vacancies in the
board of directors to be filled as provided in the by-laws.
(e) Subject always to by-laws made by the shareholders, the board of
directors may make by-laws and from time to time may alter, amend or repeal any
by-laws, but any by-laws made by the board of directors may be altered or
repealed by the shareholders.
(f) Any one or more members of the board of directors of the
Corporation or of any committee thereof may participate in a meeting of said
board or of any such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time.
EIGHTH: No holder of any of the shares of any class of the Corporation
shall be entitled as a right to subscribe for, purchase, or otherwise acquire
any shares of any class of the Corporation which the Corporation proposes to
issue or any rights or options which the Corporation proposes to grant for the
purchase of shares of any class of the Corporation or for the purchase of any
shares, bonds, securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any rights, to subscribe
for, purchase or otherwise acquire shares of any class of the Corporation; any
and all such shares, bonds, securities, or obligations of the Corporation, which
are new or are hereafter authorized or created, may be issued, or may be
reissued or transferred if the same have been reacquired and have treasury
status, and any and all of such rights and options may be granted by the board
of directors to such persons, firms, corporations and associations, and for such
lawful consideration, and on such terms as the board of directors in its
discretion may determine without first offering the same, or any thereof, to any
said holder. Without limiting the generality of the foregoing stated denial of
any and all preemptive rights, no holder of shares of any class of the
Corporation
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shall have any preemptive rights in respect of matters, proceedings, or
transaction specified in paragraphs (1) to (6) inclusive, of paragraph (a) of
Section 622 of the New York Business Corporation Law.
NINTH: Except as may otherwise be specifically provided in this
certificate of incorporation, no provision of this certificate of incorporation
is intended by the corporation to be construed as limiting, prohibiting, denying
or abrogating any of the general or specific powers or rights conferred under
the New York Business Corporation Law upon the Corporation, upon its
shareholders, bondholders and security holders, and upon its directors, officers
and other corporate personnel including, in particular, the power of the
Corporation to furnish indemnification to directors and officers in the
capacities defined and prescribed rights of said persons in indemnification as
the same are conferred by the New York Business Corporation Law.
TENTH: The affirmative vote of a majority of all outstanding shares
entitled to vote thereon is required to approve (1) a plan of merger or
consolidation involving the Corporation, (2) a sale, lease, exchange or other
disposition of all or substantially all of the Corporation's assets not in the
ordinary course of business, and (3) a binding share exchange involving the
Corporation.
The undersigned is executing this certificate on __________, 2002.
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Barry Siegel
Chairman and CEO
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Exhibit B
FIRST PRIORITY GROUP, INC.
UNANIMOUS WRITTEN CONSENT IN LIEU OF MEETING OF
THE BOARD OF DIRECTORS
June 13, 2000
The undersigned, being all of the members of the Board of Directors
of First Priority Group, Inc., a New York corporation (the "Company"), do hereby
consent, pursuant to Section 708 of the Business Company Law of the State of New
York, to the adoption of the following resolutions taking or authorizing the
actions specified therein:
RESOLVED, that the charter and powers of the Audit Committee of the
Board of Directors (the "Audit Committee") shall be:
o Overseeing that management has maintained the reliability and
integrity of the accounting policies and financial reporting
and disclosure practices of the Company;
o Overseeing that management has established and maintained
processes to assure that an adequate system of internal
control is functioning within the Company;
o Overseeing that management has established and maintained
processes to assure compliance by the Company with all
applicable laws, regulations and Company policy;
RESOLVED, that the Audit Committee shall have the following specific
powers and duties:
1. Holding such regular meetings as may be necessary and such
special meetings as may be called by any member of the Audit Committee or at the
request of the independent accountants;
2. Creating an agenda for the ensuing year;
3. Reviewing the performance of the independent accountants and
making recommendations to the Board of Directors regarding the appointment or
termination of the independent accountants;
4. Conferring with the independent accountants and the internal
auditors concerning the scope of their examinations of the books and records of
the Company and its subsidiaries; reviewing and approving the independent
accountants' annual engagement letter; reviewing and approving the Company's
internal audit charter, annual audit plans and budgets; directing the special
attention of the auditors to specific matters or areas deemed by the
Committee or the auditors to be of special significance; and authorizing the
auditors to perform such supplemental reviews or audits as the Committee may
deem desirable;
5. Reviewing with management, the independent accountants and
internal auditors significant risks and exposures, audit activities and
significant audit findings;
6. Reviewing the range and cost of audit and non-audit services
performed by the independent accountants;
7. Reviewing the Company's audited annual financial statements and
the independent accountants' opinion rendered with respect to such financial
statements, including reviewing the nature and extent of any significant changes
in accounting principles or the application therein;
8. Reviewing the adequacy of the Company's systems of internal
control;
9. Obtaining from the independent accountants and internal auditors
their recommendations regarding internal controls and other matters relating to
the accounting procedures and the books and records of the Company and its
subsidiaries and reviewing the correction of controls deemed to be deficient;
10. Providing an independent, direct communication between the Board
of Directors, internal auditors and independent accountants;
11. Reviewing the adequacy of internal controls and procedures
related to executive travel and entertainment;
12. Reviewing with appropriate Company personnel the actions taken
to ensure compliance with the Company's Code of Conduct and the results of
confirmations and violations of such Code;
13. Reviewing the programs and policies of the Company designed to
ensure compliance with applicable laws and regulations and monitoring the
results of these compliance efforts;
14. Reviewing the procedures established by the Company that monitor
the compliance by the Company with its loan and indenture covenants and
restrictions;
15. Reporting through its Chairman to the Board of Directors
following the meetings of the Audit Committee;
16. Maintaining minutes or other records of meetings and activities
of the Audit Committee;
17. Reviewing the powers of the Committee annually and reporting and
making recommendations to the Board of Directors on these responsibilities;
18. Conducting or authorizing investigations into any matters within
the Audit Committee's scope of responsibilities. The Audit Committee shall be
empowered to retain independent counsel, accountants, or others to assist it in
the conduct of any investigation;
19. Considering such other matters in relation to the financial
affairs of the Company and its accounts, and in relation to the internal and
external audit of the Company as the Audit Committee may, in its discretion,
determine to be advisable.
Signed: /s/ Barry Siegel Dated: May 30, 2000
----------------------
Barry Siegel
Signed: /s/ Barry J. Spiegel Dated: May 30, 2000
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Barry J. Spiegel
Signed: /s/ Kenneth J. Friedman Dated: May 30, 2000
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Kenneth J. Friedman
Signed: /s/ R. Frank Mena Dated: May 30, 2000
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R. Frank Mena