As filed with the Securities and Exchange Commission on June 28, 1996
Registration No.333-1634
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
SPORTSTRAC, INC.
(Name of small business issuer in its charter)
Delaware 7380 84-1320893
-------- ---- ----------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
(303) 771-3733
(Address and telephone number
of principal executive offices and principal place of business)
Marc Silverman
Chief Executive Officer
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
(303) 771-3733
(Name, address and telephone number of agent for service)
Copies to:
Hartley T. Bernstein, Esq. Michael F. Mulpeter, Esq.
Bernstein & Wasserman, LLP Cohn & Birnbaum P.C.
950 Third Avenue 100 Pearl Street
New York, NY 10022 Hartford, CT 06103-4500
(212) 826-0730 (203) 493-2200
(212) 371-4730 (Fax) (203) 727-0361 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: | X |
continued overleaf
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
====================================================================================================================================
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered (1) Offering Price Per Aggregate Offering Price Fee
Security (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,300,000 $3.00 $6,900,000 $2,379.12
(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (3) 1,150,000 $0.25 $287,500 $99.13
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share,
underlying Class A Warrants 1,150,000 $3.60 $4,140,000 $1,427.47
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter's Option to purchase shares
of Common Stock and Class A Warrants (4) 200,000 $0.005 $100 $0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share,
underlying Underwriter's Option (4) 200,000 $3.60 $720,000 $248.27
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants underlying Underwriters
Option (4) 100,000 $0.30 $30,000 $10.34
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, exercisable par value
$.01, underlying Class A Warrants in
Underwriter's Option 100,000 $3.60 $360,000 $124.13
- ------------------------------------------------------------------------------------------------------------------------------------
Selling Securityholders
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share (5) 480,000 $3.00 $1,440,000 $496.51
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Warrants (6) 2,000,000 $0.25 $500,000 $172.40
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share (7) 2,000,000 $3.60 $7,200,000 $2,482.56
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share (8) 1,710,000 $3.00 $5,130,000 $1,768.82
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $27,457,600 $9,467.38 (9)
====================================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock as may be issued by reason of adjustments in the
number of shares of Common Stock pursuant to anti-dilution provisions
contained in the Warrant Agreement governing the Class A Warrants ("Class A
Warrants") Underwriter's Option. Because such additional shares of Common
Stock will, if issued, be issued for no additional consideration, no
registration fee is required.
(2) Estimated solely for purposes of calculating registration fee.
<PAGE>
(3) Includes 150,000 shares of Common Stock and 150,000 Class A Warrants
subject to the Underwriter's over-allotment option (the "Over-Allotment
Option").
(4) The Underwriter's Option entitles the Underwriter to purchase up to 100,000
shares of Common Stock at $6.00 per share and 100,000 Class A Warrants at
$.30 per Class A Warrant (the "Underwriter's Option").
(5) Common Stock issued to certain bridge lenders ("Bridge Lenders") in
connection with loans made to the Company.
(6) Class A Warrants issued to Bridge Lenders.
(7) The number of shares of Common Stock specified is the number which may be
acquired upon exercise of the Class A Warrants at the maximum exercise
price thereof.
(8) Shares of Common Stock held by certain Selling Securityholders.
(9) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
i
<PAGE>
SPORTSTRAC, INC.
CROSS REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I, of Form SB-2)
Item in Form SB-2 Prospectus Caption
----------------- ------------------
1. Front of Registration
Statement and Outside Front
Cover of Prospectus................ Facing Page of Registration
Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution........................... Dilution; Risk Factors
7. Selling Securityholders............ Description of Securities;
Selling Securityholders
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
9. Legal Proceedings.................. Business-Litigation
10. Directors, Executive Officers,
Promoters and Control Persons...... Management
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
12. Description of Securities.......... Description of Securities;
Underwriting
ii
<PAGE>
13. Interest of Named Experts and
Counsel............................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Underwriting; Certain
Transactions
15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business
16. Description of Business............ Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property............ Business - Facilities
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
21. Executive Compensation............. Management - Executive
Compensation
22. Financial Statements............... Selected Financial Data;
Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures.......... Not Applicable
iii
<PAGE>
SUBJECT TO COMPLETION, DATED June 28, 1996
PROSPECTUS
SportsTrac, Inc.
4,190,000 Shares of Common Stock
par value $.01 per share
3,000,000 Class A Warrants
Offering Price Per Share - $3.00
Offering Price Per Warrant - $.25
----------
SportsTrac, Inc., a Delaware corporation (the "Company" or "SportsTrac"),
hereby offers (the "Offering") 2,000,000 shares of common stock, par value $.01
per share (the "Common Stock" or "Shares") and 1,000,000 Class A Redeemable
Common Stock Purchase Warrants ("Class A Warrants" or "Warrants"). Each Class A
Warrant entitles the holder to purchase one (1) share of the Company's Common
Stock, at an exercise price of $3.60, subject to adjustment, from ______, 1997
through ____, 2001. The Class A Warrants are subject to redemption by the
Company at any time after ______, 1997 on not less than thirty (30) days notice
at $.05 per Warrant, provided the average closing price of the Common Stock for
twenty (20) consecutive days ending within fifteen (15) days prior to the notice
exceeds $4.80 per share. See "Risk Factors" and "Description of Securities."
This Offering also includes 1,710,000 shares of Common Stock owned by
certain shareholders of the Company and 480,000 shares of Common Stock and
2,000,000 Warrants owned by certain bridge lenders to the Company ("Bridge
Lenders"), hereinafter collectively referred to as the "Selling
Securityholders." The Company will not receive any of the proceeds from the sale
of securities by the Selling Securityholders
The Company has applied for inclusion of the Common Stock and Warrants on
The Nasdaq Small Cap Market, although there can be no assurances that an active
trading market will develop even if the securities are accepted for quotation.
Additionally, even if the securities are accepted for quotation and an active
trading market does develop, the Company is still required to maintain certain
minimum criteria established by Nasdaq and there is no such assurance that the
Company will be able to continue to fulfill such criteria. See "Risk Factors -
Lack of Prior Market for Securities; No Assurance of Public Trading Market" and
"Penny Stock Regulations May Impose Certain Restrictions on Marketability of
Securities."
<PAGE>
Prior to this Offering, there has been no public market for the Common
Stock or Warrants. The offering prices of the Common Stock and the terms of the
Warrants have been determined by negotiations between the Company and Sterling
Foster & Co., Inc., the underwriter of this Offering (the "Underwriter"), and
does not necessarily bear any relationship to the Company's assets, book value,
net worth or results of operations or any other established criteria of value.
The Underwriter may enter into arrangements with one or more broker-dealers to
act as co-underwriters of this Offering. For additional information regarding
the factors considered in determining the initial public offering price of the
Securities, see "Risk Factors - No Prior Public Market of Securities; Possible
Volatility of Stock Price," "Description of Securities" and "Underwriting."
----------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. SEE "DILUTION" and "RISK FACTORS" which begin on
Page _____.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Proceeds
Price Proceeds to
To Underwriting Discounts To Selling
Public And Commissions (1) Company (2) Security
Holders
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share offered
by Company..... $3.00 $0.30 $2.70 -0-
Per Warrant offered
by Company.. $0.25 $.025 $.225 -0-
Per Share offered by
Selling Security-
holders $3.00 $0.30 -0- $2.70
Per Warrant
offered by
Selling Security-
holders $0.25 $0.025 -0- $.225
Total (3).... $13,320,000 (4) $1,332,000 (5) $5,625,000 $6,363,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The date of this Prospectus is ______, 1996
STERLING FOSTER & CO., INC.
Investment Bankers
3
<PAGE>
Intentionally omitted due to computerised compare error.
4
<PAGE>
(Notes to Cover)
- ---------------------
(1) Does not reflect additional compensation to be received by the Underwriter
from the Company in the form of: (i) a non-accountable expense allowance of
$187,500 ($215,625 if the Over-Allotment Option (as hereinafter defined) is
exercised in full) (ii) a three (3) year financial advisory and investment
banking agreement providing for aggregate fees of $100,000 payable in
advance at the closing of this Offering, and (iii) an option to purchase
200,000 shares of Common Stock at $3.60 per share and 100,000 Warrants at
$.30 per Warrant (the "Underwriter's Option"), exercisable for a period of
four (4) years commencing one (1) year from the effective date of this
Offering. The Company and the Underwriter have agreed to indemnify each
other against certain liabilities, and the Selling Securityholders and the
Underwriter have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting." The Selling Securityholders will
not pay the Underwriter a non-accountable expense allowance on any of their
securities offered hereby.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $637,500 including the Underwriter's non-accountable expense allowance
and financial advisory fee referred to in Footnote (1) (not assuming
exercise of the Over-Allotment Option), registration fees, transfer agent
fees, NASD fees, Blue Sky filing fees and expenses, legal fees and
expenses, and accounting fees and expenses. After deducting such expenses,
the net proceeds to the Company will be approximately $4,987,500. See "Use
of Proceeds" and "Underwriting."
(3) Does not include 300,000 additional shares of Common Stock and 150,000
additional Warrants to cover over-allotments which the Underwriter has an
option to purchase for thirty (30) days from the date of this Prospectus at
the initial public offering prices, less the Underwriter's discount (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in
full, the total Price to the Public, Underwriting Discounts and Commissions
and the estimated expenses including the Underwriter's non-accountable
expense allowance and financial advisory fee will be $14,257,500 1,425,750,
and $665,625, respectively, and the total net proceeds to the Company will
be $5,803,125. See "Underwriting."
(4) Of this amount, $6,250,000 represents 2,000,000 shares of Common Stock and
1,000,000 Warrants offered by the Company and $7,070,000 represents
2,190,000 shares of Common Stock and 2,000,000 Warrants offered by the
Selling Securityholders.
(5) Of this amount, $625,000 is underwriting discounts on 2,000,000 shares of
Common Stock and 1,000,000 Warrants offered by the Company and $707,000 is
underwriting discounts on 2,190,000 shares of Common Stock and 2,000,000
Warrants offered by the Selling Securityholders.
The securities are offered by the Underwriter on a "firm commitment" basis,
when, as and if delivered to and accepted by the Underwriter, and subject to
prior sale, allotment and
5
<PAGE>
withdrawal, modification of the offer with notice, receipt and acceptance by the
Underwriter named herein and subject to its right to reject orders in whole or
in part and to certain other conditions. It is expected that the delivery of the
certificates representing the Common Stock and Warrants and payment therefor
will be made at the offices of the Underwriter on or about ___________, 1996.
AVAILABLE INFORMATION
The Company does not presently file reports and other information with the
Securities and Exchange Commission (the "Commission"). However, following
completion of this Offering, the Company intends to furnish its stockholders
with annual reports containing audited financial statements examined and
reported upon by its independent public accounting firm and such interim
reports, in each case as it may determine to furnish or as may be required by
law. After the effective date of this Offering, the Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission.
Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a registration statement on Form SB-2
(herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Act of which this Prospectus forms a part.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information
reference is made to the Registration Statement.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER- ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ SMALL CAP MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE SECURITIES TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE UNDERWRITER WHICH MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE
CAN NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR
6
<PAGE>
PURCHASE OF THE SECURITIES THROUGH AND/OR WITH THE UNDERWRITER. THE UNDERWRITER
HAS ADVISED THE COMPANY THAT IT PRESENTLY CANNOT QUANTIFY THE AMOUNT OF THE
COMPANY'S SECURITIES THAT MAY BE SOLD BY ITS CUSTOMERS. THE UNDERWRITER HAS ALSO
ADVISED THE COMPANY THAT IT HAS NO AGREEMENTS OR ARRANGEMENTS IN EFFECT WITH
CUSTOMERS RELATING TO THE PURCHASE OR SALE OF THE COMPANY'S SECURITIES.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE SECURITIES. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT CONTINUE TO BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREUNDER MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITER'S PARTICIPATION
IN SUCH MARKET. THE UNDERWRITER HAS ADVISED THE COMPANY THAT IT CANNOT DETERMINE
AT PRESENT WHICH BROKER DEALERS, IF ANY, WILL MAKE A MARKET IN THE COMPANY'S
SECURITIES. SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR SECURITIES; NO
ASSURANCE OF PUBLIC TRADING MARKET." THE UNDERWRITER MAY DISCONTINUE SUCH
ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
7
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, all information appearing
herein (i) does not give effect to (a) 300,000 shares of Common Stock and
150,000 Warrants issuable upon exercise of the Over-Allotment Option; (b)
200,000 shares of Common Stock and 100,000 Warrants issuable upon exercise of
the Underwriter's Option; (c) shares of Common Stock issuable upon exercise of
the Class A Warrants; and (d) stock options and warrants, (ii) gives effect to
the Company's January 1996 20-for-1 stock split and the March 1996 1.2-for-1
stock split; and (iii) gives effect to certain transactions effected immediately
prior to the date of this Prospectus. See "Bridge Financing," "Description of
Securities," "Certain Transactions," "Underwriting," and "Management - Stock
Option Plans and Agreements." Each prospective investor is urged to read this
Prospectus in its entirety.
THE COMPANY
SportsTrac, Inc., a Delaware corporation ("SportsTrac" or the "Company"),
is a development stage business established in April 1995 (under the name Bogart
International Associates, Inc.) to develop and market products designed to
enhance and monitor athletic performance. The first product developed by the
Company, The SportsTrac(TM) System, is a skill evaluation tool that can measure
a person's hand-eye coordination and chart day-to-day variations in performance.
The Company filed a trademark application on May 6, 1996 with respect to a
trademark of the name of The SportsTrac(TM) System, and is presently using the
name for promotional purposes.
The SportsTrac(TM) System is presently in use (on an experimental basis) by
professional baseball, hockey and basketball teams. Presently, this professional
level sports team version of the SportsTrac(TM) System is the only version in
use and it is in use only in an uncompleted pilot program, is not yet fully
tested or engineered, and is not ready for full production and sale to
professional sports teams. The Company is endeavoring to adapt the same
developed technology by creating prototype versions for a kiosk-based evaluation
and information delivery system for health and fitness clubs, as well as for a
skill analyzer for golfers and other recreational sports enthusiasts.
Additionally, the Company will also endeavour to adapt The SportsTrac(TM) System
to a consumer entertainment product which will allow users to "compete" against
professional athletes. However, the Company has not yet begun production of any
version of its SportsTrac(TM) System which the Company anticipates will be
commercially available to any of its targeted markets. There can be no
assurances that should such adaptations be successfully completed, that such
adaptations will achieve market acceptance. See "Business- Products."
The Company anticipates that it will first establish the value of its
developed technology at the professional sports level, and then apply the same
technology and analysis to the broad base of recreational athletes, teams and
sports clubs. The SportsTrac(TM) System is already in use at the professional
sports level. The Company has established a pilot program with the Los Angeles
Dodgers (Major League Baseball), New York Rangers (a National Hockey League team
8
<PAGE>
through their affiliate in the American Hockey League), Minnesota Timberwolves
(National Basketball Association) and Callaway Golf.
The SportsTrac(TM) System is based closely on the Critical Tracking Task
("CTT"), a tool created by Systems Technology, Inc. ("STI") for the United
States Airforce to evaluate whether military pilots could control experimental
aircraft. Since the initial conception of the CTT, 40 years of field testing by
the Department of Defense, NASA and the Department of Transportation has
supported the CTT's accuracy in assessing the motor skill level of astronauts,
pilots, ship captains, and heavy equipment operators. Although the CTT
technology was originally developed in an analog format, the scientists at STI
adapted the technology to be used with computers and computer software in the
early 1960s. The Company has secured an exclusive sub-license from BioFactors,
Inc. ("BFI") to market the CTT technology. This sub-license agreement grants the
Company exclusive rights solely for sports-related and sports-entertainment
applications, so as to not compete with BFI's non-invasive fitness for duty
testing device ("FACTOR 1000(TM)") for safety-related industrial settings. See
"Business" for a further discussion of the sub-license agreement.
BFI licenses the software and associated protocols and methodology for the
CTT technology from STI. Although BFI's exclusive licensing agreement expires in
2008 (assuming the exercise of all available extensions), as does the Company's
own sublicensing agreement with BFI, the Company has negotiated an agreement
with STI which allows the Company to assume BFI's rights and obligations should
such licensing agreement terminate earlier. This agreement will remain in
effect, until the scheduled expiration date of both the license and sublicense
agreement, so long as the Company is not in default under any terms of its
sublicense agreement with BFI. Pursuant to the Company's sublicense agreement
with BFI, the Company agreed to pay BFI $1,000,000, of which $350,000 remains
due and payable on the earlier of July 31, 1996 or the closing of the
anticipated public offering. In addition, the Company agreed to issue 180,000
warrants to BFI which were subsequently assigned. See "Certain Relationships and
Related Transactions." The Company is obligated to pay BFI quarterly royalties
equal to 8.5 % of the cash receipts from the sale of the Company's products
based on the sublicensed technology. Under the terms of the sublicensing
agreement, BFI may not register a service mark in connection with the name,
marketing, selling or sublicensing of the SportsTrac(TM) System. See "Risk
Factors -- Potential Loss of Licensed Technology May Affect Operations," "Use of
Proceeds" and "Description of Securities."
The Company maintains its executive offices at 6900 E. Belleview Avenue,
Suite 200, Englewood, Colorado 80111, telephone number (303) 771-3733.
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Company and its business.
9
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered
by the Company................... 2,000,000 shares of Common Stock at a price of
$3.00 per Share and 1,000,000 Warrants at a price
of $.25 per Warrant. See "Description of
Securities."
Securities Offered
by the Selling Securityholders... 2,190,000 shares of Common Stock at a price of
$3.00 per share and 2,000,000 Warrants at a price
of $.25 per Warrant. See "Selling Securityholders"
and "Bridge Financing."
Securities Outstanding Prior
to the Offering:
Common Stock................... 2,904,000
Class A Warrants............... 2,000,000 (See "Description of Securities")
Securities Outstanding
Subsequent to
the Offering:
Common Stock (1)................. 4,904,000
Class A Warrants (2)............. 3,000,000
Terms of Class A Warrants........ Each Class A Warrant entitles the holder to purchase
one (1) share of the Company's Common Stock at a
price of $3.60, subject to adjustment, during the four
(4) year period beginning ________________, 1997.
After ______________, 1997, the Class A Warrants
are subject to redemption by the Company at any
time, beginning ___________, 1997 through
___________, 2001, on not less than thirty (30)
days' notice at $.05 per Warrant, provided the
average closing price of the Common Stock exceeds
$4.80 per share for twenty (20) consecutive trading
days ending within fifteen (15) days prior to the
notice. See "Description of Securities."
Use of Proceeds.................. The net proceeds to the Company from the sale of
the Securities offered hereby are estimated to be
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
$4,987,500. The net proceeds are expected to be applied
for the following purposes: Repayment of certain
indebtedness, expansion of the Company's marketing
efforts, product development and for working capital
purposes.
Risk Factors..................... The securities are subject to a high degree of risk and
substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq Small-Cap
Market Symbols (3)............... Common Stock - SPRT
Warrants - SPRTW
</TABLE>
- ----------
(1) Does not give effect to (i) 3,000,000 shares of Common Stock issuable upon
exercise of the Warrants offered by the Company and Selling
Securityholders; (ii) 300,000 shares of Common Stock issuable upon exercise
of the Over-Allotment Option; (iii) 150,000 shares of Common Stock issuable
upon exercise of the Warrants included in the Over-Allotment Option (iv)
200,000 shares of Common Stock issuable upon exercise of the Underwriter's
Option; (v) 100,000 shares of Common Stock issuable upon exercise of the
Warrants underlying the Underwriter's Option; (vii) 180,000 shares of
Common Stock issuable upon exercise of certain warrants, and (viii) 480,000
shares of Common Stock issuable upon exercise of employee stock options.
See "Bridge Financing," "Selling Securityholders," "Certain Transactions
and "Description of Securities."
(2) Does not include the possible issuance of (i) 150,000 Warrants issuable
upon exercise of the Over-Allotment Option and (ii) 100,000 Warrants
issuable upon exercise of the Underwriter's Option. See "Description of
Securities" and "Underwriting."
(3) Although the Company has applied for inclusion of the Common Stock and
Warrants on The Nasdaq Small Cap Market, there can be no assurance that the
Company's securities will be included for quotation, or if so included that
the Company will be able to continue to meet the requirements for continued
quotation, or that a public trading market will develop or that if such
market develops, it will be sustained. See "Risk Factors."
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary information has been summarized from the Company's
financial statements included elsewhere in the prospectus. This information
should be read in conjunction with the financial statements and the related
notes thereto. See "Financial Statements."
Summary Statement of Operations
<TABLE>
<CAPTION>
Period April 25, 1995 Three Months ended Cumulative during
(Inception) to 12/31/95 3/31/96 Development
----------------------- ----------------- Stage
------------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Gross Profits $ 0 $ 0 $ 0
Operating (loss) $ (821,525) $ (344,558) $(1,166,083)
Net (loss) $ (821,525) $ (344,558) $(1,166,083)
Net (loss) per share $ (.26) $ (.11) $ (.37)
Weighted average number of common
shares outstanding 3,114,000 3,114,000 3,114,000
---------- --------- ---------
</TABLE>
Summary Balance Sheet Data
December 31, March 31,
1995 1996
------------ ------------
Working Capital (deficit) $ (621,503) $ (818,536)
Total assets $ 996,181 $ 1,362,250
Total liabilities $ 680,706 $ 1,085,333
Deficit accumulated during
development stage $ (821,525) $(1,166,083)
Stockholders' equity $ 315,475 $ 276,917
-------------------
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<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and involves
a high degree of risk and substantial dilution and should only be purchased by
investors who can afford to lose their entire investment. Prospective
purchasers, prior to making an investment, should carefully consider the
following risks and speculative factors, as well as other information set forth
elsewhere in this Prospectus, associated with this Offering, including the
information contained in the Financial Statements herein.
1. Limited Operating History; Net Losses. The Company was formed in April
1995 for the purpose of developing and marketing devices to enhance athletic
performance. For the period April 25, 1995 (inception) to March 31,1996, the
Company had net losses of $1,166,083. There can be no assurance that the Company
will be able to operate profitably due to its limited operating history. The
Company is subject to many business risks which include, but are not limited to,
unforeseen marketing and promotional expenses, unforeseen negative publicity,
competition, and lack of operating experience. Many of the risks may be
unforeseeable or beyond the control of the Company. There can be no assurance
that the Company will successfully implement its business plan in a timely or
effective manner, or that management of the Company will be able to market and
sell enough products to generate sufficient revenues and continue as a going
concern. There can be no assurance that the Company will not continue to incur
net losses in the future or that it will be able to operate profitably. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations," "Business," Use of Proceeds," "Certain Transactions" and "Financial
Statements."
2. Qualified Auditor's Report of Accountants. As a result of the Company's
current financial condition, the Company's independent auditors have qualified
their report on the Company's financial statement for the period ended December
31, 1995. The Company incurred a net loss for the period April 25, 1995
(inception) to December 31, 1995 of $821,525. The Company's independent
auditor's report on the financial statements includes an explanatory paragraph
stating that the Company's ability to continue in the normal course of business
is dependent upon successful completion of its planned public offering of equity
capital and the success of future operations. These factors raise a substantial
doubt about the Company's ability to continue as a going concern. There can be
no assurance that the Company will not continue to incur net losses in the
future. See "Management's Discussion and Analysis of Financial Condition and
Plan of Operations," "Business," "Use of Proceeds" and "Financial Statements and
Notes."
3. Dependence on Offering Proceeds; Possible Need for Additional Financing
May Affect Operations. The Company's cash requirements have been and will
continue to be significant. The Company believes that the net proceeds of this
Offering, together
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<PAGE>
with revenues generated from operations, will be sufficient to conduct the
Company's operations, for at least eighteen (18) months. The Company is
dependent on the proceeds from this Offering in order to further expand its
operations. In the event that these plans change, or the costs of development of
operations prove greater than anticipated, the Company could be required to
curtail its expansion or to seek additional financing sooner than currently
anticipated. The Company believes that its operations would be restricted absent
expansion. The Company has no current arrangements with respect to such
additional financing and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company. See "Use Of
Proceeds."
4. Dependence on Key Personnel. The Company is dependent, in particular,
upon the services of Michael Mellman, M.D., its Chairman of the Board and Marc
Silverman, its Chief Executive Officer. The Company has not entered into an
employment agreement with either of Dr. Mellman or Mr. Silverman. After the
Offering the Company will apply for a key person life insurance policy on Mr.
Silverman with coverage in the amount of approximately $1,000,000, payable to
the Company, and will endeavor to keep such policy in force for a period of
three (3) years. The Company does not intend to apply for a key person life
insurance policy on the life of Dr. Mellman. Since Messrs. Mellman and Silverman
are involved in all aspects of the Company's business, there can be no assurance
that suitable replacements could be found if Messrs. Mellman and Silverman were
unable to perform services for the Company. As a consequence, the loss of either
Messrs. Mellman or Silverman could have a material adverse effect upon the
Company. See "Management." In addition, the Company's ability to develop and
market its products and fulfill its business plans will depend, in large part,
on its ability to attract and retain qualified personnel. Competition for such
personnel is intense and there can be no assurance that the Company will be able
to attract and retain such personnel.
5. Dependence Upon Manufacturers. The SportsTrac(TM) System control device
("the control panel") is assembled to the Company's specifications by an
unaffiliated small assembly firm located in Denver, Colorado using
"off-the-shelf" components. The Company currently maintains an adequate
inventory of control panels. There is no written agreement between the Company
and such assembler. If the present assembler were unable to produce control
panels, the Company could be adversely affected in the short term. See
"Business."
6. Competition. Although, at present, the competition for
performance-related testing is limited, there may be numerous entries as the
market develops. The Company is aware of technologies which have been developed
for research purposes which, while not currently marketed commercially, could be
made available to the Company's intended marketplace. Potential competitors may
have greater financial, marketing and technical resources than the Company. To
the extent that competitors achieve a performance or price advantage, the
Company could be at a competitive disadvantage. See "Business -- Competition."
14
<PAGE>
7. Initial Reliance Upon a Single Product May Affect Revenues. Since the
Company will initially market a single product, The SportsTrac(TM) System, the
Company's ability to achieve its market plan will depend in significant part
upon the acceptance of The SportsTrac(TM) System by professional and
recreational athletes and athletic organizations. Lack of acceptance by such
organizations or consumers, or inconsistent or inadequate results would
seriously limit the Company's ability to generate revenues and force the Company
to pursue and market other products.
8. Dependence on Emerging Market; Uncertainty of Market Acceptance. A
segment of the Company's services includes evaluating elite professional
athletes using The SportsTrac(TM) System, which has been used on an experimental
basis for less than one year with a limited number of clients. Currently, The
SportsTrac(TM) System is installed at 3 locations, although the Company has
entered into discussions with several other professional sports organizations to
install the system on an experimental basis. There can be no assurance, however,
that any additional professional sports organizations will agree to utilize the
system on an experimental basis, or otherwise. Broader acceptance may require
lengthy periods of review. Additional installations may be dependent upon the
results achieved with the current clients, as well as upon pricing, and athlete
and union acceptance. Furthermore, the ability of the Company to provide
customized software and data analysis, as well as reconfiguring the parameters
of both, may influence whether other installations are made. While the Company
believes that it presently has the ability to produce and reconfigure customized
software and data analysis, based upon its experience with the SportsTrac(TM)
System, there can be no assurances, however, that such services can be provided
in the future. Additionally, there can be no assurances that the results at such
installed sites will be sufficiently positive to achieve wide acceptance.
Achieving market acceptance for the Company's products will require substantial
marketing efforts and the expenditure of significant funds to inform potential
customers of the availability of those products. The Company intends to apply a
portion of the proceeds of the Offering to its marketing efforts. See "Use of
Proceeds."
9. No Assurance of Ability to Manage Growth. The Company's growth strategy
will require expanded services and increased personnel throughout the Company,
including expanded operational systems. There can be no assurances that
management can manage the specific expansion described herein, considering that
such expansion is subject to circumstances beyond its control, nor can there be
any assurance that the Company will be able to recruit the necessary employees
and managers required for such growth.
10. Dependence on Assistance for Proprietary Technology. The Company's
product, The SportsTrac(TM) System, relies on the Critical Tracking Task ("CTT")
technology, which is protected under a number of patents and copyrights, the use
of which is sub-licensed by the Company from BioFactors, Inc. ("BFI") pursuant
to a sub-license agreement. BFI, as the sublicensor to the Company, has obtained
certain rights to use the CTT pursuant to a license granted to BFI by Systems
Technology, Inc. ("STI"), which is not affiliated with either BFI or
15
<PAGE>
the Company. The CTT is considered one of the "benchmark" measures of human
hand-eye performance and is protected under a number of patents and copyrights.
The Company has utilized the CTT technology for use in The SportsTrac(TM)
System. The Company will rely on STI for scientific validation of the CTT
technology. Should the Company modify or enhance the CTT technology for any of
its projected uses, STI will provide scientific validation of the technology. To
date, the CTT technology has not been modified so as to require STI's
validation. This will be done by STI's scientists and will be performed on a
project-by-project basis and is not pursuant to a written agreement. STI's
scientists provide both statistical analysis of reported test results from the
pilot program. The Company maintains an on-going working relationship with STI's
scientists. The loss of STI's scientific validation of the CTT technology or
access to STI's scientists (if the Company desires to modify the CTT technology)
could materially adversely affect the Company's operations.
11. Potential Loss of Licensed Technology May Affect Operations. The
Company's sublicense of the CTT technology expires on November 24, 2008
(assuming the exercise of all available extensions), as does BFI's license with
STI. If the Company does not market, sell or manufacture products other than The
SportsTrac(TM) System and any other products relying upon the CTT technology,
the expiration of the license could have a material adverse effect on the
Company's revenue. There can be no assurance that the Company will be able to
extend the term of the sub-license beyond November 24, 2008 or that the Company
will be able to market, sell or manufacture any products which do not rely on
the CTT technology. The Company has negotiated an agreement with BFI and STI
which allows the Company to assume BFI's rights and obligations should BFI's
licensing agreement with STI terminate earlier. This agreement will remain in
effect until the scheduled expiration date of both the license and sublicense
agreements, so long as the Company is not in default under any terms of its
sublicense agreement with BFI.
12. Lack of Trademark and Servicemark Protection. The Company has filed an
application to register a trademark for the name of The SportsTrac(TM) System
and may register or file other applications in the future. No assurances can be
made that the trademark will be granted. On occasion, such applications may be
opposed by third parties. The Company intends to pursue all available legal
remedies to vigorously defend its rights to its trademarks to the extent it has
resources available to fund such activities. Although to date no claims have
been brought against the Company alleging that it infringes on the intellectual
property rights of others, there can be no assurance that such claims will not
be brought against the Company in the future, or that if made, such claims will
not be successful. In addition to any potential monetary liability for damage,
the Company could be required to obtain a license in order to continue to use
the trademarks in question or could be enjoined from using such trademarks if
such a license were not made available on acceptable terms. If the Company
becomes involved in such litigation, it may divert significant Company
resources, which could have a material adverse effect on the Company and its
results of operations, and, if such a claim were successful, the Company's
16
<PAGE>
business could be materially adversely affected. The Company currently does not
hold any patents on products.
13. Broad Discretion in Application of Proceeds In Management. While the
Company presently intends to use the net proceeds of this Offering as described
in the "Use of Proceeds" section of this Prospectus, management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of this Offering, as well as any proceeds received upon any exercise of
the Class A Warrants, in order to address changed circumstances and
opportunities. As a result of the foregoing, the success of the Company will be
substantially dependent upon the discretion and judgment of the management of
the Company with respect to the application and allocation of the net proceeds
hereof. Pending use of such proceeds, the net proceeds of this Offering will be
deposited in interest bearing accounts, or invested in government obligations or
certificates of deposit. See "Use of Proceeds."
14. No Prior Public Market for Securities; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the shares of
Common Stock or Warrants. The initial public offering prices were determined by
negotiation between the Company and the representatives of the Underwriter, and
may not be indicative of the market price for such securities in the future, and
do not necessarily bear any relationship to the Company's assets, book value,
net worth or results of operations of the Company or any other established
criteria of value. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many smaller companies. Frequently, such fluctuations have been
unrelated or disproportionate to the operating performance of such companies.
These fluctuations, as well as general economic and market conditions, may have
a material adverse effect on the market price of the shares of Common Stock and
Warrants. See "Underwriting - Determination of Public Offering Price,"
"Description of Securities" and "Financial Statements."
15. Lack of Prior Market for Securities; No Assurance of Public Trading
Market. Prior to this Offering, no public trading market existed for the Common
Stock or Warrants. There can be no assurances that a public trading market for
the Common Stock or Warrants will develop or that a public trading market, if
developed, will be sustained. Although the Company anticipates that upon
completion of this Offering, the shares of Common Stock and Warrants will be
eligible for inclusion on The Nasdaq Small Cap Market, no assurance can be given
that the shares of Common Stock and Warrants will be listed on The Nasdaq Small
Cap Market as of the Effective Date. Consequently, there can be no assurance
that a regular trading market for the shares of Common Stock or Warrants, other
than the pink sheets, will develop after the completion of this Offering. If a
trading market does in fact develop for the shares of Common Stock and Warrants
offered hereby, there can be no assurance that it will be maintained. If for any
reason the Common Stock or Warrants are not listed on The Nasdaq Small Cap
Market or a public trading market does not develop, purchasers of the Common
Stock and Warrants may have difficulty in selling their securities should they
desire to do so. In any event, because certain
17
<PAGE>
restrictions may be placed upon the sale of securities at prices under $5.00,
unless such securities qualify for an exemption from the "penny stock" rules,
such as a listing on The Nasdaq Small Cap Market, some brokerage firms will not
effect transactions in the Company's securities and it is unlikely that any bank
or financial institution will accept such securities as collateral, which could
have a material adverse effect in developing or sustaining any market for the
Common Stock and Warrants. See "Risk Factors - Penny Stock Regulations May
Impose Certain Restrictions on Marketability of Securities."
Although it has no legal obligation to do so, the Underwriter from time to
time may act as a market maker and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Underwriter will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Underwriter's
participation in the market. The Underwriter may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's securities may be materially adversely affected by the fact that a
significant amount of the securities may be sold to customers of the
Underwriter.
16. Nasdaq Listing and Continued Listing Requirements. Under prevailing
rules of the National Association of Securities Dealers, Inc ("NASD"), in order
to qualify for initial quotation of securities on The Nasdaq Small Cap Market, a
company, among other things, must have at least $4,000,000 in total assets,
$2,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $3.00 per share. Although the Company may upon
the completion of this Offering qualify for initial quotation of its securities
on The Nasdaq Small Cap Market, for continued listing on The Nasdaq Small Cap
Market, a company, among other things, must have $2,000,000 in total assets,
$1,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy the requirements for quotation on The Nasdaq Small Cap Market, trading,
if any, in the Common Stock and Warrants offered hereby would be conducted in
the over-the-counter market in what are commonly referred to as the "pink
sheets" or on the NASD OTC Electronic Bulletin Board. As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, the securities offered hereby. The above-described rules may
materially adversely affect the liquidity of the market for the Company's
securities. See "Underwriting."
17. "Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Securities. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define a "penny stock" to
be any equity security that has a market price (as defined) of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Since it is intended that the shares of Common Stock and Warrants
offered hereby will be authorized for quotation on The Nasdaq Small Cap Market,
such securities will initially be exempt from the definition of "penny stock."
If the shares of Common
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<PAGE>
Stock and Warrants offered hereby are removed from listing by The Nasdaq Small
Cap Market at any time following the Effective Date, the Company's Common Stock
and Warrants may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this Offering to sell the Company's
securities in the secondary market and the price at which such purchasers can
sell any such securities.
18. Consideration Paid by Present Shareholders. The present shareholders of
the Company have acquired their equity interests (2,904,000 shares) in the
Company at a cost ($507,000 or $.17 per share) substantially below the offering
price. Accordingly, the public investors will bear most of the risk of loss. The
Company's shareholders (after giving effect to the sale by the selling
Securityholders) have agreed not to sell, transfer or otherwise pledge their
shares for a period of twenty four (24) months from the effective date of the
Registration Statement to which this Prospectus relates unless it receives the
prior written consent of the Underwriter. See "Underwriting."
19. Dilution. Investors in this Offering will suffer immediate substantial
dilution of their investments (after giving effect to the proceeds received from
the Bridge Financing), to the extent that the net tangible book value per share
of Common Stock upon completion of this Offering will be $.91, representing a
dilution of $2.09 per share (70 %) from the $3.00 offering price of the shares
(not including the Underwriter's Over Allotment Option or the sale of the
Warrants). See "Dilution."
20. No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
Thus, investors should not participate in this offering expecting any dividend
payments as part of their return on investment. See "Dividend Policy."
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<PAGE>
21. Proceeds of Offering to Benefit Principal Shareholders and Directors.
Upon the closing of the Offering, the Company intends to repay the Bridge
Lenders $400,000 plus accrued interest. The Bridge Lenders (and the principal
amounts to be paid and the securities issued to them) include The Holding
Company ($65,000 and the issuance of 78,000 shares of Common Stock and 325,000
Warrants), Solomon Weisgal, as trustee ($15,000 and the issuance of 18,000
shares of Common Stock and 75,000 Warrants), and Ulster Investments Ltd.
($100,000 and the issuance of 120,000 shares of Common Stock and 500,000
Warrants). Burton W. Kanter is the President of The Holding Company. Mr. Kanter
is the father of Joel Kanter, a principal stockholder of the Company, and Joshua
Kanter , a director and Secretary of the Company. Solomon Weisgal is a director
of the Company. Ulster Investment, Ltd. is an Antigua corporation which is owned
by the St. John's Trust. The beneficiaries of the St. John's Trust are the
members of the family of Burton W. Kanter (but not including Burton W. Kanter),
including Joel Kanter, Josh Kanter and Janis Kanter, all of whom are
shareholders of the Company. The Bridge Lenders did not pay any additional
consideration for the Bridge Units. Inasmuch as the Bridge Lenders are offering
their securities in this Offering, purchasers of the securities in this Offering
are advised that such persons personally benefit in the completion of this
Offering. See "Use of Proceeds," "Bridge Financing," "Principal Stockholders"
and "Certain Transactions".
22. Shares Eligible for Future Sale May Adversely Affect the Market. All of
the Company's currently outstanding shares of Common Stock are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of two (2)
years may sell only an amount every three (3) months equal to the greater of (a)
one percent (1%) of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four (4) calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for three (3) years if there is
adequate current public information available concerning the Company. In such an
event, "restricted securities" would be eligible for sale to the public at an
earlier date. Immediately prior to the Effective Date, the Company will have
2,904,000 shares of its Common Stock issued and outstanding, of which (i)
714,000 shares are "restricted securities", and (ii) 2,190,000 shares are being
offered by the Selling Securityholders. See "Bridge Financing" and "Selling
Securityholders."
Prospective investors should be aware that the possibility of resales by
stockholders of the Company may, in the future, have a material depressive
effect on the market price of the Company's securities in any market which may
develop, and therefore, the ability of any investor to market his shares may be
dependent directly upon the number of shares that are offered and sold.
Affiliates of the Company may sell their shares during a favorable movement in
the market price of the Company's securities which may have a depressive effect
on its price per share. See "Description of Securities."
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<PAGE>
23. Redemption of Redeemable Warrants May Affect Warrantholders. The Class
A Warrants are subject to redemption by the Company during the four (4) year
period commencing one (1) year following the date of this Prospectus at a price
of $.05 per Warrant if the closing bid price for the Common Stock equals or
exceeds $4.80 per share for any twenty (20) trading days ending no earlier than
the fifteenth (15th) trading day prior to the date of the notice of redemption.
In the event that the Warrants are called for redemption by the Company,
Warrantholders will have thirty (30) days during which they may exercise their
rights to purchase shares of Common Stock. If holders of the Warrants elect not
to exercise them upon notice of redemption thereof, and the Warrants are
subsequently redeemed prior to exercise, the holders thereof would lose the
benefit of the difference between the market price of the underlying Common
Stock as of such date and the exercise price of such Warrants, as well as any
possible future price appreciation in the Common Stock. As a result of an
exercise of the Warrants, existing stockholders may be diluted and the market
price of the Common Stock may be adversely affected. If a Warrantholder fails to
exercise his rights under the Warrants prior to the date set for redemption,
then the Warrantholder will be entitled to receive only the redemption price of
$.05 per Warrant. Redemption of the Warrants could force the holders to exercise
the Warrants at a time when it may be disadvantageous to do so or sell the
Warrants at the then market value of the Warrants at the time of redemption. If
a current prospectus is not in effect, it is unlikely that the Company would
call the Warrants for redemption. See "Risk Factors -- Current Prospectus and
State Blue Sky Registration Required to Exercise Redeemable Warrants" and
"Description of Securities -- Warrants."
24. Current Prospectus and State Blue Sky Registration Required to Exercise
Redeemable Warrants. Purchasers of Warrants will have the right to exercise the
Class A Warrants only if a current prospectus relating to the shares underlying
the Class A Warrants is then in effect and only if such shares are qualified for
sale under applicable state securities laws of the states in which the various
holders of the Warrants reside. There is no assurance that the Company will be
able to keep this Prospectus covering such shares current. Moreover, the Company
may decide not to seek or may not be able to obtain qualification of the
issuance of its Common Stock in all of the states in which the ultimate
purchasers of Warrants may reside. The Warrants may be deprived of any value if
a current prospectus covering the shares issuable upon exercise thereof is not
kept effective or if such shares are not registered in the states in which
holders of the Warrants reside. See "Description of Securities -- Warrants."
25. Necessity for Updating Registration Statement. So long as the Warrants
or the Underwriter's Option are exercisable, or in the event that the Company
reduces the exercise price or exercise period of the Warrants, the Company would
be required to file one or more Post- Effective Amendments to its Registration
Statement to update the general and financial information contained in this
Prospectus. These obligations could result in substantial expense to the Company
and could be a hindrance to any future financing. Warrants may not be exercised
after _____, 199___ (nine months from the date of this Prospectus), unless and
until a Post-Effective Amendment has been filed and becomes effective. The
Company will not notify Warrant holders
21
<PAGE>
if Warrants may not be exercised due to the absence of an effective
Post-Effective Amendment. Although the Company has undertaken and intends to
keep its Registration Statement current, there is no assurance that the Company
will keep its Registration Statement current, and if for any reason it does not
do so, the Warrants will not be exercisable.
26. Restrictions on Marketmaking Activities During Warrant Solicitation May
Affect Liquidity of Securities. Although it has no legal obligation to do so,
the Underwriter from time to time may act as a market maker and may otherwise
effect and influence transactions in the Company's securities. However, there is
no assurance that the Underwriter will continue to effect and influence
transactions in the Company's securities. The prices and liquidity of the
Company's securities may be significantly affected by the degree, if any, of the
Underwriter's participation in the market. The Underwriter may voluntarily
discontinue such participation at any time. Further, the market for, and
liquidity of, the Company's securities may be adversely effected by the fact
that a significant amount of the securities may be sold to customers of the
Underwriter.
To the extent that the Underwriter solicits the exercise of Class A
Warrants, the Underwriter may be prohibited pursuant to the requirements of Rule
10b-6 under the Exchange Act from engaging in marketmaking activities during
such solicitation and for a period of up to nine days preceding such
solicitation. As a result, the Underwriter may be unable to continue to provide
a market for the Company's securities during certain periods while the Class A
Warrants are exercisable. The Underwriter is not obligated to act as a
marketmaker. See "Underwriting."
27. Underwriter's Option. In connection with this Offering, the Company
will sell to the Underwriter, for nominal consideration, an option to purchase
an aggregate of 200,000 shares of Common Stock and 100,000 Warrants (the
"Underwriter's Option"). The Underwriter's Option will be exercisable commencing
one (1) year after the Effective Date and ending four (4) years after such date,
at prices of $3.60 per Share and $.30 per Warrant, subject to certain
adjustments. The holders of the Underwriter's Option will have the opportunity
to profit from a rise in the market price of the Company's securities, without
assuming the risk of ownership. The Company may find it more difficult to raise
additional capital if it should be needed for the business of the Company while
the Underwriter's Option is outstanding. At any time when the holders thereof
might be expected to exercise them, the Company would probably be able to obtain
additional capital on terms more favorable than those provided by the
Underwriter's Option. See "Underwriting."
28. Limitation on Director Liability. As permitted by Delaware law, the
Company's Certificate of Incorporation limits the liability of directors to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of the
Company's charter provision and Delaware law, stockholders may have limited
rights to recover against directors for breach of fiduciary duty. See
"Description of Securities."
22
<PAGE>
29. Certain Anti-Takeover Provisions Potentially Discouraging a Merger or
other Change in Control. The ability of the Board of Directors to issue shares
of preferred stock in one or more series and to determine the designation,
voting and other rights, preferences, privileges and restrictions applicable to
such shares, together with the heightened shareholder approval requirements
associated with certain business combination transactions involving a Related
Person (as defined) and applicable provisions of Delaware law may have the
effect of discouraging a merger, tender offer, proxy contest or other
transaction involving a change in control of the Company that has not received
the prior approval of a majority of the Company's Board of Directors. See
"Description of Securities."
30. Additional Authorized Shares Available for Issuance May Adversely
Affect the Market. The Company is authorized to issue 15,000,000 shares of its
Common Stock, $.01 par value. If all of the 2,000,000 shares of Common Stock
offered hereby are sold, there will be a total of 4,904,000 shares of Common
Stock issued and outstanding. However, the total number of shares of Common
Stock issued and outstanding does not include the exercise of up to 1,000,000
Warrants sold by the Company hereunder to purchase up to 1,000,000 shares of
Common Stock, 2,000,000 Warrants sold by the Selling Securityholders hereunder
to purchase up to 2,000,000 shares of the Company's Common Stock, the
Underwriter's Option to purchase up to 200,000 shares of Common Stock and
100,000 Warrants to purchase up to 100,000 shares of Common Stock, the
Underwriter's Over-Allotment Option of 300,000 shares of Common Stock and
150,000 Warrants to purchase up to 150,000 shares of Common Stock and other
warrants to purchase up to 180,000 shares of Common Stock. After reserving a
total of 3,930,000 shares of Common Stock for issuance upon the exercise of all
the options and warrants (including the Over- Allotment Option, the
Underwriter's Option, other warrants of the Company and all of the Class A
Warrants offered by the Company and Selling Securityholders), the Company will
have at least 6,166,000 shares of authorized but unissued Common Stock available
for issuance without further shareholder approval including issuances under
current outstanding options and warrants as well as issuances pursuant to
employee stock option plans. As a result, any issuance of additional shares of
Common Stock may cause current shareholders of the Company to suffer significant
dilution and may adversely affect the market price of their shares. In addition,
the Company is authorized to issue 100,000 shares of Preferred Stock. See
"Description of Securities." Pursuant to the terms of the Underwriting
Agreement, the Company's officers, directors, and principal stockholders have
agreed not to sell any of their shares of capital stock for a period of
twenty-four (24) months (after giving effect to the offering by the Selling
Securityholders) following the date of this Prospectus without the prior written
consent of the Underwriter. See "Description of Securities" and "Underwriting."
31. Private Investigation Concerning Trading in Securities of Issuer
Underwritten by Underwriter. The Company was advised that the Securities and
Exchange Commission issued an order on March 17, 1995 authorizing a private
investigation concerning trading in the securities of Lasergate Systems, Inc.
The Underwriter acted as underwriter of a
23
<PAGE>
public offering of securities of Lasergate Systems, Inc. in October 1994 and has
acted as a market maker of that issuer's securities since that time. An
unfavorable resolution of the SEC's investigation may adversely affect the
market for and liquidity of the Company's securities if the Underwriter is
unable to make a market in the Company's securities and if additional
broker-dealers do not make a market in the Company's securities.
32. Inexperienced Underwriter May Affect Trading Market. This is the ______
public offering underwritten by Sterling Foster & Co., Inc. There can be no
assurance that the Underwriter's limited experience as an underwriter of public
offerings will not adversely affect the proposed public offering of the
securities, the subsequent development of a trading market, if any, or the
market for and liquidity of the Company's securities. Therefore, purchasers of
the securities offered hereby may suffer a lack of liquidity in their investment
or a material diminution of the value of their investment.
24
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock and 1,000,000 Warrants offered hereby, are estimated to be
$4,987,500 (after deducting approximately $625,000 in underwriting discounts,
other expenses of this Offering estimated to be $637,500, which includes the
Underwriter's non-accountable expense allowance of $187,500, and a $100,000
financial consulting fee payable to the Underwriter at the closing) (but not
considering any exercise of the Over- Allotment Option or the Underwriter's
Option). The Company will not receive any of the proceeds from the sale of the
securities offered by the Selling Securityholders.
The Company based upon all currently available information, intends to
utilize such proceeds approximately as follows:
Approximate
Approximate Percentage(%)
Amount of of Net
Net Proceeds Proceeds
------------ ------------
Product Development $ 800,000 16.04%
Marketing and Sales $1,600,000 32.08%
Repayment of Certain Indebtedness(1) $1,100,000 22.06%
Working Capital $1,487,500 29.82%
---------- ------
Total................... $4,987,500 100%
- ----------
(1) Represents the repayment of Bridge Loans in the aggregate principal amount
of $400,000. The Bridge Loans are due and payable upon the earlier of June
30, 1996 or the closing of the Company's initial public offering and bear
interest at the rate of 8% per annum. The proceeds of the Bridge Loans were
used for working capital ($350,000) and as a source of funds to pay
expenses associated with this Offering ($50,000). See "Bridge Financing."
This amount also represents the balance of the up-front licensing fees
($350,000) due to BFI under the Company's sublicense agreement. Such amount
is due on the earlier of July 31, 1996 or the closing of the Company's
initial public offering. The payment to BFI is in connection with the
Company's exclusive sublicense agreement for the CTT Technology for sports
related and sports entertainment applications. After
25
<PAGE>
the entire up-front fees are paid, the Company is obligated to pay BFI
quarterly royalties equal to 8.5% of the cash receipts from the sale of the
Company's products based on the sublicensed technology. See "Business."
Also represents the repayment of a loan in the amount of $350,000 to Swiss
American Bank Ltd. This loan is due and payable upon the earlier of
December 31, 1996 or the closing of the Company's initial public offering
and bears interest at the rate of 15% per annum. The proceeds of such loan
was used to reduce the balance owed to BFI from $700,000 to $350,000. See
"Bridge Financing" and "Certain Transactions."
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to expand its business. As a result, the Company believes that the net
proceeds of this Offering, together with increased revenues generated from
operations, will be sufficient to conduct the Company's operations for at least
eighteen (18) months. The underwriting agreement does not prevent the Company
from seeking bank financing, although there can be no assurance that such
financing will be available on commercially reasonable terms. See "Risk Factors
- - Dependence on Offering Proceeds; Possible Need for Additional Financing."
To the extent that the Company's expenditures are less than projected
and/or the proceeds of this Offering increase as a result of the exercise by the
Underwriter of its Over- Allotment Option, the resulting balances will be
retained and used for general working capital purposes. Conversely, to the
extent that such expenditures require the utilization of funds in excess of the
amounts anticipated, additional financing may be sought from other sources, such
as debt financing from financial institutions, although there can be no
assurance that such additional financing, if available, will be on terms
acceptable to the Company. See "Risk Factors - Dependence on Offering Proceeds;
Possible Need For Additional Financing." The net proceeds of this Offering that
are not expended immediately may be deposited in interest bearing accounts, or
invested in government obligations or certificates of deposit.
26
<PAGE>
DILUTION
At March 31, 1996, the Company had outstanding an aggregate of 2,904,000
shares of Common Stock having an aggregate net tangible deficit value of
$(775,497) or $(.27) per share, based upon operating activity through March 31,
1996. Net tangible book value per share consists of total assets less intangible
assets and liabilities, divided by the total number of shares of Common Stock
outstanding. The shares of capital stock described above do not include any
securities subject to any outstanding warrants or options.
After giving effect to the sale of 2,000,000 shares of Common Stock and
1,000,000 Warrants by the Company with net proceeds of $5,087,500 (without
deducting the $100,000 financial advisory fee),the pro forma tangible book value
of the Common Stock would have been $4,511,181 or approximately $.91 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.18 per share to the present stockholders and an immediate dilution of $2.09
per share (70%) to the public purchasers. The following table illustrates the
dilution which investors participating in this Offering will incur and the
benefit to current stockholders as a result of this Offering:
Public offering price of shares offered hereby(1) $ 3.00
Net tangible deficit per share $ (.27)
Increase per share attributable offered hereby 1.18
Pro Forma net tangible book value per share
after offering(3) $ .91
Dilution of net tangible book value per share to
purchasers in this offering(2)(4) $ 2.09
- ----------
(1) Before deduction of underwriting discounts, commission, fees and
Offering expenses.
(2) Assuming no exercise of the Over-Allotment Option and Underwriter's
Option. See "Underwriting" and"Description of Securities."
(3) Assuming no exercise of the Warrants offered hereby and the 2,000,000
Class A Warrants offered by the Selling Securityholders. See "Bridge
Financing," "Selling Securityholders" and "Certain Transactions."
(4) Do not include warrants for purposes of dilution of net tangible book
value per share.
27
<PAGE>
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing shareholders as of March 31, 1996 and
to be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $3.00 per share before deducting underwriting and
commissions and estimated Offering expenses).
<TABLE>
<CAPTION>
Aggregate
The Shares of Cash Percentage of
Common Stock Percent of Consideration Total Cash Average Price
Purchased Equity owned Paid Consideration Per Share
--------- ------------ ---- ------------- ---------
<S> <C> <C> <C> <C> <C>
New Stockholders 2,000,000 40.78% $6,000,000 92.21% $3.00
Existing Stockholders 2,904,000 59.22% 507,000 7.79% .17
--------- ------ ---------- ------ -----
Total 4,904,000 100% $6,507,000 100%
--------- ---- ---------- ----
</TABLE>
The foregoing table gives effect to the sale of the Common Stock underlying
the shares offered hereby but without giving effect to the exercise of the
Underwriter's Warrant, or any securities issuable upon the exercise of the
Over-Allotment Option or any outstanding options or warrants.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 and as adjusted giving effect to the sale of 2,000,000 shares of
Common Stock and 1,000,000 Class A Warrants offered hereby and the application
of net proceeds $5,087,500 therefrom assuming a public offering price of $3.00
per share and $0.25 per warrant. The table is not adjusted to give effect to the
exercise of the Underwriter's Over-Allotment Option, Underwriter's Warrants, or
any other outstanding warrants or options. This table should be read in
conjunction with the Financial Statements of the Company, including the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Actual(1) Pro Forma(2)
--------- ------------
<S> <C> <C>
Notes Payable $1,086,845 $ ---
---------- ----------
Stockholders' equity:
Common Stock, $.01 par value per
share, 15,000,000 shares authorized,
issued and outstanding 2,904,000,
and 4,904,000 respectively 29,040 49,040
Preferred Stock, $.01 par value per
share, 100,000 shares authorized,
0 shares issued and outstanding --- ---
Additional paid-in capital 1,413,960 6,481,460
Deficit accumulated during the
development stage (1,166,083) (1,332,238)
---------- ----------
Total stockholders' equity 276,917 5,198,262
---------- ----------
Total capitalization $1,363,762 $5,198,262
========== ==========
</TABLE>
- ----------
(1) Does not include the sale of 2,000,000 shares of Common Stock offered
hereby.
(2) Reflects the sale of 2,000,000 shares and 1,000,000 Class A Warrants
offered hereby and the anticipated application of the net proceeds of
$4,000,655 therefrom, after deducting estimated Offering expense of
$1,162,500 and the repayment of notes of $1,086,845 payable with the
proceeds of the Offering. Does not give effect to a $100,000 fee
payable to the Underwriter pursuant to a three (3) year financial
advisory and investment banking agreement.
29
<PAGE>
DIVIDEND POLICY
Holders of the Company's Preferred Stock or Common Stock are entitled to
dividends when, as and if declared by the Board of Directors out of funds
legally available therefore. The Company has not in the past and does not
currently anticipate the declaration or payment of any dividends in the
foreseeable future. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition, capital requirements
and general business conditions. Therefore, there can be no assurance that any
dividends of any kind will ever be paid.
BRIDGE FINANCING
From December, 1995 through February 1996, the Company borrowed an aggregate of
$400,000 from the following ten (10) lenders (the "Bridge Lenders"): Ulster
Investments Ltd ($100,000); The Holding Company ($65,000); Dune Holdings, Inc.
($100,000); Solomon A. Weisgal, as trustee ($15,000); Howard Kirschbaum as
Custodian for Brian Kirschbaum under the Uniform Gift to Minors Act ($5,000);
Scott Sinar ($5,000); Matthew Harriton ($20,000); John LaFalce ($10,000);
Michael Lulkin ($30,000); and Hartley T. Bernstein ($50,000). None of the Bridge
Lenders are affiliated with the Company other than Solomon A. Weisgal, a
director of the Company and The Holding Company, a principal stockholder of the
Company. Burton W. Kanter is the president of The Holding Company. Mr. Kanter is
the father of Joel Kanter, a principal stockholder of the Company, and Josh
Kanter, a director and Secretary of the Company. Ulster Investment Ltd. is an
Antigua corporation which is owned by the St. John's Trust. The beneficiaries of
the St. John's Trust are members of the family of Burton W. Kanter (but not
including Burton W. Kanter), including Joel Kanter, Josh Kanter and Janis
Kanter, all of whom are shareholders of the Company. In exchange for making
loans to the Company, each Bridge Lender received (i) a promissory note (each a
"Bridge Note") and (ii) Bridge Units (aggregate 400,000 of such Bridge Units).
Each of the Bridge Units is comprised of one (1) share of Common Stock and five
(5) Class A Warrants. Each of the Bridge Notes bears interest at the rate of
eight percent (8%) per annum. The Bridge Notes are due and payable upon the
earlier of (i) June 30, 1996 or (ii) the closing of an initial underwritten
public offering of the Company's securities. The Company intends to use a
portion of the proceeds of this Offering to repay the Bridge Lenders. See "Use
of Proceeds." The Company entered into the bridge financing transactions because
it required additional financing and no other sources of financing were
available to the Company at that time. Each Class A Warrant is identical to the
Warrants offered hereby. See "Description of Securities." All of the securities
issued to the Bridge Lenders are being offered hereunder. With respect to the
bridge financing, the Company did not engage a placement agent, the Bridge
Lenders were identified by the Company's officers and directors, and no other
solicitations were made. See "Selling Securityholders," "Certain Transactions"
and "Underwriting."
30
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the Company's statement of
operations for the period commencing April 25, 1995 (inception) to December 31,
1995 and the balance sheet data at December 31, 1995 are derived from the
Company's financial statements which have been audited by Holtz Rubenstein &
Co., LLP, independent public accountants, and which appear elsewhere in this
prospectus. The statement of operations data for the three (3) months ended
March 31, 1996 and cumulative during development stage, and the balance sheet
data at March 31, 1996 are derived from unaudited financial statements which
appear elsewhere in this Prospectus. Management believes that all adjustments
necessary for a fair presentation have been made in such interim period.
However, the results of operations for the interim period are not necessarily
indicative of the Company's financial results for the entire current fiscal
year. See "Financial Statements."
Summary Statement of Operations
<TABLE>
<CAPTION>
Cumulative
Period April 25, 1995 During
(Inception) to Three Months ended Development
12/31/95 3/31/96 Stage
--------------------- ------------------ ----------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Gross Profits $ 0 $ 0 $ 0
Operating (loss) $ (821,525) $ (344,558) $(1,166,083)
Net (loss) $ (821,525) $ (344,558) $(1,166,083)
Net (loss) per share $ (.26) $ (.11) (.37)
Weighted average number
of common shares
outstanding 3,114,000 3,114,000 $3,114,000
---------
</TABLE>
Summary Balance Sheet Data
December 31, March 31,
1995 1996
Working Capital (deficit) $ (621,503) $ (818,536)
Total assets $ 996,181 $1,362,250
Total liabilities $ 680,706 $1,085,333
Deficit accumulated during
development stage $ (821,525) $(1,166,083)
Stockholders' equity $ 315,475 $ 276,917
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
The following discussion should be read in conjunction with historical
financial statements of the Company and notes thereto included elsewhere herein:
Results of Operations
SportsTrac, Inc. is a Delaware corporation, which from inception to the
present, has been solely involved in the advancement of The SportsTrac(TM)
System. The Company was formed in April, 1995 for the purposes of sub-licensing
the Critical Tracking Task ("CTT") and to apply that technology to monitor and
enhance athletic performance. The proceeds from this offering will enable the
Company to proceed with its business plan for the continued development,
application, marketing and distribution of the various versions of The
SportsTrac(TM) System.
To date, the Company has received no revenues from product sales. As a
result of the Company's start-up expenses and product design costs, the Company
had an accumulated deficit of $1,166,083 and $825,525 as of March 31, 1996 and
December 31, 1995, respectively. The Company anticipates little revenues from
product sales during the next twelve months and therefore expects to incur
operating losses until such time as it can generate significant revenues from
the sale of any version of its product. The Company believes it can
significantly increase its overall revenues from product sales during the third
and fourth quarters of 1997. The Company intends to seek third parties to
distribute The SportsTrac(TM) System to health clubs and to retail consumers.
The Company will maintain direct relationships with the professional
organizations using its product.
Plan of Operation
During the first twelve months of operations after completion of the
offering, the Company will further refine the professional level sports team
version of The SportsTrac(TM) System (which is not fully tested or ready for
commercial production) for sale to professional sports teams as well as continue
to adapt it to other formats. The Company will endeavor to develop and market
new versions of its product based on the CTT technology, which serves as the
basis of The SportsTrac(TM) System. No assurances can be made, however, that the
Company will successfully produce its product or adapt the product to other
uses. The Company plans to conduct market research studies and develop new
versions of its product and prototypes thereof. The Company also intends to
implement its marketing plan, develop promotional material, and attend trade
shows and seminars. The Company believes its proprietary skills evaluation
technology can be the foundation for a number of versions of its product, as
hand-eye coordination is a fundamental skill in activities other than those to
which The SportsTrac(TM) System has already been adapted. Additionally, the
Company believes that opportunities to address these other market segments will
arise based on the fundamental nature of the skill evaluated by The
SportsTrac(TM) System's core technology, as well as the projected success of its
present product. Even if the Company is able to successfully adapt The
SportsTrac(TM) System to other formats, no assurances can be made that the
adaptations will achieve market acceptance. By following a strategy of starting
at the
32
<PAGE>
professional level before moving into consumer products, the Company believes it
can most effectively leverage its marketing resources. However, to date the
Company has developed only one product which is in use presently on an
experimental basis; no assurance can be made that the Company will be successful
in further developing and marketing its current product or other products.
As of March 31, 1996, the Company employed three people on a full-time
basis and one person on a part-time basis. The Company leases approximately
1,000 square feet of executive office space. The number of employees and the
amount of space that the Company will need following the offering will vary
according to the progress made in the marketing and distribution of its
products.
Liquidity and Capital Resources
As of March 31, 1996, the Company had a working capital deficit of
$818,536. The Company remains in the development stage as it has not yet derived
significant revenues from the sale of any version of its only product and
requires the proceeds of the offering to commence meaningful marketing
activities and the adaptation of its only product to various formats. The
Company has funded its activities to date from initial capital contributions of
the founders and Bridge Loans. See "Bridge Financing" and "Certain
Transactions." The report of the Company's auditors contains an explanatory
paragraph which discuss certain factors which raise substantial doubt about the
Company's ability to continue as a going concern.
The Company expects to incur substantial expenditures over the next
eighteen months to implement its sales, marketing and other programs. The
Company's management believe that the net proceeds of this offering (excluding
any proceeds from the Underwriters Over Allotment Option) will be sufficient to
fund its liquidity needs for at least the next eighteen months.
33
<PAGE>
BUSINESS
General
SportsTrac, Inc., a Delaware corporation ("SportsTrac" or the "Company"),
is a development stage business established in April 1995 (under the name Bogart
International Associates, Inc.) to develop and market products designed to
enhance and monitor athletic performance. The first product developed by the
Company, The SportsTrac(TM) System, is a skill evaluation tool that can measure
a person's hand-eye coordination and chart day-to-day variations in performance.
The Company filed a trademark application on May 6, 1996 with respect to a
trademark of the name of The SportsTrac(TM) System, and is presently using the
name for promotional purposes.
The SportsTrac(TM) System is presently in use (on an experimental basis) by
professional baseball, hockey and basketball teams. Presently, this professional
level sports team version of The SportsTrac(TM) System is the only version in
use, and it is in use only in an uncompleted pilot program, is not fully tested
or engineered, and is not ready for commercial production and sale to
professional sports teams. The Company is endeavoring to adapt the same
developed technology, by creating prototype versions, for a kiosk-based
evaluation and information delivery system for health and fitness clubs, as well
as for a skill analyzer for golfers and other recreational sports enthusiasts.
Additionally, the Company will endeavor to adapt The Sports Trac(TM) System to a
consumer entertainment product which will allow users to "compete" against
professional athletes. However, the Company has not yet begun production of any
version of its Sports Trac(TM) System which the Company anticipates will be
commercially available to any of its targeted markets. Should any adaptation of
The SportsTrac(TM) System be produced, there can be no assurances that such
adaptation will achieve market acceptance.
The Company anticipates that it will first establish the value of its
developed technology at the professional sports level, and then apply the same
technology and analysis to the broad base of recreational athletes, teams and
sports clubs. The SportsTrac(TM) System is already in use at the professional
sports level. The Company has established a pilot program with the Los Angeles
Dodgers (Major League Baseball), New York Rangers (a National Hockey League team
through their affiliate in the American Hockey League), Minnesota Timberwolves
(National Basketball Association) and Callaway Golf.
This pilot program is scheduled to continue until the conclusion of each
professional team's current season, at which time the Company anticipates that,
except for aesthetic changes, each system will be fully tested and engineered
and ready for commercial production and sale to other professional level sports
teams. While professional sports teams have participated in the pilot program,
their participation should not be understood to be an endorsement or promotion
of the
34
<PAGE>
Company's product by any professional team, or the athletes who utilize The
SportsTrac(TM) System in the pilot program.
The Company is unaware of any product other than The SportsTrac(TM) System
which provides an objective and reliable measurement of the core skills needed
in sports such as baseball, hockey, basketball, golf, and tennis. Recently, a
study which tested professional baseball players at two minor league affiliates
of the Los Angeles Dodgers (the "Dodgers Study"), and which was administered by
Dr. Michael Mellman, the Company's Chairman of the Board, was completed. The
Dodgers Study is a computer - based assesment of baseball player performance,
and was initiated with permission of BioFactors, Inc. ("BFI"), which holds the
exclusive license for commercial implementation of the CTT technology. The
Dodgers Study's subject consisted of fifty (50) minor league players who were
tested over a two to three month period using an early prototype version of the
Company's only product, The SportsTrac(TM) System. The study detected a strong
correlation between SportsTrac(TM) System scores and the on-field performance of
professional athletes. In addition, the study revealed that the most successful
baseball players achieved higher SportsTrac(TM) scores than did other players.
Importantly, players found that tracking on The SportsTrac(TM) System was a
simple, enjoyable addition to their pre-game preparation. The Dodgers Study is
not an endorsement or promotion of the Los Angeles Dodgers, the two minor league
affiliates or the players who participated in the Dodgers Study.
The SportsTrac(TM) System is based closely on the Critical Tracking Task
("CTT"), a tool created by Systems Technology, Inc. ("STI") for the United
States Airforce to evaluate whether military pilots could control experimental
aircraft. Since the initial conception of the CTT, 40 years of field testing by
the Department of Defense, NASA and the Department of Transportation has
supported the CTT's accuracy in assessing the motor skill level of astronauts,
pilots, ship captains, and heavy equipment operators. Although the CTT
technology was originally developed in an analog format, the scientists at STI
adapted the technology to be used with computers and computer software in the
early 1960s. The Company has secured an exclusive sublicense from BFI to market
the CTT technology. This sublicense agreement grants the Company exclusive
rights solely for sports-related and sports-entertainment applications, so as to
not compete with BFI's non-invasive fitness for duty testing device ("FACTOR
1000(TM)") for safety-related industrial settings.
BFI licenses the software and associated protocols and methodology for the
CTT technology from STI. Although BFI's exclusive licensing agreement expires in
2008 (assuming the exercise of all available extensions), as does the Company's
own sublicense agreement with BFI, the Company has negotiated an agreement with
STI which allows the Company to assume BFI's rights and obligations should the
original licensing agreement be termined earlier. This agreement will remain in
effect, until the scheduled expiration date of both the license and sublicense
agreements, so long as the Company is not in default under any terms of its
sublicense agreement with BFI. Pursuant to the Company's sublicense agreement
with BFI, the Company agreed to pay BFI $1,000,000, of which $350,000 remains
due and payable on the earlier of July
35
<PAGE>
31, 1996 or the closing of the anticipated public offering. In addition, the
Company agreed to issue 180,000 warrants to BFI, which were subsequently
assigned. See "Certain Relationships and Related Transactions." The Company is
also obligated to pay BFI quarterly royalties equal to 8.5 % of the cash
receipts from the sale of the Company's products based on the sublicensed
technology. Under the terms of the sublicense agreement, BFI may not register a
trademark or service mark in connection with the name, marketing, selling or
sublicensing of the SportsTrac(TM) System. See "Risk Factors -- Potential Loss
of Licensed Technology May Affect Operations," "Use of Proceeds" and
"Description of Securities."
The SportsTrac(TM) System is designed to provide more than just a raw
measure of hand-eye coordination scores. Extensive military and industrial use
has shown that the CTT, which is the core technology of the Company's product,
provides a unique window into a person's mental and physical readiness. As a
result of this extensive use of the CTT technology, as well as the published
results of the Dodgers Study, the Company believes that The SportsTrac(TM)
System can serve as a powerful tool for identifying the playing rhythms of an
athlete, as well as assessing players who need a rest, rehabilitated players
ready to play again, and talented prospects who have the basic skills to compete
at the professional level. The Company believes that The SportsTrac(TM) System
will also appeal to amateur athletes who work to improve their athletic
performance, fine-tune their training and game preparation, and emulate their
favorite professional stars.
Presently, the Company provides data analysis for its pilot program
participants. As athletes use SportsTrac, their scores are encrypted, stored on
The SportsTrac(TM) System computer and then transferred via modem by a system
administrator to a computer at SportsTrac, Inc. The Company's chairman, Dr.
Michael Mellman, then decrypts the scores and creates charts which display each
player's SportsTrac scores during the previous one to six weeks. These charts
visually demonstrate how a player's SportsTrac performance (maximum score,
standard deviation, and moving average) changes over time, as well as which
players consistently achieve high SportsTrac scores.
Using these charts and specified game data, SportsTrac, Inc. can evaluate
players' SportsTrac performance and identify performance trends. For example,
tracking data may identify a group of players that consistently scores best on
travel days, or another group that scores well with extra rest. SportsTrac
delivers to each participant a weekly player report containing the scoring
charts, trend analysis (if any) and individual player profiles.
The Company believes that The SportsTrac(TM) System technology is adaptable
to a variety of formats, including health and fitness clubs and golf, for which
prototypes have been developed but which are not yet fully engineered or ready
for commercial production. There can be no assurances that the adaptation of The
SportsTrac(TM) System technology to various formats will be completed, or if
completed that such adaptions will achieve market acceptance. The professional
version of The SportsTrac(TM) System combines a laptop computer and control
panel with electronic delivery of data to the Company's headquarters. The
Company anticipates that every version of The SportsTrac(TM) System, except for
the planned consumer entertainment version, will require the use
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of a personal computer and not necessarily a laptop computer. Additionally, even
though the Company does not anticipate that all versions of The SportsTrac(TM)
System will require data transmittal to the Company for analysis (as the Company
believes that only professional sports teams will need and be willing to pay for
such a service), however, should markets for other versions of The
SportsTrac(TM) System demand data transmittal to the Company for analysis, the
Company will endeavor to provide the service. However, since the hardware
component of The SportsTrac(TM) System is small enough to be built into a
handheld unit, like the anticipated consumer entertainment version, it could
include an on-board automated analysis of the test scores.
The health and fitness club version of The SportsTrac(TM) System, which is
still under development and presently only exists in a prototype form, will be
housed in a free-standing kiosk and will include automated analysis of scores
and delivery of health, nutrition and other information of interest to users.
The Company believes that this device will meet the needs of health club
organizations looking for add-on benefits for members and provide a convenient,
practical gateway to the sports and medical information available on the
Internet. The Company anticipates that commercial production of this version of
The SportsTrac(TM)System will begin in the first quarter of 1997. However, there
can be no assurances that the Company will successfully complete the adaptation
of The SportsTrac(TM) System to this format, or that once adapted, will achieve
market acceptance. See "Business - Products."
The Company has initiated a research project with Callaway Golf to
determine how The SportsTrac(TM) System can most benefit amateur and
professional golfers. Preliminary results from this pilot program indicate that
the benefits of The SportsTrac(TM) System, which were also evident in the
Dodgers Study, will apply equally to other athletic endeavors. The Company
believes it can capture a share of the $1 billion spent annually on golf-related
products with a small, portable unit sold in golf specialty stores and pro
shops. The golf version of The SportsTrac(TM) System will be designed for the 5
million avid golfers who spend more than $2,100 on golf annually and seek the
latest high-technology enhancement products. The Company anticipates that
commercial production of this version of the SportsTrac(TM)System will begin in
the second quarter of 1997. However, there can be no assurances that the Company
will successfully complete the adaptation of the SportsTrac(TM) System to this
format, or that once adapted, will achieve market acceptance. See "Business -
Products."
The Company also believes that the competitive aspect of The SportsTrac(TM)
System can be emphasized in a consumer product that enables users to compete
against the performance profile of professional sports stars. Unlike a typical
video game, upon completion of the anticipated adaptation of the SportsTrac(TM)
System technology, the SportsTrac(TM) System game will be a device "used by the
pros" and will incorporate the actual scores of professional athletes. The
Company anticipates that The SportsTrac(TM) System game, published on CD-ROM or
in a dedicated device, will include full-motion video and advanced graphical
displays.
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The Company maintains its executive offices at 6900 E. Belleview Avenue,
Suite 200, Englewood, Colorado 80111, telephone number (303) 771-3733.
Development of The SportsTrac(TM) System
To give athletes and coaches the evaluation tool they need, the Company has
licensed and adapted proven performance measurement technology developed for
astronauts, pilots, and other skilled users. This technology, known as the
Critical Tracking Task ("CTT"), has been in daily use since the 1960s. The CTT
has been used to evaluate and predict whether astronauts, pilots, truck drivers,
equipment operators, ship captains and others in safety-sensitive positions are
capable of performing. The SportsTrac(TM) System measures the same visual motor
acuity skills. The CTT was originally developed in the 1950s by STI to help the
US Air Force better understand how pilots control high performance aircraft.
Although the CTT technology was originally developed in an analog format, the
scientists at STI adapted the technology to be used with computers and computer
software in the early 1960s. During the last six years the CTT technology has
been used nationwide in the FACTOR 1000(TM) employee fitness system marketed by
Bio Factors Inc. ("BFI"), the sub-licensor of the Company's technology. Based
upon the Company's experience with the CTT technology, the Company believes that
FACTOR 1000(TM) provides a fast, reliable means to assure employee fitness for
duty in safety-related industrial settings, by measuring an employee's hand-eye
coordination and indicating to a supervisor on a "yes/no" basis whether or not
the employee's results meet specific, selected safety guidelines.
The Company has incorporated the CTT technology in The SportsTrac(TM)
System, which management believes, is the first simple, easy-to-use device to
precisely and reliably measure any athlete's psychomotor skills (hand-eye
coordination). While the core technology is shared between BFI's FACTOR 1000(TM)
and the Company's SportsTrac(TM) System, both the application of the technology
and the results obtained differ greatly. While the FACTOR 1000(TM) utilizes the
CTT technology to evaluate an employee's fitness in a commercial setting on a
"yes/no" basis, The SportsTrac(TM) System provides athletes with a quantitative
measurement of their skills. Additionally, The SportsTrac(TM) System is designed
to pick up the day-to-day variations in hand-eye coordination which affect
athletic performance. Management knows of no other product other than The
SportsTrac(TM) System which attempts to gauge an athlete's readiness for
competition in the same manner of The SportsTrac(TM) System.
As part of his duties as Chief Technology Officer at BFI from 1993 through
September, 1995, Marc Silverman (the Company's President, Chief Executive
Officer and Chief Financial Officer) helped to develop a crude prototype on
field athletic performance system which was based upon the FACTOR 1000(TM) and
utilized the CTT technology.
Management's experience with the CTT technology has shown that users
gradually improve on The SportsTrac(TM) System for the first 100-200 tries.
Since each try requires less than a minute to complete, most users reach their
plateau or individual performance level ("IPL") within a week.
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The Dodgers Study revealed that better baseball players achieve a higher IPL
than do other baseball players. The Dodgers Study required Dodgers players at
the AA and AAA minor level to test on the CTT daily before games for at least
two months on an early prototype version of The SportsTrac(TM) System. Their CTT
scores were then plotted against on-field performance. The Dodgers Study
revealed that players' CTT scores varied directly with some measures of on-field
performance and that the most successful baseball players achieved higher CTT
scores than did other players. Importantly, players indicated that tracking on
the CTT was a simple, enjoyable addition to their pre-game preparation. The
Dodgers Study indicates that a product based on the CTT, like The SportsTrac(TM)
System, can reliably measure at least one significant component of the skill set
professional athletes need to succeed, regardless of an athlete's background,
stage of development, degree of fatigue, illness or stress.
After an athlete has achieved his or her IPL, The SportsTrac(TM) System
daily scores generally fall within a few percentage points of their IPL. The
difference between a daily score and the athlete's IPL can reflect their level
of concentration, emotional state, health status and degree of fatigue. Scores
that are consistently below a player's IPL can alert a coach or player to an
upcoming performance slump or reflect controllable environmental factors such as
extensive travel or sleep disturbances. Scores that consistently exceed the IPL
may reflect a positive change in an athlete's training or game preparation even
before such changes affect game performance. Periodic high and low scores can
identify an athlete's personal biorhythmic cycle of coordination, a useful tool
for any player striving for maximum athletic performance.
Based upon its experience in its pilot program, as well as the results of
the Dodgers Study, management believes that The SportsTrac(TM) System is
accurate (with respect to measuring visual- motor acuity, a fundamental
component in athletic performance) for all athletes, regardless of their
background and level of development. It is a consistent yardstick which,
combined with other performance measures, can help player development experts to
evaluate and compare players. The SportsTrac(TM) System is a targeted measure
which can help coaches determine which players tend to be "sharpest" on road
trips, following long layoffs, or under the pressure of playoff conditions. The
SportsTrac(TM) System cannot substitute for game statistics or a coach's
intuition, but it can reliably quantify what has been unmeasurable - an
athlete's varying degree of coordination.
The professional version of The SportsTrac(TM) System requires a laptop
computer and electronic transmission of data to the Company for analysis.
Professional users of The SportsTrac(TM) System receive charts of player scores
on The SportsTrac(TM) System correlated with game conditions.
The Company plans to develop a prototype of a version of The SportsTrac(TM)
System by the first quarter of 1997, employing advanced graphics and video that
will enhance The SportsTrac(TM) System's entertainment value . Based upon its
experience with The SportsTrac(TM) System in the pilot program, the Company
believes that combining The SportsTrac(TM) System's inherent excitement level
with actual performance scores and performance profiles generated by
professional athletes will create a unique diagnostic amusement product with
strong appeal to the vast audience of video game
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users. However, no assurances can be made that the adaptation of The
SportsTrac(TM)System to this format can and will be successful. Additionally, no
assurances can be made that such adaptations, once completed, will achieve
market acceptance.
Recent Developments
The Company has obtained a sub-license from BioFactors, Inc. which markets
the first commercial implementation of the CTT. That product, FACTOR 1000(TM),
is used to monitor the fitness for duty of employees in safety-sensitive jobs.
In 1994 the Los Angeles Dodgers, Major League Baseball, and Centinela Hospital
(Los Angeles) commissioned a study to apply the CTT Technology system in the
professional sports environment. The study compared the scores of the Los
Angeles Dodgers minor league players with their on-field performance statistics
in more than 160 games. The results of that study indicated that the CTT
Technology performance is predictive of performance differences between players
- - in other words, a player who performs better on the CTT Technology on a given
game day would be expected to show an increased likelihood of better game
performance.
In 1995 the Company was founded and secured an exclusive sub-license from
BioFactors, Inc. to apply the CTT technology for sports-related, and
sports-entertainment applications. The FACTOR 1000(TM) system was modified to
withstand the rigors of travel and the locker room environment, by adapting it
to a laptop computer. The SportsTrac(TM) System has since been installed and
used daily by the NHL New York Rangers (via their affiliate in the American
Hockey League), the NBA Minnesota Timberwolves, and the Los Angeles Dodgers.
The SportsTrac(TM) System scores are transferred electronically from these
sites to the Company. This data is carefully reviewed for correlations with
other individual and team performance measures. Statistically significant
correlations are reported back to the customers for their use and incorporated
in future analysis using The SportsTrac(TM) System. The Company holds periodic
telephone meetings with customers to discuss The SportsTrac(TM) System results.
Most recently, the Company has extended its pilot program to include
Callaway Golf, the market leader in golf equipment, to assist in the research
and development of a product that can monitor and predict the performance of
golfers. The Company anticipates this project will include the monitoring of
Callaway-sponsored professional golfers during the 1996 PGA Tour and extensive
testing at Callaway's advanced research division in Carlsbad, California.
Strategy and Outlook
The Company has identified four primary markets for products incorporating
its proprietary skills evaluation technology. These are:
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. Professional Monitoring Tools and Analysis
. Health and Fitness Monitoring and Information Systems
. Consumer Enhancement Products - Golf
. Consumer Entertainment Products
The Company expects to introduce the professional version of The
SportsTrac(TM) System to new teams during the 1996 Major League Baseball and
National Football League seasons and the 1996-1997 National Hockey League and
National Basketball Association seasons. The Company's goal is to install
systems for several teams in each sport and demonstrate results that will
convince the remaining teams that The SportsTrac(TM) System is a necessary
component of any team's success on the field.
The SportsTrac(TM) System enters the market at a time of increased interest
in high-tech, computerized devices for performance enhancement. Many
professional sports organizations have begun to routinely test the psychological
state of potential recruits using traditional examinations, check the physiology
of players using MRIs (magnetic resonance imaging) and other diagnostic tools,
and have supplemented their training techniques with computerized measures of
performance levels. Some of these computerized measures have found their way to
the recreational level as health and fitness clubs adopt complex new training
systems.
Products
Professional SportsTrac(TM) System
The professional version of The SportsTrac(TM) System, which is still
undergoing development in the Company's uncompleted pilot program, in its
prototype form, and which is not fully tested or engineered and is not yet ready
for commercial production, consists of a small screen, keyboard, and a control
knob similar to the volume control on a radio. The components are housed in a
small, rugged unit which can sit on a tabletop in the corner of a locker room at
home or on the road. The SportsTrac(TM) System is light and portable for easy
transportation with team equipment.
Before going out on the field or court, each player spends 2 to 5 minutes
using The SportsTrac(TM) System. After a player enters his identification
number, the screen displays a diamond pointer drifting between two vertical
lines. Using the control knob, the player must correct for the unpredictable
movement of the pointer, keeping it from touching either of the lines. The
difficulty increases as the pointer gradually accelerates, until the pointer
touches one of the lines. The "critical instability" level at the point the
player loses control of the pointer is an instant, accurate measure of the
player's hand-eye coordination. To ensure maximum accuracy, each player repeats
the task 5 times in a session with The SportsTrac(TM) System.
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Using The SportsTrac(TM) System can be compared to balancing a broomstick
upright on your open palm. You must move your hand from side to side to prevent
the unstable broomstick from falling to the ground. In effect, The
SportsTrac(TM) System is like balancing a broomstick that becomes shorter over
time. The balancing task is simple when the stick is long but becomes
increasingly difficult and eventually impossible as the length decreases
(compare balancing a broomstick with balancing a short pencil).
The SportsTrac(TM) System is designed to be used with minimal supervision.
A trainer or other person can set up the SportsTrac(TM) System station in
minutes and player sessions are self- administered and confidential. A built-in
help system clarifies any questions users may have. The SportsTrac(TM) System
maintains a computerized database of players and results, enabling a trainer or
other person to check player participation and generate reports with a few
keystrokes. Testing by major and minor league baseball teams has shown that The
SportsTrac(TM) System integrates easily into athletic training environments and
is welcomed by players and coaches.
The SportsTrac(TM) System maintains a historical record of The
SportsTrac(TM) System scores. It can display numeric reports or graphs of
performance trends on an individual or team basis. Data security is built into
The SportsTrac(TM) System and teams can choose to make data available to any
combination of players, trainers, physicians and management.
The market for professional sports enhancement products is highly
fragmented with many individuals and companies selling devices, analysis,
statistics, training techniques, food supplements, and more to professional
sports organizations. Teams vary widely in their interest in new products,
particularly high-tech products, and the key element for vendors is often a
high-level contact or demonstrable success story with another team. While the
Company believes that the results of the Dodgers Study, as well as the results
of the Company's pilot program, will enable The SportsTrac(TM) System to receive
serious consideration by nearly any professional sports organization, there can
be no assurance that additional professional sports organizations will elect to
utilize The SportsTrac(TM) System.
The SportsTrac(TM) System For Health and Fitness Centers
The Company believes that The SportsTrac(TM) System's benefits can be
delivered in an automated unit for health and fitness centers. Athletes will be
able to track their day-to-day skill level before or after working out or
competing. In addition, the Health and Fitness version of The SportsTrac(TM)
System will deliver timely, useful information about sports medicine, nutrition,
fitness, and club information about classes, events, new members, and services.
The preliminary design of The SportsTrac(TM) System product suitable for
health and fitness club use, which is presently still under development and
exists only in a prototype form, includes a free-standing kiosk with embedded
control panel and 17 inch touch screen monitor. A hidden 486
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class personal computer with MPEG video card handles interaction with users,
presents The SportsTrac(TM) System task, analyzes and stores results, graphs
scores, and connects via phone line to the Internet. The kiosk is rugged and
waterproof, suitable for installation in a lobby, locker room or workout area.
The health club user will walk up to The SportsTrac(TM) System unit, enter
a personal identification number or card, and indicate whether the user would
like to complete a session using The SportsTrac(TM) System, view club news, view
sports information or leave a message for another member. Choosing to use The
SportsTrac(TM) System will allow the user to start a session, print a graph of
previous scores, or display The SportsTrac(TM) System analysis screen.
Alternatively, the user will be able to view screens containing information
about the club, including the club's schedule of classes and events, equipment
layout, hours of operation. A third choice will allow the user to record his or
her workout schedule, leave a message for the club or another member, and obtain
information about sports medicine, fitness, nutrition, and other subjects of
interest to members.
To maintain and deliver this information, the Company will link each health
and fitness center using The SportsTrac(TM) System to a central server via the
Internet and deliver the information via the Internet's TCP/IP protocol. This
data delivery architecture will allow the Company to easily update information
and services from one remote location and use relatively inexpensive, simple and
trouble-free kiosks to deliver the information.
The Company believes that the Internet will soon be an excellent source of
health and fitness information and that users in an unhurried, relaxing
environment focused on self-improvement will want to research and find that
information. The Company can add value to that information by private-labeling
delivery sites and organizing access to the variety of sites. It believes users
will be drawn to the kiosk for The SportsTrac(TM) System testing, then discover
the value of a guided gateway to fitness-related information on the Internet.
The Health and Fitness Market
Following a slight downturn during the recession of the early 1990s, health
club memberships and revenues are increasing. The number of clubs rose 7% to
12,408 in 1994 and revenues increased by 10% in both 1993 and 1994 to a present
level of $18.8 billion. Average reported club revenue of $1.5 million during
1994 was up 7% over 1993.
The Health and Fitness SportsTrac(TM) System product closely fits one of
strong trends in club revenues - an increased focus on alternative revenue
sources (beyond club membership dues). In 1994, fees for services such as
fitness evaluation, personal training, child care, juniors programming and
nutritional counseling accounted for 22% of the average club's total revenue.
The Company believes that the Health and Fitness SportsTrac(TM) System can be
marketed as an add-on benefit to
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club membership with either an additional flat fee charged each month or on a
charge per access basis.
The SportsTrac(TM) System for Consumers
The Company believes that developing a simplified, consumer version of The
SportsTrac(TM) System is the best way to leverage The SportsTrac(TM) System's
professional acceptance. The first consumer version of The SportsTrac(TM) System
(the "Consumer SportsTrac(TM) System") will be designed for recreational
golfers. In 1994, this group spent a total of $16.31 billion on golf-related
goods and services, including more than $6 billion on clubs, equipment and
miscellaneous items. The market for golf self-improvement products includes
video tapes, learning grips, clubs designed to improve one's swing, and various
other devices and services. The Company believes that The SportsTrac(TM) System
offers the kind of skill analysis and monitoring that will appeal to high and
low handicap golfers alike.
The Company has recently begun a research project with Callaway Golf, the
leading manufacturer of golf clubs and one of the most powerful brand names in
golf. The Company and Callaway will use Callaway's testing facilities and its
team of professional golfers to determine how The SportsTrac(TM) System
technology can best be delivered to the golfing community. Part of that project
will involve having professional golfers in upcoming PGA Tour events use The
SportsTrac(TM) System daily (in its prototype form) to determine how closely
their scores using The SportsTrac(TM) System match their tournament play.
Most golf equipment is sold through golf specialty stores, sporting goods
dealers, and mail order catalogues, with a heavy emphasis on brand name goods
like Callaway, Ping, Taylor Made, and Wilson. Approximately 20% of buyers are
"avid" golfers who play more than 25 rounds per year and spend more than $2,000
each year on their sport. Various sub-categories of non-avid golfers spend
anywhere from $350 to $750 per year on golf. The Company believes the strongest
market for this version of The SportsTrac(TM) System is among avid golfers who
want the latest equipment used by the pros. However, the Company has no
experience to date in this market and there can be no assurances that this will
be the strongest market for this version of The SportsTrac(TM) System.
Although only a single prototype version presently exists, the Company
expects to market two versions of the Consumer SportsTrac(TM) System for golf.
An individual product consisting of a control panel and software will be made
available to golfers with personal computers. A second model, adapted from The
SportsTrac(TM) System used in Health and Fitness Centers will be leased to pro
shops and golf course facilities to serve as a skills monitoring device and
gateway to information about the course and golfing. However no assurances can
be given that the Company will complete the adaption of The SportsTrac(TM)
System to these formats, and if completed, that such adaptations will achieve
market acceptance.
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Consumer Entertainment Products
The professional version of The SportsTrac(TM) System is designed to be
entertaining and exciting like a video game. The Company added
incentive-building features like personal and team high score indicators in
developing The SportsTrac(TM) System for sports use. The Company anticipates
that the SportsTrac(TM) System technology will be adapted for consumer
entertainment use by the first quarter of 1997. The Company anticipates that
once the adaptation process is completed, by adding further graphic design
(incorporating full motion video) and sound, it will have developed a game that
combines The SportsTrac(TM) System's inherent excitement level with actual
scores and performance profiles generated by professional athletes to create a
unique diagnostic amusement product with strong appeal to the vast audience of
video game users. The required adaptation, however, has not yet been completed,
and there can be no assurances that such adaptation can be completed
successfully. Additionally, no assurances can be made that should such an
adaptation be completed, it would achieve market acceptance.
Sales and Marketing Plan
The current version of The SportsTrac(TM) System is in use in its prototype
form (in the Company's uncompleted pilot program) and is marketed directly to
professional baseball, hockey, and basketball teams, as well as to professional
golfers and tennis players. The marketing is designed to solicit both new
participants in the Company's pilot programs as well as future customers when
The SportsTrac(TM) System is available for commercial implementation. This
professional version of The SportsTrac(TM) System, with its specialized support
and data analysis by the Company, will continue to be offered to the
professional market after the various consumer versions of The SportsTrac(TM)
System go to market. However, at the present time, this version of The
SportsTrac(TM) System is neither fully tested nor fully engineered, nor is it
ready for commercial production.
While the consumer versions of The SportsTrac(TM) System have not yet been
fully developed, they will take advantage of the broad distribution channel for
consumer sports equipment. The hardware, software and manual will fit in a
shoebox-sized box for shelf sales at department, sporting goods stores and
specialty golf and tennis shops. Health clubs that offer The SportsTrac(TM)
System on-site will be able to private label consumer machines incorporating The
SportsTrac(TM) System for sale in their equipment stores. The Company may also
market the consumer versions of The SportsTrac(TM) System via infomercial videos
and display ads in sports publications.
The Company will also seek to develop consumer revenues through
publications, vendors and sales representatives serving the amateur sports
marketplace.
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Competition
Presently, the Company has no direct competition in the sports and
entertainment related fields. As the Company's products are established,
however, competition could arise from organizations with more computer and
software expertise or more financial capability than the Company.
Other performance assessment technologies have been developed for research
and fitness-for-duty testing purposes but the Company knows of none that have
been refined for commercial application in the sports and entertainment related
fields. Based upon the Company's own evaluation, management believes that these
alternate technologies are more difficult to administer and less practical in
the marketplace than The SportsTrac(TM) System. Management believes that a
significant amount of engineering and other work would be required for any of
these other technologies to be successfully adapted to the marketplace in which
the Company intends to market The SportsTrac(TM) System. In addition, any new
technology would lack the benefit of the three decades of validation of the CTT
underlying The SportsTrac(TM) System. Currently, the only version of The
SportsTrac(TM) System which is in use is the prototype of the professional level
sports team version, which is being utilized in the Company's uncompleted pilot
program. This version has not been fully tested and is not ready for commercial
production. In addition to providing the prototype version to its pilot program
participants, the Company also provides services such as the initial
installation of The SportsTrac(TM) System and the training of the appropriate
personnel, as well as consulting and data analysis services.
Trademarks and Service Marks
The Company has filed an application to register a trademark for the name
of The SportsTrac(TM) System on May 6, 1996, and may register or file other
applications in the future. On occasion, such applications may be opposed by
third parties. The Company intends to pursue all available legal remedies to
vigorously defend its rights to its trademarks to the extent it has resources
available to fund such activities. However, no assurances can be made that the
Company's application will be approved by the United States patent and Trademark
Office.
Employees
As of March 31, 1996, the Company employed three full-time employees, which
consist of management, and one part-time employee. The Company considers its
employee relations to be good. The Company anticipates hiring additional
personnel after the Offering for sales, marketing, engineering and product
support, and general administrative assistance.
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Board of Advisors
The Company's Advisory Board brings together noted athletes and experts in
the fields of sports medicine, administration, research, marketing, law, and
promotion. While the Advisory Board serves an important role in the review of
The SportsTrac(TM) System product design and identification of new product
designs and customers, it does not serve any management function. Members of the
Company's Board of Advisors include:
Fred Claire. Mr. Claire has been with the Los Angeles Dodgers since 1969
and currently holds the position of Executive Vice President and General
Manager. In 1988 Mr. Claire was named the Sporting News Executive of the Year
and has served Major League Baseball as a member of the Board of Directors of
Baseball Properties, the Broadcast Advisory Group, and the Baseball Operations
committee.
Ralph Gambardella, MD. Dr. Gambardella is an orthopaedic surgeon,
specializing in sports medicine, practicing with the world re-known Kerlan-Jobe
Orthopaedic Clinic. Dr. Gambardella is an orthopaedic consultant for the Los
Angeles Dodgers and the University of Southern California and Loyola Marymount
University sports programs. He serves as an Associate Clinical Professor of
Orthopaedics at the University of Southern California School of Medicine.
Frank W. Jobe, MD. Dr. Jobe is a pioneer in the fields of orthopaedic
surgery and sports medicine, and co-founded the Kerlan-Jobe Orthopaedic Clinic
in Inglewood, California. Dr. Jobe regularly consults to numerous professional
sports teams, including the PGA Tour, Senior PGA Tour and the Los Angeles
Dodgers. He is the Medical Director of the Biomechanics Laboratory at Centinela
Hospital Medical Center, and serves as Clinical Professor of Orthopaedics at the
University of Southern California School of Medicine.
Roy A. Mlakar. Mr. Mlakar is a business consultant to a variety of
professional sports organizations, including the NHL Ottawa Senators and Ogden
Corporation. He is the former chief operating officer of the NHL Pittsburgh
Penguins and was president of the NHL Los Angeles Kings.
Rob Moor. Mr. Moor is president of the National Basketball Association's
Minnesota Timberwolves and responsible for the day-to-day operation of that
franchise. Prior to joining the Timberwolves, Mr. Moor was executive vice
president of the National Hockey League's Los Angeles Kings, where he was
instrumental in the development, formation and acquisition of several companies,
including the Toronto Argonauts of the Canadian Football League, Upper Deck
Authenticated and MultiVision Marketing.
Ann Meyers Drysdale. Ms. Drysdale was a 4-time All American basketball
player at UCLA and received a silver medal in the 1976 Olympics. She was the
first woman signed by an NBA team, the Indiana Pacers, and has been active in
the women's professional basketball and broadcasting for several years.
47
<PAGE>
Diana Scott. Ms. Scott is an attorney with expertise in employment law and
wrongful termination. She has represented professional sports players and
executives in various areas of employment, litigation, and business.
Kenny Slutsky. Mr. Slutsky is currently Vice-Chairman of Candle
Corporation, the leading provider of systems management software in the world.
He was previously Chairman of Kern Oil and Refining Co. and developed and
founded the Old Marsh Golf Club in Palm Beach County, Florida.
Reggie Smith. Mr. Smith played major league baseball for 17 seasons with
the Boston Red Sox, St. Louis Cardinals, Los Angeles Dodgers, and the San
Francisco Giants. He is currently the Los Angeles Dodgers' batting coach and is
founder of the Baseball Development Centers for skills instruction and training.
Dave Wohl. Mr. Wohl is currently executive vice president of the Miami Heat
National Basketball Association organization. Prior to his present role with the
Miami Heat, Mr. Wohl was head coach with the New Jersey Nets and assistant coach
with the Los Angeles Lakers and the Los Angeles Clippers. He also played in the
NBA for several years and is a noted sports author.
Facilities
The Company's executive offices are located at 6900 East Belleview Avenue,
Suite 200, Englewood, Colorado 80111. The term of such lease expired March 31,
1996 and the rent for the facilities is $1,100 per month. The Company continues
to occupy such premises on a month-to-month basis and will do so until the
completion of this offering, at which time the Company will evaluate its
facility requirements.
The Company also leases office space in Los Angeles, California. Such lease
also expired on March 31, 1996 and the rent for such facility is $900 per month.
The Company continues to occupy such premises on a month-to-month basis and will
do so until the completion of this offering, at which time the Company will
evaluate its facility requirements.
Litigation
There is no material litigation pending or threatened against the Company
nor are there any such proceedings to which the Company is a party.
48
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
Name Age Position Held
---- --- -------------
Michael Mellman, MD 45 Chairman of the Board and Director
Marc R. Silverman 43 Chief Executive Officer, President, Chief
Financial Officer and Director
Elliot Steinberg 58 Director
Solomon A. Weisgal 69 Director
Joshua Kanter 34 Director and Secretary
Background of Executive Officers and Directors
Michael Mellman, MD is a founder of the Company and is presently in the private
practice of internal medicine at Centinela Hospital Medical Center in Inglewood,
California. Dr. Mellman has been the team physician for the Los Angeles Dodgers
since 1986, and the Los Angeles Lakers and Los Angeles Kings since 1981. He was
the team physician for the now defunct LA Express of the United States Football
League and has served as a consultant to the Los Angeles Rams. Dr. Mellman is
widely recognized as an expert in the area of sports medicine and athletic
performance. Dr. Mellman graduated from the University of California at Los
Angeles with a bachelors degree in Zoology. He received his MD from the Mount
Sinai School of Medicine in New York. His internship, residency, and chief
residency in Internal Medicine were all served at Cedars Sinai Medical Center in
Los Angeles.
Marc R. Silverman is a founder of the Company and has a broad background of
business experience and technical expertise, including strategic planning,
business development, product design and implementation. From 1989 through 1993,
Mr. Silverman was the President and a director of Performance Factors, Inc. (in
which he was one of the founders). Performance Factors, Inc. (which was formerly
known as Cognitive Systems, Inc.) was merged with and into BioFactors, Inc. on
May 22, 1994. Mr. Silverman was an officer of BioFactors, Inc. from 1993 until
September 1, 1995 (and a director until April, 1995). Prior to joining
Performance Factors Inc., Mr. Silverman was Director of Planning and Business
Development at Technicon Corporation, a major developer of computerized patient
care and hospital information systems,
49
<PAGE>
from 1987 until 1989. In that capacity, he was responsible for strategic
direction, new product planning and corporate development. From 1985 to 1987,
Mr. Silverman was General Manager of the Medical Information Systems Division at
BaronData Systems. This division developed and marketed automated clinical
decision support systems for acute care hospitals and ambulatory care
facilities. Prior to assuming the position of General Manager, he was Director
of Planning, with responsibility for the direction of all corporate product
lines.
Mr. Silverman has previously held positions at Cutter Laboratories and
Hexcel Corporation, where he was responsible for the design and implementation
of various computer applications. He is an engineering graduate of the
University of California at Los Angeles and has attended the Stanford
University, Advanced Management College.
Elliot Steinberg, a director of the Company, is the managing partner of W.S.
Ventures, a private investment partnership. From 1992 to the present date, Mr.
Steinberg has actively engaged in the practice of law, specializing in business
planning and real estate. In 1995, Mr. Steinberg became a managing shareholder
of Sunrise Creek, LLC, a company engaged in real estate subdivision and
development in the State of Colorado. Also in 1995, Mr. Steinberg became a
trustee of the California Real Estate Investment Trust, a self-administered real
estate trust (traded on the New York Stock Exchange under the symbol "CT").
During 1992 and 1993, Mr. Steinberg was a director of Kimco Hotel Management
Company , a private company engaged in hotel management and development. From
1992 to the present date, Mr. Steinberg has been a director of BioFactors, Inc.
Also, since 1992 Mr. Steinberg has been a director of Ganson Ltd. and Cege Co.,
Ltd. (Hong Kong), both private companies engaged in the manufacture and sale of
leather goods. From 1988 through 1992, Mr. Steinberg was the general partner of,
and general counsel to, Genesis Merchant Group, an Illinois financial services
firm, providing investment banking, brokerage activities and asset management of
equities and bonds. Mr, Steinberg is a graduate of the University of California
(Berkeley) and holds a J.D. degree from the Boalt Hall School of Law, University
of California (Berkeley).
Solomon A. Weisgal, has been a director of the Company since February 1996. Mr.
Weisgal is a Certified Public Accountant and has been President of Solomon A.
Weisgal, Ltd., a financial consulting firm, since its inception in 1979. Mr.
Weisgal is presently a director of Chicago Holdings, Inc. and Dealers Alliance
Credit Corp., privately-held concerns, and First Merchant Acceptance Corporation
and Walnut Financial Services, Inc., companies listed on the Nasdaq National
Market System.
Joshua S. Kanter has been of counsel to Barack, Ferrazzano, Kirschbaum &
Perlman, specializing in securities, corporate and real estate law since June
1993. Mr. Kanter has also been the Vice-President of Windy City, Inc., a closely
held investment management and consulting firm since June 1986 and has been
General Counsel of Walnut Financial Services, Inc., a publicly-held concern
(Nasdaq NMS - WNUT) since September 1995. Mr. Kanter received a B.A. in
Economics and Political Science and graduated magna cum laude from Emory
University in 1984. Thereafter, Mr. Kanter received his J.D. from the University
of Chicago Law School in 1987. Mr. Kanter has served on the Boards of Directors
of a number of companies, including
50
<PAGE>
Critical Industries, Inc., a publicly held concern, and Performance Factors,
Inc. and TCOM Systems, Inc., both privately-held concerns.
Executive Compensation
The following table sets forth remuneration paid or accrued by the Company
during fiscal year 1995 to the named officers and directors of the Company. Each
director of the Company is entitled to receive reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors of the Company. The
members of the Board of Directors intend to meet at least quarterly during the
Company's fiscal year, and at such other times duly called. In fiscal 1995 no
director, officer or employee received compensation exceeding $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
Name of Individual Securities
and Other Annual Restricted Underlying LTIP All other
Principal Position Year Salary Bonus Compensation Stock Awards Options/SARS Payouts Compensation
------------------ ---- ------ ----- ------------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marc Silverman, 1995 $42,000 -- -- -- 60,000 -- --
Chief Executive
Officer, President,
Chief Financial
Officer and Director
Michael Mellman, 1995 $21,000 -- -- -- 60,000 -- --
Chairman of
the Board
</TABLE>
Set forth below is information relating to stock options granted to Messrs.
Silverman and Mellman:
Option/SAR Grants in Fiscal 1995
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Option/SARs
Underlying Granted to Exercise
Option/SARs Employees in Price
Name Granted Fiscal 1995 ($/sh) Expiration Date
---- ----------- ----------- ------ ---------------
<S> <C> <C> <C> <C>
Marc Silverman 60,000 28.57% $.25 Nov. 30, 2000
Michael Mellman 60,000 28.57% $.25 Nov. 30, 2000
</TABLE>
51
<PAGE>
Aggregated Option/SAR Exercises During Fiscal 1995
and Year End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Options/SARS at Options/SARS at
Name On Exercise Realized FY-End FY -End (1)
---- ----------- -------- ------- -----------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marc Silverman - - 60,000 - $165,000 -
Michael Mellman - - 60,000 - $165,000 -
</TABLE>
(1) Represents the value of options assuming the initial public offering price
per Share set forth on the cover page of this Prospectus.
Employment Agreements
There are currently no employment agreements with any of the Company's
executive officers or key employees. All salaries of such persons will be set by
the Company's Compensation Committee which consists of Messrs. Steinberg,
Weisgal and Kanter, all non-employee directors of the Company.
1995 Stock Plan
In November 1995, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1995 Stock Plan
(hereinafter called the " Plan"). The purpose of the Plan is to provide a means
whereby key individuals providing services to the Company and to its related
corporations may sustain a sense of proprietorship and personal involvement in
the continued development and financial success of the Company and to encourage
them to remain with and devote their best efforts to the business of the
Company, thereby advancing the interests of the Company and its shareholders.
Under the Plan, certain directors, officers, employees and consultants are
eligible to acquire Common Stock of the Company or otherwise participate in the
financial success of the Company. The Plan is expected to provide flexibility to
the Company's compensation methods, after giving due consideration to
competitive conditions and the impact of the federal tax laws.
The maximum aggregate number of Shares that may be awarded to individuals
under the Plan is 480,000 Shares. Any Shares that remain unissued at the
termination of the Plan shall cease to be subject to the Plan, but until
termination of the Plan, the Company shall at all times make available
sufficient shares to meet the requirements of the Plan. The aggregate number of
Shares
52
<PAGE>
which may be awarded under the Plan shall be adjusted to reflect a change in
capitalization of the Company, such as a stock dividend or stock split.
The Plan shall be administered by a Committee which shall be comprised of
at least two (2) non-employee disinterested directors appointed by the Board of
Directors of the Company (hereinafter referred to as the "Board"). A
disinterested director is any member of the Board who within the prior year has
not been, and is not being, granted any awards related to the Shares under the
Plan or any other plan of the Company or any related Company except for awards
which: (i) are calculated in accordance with a formula as contemplated in
paragraph (c)(ii) of Rule 16b-3 ("Rule 16b-3") under the Securities and Exchange
Act of 1934; (ii) result from participation in an ongoing securities acquisition
plan meeting the conditions of paragraph (d)(2) of Rule 16b-3; or (iii) arise
from an election by a director to receive all or part of his Board fees and
Shares. The Committee shall have sole authority to select the individuals from
among those eligible to whom awards shall be made under the Plan, to establish
the amount of such award for each individual and the time when certificates for
Shares shall be issued, and to prescribe the legend to be affixed to the
certificate. The Committee is authorized, subject to Board approval, to
interpret the Plan and may from time to time adopt such rules, regulations, form
and agreement, not inconsistent with the Plan as it may deem advisable to carry
out the Plan. All decisions made by the Committee in administering the Plan
shall be subject to Board review.
Types of Awards
Stock Options. Options granted under the Plan may be "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Code or
stock options which are not incentive stock options ("Non-Incentive Options"
and, collectively with Incentive Options, hereinafter referred to as "Options").
Whether or not Options will be granted, the number of shares subject to each
Option granted, the prices at which Options may be exercised (which shall not be
less than the fair market value of shares of Common Stock on the date of grant),
whether an Option will be an Incentive Option or a Non-Incentive Option, the
time or times and the extent to which Options may be exercised and all other
terms and conditions of Options will be determined by the Committee.
Each Incentive Option shall terminate no later than ten (10) years after
the date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined). No Incentive Option may be
granted at any time after October 2005. The exercise price at which the shares
may be purchased may not be less than the Fair Market Value of shares of Common
Stock at the time the Option is granted, except as provided below with respect
to Incentive Options granted to 10% Stockholders.
The exercise price of an Incentive Option granted to a person possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ("10% Stockholder") shall in no
event be less than 110% of the Fair Market Value of the shares of the Common
Stock on the date the Incentive Option is granted. The term of an Incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.
53
<PAGE>
The exercise price of the shares to be purchased pursuant to each Option
shall be paid in any one or a combination of cash, personal check, personal
note, shares already owned or Plan awards which the Optionee has an immediate
right to exercise.
Restricted Stock Awards. Restricted Stock Awards ("RSAs") under the Plan
shall be in the form of Shares, restricted as to transfer and subject to
forfeiture, and shall be evidenced by restricted stock agreements in such form
and consistent with the Plan as the Committee shall approve from time to time.
RSAs awarded under the Plan shall be subject to such terms, conditions, and
restrictions, including without limitation: prohibitions against transfer,
substantial risks of forfeiture, attainment of performance objective and
repurchase by the Company or right of first refusal, and for such period or
periods as shall be determined by the Committee at the time of grant. The
Committee shall have the power to permit, in its discretion, an acceleration of
the expiration of the applicable restriction period with respect to any part or
all of the RSAs awarded to a grantee.
RSAs awarded, and the right to vote on the underlying Shares and to receive
dividends thereon, may not be sold, assigned, transferred, exchanged, pledged,
hypothecated, or otherwise encumbered during the restriction period applicable
to such Shares, except in the event of the death of the Optionee or by will or
the laws descent and distribution. Subject to the foregoing, and except as
otherwise provided in the Plan, the Grantee shall have all other rights of a
stockholder including, but not limited to, the right to receive dividends and
the right to vote such Shares.
In the event of a grantee's termination of employment prior to the lapse of
restrictions applicable to any RSAs awarded to such grantee, all such Shares as
to which there still remain restrictions shall be forfeited by such grantee
without payment of any consideration to the grantee, and neither the grantee nor
any successors, heirs, assigns, or personal representatives of such grantee
shall thereafter have any further rights or interest in such Shares or
certificates.
Stock Appreciation Rights. Stock Appreciation Rights ("SARs") are rights
entitling the grantee to receive cash or Shares having a fair market value equal
to the appreciation in market value of a stated number of Shares from date of
grant, or in the case of rights granted in tandem with or by reference to an
option granted prior to the grant of such rights, from the date of grant of the
related option to the date of exercise, which may be granted to such eligible
directors and employees as may be selected by the Committee. SARs may be granted
in tandem or with reference to a related option, in which event the grantee may
elect to exercise either the option or the SAR, but not both, as to the same
Share subject to the option and SAR, or the SAR may be granted independently of
a related option. In the event of a grant with a related option, the SAR shall
be subject to the terms and conditions of the related option. In the event of an
independent grant, the SAR shall be subject to the terms and conditions
determined by the Committee. SARs shall not be transferred, assigned or
encumbered, except that SARs may be exercised by the executor, administrator or
personal representative of a deceased grantee within twelve (12) months of the
death of the grantee.
Upon exercise of an SAR, the grantee shall be paid the excess of the then
fair market value of a number of Shares to which the SAR relates over the fair
market value of such number of Shares at the date of grant of the SAR or of the
related option, as the case may be. The exercise of an SAR
54
<PAGE>
may only be made in accordance with applicable restriction pursuant to Rule
16b-3(e) under the Securities and Exchange Act of 1934 or any similar successful
provision.
At December 31, 1995, 174,000 Incentive Options and 36,000 Non-Incentive
Options have been granted. Messrs. Mellman and Silverman, Chairman of the Board
and Chief Executive Officer of the Company, respectively, were each granted
60,000 Incentive Options to purchase Common Stock at $.25 per share. The
remaining 90,000 options in the aggregate are exercisable at the greater of $.25
or 25% of the public offering price of the Company's Common Stock in the
Offering ($.75).
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding shares of
the Company's Common Stock by (i) any holder of more than five percent (5%) of
the outstanding shares; (ii) the Company's officers and directors; and (iii) the
directors and officers of the Company as a group:
<TABLE>
<CAPTION>
Amount Percentage Amount Percentage
Beneficially (%) of Beneficially (%) of
Owned Prior Class Owned After Class
Name and Address To This Before Offering(1) After
of Beneficial Owner Offering (1) Offering (1) Offering(1)
------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
Jelsin Investments Limited 216,000 7.44 36,000 .73
P.O. Box NO3933
Shirley Street
Nassau, Bahamas
Kanter Family Foundation 216,000 7.44 36,000 .73
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Joshua S. Kanter (2)(9) 86,400 2.98 14,400 .29
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
M.D. Funding, Inc. 459,000 15.81 76,500 1.56
5 Old Woods Drive
Harrison, New York 10528
Michael Mellman(3) 234,000 7.89 234,000 4.71
500 North Poinsettia Avenue
Manhattan Beach, California 90266
Marc Silverman(4) 234,000 7.89 234,000 4.71
c/o SportsTrac, Inc
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
W. S. Ventures (5) 270,000 9.30 45,000 .92
P.O. Box 3721
Telluride, Colorado 81435
Elliot Steinberg(5) 270,000 9.30 45,000 .92
P.O. Box 3721
Telluride, Colorado 81435
The Holding Company (6) 234,600 8.07 26,100 .53
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Daniel Durchslag 408,000 14.05 68,000 1.39
9400 Brighton Way
#402
Beverly Hills, CA 90210
Joel S. Kanter (7)(9) 388,800 13.39 64,800 1.32
8000 Towers Crescent Avenue
Suite 1070
Vienna, Virginia 22182
Solomon A. Weisgal (8) 18,000 .62 - 0 - -0-
120 South Riverside Drive
Suite 1420
Chicago, IL 60606
All officers and directors
as a group (five (5) persons) 842,400 28.68 527,400 10.63
</TABLE>
- ----------
(1) Gives effect to the issuance of 480,000 shares of Common Stock (after the
March stock split) and 2,000,000 Class A Warrants included in the Bridge
Units. Does not give effect to (i) 1,000,000 shares of Common Stock
issuable upon exercise of the Warrants offered by the Company; (ii) 300,000
shares of Common Stock issuable upon exercise of the Over-Allotment Option;
(iii) 150,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Over-Allotment Option; (iv) 200,000 shares of Common Stock
issuable upon exercise of the Underwriter's Option; (v) 100,000 shares of
Common Stock issuable upon exercise of the Warrants included in the
Underwriters Option; (vi) 2,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants offered by the Selling Securityholders,
and (vii) stock options and outstanding warrants. The amount beneficially
owned after the Offering assumes the sales made by such persons who are
also Selling Securityholders. All of the persons listed in the above table
are also Selling Securityholders, other than Messrs. Mellman and Silverman.
(2) Mr. Kanter is a director and secretary of the Company. See "Management."
Mr. Kanter is a Vice President of Windy City, Inc. and Vice President of
the Kanter Family Foundation and has no voting or investment control of
shares owned by them and disclaims any beneficial interest in such shares.
Mr. Kanter is the brother of Joel Kanter, a principal stockholder.
57
<PAGE>
(3) Mr. Mellman is the Chairman of the Board of Directors of the Company.
Includes options to purchase 60,000 shares of Common Stock at $.25 per
share. See "Management."
(4) Mr. Silverman is the Chief Executive Officer, Chief Financial Officer,
President and Director of the Company. Includes options to purchase 60,000
shares of Common Stock at $.25 per share. See "Management."
(5) Mr. Steinberg is the general partner of W.S. Ventures and has sole voting
and investment control over said shares. Mr. Steinberg is a director of the
Company. See "Management."
(6) Mr. Burton Kanter is the President of The Holding Company . Mr. Kanter is
the father of Joel S. Kanter, a principal stockholder, and Joshua S.
Kanter, a director and secretary of the Company.
(7) Includes (i) 86,400 shares owned by Mr. Kanter, (ii) 216,000 shares owned
by the Kanter Family Foundation and (iii) 86,400 shares owned by Windy
City, Inc. Mr. Kanter, as the President of the Kanter Family Foundation and
Windy City, Inc., is vested with sole voting and investment control of the
shares owned by said entities. Mr. Kanter disclaims any beneficial
ownership of any shares owned by the Kanter Family Foundation or Windy
City, Inc. Mr. Kanter is the brother of Joshua S. Kanter, a director of the
Company.
(8) Director of the Company. See "Management." Includes 18,000 shares of Common
Stock (post March 1996 stock split) issued to him, as trustee, in
connection with a bridge loan to the Company. Mr. Weisgal, as trustee, is
vested with the sole voting and investment control of such shares but
disclaims any beneficial interest in such shares. See "Bridge Financing"
and "Selling Securityholders."
(9) Does not include 120,000 shares of Common Stock and 500,000 warrants held
by Ulster Investments Ltd. which were issued by the Company in connection
with its bridge loan. See "Bridge Financing." Ulster Investment Ltd. is an
Antigua corporation which is owned by the St. John's Trust, the trustee of
which is the Antigua International Trust, Ltd., a subsidiary of Swiss
American Bank, Ltd. The beneficial owner of such shares is the St. John's
Trust. Antigua International Trust, Ltd. is the sole director of Ulster
Investment Ltd., and Stuart Young serves as President and Treasurer and
Roslyn Yearwood serves as Secretary. The beneficiaries of the St. John's
Trust are the members of the family of Burton W. Kanter (but not Burton W.
Kanter), including Josh Kanter, Joel Kanter and Janis Kanter, all of whom
are shareholders of the Company. Joel Kanter, Josh Kanter and Janis Kanter
disclaim any beneficial interest in such shares and warrants.
58
<PAGE>
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
From inception to November 1995, the Company issued an aggregate of
2,424,000 shares of its common stock to 14 shareholders for aggregate
consideration of $507,000. The Company also issued warrants to purchase up to
180,000 shares of Common Stock at an exercise price of $4.17 per share (as
adjusted for the Company's March stock split) through December 30, 2000. The
exercise price of those warrants were based upon the anticipated public offering
price of the Common Stock. These warrants were issued on December 31, 1995 to
Burton Kanter and Elliot Steinberg. The right to receive these warrants were
initially granted to BFI pursuant to the sublicense agreement (although such
warrants as issued contain different terms as initially contemplated). BFI
assigned such rights to Messrs. Kanter and Steinberg in connection with the
waiver of defaults relating to certain obligations owed by BFI to such persons,
the deferment of payment of certain obligations of BFI and the conversion of
certain obligations of BFI into shares of capital stock of BFI upon the
occurence of certain conditions. On February 19, 1996, these warrants were
subsequently assigned to Sheridan Ventures, Ltd. and Rainy Day Holdings.
From December 1995, through February 1996, the Company borrowed an
aggregate of $400,000 from ten (10) lenders (the "Bridge Lenders"): Ulster
Investments Ltd ($100,000), The Holding Company ($65,000), Dune Holdings, Inc.
($100,000), Solomon A. Weisgal, as trustee ($15,000), Howard Kirschbaum as
Custodian for Brian Kirschbaum under the Uniform Gift to Minors Act ($5,000),
Scott Sinar ($5,000), Matthew Harriton ($20,000), John LaFalce ($10,000),
Michael Lulkin ($30,000), and Hartley T. Bernstein ($50,000). None of the Bridge
Lenders are affiliated with the Company other than Solomon A. Weisgal, a
director of the Company, and The Holding Company, a principal stockholder of the
Company. Burton W. Kanter is the President of The Holding Company. Mr. Kanter is
the father of Joel Kanter, a principal stockholder of the Company and Josh
Kanter, a director and Secretary of the Company. Ulster Investments Ltd. is an
Antigua corporation which is owned by the St. John's Trust. The beneficiaries of
the St. John's Trust are the members of the family of Burton W. Kanter (but not
including Burton W. Kanter), including Josh Kanter, Joel Kanter and Janis
Kanter, all of whom are shareholders of the Company. In exchange for making
loans to the Company, each Bridge Lender received (i) a promissory note (each a
"Bridge Note") and (ii) Bridge Units. Each of the Bridge Units is comprised of
one (1) share of Common Stock and five (5) Class A Warrants. Each of the Bridge
Notes bears interest at the rate of eight percent (8%) per annum. The Bridge
Notes are due and payable upon the earlier of (i) June 30, 1996 and (ii) the
closing of an initial underwritten public offering of the Company's securities.
The Company intends to use a portion of the proceeds of this Offering to repay
the Bridge Lenders. See "Use of Proceeds." The Company entered into the bridge
financing transactions because it required additional financing and no other
sources of financing were available to the Company at that time. Each Class A
Warrant is identical to the Warrants offered hereby. See "Description of
Securities." All of the securities issued to the Bridge Lenders are being
offered hereunder. With respect to the bridge financing, the Company did not
engage a placement agent, the Bridge Lenders were identified by the Company's
officers
59
<PAGE>
and directors, and no other solicitations were made. See "Selling
Securityholders" and "Underwriting."
Mr. Silverman, chief executive officer and a director of the Company, was
one of the founders and the President and a director of Performance Factors,
Inc. ("Performance Factors"), the original licensee of the CTT technology from
STI., from 1989 until 1993. Performance Factors (which was formerly known as
Cognitive Systems, Inc.) was merged with and into BioFactors, Inc.
("BioFactors") on May 27, 1994, the sublicensor of the CTT technology to the
Company. Mr. Silverman was an officer of BioFactors, Inc., from 1993 until
September 1, 1995 (and a director until April 1995). Mr. Silverman is a minority
stockholder of BioFactors.
Mr. Steinberg, a director of the Company, served on the board of directors
of Performance Factors and continues to serve on the board of directors of
BioFactors. Mr. Steinberg is the general partner of W.S. Ventures, a principal
stockholder of the Company. W.S. Ventures is a minority stockholder of
BioFactors. Mr. Steinberg is the general partner of W.S. Ventures and has sole
voting and investment control over the shares of Common Stock owned by W.S.
Ventures.
Mr. Burton Kanter is the father of Joel S. Kanter, a principal stockholder,
and Joshua S. Kanter, a director and secretary of the Company. Burton Kanter
served on the board of directors of Performance Factors and continues to serve
on the board of directors of BioFactors. Burton Kanter is the President of The
Holding Company, a principal stockholder of the Company. Burton Kanter is
Chairman of the Board of Walnut Capital Corp., an early-stage venture capital
fund which has a minority interest in BioFactors. Joel Kanter is the President
of the Kanter Family Foundation and Windy City, Inc., stockholders of the
Company, and is the brother of Joshua S. Kanter.
With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors. Currently there are no disinterested
directors serving on the Company's Board of Directors.
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<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 2,000,000 shares of Common Stock, par value $.01
per share, and 1,000,000 Class A Warrants.
Common Stock
The Company is authorized to issue up to 15,000,000 shares of Common Stock,
of which 2,904,000 shares will be issued and outstanding as of the date of this
Prospectus. All of the issued and outstanding shares of Common Stock will be
fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See "Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one vote for each
share held at all stockholders' meetings including the annual meeting, for all
purposes, including the election of directors. The Common Stock does not have
cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 100,000 shares of
"blank check" Preferred Stock, whereby the Board of Directors of the Company
shall have the authority, without further action by the holders of the
outstanding Common Stock, to issue shares of Preferred Stock from time to time
in one or more classes or series, to fix the number of shares constituting any
class or series and the stated value thereof, if different from the par value,
and to fix the term of any such series or class, including dividend rights,
dividend rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the redemption price and the
liquidation preference of such class or series. As of the date of this
Prospectus, there are no shares of Preferred Stock issued and outstanding and
the Board of Directors has no present intention to issue any shares of Preferred
Stock.
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<PAGE>
Class A Warrants
The Class A Warrants are immediately transferable. Each Class A Warrant
entitles the holder to purchase one (1) share of Common Stock at a price of
$3.60 per share for a period of four (4) years commencing one (1) year from the
Effective Date of this Offering. Each Class A Warrant is redeemable by the
Company for $.05 per Class A Warrant, at any time after ____, 1997, upon thirty
(30) days' prior written notice, if the closing price of the Common Stock, as
reported by the principal exchange on which the Common Stock is traded, The
Nasdaq Small Cap Market or the National Quotation Bureau Incorporated, as the
case may be, exceeds $4.80 per share for twenty (20) consecutive trading days
ending within fifteen (15) days prior to the date of the notice of redemption.
Upon thirty (30) days' written notice to all holders of Class A Warrants, the
Company shall have the right, subject to compliance with Rule 13E-4 under the
Securities Exchange Act of 1934 and the filing of Schedule 13E-4 and, if
required, a post-effective amendment to this registration statement, to reduce
the exercise price and/or extend the term of the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a holder
of Class A Warrant certificates resides, such holder might not be permitted to
exercise the Warrants. See "Risk Factors - Requirements of Current Prospectus
and State Blue Sky Registration in Connection with the Exercise of the Class A
Warrants."
Each Class A Warrant may be exercised by surrendering the Warrant
certificate, with the form of election to purchase on the reverse side of the
Class A Warrant certificate properly completed and executed, together with
payment of the exercise price, to the Transfer Agent. The Class A Warrants may
be exercised in whole or from time to time in part. If less than all of the
Class A Warrants evidenced by a Warrant certificate are exercised, a new Class A
Warrant certificate will be issued for the remaining number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the
62
<PAGE>
Class A Warrants will result in the dilution of the then book value of the
Common Stock of the Company held by the public investors and would result in a
dilution of their percentage ownership of the Company.
Other Warrants to Purchase Common Stock
On December 31, 1995, the Company issued 180,000 warrants to purchase
Common Stock, at $4.17 per share (adjusted in connection with the Company's
March stock split), for a period commencing on such date and ending on December
30, 2000. See "Selling Securityholders" and "Certain Transactions."
Each warrant may be exercised by surrendering the original warrant
certificate with the form of election to purchase and payment of the exercise
price multiplied by the number of such warrants exercised. Such warrants may be
exercised in whole or from time to time in part. If less than all of such
warrants are exercised, a new certificate will be issued for the remaining
number of such warrants.
The holders of such warrants have piggyback registration rights on the
shares of Common Stock underlying such warrants, in accordance with certain
procedures. All expenses in connection with such rights will be borne by the
Company.
Holders of such warrants are protected against dilution of the equity
interest represented by the underlying shares of Common Stock upon the
occurrence of certain events including, but not limited to, issuance of stock
dividends. If the Company merges or consolidates or effects a sale, the holder
shall have the right to purchase such securities or assets as may be issued or
payable with respect to or in exchange for a number of shares of Common Stock
equal to the number purchasable by such warrants.
For the life of the warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the warrants will result in the dilution of the
then book value of the Common Stock of the Company held by the public investors
and would result in a dilution of their percentage ownership of the Company
These warrants were issued on December 31, 1995 to Burton Kanter and Elliot
Steinberg. The right to receive these warrants were initially granted to BFI
pursuant to the sublicense agreement (although such warrants as issued contain
different terms as initially contemplated). BFI assigned such rights to Messrs.
Kanter and Steinberg in connection with the waiver of defaults relating to
certain obligations owed by BFI to such persons, the deferment of payment of
certain obligations of BFI and the conversion of certain obligations of BFI into
shares of capital stock of BFI upon the occurence of certain conditions. On
February 19, 1996, these warrants were subsequently assigned to Sheridan
Ventures, Ltd. and Rainy Day Holdings. See "Certain Relationships and Related
Transactions."
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<PAGE>
Delaware Anti-Takeover Law
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owing 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by the directors who are also
officers of the corporation and by certain employee stock plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the public announcement or notification of
one of certain extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of the corporation's
board of directors and if such business combination is approved by a majority of
the board members who were directors prior to any person's becoming an
interested stockholder. The provisions of Section 203 requiring a super-majority
vote to approve certain corporate transactions could have the effect of
discouraging, delaying or preventing hostile takeovers, including those that
might result in the payment of a premium over market price or changes in control
or management of the Company.
Limitation on Liability of Directors
In connection with the Offering, the Underwriter has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the registration statement or the Prospectus or any amendment or supplement
thereto if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Underwriter specifically for or in
connection with the preparation of the registration statement, the prospectus,
or any such amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers.
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<PAGE>
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Eighth of the Company's Certificate of Incorporation provides for
indemnification of officers and directors and Article Ninth eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law. Provisions for indemnification are also
contained in Article VIII of the Company's By-Laws.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Transfer Agent & Registrar
The transfer agent, warrant agent and registrar for the Company's
securities is American Stock Transfer & Trust Company (the "Transfer Agent").
65
<PAGE>
SELLING STOCKHOLDERS AND BRIDGE LENDERS
In addition to the securities offered hereby by the Company, the
Registration Statement, of which this Prospectus forms a part, also covers the
registration of an aggregate of 2,190,000 shares of Common Stock and 2,000,000
Warrants being offered by the Selling Securityholders. Of these securities, the
Underwriter is purchasing from certain shareholders 1,710,000 shares of Common
Stock and from the Bridge Lenders 480,000 shares of Common Stock and 2,000,000
Warrants, on a firm commitment basis for offer and sale to the public
concurrently ("Concurrent Offering") with the offer and sale of the Company's
securities ("Company Offering"). See "Underwriting." The costs of qualifying
these securities under federal and state securities laws, together with legal
and accounting fees, printing and other costs in connection with this offering,
will be paid by the Company.
Set forth below is a list of the Selling Securityholders, the number of
shares of Common Stock and percentage ownership before the Company Offering, the
number of shares of Common Stock offered concurrently and the number of shares
of Common Stock and percentage ownership after the Concurrent Offering:
<TABLE>
<CAPTION>
Number of Number of
shares of shares of Percentage
Common Stock Common of Common
Shares of Percentage of to be offered Stock owned Stock owned
Common Stock Common Stock concurrently after after
owned before owned before with Company Concurrent Concurrent
Name Offering Offering Offering Offering Offering
---- ------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Jelsin 216,000 7.44 180,000 36,000 .73
Investments, Ltd.
K.A.M. Group, 24,000 .83 20,000 4,000 .08
Inc.
Kanter Family 216,000 7.44 180,000 36,000 .73
Foundation
Janis S. Kanter 43,200 1.49 36,000 7,200 .15
Joel S. Kanter 86,400 2.98 72,000 14,400 .29
Joshua S. Kanter 86,400 2.98 72,000 14,400 .29
Daniel Durchslag 408,000 14.05 340,000 68,000 1.39
M.D. Funding Inc. 459,000 15.81 382,500 76,500 1.56
</TABLE>
66
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
W.S. Ventures 270,000 9.30 225,000 45,000 .92
The Holding 234,600 8.07 208,500 26,100 .53
Company
Windy City, Inc. 86,400 2.98 72,000 14,400 .29
Scott Sinar 6,000 .21 6,000 0 0
Solomon A. 18,000 .62 18,000 0 0
Weisgal, as trustee
Ulster 120,000 4.13 120,000 0 0
Investments,Ltd
Howard 6,000 .21 6,000 0 0
Kirschbaum
John LaFalce 12,000 .41 12,000 0 0
Dune 120,000 4.13 120,000 0 0
Holdings,Inc,.
Matthew Harriton 24,000 .83 24,000 0 0
Hartley T. 60,000 2.07 60,000 0 0
Bernstein
Michael Lulkin 36,000 1.24 36,000 0 0
------ ---- ------ - -
Total 2,532,000 87.19 2,190,000 342,000 6.96
</TABLE>
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<PAGE>
Set forth below is a list of the Selling Securityholders, the number of
Class AWarrants and percentage ownership before the Company Offering, the number
of Class A Warrants offered concurrently and the percentage ownership after the
Concurrent Offering:
<TABLE>
<CAPTION>
Number of
Warrants to
be offered Number of Percentage
Warrants Percentage concurrently Warrants of Warrants
Owned of Warrants with owned after Owned after
before owned before Company Concurrent Concurrent
Name Offering Offering Offering Offering Offering
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Scott Sinar 25,000 1.25 25,000 0 0
Solomon A. 75,000 3.75 75,000 0 0
Weisgal, as
trustee
The Holding 325,000 16.25 325,000 0 0
Company
Ulster 500,000 25 500,000 0 0
Investments,
Ltd.
Howard 25,000 1.25 25,000 0 0
Kirschbaum
John Lafalce 50,000 2.50 50,000 0 0
Dune Holdings, 500,000 25 500,000 0 0
Inc.
Matthew 100,000 5.00 100,000 0 0
Harriton
Hartley T. 250,000 12.50 250,000 0 0
Bernstein
Michael Lulkin 150,000 7.50 150,000 0 0
------- ---- ------- --- --
Total 2,000,000 100% 2,000,000 0 0
</TABLE>
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<PAGE>
Intentionally omitted due to computerised compare error.
69
<PAGE>
Shares Available for Future Sale
Immediately prior to the sale of the Common Stock hereunder, the Company
had an aggregate of 2,904,000 shares of its Common Stock issued and outstanding,
all of which are "restricted securities" which may be sold only in compliance
with Rule 144 under the Securities Act of 1933, as amended. Rule 144 provides,
in essence, that a person holding restricted securities for a period of two
years after payment therefor may sell, in brokers' transactions or to market
makers, an amount not exceeding 1% of the outstanding class of securities being
sold, or the average weekly reported volume of trading of the class of
securities being sold over a four-week period, whichever is greater, during any
three-month period. (Persons who are not affiliates of the Company and who have
held their restricted securities for at least three years are not subject to the
volume or transaction limitations.) Any such sales could have a material adverse
effect on the market price for the Common Stock, should a trading market
develop. All of the Company's officers, directors and principal shareholders
(after giving effect to the sale by the Selling Securityholders) have agreed not
to sell or transfer any shares of Common Stock prior to _____, 199_ ) without
the prior written consent of the Underwriter.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to purchase from the Company
1,000,000 Shares and 2,000,000 Warrants offered hereby from the Company and
2,190,000 shares of Common Stock and 2,000,000 Warrants offered hereby by the
Selling Securityholders, all on a "firm commitment" basis, if any are purchased.
The Underwriter has advised the Company and Selling Securityholders that it
proposes to offer the Shares and Warrants to the public at $3.00 per Share and
$.25 per Warrant as set forth on the cover page of this Prospectus and that it
may allow to certain dealers who are NASD members concessions not to exceed $
per Share and $___ per Warrant, of which not in excess of $ per Share and $___
per Warrant may be reallowed to other dealers who are members of the NASD. After
the initial public offering, the public offering prices, concession and
reallowance may be changed by the Underwriter. The Underwriter has informed the
Company that it does not intend to confirm sales over which it exercises
discretionary authority.
The public offering prices of the securities were arbitrarily determined by
negotiations between the Company and the Underwriter and do not necessarily
relate to the assets, book value or results of operations of the Company or any
other established criteria of value.
The Company has granted an option to the Underwriter, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 300,000 additional Shares and 150,000 additional Warrants at the
Offering prices, less the underwriting discount, to cover over-allotments, if
any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities arising under the Act. Insofar
as indemnification for liabilities arising under the Act may be provided to
officers, directors or persons controlling the Company, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of three percent (3%) of the aggregate offering price of the
securities offered by the Company hereby, including any securities purchased
pursuant to the Over-Allotment Option. The Selling Securityholders will not pay
the Underwriter a non-accountable expense allowance.
The Company has agreed to sell to the Underwriter, or its designees, for an
aggregate purchase price of $100, an option (the "Underwriter's Option") to
purchase up to an aggregate of 200,000 Shares and 100,000 Warrants. The
Underwriter's Option shall be exercisable during a four (4) year period
commencing one (1) year from the Effective Date. The Underwriter's Option may
not be assigned, transferred, sold or hypothecated by the Underwriter until
twelve
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<PAGE>
(12) months after the Effective Date of this Prospectus, except to officers of
the Underwriter or to selling group members in this Offering. Any profits
realized upon the sale of the securities issuable upon exercise of the
Underwriter's Option may be deemed to be additional underwriting compensation.
The exercise prices of the shares of Common Stock and Warrants issuable upon
exercise of the Underwriter's Option during the period of exercisability shall
be $3.60 per share and $.30 per Warrant. The exercise price of the Underwriter's
Option and the number of shares covered thereby are subject to adjustment in
certain events to prevent dilution. For the life of the Underwriter's Option,
the holders thereof are given, at a nominal cost, the opportunity to profit from
a rise in the market price of the Company's securities with a resulting dilution
in the interest of other stockholders. The Company may find it more difficult to
raise capital for its business if the need should arise while the Underwriter's
Option is outstanding. At any time when the holders of the Underwriter's Option
might be expected to exercise it, the Company would probably be able to obtain
additional capital on more favorable terms.
If the Company enters into a transaction (including a merger, joint
venture, equity financing, debt financing, or the acquisition of another entity)
introduced to the Company by the Underwriter, the Company has agreed to pay the
Underwriter a finder's fee equal to five percent (5%) of the first $4,000,000 of
consideration involved in the transaction, ranging in $1,000,000 increments down
to two percent (2%) of the excess, if any, over $6,000,000.
Upon the closing of the sale of the securities offered hereby, the Company
will enter into a three (3) year financial advisory and investment banking
agreement with the Underwriter, pursuant to which the Company will be obligated
to pay the Underwriter $100,000 in advance upon the closing of the Offering, for
financial and investment advisory services to the Company.
Prior to the date of this Prospectus, all of the stockholders of the
Company's Common Stock ( after giving effect to the offering by the Selling
Securityholders) have agreed in writing not to sell, assign or transfer any of
their shares of the Company's securities without the Underwriter's prior written
consent for a period of twenty (24) months from the Effective Date.
The Underwriter shall have the option, subject to the approval of the
Company, to appoint one individual to stand for election to the Company's Board
of Directors for a period of three (3) years from the Effective Date. In lieu of
nominating a director, the Underwriter may designate a non-director observer to
attend meetings of the Company's Board of Directors for three (3) years after
the Effective Date at the Company's discretion.
The Company has also agreed to pay the Underwriter a warrant solicitation
fee equal to 4% of the Warrant exercise price for any of the Warrants, when
exercised, at any time commencing one year after the date of this Prospectus,
provided that the Underwriter or any NASD member firm has solicited such
exercise, as evidenced in writing signed by the warrant holder, and that (a) the
market price of the Common Stock on the date that any such Warrant is exercised
is greater than the exercise price of the Warrant; (b) prior specific written
approval for exercise is received from the customer if the Warrant is held in a
discretionary account; (c)
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<PAGE>
disclosure of this compensation arrangement is made prior to or upon the
exercise of such Warrant; (d) solicitation of the exercise is not in violation
of Rule 10b-6 of the Exchange Act; and (e) solicitation of the exercise is in
compliance with NASD Notice to Members 81-38 which also provides that the
Warrantholder designates an NASD member firm in writing as having solicited the
Warrant. In addition, unless granted an exemption by the Commission from Rule
10b-6 under the Exchange Act, the Underwriter will be prohibited from engaging
in any market-making activities or solicited brokerage activities with respect
to the Company's securities for the period from nine business days prior to any
solicitation of the exercise of any Warrant or nine business days prior to the
exercise of any Warrant based on a prior solicitation until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Underwriter may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Underwriter may be unable to continue to provide a market for the Company's
securities during certain periods while the Warrants are exercisable.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Underwriter's Warrant which have been filed as exhibits hereto.
The Company was advised that the Securities and Exchange Commission issued
an order on March 17, 1995 authorizing a private investigation concerning
trading in the securities of Lasergate Systems, Inc. The Underwriter acted as
underwriter of a public offering of securities of Lasergate Systems, Inc. in
October 1994 and has acted as a market maker of that issuer's securities since
that time. See "Risk Factors - Private Investigation Concerning Trading in
Securities of Issuer Underwritten by Underwriter."
This is the _____ public offering underwritten by the Underwriter. The
Underwriter is a licensed broker-dealer involved in, among other things, making
inter-dealer markets and retailing corporate equity securities over-the-counter,
underwriting, or participating as a selling group member, in corporate
securities and investment banking services. The Underwriter is required and has
performed due diligence activities in connection with this Offering in a
customary manner consistent with those practices performed by other underwriters
in the industry including financial, business and other due diligence. However,
there can be no assurance that the Underwriter's limited experience as an
underwriter of public offerings and in its due diligence activities will not
adversely effect the proposed public offering of the securities and the
subsequent development of a trading market, if any, or the market for and
liquidity of the securities. Therefore, purchasers of the securities offered
hereby may suffer a lack of liquidity in their investment or a material
diminution of the value of their investment. See "Risk Factors---Inexperienced
Underwriter May Affect Trading Market."
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<PAGE>
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the Common
Stock and Warrants. The initial public offering prices for the Shares and
Warrants and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in the negotiations were the market price of the Company's Common
Stock, an analysis of the areas of activity in which the Company is engaged, the
present state of the Company's business, the Company's financial condition, the
Company's prospects, an assessment of management, the general condition of the
securities market at the time of this Offering and the demand for similar
securities of comparable companies. The public offering price of the securities
does not necessarily bear any relationship to assets, earnings, book value or
other criteria of value applicable to the Company.
The Company anticipates that the Common Stock and Warrants will be listed
for quotation on The Nasdaq Small Cap Market under the symbols "SPRT" and
"SPRTW," but there can be no assurances that an active trading market will
develop, even if the securities are accepted for quotation. The Underwriter
intends to make a market in all of the publicly-traded securities of the
Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP, has served, and continues to serve, as counsel to
the Underwriter in matters unrelated to this Offering. Hartley T. Bernstein, a
partner at Bernstein & Wasserman, LLP, is a Bridge Lender and a Selling
Securityholder and is the record owner of 60,000 shares of Common Stock and
250,000 Warrants. See "Bridge Financing" and "Selling Securityholders." Certain
legal matters will be passed upon for the Underwriter by Cohn & Birnbaum P.C.,
100 Pearl Street, Hartford, CT 06103.
EXPERTS
Certain of the Financial Statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Holtz Rubenstein &
Co., LLP, independent certified public accountants, whose reports thereon appear
elsewhere herein and in the Registration Statement.
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<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants.......................................F-2
Financial Statements:
Balance sheets as of December 31, 1995 and March 31, 1996 (unaudited)..................F-3
Statements of operations for the period April 25, 1995 (inception) to
December 31, 1995, three months ended March 31, 1996 (unaudited),
and cumulative during development stage (unaudited)..................................F-4
Statements of stockholders' equity for the period April 25, 1995 (inception) to
December 31, 1995 and the three months ended March 31, 1996 (unaudited)..............F-5
Statements of cash flows for the period April 25, 1995 (inception) to
December 31, 1995, three months ended March 31, 1996 (unaudited),
and cumulative during development stage (unaudited)..................................F-6
Notes to financial statements......................................................F-7 - F-12
</TABLE>
<PAGE>
[Letterhead of Rubenstein & Co., LLP]
Independent Auditors' Report
Board of Directors and Stockholders
SportsTrac, Inc.
Englewood, Colorado
We have audited the balance sheet of SportsTrac, Inc. (a development stage
company) as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the period April 25, 1995 (inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SportsTrac, Inc. as of December
31, 1995 and the results of its operations and its cash flows for the period
April 25, 1995 (inception) to December 31, 1995, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, SportsTrac,
Inc. is in the development stage and the Company's ability to continue in the
normal course of business is dependent upon successful completion of its planned
public offering of equity securities to raise capital and the success of future
operations. These uncertainties raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
January 15, 1996 (except for Note 7a as
to which the date is March 29, 1996 and Note 12
as to which the date is April 22, 1996)
F-2
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1995 1996
------ ------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 43,703 $ 266,797
Subscription receivable (Note 7) 15,500 --
----------- -----------
59,203 266,797
LICENSED TECHNOLOGY, net of accumulated amortization
of $25,640 and $43,724, respectively (Note 3) 914,820 896,736
COMPUTER EQUIPMENT, net of accumulated depreciation
of $1,100 and $2,099, respectively 21,058 41,139
DEFERRED OFFERING COSTS -- 155,678
OTHER ASSETS 1,100 1,900
----------- -----------
$ 996,181 $ 1,362,250
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, net of unamortized interest of
$33,040 and $13,155, respectively (Note 4) $ 666,960 $ 686,845
Bridge notes payable, net of unamortized interest
of $153,000 (Note 5) -- 247,000
Accrued expenses (Note 7) 13,746 151,488
----------- -----------
680,706 1,085,333
COMMITMENTS (Note 8)
STOCKHOLDERS' EQUITY: (Note 7)
Preferred stock, $.01 par value; authorized 100,000
shares; no shares issued and outstanding -- --
Common stock, $.01 par value; authorized 15,000,000 shares;
2,424,000 and 2,904,000 shares issued and outstanding,
respectively 24,240 29,040
Additional paid-in capital 1,112,760 1,413,960
Deficit accumulated during the development stage (821,525) (1,166,083)
----------- -----------
315,475 276,917
----------- -----------
$ 996,181 $ 1,362,250
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period
April 25, 1995 Cumulative
(Inception) to Three Months During
December 31, Ended Development
1995 March 31, 1996 Stage
-------------- -------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
----------- ----------- -----------
COSTS AND EXPENSES:
General and administrative (Note 7) 735,524 104,632 840,156
Product design costs 26,439 41,293 67,732
Depreciation and amortization 26,740 19,083 45,823
Interest (Notes 4 and 5) 32,822 179,550 212,372
----------- ----------- -----------
821,525 344,558 1,166,083
----------- ----------- -----------
NET LOSS $ (821,525) $ (344,558) $(1,166,083)
=========== =========== ===========
NET LOSS PER SHARE (Note 7) $ (.26) $ (.11) $ (.37)
=========== =========== ===========
Weighted average number of shares of
common stock outstanding (Note 7) 3,114,000 3,114,000 3,114,000
=========== =========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
(Note 7)
<TABLE>
<CAPTION>
Deficit
Preferred Stock Common Stock Accumulated
---------------- ------------------------- Additional During the
Par Par Paid-in Development
Shares Value Shares Value Capital Stage Total
------- ------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 25, 1995 -- $ -- -- $ -- $ -- $ -- $ --
Issuance of stock for cash at inception -- -- 240,000 2,400 (400) -- 2,000
Issuance of stock in exchange for notes
payable -- -- 1,755,000 17,550 388,700 -- 406,250
Issuance of stock for cash -- -- 429,000 4,290 94,460 -- 98,750
Issuance of options -- -- -- -- 630,000 -- 630,000
Net loss -- -- -- -- -- (821,525) (821,525)
------- ------ ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 -- -- 2,424,000 24,240 1,112,760 (821,525) 315,475
Issuance of stock to bridge note holders
(unaudited) -- -- 480,000 4,800 301,200 -- 306,000
Net loss (unaudited) -- -- -- -- -- (344,558) (344,558)
------- ------ ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 (unaudited) -- $ -- 2,904,000 $ 29,040 $ 1,413,960 $(1,166,083) $ 276,917
======= ====== =========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
April 25, 1995 Cumulative
(Inception) to Three Months During
December 31, Ended Development
1995 March 31, 1996 Stage
----------- -------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (821,525) $ (344,558) $(1,166,083)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operations:
Amortization and depreciation 26,740 19,083 45,823
Amortization of imputed interest 26,500 172,885 199,385
Issuance of options 630,000 -- 630,000
Increase in assets:
Other assets (1,100) (800) (1,900)
Increase in liabilities:
Accrued expenses 13,746 137,742 151,488
----------- ----------- -----------
Total adjustments 695,886 328,910 1,024,796
----------- ----------- -----------
Net cash used in operating activities (125,639) (15,648) (141,287)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of licensed technology (300,000) -- (300,000)
Acquisition of computer equipment (22,158) (21,080) (43,238)
----------- ----------- -----------
Net cash used in investing activities (322,158) (21,080) (343,238)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 85,250 15,500 100,750
Proceeds from notes payable 406,250 -- 406,250
Increase in deferred offering costs -- (155,678) (155,678)
Proceeds from Bridge notes payable -- 400,000 400,000
----------- ----------- -----------
Net cash provided by financing activities 491,500 259,822 751,322
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 43,703 223,094 266,797
CASH AND CASH EQUIVALENTS,
beginning of period -- 43,703 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 43,703 $ 266,797 $ 266,797
=========== =========== ===========
</TABLE>
See notes to financial statements
F-6
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995
AND THREE MONTHS ENDED MARCH 31, 1996
(Information with respect to the three months ended March 31, 1996 is unaudited)
1. Organization and Nature of Operations:
SportsTrac, Inc. (the "Company") is a Delaware Corporation which was formed
on April 25, 1995. Subsequent to formation, the Company entered into a
sublicense agreement providing it with the exclusive right to manufacture and
market a hand-eye coordination device with sports related and sports
entertainment applications (see Note 3). The Company's fiscal year end is
December 31.
The Company is in the development stage, as defined in Statement of
Financial Accounting Standard No. 7 ("FAS 7"). To date, the Company has devoted
its efforts to various organizational activities, including negotiating of a
sublicense agreement, developing its business strategy, hiring management
personnel, raising capital, and undertaking preliminary activities for the
commencement of operations. The Company has not generated any revenue to date
and is presently evaluating the commercial value of the product obtained under
its sublicense agreement. Although the Company has obtained an exclusive
sublicense for the manufacture and marketing rights to a certain hand-eye
coordination device, there can be no assurance that the Company will be
successful in marketing any such product under this license.
As reflected in the accompanying financial statements, the Company has
incurred cumulative losses of approximately $1,166,000. The Company has entered
into a letter of intent with an underwriter for the public sale of the Company's
securities (see Note 7). Management is of the opinion that the proceeds of this
proposed offering will be sufficient for the completion of its presently
contemplated product development activities and to meet the working capital
needs of the Company for more than the twelve-month period following the
successful completion of this proposed offering, including the payment of
certain indebtedness of the Company. There can be no assurance that additional
financing will not be required to significantly penetrate the market and for
continued operations. If additional financing is required, there is no assurance
that such funds will be available to the Company. In addition, there is no
assurance that the proposed public offering will occur.
The above factors raise substantial doubt about the ability of the Company
to continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of the
recorded asset amounts and classification of liabilities that might result
should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
a. Depreciation and amortization
Depreciation of computer equipment is computed using the straight-line
method based over the estimated useful lives of the related assets (5 years).
Amortization of licensed technology is computed using the straight-line
method over the contractual period of the license (13 years).
Amortization of financing costs in connection with bridge notes is computed
using the straight-line method over a six month period.
F-7
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
b. Income taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
c. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
d. Research and development costs
Research and development costs are expensed as incurred.
e. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Licensed Technology:
In August 1995, the Company entered into a thirteen year exclusive and
world-wide sublicensing agreement for the rights to manufacture and market a
hand-eye coordination device with sports related and sports entertainment
applications for an aggregate price of $1,000,000. Certain of the Company's
stockholders are also minority stockholders of the company in connection with
the sublicensing agreement. The consideration consisted of a down payment of
$300,000 and the issuance of a $700,000 note (see Note 4) which the company
intends to pay with the proceeds of the proposed public offering as well as the
issuance of warrants to purchase 180,000 shares of the Company's common stock at
an exercise price of $5.00 per share (see Note 7c). These warrants were
subsequently assigned and issued to related parties of the Company. In addition,
the seller is entitled to a royalty equal to 8 1/2% of the cash receipts from
the sale of products or services containing the licensed technology, excluding
any revenue from installation, maintenance, consulting or other cash receipts
not directly or indirectly related to such technology.
4. Note Payable:
Note payable at December 31, 1995, issued in connection with the sublicense
agreement discussed in Note 3, is non-interest bearing. This note is payable on
the earlier of (i) the completion of a public offering of the Company's
securities, or (ii) $350,000 on March 31, 1996 and the balance on July 31, 1996.
On April 22, 1996, the Company repaid $350,000 from the proceeds received as
disclosed in Note 12.
In accordance with APB Opinion No. 21, "Interest on Receivable and
Payables," this note ($700,000) has been discounted to reflect its present value
($640,460) on September 1, 1995, utilizing an imputed rate of 12%. Amortization
of interest is calculated using the straight-line method over the respective
terms of the related note. Interest expense for the periods ended March 31, 1996
and December 31, 1995 related to this note were $19,885 and $26,500,
respectively.
F-8
<PAGE>
5. Bridge Notes Payable:
At December 31, 1995, the Company has an agreement pursuant to which it
will receive $400,000, in the months of January and February 1996, from third
parties ("Bridge Lenders"), at 8% interest. These notes are due and payable upon
the earlier of (i) June 30, 1996 or (ii) the completion of a public offering of
the Company's securities. In exchange for making the loans to the Company each
bridge lender received a "Bridge Note" and a "Bridge Unit". Each bridge unit is
comprised of one share of common stock and five Class A Warrants. Each Class A
Warrant is exercisable into one share of common stock at an exercise price of
$3.60 per share during the four year period commencing one year from the
effective date and may be redeemed if the market price of the common stock
exceeds $4.80 per share. The total 400,000 shares of the Company's common stock
represent a financing cost of $306,000 which will be amortized over six months
or upon the successful completion of the public offering, whichever occurs
first. In March 1996, as a result of the Company's 1.20 for 1 stock split the
total number of shares issued to the bridge lenders will be 480,000.
The Company has agreed to register the shares of common stock included in
the bridge units as well as the shares of common stock issuable upon exercise of
the Class A Warrants in the first registration statement filed by the Company
following the date of the loan.
6. Income Taxes:
At March 31, 1996, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,166,000, which is available to
offset future federal taxable income, if any, through 2010. A 100% valuation
allowance has been provided for the deferred tax asset resulting from the net
operating loss carryforward. Other temporary differences are insignificant.
7. Stockholders' Equity:
a. Capitalization
Pursuant to an amendment of the Company's certificate of incorporation in
January 1996, the Company changed the number of authorized shares of common
stock to 15,000,000 and authorized the issuance of 100,000 shares of preferred
stock. All stock has a $.01 par value. Each share of common has one vote in all
matters. The terms of the preferred stock are to be determined by the Board of
Directors. In April 1995, the Company issued 240,000 shares of common stock for
$2,000 ("Founders' Stock"). On January 17, 1996, the Company effected a 20 for 1
stock split. On March 29, 1996, the Company effected a 1.20 for 1 stock split.
All references to number of shares and per share data in the financial
statements and accompanying notes have been restated to reflect these stock
splits as if it occurred as of December 31, 1995. As a result of the Company's
1.20 for 1 stock split a discount on the common shares of $400 has been
recorded.
During the period July 1995 through October 1995, the Company received
advances aggregating $406,250. These advances bear interest at the rate of 10%
per annum. On November 1, 1995, these notes were exchanged for 1,755,000 shares
of common stock. Included in the accompanying balance sheet under the caption
"Accrued Expenses" is approximately $6,300 of accrued interest related to those
notes.
In November 1995, the Company issued 429,000 shares of common stock for
$98,750. Included in the accompanying balance sheet under the caption,
"Subscription Receivable" is $15,500, which represents the unpaid portion for
certain issued shares of common stock.
During the months of January 1996 and February 1996, the Company issued
480,000 shares of common stock in connection with certain bridge loans as
disclosed in Note 5.
F-9
<PAGE>
7. Stockholders' Equity: (Cont'd)
b. Stock option plans
In November 1995, the Company adopted an Incentive Stock Plan ("the 1995
Plan") consisting of qualified and nonqualified stock options, restricted stock
awards and stock appreciation rights, covering 480,000 shares of the Company's
common stock. Qualified stock options under the Incentive Stock Plan are granted
at an exercise price not less than the fair market value at the date of grant.
No option may be exercised more than 10 years after the date of grant and no
option granted to a 10% stockholder or greater may be exercised more than 5
years after the date of grant.
Non-qualified options, restricted stock awards and freestanding stock
appreciation rights may also be granted with any exercise price.
All such options are authorized and approved by the Incentive Stock Plan
Administrative Committee at the time of issuance. At March 31, 1996, 174,000
qualified and 36,000 non- qualified stock options have been granted at exercise
prices equal to $.25 per share or in some instances the greater of $.25 per
share or 25% of the initial public offering price. Included in the accompanying
statements of operations for the period ended December 31, 1995 under the
caption "General and Administrative Expenses" is an amount of $630,000
representing compensation expense for the aforementioned issuance of stock
option using a fair value of $3.25 per share along with corresponding credit to
additional paid-in capital.
c. Warrants
At March 31, 1996, the Company had outstanding warrants to purchase 180,000
shares of the Company's common stock at an exercise price of $5.00 per share.
The warrants become exercisable on December 31, 1995 and expire on December 30,
2000.
d. Loss per share
Loss per share was computed by dividing net loss by the weighted number of
shares outstanding. The inclusion of warrants has no impact on the calculation
of loss per share using the treasury stock method.
The Company is contemplating an initial public offering ("IPO"). Pursuant
to Securities and Exchange Commission rules, common stock issued for
consideration below the estimated IPO price during the 12 months before the
filing of the registration statement has been included in the calculation of
weighted average number of shares, as if such shares had been outstanding for
all periods presented.
<TABLE>
<CAPTION>
Cumulative
During
December 31, March 31, Development
1995 1996 Stage
------------ ----------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Applicable common and common stock
equivalent shares:
Weighted average shares of common
stock outstanding during the period 2,424,000 2,904,000 2,904,000
Shares outstanding during the period
resulting from the assumed exercise
of stock options 210,000 210,000 210,000
Shares outstanding during period result-
ing from issuance in connection with
bridge loans 480,000 - -
--------- --------- ---------
Weighted average shares of common
stock and equivalents outstanding
during the period 3,114,000 3,114,000 3,114,000
========= ========= =========
</TABLE>
F-10
<PAGE>
7. Stockholders' Equity: (Cont'd)
e. Reserved shares
At March 31, 1996, the Company has 2,390,000 shares of common stock
reserved for future issuances.
f. Proposed public offering
The Company intends to file a Registration statement on Form SB-2 in
connection with a public offering of securities of the Company. The proposed
transaction would be in the form of an offering consisting of a minimum number
of shares of common stock. The proposed transaction, the maximum number of
shares to be offered and the offering price will be dependent upon market
conditions on the effective date. Accordingly, the extent to which this
transaction will be successful, or if it will be successful at all, cannot be
ascertained prior to its completion.
8. Commitments:
The Company has entered into two leases for office space. The leases which
are effective October 1, 1995, are for a six month period and provides monthly
aggregate rental payments of approximately $2,000. Thereafter, the Company will
continue to lease such premises on a month-to-month basis.
9. Fair Value of Financial Instruments:
In 1995, the Company adopted Financial Accounting Standards Board Statement
No. 107, which requires disclosures about the fair value of the Company's
financial instruments. The methods and assumptions used to estimate the value of
the following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash and
temporary cash investments, current receivables and payables and certain
other short-term financial instruments approximate their fair value.
The carrying amount and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- -------- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 266,797 $ 266,797 $ 43,703 $ 43,703
Subscription receivable - - 15,500 15,500
Notes payable 933,845 933,845 666,960 666,960
Other current liabilities 151,488 151,488 13,746 13,746
</TABLE>
10. Supplementary Information - Statement of Cash Flows:
During the period ended December 31, 1995, notes payable totaling $700,000
were incurred for the purchase of licensed technology as disclosed in Note 4.
Also, certain advances aggregating $406,250 were exchanged for 1,755,000 shares
of common stock in satisfaction of repayment, as well as the issuance of 480,000
shares of the Company's common stock representing a financing cost of $306,000
in connection with certain bridge loans. Additionally, no payments of interest
or income taxes were made during the periods ended March 31, 1996 and December
31, 1995.
F-11
<PAGE>
11. Unaudited Financial Statements:
The financial statements as of March 31, 1996 and the three months ended
March 31, 1996 are unaudited; however, in the opinion of management all
adjustments (consisting solely of normal recurring adjustments) necessary to a
fair presentation of the financial statements for this interim period have been
made. The results of the interim period are not necessarily indicative of the
results to be obtained for a full fiscal year.
12. Subsequent Event:
On April 22, 1996, the Company received an advance of $350,000 from a third
party. This advance bears interest at the rate of 15% per annum and was used to
pay off a portion of the note payable as disclosed in Note 4. This advance is
payable on the earlier of (i) the completion of a public offering of the
Company's securities, or (ii) on December 31, 1996.
F-12
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
----------
TABLE OF CONTENTS
Page
----
Available Information.........
Prospectus Summary..........
The Company...................
The Offering....................
Summary Financial
Information....................
Risk Factors.....................
Use of Proceeds.................
Dilution...............
Capitalization......................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Plan of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Securityholders.......
Underwriting..................
Legal Matters.................
Experts.......................
Financial Statements..........
----------
Until _____, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
4,190,000 Shares of Common Stock
and
3,000,000 Class A Warrants
SportsTrac, Inc.
----------------
PROSPECTUS
----------------
Sterling Foster & Co., Inc.
________, 1996
----------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Underwriter agreed to indemnify the
Company, its directors, and each person who controls it within the meaning of
Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriter specifically for or in connection with
the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Eighth of the Company's Certificate of Incorporation provides for
indemnification of officers and directors and Article Ninth eliminates the
personal liability of directors to the fullest extent permitted by Section 102
of the Delaware General Corporation Law. Provisions for indemnification are also
contained in Article VIII of the Company's By-Laws.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage for
its officers and directors.
II-1
<PAGE>
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this Offering are as follows:
SEC filing fee ....................... $ 13,229.15
The Nasdaq Small Cap Market
filing fee ......................... $ 10,000
NASD filing fee ...................... $ 3,865
Accounting fees and expenses* ........ $ 50,000
Legal fees and expenses* ............. $175,000
Blue Sky fees and expenses* .......... $ 55,000
Printing and engraving* .............. $ 40,000
Transfer Agent's and Registrar's fees* $ 2,500
Miscellaneous expenses* .............. $ 405.85
Total ................................ $350,000
========
- ----------------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the Company sold by
it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
From inception to November 1995, the Company issued an aggregate of
2,424,000 shares of its common stock to 14 shareholders (Jeslin Investment
Limited, K.A.M. Group, Inc., Kanter Family Foundation, Janis Kanter, Joel
Kanter, Joshua Kanter, M.D. Funding, Inc., Michael Mellman, Marc Silverman, W.S.
Ventures, The Holding Company, Windy City, Inc., Rick Alber and Bigelow
Ventures, Inc.) for aggregate consideration of $507,000. On December 31, 1995
the Company issued warrants to purchase up to 180,000 shares of Common Stock at
an exercise price of $4.17 ( adjusted for the Company's March stock split) per
share through December 30, 2000. These warrants were issued to Burton Kanter and
Elliott Steinberg. The right to receive these warrants were initially granted to
BFI pursuant to the sublicence agreement (although such warrants as issued
contain different terms as initially contemplated). BFI assigned such rights to
Messrs. Kanter and Steinberg in connection with the waiver of defaults relating
to certain obligations owed by BFI to such persons, the deferment of payment of
certain obligations of BFI and the conversion of certain obligations of BFI into
shares of capital stock of BFI upon the occurrence of certain conditions. On
February 19, 1996, these warrants were subsequently assigned to W.S. Ventures
and Rainy Day Holdings.
II-2
<PAGE>
From December 1995, through February 1996, the Company borrowed an
aggregate of $400,000 from ten (10) lenders (the "Bridge Lenders"): Ulster
Investments Ltd ($100,000); The Holding Company ($65,000); Dune Holdings, Inc.
($100,000); Solomon A. Weisgal, as trustee ($15,000); Howard Kirschbaum as
Custodian for Brian Kirschbaum under the Uniform Gift to Minors Act ($5,000);
Scott Sinar ($5,000); Matthew Harriton ($20,000); John LaFalce ($10,000);
Michael Lulkin ($30,000); and Hartley T. Bernstein ($50,000). None of the Bridge
Lenders are affiliated with the Company other than Solomon A. Weisgal, a
director of the Company and The Holding Company, a principal Stockholder of the
Company. Burton W. Kanter is the President of The Holding Company. Mr. Kanter is
the father of Joel Kanter, a principal stockholder of the Company and Josh
Kanter, a director and Secretary of the Company. Ulster Investment Ltd. Is an
Antigua corporation which is owned by the St. John's Trust. The beneficiaries of
the St. John's Trust are the members of the family of Burton W. Kanter (but not
including Burton W. Kanter), including Josh Kanter, Joel Kanter and Janis
Kanter, all of whom are shareholders of the Company. In exchange for making
loans to the Company, each Bridge Lender received (i) a promissory note (each a
"Bridge Note") and (ii) Bridge Units (aggregate 400,000 of such Bridge Units).
Each of the Bridge Units is comprised of one (1) share of Common Stock and five
(5) Class A Warrants. Each of the Bridge Notes bears interest at the rate of
eight percent (8%) per annum. The Bridge Notes are due and payable upon the
earlier of (i) June 30, 1996 or (ii) the closing of an initial underwritten
public offering of the Company's securities. The Company intends to use a
portion of the proceeds of this Offering to repay the Bridge Lenders. See "Use
of Proceeds." The Company entered into the bridge financing transactions because
it required additional financing and no other sources of financing were
available to the Company at that time. Each Class A Warrant is identical to the
Warrants offered by the Company. With respect to the bridge financing, the
Company did not engage a placement agent, the Bridge Lenders were identified by
the Company's officers and directors, and no other solicitations were made. See
"Description of Securities."
The Company has relied on Section 4(2) of the Securities Act of 1933, as
amended, for its private placement exemption, such that the sales of the
securities were transactions by an issuer not involving any public offering.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities" as defined in Rule 144 of the
rules and the regulations of the Securities and Exchange Commission, Washington
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is able to bear the economic risk
of his investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold until
they have been so registered or until the availability of an exemption
therefrom. The Transfer Agent and registrar of the Registrant will be instructed
to mark "stop
II-3
<PAGE>
transfer" on its ledgers to assure that these securities will not be transferred
absent registration or until the availability of an exemption therefrom is
determined.
Item 27. Exhibits.
1.01 Form of Underwriting Agreement. *
1.02 Form of Selected Dealers Agreement. *
1.03 Form of Financial Consulting Agreement.
3.01 Certificate of Incorporation of the Company.
3.02 By-Laws of the Company.
4.01 Specimen Certificate for shares of Common Stock.**
4.02 Specimen Certificate for Class A Warrants.**
4.03 Form of Warrant Agreement. *
4.04 Form of Underwriter's Option. *
4.06 Form of Lockup Letter with Selling Securityholders.
4.07 Form of Lockup Letter with Officers and Directors and other
Stockholders.
5.01 Opinion of Bernstein & Wasserman, LLP, counsel to the Company.**
10.01 Intentionally omitted.
10.02 1995 Stock Plan.
10.03 Sublicense Agreement dated as of August 30, 1995 between Company and
Biofactors, Inc.*
10.04 Agreement dated as of August 30, 1995 by and among Systems Technology,
Inc., Biofactors, Inc. and the Company.
10.05 Bridge Loan Agreements and Related Promissory Notes.
II-4
<PAGE>
10.06 Amended Bridge Loan Agreements.
10.07 The Dodgers Study.*
23.01 Consent of Bernstein & Wasserman, LLP (to be included in
Exhibit 5.01).**
23.02 Consent of Holtz Rubenstein & Co., LLP, Independent Certified Public
Accountants.*
99.01 Consent of Matthew Wilson
99.02 Consent of Stanley Johnson
99.03 Consent of R. Wade Allen
99.04 Consent of Dr. Michael Mellman*
99.05 Consent of Marc Silverman*
* Filed herewith
** To be filed by amendment.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) Include any additional or changed material information on the plan of
distribution.
2. For determining liability under the Act, treat each such post-effective
amendment as a new registration statement of the securities offered, and the
Offering of such securities at that time shall be deemed to be the initial bona
fide offering.
II-5
<PAGE>
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
2. For any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the offering of the
securities at that time as the initial bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York on June 28, 1996.
SPORTSTRAC, INC.
By:\s\ Marc R. Silverman
---------------------------------------------
Marc R. Silverman
President, Chief Executive Officer, Chief
Financial Officer, Principal Accounting
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
\s\Michael Mellman, MD Chairman of the Board June 28, 1996
- ----------------------
Michael Mellman, MD
\s\Marc R. Silverman Chief Executive Officer, June 28, 1996
- ---------------------- President, Chief Financial
Marc R. Silverman Officer, Principal Accounting
Officer and Director
\s\Elliot Steinberg Director June 28, 1996
- ----------------------
Elliot Steinberg
\s\Solomon A. Weisgal Director June 28, 1996
- ----------------------
Solomon A. Weisgal
\s\Joshua S. Kanter Director and June 28, 1996
- ---------------------- Secretary
Joshua S. Kanter
<PAGE>
4,190,000 Shares of Common Stock
3,000,000 Class A Redeemable Common Stock Purchase Warrants
SPORTSTRAC, INC.
UNDERWRITING AGREEMENT
New York, New York
_____________________, 1996
Sterling Foster & Co., Inc.
125 Baylis Road, Suite 290
Melville, New York 11747
SportsTrac, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to you (the "Underwriter") an aggregate of (i) 2,000,000 Shares of
Common Stock, par value $.01 per share ("Common Stock"), and (ii) 1,000,000
Class A Redeemable Common Stock Purchase Warrants. Each Warrant entitles the
holder to purchase one (1) share of Common Stock at $3.60 per share from
_____________________, 1997 until _____________________, 2001. In addition, the
selling securityholders listed on the signature page hereof (the "Selling
Securityholders") propose to sell to you an aggregate of 2,190,000 Shares of
Common Stock and 2,000,000 Class A Redeemable Common Stock Purchase Warrants.
The Company proposes to grant to the Underwriter the option referred to in
Section 2(b) to purchase all or any part of an aggregate of 300,000 additional
Shares and 150,000 additional Warrants.
Unless the context otherwise requires, (i) the aggregate of 4,190,000
Shares to be sold by the Company, together with all or any part of the 300,000
Shares which the Underwriter has the option to purchase, are herein called the
"Shares," and (ii) the aggregate of 3,000,000 Warrants to be sold by the
Company, together with all or any part of the 150,000 Warrants which the
Underwriter has the option to purchase, are herein called the "Warrants." The
Shares and the Warrants are collectively referred to herein as the "Securities."
You have advised the Company and the Selling Securityholders that you
desire to purchase the Securities. The Company and the Selling Securityholders
confirm the agreements made by it with respect to the purchase of the Securities
by the Underwriter as follows:
(1) Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-1634) on Form SB-2 relating to
the public offering of the Securities, including a form of prospectus subject to
completion, copies of which have heretofore been delivered to you, has been
prepared in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
<PAGE>
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the prospectus
as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined) or the Option Closing Date, as the case
may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation thereof. It is understood that the statements set forth in
the Prospectus on page ____ with respect to stabilization, the paragraph under
the heading "Underwriting" relating to concessions to certain dealers, and the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute for purposes of this Section and Section 6(b) the only information
furnished in writing by or on behalf of the Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with full
corporate power and authority to own its properties and conduct its business as
described in the Prospectus and is duly qualified or licensed to do business as
a foreign corporation and is in good standing in each other jurisdiction in
which the nature of its business or the character or location of its properties
requires
2
<PAGE>
such qualification, except where the failure to so qualify will not materially
adversely affect the Company's business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the Company,
including the predecessors of the Company, as of the date hereof, is as set
forth in the Prospectus under "Capitalization"; the shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and nonassessable; except as set
forth in the Prospectus, no options, warrants, or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by the Company; and the capital stock conforms to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued and delivered pursuant
to this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated in this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock, except as described in the
Registration Statement. The shares of Common Stock included in the Share
Purchase Option (as defined in the Registration Statement) when issued and sold,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights and no personal liability will attach to the ownership
thereof.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles, and entitled to the
benefits provided by the warrant agreement pursuant to which such Warrants are
to be issued (the "Warrant Agreement"), which will be substantially in the form
filed as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants, and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable, and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The Warrants and Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Underwriter's Purchase Option
(as defined in the Registration Statement) have been duly authorized and, when
duly issued and delivered, such Warrants will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms
and entitled to the benefits provided by the Underwriter's Purchase Option,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles
and the indemnification contained in paragraph 7 of the Underwriters' Purchase
Option may be unenforceable. The shares of Common Stock included in the
Underwriter's Purchase Option and the shares of Common Stock issuable upon
exercise of the Warrants included therein when issued and sold, will be duly
authorized,
3
<PAGE>
validly issued, fully paid and non-assessable and free of preemptive rights and
no personal liability will attach to the ownership thereof.
(f) This Agreement and the Underwriter's Purchase Option have been duly and
validly authorized, executed, and delivered by the Company. The Company has full
power and authority to authorize, issue, and sell the Securities to be sold by
it hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or in connection
with the authorization, issuance, and sale of the Securities or the
Underwriter's Purchase Option, except such as may be required under the Act or
state securities laws.
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition (financial or otherwise), business
prospects, net worth or properties of the Company taken as a whole (a "Material
Adverse Effect"), the Company is not in violation, breach, or default of or
under, and consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement will not conflict with, or result in
a breach or violation of, any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge, or
encumbrance upon any of the property or assets of the Company pursuant to the
terms of any material indenture, mortgage, deed of trust, loan agreement, or
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company is
subject, nor will such action result in any violation of the provisions of the
articles of incorporation or the by-laws of the Company, as amended, or any
statute or any order, rule or regulation applicable to the Company of any court
or of any regulatory authority or other governmental body having jurisdiction
over the Company.
(h) Subject to the qualifications stated in the Prospectus, the Company has
good and marketable title to all properties and assets (including, without
limitation, all software, protocols and other technology) necessary for the
operation of its business as it is presently being conducted or described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and, to
the best knowledge of the Company, no claim has been asserted by anyone adverse
to rights of the Company as lessor, sublessor, lessee, or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company owns or leases all such properties described in
the Prospectus as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) Holtz Rubenstein & Co., LLP, who have given their reports on certain
financial statements filed with the Commission as a part of the Registration
Statement, are with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration
4
<PAGE>
Statement, at the respective dates and for the respective periods to which they
apply. Said statements and schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved except as disclosed in the
Prospectus and Registration Statement. The information set forth under the
caption "Selected Financial Data" in the Prospectus fairly present, on the basis
stated in the Prospectus, the information included therein.
(k) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus and except as otherwise disclosed or
contemplated therein, the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which would
have a material adverse effect, and there has not been any change in the capital
stock of, or any incurrence of short-term or long-term debt by, the Company or
any issuance of options, warrants or other rights to purchase the capital stock
of the Company or any material adverse change or any development involving, so
far as the Company can now reasonably foresee a prospective adverse change in
the condition (financial or other), net worth, results of operations, business,
key personnel or properties of it which would be material to the business or
financial condition of the Company.
(l) Except as set forth in the Prospectus, there is not now pending or, to
the knowledge of the Company, threatened, any action, suit or proceeding to
which the Company is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or other), business prospects, net worth, or properties of the
Company, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race; and no labor disputes involving the employees of the Company
exist or to the knowledge of the Company, are threatened which might be expected
to adversely affect the conduct of the business, property or operations or the
financial condition or results of operations of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state, and foreign income and franchise tax returns required
to be filed as of the date hereof and has paid all taxes shown as due thereon;
and there is no tax deficiency which has been asserted against the Company.
(n) Except as disclosed in the Registration Statement, the Company has
sufficient licenses, permits, and other governmental authorizations currently
necessary for the conduct of its business or the ownership of its properties as
described in the Prospectus and is in all material respects complying therewith
and owns or possesses adequate rights to use all material patents, patent
applications, trademarks, service marks, trade-names, trademark registrations,
service mark registrations, copyrights, and licenses necessary for the conduct
of such business and had not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company are in violation of, or cause the
Company to violate, any law, rule, regulation, or order of the United States,
any state, county, or locality, or of any agency or body of the United States or
of any state, county or locality, the violation of which would have a Material
Adverse Effect.
(o) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law or (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments or
5
<PAGE>
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(p) On the Closing Dates (as hereinafter defined) all transfer or other
taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the Company has no
subsidiaries.
(s) Except as disclosed in the Registration Statement, the Company has not
entered into any agreement pursuant to which any person is entitled either
directly or indirectly to compensation from the Company for services as a finder
in connection with the proposed public offering.
(t) Except as disclosed in the Prospectus, no officer, director, or
stockholder of the Company has any National Association of Securities Dealers,
Inc. (the "NASD") affiliation.
(2) Representations and Warranties of the Selling Securityholders. The
Selling Securityholders each hereby represent and warrant to you that:
(a) Each Selling Securityholder owns the Securities free and clear of
security interests, liens, encumbrances, mortgages, pledges, charges, or other
restrictions and, upon consummation of the transfer contemplated hereby, the
Underwriter will own all of the Securities free and clear of any such
restrictions, and that no Selling Securityholder is subject to any restriction,
contractual or otherwise, which prevents or would prevent him from entering into
this Agreement or carrying out his obligations hereunder.
(b) Each Selling Securityholder is entering into this Agreement based upon
such Selling Securityholder's own investigation of and knowledge of the Company
and its business, and is not relying on any representation or warranty of the
Underwriter in entering into this Agreement. Such Selling Securityholder is
experienced in and capable of evaluating the merits of this transaction and of
protecting such Selling Securityholder's own interests in connection with such
transaction. Such Selling Securityholder acknowledges that such Selling
Securityholder's representatives have made adequate and extensive investigations
into the business, financial condition, and prospects of the Company to evaluate
this transaction.
(3) Purchase, Delivery and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, (i)
the Company agrees to issue and sell to the Underwriter, and the Underwriter
agrees to buy from the Company (A) at $2.70 per Share,
6
<PAGE>
at the place and time hereinafter specified, 2,000,000 Shares (the "Company
Shares") and (B) at $.225 per Warrant, at the place and time hereinafter
specified, 1,000,000 Warrants (the "Company Warrants"); and (ii) the Selling
Securityholders agree to sell to the Underwriter, and the Underwriter agrees to
buy from the Selling Securityholders, (A) at $2.70 per Share, at the time and
place hereinafter specified, 2,190,000 Shares (the "Selling Securityholder
Shares") and (B) at $.225 per Warrant, at the time and place hereinafter
specified, 2,000,000 Warrants (the "Selling Securityholder Warrants"). The
Company Shares and the Selling Securityholder Shares are collectively referred
to herein as the "First Shares" and the Company Warrants and the Selling
Securityholder Warrants are collectively referred to herein as the "First
Warrants."
Delivery of the First Shares and the First Warrants against payment
therefor shall take place at the offices of Bernstein & Wasserman, LLP, 950
Third Avenue, New York, New York (or at such other place as may be designated by
agreement between the Underwriter and the Company) at 10:00 a.m., New York time,
on _____________________, 1996, or at such later time and date as the
Underwriter may designate in writing to the Company at least two business days
prior to such purchase, but not later than _____________________, 1996, such
time and date of payment and delivery for the First Shares and the First
Warrants being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriter to purchase
all or any part of an aggregate of an additional 300,000 Shares and 150,000
Warrants at the same price per Share and per Warrant, respectively, as the
Underwriter shall pay for the First Shares and the First Warrants being sold
pursuant to the provisions of subsection (a) of this Section 3 (such additional
Shares and Warrants being referred to herein as the "Option Securities"). This
option may be exercised within 30 days after the effective date of the
Registration Statement upon written notice by the Underwriter to the Company
advising as to the amount of Option Securities as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Securities are to be registered and the time and date when such certificates are
to be delivered. Such time and date shall be determined by the Underwriter but
shall not be earlier than four nor later than ten full business days after the
exercise of said option (but in no event more than 40 days after the First
Closing Date), nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Securities against payment therefor shall take place at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York (or at such
other place as may be designated by agreement between the Underwriter and the
Company). The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter of First Securities referred to
in subsection (a) above. No Option Securities shall be delivered unless all
First Shares and First Warrants shall have been delivered to the Underwriter as
provided herein.
(c) The Company will make the certificates for the securities to be
purchased by the Underwriter hereunder available to the Underwriter for checking
at least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing Dates").
The certificates shall be in such names and denominations as the Underwriter may
request, at least three full business days prior to the Closing Dates. Delivery
of the certificates at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to the
Underwriter for the account of the
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Underwriter against payment of the respective purchase prices by the
Underwriter, by certified or bank cashier's checks in New York Clearing House
funds, payable to the order of the Company.
In addition, in the event the Underwriter exercises the option to purchase
from the Company all or any portion of the Option Securities pursuant to the
provisions of subsection (b) above, payment for such Securities shall be made to
or upon the order of the Company by certified or bank cashier's checks payable
in New York Clearing House funds at the offices of Bernstein & Wasserman, LLP,
950 Third Avenue, New York, New York (or at such other place as may be
designated by agreement between the Underwriter and the Company), at the time
and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Underwriter for the Underwriter's account registered in such names and in
such denominations as the Underwriter may reasonably request.
It is understood that the Underwriter proposes to offer the Securities to
be purchased hereunder to the public upon the terms and conditions set forth in
the Registration Statement, after the Registration Statement becomes effective.
(4) Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the Prospectus
and any amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. Upon notification
from the Commission that the Registration Statement has become effective, the
Company will so advise the Underwriter and will not at any time, whether before
or after the effective date, file any amendment to the Registration Statement or
supplement to the Prospectus of which the Underwriter shall not previously have
been advised and furnished with a copy or to which the Underwriter or its
counsel shall have reasonably objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by the Underwriter of the distribution of the Securities
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon the Underwriter's request, any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion of
counsel to the Company and the Underwriter, may be reasonably necessary or
advisable in connection with the distribution of the Securities.
As soon as the Company is advised thereof, the Company will advise the
Underwriter, and provide the Underwriter copies of any written advice, of the
receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any of such purposes, and will use its best efforts to prevent
the issuance of any such order, and, if issued, to obtain as soon as possible
the lifting thereof.
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The Company has caused to be delivered to the Underwriter copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriter and dealers to use the Prospectus in connection with the sale of
the Securities for such period as in the opinion of counsel to the Underwriter
and the Company the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by the Underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company
and counsel for the Underwriter should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Securities or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Rules and Regulations, the Company
will notify the Underwriter promptly and forthwith prepare and furnish to the
Underwriter copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as the Underwriter may reasonably
request, in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any material
facts necessary in order to make the statements in the Prospectus, in the light
of the circumstances under which they are made, not misleading. The preparation
and furnishing of any such amendment or supplement to the Registration Statement
or amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in case the Underwriter is
required, in connection with the sale of the Securities to deliver a Prospectus
nine months or more after the effective date of the Registration Statement, the
Company will upon request of and at the expense of the Underwriter, amend or
supplement the Registration Statement and Prospectus and furnish the Underwriter
with reasonable quantities of prospectuses complying with Section 10(a)(3) of
the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be required and to
otherwise cooperate and use its best efforts to qualify to register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Securities. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the counsel to the
Company and the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not consummated as
a result of the Company not performing its obligations hereunder in all material
respects, the Company shall pay all costs and expenses incurred by it which are
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including the
accountable expenses of the Underwriter (including the reasonable fees and
expenses of counsel to the Underwriter).
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(d) The Company will use its best efforts to (i) cause a registration
statement under the Exchange Act to be declared effective concurrently with the
completion of this offering and will notify you in writing immediately upon the
effectiveness of such registration statement, and (ii) if requested by you, to
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Exchange Act, the Company, at its expense, will furnish to
its stockholders an annual report (including financial statements audited by
independent public accountants), in reasonable detail and at its expense, will
furnish to the Underwriter during the period ending five (5) years from the date
hereof, (i) as soon as practicable after the end of each fiscal year, but no
earlier than the filing of such information with the Commission a balance sheet
of the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as practicable after the end of each of the first three fiscal quarters of
each fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
soon as they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission or any securities exchange
or automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary or subsidiaries, such
financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to the Underwriter at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(h) The Company will make generally available to its security holders and
to the registered holders of its warrants and deliver to the Underwriter as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
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<PAGE>
(i) The Company will apply the net proceeds from the sale of the Securities
substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Securities and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the Commission any
amendments or supplements to the Registration Statement, Preliminary Prospectus
or Prospectus and take any other action, which in the opinion of counsel to the
Underwriter and counsel to the Company, may be reasonably necessary or advisable
in connection with the distribution of the Securities, and will use its best
efforts to cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number of its
authorized but unissued securities which are issuable upon exercise of the
Warrants and the Underwriter's Purchase Option outstanding from time to time.
(l) For a period of twenty-four (24) months from the First Closing Date,
neither the Company nor any of its stockholders will, directly or indirectly,
offer, sell (including any short sale), issue, grant any option for the sale of,
acquire any option to dispose of, or otherwise dispose of any shares of capital
stock or other securities of the Company without the prior written consent of
the Underwriter, other than as set forth in the Registration Statement. In order
to enforce this covenant, the Company shall impose stop-transfer instructions
with respect to the shares of capital stock or other securities owned by such
stockholders until the end of such period (subject to any exceptions to such
limitation on transferability set forth in the Registration Statement).
(m) Upon completion of this offering, the Company will make all filings
required, including registration under the Exchange Act, to obtain the listing
of the Shares, the Warrants, and Common Stockin the NASDAQ system, and will use
its best efforts to effect and maintain such listing for at least five years
from the date of this Agreement to the extent that the Company has at least 300
record holders of Common Stock.
(n) Except for the transactions contemplated by this Agreement, the Company
represents that it has not taken and agrees that it will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Securities, or to facilitate the sale or resale of the
Securities.
(o) On the First Closing Date and simultaneously with the delivery of the
Securities, the Company shall execute and deliver to you the Underwriter's
Purchase Option. The Underwriter's Purchase Option will be substantially in the
form filed as an Exhibit to the Registration Statement.
(p) Marc R. Silverman shall be President of the Company on the Closing
Dates. Upon the Closing Dates, the Company will have in force key person life
insurance on the life of Mr. Silverman in an amount of not less than
$1,000,000.00 and will maintain such insurance until at least three years from
the date hereof.
(q) For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the
11
<PAGE>
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission.
(r) The Underwriter shall have the right to request the Company to use its
best efforts to have one (1) director nominated by or reasonably acceptable to
the Underwriter nominated for election to the Board of Directors for three (3)
years following the Effective Date, and the Company will use its best efforts to
cause such nominee to be elected to the Board of Directors. If the Underwriter
fails to identify such nominee, or if such nominee is not elected to the Board
of Directors, the Company further agrees to allow up to one (1) representative
designated by the Underwriter from time to time to receive timely, written
notice of all Board of Directors meetings (which meetings include committee
meetings of the Board of Directors) and notice of all telephonic Board meetings
and the right to attend all Board meetings and participate in all telephonic
Board meetings for three (3) years following the Effective Date. The Underwriter
shall also have the right to obtain copies of the minutes from all Board of
Directors meetings for five (5) years following the Effective Date of the
Registration Statement, whether or not a representative of the Underwriter
attends of participates in any such Board meeting.
(s) The Company agrees to pay to the Underwriter a finder's fee of 5.0% of
the first $4,000,000.00, 4.0% of the next $1,000,000.00, 3.0% of the next
$1,000,000.00 and 2% of the excess, if any, over $6,000,000.00, of the aggregate
consideration received by the Company with respect to any transaction
(including, but not limited to, mergers, acquisitions, joint ventures, and any
other business for the Company) introduced to the Company by the Underwriter and
consummated by the Company (an "Introduced Consummated Transaction") during the
five (5) year period commencing on the First Closing Date. The entire amount of
any such finder's fee due and payable to Underwriter shall be paid in full by
certified funds or cashier's check payable to the order of Underwriter or in
cash, at the first closing of the Introduced Consummated Transaction for which
the finder's fee is due.
(t) The Company agrees to pay to the Underwriter a warrant solicitation fee
of 4.0% of the exercise price of any of the Warrants exercised beginning one (1)
year after the Effective Date if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by an NASD member
firm, which was designated in writing by the holder of the Warrant and such
member provided bona fide services in connection with such solicitation, (c) the
Warrant is not held in a discretionary account, (d) disclosure of this
compensation arrangement is made upon the sale and exercise of the Warrants, (e)
soliciting the exercise is not in violation of Rule 10b-6 under the Securities
Exchange Act of 1934, and (f) solicitation of the exercise is in compliance with
the National Association of Securities Dealers, Inc. ("NASD") (Notice to Members
81-38 (September 22, 1981)).
(5) Conditions of Underwriters' Obligation. The obligations of the
Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company and the Selling Securityholders herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 10:00 a.m., New York time, on the
day following the date of this Agreement, or at such later time or on such later
date as to which the Underwriter may agree in writing; on or prior to the
Closing Dates no stop order suspending the effectiveness of the Registration
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<PAGE>
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company or the Selling Securityholders,
shall be contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of the Commission; and no stop order shall be in effect denying or
suspending effectiveness of such qualification nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened. If
required, the Prospectus shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Bernstein & Wasserman, LLP, counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter, to
the effect that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with all requisite corporate power and authority to own its properties and
conduct its business as described in the Registration Statement and
Prospectus and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires
such qualification except where the failure to qualify or be licensed will
not have a material adverse effect;
(ii) the authorized capitalization of the Company as of the First
Closing Date is as set forth under "Capitalization" in the Prospectus; all
shares of the Company's outstanding Common Stock requiring authorization
for issuance by directors have been duly authorized and upon payment of
consideration therefor, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description
thereof contained in the Prospectus; to such counsel's knowledge the
outstanding shares of Common Stock of the Company have not been issued in
violation of the preemptive rights of any shareholder and the shareholders
of the Company do not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any restrictions upon the
voting or transfer of any of the Stock except as provided in the
Prospectus; the Common Stock, the Warrants, the Warrant Agreement, and the
Underwriter's Purchase Option conform in all material respects to the
respective descriptions thereof contained in the Prospectus; the Shares and
the Warrants have been, and the shares of Common Stock to be issued upon
exercise of the Warrants, the Underwriter's Purchase Option, upon issuance
in accordance with the terms of such Underwriter's Purchase Option, and all
other outstanding warrants will have been duly authorized and, when issued
and delivered in accordance with their respective terms, will be duly and
validly issued, fully paid, non-assessable, free of preemptive rights and
no personal liability will attach to the ownership thereof; all prior sales
by the Company of the Company's securities have been made in compliance
with or under an exemption from registration under the Act and applicable
state securities laws; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Underwriter's Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale
of the Securities as contemplated by this Agreement gives rise to any
registration rights other than those which have been waived or satisfied
for or relating to the registration of any shares of Common Stock or as
otherwise being exercised in connection with the concurrent offering;
(iii) this Agreement, the Underwriter's Purchase Option, and the
Warrant Agreement have been duly and validly authorized, executed, and
delivered by the Company;
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(iv) the certificates evidencing the shares of Common Stock comply
with the Delaware General Corporation Law; the Warrants will be exercisable
for shares of Common Stock in accordance with the terms of the Warrants at
the prices therein provided for;
(v) except as otherwise disclosed in the Registration Statement, such
counsel knows of no pending or threatened legal or governmental proceedings
to which the Company is a party which would materially adversely affect the
business, property, financial condition, or operations of the Company; or
which question the validity of the Securities, this Agreement, the Warrant
Agreement, or the Underwriter's Purchase Option, or of any action taken or
to be taken by the Company pursuant to this Agreement, the Warrant
Agreement, or the Underwriter's Purchase Option; to such counsel's
knowledge there are no governmental proceedings or regulations required to
be described or referred to in the Registration Statement which are not so
described or referred to;
(vi) the execution and delivery of this Agreement, the Warrant
Agreement, or the Underwriter's Purchase Option and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under the certificate or articles of
incorporation or by-laws of the Company, or to the best knowledge of
counsel after due inquiry, in the performance or observance of any material
obligations, agreement, covenant, or condition contained in any bond,
debenture, note, or other evidence of indebtedness or in any material
contract, indenture, mortgage, loan agreement, lease, joint venture, or
other agreement or instrument to which the Company is a party or by which
it or any of its properties is bound or in violation of any order, rule,
regulation, writ, injunction, or decree of any government, governmental
instrumentality, or court, domestic or foreign, the result of which would
have a Material Adverse Effect;
(vii) the Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) as of the Effective Date comply as to form in all
material respects with the applicable requirements of the Act and the Rules
and Regulations;
(viii) in the course of preparation of the Registration Statement and
the Prospectus such counsel has participated in conferences with the
President and Chief Financial Officer of the Company with respect to the
Registration Statement and Prospectus and our discussions did not disclose
to such counsel any information which gives such counsel reason to believe
that the Registration Statement or any amendment thereto at the time it
became effective contained any untrue statement of a material fact required
to be stated therein or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any supplement thereto contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make statements therein, in light of the circumstances under which
they were made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto, and other
financial information (including without limitation, the pro forma
financial information) and schedules contained therein, as to which such
counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company is a
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party are accurate and fairly present in all material respects the
information required to be shown, and such counsel is familiar with all
contracts and other agreements referred to in the Registration Statement
and the Prospectus and any such amendment or supplement or filed as
exhibits to the Registration Statement, and such counsel does not know of
any contracts or agreements to which the Company is a party of a character
required to be summarized or described therein or to be filed as exhibits
thereto which are not so summarized, described, or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale, or delivery of the
Securities by the Company or the Selling Shareholders, in connection with
the execution, delivery, and performance of this Agreement by the Company
or the Selling Shareholders or in connection with the taking of any action
contemplated herein, or the issuance of the Underwriter's Purchase Option
or the Securities underlying the Underwriter's Purchase Option, other than
registrations or qualifications of the Securities under applicable state or
foreign securities or Blue Sky laws and registration under the Act; and
(xi) the Shares and the Warrants have been duly authorized for
quotation on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ").
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law
other than the law of the United States or of the State of Delaware upon
opinions of counsel satisfactory to the Underwriter, in which case the
opinion shall state that they have no reason to believe that the
Underwriter and they are not entitled to so rely.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related matters
shall be satisfactory to or approved by Cohn & Birnbaum P.C., counsel to the
Underwriter.
(d) The Underwriter shall have received a letter prior to the effective
date of the Registration Statement and again on and as of the First Closing Date
from Holtz Rubenstein & Co., LLP, independent public accountants for the
Company, substantially in the form reasonably acceptable to the Underwriter, and
including estimates of the Company's revenues and results of operations for the
period ending at the end of the month immediately preceding the effective date.
(e) At the Closing Dates, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of the Closing Dates taking
into account for the Option Closing Dates the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the
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respective dates as of which information is given, no material adverse change,
or to the Company's knowledge, any development involving a prospective material
adverse change, in the business, properties, condition (financial or otherwise),
results of operations, capital stock, long-term or short-term debt, or general
affairs of the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the effective date of the Registration Statement, and
the Company shall not have incurred any material liabilities or entered into any
material agreement not in the ordinary course of business other than as referred
to in the Registration Statement and Prospectus; (iv) except as set forth in the
Prospectus, no action, suit, or proceeding at law or in equity shall be pending
or threatened against the Company which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company before or by any commission, board, or administrative agency
in the United States or elsewhere, wherein an unfavorable decision, ruling, or
finding would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations, or general affairs of the
Company, and (v) the Underwriter shall have received, at the First Closing Date,
a certificate signed by each of the President and the principal operating
officer of the Company, dated as of the First Closing Date, evidencing
compliance with the provisions of this subsection (e).
(f) Upon exercise of the option provided for in Section 3(b) hereof, the
obligations of the Underwriter to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the Underwriter's knowledge or the
knowledge of the Company, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been delivered to the
Underwriter the signed opinion of Bernstein & Wasserman, LLP, counsel to
the Company, dated as of the Option Closing Date, in form and substance
reasonably satisfactory to Cohn & Birnbaum P.C., counsel to the
Underwriter, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date
pursuant to Sections 5(b) hereof, except that such opinion, where
appropriate, shall cover the Option Securities.
(iii) At the Option Closing Date there shall have be delivered to the
Underwriter a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and
substance reasonably satisfactory to Cohn & Birnbaum P.C., counsel to the
Underwriter, substantially the same in scope and substance as the
certificate furnished to you at the First Closing Date pursuant to Section
5(e) hereof.
(iv) At the Option Closing Date there shall have been delivered to the
Underwriter a letter in form and substance satisfactory to the Underwriter
from Holtz Rubenstein & Co., LLP, dated the Option Closing Date and
addressed to the Underwriter confirming the information in their letter
referred to in Section 5(e) hereof and stating that nothing has come to
their attention during the period from the ending date of their review
referred to in said letter to a date
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not more than five business days prior to the Option Closing Date, which
would require any change in said letter if it were required to be dated the
Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
reasonably satisfactory in form and substance to you, and you and Cohn &
Birnbaum P.C., counsel to the Underwriter, shall have been furnished with
all such documents, certificates, and opinions as you may reasonably
request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties, or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(g) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to either of the
Closing Dates, for members of the NASD to execute transactions (as principal or
agent) in the Shares, the Warrants, or Common Stock and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD.
(h) At the First Closing Date, the Underwriter and the Company shall have
entered into a consulting agreement, in form and substance satisfactory to
counsel for the Underwriter, which shall provide, without limitation, that (i)
the Company shall engage the Underwriter as a consultant to the Company for a
period of three (3) years, and (ii) the Underwriter shall be paid an annual
retainer fee of $33,333.34 per year (which amount shall be paid in full in
advance on the First Closing Date).
(i) On or prior to the First Closing Date, the Company shall have obtained
written releases from any and all other investment banking firms having rights
to underwrite an offering of the Company's securities.
(j) If any of the conditions herein provided for in this Section shall not
have been fulfilled in all material respects as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
cancelled at, or at any time prior to, either of the Closing Dates by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the applicable Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
(6) Conditions of the Obligations of the Company and the Selling
Securityholders. The obligation of the Company and the Selling Securityholders
to sell and deliver the Securities is subject to the following conditions:
(a) The Registration Statement shall have become effective not later than
10:00 a.m. New York time, on the day following the date of this Agreement, or on
such later date as the Company and the Underwriter may agree in writing.
(b) At the Closing Dates, no stop orders suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
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If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of the
option provided for in Section 3(b) hereof shall be affected.
(7) Indemnification
(a) The Company agrees (i) to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and the Selling
Securityholders against any losses, claims, damages, or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and (ii) to reimburse, as incurred,
the Underwriter and such controlling persons or any such Selling Securityholder
for any legal or other expenses reasonably incurred in connection with
investigating, defending against or appearing as a third party witness in
connection with any losses, claims, damages, or liabilities; insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) relating
to (i) and (ii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto, provided further that the Company will not be required to
indemnify a Selling Securityholder or be liable in any such case to the extent,
but only to the extent, that any such loss, claim, damage, or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Selling
Securityholder specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto, provided further that the indemnity with
respect to any Preliminary Prospectus shall not be applicable on account of any
losses, claims, damages, liabilities, or litigation arising from the sale of
Securities to any person if a copy of the Prospectus was not delivered to such
person at or prior to the written confirmation of the sale to such person. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will indemnify and hold harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus, each
of its officers who have
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<PAGE>
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, and the Selling Securityholders against
any losses, claims, damages, or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and reasonable attorneys' fees) to which the Company or any such
director, nominee, officer, or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Securities of any applicable state or federal
law or any rule, regulation or instruction thereunder relating to violations
based on unauthorized statements by Underwriter or its representative, provided
that such violation is not based upon any violation of such law, rule, or
regulation or instruction by the party claiming indemnification or inaccurate or
misleading information furnished by the Selling Securityholders or by the
Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in addition
to any liability which the Underwriter may otherwise have.
(c) The Selling Securityholders will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act, and
the Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act or Section 20(a) of the Exchange Act, against any losses,
claims, damages, or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and reasonable attorneys' fees) to which the Company or any such
director, nominee, officer, or controlling person, or the Underwriter or such
controlling person, may become subject under the Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, and Blue Sky
application executed by the Selling Securityholder from whom indemnification is
sought under this Section 7(c) (the "Indemnifying Selling Securityholder") for
that purpose containing information specifically furnished by such Indemnifying
Selling Securityholder and filed in any state or other jurisdiction in order to
qualify any or all of the securities under the securities laws thereof, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by the Selling Securityholders by such Indemnifying Selling
Securityholder or specifically for use in the preparation thereof and for any
violation by the Selling Securityholders in the sale of such Securities of any
applicable state or federal law or any rule, regulation or instruction
thereunder relating to violations based on unauthorized statements by the
Selling Securityholders or its representative, provided that such violation is
not based upon any
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<PAGE>
violation of such law, rule, or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the Company
or its representatives, including information furnished to the Selling
Securityholders as contemplated herein. This indemnity agreement will be in
addition to any liability which the Selling Securityholders may otherwise have.
The liability of each Selling Securityholder under the provisions of this
Section 7(c) shall be a percentage equal to the percentage that the net proceeds
received by such Selling Securityholder from the sale of his Securities bears to
the aggregate net proceeds received by all Selling Securityholders, in the event
it cannot be determined who was at fault.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the indemnified
party). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party. If it
is ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
(8) Contribution. In order to provide for just and equitable contribution
under the Act in any case in which the indemnification provided in Section 7
hereof is requested but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 7 provide for indemnification in such case,
then the Company and each person who controls the Company, in the aggregate, the
Underwriter, and the Selling Securityholders shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this
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Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) (after contribution from
others) in such proportions that the Underwriter is responsible in the aggregate
for that portion of such losses, claims, damages, or liabilities represented by
the percentage that the underwriting discount per Share appearing on the cover
page of the Prospectus bears to the public offering price appearing thereon;
each Selling Securityholder is responsible for that portion of such losses,
claims, damages, or liabilities represented by the percentage that the net
proceeds received by such Selling Securityholder from the sale of his Securities
bears to the aggregate net proceeds received by the Company from the sale of the
Securities; and the Company shall be responsible for the remaining portion,
provided, however, that if such allocation is not permitted by applicable law,
then allocated in such proportion as is appropriate to reflect relative benefits
but also the relative fault of the Company, the Selling Securityholders, and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company, the
Selling Securityholders, or the Underwriter and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
untrue statement or omission. The Company, the Selling Securityholders, and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company, the Selling Securityholders, and the Underwriter to
contribute pursuant to this Section 8 were to be determined by pro rata or per
capita allocation of the aggregate damages or by any other method of allocation
that does not take account of the equitable considerations referred to in this
Section 8. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 1(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors, and
controlling persons, the Selling Securityholders, and the Company, its officers,
directors, and controlling persons shall be entitled to contribution from the
Underwriter and the Selling Securityholders to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company, the Selling Securityholders, and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
(9) Costs and Expenses
(a) Whether or not this Agreement becomes effective or the sale of the
Securities to the Underwriter is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company and of the
Company's accountants; the costs and expenses incident to the preparation,
printing, filing, and distribution under the Act of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), Preliminary Prospectus, and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Underwriter, in connection with the qualification of the Securities under the
state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each
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Preliminary Prospectus, the Prospectus, this Agreement, and the Blue Sky
Memorandum, any fees relating to the listing of the Shares, the Warrants, and
Common Stock on NASDAQ or any other securities exchange; the cost of printing
the certificates representing the Shares and the Warrants; and the fees of the
transfer agent. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock, or other tax imposed by any jurisdiction) on sales to
the Underwriter hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the First
Closing Date pay to the Underwriter a non-accountable expense allowance of
$______________. In the event the over-allotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3.0% of the gross proceeds received upon
exercise of the over-allotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company or
a Selling Securityholder of any covenant, representation, or warranty contained
herein or because any other condition to the Underwriter's obligations hereunder
required to be fulfilled by the Company or a Selling Securityholder is not
fulfilled) the Company or a Selling Securityholder shall not be liable for any
expenses of the Underwriter, including the Underwriter's legal fees. In the
event the transactions contemplated hereby are not consummated by reason of the
Company or a Selling Securityholder being unable to perform its obligations
hereunder in all material respects, the Company shall be liable for the actual
accountable out-of-pocket expenses of the Underwriter, including reasonable
legal fees, not to exceed in the aggregate $100,000.00.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, against any losses, claims, damages, or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees), to which the Underwriter or person may become subject insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
(10) Effective Date. The Agreement shall become effective upon its
execution except that the Underwriter may, at its option, delay its
effectiveness until 11:00 a.m., New York time on the first full business day
following the effective date of the Registration Statement, or at such earlier
time on such business day after the effective date of the Registration Statement
as the Underwriter in its discretion shall first commence the initial public
offering of the Securities. The time of the initial public offering shall mean
the time of release by the Underwriter of the first newspaper advertisement with
respect to the Securities, or the time when the Securities are first generally
offered by the Underwriter to dealers by letter or telegram, whichever shall
first occur. This Agreement may be terminated by the Underwriter at any time
before it becomes effective as provided above, except that Sections 4(c), 7, 8,
9, 13, 14, 15, and 16 shall remain in effect notwithstanding such termination.
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(11) Termination
(a) After this Agreement becomes effective, this Agreement, except for
Sections 4(c), 7, 8, 9, 13, 14, 15, and 16 hereof, may be terminated at any time
prior to the First Closing Date, and the option referred to in Section 3(b)
hereof, if exercised, may be cancelled at any time prior to the Option Closing
Date, by the Underwriter if in the Underwriter's judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriter for the resale of
the Securities agreed to be purchased hereunder by reason of (i) the Company
having sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident, or other calamity, or from any labor dispute or
court or government action, order, or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof), (iv) a
banking moratorium having been declared by federal or New York state
authorities, (v) an outbreak of major international hostilities involving the
United States or other substantial national or international calamity having
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which would materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged with or consolidated into
or acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the passage by the Congress of the United States or by
any state legislative body of similar impact, of any act or measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Underwriter to have a material
adverse impact on the business, financial condition, or financial statements of
the Company (ix) any material adverse change in the financial or securities
markets beyond normal market fluctuations having occurred since the date of this
Agreement, or (x) any material adverse change having occurred, since the
respective dates of which information is given in the Registration Statement and
Prospectus, in the earnings, business prospects, or general condition of the
Company, financial or otherwise, whether or not arising in the ordinary course
of business.
(b) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11, the
Company shall be promptly notified by the Underwriter, by telephone or telegram,
confirmed by letter.
(12) Underwriter's Purchase Option. At or before the First Closing Date,
the Company will sell the Underwriter or its designees for a consideration of
$100.00, and upon the terms and conditions set forth in the form of
Underwriter's Purchase Option annexed as an exhibit to the Registration
Statement, an Underwriter's Purchase Option to purchase an aggregate of 200,000
Shares and 100,000 Warrants. In the event of conflict in the terms of this
Agreement and the Underwriter's Purchase Option with respect to language
relating to the Underwriter's Purchase Option, the language of the Underwriter's
Purchase Option shall control.
(13) Representations and Warranties of the Underwriter. The Underwriter
represents and warrants to the Company that it is registered as a broker-dealer
in all jurisdictions in which it is offering the Securities and that it will
comply with all applicable state or federal laws relating to the sale of the
Securities, including, but not limited to, violations based on unauthorized
statements by the Underwriter or its representatives.
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(14) Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Securities and the termination of this Agreement.
(15) Notice. Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Sterling Foster & Co., Inc., 125 Baylis Road, Suite
290, Melville, New York 11747, with a copy sent to Cohn & Birnbaum P.C., 100
Pearl Street, Hartford, Connecticut 06103-4500, Attention: Michael F. Mulpeter,
Esq., or if sent to the Company or the Selling Securityholders, will be mailed,
delivered, or telecopied and confirmed to it at 6900 E. Belleview Avenue --
Suite 200, Englewood, Colorado 80111, with a copy sent to Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, New York 10022, Attention: Steven Wasserman,
Esq. Notice shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication.
(16) Parties in Interest. The Agreement herein set forth is made solely for
the benefit of the Underwriter, the Selling Securityholders, the Company, any
person controlling the Company or the Underwriter, and directors of the Company,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriter of the Securities.
(17) Applicable Law. This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
(18) Counterparts. This agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
(19) Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter and the Company.
24
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours,
SPORTSTRAC, INC.
By ______________________________
Its
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
STERLING FOSTER & CO., INC.
By ______________________________
Its
SELLING SECURITYHOLDERS:
JELSIN INVESTMENTS LIMITED
By ______________________________/s/
Its
(signatures continued next page)
25
<PAGE>
K.A.M. GROUP, INC.
By ______________________________/s/
Its
KANTER FAMILY FOUNDATION
By_________________________________/s/
Its
-----------------------------------/s/
Janis S. Kanter
-----------------------------------/s/
Joel S. Kanter
-----------------------------------/s/
Joshua Kanter
-----------------------------------/s/
Daniel Durschlag
(signatures continued next page)
26
<PAGE>
M.D. FUNDING, INC.
By_________________________________/s/
Its
W.S. VENTURES
By_________________________________/s/
Its
THE HOLDING COMPANY
By_________________________________/s/
Its
WINDY CITY, INC.
By_________________________________/s/
Its
-----------------------------------/s/
Scott Sinar
-----------------------------------/s/
Solomon A. Weisgal, as trustee
(signatures continued next page)
27
<PAGE>
ULSTER INVESTMENTS, LTD.
By_________________________________/s/
Its
-----------------------------------/s/
Howard Kirschbaum
-----------------------------------/s/
John LaFalce
DUNE HOLDINGS, INC.
By_________________________________/s/
Its
-----------------------------------/s/
Matthew Harriton
-----------------------------------/s/
Hartley Bernstein
-----------------------------------/s/
Michael Lulkin
28
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
SPORTSTRAC, INC.
4,190,000 Shares of Common Stock
and 3,000,000 Class A Redeemable Common Stock Purchase Warrants
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Sterling Foster & Co., Inc., named as the Underwriter in the enclosed
Preliminary Prospectus ("the Representative"), proposes to offer on a firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, (i) 4,190,000 shares (including any additional shares
offered pursuant to an over-allotment option, the "Shares") of common stock, par
value $.01 per share (the "Common Stock") and (ii) 3,000,000 Class A redeemable
Common Stock purchase warrants (including any additional Class A redeemable
Common Stock purchase warrants offered pursuant to an over-allotment option, the
"Warrants") of SportsTrac, Inc. (the "Company"). Each Warrant entitles the
holder to purchase one (1) share of Common Stock of the Company. The Shares and
the Warrants are more particularly described in the enclosed Preliminary
Prospectus, additional copies of which as well as the Prospectus (after
effective date) will be supplied in reasonable quantities upon request. The
Shares and the Warrants are hereinafter collectively referred to as the
"Securities."
2. The Underwriter is soliciting offers to buy Securities, upon the terms
and conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission ("the Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended ("the 1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. Shares are to be offered to the public at a price
of $3.00 per Share. Warrants are to be offered to the public at a price of $.25
per Warrant. Selected Dealers will be allowed a concession of not less than
_____% of the offering price. You will be notified of the precise amount of such
concession prior to the effective date of the Registration Statement. The offer
is solicited subject to the issuance and delivery of the Shares and
<PAGE>
their acceptance by the Underwriter, to the approval of legal matters by counsel
and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Securities has become effective with the Commission.
Subject to the foregoing, upon execution by you of the Offer to Purchase below
and the return of same to us, you shall be deemed to have offered to purchase
the number of Securities set forth in your offer on the basis set forth in
paragraph 2 above. Any oral notice by us of acceptance of your offer shall be
immediately followed by written or telegraphic confirmation preceded or
accompanied by a copy of the Prospectus. If a contractual commitment arises
hereunder, all the terms of this Selected Dealers Agreement shall be applicable.
We may also make available to you an allotment to purchase Securities, but such
allotment shall be subject to modification or termination upon notice from us
any time prior to an exchange of confirmations reflecting completed
transactions. All references hereafter in this Agreement to the purchase and
sale of the Securities assume and are applicable only if contractual commitments
to purchase are completed in accordance with the foregoing.
4. You agree that in re-offering the Securities, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Securities purchased by you remaining
unsold, and we shall have the right to repurchase such Securities upon demand at
the public offering price less the concession as set forth in paragraph 2 above.
Any of the Securities purchased by you pursuant to this Agreement are to be
re-offered by you to the public at the public offering price, subject to the
terms hereof and shall not be offered or sold by you below the public offering
price before the termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Sterling Foster & Co., Inc. Certificates for the
securities shall be delivered as soon as practicable at the offices of Sterling
Foster & Co., Inc., 125 Baylis Road, Suite 290, Melville, New York 11747. Unless
specifically authorized by us, payment by you may not be deferred until delivery
of certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Securities. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Securities pursuant hereto agrees (which agreement shall also be for the benefit
of the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or by
the Representative to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the
Securities. Nothing contained herein shall render the Selected Dealers a member
of the underwriting group or partners with the Representative or with one
another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state.
(2)
<PAGE>
8. The Underwriter shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories, or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the distribution
of a Preliminary Prospectus to all persons reasonably expected to be purchasers
of Securities from you at least 48 hours prior to the time you expect to mail
confirmations. You, if a member of the Association, by signing this Agreement,
acknowledge that you are familiar with the cited law, rules, and releases, and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities or its component
securities in the open market or otherwise make a market in such securities or
otherwise attempt to induce others to purchase such securities in the open
market. Nothing contained in this paragraph 11 shall, however, preclude you from
acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased, and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that your net capital is
such that you may, in accordance with Rule 15c3-1 adopted under the 1934 Act,
agree to purchase the number of Securities you may become obligated to purchase
under the provisions of this Agreement.
14. You acknowledge that the offering of the Securities is being made in
accordance with the requirements of Schedule E to the By-Laws of the NASD.
Accordingly, as required by Schedule E to the By-Laws of the NASD, you agree
that (i) you shall not recommend to a customer
(3)
<PAGE>
the purchase of Securities unless you shall have reasonable grounds to believe
that the recommendation is suitable for such customer on the basis of
information furnished by such customer concerning the customer's investment
objectives, financial situation and needs, and any other information known to
you, (ii) in connection with all such determinations, you shall maintain in your
files the basis for such determination, and (iii) you shall not execute any
transaction in Securities in a discretionary account without the prior specific
written approval of the customer.
15. All communications from you should be directed to us at the office of
the Underwriter, Sterling Foster & Co., Inc., 125 Baylis Road, Suite 290,
Melville, New York 11747. All communications from us to you shall be directed to
the address to which this letter is mailed.
Very truly yours,
STERLING FOSTER & CO., INC.
By ______________________________
Its
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1996
[Name of Dealer]
By ______________________________
Its
(4)
<PAGE>
To: Sterling Foster & Co., Inc.
---------------------------------
---------------------------------
---------------------------------
We hereby subscribe for _____________________ (_____) Shares of SportsTrac,
Inc., par value $.01 per share, and/or _____ ( ) Class A Redeemable Common Stock
Purchase Warrants of SportsTrac, Inc. in accordance with the terms and
conditions stated in the foregoing letter. We hereby acknowledge receipt of the
Prospectus referred to in the first paragraph thereof relating to said Shares
and Warrants. We further state that in purchasing said Shares and/or Warrants we
have relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein. We
hereby agree to comply with the provisions of Section 24 of Article III of the
Rules of Fair Practice of the NASD, and if we are a foreign dealer and not a
member of the NASD, we also agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though we were a member of
the NASD, with the provisions of Sections 8 and 36 of Article III thereof as
that Section applies to non-member foreign dealers.
[Name of Dealer]
------------------------------
By ______________________________
Address
------------------------------
------------------------------
------------------------------
Dated _____________________, 1996
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this _____ day of _____________________, 1996, by
and between SPORTSTRAC, INC., a Delaware corporation ("Company"), and AMERICAN
STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 2,300,000 shares of
the Company's Common Stock, $.01 par value ("Shares"), and 1,150,000 Class A
Redeemable Common Stock Purchase Warrants ("Warrants") pursuant to an
underwriting agreement (the "Underwriting Agreement") dated
_____________________, 1996 between the Company and Sterling Foster & Co., Inc.
("Sterling Foster"), and the issuance to (i) Sterling Foster or its designees of
an Underwriter's Purchase Option to purchase 200,000 additional Shares and
100,000 additional Warrants dated as of _____________________, 1996
(collectively referred to herein as the "Underwriter's Purchase Option"), and
(ii) certain investors of bridge units including 480,000 shares of Common Stock
and 2,000,000 Warrants (the "Bridge Units"), the Company will issue up to
3,250,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company, which at the
date hereof consists of __________ authorized shares, $.01 par value, and shall
also include any capital stock of any class of the Company thereafter authorized
which shall not be limited to a fixed sum or percentage in respect to the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution, or winding up of the
Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include (i) only shares of such class designated in the Company's
Certificate of Incorporation as Common Stock on the date of the original issue
of the Warrants or (ii), in the case of any reclassification, change,
consolidation, merger, sale, or conveyance of the character referred to in
Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination of shares or consisting of a change in
par value, or from par value to no
<PAGE>
par value, or from no par value to par value, such shares of Common Stock as so
reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (b) payment in
cash, or by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean _____________________, 1997.
(e) "Purchase Price" shall mean the purchase price per share to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $3.60 per share, subject to adjustment from time to time pursuant to
the provisions of Section 9 hereof, and subject to the Company's right, in its
sole discretion, to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may, at
its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust Company, as
the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 p.m. (New York time) on
_____________________, 2001 or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 p.m. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon notice to all warrantholders the Company shall have the right to
extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates
(a) A Warrant initially shall entitle the Registered Holder of the Warrant
Certificate representing such Warrant to purchase one (1) share of Common Stock
upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates representing the
number of Warrants sold pursuant to the Underwriting Agreement shall be executed
by the Company
2
<PAGE>
and delivered to the Warrant Agent. Upon written order of the Company signed by
its President or Chairman or a Vice President and by its Secretary or an
Assistant Secretary, the Warrant Certificates shall be countersigned, issued,
and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 3,250,000 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant Agent
shall countersign and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6, (iv) those issued in replacement of
lost, stolen, destroyed, or mutilated Warrant Certificates pursuant to Section
7, (v) those issued pursuant to the Unit Purchase Option, and (vi) those issued
at the option of the Company, in such form as may be approved by the its Board
of Directors, to reflect any adjustment or change in the Purchase Price, the
number of shares of Common Stock purchasable upon exercise of the Warrants or
the Redemption Price therefor made pursuant to Section 9 hereof.
(e) Pursuant to the terms of the Underwriter's Purchase Option, Sterling
Foster may purchase up to 100,000 Warrants.
3. Form and Execution of Warrant Certificates
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers, or other marks of identification or designation
and such legends, summaries, or endorsements printed, lithographed, or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage or to the requirements of Section 2(b). The Warrant Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange, or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President, or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After
3
<PAGE>
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder thereof
at any time on or after the Initial Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder of those securities upon the
exercise of the Warrant as of the close of business on the Exercise Date. As
soon as practicable on or after the Exercise Date the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant and shall notify
the Company in writing of the exercise of the Warrant. Promptly following, and
in any event within five days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise (plus a certificate for any remaining unexercised Warrants of the
Registered Holder), provided that the Warrant Agent shall refrain from causing
such issuance of certificates pending clearance of checks received in payment of
the Purchase Price pursuant to such Warrants. Upon the exercise of any Warrant
and clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the
4
<PAGE>
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock issuable upon exercise of the Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Common Stock issuable
upon exercise of the Warrants.
6. Exchange and Registration of Transfer
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue, and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any exchange
or registration of transfer of Warrant Certificates. In addition, the Company
may require payment by such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The
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Warrants which are being publicly offered in Units with shares of Common Stock
pursuant to the Underwriting Agreement will be immediately detachable from the
Common Stock and transferable separately therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of
evidence satisfactory to them of the ownership of and loss, theft, destruction,
or mutilation of any Warrant Certificate and (in case of loss, theft, or
destruction) of indemnity satisfactory to them, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
8. Redemption.
(a) On not less than thirty (30) days notice given at any time after
_____________________, 1997, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.05 per Warrant, provided the Market Price
of the Common Stock receivable upon exercise of the Warrant shall equal or
exceed $4.80 (the "Target Price"), subject to adjustment as set forth in Section
8(f) below. Market Price for the purpose of this Section 8 shall mean the
average closing bid price for any twenty (20) consecutive trading days ending
within fifteen (15) days prior to the date of the notice of redemption, which
notice shall be mailed no later than five days thereafter, of the Common Stock
as reported by the National Association of Securities Dealers, Inc., Automatic
Quotation System, or the National Quotation Bureau Incorporated. All Warrants of
a class, except those comprising the Unit Purchase Option, must be redeemed if
any of that class are redeemed.
(b) If the conditions set forth in Section 8(a) are met, and the Company
desires to exercise its right to redeem the Warrants, it shall mail a notice of
redemption to each of the Registered Holders of the Warrants to be redeemed,
first class, postage prepaid, not later than the thirtieth day before the date
fixed for redemption, at such holder's last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the date fixed for redemption, (iii) the place where the Warrant Certificates
shall be delivered and the redemption price paid, and (iv) that the right to
exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the
business day immediately preceding the date fixed for redemption. The date fixed
for the redemption of the Warrant shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a Registered
Holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or of the Secretary or an Assistant Secretary of
the Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Holders of the Warrants shall have no further rights
except to receive, upon surrender of the Warrant, the Redemption Price.
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(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
redemption price of each such Warrant. From and after the Redemption Date and
upon the deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the redemption price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided or combined
into a greater or smaller number of shares of Common Stock, the Target Price
shall be proportionally adjusted by the ratio which the total number of shares
of Common Stock outstanding immediately prior to such event bears to the total
number of shares of Common Stock to be outstanding immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants
(a) Subject to the exceptions referred to in Section 9(g) below, in the
event the Company shall, at any time or from time to time after the date hereof,
sell any shares of Common Stock for a consideration per share less than the
Market Price of the Common Stock (as defined in Section 8) on the date of the
sale or issue of any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(vii) below) for the issuance of such additional shares would purchase at
such current market price per share of Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made.
"Market Price" for the purpose of this Agreement shall mean (i) the average
closing bid price for any twenty (20) consecutive trading days within a period
of thirty (30) consecutive trading days ending within fifteen (15) days prior to
the date of the notice of redemption, which notice shall be mailed no later than
five (5) days thereafter, of the Common Stock as reported by the National
Association of Securities Dealers, Inc. Automatic Quotation System ("NASDAQ") or
(ii) the last reported sale price, for fifteen (15) consecutive business days,
ending within ten (10) days of the date of the notice of redemption, which
notice shall be mailed no later than five (5) days thereafter, on the primary
exchange on which the Common Stock is traded, if the Common stock is traded on a
national securities exchange.
Upon each adjustment of the Purchase Price pursuant to this Section 9, the
total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions contained in Section 9(b) hereof) be
such number of shares (calculated to the nearest tenth) purchasable at the
Purchase Price in effect immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such
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adjustment and the denominator of which shall be the Purchase Price in effect
immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant to Section
2(d) hereof, continue to express the Purchase Price per share, the number of
shares purchasable thereunder, and the Redemption Price therefor as the Purchase
Price
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per share, the number of shares purchasable thereunder and the Redemption Price
therefor were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this Section 9,
the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant after such adjustment, and, if the Company shall have elected to
adjust the number of Warrants, the number of Warrants to which the registered
holder of each Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to Rabinowitz, and to each registered holder of Warrants at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following provisions
(i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any given time
shall include shares of Common Stock owned or held by or for the account of
the Company, and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change
of Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection
(ii) are not required to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an
increase or decrease of at least $.10 in the Purchase Price then in effect
hereunder.
(iii) In case of (1) the sale by the Company for cash of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if
any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights,
warrants, or options shall consist of cash, whether or not such rights,
warrants, or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration payable to
the Company upon the exercise of such rights, warrants, or options, plus
the consideration received by the Company for the issuance or sale of such
rights, warrants, or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional
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<PAGE>
consideration, if any, other than such Convertible Securities, payable upon
the conversion or exchange thereof, by the total maximum number of shares
of Common Stock issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities
issuable upon (y) the exercise of such rights, warrants, or options) is
less than the fair market value of the Common Stock on the date of the
issuance or sale of such rights, warrants, or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such
rights, warrants, or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be
deemed to have been sold for cash in an amount equal to such price per
share.
(iv) In case of the sale by the Company for cash of any Convertible
Securities, whether or not the right of conversion or exchange thereunder
is immediately exercisable, and the price per share for which Common Stock
is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by
the Company for the sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than the
fair market value or the Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities)
shall be deemed to be outstanding shares of Common Stock for purposes of
Sections 9(a) and 9(b) hereof and shall be deemed to have been sold for
cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection
(iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason
other than an event that would require adjustment to prevent dilution, so
that the consideration per share received by the Company after such
modification is less than the market price on the date prior to such
modification, the Purchase Price to be in effect after such modification
shall be determined by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding multiplied by the market price
on the date prior to the modification plus the number of shares of Common
Stock which the aggregate consideration receivable by the Company for the
securities affected by the modification would purchase at the market price
and of which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to be
issued upon conversion, exchange, or exercise of the modified securities at
the modified rate. Such adjustment shall become effective as of the date
upon which such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option or the
termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the
adjustments made upon the issuance or sale of such rights, warrants,
options, or Convertible Securities been made upon the basis of the issuance
of only the number of shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis of
the Purchase Price as adjusted under
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clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be
deemed to be the gross sales price therefor without deducting therefrom any
expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however,
(i) upon the sale or exercise of the Warrants, including without limitation
the sale or exercise of any of the Warrants comprising the Unit Purchase Option;
or
(ii) upon the sale of any shares of Common Stock in the Company's initial
public offering; or
(iii) upon the issuance or sale of Common Stock or Convertible Securities
upon the exercise of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or Convertible Securities, whether or
not such rights, warrants, or options were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold; or
(iv) upon the issuance or sale of Common Stock upon conversion or exchange
of any Convertible Securities, whether or not any adjustment in the Purchase
Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible Securities in
a private placement unless the issuance or sale price is less than 85% of the
fair market value of the Common Stock on the date of issuance, in which case the
adjustment shall only be for the difference between 85% of the fair market value
and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or Convertible Securities to
shareholders of any corporation which merges into the Company, or from which the
Company acquires assets and some or all of the consideration consists of equity
securities of the Company if such issuance or sale to such shareholders is in
proportion to their stock holdings of such corporation immediately prior to the
acquisition but only if no adjustment is required pursuant to any other
provision of this Section 9.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's common stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
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date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting or a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 9, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of Common Stock,
as such, rights or warrants to subscribe for or to purchase, or any options for
the purchase of, Common Stock or securities convertible into or exchangeable for
or carrying a right, warrant, or option to purchase Common Stock, the Company
shall concurrently therewith grant to each Registered Holder as of the record
date for such transaction of the Warrants then outstanding, the rights,
warrants, or options to which each Registered Holder would have been entitled
if, on the record date used to determine the stockholders entitled to the
rights, warrants, or options being granted by the Company, the Registered Holder
were the holder of record of the number of whole shares of Common Stock then
issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Reduction of Purchase Price and Extension of Expiration Date.
Notwithstanding anything herein to the contrary, the Company shall have the
right, subject to compliance with Rule 13e-4 promulgated under the Securities
Exchange Act of 1934 and the filing of Schedule 13e-4 with the Securities and
Exchange Commission, and upon not less than thirty (30) days' written notice
given to every holder of a Warrant, to reduce the Purchase Price and/or to
extend the Warrant Expiration Date.
11. Fractional Warrants and Fractional Shares
(a) If the number of shares of Common Stock purchasable upon the exercise
of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the
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National Quotation Bureau, Inc. on the last business day prior to the date
of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company.
12. Warrant Holders Not Deemed Stockholders. No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
13. Rights of Action. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
14. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a warrant that:
(a) The Warrants are transferable only on the registry books of the Warrant
Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
15. Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same shall thereupon be delivered to the Warrant Agent and
cancelled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination, or exchange.
16. Concerning the Warrant Agent. The Warrant Agent acts hereunder as agent
and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions
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hereof. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder be deemed to make any representations
as to the validity, value, or authorization of the Warrant Certificates or the
Warrants represented thereby or of any securities or other property delivered
upon exercise of any Warrant or whether any stock issued upon exercise of any
Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or responsibility
to any holder of Warrant Certificates to make or cause to be made any adjustment
of the Purchase Price or the Redemption Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of facts contained herein or for any action taken,
suffered, or omitted by it in reliance on any warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order, or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder; it
further agrees to indemnify the Warrant Agent and save it harmless against any
and all losses, expenses, and liabilities, including judgments, costs, and
counsel fees, for anything done or omitted by the Warrant Agent in the execution
of its duties and powers hereunder except losses, expenses, and liabilities
arising as a result of the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or wilful misconduct), after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment
14
<PAGE>
by the new warrant agent is received by the Company, such new warrant agent
shall be vested with the same powers, rights, duties, and responsibilities as if
it had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act, or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act, or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effects as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
17. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and provided, further, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
18. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class, registered or certified mail, postage prepaid
as follows: if to the Registered Holder of a Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Warrant Agent;
if to the Company, 300 Park Avenue, New York, New York 10022, Attention:
President, with a copy sent to Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York 10022, Attention: Steven F. Wasserman, Esq.; or at such other
address as may have been furnished to the Warrant Agent in writing by the
Company; and if to the Warrant Agent, at its Corporate office.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
15
<PAGE>
20. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company, the Warrant Agent and their respective successors and
assigns, and the holders from time to time of Warrant Certificates. Nothing in
this Agreement is intended or shall be construed to confer upon any other person
any right, remedy, or claim, in equity or at law, or to impose upon any other
person any duty, liability, or obligation.
21. Termination. This Agreement shall terminate at the close of business on
the Warrant Expiration Date of all the Warrants or such earlier date upon which
all Warrants have been exercised, except that the Warrant Agent shall account to
the Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.
22. Counterparts. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SPORTSTRAC, INC.
By ______________________________
Marc Silverman
Its President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By ______________________________
Its
Authorized Officer
16
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No.
VOID AFTER ____________, 2001
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
SPORTSTRAC, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one (1) fully paid and nonassessable share of Common
Stock, $.01 par value, of SPORTSTRAC, INC., a Delaware corporation (the
"Company"), at any time after _____________________, 1997 (the "Separation
Date") and prior to the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of AMERICAN
STOCK TRANSFER & TRUST COMPANY as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $3.60 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to SportsTrac, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated
_____________________, 1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_____________________, 2001, or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
<PAGE>
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state in which it would be unlawful for the Company to deliver the
shares of Common Stock upon exercise of this Warrant.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment of this Warrant Certificate at such
office for registration of transfer, together with any transfer fee in addition
to any tax or other governmental charge imposed in connection with such
transfer, a new Warrant Certificate or Warrant Certificates representing an
equal aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.05 per Warrant at any time after _____________________, 1997,
provided the Market Price (as defined in the Warrant Agreement) for the
securities issuable upon exercise of such Warrant shall exceed $4.80 per share.
Notice of redemption shall be given not later than the thirtieth day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized, and a facsimile of its corporate seal to be imprinted hereon.
SPORTSTRAC, INC.
By ______________________________
Its
By ______________________________
Its
Date: ______________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By ______________________________
Its
Authorized Officer
3
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert social security or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
SIGNATURE GUARANTEED
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned registered holder hereby sells,
assigns, and transfers unto
--------------------------------------------
(please insert social security or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
all (if not all, insert number of Warrants to be transferred _________) of the
Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
---------------------------------
Signature of Registered Holder
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
Option to Purchase
200,000 Shares of Common Stock
100,000 Class A Redeemable Common Stock Purchase Warrants
SPORTSTRAC, INC.
UNDERWRITER'S PURCHASE OPTION
Dated: ___________, 1996
THIS CERTIFIES that STERLING FOSTER & CO., INC., 125 Baylis Road, Melville,
New York 11747 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from SPORTSTRAC, INC., a Delaware corporation (hereinafter referred
to as the "Company"), at the prices and during the periods as hereinafter
specified, up to 200,000 Shares ("Shares") of the Company's Common Stock, $.01
par value, as now constituted ("Common Stock") and 100,000 Class A Redeemable
Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles the holder to
purchase one (1) share of Common Stock of the Company at $3.60 per share from
_____________________, 1997 until _____________________, 2001. The Shares and
the Warrants are collectively referred to herein as the "Securities."
The Securities have been registered under a Registration Statement on Form
SB-2 (File No. 333-1634) declared effective by the Securities and Exchange
Commission on ___________, 1996 (the "Registration Statement"). This Option (the
"Option") to purchase 200,000 Shares and 100,000 Warrants (the "Option
Securities") was originally issued pursuant to an underwriting agreement between
the Company and Sterling Foster & Co., Inc., as underwriter (the "Underwriter"),
in connection with a public offering of 2,000,000 Shares and 1,000,000 Warrants
(the "Public Securities") through the Underwriter, in consideration of $100.00
received for the Option.
Except as specifically otherwise provided herein, the Common Stock and
Warrants issued pursuant to this Option shall bear the same terms and conditions
as described under the caption "Description of Securities" in the Registration
Statement, and except that the Holder shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants and Common
Stock, including the Option and the shares of Common Stock underlying the
Warrants, as more fully described in paragraph 6 of this Option.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with paragraph 8 of this Option, and during
the periods as follows:
(a) Between ___________, 1997 and ___________, 2001, inclusive, the Holder
shall have the option to purchase (i) Shares hereunder at a price of $4.95 per
Share and (ii) Warrants hereunder at a price of $.4125 per Warrant (subject to
adjustment pursuant to paragraph 8 hereof) (the "Exercise Price").
<PAGE>
(b) After ___________, 2001, the Holder shall have no right to purchase any
Shares and/or Warrants hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Securities specified in
the above-mentioned purchase form together with applicable stock transfer taxes,
if any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s)' designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c)
and (d) of paragraph 7 hereof. This Option shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for Warrants or shares of Common
Stock shall be issuable upon such exercise shall become the holder or holders of
record of such Warrants or Common Stock at that time and date. The Common Stock
and the certificates for the Warrants or Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten (10) days,
after the rights represented by this Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or hypothecated
until ___________, 1997, except that it may be transferred to successors of the
Holder and may be assigned in whole or in part to any member of the National
Association of Securities Dealers, Inc. that acts as a selected dealer in
connection with the sale of the Public Securities or any person who is an
officer or partner of the Holder during such period or any person who is an
officer or partner of such selected dealer during such period. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 3 hereof; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder), a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same number of
Securities as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be purchased hereunder and upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph 1(b) hereof, the Company
shall advise the Holder or its transferee, whether the Holder holds the Option
or has exercised the Option and holds Securities or any securities underlying
the Warrants, by written notice at least 30 days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act
covering any securities of the Company,
2
<PAGE>
for its own account or for the account of others (other than a registration
statement on Form S-4 or S-8 or any successor forms thereto), and will for a
period of five years from the effective date of the Registration Statement, upon
the request of the Holder, include in any such post-effective amendment or
registration statement, such information as may be required to permit a public
offering of the Option, all or any of the Shares or Warrants underlying the
Option or the Common Stock, including in that Option all or any of the Shares or
Warrants underlying the Option or the Common Stock included in the Option or the
Common Stock issuable upon exercise of the Warrants (the "Registrable
Securities"). The Company shall supply prospectuses and such other documents as
the Holder may request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register and
qualify any of the Registrable Securities for sale in such states as such Holder
designates provided that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or execute a general consent to
service of process in any jurisdiction in any action and do any and all other
acts and things which may be reasonably necessary or desirable to enable such
Holders to consummate the public sale or other disposition of the Registrable
Securities, and furnish indemnification in the manner provided in paragraph 7
hereof. The Holder shall furnish information and indemnification as set forth in
paragraph 7 except that the maximum amount which may be recovered from the
Holder shall be limited to the amount of proceeds received by the Holder from
the sale of the Registrable Securities. The Company shall use its best efforts
to cause the managing underwriter or underwriters of a proposed underwritten
offering to permit the holders of Registrable Securities requested to be
included in the registration to include such securities in such underwritten
offering on the same terms and conditions as any similar securities of the
Company included therein. Notwithstanding the foregoing, if the managing
underwriter or underwriters of such offering advises the holders of Registrable
Securities that the total amount of securities which they intend to include in
such offering is such as to materially and adversely affect the success of such
offering, then the amount of securities to be offered for the accounts of
holders of Registrable Securities shall be eliminated, reduced, or limited to
the extent necessary to reduce the total amount of securities to be included in
such offering to the amount, if any, recommended by such managing underwriter or
underwriters (any such reduction or limitation in the total amount of
Registrable Securities to be included in such offering to be borne by the
holders of Registrable Securities proposed to be included therein pro rata). The
Holder will pay its own legal fees and expenses and any underwriting discounts
and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the Company
at any time during the period set forth in paragraph 1(b) hereof to the effect
that such holder desires to register under the Act any of the Registrable
Securities under such circumstances that a public distribution (within the
meaning of the Act) of any such securities will be involved then the Company
will promptly, but no later than 45 days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Registrable
Securities may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective for a period of 120 days (including the taking of
such steps as are reasonably necessary to obtain the removal of any stop order);
provided that such holder shall furnish the Company with appropriate information
in connection therewith as the Company may reasonably request in writing. The
50% holder (which for purposes hereof shall mean any direct or indirect
transferee of such holder) may, at its option, request the filing of a
post-effective amendment to the current Registration Statement or a new
registration statement under the Act with respect to the Registrable Securities
on only one occasion during the term of this Option. The Holder may at its
option request the registration of the Option and/or any of the securities
underlying the Option in a registration statement made by the
3
<PAGE>
Company as contemplated by paragraph 6(a) or in connection with a request made
pursuant to this paragraph 6(b) prior to acquisition of the Shares and/or
Warrants issuable upon exercise of the Option and even though the Holder has not
given notice of exercise of the Option. The 50% holder may, at its option,
request such post-effective amendment or new registration statement during the
described period with respect to the Option and/or the Shares and/or Warrants,
and such registration rights may be exercised by the 50% holder prior to or
subsequent to the exercise of the Option. Within ten business days after
receiving any such notice pursuant to this subparagraph (b) of paragraph 6, the
Company shall give notice to the other holders of the Options, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other holders. Each holder electing to include its Registrable Securities
in any such offering shall provide written notice to the Company within twenty
(20) days after receipt of notice from the Company. The failure to provide such
notice to the Company shall be deemed conclusive evidence of such holder's
election not to include its Registrable Securities in such offering. Each holder
electing to include its Registrable Securities shall furnish the Company with
such appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of the first such post-effective amendment or new
registration statement shall be borne by the Company, except that the holders
shall bear the fees of their own counsel and any underwriting discounts or
commissions applicable to any of the securities sold by them. If the Company
determines to include securities to be sold by it in any registration statement
pursuant to this paragraph 6(b), such registration shall be deemed to have been
a registration under paragraph 6(a).
The Company shall be entitled to postpone the filing of any registration
statement pursuant to this paragraph 6(b) otherwise required to be prepared and
filed by it if (i) the Company is engaged in a material acquisition,
reorganization, or divestiture, (ii) the Company is currently engaged in a
self-tender or exchange offer and the filing of a registration statement would
cause a violation of Rule 10b-6 under the Securities Exchange Act of 1934, (iii)
the Company is engaged in an underwritten offering and the managing underwriter
has advised the Company in writing that such a registration statement would have
a material adverse effect on the consummation of such offering or (iv) the
Company is subject to an underwriter's lock-up as a result of an underwritten
public offering and such underwriter has refused in writing, the Company's
request to waive such lock-up. In the event of such postponement, the Company
shall be required to file the registration statement pursuant to this paragraph
6(b), within 60 days of the consummation of the event requiring such
postponement.
The Company will use its best efforts to maintain such registration
statement or post-effective amendment current under the Act for a period of at
least six months (and for up to an additional three months if requested by the
Holder) from the effective date thereof. The Company shall supply prospectuses,
and such other documents as the Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable Securities
for sale in such states as such holder designates, provided that the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
jurisdiction in any action and furnish indemnification in the manner provided in
paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean the holder
of at least 50% of the Common Stock and the Warrants (or the Common Stock
issuable upon exercise of the Warrants) underlying the Option (considered in the
aggregate) and shall include any owner or combination of owners of such
securities, which ownership shall be calculated by determining the
4
<PAGE>
number of shares of Common Stock and Warrants (or the Common Stock issuable upon
exercise of the Warrants) held by such owner or owners.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to the Option or any shares issued or issuable upon the exercise of any options,
is filed under the Act, amended or supplemented, the Company will indemnify and
hold harmless each holder of the securities covered by such registration
statement, amendment, or supplement (such holder being hereinafter called the
"Distributing Holder"), and each person, if any, who controls (within the
meaning of the Act) the Distributing Holder, and each underwriter (within the
meaning of the Act) of such securities and each person, if any, who controls
(within the meaning of the Act) any such underwriter, against any losses,
claims, damages, or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such controlling
person and underwriter for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder or any other Distributing Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, each person, if any, who
controls the Company (within the meaning of the Act) against any losses, claims,
damages, or liabilities, joint and several, to which the Company or any such
director, officer, or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus, or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such director,
officer, or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this paragraph 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
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(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a distribution
on its outstanding shares of Common Stock in shares of Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary contained in the
Warrant Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this subsection (a) (and a corresponding adjustment to the number of
Option Securities is made pursuant to subsection (f) below), the exercise price
of the Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the issuance of rights
or warrants to all holders of its Common Stock entitling them to subscribe for
or purchase shares of Common Stock (or securities convertible into Common Stock)
at a price (the "Subscription Price") (or having a conversion price per share)
less than the current market price of the Common Stock (as defined in
subparagraph (h) below) on the record date mentioned below, the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the number of shares then comprising an Option Security (after
giving effect to the exercise of the Warrants) by the product of the Exercise
Price in effect immediately prior to the date of such issuance multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding on such record
date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are
6
<PAGE>
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall hereafter distribute to the holders of its
Common Stock evidences of its indebtedness or assets (excluding cash dividends
or distributions and dividends or distributions referred to in subparagraph (a)
above) or subscription rights or warrants (excluding those referred to in
subparagraph (b) above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the number of shares then
comprising an Option Security (after giving effect to the exercise of the
Warrants) by the product of the Exercise Price in effect immediately prior
thereto multiplied by a fraction, the numerator of which shall be the total
number of shares of Common Stock outstanding multiplied by the current market
price per share of Common Stock (as defined in subparagraph (h) below), less the
fair market value (as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(d) In case the Company shall issue shares of its Common Stock excluding
shares issued (i) in any of the transactions described in subparagraph (a)
above, (ii) upon the issuance or exercise of options granted to the Company's
directors, employees, and consultants under a plan or plans adopted by the
Company's Board of Directors and approved by its shareholders, if such shares
would otherwise be included in this subparagraph (d), (but only to the extent
that the aggregate number of shares excluded hereby and issued after the date
hereof, shall not exceed 5% of the Company's Common Stock outstanding at the
time of any issuance), (iii) upon exercise of options and warrants outstanding
or authorized for grant as of the date hereof and this Option, (iv) to
shareholders of any corporation which merges into the Company or from which the
Company acquires assets and some or all of the consideration consists of equity
securities of the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, (v) issued in a
bona fide public offering pursuant to a firm commitment underwriting, but only
if no adjustment is required pursuant to any other specific subparagraph of this
paragraph 8 (without regard to subparagraph (i) below) with respect to the
transaction giving rise to such rights and (vi) in connection with any
nonregistered offering of Common Stock or securities convertible into or
exercisable for Common Stock, unless the issuance or sale price is less than 85%
of the current market price of the Common Stock on the date of issuance, in
which case the adjustment shall only be for the difference between 85% of the
current market price and the issue or sale price for a consideration per share
(the "Offering Price") less than the current market price per share (as defined
in subparagraph (h) below) on the date the Company fixes the offering price of
such additional shares, then the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the number
of shares then comprising an Option Security (after giving effect to the
exercise of the Warrants) by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares and the number of shares of
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<PAGE>
Common Stock which the aggregate consideration received (determined as provided
in subparagraph (g) below) for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made.
(e) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in transactions
described in subparagraphs (b) and (c) above) for a consideration per share of
Common Stock (the "Conversion Price") initially deliverable upon conversion or
exchange of such securities (determined as provided in subparagraph (g) below)
less than the current market price per share (as defined in subparagraph (h)
below) in effect immediately prior to the issuance of such securities, then the
Exercise Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the number of shares then comprising an
Option Security (after giving effect to the exercise of the Warrants) by the
product of the Exercise Price in effect immediately prior thereto multiplied by
a fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate consideration
received (determined as provided in subparagraph (g) below) for such securities
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate. Such
adjustment shall be made successively whenever such an issuance is made.
(f) Whenever the Exercise Price payable upon exercise of this Option is
adjusted pursuant to subparagraphs (a), (b), (c), (d), or (e) above, the number
of Option Securities purchasable upon exercise of this Option shall
simultaneously be adjusted by multiplying the number of Option Securities
initially issuable upon exercise of this Option by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the Exercise Price,
as adjusted.
(g) For purposes of any computation respecting consideration received
pursuant to subparagraphs (d) and (e) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts, or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be conclusive; and
(iii) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the conversion or
8
<PAGE>
exchange thereof (the consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of this subparagraph (g)).
(h) For the purpose of any computation under subparagraphs (b), (c), (d),
and (e) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(i) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
subparagraph (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this paragraph 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this paragraph
8 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to those
required by this paragraph 8, as it shall determine, in its sole discretion, to
be advisable in order that any dividend or distribution in shares of Common
Stock, or any subdivision, reclassification or combination of Common Stock,
hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
(j) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Securities issuable upon exercise of this
Option and, if requested, information describing the transactions giving rise to
such adjustments, to be mailed to the Holder, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this paragraph 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
(k) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) above, the Holder thereafter shall become entitled
to receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Option shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subparagraphs (a) to (i), inclusive above.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
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IN WITNESS WHEREOF, SportsTrac, Inc. has caused this Option to be signed by
its duly authorized officers under its corporate seal, and this Option to be
dated ___________, 1996.
SPORTSTRAC, INC.
By ______________________________
Its
(Corporate Seal)
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
Shares of SportsTrac, Inc., $.01 par value, and/or Warrants of SportsTrac,
Inc. and herewith makes payment of $______________ therefor, and requests that
the certificates for shares of Common Stock and/or Warrants be issued in the
name(s) of, and delivered to ________________________ whose address(es) is (are)
_________________________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Shares and/or
Warrants represented by the foregoing Option to the extent of _____ Shares
and/or Warrants, and appoints _________________________________ attorney to
transfer such rights on the books of SportsTrac, Inc., with full power of
substitution in the premises.
Dated:
By ______________________________
Address:
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In the presence of:
EXHIBIT 10.03
SUBLICENSE AGREEMENT
THIS SUBLICENSE AGREEMENT (the "Agreement") is entered into to be effective
as of August 30, 1995, by and between BioFactors, Inc., a Delaware Corporation,
("BFI") and Bogart International Associates, Inc. or its assignees ("Bogart").
WHEREAS, BFI holds an exclusive, transferable license of proprietary
computer software and associated protocols and methodology for objectively
testing operator psychomotor skills developed by Systems Technology, Inc., a
California Corporation ("STI") collectively referred to as the "Critical
Tracking Task" ("CTT") technology" or the STI proprietary technology; and
WHEREAS, pursuant to its exclusive license, BFI has developed hardware,
softare and delivery systems to utilize STI's proprietary technology and is
currently marketing (1) a non- invasive fitness-for-work testing service
("FACTOR 1000 Service") and (2) has developed a prototype on-field athletic
performance system based on the FACTOR 1000 Service ("SportsTrac System" or
"SportsTrac"), defining the correlation between hand-eye coordination as
measured by FACTOR 1000 and on-the-field athletic performance; and
WHEREAS, simultaneous herewith the parties herewith are entering into a
novation agreement with STI in connection with this agreement (the "STI Novation
Agreement"); and
WHEREAS, Bogart wishes to obtain the exclusive license to market SportsTrac
to sports markets on a world-wide basis and BFI is willing to grant to Bogart
such a license;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
SUBLICENSES AND MARKETING
1.1 Sublicense. BFI hereby grants to Bogart an exclusive and world-wide
sublicense (the "Sublicense") to reproduce, manufacture, use and market directly
and through sub-distributors and/or sublicensees, to commercial end-user
customers, the SportsTrac System solely for sports-related and sports
entertainment applications. Sports-related and sports entertainment applications
shall include athletic performance enhancement, measuring sports diagnostics,
sports rehabilitation and sports related clinical applications and applications
directly related to the foregoing. In no event shall sports-related applications
include fitness-for-work testing. Bogart shall not sublicense to customers the
SportsTrac System, except as permitted by Section 1.2 herein. BFI grants to
Bogart the right to assign or issue sublicenses, except each sublicense shall
include and be limited to all the terms of this agreement. BFI shall not itself
or through agents
1
or third parties license, sublicense, market, or distribute SportsTrac during
the term of this Agreement.
1.2 Customer Sublicenses. Pursuant to the sublicense granted to Bogart in
Section 1.1, Bogart shall have the rights to grant to its customers (object code
only) or co-venturers and partners non-exclusive and non-transferable sub-
licenses to utilize the SportsTrac System.
1.3 Trademark License. BFI has not registered a service mark in correction
with the name, marketing, selling or sublicensing of the SportsTrac system.
Bogart undertakes to use its best efforts to register service mark or trademark
for SportsTrac (under that or any other name selected by Bogart) and such mark
for SportsTrac shall be owned, and inure to the benefit of Bogart. Bogart shall
have no liability in the event it is unable to obtain such service mark or
trademark. This license will not create any right, title or interest in the
FACTOR 1000 or BioFactors' Service Marks in Bogart. Bogart shall acknowledge
BFI's ownership of the FACTOR 1000 Service Mark in its advertising and other
literature describing SportsTrac in which there is any reference to BFI or the
FACTOR 1000 service. Bogart hereby agrees to promptly provide BFI with copies of
Bogart's service mark use guidelines and all revisions thereto used to govern
the use by all licensees of sublicensees of the SportsTrac service mark in the
Territory. Bogart further agrees to comply with any requirements as to patent
and trademark notices contained in STI's license to BFI.
1.4 Developments and Associated Products. This license will not create any
right, title or interest to BFI in any developments or associated products
Bogart may produce or develop that do not use the FACTOR 1000 or SportsTrac
systems as defined herein ("Associated Products"). Any use of the name
"SportsTrac" or "SportsTrac System" or any other name on an Associated Product
does not of itself create any right title or interest in the Associated Product
to BFI.
ARTICLE II
ROYALTIES AND PAYMENTS
2.1 Initial Royalty License Fee. Bogart shall pay a fee to BFI as follows:
(a) A non-refundable royalty of $l,000,000 payable as follows:
(1) $300,000 upon the execution of this Agreement, of which
$50,000 has already been received as an earnest deposit;
(2) A promissory Note in the amount of $700,000 payable to BFI.
The terms of the note shall provide that $350,000 is due and payable on March
31, 1996 and $350,000 due and payable on July 31, 1996.
2
(3) In the event that Bogart undertakes an initial public
offering of its shares prior to the due dates for payment on amounts due under
the promissory note, any proceeds received as a result of such offering shall be
utilized to retire the promissory note.
2.2 Continuing Royalty. A royalty equal to eight and one-half percent
(8 1/2%) of the cash receipts from the sale or license by Bogart of products or
services containing the FACTOR 1000 technology, but not including any revenues
derived by Bogart from installation, maintenance, consulting, hardware sales, or
any other revenues not directly or indirectly related to the FACTOR 1000
or CTT technology. BFI shall have the right to audit Bogart's records, with
adequate notice, for the purpose of verifying royalty Payments.
Said royalty shall be due and payable within thirty (30) days after the
conclusion of each calendar quarter commencing with the quarter ending December
31, 1995.
2.3 Other Consideration.
(a) Warrants. As additional consideration for this Agreement,
Bogart has authorized the issuance of warrants (the "Warrants") to purchase up
to an aggregate of seven and one-half (7 1/2%) percent of the fully diluted
outstanding common Stock of Bogart or any affiliate or subsidiary or other
entity formed by or through Bogart that may be in existence or formed to operate
under this Agreement ("NEWCO") such percentage to be measured at the time of
initial capitalization. It is anticipated that the initial aggregate capital
will be $500,000 on or before September 9, 1995. Such warrants will be promptly
issued and BFI may exercise its Warrants, in whole or in part, at any time
beginning on a date one year from the date of any initial public offering of the
shares of NEWCO, but not later than a date three years from the date of initial
public offering (the "Expiration Date"), at a purchase Price equal to the per
share price of the shares offered to the public in the initial public offering.
(b) Capital Stock. BFI (either directly, through its shareholders,
or other designees, as designated by BFI) shall have the right to contribute
capital up to twenty-five (25%) percent of any funds initially Contributed to
NEWCO in exchange for up to twenty-five percent of the ownership of said
entity on the same terms and conditions as all other investors, on or before
September 8, 1995. Bogart agrees that the initial capitalization NEWCO shall be
approximately $500,000.
(c) Board Representation. BFI shall have be entitled to designate
one member of the Board of Directors of NEWCO. Bogart shall cause NEWCO's other
investors to enter into a voting agreement in form and substance reasonably
satisfactory to BFI, in order to effectuate this provision.
3
ARTICLE III
TERM
3.1 Term. This agreement shall be in effect during the term of BFI's
License Agreement with STI, including all renewals and extensions thereof. The
term of BFI's License Agreement with STI expires on November 24, 2008. BFI shall
use its best efforts to maintain its License Agreement with STI in good standing
and in full force and effect. In the event of any default in BFI's License
Agreement with STI, subject to STI's consent, Bogart shall have the right to
cure said default on behalf of BFI, and to the extent such cure requires money
Payments, Bogart shall have the right to cure said defaults by paying all
delinquent payments due and offset said payments by Bogart against any royalties
due BFI under this Agreement. After said default is corrected by Bogart the
continuing license will be between Bogart and STI directly, with all future
royalty payments paid directly to STI (see Exhibit A, the STI Novation
Agreement). Attached hereto as Exhibit B is a true and correct copy of the BFI
License Agreement with STI.
3.2 Termination. This Agreement shall be terminable by notice in writing
from the party not at fault if any one of the following events shall occur:
(a) Either party's material default under this Agreement which has
not been remedied within thirty (30) days from notice in writing from the party
not in default specifying such default;
(b) Bogart's failure to pay any amounts due to BFI pursuant to
Article II when due and such failure is not cured within thirty (30) days from
written notice after such payment is due;
(c) Bogart's material misrepresentation of the function of the
SportsTrac System to Bogart's customers and said failure is not corrected within
thirty (30) days after written notice from BFI of such failure.
(d) Termination of the STI License Agreement shall automatically
terminate this Sublicense granted to Bogart in Article I of this Agreement and
Bogart's ongoing license will be directly with STI without change in terms (see
Section 3.1 Term and the STI Novation Agreement)
ARTICLE IV
BFI's OBLIGATIONS AND WARRANTIES
4.1 Obligations of BFI. BFI shall:
(a) Provide Bogart with one complete copy of all its FACTOR 1000
systems and application source code, to be used by Bogart for only the purposes
provided herein.
4
(b) Provide Bogart with one complete copy of all the source code
for sports related applications completed to date, to be used by Bogart for only
the purposes provided herein.
(c) Provide Bogart with one copy of all written technical
documentation for its FACTOR 1000 and sports related software, including
programmer's notes, file layouts, and flow charts, to be used by Bogart for only
the purposes provided herein.
(d) Provide Bogart with all its Internal FACTOR 1000 support
software and related documentation, including complete listings of all libraries
and subroutines (both developed internally and provided by third parties.)
Provide all third party vendor's name, address and all documentation detailing
the routine or library's utility.
(e) Provide Bogart with its complete FACTOR 1000 database software
system (known as "FMR") at no cost and a suitable operating platform at BFI's
current fully burdened cost, if Bogart chooses to purchase said Platform from
BFI.
(f) Provide Bogart with initial technical support and consulting
equal to 40 hours without charge as reasonably required and requested by Bogart,
it being acknowledged by Bogart that BFI's currently available resources for
such support are quite limited. BFl's reasonable out-of-pocket costs, if any,
will be paid by Bogart.
(g) Provide Bogart with reasonable ongoing technical support at
BFI's current fully burdened cost, as requested by Bogart. Such support will
include up to 40 hours per month of Mark Itkonen's engineering expertise
during the first six months of this agreement.
(h) Provide Bogart with all current control panel documentation,
including bills of materials, parts lists, diagrams, schematics, and vendor
lists. BFI grants Bogart the right to have control panels manufactured directly
with BFI's vendor or any other vendor Bogart deems qualified to produce the
control panel.
(i) Sell Bogart reasonable quantities of control panels, which
shall be forecasted quarterly by Bogart, at BFI's current fully burdened cost.
(j) Sell Bogart reasonable quantities of hardware platforms or full
systems at BFI's current fully burdened cost.
(k) Not incur any liability on behalf of Bogart or in any way to
pledge Bogart credit or accept any order or make any contract binding upon
Bogart without proper written consent.
4.2 Additional Assistance. For additional assistance requested by
Bogart and provided to Bogart or its customers during installation of the
SportsTrac service, Bogart shall pay BFI at BFI's then current published rates
for such assistance. BFI shall also be reimbursed for reasonable out-of-pocket
expenses. Payments due under this section shall be due and payable upon receipt
by Bogart of an invoice for such assistance from BFI.
5
4.3 BFI Representations and Warranties.
(a) BFI warrants that it has the right to provide the hardware and
sublicense the software to Bogart hereunder and that BFI has not received
notice from any third party that the FACTOR 1000 System and/or the SportsTrac
System infringes any United States or Canadian patent or copyright;
(b) BFI warrants to Bogart that each diskette(s) on which the
FACTOR 1000 and/or SportsTrac software is furnished to Bogart and each of the
Control Panels supplied pursuant to section 4.1 will be free from defects in
materials and workmanship under normal use and in good working condition. BFI
will replace any diskette and control panel not meeting the foregoing warranty
within five(s) business days of receipt of said alleged defective diskette or
Control Panel by BFI for a period of one year after shipment;
(c) BFI warrants to Bogart that its License Agreement with STI,
granting BFI, among other things, the right to develop, manufacture, reproduce,
use and market certain proprietary technology and associated protocols and
methodologies which BFI utilizes in the FACTOR 1000 and SportsTrac Services are
in fill force and effect, there is no breach of said agreement by either party
and entering into and performing this Agreement will not constitute or result in
a breach under said agreement.
EXCEPT AS PROVIDED FOR IN THIS SECTION 4.3, BFI DISCLAIMS ALL WARRANTIES
ON THE HARDWARE AND SOFTWARE PROVIDED PURSUANT TO THIS AGREEMENT, INCLUDING ANY
AND ALL IMPLIED WARRANTIES OF FITNESS AND/OR MERCHANTABILITY. THE PARTIES AGREE
THAT EXCEPT AS PROVIDED FOR IN THIS SECTION 4.3, BFI WILL NOT BE LIABLE FOR ANY
DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE USE Of PERFORMANCE OF THE HARDWARE OR SOFTWARE FURNISHED BY
BFI.
4.4 Marketing. BFI hereby grants to Bogart the right to copy any manuals
and marketing materials used in connection with its FACTOR 1000 service as are
required or as needed for the marketing and implementation of the SportsTrac
Service to existing and prospective Bogart customers.
4.5 Marketing. Bogart shall have the exclusive authority to determine its
own marketing and sales program for the Territory. This shall include the right
to market directly and through sub-distributors appointed by Bogart from time to
time in its sole discretion; provided that any such sub-distributor shall enter
into an agreement with Bogart by which such sub-distributor agrees to honor the
provisions of Section 5.2 hereof.
6
ARTICLE V
CERTAIN AGREEMENTS OF BOGART
5.1 Bogart's Obligation. Bogart shall:
(a) Use all reasonable efforts to develop, promote and market the
SportsTrac System within its markets.
(b) be solely responsible for all marketing, sales and related
activities in connection with its efforts to solicit and grant sublicenses to
utilize the technology pursuant to this Agreement;
(c) provide BFI with adequate lead time to supply control panels
required for Bogart's client installations, and pay BFI for said control panels
at BFI's current fully burdened cost.
(d) provide BFI with advance copies of all advertising and/or
marketing materials it intends to distribute concerning the FACTOR 1000 service,
which materials will be approved by BFI in its sole discretion prior to use by
Bogart;
(e) Bogart shall not solicit or attempt to hire Mark Itkonen, an
employee of BFI, but shall have the right to reasonably retain his services
through BFI at BFI's fully burdened cost for said employee (see Section 4.1g);
(f) During the term of this agreement, Bogart shall not, except
with BFI's prior written consent, enrage in any business activity which is
directly in competition with any of the other products or services being sold or
otherwise provided by BFI, as of the date of this agreement.
5.2 Confidentiality
(a) Proprietary Information. In conducting the activities
contemplated by this Agreement, Bogart may, from time to time, receive from BFI
confidential information and trade secrets ("Secrets"). Bogart acknowledges that
BFI's Secrets include, but are not limited to (i) software source and object
code, certain documentation for its FACTOR 1000 and the SportsTrac Services,
schematics, reports, programs, user lists and/or the date generated by users of
its FACTOR 1000 service, training techniques, formats, specifications and
procedures relating to testing, documentation, algorithms, processes, "look and
feel" of its FACTOR 1000 service and know-how (whether or not reduced to writing
and whether or not copyrightable); (ii) any modification of the same; and (iii)
any extraction from the same; and certain other scientific, technical,
financial, marketing and business information, trade secrets, and confidential
knowledge of BFI;
(b) Protection. Bogart agrees (i) to hold BFI's Secrets in
confidence; (ii) to refrain from disclosing BFI's Secrets except to its own
personnel and agents who need to know such information to perform their duties
and to licensees of Bogart's who enter into similar confidentiality agreements
with Bogart for the benefit of BFI; (iii) to safeguard BFI's Secrets in
7
the same manner it employs for its own trade secrets, but in no event shall
Bogart exercise less than due care and diligence in accordance with good
commercial practice; and (iv) not to use BFI's Secrets to the detriment of BFI,
nor use BFI's Secrets in any business competitive with or similar to any
business of BFI, which secrets Bogart may have acquired in the course of or
incident to the performance of this Agreement, including, without limitation,
any material available to Bogart or any reproductions or summaries thereof.
Notwithstanding the foregoing, Bogart may make such disclosures as may be
required by any court or quasi-judicial administrative body pursuant to any
applicable laws, statutes or regulations, provided that Bogart shall, to the
extent possible, give BFI advance notice of any such demand for information and
shall permit BFI to intervene and make such representations and take such
actions to challenge any such demand as BFI may deem necessary or appropriate;
such intervention or other action being done at BFI's expense. Bogart further
agrees to deliver to BFI all hardware, software, manuals, documentation,
confidential information, proprietary documents, data or calculations, and any
copies thereof, in its possession pertaining to BFI or any of its affiliates
at the time of termination of this Agreement. Bogart agrees to notify BFI
immediately if it has knowledge that any unauthorized third party possesses
or uses BFI's Secrets or that BFI's Secrets are being utilized for any
unauthorized purpose;
(d) Exclusion. This Section 5.2 shall not apply to secrets that are
or become generally known or used by others in the same or competing business
with BFI other than through breach of this Agreement by Bogart, its employees or
agents;
(e) Copying and Modification. Bogart shall not make any
unauthorized copy of any Secrets disclosed by BFI. Bogart shall not make any
unauthorized copy of any of the proprietary software provided to Bogart pursuant
to this Agreement. Bogart may make modifications but such modifications,
enhancements or derivative works are hereby assigned to BFI, subject to the
exclusive license hereunder in favor of Bogart. Bogart shall take any and all
steps from time to time as may be reasonably necessary to effectuate such
assignment.
ARTICLE VI
INDEMNIFICATION
6.1 BFI's Indemnification of Bogart. BFI will indemnify, defend and hold
harmless Bogart, and each of its officers and directors, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof), arising
out of or based on any negligence on the part of BFI or its officers, directors,
employees or agents, in the performance of BFI's obligations pursuant to this
Agreement and any breach, breach of warranty or material misrepresentation of by
BFI. BFI will indemnify, defend and hold harmless Bogart against any claim,
suit or proceeding against Bogart based on (i) any such material breach or
misrepresentation or (ii) a claimed infringement of a United States patent or
copyright by the software or (iii) a claimed infringement of a United States
service mark or trademark by its FACTOR 1000 service mark.
8
6.2 Bogart's indemnification of BFI. Bogart will indemnify, defend and hold
harmless BFI, and each of its officers and directors, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof), arising
out of or based on any third party claim resulting from (i) Bogart's marketing
and/or implementation of products containing the FACTOR 1000 or SportsTrac
technology; (ii) services rendered by Bogart hereunder, except to the extent set
forth in section 6.1 above; and (iii) the use or performance of equipment
provided by Bogart, except claims based upon BFI's negligence with respect
thereto. Notwithstanding the foregoing, the liability of Bogart pursuant to the
indemnities set forth in this Section 6.2 shall be limited to the amount of One
hundred Thousand Dollars ($100,000).
6.3 Indemnification Procedures. Each party entitled to indemnification
under this Article VI (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such indemnified Party has actual knowledge of any claim as to which indemnity
may be sought. After notice from the indemnifying Party to the indemnified
Party of the indemnifying Party's assumption of the defense of all such actions
or proceedings, the indemnifying Party shall not be liable to such indemnified
Party for any fees of such indemnified Party's counsel subsequently incurred in
connection with the defense of such actions or proceedings, but shall be liable
to the extent described above for all other reasonable expenses incurred by
such indemnified Party. The indemnified Party shall have the right to employ
separate counsel at the indemnifying Party's expense if (i) the indemnifying
Party has agreed to pay such fees and expenses; (ii) the indemnifying Party
shall have failed to promptly assume the defense of such action or proceeding
and employ counsel reasonably satisfactory to the indemnified Party in such
action or proceeding; or (iii) the named parties to any such action or
proceeding (including any impleased parties) include the indemnified Party and
the indemnifying Party, and the indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to the
indemnified Party which are different from or in addition to those available to
the indemnifying Party and which could result in actual or potential differing
interests between such parties in the conduct of the defense of such actions or
proceedings. No indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified Party of a release from all liability in respect to such claim or
litigation.
ARTICLE VII
MISCELLANEOUS
7.1 Independent Agents. Each party to this Agreement shall act as an
independent agent with relation to this Agreement and has no authority to act
for or on behalf of the other or to bind the other to any obligation in any
manner except as expressly set forth herein. Nothing contained herein shall be
construed as creating a joint venture or partnership between the parties.
9
7.2 Continuing Obligations. All obligations that by nature survive
expiration or termination of this Agreement shall continue subsequent to and
regardless of such expiration or termination until full satisfaction, or until
by nature expire.
7.3 Successors and Assigns. Except to the extent assignment is specifically
limited herein, this Agreement shall inure to the benefit of and be binding on
and be enforceable by the respective successors, assigns and legal
representatives of the parties hereto.
7.4 Entire Agreement; Modifications. This Agreement, including all Exhibits
and Schedules hereto (each of which is incorporated herein by this reference),
contains the entire Agreement between the parties and supersedes any and all
prior agreements, arrangements and understandings between the parties relating
to the subject matter hereof. No oral understandings, statements, promises or
inducements contrary to the terms of this Agreement exist. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by the parties hereto. No waiver of any of the provisions of the
Agreement shall be deemed to be or shall constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver. The parties also intend this Agreement to be a complete and exclusive
statement of the terms of their agreement, which may not be explained or
supplemented by evidence of consistent additional terms.
7.5 Amendments and waivers. Any term of this Agreement may be amended and
the observance of any term hereof may be waived (either prospectively or
retrospectively and either generally or in a particular instance) only with the
written consent of the parties hereto.
7.6 Choice of Law. This Agreement is entered into and is to be performed in
accordance with the laws of the State of Delaware and shall be construed and
enforced in accordance therewith.
7.7 Notices, etc. All notices and other communications required or
permitted hereunder will be in writing and will be mailed by first-class mail,
postage prepaid, addressed
(a) if to BFI at:
BioFactors, Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Attn.: Douglas S. Zorn, Chief Operating Officer
(303) 271-0505
or at such other address as BFI will have furnished to Bogart in writing in
accordance with this section, or
(b) Bogart at:
Bogart International Associates, Inc.
750 Lexington Ave.
27th Floor
10
New York, New York 10022
(212) 593-790l
(212) 980-6653 fax
or at such other address as Bogart will have furnished to BFI in writing
in accordance with this section. All notices and other communications to be
given hereunder shall be given in writing. Except as otherwise specifically
provided herein, all notices and other communications hereunder shall be deemed
to have been given if personally delivered to an officer of the party being
served, of by Telex or facsimile machine, at the time they are transmitted, or
Three (3) business days after mailing thereof by registered or certified mail,
return receipt requested, postage prepaid, to the address of the receiving party
set forth above (until notice of change thereof is served in the manner provided
in this Section 7.7).
7.9 Separability. In case any provision of this Agreement not material to
the benefits intended to be conferred hereby is invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired thereby.
7.10 Miscellaneous. Except as set forth herein, time is of the essence for
the performance of each and every covenant and the satisfaction of each and
every condition contained in this agreement. The headings and captions of this
Agreement are for the purpose of reference only and shall not limit or define
any meaning or terms hereof. All references to the masculine shall include both
the neuter and the feminine. The singular shall include the plural and vice
versa as the context shall require. This Agreement may be executed in two or
more counterparts, each of which shall he deemed an original, but all of which
together shall constitute one and the same instrument. The provision of this
Agreement shall be interpreted in accordance with their fair meaning and shall
not be construed strictly for or against a party.
7.11 Authority and Execution. Each person executing this Agreement on
behalf of a party hereto represents and warrants that he is duly and validly
authorized to do so on behalf of such a party, with full right and authority to
execute this Agreement and to bind such party with respect to all of its
obligations hereunder.
11
IN WlTNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed by their duly authorized representatives effective as of the date set
forth above.
BioFactors, Inc.
/s/
- --------------------------------------
Its CEO August 30, 1995
-------------------------------
Bogart International Associates, Inc.
- --------------------------------------
Its
-------------------------------
12
EXHIBIT A
STI Novation Agreement
----------------------
THIS AGREEMENT (the "Agreement") is entered into to be effective as of
August 30, 1995, by and between BioFactors, Inc., a Delaware Corporation,
("BFI"), Bogart International Associates, Inc. or its assignees ("Bogart") and
Systems Technology, Inc, a California Corporation ("STI").
WHEREAS, BFI holds an exclusive, transferable license of proprietary
computer software and associated protocols and methodology for objectively
testing operator psychomotor skills developed by STI, collectively referred to
as the "Critical Tracking Task" ("CTT") technology" or the STI proprietary
technology; and
WHEREAS, pursuant to its exclusive license, BFI has developed hardware,
software and delivery systems to utilize STI's proprietary technology and is
currently marketing (1) a non-invasive fitness-for-work testing service ("FACTOR
1000 Service") and (2) has developed a prototype on-field athletic performance
system based on FACTOR 1000 Service ("SportsTrac System" or "SportsTrac"),
defining the correlation between hand-eye coordination as measured by FACTOR
1000 and on-the-field athletic performance; and
WHEREAS, Bogart wishes to obtain the exclusive license to market SportsTrac
to sports markets on a world-wide basis and BFI is willing to grant to Bogart
such a license;
NOW, THEREFORE, the parties agree as follows:
1.1 If BFI loses its license with STI or should BFI cease operating as a
business, STI agrees to continue to honor the sublicense of its CTT technology
to Bogart directly, so long as Bogart is not in default under any terms of its
sublicense with BFI;
1.2 In the event that Bogart is required to sublicense directly with STI,
as explained in section 1.1 herein, Bogart agrees to pay all royalties due
directly to STI. Such royalties shall be, in all manners consistent, with the
terms of sublicense between BFI and Bogart as follows:
A royalty equal to eight and one-half percent (8 1/2%) of
the cash receipts from the sale or license by Bogart of
products or services containing the CTT technology, but not
including any revenues derived by Bogart from installation,
maintenance, consulting, hardware sales, or any other cash
receipts not directly or indirectly related to the CTT
technology. STI shall have the right to audit
STI Novation Agreement
August 30, 1995
Page 2
Bogart's records, with adequate notice, for the purpose of
verifying royalty payments.
Said royalty shall be due and payable within thirty (30)
days after the conclusion of each calendar quarter
commencing with the quarter ending December 31, 1995.
1.3 This agreement will remain in force during the life of the sublicense
granted to Bogart by BFI and shall be attached to the Bogart sublicense as
exhibit B.
1.4 Each person executing this Agreement on behalf of a party hereto
represents and warrants that he is duly and validly authorized to do so on
behalf of such a party, with full right and authority to execute this Agreement
and to bind such party with respect to all of its obligations hereunder.
STI Novation Agreement
August 30, 1995
Page 3
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed by their duly authorized representatives effective as of the date first
set forth above.
BioFactors, Inc.
/s/ [Illegible]
- -----------------------------
Its CEO
------------------
Date August 30, 1995
-------------------
Bogart International Associates, Inc.
/s/ [Illegible]
- -----------------------------
Its
------------------
Date
------------------
Systems Technology, Inc.
/s/ [illegible]
- -----------------------------
Its President
-------------------
Date 8/30/95
------------------
EXHIBIT B
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this 24th day of November, 1988, by
and between SYSTEMS TECHNOLOGY, INC., a California corporation ("STI"), and
COGNITIVE SYSTEMS, INC., a California corporation ("CSI").
RECITALS
A. STI has developed a computer system and associated protocols and methodology
collectively named Critical Task Testing (CTT) designed to test operator
impairment in an objective manner. This system is described briefly in Exhibit
"B" hereto. This system is hereinafter referred to as the "Property". The
software component of the Property is sometimes hereinafter referred to as the
"Software", and the technology underlying the Property is sometimes hereinafter
referred to as the "Technology".
B. CSI desires to market the Property to customers in the market segments
hereinafter set forth.
C. An agreement was executed on April 6, 1988 between CSI and STI (hereinafter
"First Agreement") for evaluating the marketing and manufacture of systems
incorporating the technology, software and property of this Agreement. This
Agreement upon execution supersedes the First Agreement and the First Agreement
thereafter has no force and effect.
NOW, THEREFORE, the parties hereto agree as follows:
1. EXCLUSIVE LICENSE.
a. Grant of License. Except as is specifically reserved in subparagraph
1(c) below, STI hereby grants to CSI a sole and exclusive license to (i) develop
and manufacture or have manufactured devices incorporating the Property,
Software and/or Technology, including all future developments and improvements
that may be made by STI, and (ii) reproduce, use, market and otherwise fully
exploit the commercial potential of the Property, Software, Technology and/or
future developments thereof in the market segments set forth in Exhibit "A"
attached hereto and
-1-
incorporated herein. Without limiting the foregoing, CSI shall have the sole and
exclusive right to use the Property in connection with the routine testing of
employees, customers, clients or agents for impairment. Except as granted to
CSI, the right to future development of the Property, Softwre and/or Technology
shall be left exclusively to STI.
b. Sublicenses and Assignment. STI also grants to CSI the right to
issue sublicenses during the term of this Agreement. Each sublicense shall
include all of the rights and obligations due STI under the terms of this
Agreement. This Agreement may be assigned by CSI to one of its subsidiaries or
affiliates, provided such subsidiary of affiliate shall be bound by all the
terms and conditions of this Agreement.
c. Reservation. STI specifically reserves from the license being
granted to CSI, the research market in the same market segments in Exhibit "A".
Notwithstanding the preceding sentence, this reservation shall apply only to
nonprofit entities, including but not limited to, government organizations,
research foundations, educational and trade foundations, and only the right to
use, develop, manufacture and sell the Property for a purpose other than the
routine testing of employees, customers, clients or agents for impairment.
d. Royalties.
(1) Within sixty (60) days following the conclusion of each
calendar quarter following date of signing this Agreement, CSI shall pay to STI
a royalty of 8 1/2% of the gross contract revenue for CTT related impairment
testing products and services. This only includes employees tested for which CSI
is paid, and does not include employees tested for other purposes such as for
calibration or experimental reasons. STI is not entitled to royalty revenue
derived from installation, maintenance or any other revenues that are not
directly related to CTT impairment testing of employees.
2. TERM
This Agreement shall commence on the date hereof and continue for an
initial period of five years after the expiration of the First Agreement. The
term of the Agreement may be extended by CSI for a further period of five years
by written notice given to STI in the manner provided in paragraph 15 below at
any time prior to the expiration of such initial period.
-2-
3. ACCOUNTING.
a. Records. CSI shall maintain accurate records covering the
transactions relating to employee testing and assistance projects which utilize
the Property (the "Records"). "Records" shall mean property related (Records)
relating to the Property related employee testing and assistance projects. Each
payment of the Quartrly Fee shall be accompanied by a statement ("fee
statement") setting forth the computation of the Quarterly Fee in accordance
with subparagraph 3(b) below. STI and/or STI's agent, upon giving seven (7) days
prior written notice to CSI, shall have the right to inspect the Records during
normal business hours at CSI's place of business. STI agrees to sign or require
its agent to sign reasonable non-disclosure Agreements obliging STI and its
agent not to disclose confidential information of CSI that does not pertain to
STI, the employee testing and assistance projects, or the Records.
b. Fee Statements. Each fee statement shall accurately contain the
following information:
(1) The amount in dollars of Gross Testing Receipts from
all Property related employee testing.
(2) The net Quarterly Fee due to STI.
c. Due Date. Payment with respect to each fee statement shall be due
and payable within thirty (30) days after such statements are dated.
4. MINIMUM PAYMENT.
If the total royalty payment made by CSI to STI at the end of the third
year after execution of this agreement does not exceed $75,000, then STI shall
have the option to terminate this agreement, except that CSI may maintain this
agreement by payment to STI of the difference between the received royalties and
the amount indicated above.
5. MAJOR DEVELOPMENTS.
Major developments involving uses for the Property not know at the date of
this Agreement shall be communicated in writing promptly by STI to CSI and CSI
to STI. Upon request by CSI or STI, (each party) shall furnish to the other
detailed descriptions of each such major development.
-3-
6. SOFTWARE MAINTENANCE AND PRODUCT DEVELOPMENT.
a. Billing for Technical Assistance. STI shall be entitled to bill CSI
on a time and materials basis, at its standard hourly rate, for the time cost
and labor cost expended in maintaining the Software or providing CSI with any
technical assistance referred to in this paragraph 6; provided, however, that
STI shall not be entitled to bill CSI for time and labor costs spent on
correcting errors or defects in the Software. All billable technical assistance
shall be estimated by STI and agreed upon in writing by CSI before STI performs
services in connection with any project. STI shall provide monthly statements
for technical assistance which shall itemize the expenditure of time and
materials on a project by project basis.
b. Maintenance of the Software. STI and CSI acknowledge and agree that
the Software will, from time to time, undergo changes as necessary to maintain
the Property in a commercially viable condition or to exploit certain or all
market segments listed in Exhibit "A". From time to time during the term of this
Agreement, CSI may request STI to make reasonable modifications and improvements
to the software to enhance the marketability of the Property and the devices,
products and special equipment manufactured therefrom, and to correct any errors
or defects that CSI has reason to believe exist in the Software. STI shall use
its best efforts to make such modifications and improvement, and shall initiate
activity to verify and remedy any such error or defect within 5 working days
after written notification. If a requested modification and/or improvement, or
verified error or defect, cannot be remedied within 60 days, or if STI is
unwilling or unable to maintain the Software in a commercially viable condition,
then upon written demand by CSI, STI shall promptly provide appropriate source
codes and consultation to CSI as necessary to enable CSI to make the
modifications or improvements, correct the errors or defects, and/or maintain
the Software in a commercially viable condition.
c. Product Development and Software Conversion. STI and CSI
acknowledge and agree that the successful commercial exploitation of the
Property will require the manufacture of one or more end devices incorporating
the Property and/or Technology covered by this Agreement. STI and CSI also
acknowledge and agree that it may be necessary at some future time to convert
the Software into another medium (such as firmware), or into another computer
language, in order to successfully market the product. From time to time during
the term of this Agreement, CSI may request STI to provide technical assistance
to CSI and to those
-4-
persons or entities with which CSI contracts or which CSI directs for purposes
of undertaking the tasks expressed and implied in this subparagraph 6(c), and
upon such request by CSI, STI shall make available to CSI qualified technical
personnel for 15 man days per calendar quarter for the purpose of providing
such technical assistance. If STI is unwilling or unable to provide qualified
technical personnel upon request from CSI, then CSI shall have the right to
engage independent contractors and employees as necessary to obtain the
technical assistance required to complete the tasks expressed and implied by
this paragraph 6, and STI shall make available to such independent contractors
and employees all documents and information relevant to completing such tasks.
Without limiting the foregoing, STI shall promptly supply necessary
specifications of the Software, Technology, and Property as reasonably requested
by CSI to facilitate the development of the Property into a product or products
which may be utilized in providing services or sold to prospective customers, in
the market segments listed in Exhibit "A".
d. Rights In New Development. Any new developments or improvements
made to the devices or property by CSI or at CSI's expense shall belong to CSI.
CSI grants STI the right to use such new developments or improvements in the
field designated to STI under this Agreement. Upon any termination of this
License Agreement, CSI continues to own the developments or improvements and STI
is limited thereafter to use of the development or improvement only in STI's
field designated in this Agreement.
7. REPRESENTATION AND WARRANTY OF STI.
a. Right and Power to License. STI represents and warrants that it is
the sole owner of all right, title and interest in and to the Property, and
patents or patent applications therefore, and that it has the full right and
power to grant this license in the manner and form herein expressed, free and
clear of any adverse assignment, grant or any other encumbrances inconsistent
herewith.
b. Exclusive License. STI represents and warrants that it has not
granted any license relating to the Property in the market segment set forth in
Exhibit "A" to any party and will not negotiate or grant any such license to any
party other than CSI during the term of this Agreement, including any extension
hereof.
-5-
c. Fitness. STI represents and warrants that the Property is in
substantial accordance with the description previously supplied to CSI, a copy
of which is attached hereto as Exhibit "B" and incorporated herein. This
warranty is in addition to all other warranties, express or implied, including
the implied warranty of merchantability and fitness for a particular purpose.
8. MANUFACTURING.
a. Basic Design Specifications. STI shall assist CSI in the develpment
of a definitive set of basic design specifications (the "Specifications") for
use in manufacturing devices which (i) embody the Property and (ii) are suitable
for use in CSI's employee testing and assistance projects. The specifications
shall be determined by mutual agreement of the parties; provided, however, that
if the parties fail to reach agreement as to the Specifications, or any part
thereof, CSI shall have the right to resolve any point of disagreement as CSI,
in its sole discretion, deems appropriate.
b. STI and CSI acknowledge and agree that in order to successfully
exploit the Property CSI must obtain the services of qualified and experienced
contractors that have the technical, competence to manufacture in a timely
manner, and according to the Specifications, the devices, products and
specialized equipment contemplated by this Agreement. STI shall have the right
to submit a bid, as a contractor, for the manufacture of such devices, products
and specialized equipment, which CSI will reasonably consider. CSI and STI will
jointly and by mutual consent establish criteria for accepting bids submitted by
contractors. To be considered as a contractor, STI should (a) demonstrate to the
satisfaction of CSI that STI is capable of manufacturing the Property
according to the Specifications. (b) That STI satisfies such criteria or STI
furnishes a performance bond issued by a corporation surety authorized to issue
surety insurance in the State of California for the faithful performance of the
contract in an amount equal to 100% of the contract price, and (c) submits a bid
that CSI determines is within 5% of the lowest competitive bid. Then CSI will
accept STI's lowest bid. If STI's bid is the lowest competitive bid, and all
other conditions to CSI's acceptance of STI's bid are otherwise satisfied, then
CSI, if it accepts STI's bid, will pay an amount equal to one hundred five
percent [105%] of STI's bid. In lieu of the performance bond described in the
preceding sentence, CSI may, in its sole discretion, provide STI with an
alternative method of establishing that it has sufficient financial resources
-6-
to indemnify CSI for any losses or delays caused by its inability to manufacture
the devices, products, and specialized equipment contemplated by this paragraph
8, in a timely manner, and in accordance with the Specifications.
9. PROPERTY APPLICATION.
CSI agrees that any promotion to or solicitation from prospective customers
for the Property or devices manufactured therefrom shall be made with due
consideration of the impact to STI's general business and professional
reputation. CSI further agrees that it shall inform and consult with STI as to
proposed promotions of the Property or devices manufactured therefrom for the
purpose of obtaining an appraisal of the performance standards, given the
commercial environment involved, in the operation of the property or the devices
manufactured therefrom for the proposed use by the prospective customer(s). Said
appraisal shall consider the efficiency, efficacy and accuracy of the Property
or devices manufactured therefrom in the proposed commercial environment. In
connection therewith, STI agrees that CSI may with prior written disclosure to
STI publish and release the results of said appraisal to those prospective
customers or to a class of similar prospective customers.
Any consulting requested by CSI under this paragraph 9, including the
rendering of any appraisal, shall be billable as technical assistance in
accordance with paragraph 6.
10. CONFIDENTIALITY.
a. It is recognized that in the course of the performance of this
Agreement, proprietary, confidential and trade secret information of STI may be
furnished to CSI and proprietary, confidential and trade secret information of
CSI furnished to STI. Any such "Confidential Information" shall be first
presented in a sealed envelope or container that is identified as such on the
outer cover. It is mutally agreed between the parties that any such Confidential
Information that is received and accepted by the other party shall be kept in
confidence, not disclosed to any unauthorized person or persons, and not used
except for carrying out the purposes of this Agreement. It is agreed, however,
that there shall be no liability for the use or disclosure of any such
information, except as may be afforded under the United States or Foreign Patent
and Copyright Laws, if such information was in the public domain at the time of
receipt, was known to recipient at the time of receipt, is disclosed
inadvertently despite the reasonable
-7-
degree of care such as recipient would take to safeguard its own proprietary
information, is disclosed or used with the written approval of the party
providing the information, is used or disclosed after three years from the date
of dissolution of this Agreement, or becomes known to recipient from a source
other than the other party without a breach of this Agreement.
b. Each party agrees that it shall take immediate affirmative steps to
ensure that confidentiality is maintained including, without limitation,
obtaining the prior written agreement of all employees, agents and other
individuals who have or may have contact with Confidential Information, that
they shall not disclose Confidential Information to any unauthorized third
party. The parties further agree to protect all Confidential Information
received from each other with the same standard of care and procedures with
which the receiving party's own Confidential Information is protected.
11. ESCROW OF SOURCE CODE.
a. Creation of Escrow. STI agrees that it shall place in escrow, in a
system satisfactory to both parties, the complete source code, object code,
related documentation, and similar data relating to the Property, Software and
Technology and shall keep such materials updated as may be required.
b. Escrow Instructions. The instructions of the escrow shall direct
that CSI shall be delivered the corpus of the escrow by the escrow agent in the
event that:
STI is acquired, merged or its principal assets acquired,
unless the successor-in-interest agrees in writing to be bound
by all obligations undertaken by STI to CSI hereunder.
c. Finalization. The parties agree that the precise language of the
escrow instructions and choice of an escrow holder for deposit of the source
code and other materials shall be finalized not later than sixty (60) days
following the effective date hereof.
12. PROPERTY OWNERSHIP.
CSI acknowledges that the Property is licensed to it pursuant to this
Agreement. The Property shall remain the exclusive property of STI, and STI's
trade name and logo shall be
-8-
clearly displayed on the Property. Except as set forth herein, CSI shall obtain
no ownership rights to the Property.
13. SUPPORT
If requested by CSI, STI shall advise and assist CSI in the presentation of
the Property to CSI's customers and potential customers, and in the marketing of
the Property generally. CSI shall reimburse STI for its reasonable expenses
incurred in connection with providing such advice and assistance.
14. NOTICES.
All notices required to be given hereunder shall be in writing and may be
and delivered or sent certified mail, return receipt requested, to the parties
at the following addresses:
If to STI:
SYSTEMS TECHNOLOGY, INC.
13766 South Hawthorne Blvd.
Hawthorne, California 90250
Attn: President.
If to CSI:
COGNITIVE SYSTEMS, INC.
9925 Channel Rd.
Lakeside, California 92040
Attn: Marc R. Silverman
cc: Elliot G. Steinberg
cc: Ted Schramm
or at such other address as either party may in writing advise to the other
party pursuant to the Paragraph. If notice is given by mail it shall be deemed
effective on the fourth business day following mailing or on the date of actual
receipt, whichever is earlier.
15. INFRINGEMENT.
If either party shall learn of a substantial infringement of CSI's
exclusive rights to use the Property in connection with the testing of
employees, customers, clients and agents for impairment, and such infringement
is being accomplished by means of information obtained in a confidential
relationship with CSI or STI, or by a device or through the use of information
which was sold by STI under STI's reserved right to market the
-9-
Property, pursuant to this Agreement, then STI shall use its best efforts in
cooperation with CSI to terminate such infringement with or without litigation.
16. INDEMNITIES AND COSTS.
Each party to the Agreement shall, at its own expense, indemnify, defend,
and hold harmless the other party against and in respect of any and all claims,
demands, loses, costs, expenses, obligations, liabilities, damages, recoveries,
and deficiencies, that the other party incurs or suffers which arise or result
from any breach of, or failure by it, to perform any of its representations,
warranties or promises in this Agreement.
a. However STI makes no representation or warranty that the use of
the Property licensed hereunder will be free of infringement of the rights of
other parties.
b. STI assumes no liability for the use of the Property under this
License Agreement.
c. CSI agrees to indemnify STI and to hold STI harmless against
all loss, cost or damage resulting from claims of third party for loss or
injury, arising in connection with the manufacture, assembly, use or sale of
devices licensed under this agreement except in the event such devices are
manufactured by STI. CSI further agrees to include STI as a co-insuree in any
insurance policy obtained to insure against such loss or injury.
17. MISCELLANEOUS
a. Severability. If any one or more of the provisions of this
Agreement shall be found to be illegal or unenforceable, then this Agreement
shall remain in full force and effect, and such illegal and unenforceable term
or provision shall be deemed stricken.
b. Performance. Neither party's right to require performance of the
other party's obligations hereunder shall be affected by any previous waiver,
forbearance or course of dealing.
c. Relationship of Parties. No agency, partnership, joint venture or
joint relationship is created hereby and neither party has any authority of any
kind to bind the other in any respect whatever.
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d. Excusable Default. Notwithstanding anything in this Agreement to
the contrary, no default, delay or failure to perform by either party shall be a
breach of this Agreement if such default, delay or failure to perform is shown
to be due entirely to causes beyond the reasonable control of the defaulting
party including, without limitation, labor disputes, inclement weather, default
of a common carrier, acts of embargo or of the acts of God.
e. Integration. This Agreement supersedes all proposals, oral or
written, and all communications between the parties relating to the subject
matter hereof, except for the First Agreement. This Agreement may be modified
only by a writing signed by both parties.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
g. In the case of the failure of either party to fulfill any of its
obligaitons hereunder, the other party shall have the right to cancel and
terminate this Agreement by giving sixty (60) days written notice of its
intention so to do and specifying the alleged failure, providing, however, that
if there has been no such failure or such obligations are fulfilled during such
sixty (60) day period, then such notice of cancellation shall be null and void;
otherwise, this Agreement shall be considered as canceled after the expiration
of said sixty (60) day period.
h. In the event of any adjudication of bankruptcy, appointment of a
receiver by any court of competent jurisdiction, assignment for the benefit of
creditors, or levy of execution directly involving said CSI this Agreement may
be terminated at the option of STI by giving CSI five (5) days written notice of
his intention so to do.
i. Should this Agreement be canceled or terminated as provided herein,
CSI shall not be relieved of liability for payment of royalty or license fees
due STI which accrued prior to the effective date of such cancellation or
termination.
j. Arbitration. Any dispute relating to the interpretation or
performance of this Agreement shall be resolved at the request of either party
through binding arbitration. Arbitration shall be conducted in the City of Los
Angeles, California, in accordance with the prevailing rules of the
-11-
American Arbitration Association. Judgment upon any award by the arbitrators
may be entered in the state or federal Court having jurisdiction. In the event
of litigation or arbitration under this Agreement, the prevailing party in any
such dispute shall be entitled to an award of cost of suit including
investigative cost and reasonable attorneys fees and costs as shall be
determined by the Court.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as indicated below.
SYSTEMS TECHNOLOGY, INC.,
a California corporation
By /s/ [illegible]
------------------------
Its Vice President
COGNITIVE SYSTEMS, INC.
a California corporation
By /s/ [illegible]
-------------------------
Its President
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EXHIBIT A
MARKET SEGMENTS
l. Public Transportation
2. Trucking
3. Utilities
4. Military
5. Aerospace
6. HAZMAT
7. Law enforcement
8. Fire fighters
9. Hospitals
10. Construction
11. Security
12. Banking/Securities
13. Manufacturing
14. Service Industries
EXHIBIT C
[LETTERHEAD OF PERFORMANCE FACTORS]
May 19, 1994
Mr. Wade Allen
President
Systems Technology, Inc.
13756 S. Hawthorne Blvd.
Hawthorne, CA 90250
RE: Addendum to the License Agreement date November 24, 1988 between
System Controls, Inc. ("STI") and Performance Factor, Inc. ("PFI"),
formerly Cognitive Systems, Inc. (CSI).
ADDENDUM TO LICENSE AGREEMENT
This addendum deletes the original Paragraph 2. TERM in its entirety and
replaces it with the following:
Paragraph 2. TERM. "This agreement shall commence on the date hereof and
continue for an initial period of five (5) years. The term of the Agreement may
be extended by PFI for three (3) periods of five years each by written notice
given to STI in the manner provided in paragraph 14 of this agreement at any
time prior to the expiration for the previous period."
All other terms and conditions in the Agreement remain unchanged.
Agreed, Accepted and Agreed,
/s/ Marc Silverman /s/ Wade Allen
Marc Silverman Wade Allen
President President
Performance Factors, Inc. Systems Technology, Inc.
<PAGE>
Computer-Based Assessment of
Baseball Player Performance
Michael F. Bellman, MD, Centinela Hospital Medical Center, Inglewood CA
Marc R. Silverman, SportsTrac, Inc., Englewood, CO
R. Wade Allen, Systems Technology, Inc., Hawthorne CA
Stan Johnston, Albuquerque Dukes, LA Dodgers minor league affiliate
Mutt Wilson, San Antonio Missions, LA Dodgers minor league affiliate
December 1995
<PAGE>
Acknowledgments
The Authors wish to express their sincere gratitude to the numerous individuals
who contributed to this study. In particular, the following deserve special
mention for the key roles they played:
o Fred Claire, Executive Vice President, LA Dodgers
o Charlie Blaney, Director, Minor League Operations, LA Dodgers
o David Barish, Computer Specialist, LA Dodgers
o Rick Dempsey, Manager, Albuquerque Dukes
o Glenn Gregson, Pitching Coach, Albuquerque Dukes
o Tom Beyers, Manager, San Antonio Missions
o Burt Hooton, Pitching Coach, San Antonio Missions
o Brett Magnusson, Player/coach, San Antonio Missions
o Roy Acuff, Statistician, San Antonio Missions
o Mark Itkonen, Senior Systems Analyst, BioFactors, Inc.
o Zareh Parsegian, Senior Engineer, Systems Technology, Inc.
Page 2
<PAGE>
ABSTRACT
Hand-eye coordination has been linked to the performance of elite
athletes, although the hand-eye coordination of professional athletes
has not been previously quantified in formal trials. The Critical
Tracking Task (CTT), a well established measure of psychomotor
performance, was utilized to measure the hand-eye coordination of AA and
AAA minor league baseball players in the Los Angeles Dodgers
organization. Daily measures of hand-eye coordination as monitored by
the CTT were compared to each player's daily and cumulative baseball
game performance. Fifty minor league baseball players were evaluated.
The testing period spanned two months and sixty-eight games for the AA
team and three months and ninety-seven games for the AAA team. The CTT
was able to predict baseball performance differences between players as
well as day-to-day performance variations for an individual player.
Keywords: Hand-eye coordination, baseball, performance, performance
testing, visual motor, psychomotor, human performance, Critical
Tracking Task.
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<PAGE>
INTRODUCTION
It has been assumed, but not quantitatively demonstrated, that
professional baseball players possess superior hand-eye coordination.
Rare studies have documented superior individual neurologic function in
outstanding baseball players such as Babe Ruth.1
Baseball demands a blend of concentration, strength, agility, and quickness to
accomplish the central skills of running, throwing, catching, hitting, and
hitting with power. Hand-eye coordination is intuitively integral to all of
these skills.
The researchers hypothesized that the ability to quantify a baseball player's
hand-eye coordination and compare it to his game performance would provide
insight into the psychomotor demands of the game itself. The availability of a
quantifiable measure of hand-eye coordination would allow a better understanding
of player performance demands and could possibly provide an objective approach
to performance enhancement. It would also provide the opportunity to objectively
compare the relative abilities of players from divergent backgrounds and under
variable conditions.
Little research has been published on the application of psychomotor tasks as
predictors of human sports performance. The United States Air Force researched
the correlation between reaction time and pilots' ability to perform under
stress.2,3 NASA explored the same correlation with regard to isolation and other
environmental stressors.4
The Critical Tracking Task (CTT) as developed by Systems Technology,
Incorporated, Hawthorne, California, was selected as the most effective measure
of psychomotor performance for this study. The CTT originated from military
research on pilot control of unstable aircraft, where performance is ultimately
limited by the human operator's visual motor time delay.5 The CTT measures
effects related to the manner in which individuals react to visually perceived
information (e.g. eye, hand, foot). Specifically, the CTT measures psychomotor
performance,
Page 4
<PAGE>
including elements of visual acuity, visual perception, fine motor control and
neuromuscular response.
Target Area
Figure 1
[DIAGRAM]
CTT is a visual-motor tracking task with unstable control dynamics.
The task requires the user to manipulate a control knob to correct for the
unpredictable movement of an unstable object, namely a pointer on a computer
screen (see figure 1). Thus the task requires the operator to actively stabilize
(by continuously correcting the pointer position) an otherwise
divergently unstable controlled element. During the task performance, the
dynamic instability is increased (i.e. the movement of the pointer accelerates)
until the operator loses control. The performance measure is the critical
instability level (rate of divergence of the pointer) at the point of control
loss. This measure approximates the reciprocal of the operator's effective time
delay, and is used to develop a baseline for subsequent test trials on the
device.
The task can be compared to balancing a broomstick in the air with one end
resting on the palm of an open hand. The stick continually falls, in one
direction or another (unpredictable divergence), towards the floor. This is an
inherently unstable object. Continually shortening the broomstick makes it more
difficult to balance and is analogous to the increasing instability of the task
(i.e. being made more difficult). As the stick is shortened, it becomes harder
to balance, requiring quicker hand movements to keep it from tipping over. At
some point the stick is shortened to the point where it exceeds the individual's
ability to control it, and it falls over.
Since the late 1950's the CTT has been used by the United States Air Force to
investigate pilots' abilities to perform in-flight tasks and to research the
correlation between reaction time and pilots' ability to perform under stress.
6,7,8,9,10,11,12,13,14 NASA used the CTT to assess the impact of environmental
stressors (such as isolation) on an astronaut's abilities to carry out a
Page 5
<PAGE>
mission.15,16,17 The United Staves Navy employed the CTT to examine the
effects of rough water on crew performance.18
METHODS
This study evaluates the relationship between hand-eye coordination and baseball
performance. Baseball players from the Los Angeles Dodgers minor league
affiliates at the AAA (Albuquerque Dukes) and AA (San Antonio Missions) levels
were enrolled in the study. Fifty players completed the full testing period and
were included in the study. Twenty players were excluded due to insufficient
data secondary to player transfers or injury. The players were all male and
ranged in age from eighteen to thirty years. Professional baseball experience
ranged from two to twelve years. The study period was sixty-eight games over two
months at the AA level and ninety games over three months at the AAA level. The
AAA component was longer due to post-season play.
All participants were trained on an industrial version of the CTT for
approximately four days to complete the training effect and reach asymptotic
levels of performance. Players tested on the CTT daily thereafter at home and at
away games as well as days between games. The trainers for each team ensured
that all players tested and were responsible for equipment set-up and
transportation. Players performed five trials on the CTT daily. Each daily
testing period required less than three minutes per player.
Each player's CTT score was displayed at the completion of a five trial testing
period. Scores were blinded to management and other staff. Data from both teams
were analyzed and players were identified by team and as a pitcher or a position
player.
Baseball performance was measured by accepted statistical measures and data were
collected by team officials and scouting bureaus. The baseball performance and
the CTT data were combined in spreadsheet format on an IBM compatible PC. The
various databases were processed using the StatisticaTM PC software package for
statistical analysis, graphics, and data management.
Page 6
<PAGE>
The CTT data were recorded in terms of five raw performance scores and a
baseline Individual Performance Level (IPL). The IPL is by definition a
player's forty-fourth per cent capability level as indicated by the
preceding twenty-five raw scores, or his highest forty-fourth percent
point achieved in previous trials. The IPL provides a reference
statistic for each individual against which his day-to-day performance
capability could be compared. Observations of participants during the
testing periods revealed a tendency to terminate a trial when there was
a perceived low probability of receiving a high score. This was felt by
the authors to diminish the integrity of median and mean based analyses
of the CTT scores. For this reason, the daily CTT maximum score, maximum
score minus IPL and standard deviation of the five daily trials were
compared to daily baseball game performance.
A definition of variables is contained in Table A. Multiple linear
regression analysis was used to explore the relationship between
baseball and the CTT performance (Table C). Each of the CTT performance
metrics were treated as dependent variables in separate analyses, and a
range of baseball statistics were treated as independent variables in
each analysis. Analysis of Covariance (ANCOV) was applied to examine
correlations between known independent classification variables (Table
D). Covariant Regression results from the ANCOV examine the variation in
baseball performance explained by the CTT (Tables E and F).
RESULTS
Correlations between hand-eye coordination and baseball performance
metrics are seen for both pitchers and position players (Table B).
Several significant correlations (p<0.05) are noted between baseball and
the CTT performance metrics. The maximum CTT score gives the most
consistent correlation with baseball and performance metrics for both
pitchers and position players.
Multiple linear regression analysis results are summarized in Table C.
The pitcher analysis shows Maximum CTT performance to be correlated with
strikes, Max-IPL with walks and SD
Page 7
<PAGE>
with strikeouts and Hill. The position player analysis shows Maximum CTT
performance correlated with fielding percentage, putouts, and stolen bases. SD
is reliably correlated with on base percentage and errors. This defines a direct
relationship between hand-eye coordination and baseball performance.
Table D summarizes the results of the Analysis of Covariance (ANCOV) for
pitchers or position players and home versus away classification variables, and
baseball statistics as independent variables. Strikes, balls, strikeouts, hits,
innings pitched and walks vary reliably between pitchers. Balls is the only
significant variable for the home versus away classification. Balls and walks
show a significant interaction when pitchers and home versus away are considered
together. Position players vary reliably in all categories. The home versus away
classification variable does not reliably explain differences in any baseball
Performance variable. Significant interactions between assists, batting average,
and on base percentage are seen when players and home versus away are considered
together. Pitchers and position players therefore both react differently to
travel as it relates to their baseball performance.
The co-variant regression results from the ANCOV are summarized in Table E for
pitchers and Table F for position players. The CUT performance does not explain
additional variation in baseball performance when pitchers or pitchers and home
versus away are accounted for as classification variables. The Maximum CUT
performance metric accounts for variation in ERA, strikes, balls, hits, and
walks when only the home versus away classification variable is considered. The
SD metric accounts for variation in strikeouts. Position players' Max-IPL
accounts for additional variation in errors while SD accounts for additional
variation in assists and errors when players and home versus away are combined.
The same results were obtained when considering players only as a classification
variable. Home versus away alone as a classification variable for position
players reveals that Maximum CUT performance explains variations in fielding
percentage, put outs, assists and stolen bases. .Max-IPL accounts for put outs,
assists and errors. SD accounts for errors. Thus. for pitchers and position
players the CUT performance is predictive of differences between players. Game
to game variation as it relates to assists and errors for pOSitiOIl players is
explained by CTT performance.
Page 8
<PAGE>
DISCUSSION
This study has demonstrated that hand-eye Coordination. as measured by Critical
Tracking Task, is related to a professional baseball player's level of
success on the playing field. Hand-eye coordination is fundamental to all the
skills of baseball: throwing, catching, fielding and hitting. The data suggests
that the relationship between hand-eye coordination and baseball skills is
stronger for defensive skills and less so for hitting. This latter difference is
not well explained and may represent attributes of hand-eye coordination versus
the inadequacy of hitting metrics.
A baseball player's game performance is dependent upon a multitude of factors.
These include the individual player's state of physical and psychological
health, the status of his teammates, opportunities presented during the game,
the status of his opponents, his overall level of preparation and intrinsic
skill or talent, level of concentration (focus ) and environmental factors.
Studies show that many of these same factors affect the CTT measures of hand-eye
coordination. It is difficult to analyze game to game performance based on the
plethora of variables presented. Thus it is equally difficult to judge the
result of a modification in a player's approach to the game given only the
performance statistics from a single garnet.
It is relatively simple to measure hand-eye coordination using the CTT. It is
possible to substitute a simple task, the CTT, for the complexities of the game
and monitor players more closely. Decrements in hand-eye coordination predict a
lower success rate on the field. The clinician or trainer can monitor a player's
hand-eye coordination status as it relates to training schedules, travel
arrangements, teaching aids, and therapeutic interventions. Modifications to
schedules and interventions could thus be made to optimize a players hand-eye
coordination and be expected to reflect better on field performance as
well.
Training and travel schedules are usually established arbitrarily. Jet lag and
over training affect individuals differently. Their impact on performance is
hard to predict. It is conceivable that over training can be recognized by a
decline in the CTT score and thus allow a player or players
Page 9
<PAGE>
to be rested prior to a decline in on field performance. It is equally
conceivable that travel can be modified to provide for minimal effect on
hand-eye coordination thus preserving optimal game performance.
A slump in baseball is defined as a decrement in performance that is sustained.
By definition, a slump is recognized retrospectively. Managers approach a player
in a slump in one of two ways: a player is either rested or encouraged to play
through it. Both options reflect guesswork. If hand-eye coordination declines
into and improves exiting a slump then the CTT can be used to assist in player
handling under these adverse conditions.
This study does not address the issue of techniques to improve hand-eye
coordination. Nor does it examine hand-eye coordination as it relates to age.
Are there training methods to improve hand-eye coordination? Does a player's
decline in overall skill level with age reflect a decline in hand-eye
coordination? These questions can only be answered by longitudinal studies.
The present study uses the CTT performance of individuals. Baseball is a team
sport requiring complex interactions of individuals whose coordinated
performance dictates success or failure. The finding that individual performance
can be measured by the CTT infers that it would be useful to examine other team
and individual sports that depend on hand-eye coordination. Individual sports
may show a more striking relationship to the CTT than team sports because there
would not be a dilutional effect on performance by teammates whose performance
trends and CTT scores may be divergent in a given game. The application of the
CTT to other team and individual sports will be a focus of future investigation.
CONCLUSION
The CTT is able to quantify hand-eye coordination found in professional baseball
players. Hand-eye coordination correlates with all of the skills required by
professional baseball players. Player performance overall, and on a day to day
basis, is predictable by the CTT. The CTT affords the
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<PAGE>
opportunity to objectively compare players from divergent backgrounds and offer
insight into their relative abilities.
The Critical Tracking Task has now been utilized to evaluate highly skilled and
unique individuals, from fighter pilots to astronauts to baseball players. They
share a common need for highly developed hand-eye coordination. The authors
predict that the Critical Tracking Task will have applications in other sports
as well.
Page 11
<PAGE>
TABLE A. Definitions of Variables
Variable Code Definition
Maximum Score MAX Highest score of 5 tries
Maximum Score-IPL MAX-IPL Maximum score minus individual performance
level
Standard Deviation STD Standard Deviation of 5 tries
PITCHERS
Earned Run Average ERA (Earned Runs) (9)/ (innings pitched)
Strikes STRIKES Number of strikes
Balls BALLS Number of balls
Walks per inning WLKSPINI Number of walks per inning
Strikeouts STRIKOUT Number of strikeouts
Hits HITS Number of hits
Innings Pitched ININPIT Number of innings pitched
POSITION PLAYERS
Fielding Percentage FIELDING (Putouts+Assists) /(Putouts+Assists+Errors)
Putouts PUTOUTS Number of putouts
Assists ASSISTS Number of assists
Batting Average BATAVG (Hits) / (At Bats)
On Base Percentage ONBASE (Base on Balls+Hit Batter+Hits /
(Base on Balls+Hit Batter+At
Bats+Sacrifices)
Stolen Bases STOLBASE Number of stolen bases
Sacrifices SACRIFIC Number of sacrifices
Errors ERRORS Number of errors
Page 12
<PAGE>
TABLE B. Cross Correlation Analysis
a) Pitchers
STAT. Correlations (pit-dat1.Sta)
BASIC
STATS Marked correlations are significant at p < .05
N=382 (Casewise deletion of missing data)
<TABLE>
<CAPTION>
VARIABLE MAX MAX-IPL STD ERA STRIKES BALLS WLKS PINI STRIK OUT HITS
-------- --- ------- --- --- ------- ----- --------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAX 1.00 .07 .05 -.11* -.21* -.18 -.03 -.11* -.20
MAX-IPL .07 1.00 .10 .04 -.04 -.06 .01 -.08 .01
STD .05 .10 1.00 -.01 .03 .03 .02 .10 -.07
ERA -.11* .04 -.01 1.00 .07 .12* .57* -.06 .33*
STRIKES -.21* -.04 .03 .07 1.00 .91* .00 .78* .77*
BALLS -.18* -.06 .03 .12* .91* 1.00 .14* .73* .73*
WLKSPINI -.03 .01 .02 .57* .00 .14* 1.00 -.02 .03
STRIKOUT -.11* -.08 .10 -.06 .78* .73* -.02 1.00 .50*
HITS -.20* .01 -.07 .33* .77* .73* -.03 .50* 1.00
ININPIT -.19* -.02 .01 -.06 .93* .87* -.07 .74* .67*
</TABLE>
b) Position Players
<TABLE>
<CAPTION>
STAT. Correlations (pit-dat2.sta)
BASIC Marked correlations are significant at p < .05
STATS N=1244 (Casewise deletion of missing data)
VARIABLE MAX MAX-IPL STD FIELDING PUTOUTS ASSISTS BAT AVG ON BASE STOLE BASE SACRIFIC ERRORS
-------- --- ------- --- -------- ------- ------- ------- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAX 1.00 .60* .13* -.09* .04 -.03 .02 .02 -.08* -.00 -.00
MAX-IPL .60* 1.00 .08* -.04* .03 .04 .04 .05 -.01 -.02 .05
STD .13* .08* 1.00 .03 -.05 .05 .05 .05 .00 .01 -.08*
FIELDING -.09* -.04 .03 1.00 .41* .31* .06* .07* .05 -.05 -.07*
PUTOUTS .04* -.03 -.05 .41* 1.00 -.02 .05 .06* -.05 -.02 .02
ASSISTS -.03 .04 .05 .31* -.02 1.00 .04 .06* -.03 .10* .11*
BATAVG .02 .05 .03 .06 .05 .04 1.00 .87* .14* .05 -.01
ONBASE .02 .04 .05 .07* .06* .06* .87* 1.00 .17* -.00 -.01
STOLBASE -.08* -.01 .00 .05 -.05 -.03 .14* .17 1.00 .01 .02
SACRIFIC -.00 -.02 .01* .05 .02 .10* .05 .00 .01 1.00 -.00
ERRORS -.00 .05 -.08* .07* .02 .11* -.01 .01 .02 -.00 1.00
</TABLE>
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<PAGE>
TABLE C. Multiple Regression Results
a) Pitchers
Innings
ERA Strikes Strikeouts Hits pitched Walks
--- ------- ---------- ---- ------- -----
Multiple Regression Results
---------------------------------------------------
Max * X O O O O
MaxIPL O O O O O X
SD O O X X O O
b) Position Players
Batting On Stolen
Fielding Putouts Assists Avg. Bases Bases Sacrifices Errors
-------- ------- ------- ------- ----- ------ ---------- ------
Multiple Regression Results
--------------------------------------------------------------------
Max X X O O O X O O
MaxIPL * O O * O O O O
SD O * O O X O O X
Statistical Significance
X P less than or equal to .05 * .05 < P less than or equal to .10 O P >.10
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<PAGE>
TABLE D. Multivariate Analysis of Covariance-
Classification Variable Effects
a) Pitchers
Main Effects
---------------------------------------------------------
Innings
ERA Strikes Balls Strikeouts Hits pitched Walks
--- ------- ----- ---------- ---- ------- -----
Pitchers O X X X X X X
Home/Away O O X O O O O
2- Way Interaction
---------------------------------------------------------
Pitchers
x H/A O O X O O O X
b) Position Players
Main Effects
--------------------------------------------------------------------
Batting On Total
Fielding Putouts Assists Avg. Bases Bases Sacrifices Errors
-------- ------- ------- ------- ----- ----- ---------- ------
Players X X X X X X X X
Home/Away O O O O O O O O
2-Way Interaction
--------------------------------------------------------------------
Players
x H/A O * X X X O O *
Statistical Significance
X P less than or equal to .05 * .05 < P less than or equal to .10 O P > .10
Page 15
<PAGE>
TABLE E. Multivariate Analysis of Covariance-
Covariance Effects with Pitchers
a) Pitchers & Home/Away Accounted for as Classification Variables
Innings
ERA Strikes Balls Strikeouts pitched Hits Walks
--- ------- ----- ---------- ------- ---- -----
Co-Variate Regression Results
-----------------------------------------------------
Max O O O O O O O
MaxlPL O O * O O O *
SD O O O O O O O
b) Pitchers Only Accounted for as a Classification Variable
Co-Variate Regression Results
-----------------------------------------------------
Max O O O O O O O
MaxlPL O O * O O O O
SD O O O * O O O
c) Home/Away Only Accounted for as a Classification Variable
Co-Variate Regression Results
-----------------------------------------------------
Max X X X O O X X
MaxlPL O O O O O O *
SD O O O X O O O
Statistical Significance
X P less than or equal to .05 * .05 < P less than or equal to .10 O P > .10
Page 16
<PAGE>
TABLE F. Multivariate Analysis of Covariance-
Covariance Effects with Players
a) Position Players & Home/Away Accounted for as Classification
Variables
Batting On Stolen
Fielding Putouts Assists Avg. Bases Bases Sacrifices Errors
-------- ------- ------- ------- ----- ----- ---------- ------
Co-Variate Regression Results
--------------------------------------------------------------------
Max O O * O O O O *
MaxlPL O * O O O O O X
SD O O X O * O O X
b) Position Players Only Accounted for as a Classification Variable
Co-Variate Regression Results
--------------------------------------------------------------------
Max O * O O X O O *
MaxlPL O * O O X O O X
SD O O X O X O O X
c) Homeaway Only Accounted for as a Classification Variable
Co-Variate Regression Results
--------------------------------------------------------------------
Max X X X O X X O O
MaxlPL O X X O X O O X
SD O * * O X O O X
Statistical Significance (X = insufficient data)
X P less than or equal to .05 * .05 < P less than or equal to .10 O P > .10
Page 17
<PAGE>
References
1 Johanson A. Holmes, J. "Eye, Ear, Brain and Muscle Tests on 'Babe' Ruth" in
Popular Science Monthly from W. Optom World, 1925, 13(4), 160-161.
2 H.R. Jex, "The Critical-Instability Tracking Task--Its Background,
Development and Application," Advances in Man-Machine Systems Research,
Ed. William B. Rouse, Vol. 5, 1988.
3 H.R. Jex J.D. McDonnell and A.V Phatak, "A Critical Tracking Task for Manual
Control Research," IEEE Trans on Human Factors in Electronics, December 1966,
Vol. HFE-7, No 4.
4 R. W. Allen and H.R. Jex, "Visual-Motor Response of Crewmen During a Simulated
90-Day Space Mission as Measured by the Critical Task Battery," NASA Contract
NAS2-4405, STI Paper 100A, 1971.
5 H.R Jex, J.D. McDonnell and A.V. Phatak, "'Critical' Tracking Task for
Man-Machine Research Related to the Operator's Effective Delay Time Part II:
Theory and Experiments with a First-Order Divergent Controlled
Element,"NASA-CR-616, 1966.
6 I.L. Askenas and D.T. McRuer, "The Determination of lateral handling Quality
Requirements from Aircraft/Human-Pilot System Studies," WADC-TR-59-135,
Wright-Patterson AFB, Ohio, 1959.
7 D.T. McRuer, I.L. Ashkenas and C.L. Guerre, "A Systems Analysis View of
Longitudinal Flying Qualities," WADD-TR-60-643, Wright-Patterson AFB, Ohio,
1960.
8 H.R. Jex and C.H. Cromwell, "Theoretical and Experimental Investigation of
Some New Longitudinal handling Quality Parameters," ASD-TR-61-26,
Wright-Patterson AFB, Ohio, 1961.
9 T.S. Durand and H.R. Jex, "Handling Qualities in Single-Loop Roll Tracking
Tasks: Theory and Simulator Experiments," ASD-TDR-62-507, Wright-Patterson AFB,
Ohio, 1962.
10 D.T McRuer, D. Graham, E. Krendel and W. Reisner, Jr., "Human Pilot Dynamics
in Compensatory Systems -- Theory, Models and Experiments with Controlled
Element and Forcing Function Variations," AFFDL-TR-65-15, Wright-Patterson AFB,
Ohio, 1965.
11 H.R. Jex, "Two Applications of the Critical Instability Task to Secondary
Workload Research," AMRL-TR-67- 94, Wright-Patterson AFB, Ohio, 1967.
12 J.D. McDonnell, "Pilot Rating Techniques for the Estimation and Evaluation of
Handling Qualities," AFFDL-TR-68-76, Wright-Patterson AFB, Ohio, 1968.
13 G. L. Zacharias and W.H. Levison, "...for Identifying Changes in
Human...Tracking Strategies," (portions of title classified), AMRL-TR-19-17,
Wright-Patterson AFB, Ohio, 1979.
14 J.C. Miller, N.Y. Takamoto, G.M. Bartel and M.D. Brown, "Psychophysiological
Correlates of Long-term Attention to Complex Tasks," Behavior Research Methods,
Instruments, and Computers, 17(2), 1985.
15 Same as reference #9.
16 J.D. McDonnell and H.R. Jex, "A 'Critical' Tracking Task for Man-Machine
Research Related to the Operator's Effective Delay Time. Part II: Experimental
Effects of System Input Spectra, Control Stick Stiffness and Controlled
Element Order," NASA-CR-674, 1967.
Page 18
<PAGE>
17 Same as reference #4.
18 H.R. Jex, J.F. O'Hanlon and C.L. Ewing, "Simulated Rough Water Operations
During Long Cruises in a 2000-ton Surface Effect Ship, Phases I and IA,"
Contract N00014-75-C-006, Naval Sea System Command, STI-TR-1057-2, 1976.
Page 19
<PAGE>
[LETTERHEAD OF HOLTZ RUBENSTEIN & CO., LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of SPORTSTRAC, INC. on
Amendment No. 3 to Form SB-2 of our report dated January 15, 1996 (except for
Note 7a, as to which the date is March 29, 1996, and Note 12, as to which the
date is April 22, 1996), appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
June 26, 1996
<PAGE>
SPORTSTRAC, INC.
6900 BELLEVIEW AVENUE
SUITE 200
ENGLEWOOD, CO 80111
June 24, 1996
Dear Dr. Mellman,
I am writing this letter to you in connection with the initial public
offering of securities for SportsTrac, Inc. (the "Company"). As part of the
Company's Registration Statement on Form SB-2 ("Registration Statement")
reference is made to a study (the "Dodgers Study") you co-authored.
Pursuant to Rule 436(a) of Regulation C of the Securities Act of 1933, the
Company is required to secure your written consent, as co-author of the Dodgers
Study.
If you do consent to reference being made to the Dodgers Study in the
Registration Statement, then please sign in the space provide below and return
this letter to the attention of the undersigned. If, however, you have any
questions or comments regarding the use of this study in the aforementioned
registration statement, please do not hesitate to contact the undersigned at
your earliest convenience.
Please be advised that this letter will be filed as and exhibit to the
Registration Statement.
I thank you in advance for your anticipated corporation in this matter.
Very truly yours,
/s/ Marc Silverman
Marc Silverman
Consent and Approved:
/s/ Michael Mellman, MD
Michael Mellman, MD
<PAGE>
SPORTSTRAC, INC.
6900 E. BELLEVIEW AVENUE
SUITE 200
ENGLEWOOD, CO 80111
June 24, 1996
Mr. Silverman,
I am writing this letter to you in connection with the initial public
offering of securities for SportsTrac, Inc. (the "Company"). As part of the
Company's Registration Statement on Form SB-2 ("Registration Statement")
reference is made to a study (the "Dodgers Study") you co-authored with Dr.
Michael Mellman, who currently serves as the Chairman of the Board of the
Company.
Pursuant to Rule 436(a) of Regulation C of the Securities Act of 1933, the
Company is required to secure your written consent, as co-author of the Dodgers
Study.
If you do consent to reference being made to the Dodgers Study in the
Registration Statement, then please sign in the space provide below and return
this letter to the attention of the undersigned. If, however, you have any
questions or comments regarding the use of this study in the aforementioned
registration statement, please do not hesitate to contact the undersigned at
your earliest convenience.
Please be advised that this letter will be filed as and exhibit to the
Registration Statement.
I thank you in advance for your anticipated cooperation in this matter.
Very truly yours,
Dr. Michael Mellman
Consent and Approved:
/s/ Marc Silverman
Marc Silverman
