<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1996
Registration No.333-1634
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------
AMENDMENT NO. 6
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 1,380,000 $6.00 $8,280,000 $2,854.94
(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter's Purchase Option to 120 ,000
purchase shares of Common Stock (4) $0.001 $120 $0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share,
underlying Underwriter's Purchase Option 120,000 $9.90 $1,188,000 $409.62
(4)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $9,468,120 $3,264.60 (5)
====================================================================================================================================
</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 Underwriter's Purchase 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.
(3) Includes 180,000 shares of Common Stock subject to the Underwriter's
over-allotment option (the "Over-Allotment Option").
(4) The Underwriter's Purchase Option entitles the Underwriter to purchase up
to 120,000 shares of Common Stock at $9.90 per share (the "Underwriter's
Purchase Option")
(5) Previously paid.
<PAGE>
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.......... Not Applicable
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
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1996
PROSPECTUS
SportsTrac, Inc.
1,200,000 Shares of Common Stock
par value $.01 per share
Offering Price Per Share - $6.00
----------
SportsTrac, Inc., a Delaware corporation (the "Company" or "SportsTrac"),
hereby offers (the "Offering") 1,200,000 shares of common stock, par value $.01
per share (the "Common Stock" or "Shares"). See "Risk Factors" and "Description
of Securities."
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of the Common Stock has 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 Common Stock, see "Risk Factors - No Prior
Public Market Common Stock; Possible Volatility of Stock Price," "Description of
Securities" and "Underwriting."
The Company has applied for the inclusion of the Common Stock on the
National Association of Securities Dealers ("NASD") OTC Bulletin Board, an
unorganized, inter-dealer, over-the-counter market which provides significantly
less liquidity than Nasdaq, and quotes for stocks included on the OTC Bulletin
Board are not listed in the financial sections of newspapers as are those for
Nasdaq. In the event the Common Stock is not included on the OTC Bulletin Board,
quotes for the Common Stock may be included in the "pink sheets" for the
over-the-counter market. While the Company has applied for inclusion of its
Common Stock on the Nasdaq SmallCap Market, the application was denied by the
Nasdaq staff. The Company's appeal was denied by the Nasdaq Listing
Qualifications Panel ("Listing Committee"). The Company has appealed the
decision of the Listing Committee. See "Risk Factors - Lack of Prior Market for
Common Stock; No Assurance of Public Trading Market; Denial of Nasdaq Listing"
and "Penny Stock Regulations May Impose Certain Restrictions on Marketability of
Common Stock."
<PAGE>
----------
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.
- --------------------------------------------------------------------------------
Price Proceeds
To Underwriting Discounts To
Public And Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Share
$ 6.00 $ 0.60 $ 5.40
Total (3)... $ 7,200,000 $ 720,000 $6,480,000
The date of this Prospectus is __________, 1996
STERLING FOSTER & CO., INC.
Investment Bankers
2
<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
$216,000 ($248,400 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
120,000 shares of Common Stock at $9.90 per share (the "Underwriter's
Purchase 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, including liabilities under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $666,000 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 $5,814,000. See "Use
of Proceeds" and "Underwriting."
(3) Does not include 180,000 additional shares of Common Stock 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 $8,280,000, 828,000, and $698,400, respectively, and
the total net proceeds to the Company will be $6,753,600. See
"Underwriting."
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 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
payment therefor will be made at the offices of the Underwriter on or about
_________ __, 1996.
3
<PAGE>
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 Commission maintains a Web site on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR). 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 COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE COMMON STOCK 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 COMMON STOCK IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S COMMON STOCK, OF WHICH
THERE CAN NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS
FOR THE SALE OR PURCHASE OF THE COMMON STOCK THROUGH AND/OR WITH THE
UNDERWRITER. THE UNDERWRITER HAS ADVISED THE COMPANY THAT IT PRESENTLY CANNOT
QUANTIFY THE AMOUNT OF THE COMPANY'S COMMON STOCK THAT MAY BE SOLD TO ITS
CUSTOMERS. THE UNDERWRITER HAS ALSO
4
<PAGE>
ADVISED THE COMPANY THAT IT HAS NO AGREEMENTS OR ARRANGEMENTS IN EFFECT WITH
CUSTOMERS RELATING TO THE PURCHASE OR SALE OF THE COMPANY'S COMMON STOCK AND IT
DOES NOT EXPECT TO HAVE AGREEMENTS OR ARRANGEMENTS IN THE FUTURE.
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
COMMON STOCK. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON STOCK. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT CONTINUE TO BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE COMMON STOCK 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
COMMON STOCK. SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR COMMON STOCK; NO
ASSURANCE OF PUBLIC TRADING MARKET; DENIAL OF NASDAQ LISTING." THE UNDERWRITER
MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
5
<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) 180,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (b) 120,000 shares of Common Stock
issuable upon exercise of the Underwriter's Purchase Option; (c) shares of
Common Stock issuable upon exercise of 2,000,000 Class A Warrants (which are
owned by certain Bridge Lenders of the Company) and (d) 210,000 employee stock
options and 180,000 warrants to purchase Common Stock, (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 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 also endeavor 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 commercial
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-Versions of
the Company's Single Product."
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
6
<PAGE>
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. Recently, the Company signed purchase agreements with the Palm Spring Suns
( a minor league baseball team) and U.S. Golf and Entertainment, Inc. (owners of
golf driving ranges) to install The SportsTrac(TM) System in early 1997. The
purchase price for each such system is $20,000.
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, all of which has been paid.
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.
7
<PAGE>
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Company and its business.
8
<PAGE>
THE OFFERING
Common Stock Offered
by the Company.......... 1,200,000 shares of Common Stock at a price of
$6.00 per Share. See "Description of Securities."
Common Stock Outstanding
Prior to the Offering... 2,904,000
Common Stock Outstanding
Subsequent to
the Offering (1) ...... 4,104,000
Use of Proceeds.......... The net proceeds to the Company from the sale of
the Common Stock offered hereby are estimated to
be $5,814,000. 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 OTC Bulletin
Board Symbol (2)........ SPRT
- ----------
(1) Does not give effect to (i) 2,000,000 shares of Common Stock issuable upon
exercise of Class A Warrants owned by Bridge Lenders of the Company; (ii)
180,000 shares of Common Stock issuable upon exercise of the Over-Allotment
Option; (iii) 120,000 shares of Common Stock issuable upon exercise of the
Underwriter's Purchase Option; (iv) 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," "Certain Transactions and "Description of Securities."
(2) Application has been made for the inclusion of the Common Stock on the OTC
Bulletin Board. See "Risk Factors - Lack of Prior Market for Common Stock;
No Assurance of Public Trading Market; Denial of Nasdaq Listing."
9
<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
Period April 25, 1995 Six Months ended Cumulative
Inception) to 12/31/95 6/30/96 during
---------------------- ---------------- Development Stage
-----------------
Revenues $ 0 $ 0 $ 0
Gross Profits $ 0 $ 0 $ 0
Operating (loss) $ (821,525) $ (691,976) $(1,513,501)
Net (loss) $ (821,525) $ (691,976) $(1,513,501)
Net (loss) per share $ (.26) $ (.22) $ (.49)
Weighted average number
of common shares
outstanding 3,114,000 3,114,000 3,114,000
--------- --------- ---------
Summary Balance Sheet Data
December 31, June 30,
1995 1996
------------ -----------
Working Capital (deficit) $ (621,503) $(1,188,846)
Total assets $ 996,181 $ 1,245,304
Total liabilities $ 680,706 $ 1,315,805
Deficit accumulated during
development stage $ (821,525) $(1,513,501)
Stockholders' equity (Deficit) $ 315,475 $( 70,501)
- ----------
10
<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 June 30, 1996, the
Company had net losses of $1,513,501. 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
11
<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."
12
<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," and "Versions of the Company's Single Product- Professional
SportsTrac(TM) System."
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 one patent and two 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
13
<PAGE>
granted to BFI by Systems Technology, Inc. ("STI"), which is not affiliated with
either BFI or the Company. The CTT is considered one of the "benchmark" measures
of human hand-eye performance and is protected under one patent and two
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 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
14
<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
outstanding warrants or options, 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 Common Stock; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the shares of
Common Stock. The initial public offering price was 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. See
"Underwriting - Determination of Public Offering Price," "Description of
Securities" and "Financial Statements."
15. Lack of Prior Market for Common Stock; No Assurance of Public Trading
Market; Denial of Nasdaq Listing. Prior to this Offering, no public trading
market existed for the Common Stock. There can be no assurances that a public
trading market for the Common Stock will develop or that a public trading
market, if developed, will be sustained. The Company's application to list the
Common Stock on Nasdaq was denied by the Nasdaq staff, which denial was affirmed
by the Listing Committee, because of its concerns regarding the Company's early
stage of development. The Company is in the process of appealing the
determination of the Listing Committee and will continue to pursue the listing
of the Common Stock on Nasdaq, the success of which there can be no assurance.
Although the Company has applied for the inclusion of the Common Stock on the
OTC Bulletin Board, there can be no assurance that such application will be
approved or that, even if it is approved, a regular trading market for the
Common Stock will develop after this Offering or that, if developed, it will be
sustained. The OTC Bulletin Board is an unorganized, inter-dealer,
over-the-counter market which provides significantly less liquidity than Nasdaq
and
15
<PAGE>
quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers as are those for Nasdaq. Therefore, prices for
securities traded solely on the OTC Bulletin Board may be difficult to obtain
and purchasers of the Common Stock may be unable to resell the Common Stock
offered hereby at or near their original offering price or at any price. In the
event the Common Stock is not included on the OTC Bulletin Board, quotes for the
Common Stock may be included in the "pink sheets" for the over-the-counter
market. In any event, because certain 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
Common Stock 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. 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 Requirements 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. To 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. There can be no assurance that the Company will be able to meet these
requirements in the future. See "Risk Factors - Lack of Prior Market for Common
Stock; No Assurance of Public Trading Market; Denial of Nasdaq Listing."
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. If the Common Stock is included on the OTC Bulletin
16
<PAGE>
Board and is trading at less than $5.00 per Security, it 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. 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 $1.21, representing a
dilution of $4.79 per share (80 %) from the $6.00 offering price of the shares
(not including the Underwriter's Over Allotment Option). 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."
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
17
<PAGE>
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. Purchasers of the securities in this
Offering are advised that such persons personally benefit in the completion of
this Offering. In addition, the Company will repay an additional loan made by
Ulster Investment, Ltd. in the amount of $350,000. 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, all of which are
"restricted securities." See "Bridge Financing."
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."
23. Underwriter's Purchase Option. In connection with this Offering, the
Company will sell to the Underwriter, for nominal consideration, an option to
purchase an aggregate of 120,000 shares of Common Stock (the "Underwriter's
Purchase Option"). The Underwriter's Purchase Option will be exercisable
commencing one (1) year after the Effective Date and ending four (4) years after
such date, at prices of $9.90 per Share, subject to certain adjustments. The
holders of the Underwriter's Purchase 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
18
<PAGE>
may find it more difficult to raise additional capital if it should be needed
for the business of the Company while the Underwriter's Purchase 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 Purchase Option. See
"Underwriting."
24. 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."
25. 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."
26. 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 1,200,000 shares of Common Stock
offered hereby are sold, there will be a total of 4,104,000 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 2,000,000
Warrants held by the Bridge Lenders to purchase up to 2,000,000 shares of the
Company's Common Stock, the Underwriter's Purchase Option to purchase up to
120,000 shares of Common Stock, the Underwriter's Over-Allotment Option of
180,000 shares of Common Stock, other warrants to purchase up to 180,000 shares
of Common Stock, and up to 480,000 shares of Common Stock issuable upon exercise
of employee stock options. After reserving a total of 2,960,000 shares of Common
Stock for issuance upon the exercise of all the options and warrants (including
the Over-Allotment Option, the Underwriter's Purchase Option, other warrants of
the Company, all of the Class A Warrants owned by the Bridge Lenders and
employee stock options), the Company will have at least 7,936,000 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
19
<PAGE>
shares of Preferred Stock. See "Description of Securities." See "Description of
Securities" and "Underwriting."
27. 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 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.
28. 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.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock offered hereby, are estimated to be $5,814,000 (after deducting
approximately $720,000 in underwriting discounts, other expenses of this
Offering estimated to be $666,000, which includes the Underwriter's
non-accountable expense allowance of $216,000, 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 Purchase
Option).
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 13.76%
Marketing and Sales $1,600,000 27.52%
Repayment of Certain Indebtedness(1) $1,100,000 18.92%
Working Capital $2,314,000 39.80%
---------- ------
Total..................... $5,814,000 100%
- ----------
(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
December 31, 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." Also represents the repayment of two loans, each in the amount
of $350,000, to Swiss American Bank Ltd. and Ulster Investment, Ltd. These
loans are due and payable upon the earlier of October 31, 1996 and December
31, 1996, respectively, or the closing of the Company's initial public
offering and bear interest at the rate of 15% per annum. The proceeds of
such loans was used to pay the balance of the up-front licensing fees due
to BFI under the Company's sublicense agreement. See "Bridge Financing" and
"Certain Transactions."
21
<PAGE>
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.
22
<PAGE>
DILUTION
At June 30, 1996, the Company had outstanding an aggregate of 2,904,000
shares of Common Stock having an aggregate net tangible deficit value of
$(1,141,238) or $(.39) per share, based upon operating activity through June 30,
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 1,200,000 shares of Common Stock by the
Company with net proceeds of $5,914,000 (without deducting the $100,000
financial advisory fee),the pro forma tangible book value of the Common Stock
would have been $4,964,847 or approximately $1.21 per share. This represents an
immediate increase in pro forma net tangible book value of $1.60 per share to
the present stockholders and an immediate dilution of $4.79 per share (80%) 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) $ 6.00
Net tangible deficit per share $ (.39)
Increase per share attributable offered hereby $ 1.60
Pro Forma net tangible book value per share
after offering(3) $ 1.21
Dilution of net tangible book value per share to
purchasers in this offering(2)(3) $ 4.79
- ----------
(1) Before deduction of underwriting discounts, commission, fees and Offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option and Underwriter's
Purchase Option. See "Underwriting" and"Description of Securities."
(3) Assuming no exercise of any outstanding warrants or options. See "Bridge
Financing" and "Certain Transactions."
23
<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 June 30, 1996 and to
be paid by purchasers pursuant to this Offering (based upon the anticipated
public offering price of $6.00 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 1,200,000 29.24% $7,200,000 93.42% $ 6.00
Existing Stockholders 2,904,000 70.76% 507,000 6.58% .17
--------- ----- ------- ---- ---
Total 4,104,000 100% $7,707,000 100%
--------- --- ---------- ---
</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 Purchase Option, or any securities issuable upon the exercise of
the Over-Allotment Option or any outstanding options or warrants.
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted giving effect to the sale of 1,200,000 shares of Common
Stock offered hereby and the application of net proceeds $5,914,000 therefrom
assuming a public offering price of $6.00 per share. The table is not adjusted
to give effect to the exercise of the Underwriter's Over-Allotment Option,
Underwriter's Purchase Option, 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.
Actual(1) Pro Forma(2)
--------- ------------
Notes Payable $ 1,096,700 $ --
----------- ------------
Stockholders' equity:
Common Stock, $.01 par value per
share, 15,000,000 shares authorized,
issued and outstanding 2,904,000,
and 4,104,000 respectively 29,040 41,040
----------- ------------
Preferred Stock, $.01 par value per
share, 100,000 shares authorized,
0 shares issued and outstanding -- --
Additional paid-in capital 1,413,960 7,315,960
----------- ------------
Deficit accumulated during the
development stage (1,513,501) (1,516,801)
----------- ------------
Total stockholders' (Deficit) equity (70,501) 5,840,199
----------- ------------
Total capitalization $ 1,026,199 5,840,199
=========== ============
- ----------
(1) Does not include the sale of 1,200,000 shares of Common Stock offered
hereby.
(2) Reflects the sale of 1,200,000 shares offered hereby and the anticipated
application of the net proceeds of $4,817,300 therefrom, after deducting
estimated Offering expense of $1,286,000 and the repayment of notes of
$1,096,700 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.
25
<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) December 31, 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. See "Description of Securities." 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 "Certain Transactions" and "Underwriting."
26
<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 six (6) months ended June
30, 1996 and cumulative during development stage, and the balance sheet data at
June 30, 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
Period April 25, 1995 Six Months ended Cumulative
(Inception) to 6/30/96 During
12/31/95 ------- Development
-------- Stage
-----
Revenues $ 0 $ 0 $ 0
Gross Profits $ 0 $ 0 $ 0
Operating (loss) $ (821,525) $ (691,976) $(1,513,501)
Net (loss) $ (821,525) $ (691,976) $(1,513,501)
Net (loss) per share $ (.26) $ (.22) (.49)
Weighted average number
of common shares
outstanding 3,114,000 3,114,000 3,114,000
--------- --------- ---------
Summary Balance Sheet Data
December 31, June 30,
1995 1996
------------ ------------
Working Capital (deficit) $ (621,503) $(1,188,846)
Total assets $ 996,181 $ 1,245,304
Total liabilities $ 680,706 $ 1,315,805
Deficit accumulated during
development stage $ (821,525) $(1,513,501)
Stockholders' equity (deficit) $ 315,475 $ (70,501)
27
<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 $1,513,501 and $821,525 as of June 30, 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 Company has begun to adapt The SportsTrac(TM) System. 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. 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 professional level before moving into
28
<PAGE>
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 June 30, 1996, the Company employed four 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 June 30, 1996, the Company had a working capital deficit of
$1,188,846. 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 Underwriter's Over Allotment Option) will be sufficient to
fund its liquidity needs for at least the next eighteen months.
29
<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 commercial
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. Recently, the Company
signed purchase agreements with the Palm Spring Suns (a minor league baseball
team) and U.S. Golf and Entertainment, Inc. (owners of golf driving ranges) to
install The SportsTrac(TM) System in early 1997. Each agreement calls for the
installation of one SportsTrac(TM) System for a purchase price of $20,000. The
agreements provide for: (1) two days of on-site training in conjunction with
installation; (2) provisions for maintenance and repairs by Seller; and (3) the
requirement by the Company to supply updates and modifications to the systems.
30
<PAGE>
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 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 "Study"), and which was administered by Dr.
Michael Mellman, the Company's Chairman of the Board, was completed. The Study
is a computer - based assessment 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 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 Study is not an
endorsement of or promotion by the Los Angeles Dodgers, the two minor league
affiliates or the players who participated in the 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 obtained the exclusive
license from STI and developed a prototype on-field athletic performance system
which was a research prototype used to validate the application of the CTT and
Factor 1000(TM) technologies to evaluate athletic performance, which BFI did not
and has not developed for commercial production. In
31
<PAGE>
addition, the license granted by BFI pursuant to the sublicense agreement was a
license of the Factor 1000(TM) technology developed by BFI, and a sublicense of
the CTT technology, which technologies the Company subsequently incorporated in
its SportsTrac(TM) System.
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, all of which has been paid.
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 results of
the 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
32
<PAGE>
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 proposed consumer entertainment version, will require the use 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
proposed 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 - Versions of the Company's Single Product."
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 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
33
<PAGE>
successfully complete the adaptation of the SportsTrac(TM) System to this
format, or that once adapted, will achieve market acceptance. See "Business -
Versions of the Company's Single Product."
The Company also believes that the competitive aspect of The SportsTrac(TM)
System can be emphasized in a consumer version that enables users to compete
against the performance profile of professional sports stars. Unlike a typical
video game, upon completion of the proposed adaptation of the SportsTrac(TM)
System technology scheduled for the first quarter of 1997, 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.
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 believes that no other product other
34
<PAGE>
than The SportsTrac(TM) System attempts to gauge an athlete's readiness for
competition in the same manner of The SportsTrac(TM) System, and knows of no
other product which claims, or has proven, to serve the same function.
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 design and manage the development
of a crude prototype on field athletic performance system which was based upon
the FACTOR 1000(TM) and utilized the CTT technology. This crude prototype was
used in the Study to test the validity and efficacy of the CTT technology in a
sports/performance enhancement environment. This crude prototype has been
refined to its present configuration which is presently in use in the Company's
incomplete pilot program. This prototype was a research prototype used to
validate the application of the CTT and Factor 1000(TM) technologies to evaluate
athletic performance and BFI did not and has not developed such prototype for
commercial production.
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. The Study
revealed that better baseball players achieve a higher IPL than do other
baseball players. The 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 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 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, management believes that
The SportsTrac(TM) System is an accurate measurement of visual-motor acuity (a
fundamental component in athletic
35
<PAGE>
performance), regardless of an individual athlete's 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 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 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 adaptation, 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 and FACTOR 1000(TM)
Technology systems 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 and FACTOR 1000(TM) Technologies performance is
predictive of performance differences between players - in other words, a player
who performs better on the CTT and FACTOR 1000(TM) Technologies 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 and FACTOR 1000(TM) technologies 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
36
<PAGE>
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 by the Company's Chairman, Dr.
Michael Mellman, and its President, Mr. Marc Silverman. Statistically
significant correlations are reported back to the customers by Dr. Mellman, for
their use and incorporated in future analysis using The SportsTrac(TM) System.
The Company holds periodic telephone meetings (on at least a monthly basis) 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 version of the Company's only 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 various versions of its
only product which incorporate its proprietary skills evaluation technology.
These are:
o Professional Monitoring Tools and Analysis
o Health and Fitness Monitoring and Information Systems
o Consumer Enhancement Versions - Golf
o Consumer Entertainment Versions
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.
37
<PAGE>
Versions of the Company's Single Product
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.
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.
38
<PAGE>
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 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. See "Risk Factors- Dependence upon Emerging
Market; Uncertainty of Market Acceptance."
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 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 Health and Fitness SportsTrac(TM)
System unit, enter a personal identification number or card, and indicate
whether the user would like to complete a session using The Health and Fitness
SportsTrac(TM) System, view club news, view sports information or leave a
message for another member. Choosing to use The Health and Fitness
SportsTrac(TM) System will allow the user to start a session, print a graph of
previous scores, or display The Health and Fitness 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.
39
<PAGE>
To maintain and deliver this information, the Company will link each health
and fitness center using The Health and Fitness 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 believes that it 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 Health and Fitness
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 version 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 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
40
<PAGE>
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 Company's single product, even
if this version is successfully developed, and commercially produced and sold.
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 version 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.
Consumer Entertainment Version
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.
41
<PAGE>
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. However, upon the conclusion of the pilot
program's participants' current seasons (between the forth quarter of 1996 and
the second quarter of 1997), the Company anticipates that such version of The
SportsTrac(TM) System will be available for commercial production and sale.
Recently, the Company signed purchase agreements with the Palm Spring Suns ( a
minor league baseball team) and U.S. Golf and Entertainment, Inc. (owners of
golf driving ranges) to install The SportsTrac(TM) System in early 1997. The
purchase price for each such system is $20,000.
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.
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
42
<PAGE>
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 June 30, 1996, the Company employed four 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.
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:
43
<PAGE>
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 the President and Chief Executive Officer of
the NHL Ottawa Senator hockey club. 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.
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
44
<PAGE>
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.
45
<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
46
<PAGE>
Corporation, a major developer of computerized patient care and hospital
information systems, 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 July 1996, Mr. Steinberg was 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
47
<PAGE>
in 1987. Mr. Kanter has served on the Boards of Directors of a number of
companies, including 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 $21,000 -- -- -- 60,000 -- --
Chairman of
the Board
</TABLE>
Set forth below is information relating to stock options granted to Messrs.
Silverman and Mellman:
Option/SAR Grants in Fiscal 1995
Number of Percent of Total
Securities Option/SARs
Underlying Granted to Exercise
Option/SARs Employees in Price
Name Granted Fiscal 1995 ($/sh) Expiration Date
---- -------------- ----------- ------ ---------------
Marc Silverman 60,000 28.57% $ .25 Nov. 30, 2000
Michael Mellman 60,000 28.57% $ .25 Nov. 30, 2000
48
<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
49
<PAGE>
available sufficient shares to meet the requirements of the Plan. The aggregate
number of Shareswhich 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.
50
<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
51
<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 ($1.50).
52
<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:
Amount Percentage Percentage
Beneficially (%) of (%) of
Owned Prior Class Class
Name and Address To This Before After
of Beneficial Owner Offering (1) Offering (1) Offering(1)
------------------- -------- -------- --------
Jelsin Investments Limited 216,000 7.44 5.26
P.O. Box NO3933
Shirley Street
Nassau, Bahamas
Kanter Family Foundation 216,000 7.44 5.26
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Joshua S. Kanter (2)(9) 86,400 2.98 2.11
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
M.D. Funding, Inc. 459,000 15.81 11.18
5 Old Woods Drive
Harrison, New York 10528
Michael Mellman(3) 234,000 7.89 5.62
500 North Poinsettia Avenue
Manhattan Beach, California 90266
Marc Silverman(4) 234,000 7.89 5.62
c/o SportsTrac, Inc
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
53
<PAGE>
W. S. Ventures (5) 270,000 9.30 6.58
P.O. Box 3721
Telluride, Colorado 81435
Elliot Steinberg(5) 270,000 9.30 6.58
P.O. Box 3721
Telluride, Colorado 81435
The Holding Company (6) 234,600 8.07 5.72
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Daniel Durchslag 408,000 14.05 9.94
9400 Brighton Way
#402
Beverly Hills, CA 90210
Joel S. Kanter (7)(9) 388,800 13.39 9.47
8000 Towers Crescent Avenue
Suite 1070
Vienna, Virginia 22182
Solomon A. Weisgal (8) 18,000 .62 .44
120 South Riverside Drive
Suite 1420
Chicago, IL 60606
All officers and directors
as a group (five (5) persons) 842,400 28.68 20.37
- ----------
(1) Gives effect to the issuance of 480,000 shares of Common Stock (after the
March stock split) included in the Bridge Units. Does not give effect to
(i) 180,000 shares of Common Stock issuable upon exercise of the
Over-Allotment Option; (ii) 120,000 shares of Common Stock issuable upon
exercise of the Underwriter's Purchase Option; (iii) 2,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants owned by the
Bridge Lenders and (vii) 210,000 employee stock options and 180,000
outstanding warrants.
(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.
(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."
54
<PAGE>
(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."
(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.
55
<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 (on August 30, 1995) pursuant to the sublicense
agreement (although such warrants as issued contain different terms as initially
contemplated). BFI assigned such rights (on October 16, 1995) to Messrs. Kanter
and Steinberg in connection with the waiver of defaults relating to unsecured
loans of $54,450 and $237,660, respectfully, owed by BFI to such persons (and
affiliates), the deferment of such obligations of BFI and the conversion of such
obligations of BFI into shares of capital stock of BFI upon the closing of the
initial public offering of BFI, if the same occurs prior to December 31, 1996
(otherwise such obligations become due and payable). 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) December 31, 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. See
"Description of Securities." With
56
<PAGE>
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 "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 served on the board of directors of BioFactors until
July 1996. 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.
57
<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 1,200,000 shares of Common Stock, par value $.01
per share.
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.
58
<PAGE>
Class A Warrants
In connection with the Bridge Financing, the Company issued 2,000,000 Class
A Warrants included in the Bridge Units. Each Class A Warrant entitles the
holder to purchase one (1) share of Common Stock at a price of $6.50 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, the National Quotation Bureau Incorporated, or the OTC Bulletin Board as
the case may be, exceeds $9.00 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.
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
59
<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 "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 (on
August 30, 1995) pursuant to the sublicense agreement (although such warrants as
issued contain different terms as initially contemplated). BFI assigned such
rights (on October 16, 1995) to Messrs. Kanter and Steinberg in connection with
the waiver of defaults relating to unsecured loans of $54,450 and $237,660,
respectfully, owed by BFI to such persons (and affiliates), the deferment of
such obligations of BFI and the conversion of such obligations of BFI into
shares of capital stock of BFI upon the closing of the initial public offering
of BFI, if the same occurs prior to December 31, 1996 (otherwise such
obligations become due and payable). On February 19, 1996, these warrants
60
<PAGE>
were subsequently assigned to Sheridan Ventures, Ltd. and Rainy Day Holdings.
See "Certain Relationships and Related Transactions."
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.
61
<PAGE>
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.
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.
Certain Market Information
The Company has applied for the inclusion of the Common Stock on the OTC
Bulletin Board under the symbol "SPRT".
The Company's application for listing of its Common Stock on Nasdaq was
denied by the Nasdaq staff, which denial was affirmed by the Listing Committee,
because of Nasdaq's concerns regarding the Company's early stage of development.
The Company does not agree with the determination of Nasdaq and is appealing the
decision of the Listing Committee. See "Risk Factors - Lack of Prior Market for
Common Stock; No Assurance of Public
62
<PAGE>
Trading Market; Denial of Nasdaq Listing" and "Penny Stock Regulations May
Impose Certain Restrictions on Marketability of Securities."
Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the "Transfer Agent").
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.
63
<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
1,200,000 Shares offered hereby from the Company all on a "firm commitment"
basis, if any are purchased. The Underwriter has advised the Company that it
proposes to offer the Shares to the public at $6.00 per Share 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, of which not in excess
of $ per Share may be reallowed to other dealers who are members of the NASD.
After the initial public offering, the public offering price, 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 price 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 180,000 additional Shares 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 Company has agreed to sell to the Underwriter, or its designees, for an
aggregate purchase price of $120, an option (the "Underwriter's Purchase
Option") to purchase up to an aggregate of 120,000 Shares. The Underwriter's
Purchase Option shall be exercisable during a four (4) year period commencing
one (1) year from the Effective Date. The Underwriter's Purchase Option may not
be assigned, transferred, sold or hypothecated by the Underwriter until twelve
(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 Purchase Option may be deemed to be
64
<PAGE>
additional underwriting compensation. The exercise price of the shares of Common
Stock issuable upon exercise of the Underwriter's Purchase Option during the
period of exercisability shall be $9.90 per share. The exercise price of the
Underwriter's Purchase 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 Purchase 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 Purchase Option is outstanding. At any time
when the holders of the Underwriter's Purchase 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.
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 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
65
<PAGE>
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."
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Shares has 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 will be listed for quotation
on the OTC Bulletin Board under the symbol "SPRT" but there can be no assurances
that an active trading market will develop, even if the securities are accepted
for quotation. See "Description of Securities - Certain Market Information."
66
<PAGE>
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 is the record
owner of 60,000 shares of Common Stock and 250,000 Warrants. See "Bridge
Financing." 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.
67
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
REPORT ON AUDIT OF
FINANCIAL STATEMENTS
PERIOD APRIL 25, 1995 (INCEPTION)
TO DECEMBER 31, 1995
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants.......................F-2
Financial Statements:
Balance sheets as of December 31, 1995
and June 30, 1996 (unaudited).......................................F-3
Statements of operations for the period April 25, 1995
(inception) to December 31, 1995, six months ended
June 30, 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 six months
ended June 30, 1996 (unaudited).....................................F-5
Statements of cash flows for the period April 25, 1995
(inception) to December 31, 1995, six months ended
June 30, 1996 (unaudited), and cumulative during
development stage (unaudited).......................................F-6
Notes to financial statements......................................F-7 - F-12
<PAGE>
[Letterhead of Holtz 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 5a, as to which
the date is July 31, 1996, Note 5b, as to which the
date is April 22, 1996, Note 7a, as to which the
date is March 29, 1996 and Note 12, as to which
the date is August 22, 1996)
F-2
<PAGE>
SPORTSTRAC, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 43,703 $ 126,959
Subscription receivable (Note 7) 15,500 --
----------- -----------
59,203 126,959
LICENSED TECHNOLOGY, net of accumulated amortization
of $25,640 and $61,808, respectively (Note 3) 914,820 878,652
COMPUTER EQUIPMENT, net of accumulated depreciation
of $1,100 and $3,098, respectively 21,058 45,708
DEFERRED OFFERING COSTS -- 192,085
OTHER ASSETS 1,100 1,900
----------- -----------
$ 996,181 $ 1,245,304
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable, net of unamortized interest of
$33,040 and $3,300, respectively (Notes 4 and 12) $ 666,960 $ 346,700
Bridge notes payable (Note 5) -- 750,000
Accrued expenses (Note 7) 13,746 219,105
----------- -----------
680,706 1,315,805
----------- -----------
COMMITMENTS (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT): (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) (1,513,501)
----------- -----------
315,475 (70,501)
----------- -----------
$ 996,181 $ 1,245,304
=========== ===========
</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 Six Months During
December 31, Ended Development
1995 June 30, 1996 Stage
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
----------- ----------- -----------
COSTS AND EXPENSES:
General and administrative (Note 7) 735,524 249,160 984,684
Product design costs 26,439 45,500 71,939
Depreciation and amortization 26,740 38,166 64,906
Interest (Notes 4 and 5) 32,822 359,150 391,972
----------- ----------- -----------
821,525 691,976 1,513,501
----------- ----------- -----------
NET LOSS $ (821,525) $ (691,976) $(1,513,501)
=========== =========== ===========
NET LOSS PER SHARE (Note 7) $ ( 26) $ ( 22) $ ( 49)
=========== =========== ===========
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 (DEFICIT)
(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) -- -- -- -- -- (691,976) (691,976)
-------- -------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 (unaudited) -- $ -- 2,904,000 $ 29,040 $ 1,413,960 $(1,513,501) $ (70,501)
======== ======== =========== =========== =========== =========== ===========
</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 Six Months During
December 31, Ended Development
1995 June 30, 1996 Stage
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (821,525) $ (691,976) $(1,513,501)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operations:
Amortization and depreciation 26,740 38,166 64,906
Amortization of imputed interest 26,500 335,740 362,240
Issuance of options 630,000 -- 630,000
Increase in assets:
Other assets (1,100) (800) (1,900)
Increase in liabilities:
Accrued expenses 13,746 205,359 219,105
----------- ----------- -----------
Total adjustments 695,886 578,465 1,274,351
----------- ----------- -----------
Net cash used in operating activities (125,639) (113,511) (239,150)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of licensed technology (300,000) -- (300,000)
Acquisition of computer equipment (22,158) (26,648) (48,806)
----------- ----------- -----------
Net cash used in investing activities (322,158) (26,648) (348,806)
----------- ----------- -----------
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 -- (192,085) (192,085)
Proceeds from Bridge notes payable -- 750,000 750,000
Repayment of notes payable -- (350,000) (350,000)
----------- ----------- -----------
Net cash provided by financing activities 491,500 223,415 714,915
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 43,703 83,256 126,959
CASH AND CASH EQUIVALENTS,
beginning of period -- 43,703 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 43,703 $ 126,959 $ 126,959
=========== =========== ===========
</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 SIX MONTHS ENDED JUNE 30, 1996
(Information with respect to the six months ended June 30, 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 $1,514,000. 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 $4.17 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 5. On August 23, 1996, the Company repaid the remaining
balance 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 June 30, 1996
and December 31, 1995 related to this note were $29,740 and $26,500,
respectively.
F-8
<PAGE>
5. Bridge Notes Payable:
a. 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. On July 31, 1996, the Bridge Lenders extended the
terms for payment to be the earlier of (i) the completion of a public offering
of the Company's Securities, or (ii) December 31, 1996. 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 $6.50 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 $9.00 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.
b. 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 October 31, 1996.
6. Income Taxes:
At June 30, 1996, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $167,000, 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.
F-9
<PAGE>
7. Stockholders' Equity: (Cont'd)
a. Capitalization (Cont'd)
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.
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 June 30, 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 June 30, 1996, the Company had outstanding warrants to purchase
180,000 shares of the Company's common stock at an exercise price of $4.17 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.
F-10
<PAGE>
7. Stockholders' Equity: (Cont'd)
d. Loss per share (Cont'd)
<TABLE>
<CAPTION>
Cumulative
During
December 31, June 30, 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 0
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>
e. Reserved shares
At June 30, 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.
F-11
<PAGE>
9. Fair Value of Financial Instruments: (Cont'd)
The carrying amount and fair value of the Company's financial instruments
are as follows:
June 30, 1996 December 31, 1995
---------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(Unaudited) (Unaudited)
---------- ---------- ---------- ----------
Cash and cash equivalents $ 126,959 $ 126,959 $ 43,703 $ 43,703
Subscription receivable -- -- 15,500 15,500
Notes payable 1,096,700 1,096,700 666,960 666,960
Other current liabilities 219,105 219,105 13,746 13,746
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 June 30, 1996 and December
31, 1995.
11. Unaudited Financial Statements:
The financial statements as of June 30, 1996 and the six months ended June
30, 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 August 22, 1996, the Company received an advance of $350,000 from one of
the Bridge Lenders disclosed in Note 5a. This advance bears interest at the rate
of 15% per annum and was used to pay off the balance 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...................
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.
1,200,000 Shares of Common Stock
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 (Jelsin 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 (on August 30, 1995) pursuant to the sublicence agreement (although such
warrants as issued contain different terms as initially contemplated). BFI
assigned such rights (on October 16, 1995) to Messrs. Kanter and Steinberg in
connection with the waiver of defaults relating to unsecured loans of $54,450
and $237,660, respectively, owed by BFI to such persons (and affiliates), the
deferment of payment of such obligations of BFI and the conversion of such
obligations of BFI into shares of capital stock of BFI upon the closing of the
initial public offering of BFI if the same occurs prior to December 31, 1996
(otherwise such obligations will become due and payable). On February 19, 1996,
these warrants were subsequently assigned to Sheridan Ventures, Ltd. 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) December 31, 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. 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 Purchase Option.*
4.06 Intentionally Omitted.
4.07 Intentionally Omitted.
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.
10.06(A) Amended Bridge Loan Agreements.
10.06(B) Amended Bridge Loan Agreements dated June 27, 1996.
II-4
<PAGE>
10.06(C) Amended Bridge Loan Agreements dated July 31, 1996.
10.06(D) Amended Bridge Loan Agreements dated September 4, 1996.*
10.07 The 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. All other Exhibits previously filed.
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.
II-5
<PAGE>
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.
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 September 17, 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 September 17, 1996
- ----------------------- and Director
Michael Mellman, MD
/s/ Marc R. Silverman Chief Executive Officer, September 17, 1996
- ---------------------- President, Chief Financial
Marc R. Silverman Officer, Principal Accounting
Officer and Director
/s/ Elliot Steinberg Director September 17, 1996
- ----------------------
Elliot Steinberg
/s/ Solomon A. Weisgal Director September 17, 1996
- ----------------------
Solomon A. Weisgal
/s/ Joshua S. Kanter Director and September 17, 1996
- ---------------------- Secretary
Joshua S. Kanter
II-7
<PAGE>
1,200,000 Shares of Common Stock
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 1,200,000 Shares of Common
Stock, par value $.01 per share ("Common Stock"). 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 180,000 additional Shares.
Unless the context otherwise requires, the aggregate of 1,200,000 Shares to
be sold by the Company, together with all or any part of the 180,000 Shares
which the Underwriter has the option to purchase, are herein called the "Shares"
or the "Securities."
You have advised the Company that you desire to purchase the Securities.
The Company confirms 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 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
<PAGE>
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 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.
2
<PAGE>
(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 Shares contained in the Underwriter's Purchase Option (as defined
in the Registration Statement) have been duly authorized and, 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.
(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
3
<PAGE>
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 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
4
<PAGE>
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
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) 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,
the Company agrees to issue and sell to the Underwriter, and the Underwriter
agrees to buy from the Company at $5.40 per Share, at the place and time
hereinafter specified, 1,200,000 Shares (the "First Shares").
Delivery of the First Shares 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
5
<PAGE>
later than _____________________, 1996, such time and date of payment and
delivery for the First Shares 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 180,000 Shares at the
same price per Share as the Underwriter shall pay for the First Shares being
sold pursuant to the provisions of subsection (a) of this Section 3 (such
additional Shares 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 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 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.
6
<PAGE>
(3) 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.
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
7
<PAGE>
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).
(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
8
<PAGE>
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.
(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
Underwriter's Purchase Option outstanding from time to time.
9
<PAGE>
(l) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, and will use
its best efforts to obtain the listing of the Common Stock on the OTC Bulletin
Board, 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.
(m) 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.
(n) 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.
(o) 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.
(p) 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 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.
(q) 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.
(r) 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
10
<PAGE>
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.
(4) 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 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
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 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, and the Underwriter's Purchase Option
conform in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares have been, and the shares of Common
Stock to be issued upon exercise of 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
11
<PAGE>
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 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 and the Underwriter's Purchase Option have
been duly and validly authorized, executed, and delivered by the Company;
(iv) the certificates evidencing the shares of Common Stock
comply with the Delaware General Corporation Law;
(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 or the Underwriter's
Purchase Option, or of any action taken or to be taken by the Company pursuant
to this 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 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
12
<PAGE>
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 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 have been duly authorized for quotation on the
OTC Bulletin Board.
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.
13
<PAGE>
(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 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.
14
<PAGE>
(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 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 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.
(5) Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Securities is subject to the following
conditions:
15
<PAGE>
(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.
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.
(6) 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 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 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, 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.
16
<PAGE>
(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 signed the Registration Statement and each person,
if any, who controls the Company within the meaning of the 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 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 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) 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
17
<PAGE>
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.
(7) 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 and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (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) (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; 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 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 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 and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company 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 and the Company, its officers,
directors, and controlling persons shall be entitled to contribution from the
Underwriter 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 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.
(8) Costs and Expenses
18
<PAGE>
(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 Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Shares and Common
Stock on the OTC Bulletin Board or any other securities exchange; the cost of
printing the certificates representing the Shares; 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 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 is not fulfilled) the Company 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
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.
(9) 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
19
<PAGE>
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.
(10) 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.
(11) Underwriter's Purchase Option. At or before the First Closing Date,
the Company will sell the Underwriter or its designees for a consideration of
$120.00, 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 120,000
Shares. 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.
20
<PAGE>
(12) 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.
(13) 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.
(14) 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 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.
(15) Parties in Interest. The Agreement herein set forth is made solely for
the benefit of the Underwriter, 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.
(16) 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.
(17) 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).
21
<PAGE>
(18) 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.
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
22
<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.
1,200,000 Shares of Common Stock
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, 1,200,000 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") of SportsTrac, Inc. (the "Company").
The Shares 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 are sometimes referred to herein 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 $6.00 per Share. 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 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
<PAGE>
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.
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
(2)
<PAGE>
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 "FreeRiding 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 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.
(3)
<PAGE>
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 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. We further
state that in purchasing said Shares 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>
Option to Purchase
120,000 Shares of Common Stock
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 120,000 Shares ("Shares") of the Company's Common Stock, $.01
par value, as now constituted ("Common Stock"). The Shares are sometimes
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 120,000 Shares (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 1,200,000 Shares (the "Public Securities") through the
Underwriter, in consideration of $120.00 received for the Option.
Except as specifically otherwise provided herein, the Common Stock 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 Option and the shares of Common Stock
underlying the Option, 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 Shares hereunder at a price of $9.90
per Share (subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise
Price").
(b) After ___________, 2001, the Holder shall have no right to
purchase any Shares 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
<PAGE>
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 shares of Common Stock shall
be issuable upon such exercise shall become the holder or holders of record of
such Common Stock at that time and date. The Common Stock and the certificates
for the 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 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, 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, 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 underlying the Option or the Common Stock,
including in that Option all or any of the Shares underlying the Option or the
Common Stock included in the Option (the "Registrable Securities"). The Company
shall supply prospectuses and such other documents as the Holder may request in
order to facilitate the
2
<PAGE>
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 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 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 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
3
<PAGE>
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 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 number of
shares of Common Stock 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
4
<PAGE>
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.
(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.
5
<PAGE>
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. 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 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 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 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
6
<PAGE>
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 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 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 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
7
<PAGE>
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 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 the OTC Bulletin Board, or other similar
organization if the OTC Bulletin Board 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
8
<PAGE>
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.
(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.
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)
9
<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 herewith makes payment of
$______________ therefor, and requests that the certificates for shares of
Common Stock 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 represented
by the foregoing Option to the extent of _____ Shares, and appoints
_________________________________ attorney to transfer such rights on the books
of SportsTrac, Inc., with full power of substitution in the premises.
Dated:
By ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:
<PAGE>
[Letterhead of Bernstein & Wasserman]
September 11, 1996
Board of Directors
SportsTrac, Inc.
6900 E. Belleview Avenue
Englewood, CO 80111
Re: SportsTrac, Inc.
Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel for SportsTrac, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing by the Company of a
registration statement (the "Registration Statement") on Form SB-2, File No.
333-1634, under the Securities Act of 1933, relating to the public offering of
1,200,000 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"). The offering also involves the grant to the Underwriter of an
option to purchase an additional 180,000 shares of Common Stock to cover
over-allotments in connection with the offering and the sale to the Underwriter
of an option (the "Underwriter's Option") to purchase up to 120,000 shares of
Common Stock.
We have examined the Certificate of Incorporation and the By-Laws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Common Stock, drafts of the Underwriter's Option, draft forms of
certificates representing the Common Stock, originals or copies of such records
of the Company, agreements, certificates of public officials, certificates of
officers and representatives of the Company and others, and such other
documents, certificates, records, authorizations, proceedings, statutes and
judicial decisions as we have deemed necessary to form the basis of the opinion
expressed below. In such examination, we have assumed the genuiness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as copies thereof.
As to various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Company and
others.
Based on the foregoing, we are of the opinion that:
<PAGE>
1. All shares of Common Stock have been duly authorized and, when issued
and sold in accordance with the Prospectus, will be validly issued, fully paid
and non-assessable.
2. The Underwriter's Option has been duly authorized and, when issued and
sold in accordance with the Prospectus, will be validly issued.
3. The shares of Common Stock issuable upon exercise of the Underwriter's
Option have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of the Underwriter's Option, will be duly authorized,
validly issued, fully paid and nonassessable.
We hereby consent to be named in the Registration Statement and the
Prospectus as attorneys who have passed upon legal matters in connection with
the offering of the securities offered thereby under the caption "Legal
Matters."
We further consent to your filing a copy of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
BERNSTEIN & WASSERMAN, LLP
B&W/jm
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $100,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC. ULSTER INVESTMENTS
By:/s/ Marc Silverman By:/s/ Roslyn Yearwood
------------------- -------------------
Name: Marc Silverman Name: Roslyn Yearwood
Title: President Title: Secretary
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $65,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC. THE HOLDING COMPANY
By:/s/ Marc Silverman By:/s/ Burton Kanter
------------------- -----------------
Name: Marc Silverman Name: Burton Kanter
Title: President Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $100,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC. DUNE HOLDINGS, INC.
By:/s/ Marc Silverman By:/s/ Randolph K. Pace
------------------ --------------------
Name: Marc Silverman Name: Randolph K. Pace
Title: President Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $15,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ Solomon A. Weisgal
-------------------- ------------------------
Name: Marc Silverman Name: Solomon A. Weisgal
Title: President Title: Trustee
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $5,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ Howard Kirschbaum
-------------------- -------------------------------
Name: Marc Silverman Howard Kirschbaum, As Custodian
Title: President for Brian Kirschbaum Under the
Uniform Gift to Minors Act
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $5,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ Scott A. Sinar
-------------------- ------------------
Name: Marc Silverman Scott A. Sinar
Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $20,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ Matthew Harriton
-------------------- --------------------
Name: Marc Silverman Matthew Harriton
Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $10,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ John La Falce
-------------------- -----------------
Name: Marc Silverman John LaFalce
Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $30,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ Michael Lulkin
-------------------- ------------------
Name: Marc Silverman Michael Lulkin
Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200
Englewood, CO 80111
Re: SportsTrac, Inc. Bridge Loan
Dear Mr. Silverman:
Reference is made to that certain letter agreement (as amended, "Letter
Agreement"), by and between the undersigned and SportsTrac, Inc. (the
"Company"), pursuant to which the undersigned made a loan of $50,000 to the
Company. Notwithstanding anything contained in the Letter Agreement to the
contrary, it is agreed that the exercise price for the Class A Warrants shall be
$6.50 per share and the target price for redemption of the Class A Warrants by
the Company shall be $9.00.
As herein amended, the Letter Agreement is confirmed and shall be in full
force and effect.
Dated: September 4, 1996
SPORTSTRAC, INC.
By:/s/ Marc Silverman By:/s/ Hartley T. Bernstein
-------------------- ------------------------
Name: Marc Silverman Hartley T. Bernstein
Title: President
<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. 6 to Form SB-2 of our report dated January 15, 1996 (except for
Note 5a, as to which the date is July 31, 1996, Note 5b, as to which the date is
April 22, 1996, Note 7a, as to which the date is March 29, 1996 and Note 12, as
to which the date is August 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
September 16, 1996
