<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1997
REGISTRATION NO. 333-1634
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 8
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 (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
ORGANIZATION) CLASSIFICATION CODE
NUMBER)
------------------------
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:
STUART NEUHAUSER, ESQ. MITCHELL LAMPERT, ESQ.
BERNSTEIN & WASSERMAN, LLP LAMPERT & LAMPERT
950 THIRD AVENUE 10 EAST 40TH STREET
NEW YORK, NY 10022 NEW YORK, NY 10016
(212) 826-0730 (212) 889-7300
(212) 371-4730 (FAX) (212) 889-5732 (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/
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SECURITY(2) OFFERING PRICE REGISTRATION FEE
- ------------------------------ ------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share(3).................. 776,250 $6.00 $4,657,500 $1,411.22
Representative's Purchase
Option to purchase shares of
Common Stock(4)............... 67,500 $0.001 $67.50 $0.02
Common Stock, par value $.01
per share, underlying
Underwriter's Purchase
Option(4)..................... 67,500 $9.90 $668,250 $202.48
------------- ---------
TOTAL......................... $5,325,817.50 $1,613.72(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
Representative'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 101,250 shares of Common Stock subject to the Underwriters'
over-allotment option (the 'Over-Allotment Option').
(4) The Representative's Purchase Option entitles the Representative to purchase
up to 67,500 shares of Common Stock at $9.90 per share (the
'Representative's Purchase Option').
(5) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
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
ii
<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 MAY 6, 1997
PROSPECTUS
SPORTSTRAC, INC.
675,000 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') 675,000 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 been determined by
negotiations between the Company and I. A. Rabinowitz & Co., the representative
of the several underwriters of this Offering (the 'Representative'), 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. 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 for Common Stock,' '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 on a national stock exchange or The Nasdaq Stock Market,
Inc. ('Nasdaq'), and quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for a national
stock exchange or Nasdaq. There can be no assurance that the Company's
application for inclusion of its Common Stock on the OTC Bulletin Board will be
approved or that, if approved, a regular trading market for its Common Stock
will develop after this Offering or that, if developed, a regular trading market
will be sustained. 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. If the Company's Common Stock trades for less
the $5.00 per share on the OTC Bulletin Board or the 'pink sheets,' it will
become subject to the Commission's penny stock disclosure requirements. 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's further appeal was denied by the Nasdaq Listing and Hearing Review
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 Company's Common
Stock.'
------------------------
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 6.
------------------------
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 TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
---------- ---------------------- -----------
Per Share...... $6.00 $0.60 $5.40
Total(3)....... $4,050,000 $405,000 $3,645,000
(Notes on next page)
I. A. RABINOWITZ & CO.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
(Notes to Cover)
- ------------------
(1) Does not reflect additional compensation to be received by the
Representative from the Company in the form of: (i) a non-accountable
expense allowance of $121,500 ($139,725 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 67,500 shares of Common Stock at $9.90 per share (the
'Representative'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 Underwriters 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 $721,500 including the Representative'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 $2,923,500. See 'Use of
Proceeds' and 'Underwriting.'
(3) Does not include 101,250 additional shares of Common Stock to cover
over-allotments which the Underwriters have an option to purchase for thirty
(30) days from the date of this Prospectus at the initial public offering
prices, less the Underwriters' 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 Representative's non-accountable expense allowance and
financial advisory fee will be $4,657,500, $465,750, and $739,725,
respectively, and the total net proceeds to the Company will be $3,452,025.
See 'Underwriting.'
The securities are offered by the Underwriters on a firm commitment basis,
when, as and if delivered to and accepted by the Underwriters, and subject to
prior sale, allotment and withdrawal, modification of the offer with notice,
receipt and acceptance by the Underwriters 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 Representative on or about
, 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS 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 UNDERWRITERS 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 UNDERWRITERS. THE
UNDERWRITERS HAVE ADVISED THE COMPANY THAT IT PRESENTLY CANNOT QUANTIFY THE
AMOUNT OF THE COMPANY'S COMMON STOCK THAT MAY BE SOLD TO ITS CUSTOMERS. THE
UNDERWRITERS HAVE ALSO ADVISED THE COMPANY THAT IT HAS NO AGREEMENTS OR
ARRANGEMENTS IN EFFECT WITH CUSTOMERS RELATING TO THE PURCHASE OR SALE OF THE
COMPANY'S COMMON STOCK AND IT DOES NOT EXPECT TO HAVE AGREEMENTS OR ARRANGEMENTS
IN THE FUTURE.
ALTHOUGH THEY HAVE NO OBLIGATION TO DO SO, THE UNDERWRITERS MAY FROM TIME
TO TIME ACT AS MARKET MAKERS AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
COMMON STOCK. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY BECOME
DOMINATING INFLUENCES IN THE MARKET FOR THE COMMON STOCK. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITERS WILL OR WILL NOT CONTINUE TO BE DOMINATING
INFLUENCES. THE PRICES AND LIQUIDITY OF THE COMMON STOCK OFFERED HEREUNDER MAY
THEREFORE BE SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, TO WHICH THE
UNDERWRITERS PARTICIPATE IN SUCH MARKET AND BY WHETHER OR NOT OTHER
BROKER-DEALERS MAKE A MARKET IN, OR OTHERWISE PARTICIPATE IN THE MARKET FOR, THE
COMPANY'S COMMON STOCK. THE UNDERWRITERS HAVE ADVISED THE COMPANY THAT THEY
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
UNDERWRITERS MAY DISCONTINUE THEIR PARTICIPATION IN SUCH MARKET AT ANY TIME OR
FROM TIME TO TIME.
<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) 101,250 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (b) 67,500 shares of Common Stock
issuable upon exercise of the Representative'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(Trademark) 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(Trademark) System, and is
presently using the name for promotional purposes.
The SportsTrac(Trademark) System is presently in use (on an experimental
basis) by professional baseball and basketball teams and has been used by a
professional hockey team in the past. Presently, this professional level sports
team version of The SportsTrac(Trademark) 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(Trademark) System to a consumer
entertainment version which will allow users to 'compete' against professional
athletes. However, the Company has not yet begun commercial production of any
version of its SportsTrac(Trademark) 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(Trademark) 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), Anaheim Angels (Major League
Baseball), San Diego Padres (Major League Baseball), Minnesota Twins (a Major
League Baseball team through their AAA minor league affiliate), Minnesota
Timberwolves (National Basketball Association) and Callaway Golf. Additionally,
the Company has recently concluded a pilot program with the New York Rangers (a
National Hockey League team through their affiliate in the American Hockey
League). The Company has signed purchase agreements with the Palm Springs Suns (
a minor league baseball team) and U.S. Golf and Entertainment, Inc. (owners of
golf driving ranges) (both of whom are not affiliates of the Company, as that
term is defined under the Securities Act of 1933, as amended (The 'Securities
Act' or '1933 Act')) to install The SportsTrac(Trademark) System (identical to
the professional sports team version) in early 1997. The purchase price for each
such system is $20,000.
The SportsTrac(Trademark) 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
3
<PAGE>
and computer software in the early 1960s. The Company has secured an exclusive
sublicense from BioFactors, Inc. ('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(Trademark)')
for safety-related industrial settings. See 'Business' for a further discussion
of the sublicense 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(Trademark) System. See 'Risk Factors--Potential Loss of
Licensed Technology May Affect Operations,' 'Use of Proceeds' and 'Description
of Securities.'
The Company maintains its executive offices at 6900 E. Belleview Avenue,
Suite 200, Englewood, Colorado 80111, telephone number (303) 771-3733.
SEE 'RISK FACTORS' FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
THE OFFERING
Common Stock Offered by the
Company ......................... 675,000 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)............... 3,579,000
Use of Proceeds.................... The net proceeds to the Company from the
sale of the Common Stock offered hereby are
estimated to be $2,923,500. The net proceeds
are expected to be applied for the following
purposes: Repayment of certain indebtedness,
expansion of the Company's marketing
efforts, product development and for working
capital purposes.
Risk Factors....................... The securities are subject to a high degree
of risk and substantial dilution. See 'Risk
Factors' and 'Dilution.'
Proposed 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)
101,250 shares of Common Stock issuable upon exercise of the Over-Allotment
Option; (iii) 67,500 shares of Common Stock issuable upon exercise of the
Representative'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'.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary information has been summarized from the Company's
financial statements included elsewhere in the Prospectus. This information
should be read in conjunction with the financial statements and the related
notes thereto. See 'Financial Statements.'
SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
APRIL 25, CUMULATIVE
THREE MONTHS THREE MONTHS YEAR 1995 DURING
ENDED ENDED ENDED (INCEPTION) DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 12/31/96 TO 12/31/95 STAGE
-------------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 0 $ 0 $ 0 $ 0 $ 0
Gross Profits................... 0 0 0 0 0
Operating (loss)................ (223,428) (344,558) (1,098,327) (821,525) (2,143,280)
Net (loss)...................... (223,428) (344,558) (1,098,327) (821,525) (2,143,280)
Net (loss) per share............ (.07) (.11) (.35) (.26) (.69)
Weighted average number of
common shares outstanding..... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
Working Capital (deficit)....................... $ (1,652,847) $(1,862,337)
Total assets.................................... 1,209,927 1,212,246
Total liabilities............................... 1,686,779 1,912,526
Deficit accumulated during development stage.... (1,919,852) (2,143,280)
Stockholders' (deficit)......................... (476,852) (700,280)
</TABLE>
5
<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. 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 the Nasdaq SmallCap Market was denied by the Nasdaq staff for
the following reasons: (1) there is substantial risk regarding the Company's
ability to continue operating as a going concern and to continue to comply with
Nasdaq listing criteria; (2) there are significant investment risks to
prospective public investors in the Company who will provide the vast majority
of its permanent equity capital but who will sustain a disproportionate degree
of investment risk relative to the percentage of share ownership and investment
by the Company's principals and bridge lenders; and (3) there is a potential for
extraordinary monetary gain to be realized by the Company's bridge lenders to
the detriment of prospective public investors. The denial was affirmed by the
Nasdaq Listing Qualifications Panel ('Panel') for the following reasons: (1) the
Panel was unwilling to dismiss the staff's concern relating to the Company's
ability to continue as a going concern and noted that the Company lacks executed
contracts to serve as a basis for its 1997 projections and that the Company's
licensing contracts with the professional teams and the health club agreement
fall short of providing a basis for future revenue stream projections; and (2)
the Panel was uncomfortable with the bridge loan financing as structured due to
the excessive potential returns for the bridge lenders, the brief period of
investment prior to the offering, and the lack of adequate lock up provisions
for the equity securities in the post-offering period. The Company's appeal to
the Nasdaq Listing and Hearing Review Committee ('Review Committee') was denied.
The Review Committee affirmed the decision of the Panel because the Company was
in its development stage, with speculative prospects for future sales and
uncertainty regarding the Company's ability to continue as a going concern. The
Review Committee was also concerned with the excessive potential return to
bridge lending to the detriment of potential Nasdaq shareholders. 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,
if approved, a regular trading market for the Common Stock will develop after
this Offering or that, if developed, a regular trading market will be sustained.
The OTC Bulletin Board is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than a national stock exchange or
Nasdaq and quotes for stocks included on the OTC Bulletin Board are not listed
in the financial sections of newspapers as are those for a national securities
exchange or 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 SmallCap 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 Company's Common Stock.'
2. No Prior Public Market for Common Stock. 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 Representative, and may not be indicative of the market
price for such securities in the future, and does 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,
6
<PAGE>
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.'
3. Limited Operating History; Net Losses. The Company was formed in April
1995 for the purpose of developing and marketing devices to enhance athletic
performance. For the period April 25, 1995 (inception) to March 31, 1997, the
Company had net losses of $2,143,280. 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.'
4. 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, 1996. The Company incurred a net loss for the period April 25, 1995
(inception) to December 31, 1996 of $1,919,852. 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.'
5. 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 with cash generated from operations, will be sufficient to
conduct the Company's operations, for at least twelve (12) 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.'
6. 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 Dr. Mellman and Mr. Silverman
are involved in all aspects of the Company's business, there can be no assurance
that suitable replacements could be found if Dr. Mellman and Mr. Silverman were
unable to perform services for the Company. As a consequence, the loss of either
Dr. Mellman or Mr. 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.
7. Dependence Upon Sole Manufacturer. The SportsTrac(Trademark) 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. Pursuant to the Company's sublicense
agreement with BFI, the Company places orders for control panels directly
through BFI, who purchases the control panels on behalf of the Company. The
Company currently maintains an adequate inventory of control panels. There is no
written agreement between the Company or BFI and such assembler. If the present
assembler were unable to produce
7
<PAGE>
control panels, the Company believes that BFI (based upon its representation
made to the Company) will be able to purchase control panels from various other
sources.
8. 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.'
9. Initial Reliance Upon a Single Product May Affect Revenues. Since the
Company will initially market a single product, The SportsTrac(Trademark)
System, the Company's ability to achieve its market plan will depend in
significant part upon the acceptance of The SportsTrac(Trademark) 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.
10. Dependence on Emerging Market; Uncertainty of Market Acceptance. A
segment of the Company's services includes evaluating elite professional
athletes using The SportsTrac(Trademark) System, which has been used on an
experimental basis for more than one year with a limited number of clients.
Currently, The SportsTrac(Trademark) System is installed at 5 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(Trademark) 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(Trademark)
System.'
11. 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.
12. Dependence on Assistance for Proprietary Technology. The Company's
product, The SportsTrac(Trademark) System, relies on the Critical Tracking Task
('CTT') technology, which is protected under one patent and two copyrights, the
use of which is sublicensed by the Company from BioFactors, Inc. ('BFI')
pursuant to a sublicense agreement. BFI, as the sublicensor to the Company, has
obtained certain rights to use the CTT pursuant to a license granted to BFI by
Systems Technology, Inc. ('STI'), which is not affiliated with either BFI or 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(Trademark) 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.
8
<PAGE>
13. 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(Trademark) 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 sublicense 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.
14. Lack of Trademark and Servicemark Protection. The Company has filed an
application to register a trademark for the name of The SportsTrac(Trademark)
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
business could be materially adversely affected. The Company currently does not
hold any patents on products.
15. 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.'
16. Underwriters' As Market Makers of Company's Common Stock. A
significant amount of shares of Common Stock which are sold in this offering may
be sold to customers of the Underwriters. Such a scenerio could adversely affect
the market for and liquidity of the Company's Common Stock if additional
broker-dealers do not make a market in the Company's Common Stock. Although they
have no obligation to do so, the Underwriters may from time to time act as
market makers and otherwise affect transactions in the Company's Common Stock.
The prices and liquidity of the Company's Common Stock may be adversely affected
by the Underwriters' participation. The Underwriters cannot determine at this
time whether or not other broker dealers will act as market makers of the
Company's Common Stock. The prices and liquidity of the Company's Common Stock
may also be significantly affected by the degree, if any, to which the
Underwriters so effect transactions. In addition, the Underwriters may
voluntarily discontinue such participation at any time.
17. 'Penny Stock' Regulations May Impose Certain Restrictions on
Marketability of Company's Common Stock. 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 Board
and is trading at less than $5.00 per share, 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
9
<PAGE>
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document (Schedule 15G) 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 Common Stock and may affect the ability of purchasers in this Offering
to sell the Company's Common Stock in the secondary market and the price at
which such purchasers can sell any such Common Stock.
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 $.42, representing a
dilution of $5.58 per share (93%) from the $6.00 offering price of the shares
(not including the Underwriters' 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
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 Common Stock in this
Offering are advised that such persons personally benefit in the completion of
this Offering. In addition, the Company will repay additional loans made by
Ulster Investment, Ltd. in the amount of $614,000. 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 one (1)
year 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 two (2) 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,' which become tradeable on , 1997. 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 67,500 shares of Common Stock, the Underwriter's
Over-Allotment Option of 101,250 shares of Common Stock, other warrants
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<PAGE>
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. See 'Bridge
Financing' and 'Description of Securities.'
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 Common Stock 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 Common Stock which may have a depressive
effect on its price per share. See 'Description of Securities.'
23. Representative's Purchase Option. In connection with this Offering,
the Company will sell to the Representative, for nominal consideration ($67.50),
an option to purchase an aggregate of 67,500 shares of Common Stock (the
'Representative's Purchase Option'). The Representative'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 Representative's Purchase Option will have the
opportunity to profit from a rise in the market price of the Company's Common
Stock, without assuming the risk of ownership. The Company may find it more
difficult to raise additional capital if it should be needed for the business of
the Company while the Representative'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 Representative'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 675,000 shares of Common Stock
offered hereby are sold, there will be a total of 3,579,000 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 Representative's Purchase Option to purchase up to
67,500 shares of Common Stock, the Underwriters' Over-Allotment Option of
101,250 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 2,828,750 shares of Common
Stock for issuance upon the exercise of all the options and warrants (including
the Over-Allotment Option, the Representative'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 8,592,250 shares of
authorized but unissued Common Stock available for issuance without further
shareholder approval including issuances under current outstanding options and
warrants as well as issuances pursuant to employee stock option plans. As a
result, any issuance of additional shares of Common Stock may cause current
shareholders of the Company to suffer significant dilution and may adversely
affect the market price of their shares. In addition, the Company is authorized
to issue 100,000 shares of Preferred Stock. See 'Description of Securities' and
'Underwriting.'
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 675,000 shares of
Common Stock offered hereby, are estimated to be $2,923,500 (after deducting
approximately $405,000 in underwriting discounts, other expenses of this
Offering estimated to be $721,500, which includes the Underwriters'
non-accountable expense allowance of $121,500, and a $100,000 financial
consulting fee payable to the Representative at the closing) (but not
considering any exercise of the Over-Allotment Option or the Representative's
Purchase Option).
The Company, based upon all currently available information, intends to
utilize such proceeds approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
AMOUNT OF PERCENTAGE(%) OF
NET PROCEEDS NET PROCEEDS
------------ -----------------
<S> <C> <C>
Product Development(1)........................ $ 500,000 17.10%
Marketing and Sales........................... 500,000 17.10%
Repayment of Certain Indebtedness(2).......... 1,364,000 46.66%
Working Capital(3)............................ 559,500 19.14%
------------ -------
Total....................................... $2,923,500 100.00%
</TABLE>
- ------------------
(1) Includes funds utilized for research and development, including product
design, engineering and prototype design, statistical analysis and software
design and development. Of this amount, approximately 10% will be used for
the further development of the Company's professional sports version of The
SportsTrac(Trademark) System and the remainder will be allocated between the
Company's consumer and health and fitness versions.
(2) 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
January 31, 1998 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. Each of these loans
are due and payable upon the earlier of January 31, 1998 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.
Also represents the repayment of additional loans in the amount of $264,000
to Ulster Investment, Ltd. due and payable upon the earlier of January 31,
1998 or the closing of the Company's initial public offering. Such loans
bear interest at the rate of 10% per annum. The proceeds of such loans were
used for working capital. See 'Bridge Financing' and 'Certain Transactions.'
(3) This amount will be utilized for general and administrative expenses
(including salaries, accrued salary to Messrs. Silverman and Mellman,
President and Chairman, respectively, in the amounts of $48,500 and $33,000,
respectively, as of December 31, 1996, office space and equipment rental
(including communication equipment), supplies and other miscellaneous
expenses).
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
twelve (12) 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
Underwriters 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.
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DILUTION
At March 31, 1997, the Company had outstanding an aggregate of 2,904,000
shares of Common Stock having an aggregate net tangible deficit value of
$(1,819,190) or $(.63) per share, based upon operating activity through March
31, 1997. 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 675,000 shares of Common Stock by the
Company with net proceeds of $3,023,500 (without deducting the $100,000
financial advisory fee), the pro forma tangible book value of the Common Stock
would have been $1,498,820 or approximately $.42 per share. This represents an
immediate increase in pro forma net tangible book value of $1.05 per share to
the present stockholders and an immediate dilution of $5.58 per share (93%) 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:
<TABLE>
<S> <C> <C>
Public offering price of shares offered hereby(1).......... $6.00
Net tangible deficit per share............................. $ (.63)
Increase per share attributable offered hereby............. $1.05
Pro Forma net tangible book value per share after
offering(3).............................................. $ .42
Dilution of net tangible book value per share to purchasers
in this offering(2)(3)................................... $ 5.58
</TABLE>
- ------------------
(1) Before deduction of underwriting discounts, commission, fees and Offering
expenses.
(2) Assuming no exercise of the Over-Allotment Option and Representative'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.'
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing shareholders as of March 31, 1997 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........ 675,000 18.86% $ 4,050,000 88.87% $6.00
Existing Stockholders... 2,904,000 81.14% 507,000 11.13% .17
------------- ------ ------------- ------ ------
Total................... 3,579,000 100% $ 4,557,000 100%
------------- ------ ------------- ------
</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 Representative's Purchase Option, or any securities issuable upon the
exercise of the Over-Allotment Option or any outstanding options or warrants.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted giving effect to the sale of 675,000 shares of
Common Stock offered hereby and the application of net proceeds $3,023,500
therefrom assuming a public offering price of $6.00 per share. The table is not
adjusted to give effect to the exercise of the Underwriters' Over-Allotment
Option, Representative'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.
<TABLE>
<CAPTION>
ACTUAL(1) PRO FORMA(2)
---------- ------------
<S> <C> <C>
Notes Payable..................................... $1,364,000 $ --
---------- ------------
Stockholders' equity:
Common Stock, $.01 par value per share, 15,000,000
shares authorized, issued and outstanding
2,904,000, and 3,579,000 respectively........... 29,040 35,790
---------- ------------
Preferred Stock, $.01 par value per share, 100,000
shares authorized, 0 shares issued and
outstanding..................................... -- --
Additional paid-in capital........................ 1,413,960 4,430,710
---------- ------------
Deficit accumulated during the development stage.. (2,143,280) (2,143,280)
---------- ------------
Total stockholders' (deficit) equity.............. (700,280) 2,323,220
---------- ------------
Total capitalization.............................. $ 663,720 2,323,220
---------- ------------
---------- ------------
</TABLE>
- ------------------
(1) Does not include the sale of 675,000 shares of Common Stock offered hereby.
(2) Reflects the sale of 675,000 shares offered hereby and the anticipated
application of the net proceeds of $1,823,500 therefrom, after deducting
estimated Offering expense of $1,026,500 and the repayment of notes of
$1,200,000 payable with the proceeds of the Offering. Does not give effect
to a $100,000 fee payable to the Representative pursuant to a three (3) year
financial advisory and investment banking agreement.
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
14
<PAGE>
(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) January 31, 1998 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.'
SELECTED FINANCIAL DATA
The selected financial data presented below for the Company's statement of
operations for the year ended December 31, 1996 and the period commencing April
25, 1995 (inception) to December 31, 1995, and the balance sheet data at
December 31, 1996 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 statements of operations data for
the three (3) months ended March 31, 1997 and 1996 and cumulative during
development stage, and the balance sheet data at March 31, 1997 are derived from
unaudited financial statements which appear elsewhere in this Prospectus.
Management believes that all adjustments necessary for a fair presentation have
been made in such interim period. However, the results of operations for the
interim period are not necessarily indicative of the Company's financial results
for the entire current fiscal year. See 'Financial Statements.'
SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
THREE MONTHS THREE MONTHS YEAR APRIL 25, 1995 DURING
ENDED ENDED ENDED (INCEPTION) TO DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 12/31/96 12/31/95 STAGE
-------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............... $ 0 $ 0 $ 0 $ 0 $ 0
Gross Profits.......... 0 0 0 0 0
Operating (loss)....... (223,428) (344,558) (1,098,327) (821,525) (2,143,280)
Net (loss)............. (223,428) (344,558) (1,098,327) (821,525) (2,143,280)
Net (loss) per share... (.07) (.11) (.35) (.26) (.69)
Weighted average number
of common shares
outstanding.......... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
Working Capital (deficit)...................... $ (1,652,847) $(1,862,337)
Total assets................................... 1,209,927 1,212,246
Total liabilities.............................. 1,686,779 1,912,526
Deficit accumulated during development stage... (1,919,852) (2,143,280)
Stockholders' (deficit)........................ (476,852) (700,280)
</TABLE>
15
<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(Trademark) System. The Company was formed in April 1995 for the
purposes of sublicensing 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(Trademark) 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 $2,143,280 and $1,919,852 as of March 31, 1997 and
December 31, 1996, 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 second
and third quarters of 1998. The Company intends to seek third parties to
distribute The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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(Trademark)
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(Trademark) System's core technology. Even if the
Company is able to successfully adapt The SportsTrac(Trademark) 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 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 December 31, 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 March 31, 1997, the Company had a working capital deficit of
$1,862,337. 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.'
16
<PAGE>
The report of the Company's auditors contains an explanatory paragraph which
discusses certain factors which raise substantial doubt about the Company's
ability to continue as a going concern.
The Company expects to incur substantial expenditures over the next
eighteen months to implement its sales, marketing and other programs. The
Company's management believe that the net proceeds of this offering (excluding
any proceeds from the Underwriters' Over-Allotment Option) will be sufficient to
fund its liquidity needs for at least the next twelve months.
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(Trademark) 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(Trademark) System, and is
presently using the name for promotional purposes.
The SportsTrac(Trademark) System is presently in use (on an experimental
basis) by professional baseball and basketball teams and has been used by a
professional hockey team in the past. Presently, this professional level sports
team version of The SportsTrac(Trademark) 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 SportsTrac(Trademark) System to a consumer
entertainment version which will allow users to 'compete' against professional
athletes. However, the Company has not yet begun commercial production of any
version of its SportsTrac(Trademark) System which the Company anticipates will
be commercially available to any of its targeted markets. Should any adaptation
of The SportsTrac(Trademark) 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(Trademark) 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), Anaheim Angels (Major League
Baseball), San Diego Padres (Major League Baseball), Minnesota Twins (a Major
League Baseball team through its AAA minor league affiliate), Minnesota
Timberwolves (National Basketball Association) and Callaway Golf. Additionally,
the Company has recently concluded a pilot program with the New York Rangers
(via their affiliate in the American Hockey League). The Company has signed
purchase agreements with the Palm Springs Suns ( a minor league baseball team)
and U.S. Golf and Entertainment, Inc. (owners of golf driving ranges) (both of
whom are not affiliates of the Company, as that term is defined under the
Securities Act of 1933, as amended (the 'Securities Act' or '1933 Act')) to
install The SportsTrac(Trademark) System in early 1997. Each agreement calls for
the installation of one SportsTrac(Trademark) System (identical to the
professional sports team version) 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 the Company for the
twelve month period following shipment; and (3) the requirement by the Company
to supply updates and modifications to the systems completed by the Company
during the twelve month period following the date of shipment, at no charge to
the customers.
This pilot program is scheduled to continue until the fourth quarter of
1997, 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(Trademark)
System in the pilot program.
17
<PAGE>
The Company is unaware of any product other than The SportsTrac(Trademark)
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(Trademark) System. The study detected a strong correlation between
SportsTrac(Trademark) System scores and the on-field performance of professional
athletes. In addition, the study revealed that the most successful baseball
players achieved better SportsTrac(Trademark) scores than did other players.
Importantly, players found that tracking on The SportsTrac(Trademark) 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(Trademark) 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(Trademark)') 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(Trademark) technologies to evaluate
athletic performance, which BFI did not and has not developed for commercial
production. In addition, the license granted by BFI pursuant to the sublicense
agreement was a license of the Factor 1000(Trademark) technology developed by
BFI, and a sublicense of the CTT technology, which technologies the Company
subsequently incorporated in its SportsTrac(Trademark) 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(Trademark) System. See 'Risk Factors--Potential
Loss of Licensed Technology May Affect Operations,' 'Use of Proceeds' and
'Description of Securities.'
The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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.
18
<PAGE>
Presently, the Company provides data analysis for its pilot program
participants. As athletes use SportsTrac, their scores are encrypted, stored on
The SportsTrac(Trademark) System computer and then transferred via modem by a
system administrator to a computer at SportsTrac, Inc. The Company's chairman,
Dr. Michael Mellman, then decrypts the scores and creates charts which display
each player's SportsTrac scores during the previous one to six weeks. These
charts visually demonstrate how a player's SportsTrac performance (maximum
score, standard deviation, and moving average) changes over time, as well as
which players consistently achieve high SportsTrac scores.
Using these charts and specified game data, SportsTrac, Inc. can evaluate
players' SportsTrac performance and identify performance trends. For example,
tracking data may identify a group of players that consistently scores best on
travel days, or another group that scores well with extra rest. SportsTrac
delivers to each participant a weekly player report containing the scoring
charts, trend analysis (if any) and individual player profiles.
The Company believes that The SportsTrac(Trademark) System technology is
adaptable to a variety of formats. There can be no assurances that the
adaptation of The SportsTrac(Trademark) System technology to various formats
will be completed, or if completed that such adaptions will achieve market
acceptance. The professional version of The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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(Trademark) 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(Trademark) 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 Company is contemplating a health and fitness club version of The
SportsTrac(Trademark) 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. See 'Business--Versions of the Company's
Single Product.'
The Company has initiated research projects with Callaway Golf to determine
how The SportsTrac(Trademark) System can most benefit amateur and professional
golfers. Preliminary results from this pilot program indicate that the benefits
of The SportsTrac(Trademark) 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(Trademark)
System will be designed for the five (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(Trademark) System will begin in the second quarter of 1998.
However, there can be no assurances that the Company will successfully complete
the adaptation of The SportsTrac(Trademark) 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(Trademark) 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(Trademark) System technology scheduled for the first quarter
of 1998, The SportsTrac(Trademark) 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(Trademark) 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.
19
<PAGE>
DEVELOPMENT OF THE SPORTSTRAC(TRADEMARK) 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(Trademark) 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(Trademark) employee
fitness system marketed by BioFactors Inc. ('BFI'), the sublicensor of the
Company's technology. Based upon the Company's experience with the CTT
technology, the Company believes that FACTOR 1000(Trademark) 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(Trademark) 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(Trademark) and the Company's SportsTrac(Trademark) System,
both the application of the technology and the results obtained differ greatly.
While the FACTOR 1000(Trademark) utilizes the CTT technology to evaluate an
employee's fitness in a commercial setting on a 'yes/no' basis, The
SportsTrac(Trademark) System provides athletes with a quantitative measurement
of their skills. Additionally, The SportsTrac(Trademark) 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 than The
SportsTrac(Trademark) System attempts to gauge an athlete's readiness for
competition in the same manner of The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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(Trademark) 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
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(Trademark) 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 better 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(Trademark) 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(Trademark)
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.
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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(Trademark) System is an accurate measurement of visual-motor
acuity (a fundamental component in athletic 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(Trademark)
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(Trademark) 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(Trademark) System requires a
laptop computer and electronic transmission of data to the Company for analysis.
Professional users of The SportsTrac(Trademark) System receive charts of player
scores on The SportsTrac(Trademark) System correlated with game conditions.
The Company plans to develop a version of The SportsTrac(Trademark) System
by the second quarter of 1998, employing advanced graphics and video that will
enhance The SportsTrac(Trademark) System's entertainment value. Based upon its
experience with The SportsTrac(Trademark) System in the pilot program, the
Company believes that combining The SportsTrac(Trademark) 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(Trademark) 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 sublicense from BioFactors, Inc. which markets
the first commercial implementation of the CTT. That product, FACTOR
1000(Trademark), 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(Trademark) 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(Trademark) Technologies performance is predictive of performance
differences between players--in other words, a player who performs better on the
CTT and FACTOR 1000(Trademark) 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 sublicense from
BioFactors, Inc. to apply the CTT and FACTOR 1000(Trademark) technologies for
sports-related, and sports-entertainment applications. The FACTOR
1000(Trademark) system was modified to withstand the rigors of travel and the
locker room environment, by adapting it to a laptop computer. The
SportsTrac(Trademark) System has since been installed and used by the NHL New
York Rangers (via their affiliate in the American Hockey League), the NBA
Minnesota Timberwolves, the Los Angeles Dodgers, the Anaheim Angels, the San
Diego Padres and the Minnesota Twins (a Major League Baseball team through their
AAA minor league affiliate).
The SportsTrac(Trademark) 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(Trademark)
System. The Company holds periodic telephone meetings (on at least a monthly
basis) with customers to discuss The SportsTrac(Trademark) 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.
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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 Consumer Enhancement Versions--Golf
o Consumer Entertainment Versions
o Health and Fitness Monitoring and Information Systems
The Company expects to introduce the professional version of The
SportsTrac(Trademark) System to new teams during the 1998 Major League Baseball
season and the 1997-1998 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(Trademark) System is a necessary component of any team's
success on the field.
The SportsTrac(Trademark) 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.
VERSIONS OF THE COMPANY'S SINGLE PRODUCT
Professional SportsTrac(Trademark) System
The professional version of The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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(Trademark) System.
Using The SportsTrac(Trademark) 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(Trademark) 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(Trademark) System is designed to be used with minimal
supervision. A trainer or other person can set up The SportsTrac(Trademark)
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(Trademark) 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(Trademark) System integrates easily
into athletic training environments and is welcomed by players and coaches.
The SportsTrac(Trademark) System maintains a historical record of The
SportsTrac(Trademark) System scores. It can display numeric reports or graphs of
performance trends on an individual or team basis. Data security is built into
The
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SportsTrac(Trademark) System and teams can choose to make data available to
any combination of players, trainers, physicians and management.
The market for professional sports enhancement products is highly
fragmented with many individuals and companies selling devices, analysis,
statistics, training techniques, food supplements, and more to professional
sports organizations. Teams vary widely in their interest in new products,
particularly high-tech products, and the key element for vendors is often a
high-level contact or demonstrable success story with another team. While the
Company believes that the results of the Study, as well as the results of the
Company's pilot program, will enable The SportsTrac(Trademark) 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(Trademark) System. See 'Risk Factors--Dependence upon
Emerging Market; Uncertainty of Market Acceptance.'
The SportsTrac(Trademark) System for Consumers
The Company believes that developing a simplified, consumer version of The
SportsTrac(Trademark) System is the best way to leverage The
SportsTrac(Trademark) System's professional acceptance. The first consumer
version of The SportsTrac(Trademark) System (the 'Consumer SportsTrac(Trademark)
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(Trademark) System offers the kind of skill analysis
and monitoring that will appeal to high and low handicap golfers alike.
The Company has recently begun a research project with Callaway Golf, the
leading manufacturer of golf clubs and one of the most powerful brand names in
golf. The Company and Callaway will use Callaway's testing facilities and its
team of professional golfers to determine how The SportsTrac(Trademark) 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(Trademark) System daily (in its prototype form) to determine how
closely their scores using The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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, 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(Trademark) System to these formats, and if completed, that such
adaptations will achieve market acceptance.
Consumer Entertainment Version
The professional version of The SportsTrac(Trademark) 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(Trademark) System for sports use. The Company
anticipates that The SportsTrac(Trademark) System technology will be adapted for
consumer entertainment use by the second quarter of 1998. 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(Trademark) 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.
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Additionally, no assurances can be made that should such an adaptation be
completed, it would achieve market acceptance.
The SportsTrac(Trademark) System for Health and Fitness Centers
The Company believes that The SportsTrac(Trademark) 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(Trademark) 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(Trademark) System version 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(Trademark) 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(Trademark) 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(Trademark) System, view club news, view sports
information or leave a message for another member. Choosing to use The Health
and Fitness SportsTrac(Trademark) System will allow the user to start a session,
print a graph of previous scores, or display The Health and Fitness
SportsTrac(Trademark) System analysis screen.
Alternatively, the user will be able to view screens containing information
about the club, including the club's schedule of classes and events, equipment
layout, hours of operation. A third choice will allow the user to record his or
her workout schedule, leave a message for the club or another member, and obtain
information about sports medicine, fitness, nutrition, and other subjects of
interest to members.
To maintain and deliver this information, the Company will link each health
and fitness center using The Health and Fitness SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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(Trademark) 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.
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SALES AND MARKETING PLAN
The current version of The SportsTrac(Trademark) 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(Trademark) System is available for commercial
implementation. This professional version of The SportsTrac(Trademark) 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(Trademark) System go to market. However, at the present time, this
version of The SportsTrac(Trademark) System is neither fully tested nor fully
engineered, nor is it ready for commercial production. However, upon the
conclusion of the pilot program, estimated to be in the fourth quarter of 1997,
the Company anticipates that such version of The SportsTrac(Trademark) System
will be available for commercial production and sale. The Company has 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(Trademark) System in early 1997. The purchase price for each such
system is $20,000.
While the consumer versions of The SportsTrac(Trademark) 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(Trademark) System on-site will be able to private label consumer
machines incorporating The SportsTrac(Trademark) System for sale in their
equipment stores. The Company may also market the consumer versions of The
SportsTrac(Trademark) 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 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(Trademark) 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(Trademark) System. In addition, any
new technology would lack the benefit of the three decades of validation of the
CTT underlying The SportsTrac(Trademark) System. Currently, the only version of
The SportsTrac(Trademark) 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(Trademark) 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(Trademark) 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.
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EMPLOYEES
As of December 31, 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(Trademark) System product design and identification of new
product designs and customers, it does not serve any management function.
Members of the Company's Board of Advisors include:
Fred Claire. Mr. Claire has been with the Los Angeles Dodgers since 1969
and currently holds the position of Executive Vice President and General
Manager. In 1988 Mr. Claire was named the Sporting News Executive of the Year
and has served Major League Baseball as a member of the Board of Directors of
Baseball Properties, the Broadcast Advisory Group, and the Baseball Operations
committee.
Ralph Gambardella, MD. Dr. Gambardella is an orthopaedic surgeon,
specializing in sports medicine, practicing with the world renowned 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 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.
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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.
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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.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ----------------------- --- -----------------------------------------
<S> <C> <C>
Michael Mellman, MD.... 46 Chairman of the Board and Director
Marc R. Silverman...... 44 Chief Executive Officer, President, Chief
Financial Officer and Director
Elliot Steinberg....... 59 Director
Solomon A. Weisgal..... 70 Director
Joshua Kanter.......... 35 Director and Secretary
David Wohl............. 47 Executive Vice President
</TABLE>
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
Michael Mellman, MD is a founder of the Company and is presently in the
private practice of internal medicine at Centinela Hospital Medical Center in
Inglewood, California. Dr. Mellman has been the team physician for the Los
Angeles Dodgers since 1986, and the Los Angeles Lakers and Los Angeles Kings
since 1981. He was the team physician for the now defunct LA Express of the
United States Football League and has served as a consultant to the Los Angeles
Rams. Dr. Mellman is widely recognized as an expert in the area of sports
medicine and athletic performance. Dr. Mellman graduated from the University of
California at Los Angeles with a bachelors degree in Zoology. He received his MD
from the Mount Sinai School of Medicine in New York. His internship, residency,
and chief residency in Internal Medicine were all served at Cedars Sinai Medical
Center in Los Angeles.
Marc R. Silverman is a founder of the Company and has a broad background of
business experience and technical expertise, including strategic planning,
business development, product design and implementation. From 1989 through 1993,
Mr. Silverman was the President and a director of Performance Factors, Inc. (in
which he was one of the founders). Performance Factors, Inc. (which was formerly
known as Cognitive Systems, Inc.) was merged with and into BioFactors, Inc. on
May 22, 1994. Mr. Silverman was an officer of BioFactors, Inc. from 1993 until
September 1, 1995 (and a director until April, 1995). Prior to joining
Performance Factors Inc., Mr. Silverman was Director of Planning and Business
Development at Technicon Corporation, a major developer of computerized patient
care and hospital information systems, 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
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Mr. Steinberg has been a director of Ganson Ltd. and Cege Co., Ltd. (Hong Kong),
both private companies engaged in the manufacture and sale of leather goods.
From 1988 through 1992, Mr. Steinberg was the general partner of, and general
counsel to, Genesis Merchant Group, an Illinois financial services firm,
providing investment banking, brokerage activities and asset management of
equities and bonds. Mr, Steinberg is a graduate of the University of California
(Berkeley) and holds a J.D. degree from the Boalt Hall School of Law, University
of California (Berkeley).
Solomon A. Weisgal, has been a director of the Company since February 1996.
Mr. Weisgal is a Certified Public Accountant and has been President of Solomon
A. Weisgal, Ltd., a financial consulting firm, since its inception in 1979. Mr.
Weisgal is presently a director of Chicago Holdings, Inc. and Dealers Alliance
Credit Corp., privately-held concerns, and First Merchant Acceptance Corporation
and Walnut Financial Services, Inc., companies listed on the Nasdaq National
Market System.
Joshua S. Kanter has been of counsel to Barack, Ferrazzano, Kirschbaum &
Perlman, specializing in securities, corporate and real estate law since June
1993. Mr. Kanter has also been the Vice-President of Windy City, Inc., a closely
held investment management and consulting firm since June 1986 and has been
General Counsel of Walnut Financial Services, Inc., a publicly-held concern
(Nasdaq NMS--WNUT) since September 1995. Mr. Kanter received a B.A. in Economics
and Political Science and graduated magna cum laude from Emory University in
1984. Thereafter, Mr. Kanter received his J.D. from the University of Chicago
Law School in 1987. Mr. Kanter has served on the Boards of Directors of a number
of companies, including Critical Industries, Inc., a publicly held concern, and
Performance Factors, Inc. and TCOM Systems, Inc., both privately-held concerns.
David Wohl has been the Executive Vice President of the Company since
February 10, 1997. Mr. Wohl has 25 years of experience in professional sports.
From 1994 through 1996, Mr. Wohl was the Executive Vice President of and
Director of Basketball Operations for the Miami Heat of the NBA. Mr. Wohl was
responsible for strategic planning, hiring a head coach, negotiations of all
player contracts and roster management, including trades and college draft
selections. Prior to joining the Miami Heat, Mr. Wohl spent 15 years as both a
head coach and assistant coach in the NBA, during which time he won an NBA
championship with the Los Angeles Lakers. Before entering coaching, Mr. Wohl
played in the NBA from 1971 through 1978, during which time he served as a
representative to the NBA Players Association. Mr. Wohl is a graduate of the
University of Pennsylvania. He has written numerous articles on sports for
Sports Illustrated and The National Sports Daily.
EXECUTIVE COMPENSATION
The following table sets forth remuneration paid or accrued by the Company
during fiscal years 1995 and 1996 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 years 1995 and 1996 no director, officer or employee received
compensation exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------ SECURITIES ----------------------
NAME OF INDIVIDUAL OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
AND 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....... 1996 $144,500 -- -- -- -- -- --
Officer, President,
Chief Financial
Officer and Director
Michael Mellman....... 1995 $ 21,000 -- -- -- 60,000 -- --
Chairman of the....... 1996 $ 90,000 -- -- -- -- -- --
Board
</TABLE>
29
<PAGE>
Set forth below is information relating to stock options granted to Messrs.
Silverman and Mellman (none were granted in 1996):
OPTION/SAR GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO
OPTION/SARS EMPLOYEES IN EXERCISE
NAME GRANTED FISCAL 1995 PRICE ($/SH) EXPIRATION DATE
- ------------------- ----------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C>
Marc Silverman..... 60,000 28.57% $.25 Nov. 30, 2000
Michael Mellman.... 60,000 28.57% $.25 Nov. 30, 2000
</TABLE>
AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 1995
AND YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT FY-END AT FY-END(1)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marc Silverman..... -- -- 60,000 -- $ 345,000 --
Michael Mellman.... -- -- 60,000 -- $ 345,000 --
</TABLE>
- ------------------
(1) Represents the value of options assuming the initial public offering price
per Share set forth on the cover page of this Prospectus.
EMPLOYMENT AGREEMENTS
There are currently no employment agreements with any of the Company's
executive officers or key employees. All salaries of such persons will be set by
the Company's Compensation Committee which consists of Messrs. Steinberg,
Weisgal and Kanter, all non-employee directors of the Company.
1995 STOCK PLAN
In November 1995, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1995 Stock Plan
(hereinafter called the 'Plan'). The purpose of the Plan is to provide a means
whereby key individuals providing services to the Company and to its related
corporations may sustain a sense of proprietorship and personal involvement in
the continued development and financial success of the Company and to encourage
them to remain with and devote their best efforts to the business of the
Company, thereby advancing the interests of the Company and its shareholders.
Under the Plan, certain directors, officers, employees and consultants are
eligible to acquire Common Stock of the Company or otherwise participate in the
financial success of the Company. The Plan is expected to provide flexibility to
the Company's compensation methods, after giving due consideration to
competitive conditions and the impact of the federal tax laws.
The maximum aggregate number of Shares that may be awarded to individuals
under the Plan is 480,000 Shares. Any Shares that remain unissued at the
termination of the Plan shall cease to be subject to the Plan, but until
termination of the Plan, the Company shall at all times make available
sufficient shares to meet the requirements of the Plan. The aggregate number of
Shares which may be awarded under the Plan shall be adjusted to reflect a change
in capitalization of the Company, such as a stock dividend or stock split.
The Plan shall be administered by a Committee which shall be comprised of
at least two (2) non-employee disinterested directors appointed by the Board of
Directors of the Company (hereinafter referred to as the 'Board'). A
disinterested director is any member of the Board who within the prior year has
not been, and is not being, granted any awards related to the Shares under the
Plan or any other plan of the Company or any related Company except for awards
which: (i) are calculated in accordance with a formula as contemplated in
paragraph (c)(ii) of Rule 16b-3 ('Rule 16b-3') under the Securities and Exchange
Act of 1934; (ii) result from
30
<PAGE>
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.
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.
31
<PAGE>
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 may only be made in
accordance with applicable restrictions 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).
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the outstanding shares of
the Company's Common Stock by (i) any holder of more than five percent (5%) of
the outstanding shares; (ii) the Company's officers and directors; and (iii) the
directors and officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENTAGE PERCENTAGE
OWNED PRIOR (%) OF (%) OF
TO THIS CLASS BEFORE CLASS AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING(1) OFFERING(1) OFFERING(1)
- ------------------------------------ ----------- ------------ -----------
<S> <C> <C> <C>
Jelsin Investments Limited ......... 216,000 7.44 6.04
P.O. Box NO3933
Shirley Street
Nassau, Bahamas
Kanter Family Foundation ........... 216,000 7.44 6.04
8000 Towers Crescent Drive
Suite 1070
Vienna, Virginia 22182
Joshua S. Kanter(2)(9) ............. 86,400 2.98 2.42
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
M.D. Funding, Inc. ................. 459,000 15.81 12.83
5 Old Woods Drive
Harrison, New York 10528
Michael Mellman(3) ................. 234,000 7.89 6.43
500 North Poinsettia Avenue
Manhattan Beach, California 90266
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENTAGE PERCENTAGE
OWNED PRIOR (%) OF (%) OF
TO THIS CLASS BEFORE CLASS AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OFFERING(1) OFFERING(1) OFFERING(1)
- ------------------------------------ ----------- ------------ -----------
<S> <C> <C> <C>
Marc Silverman(4) .................. 234,000 7.89 6.43
c/o SportsTrac, Inc.
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
W. S. Ventures(5) .................. 270,000 9.30 7.54
P.O. Box 3721
Telluride, Colorado 81435
Elliot Steinberg(5) ................ 270,000 9.30 7.54
P.O. Box 3721
Telluride, Colorado 81435
The Holding Company(6) ............. 234,600 8.07 6.56
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Daniel Durchslag ................... 408,000 14.05 11.40
9400 Brighton Way
#402
Beverly Hills, CA 90210
Joel S. Kanter(7)(9) ............... 388,800 13.39 10.86
8000 Towers Crescent Avenue
Suite 1070
Vienna, Virginia 22182
Solomon A. Weisgal(8) .............. 18,000 .62 .50
120 South Riverside Drive
Suite 1420
Chicago, IL 60606
All officers and directors as a
group (five (5) persons).......... 842,400 28.68 23.32
</TABLE>
- ------------------
(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)
101,250 shares of Common Stock issuable upon exercise of the Over-Allotment
Option; (ii) 67,500 shares of Common Stock issuable upon exercise of the
Representative'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 (iv) 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.'
(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.'
(Footnotes continued on next page)
33
<PAGE>
(Footnotes continued from previous page)
(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.
34
<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) January 31, 1998 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 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
35
<PAGE>
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.
DESCRIPTION OF SECURITIES
The Company is offering 675,000 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.
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 , 1998, 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
36
<PAGE>
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 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
37
<PAGE>
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. See 'Certain Relationships and Related
Transactions.'
If any underwriter or dealer intends to acquire restricted securities of a
stockholder of the Company subsequent to effectiveness of the Registration
Statement of which this Prospectus forms a part, a post-effective amendment to
such Registration Statement will be filed to reflect an arrangement involving
10% or more of the restricted securities being registered for resale pursuant to
a new registration statement. A sticker supplement to the Prospectus contained
in the Registration Statement will be filed if the amount of restricted
securities being registered for resale pursuant to a new registration statement
falls within the range of 5% to 10%.
DELAWARE ANTI-TAKEOVER LAW
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an 'interested
stockholder' (defined generally as a person owing 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a 'business
combination' (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by the directors who are also
officers of the corporation and by certain employee stock plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the public announcement or notification of
one of certain extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of the corporation's
board of directors and if such business combination is approved by a majority of
the board members who were directors prior to any person's becoming an
interested stockholder. The provisions of Section 203 requiring a super-majority
vote to approve certain corporate transactions could have the effect of
discouraging, delaying or preventing hostile takeovers, including those that
might result in the payment of a premium over market price or changes in control
or management of the Company.
LIMITATION ON LIABILITY OF DIRECTORS
In connection with the Offering, the Underwriter has agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Securities Act with respect to any statement in or omission
from the registration statement or the Prospectus or any amendment or supplement
thereto if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Underwriter specifically for or in
connection with the preparation of the registration statement, the Prospectus,
or any such amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of the performance of their duties as directors and
officers.
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.
38
<PAGE>
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'. There can be no assurance that such
application will be approved or that, if approved, a regular trading market for
the Common Stock will develop after the Offering or that, if developed, a
regular trading market will be sustained. The OTC Bulletin Board is an
unorganized, inter-dealer, over-the-counter market which provides significantly
less liquidity than a national securities exchange or Nasdaq and quotes for
stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers as are those for a national securities exchange or
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. If the Company's Common Stock trades for less than
$5.00 per share on the OTC Bulletin Board or the 'pink sheets', it will become
subject to the Commission's penny stock disclosure requirements. See 'Risk
Factors--'Penny Stock' Regulations May Impose Certain Restrictions on
Marketability of Company's Common Stock.'
The Company's application for listing of its Common Stock on the Nasdaq
SmallCap Market was denied by the Nasdaq staff for the following reasons: (1)
there is substantial risk regarding the Company's ability to continue operating
as a going concern and to continue to comply with Nasdaq listing criteria; (2)
there are significant investment risks to prospective public investors in the
Company who will provide the vast majority of its permanent equity capital but
who will sustain a disproportionate degree of investment risk relative to the
percentage of share ownership and investment by the Company's principals and
bridge lenders; and (3) there is a potential for extraordinary monetary gain to
be realized by the Company's bridge lenders to the detriment of prospective
public investors. The denial was affirmed by the Panel for the following
reasons: (1) the Panel was unwilling to dismiss the staff's concern relating to
the Company's ability to continue as a going concern and noted that the Company
lacks executed contracts to serve as a basis for its 1997 projections and that
the Company's licensing contracts with the professional teams and the health
club agreement fall short of providing a basis for future revenue stream
projections; and (2) the Panel was uncomfortable with the bridge loan financing
as structured due to the excessive potential returns for the bridge lenders, the
brief period of investment prior to the offering, and the lack of adequate lock
up provisions for the equity securities in the post-offering period. The
Company's appeal to the Review Committee was denied. The Review Committee
affirmed the decision of the Panel because the Company was in its development
stage, with speculative prospects for future sales and uncertainty regarding the
Company's ability to continue as a going concern. The Review Committee was also
concerned with the excessive potential return to bridge lending to the detriment
of potential Nasdaq shareholders. 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
the Company's Common Stock.'
39
<PAGE>
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 one year
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 two 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. See
'Risk Factors--Shares Eligible for Future Sale May Adversely Affect the Market'
and 'Risk Factors--Additional Authorized Shares Available for Issuance May
Adversely Affect the Market.'
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 Underwriters have agreed to purchase from the Company
675,000 Shares offered hereby from the Company all on a firm commitment basis,
if any are purchased, as follows:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------- ----------------
<S> <C>
I.A. Rabinowitz & Co. .............
.............
.............
.............
.............
-------
675,000
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Shares to the public at $6.00 per Share as set forth on the cover page of this
Prospectus and that they 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 Representative. The Underwriters have informed
the Company that they do not intend to confirm sales over which they exercise
discretionary authority.
The public offering price of the securities was arbitrarily determined by
negotiations between the Company and the Representative and does 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 Underwriters, exercisable during
the thirty (30) day period from the date of this Prospectus, to purchase up to a
maximum of 101,250 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 Underwriters 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.
40
<PAGE>
The Company has agreed to pay to the Underwriters 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 Representative, or its designees, for
an aggregate purchase price of $67.50, an option (the 'Representative's Purchase
Option') to purchase up to an aggregate of 67,500 Shares. The Representative's
Purchase Option shall be exercisable during a four (4) year period commencing
one (1) year from the Effective Date. The Representative's Purchase Option may
not be assigned, transferred, sold or hypothecated by the Representative until
twelve (12) months after the Effective Date of this Prospectus, except to
officers of the Underwriters or to selling group members in this Offering. Any
profits realized upon the sale of the securities issuable upon exercise of the
Representative's, Purchase Option may be deemed to be additional underwriting
compensation. The exercise price of the shares of Common Stock issuable upon
exercise of the Representative's Purchase Option during the period of
exercisability shall be $9.90 per share. The exercise price of the
Representative'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
Representative'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 Representative's Purchase Option is outstanding. At any
time when the holders of the Representative'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 Representative, the Company has agreed to pay
the Representative 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 Representative, pursuant to which the Company will be
obligated to pay the Representative $100,000 in advance upon the closing of the
Offering, for financial and investment advisory services to the Company.
The Representative 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 Representative 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 Representative Purchase Option which have been filed as exhibits
hereto.
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 Representative. 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.'
41
<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 Representative 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 Underwriters by
Lampert & Lampert, 10 East 40th Street, New York, NY 10016.
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.
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.
42
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Certified Public Accountants............... F-2
Financial Statements:
Balance sheets as of December 31, 1996 and March 31, 1997
(unaudited)................................................. F-3
Statements of operations for the year ended December 31, 1996
and the period April 25, 1995 (inception) to December 31,
1995, three months ended March 31, 1997 and 1996 and
cumulative during development stage (unaudited)............. F-4
Statement of stockholders' equity (Deficit) for the year ended
December 31, 1996 and the period April 25, 1995 (inception)
to December 31, 1995, three months ended March 31, 1997 and
cumulative during development stage (unaudited)............. F-5
Statements of cash flows for the year ended December 31, 1996
and the period April 25, 1995 (inception) to December 31,
1995, three months ended March 31, 1997 and 1996 and
cumulative during development stage (unaudited)............. F-6
Notes to financial statements.................................. F-7 - F-12
</TABLE>
F-1
<PAGE>
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, 1996, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31,
1996 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SportsTrac, Inc. as of December
31, 1996 and the results of its operations and its cash flows for the year ended
December 31, 1996 and 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.
HOLTZ RUBENSTEIN & CO., LLP
Certified Public Accountants
Melville, New York
March 18, 1997
125 Baylis Road, Melville, NY 11747-3823 o FAX 516/752-1742 o 516/752-7400
F-2
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash................................................. $ 23,932 $ 40,189
Accounts Receivable.................................. 10,000 10,000
------------ ------------
33,932 50,189
LICENSED TECHNOLOGY, net of accumulated amortization of
$97,976 and $116,060, respectively (Note 3).......... 842,484 824,400
COMPUTER EQUIPMENT, net of accumulated depreciation of
$10,060 and $12,310, respectively.................... 40,238 38,986
DEFERRED OFFERING COSTS................................ 291,162 294,510
OTHER ASSETS........................................... 2,111 4,161
------------ ------------
$1,209,927 $ 1,212,246
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
CURRENT LIABILITIES:
Bridge notes payable (Note 4)........................ $1,200,000 $ 1,364,000
Deferred revenue..................................... 20,000 20,000
Accrued expenses..................................... 466,779 528,526
------------ ------------
1,686,779 1,912,526
------------ ------------
STOCKHOLDERS' (DEFICIT): (Note 6)
Preferred stock, $.01 par value; authorized 100,000
shares; no shares issued and outstanding.......... -- --
Common stock, $.01 par value; authorized 15,000,000
shares; 2,904,000 shares issued and outstanding... 29,040 29,040
Additional paid-in capital........................... 1,413,960 1,413,960
Deficit accumulated during the development stage..... (1,919,852) (2,143,280)
------------ ------------
(476,852) (700,280)
------------ ------------
$1,209,927 $ 1,212,246
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
THREE MONTHS THREE MONTHS APRIL 25, 1995 DURING
ENDED ENDED YEAR ENDED (INCEPTION) TO DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995 STAGE
-------------- -------------- ----------------- ----------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........... $ -- $ -- $ -- $ -- $ --
-------------- -------------- ----------------- ----------------- ------------
COSTS AND EXPENSES:
General and
administrative
(Note 6)...... 149,373 104,632 491,988 735,524 1,376,885
Product design
costs......... 22,663 41,293 90,825 26,439 139,927
Depreciation and
amortization... 20,334 19,083 81,296 26,740 128,370
Interest (Notes 3
and 5)........ 31,058 179,550 434,218 32,822 498,098
-------------- -------------- ----------------- ----------------- ------------
223,428 344,558 1,098,327 821,525 2,143,280
-------------- -------------- ----------------- ----------------- ------------
NET LOSS........... $ (223,428) $ (344,558) $(1,098,327) $(821,525) $ (2,143,280)
-------------- -------------- ----------------- ----------------- ------------
-------------- -------------- ----------------- ----------------- ------------
NET LOSS PER SHARE
(Note 6)......... $ (.07) $ (.11) $ (.35) $ (.26) $ (.69)
-------------- -------------- ----------------- ----------------- ------------
-------------- -------------- ----------------- ----------------- ------------
Weighted average
number of shares
of common stock
outstanding (Note
6)............... 3,114,000 3,114,000 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 6)
<TABLE>
<CAPTION>
PREFERRED DEFICIT
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
(Note 4)................ -- -- 480,000 4,800 301,200 -- 306,000
Net loss.................. -- -- -- -- -- (1,098,327) (1,098,327)
----- ----- --------- ------- ---------- ----------- ----------
Balance, December 31,
1996.................... -- $ -- 2,904,000 $29,040 $1,413,960 $(1,919,852) $ (476,852)
Net Loss (unaudited)...... -- -- -- -- -- (223,428) (223,428)
----- ----- --------- ------- ---------- ----------- ----------
Balance, March 31, 1997
(unaudited)............. -- $ -- 2,904,000 $29,040 $1,413,960 $(2,143,280) $ (700,280)
----- ----- --------- ------- ---------- ----------- ----------
----- ----- --------- ------- ---------- ----------- ----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
THREE MONTHS THREE MONTHS APRIL 25, 1995 DURING
ENDED ENDED YEAR ENDED (INCEPTION) TO DEVELOPMENT
MARCH 31, 1997 MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995 STAGE
-------------- -------------- ----------------- ----------------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss............... $ (223,428) $ (344,558) $(1,098,327) $(821,525) $(2,143,280)
-------------- -------------- ----------------- ----------------- -----------
Adjustments to
reconcile net loss to
net cash used in
operations:
Amortization and
depreciation....... 20,334 19,083 81,296 26,740 128,370
Amortization of
imputed interest... -- 172,885 339,040 26,500 365,540
Issuance of options.. -- -- -- 630,000 630,000
Increase in assets:
Accounts
Receivable...... -- -- (10,000) -- (10,000)
Other assets....... (2,050) (800) (1,011) (1,100) (4,161)
Increase in
liabilities:
Deferred revenue... -- -- 20,000 -- 20,000
Accrued expenses... 61,747 137,742 453,033 13,746 528,526
-------------- -------------- ----------------- ----------------- -----------
Total adjustments.... 80,031 328,910 882,358 695,886 1,658,275
-------------- -------------- ----------------- ----------------- -----------
Net cash used in
operating activities... (143,397) (15,648) (215,969) (125,639) (485,005)
-------------- -------------- ----------------- ----------------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of licensed
technology........... -- -- -- (300,000) (300,000)
Acquisition of computer
equipment............ (998) (21,080) (28,140) (22,158) (51,296)
-------------- -------------- ----------------- ----------------- -----------
Net cash used in
investing activities... (998) (21,080) (28,140) (322,158) (351,296)
-------------- -------------- ----------------- ----------------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance
of stock............. -- 15,500 15,500 85,250 100,750
Proceeds from notes
payable.............. -- -- -- 406,250 406,250
Increase in deferred
offering costs....... (3,348) (155,678) (291,162) -- (294,510)
Proceeds from Bridge
notes payable........ 164,000 400,000 1,200,000 -- 1,364,000
Repayment of notes
payable.............. -- -- (700,000) -- (700,000)
-------------- -------------- ----------------- ----------------- -----------
Net cash provided by
financing
activities............. 160,652 259,822 224,338 491,500 876,490
-------------- -------------- ----------------- ----------------- -----------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ 16,257 223,094 (19,771) 43,703 40,189
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 23,932 43,703 43,703 -- --
-------------- -------------- ----------------- ----------------- -----------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 40,189 $ 266,797 $ 23,932 $ 43,703 $ 40,189
-------------- -------------- ----------------- ----------------- -----------
-------------- -------------- ----------------- ----------------- -----------
</TABLE>
See notes to financial statements
F-6
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 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 $2,143,000. The Company has entered
into a letter of intent with an underwriter for the public sale of the Company's
securities (see Note 6). 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>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
f. Stock-based compensation
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, 'Accounting for Stock-Based Compensation' issued by the
Financial Accounting Board. The Company measures compensation expense for its
stock-based employees compensation plans using the intrinsic value method
prescribed by APB Opinion No. 25, 'Accounting for Stock Issued to Employees,'
and will provide pro forma disclosures of net income/(loss) and earnings/(loss)
per share as if the fair value-based method prescribed by SFAS 123 had been
applied in measuring compensation expense. The effect on net earnings for 1995
and 1996 was immaterial.
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 non-interest bearing $700,000 note 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 6c). These warrants were
subsequently assigned and issued to related parties of the Company.
F-8
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
3. LICENSED TECHNOLOGY:--(CONTINUED)
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 December 31,
1996, March 31, 1996 and December 31, 1995 related to this note were $33,040,
$19,885 and $26,500, respectively. During 1996, the Company repaid the $700,000
from the proceeds received as disclosed in Note 4. 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. BRIDGE NOTES PAYABLE:
a. During January and February 1996, the Company received $400,000 from
third parties ('Bridge Lenders'), bearing interest at 8% per annum. These notes
were 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 December 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) January
31, 1998. 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 480,000 shares of the Company's common stock represent a
financing cost of $306,000 which was amortized over six months.
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 19, 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 3. On
December 31, 1996, the terms for repayment of this note was extended to be the
earlier of (i) the completion of a public offering of the Company's securities,
or (ii) January 31, 1998.
c. On August 22, 1996, the Company received an advance of $350,000 from one
of the Bridge Lenders disclosed in Note 4a. 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 3. On December 31, 1996 the terms for repayment of this note
was extended to be the earlier of (i) the completion of a public offering of the
Company's securities, or (ii) January 31, 1998.
d. On October 11, 1996 and December 12, 1996, the Company received advances
of $50,000 each from one of the Bridge Lenders disclosed in Note 4a. These
advances bear interest at the rate of 10% per annum and are payable on February
28, 1997 and December 31, 1997. On December 31,1996, the terms for repayment of
these notes were extended to be the earlier of (i) the completion of a public
offering of the Company's securities, or (ii) January 31, 1998.
F-9
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
4. BRIDGE NOTES PAYABLE:--(CONTINUED)
e. During the months of January 1997 to March 1997, the Company received
advances aggregating $164,000 from one of the bridge lenders. These notes bear
interest at the rate of 10% per annum and are payable the earlier of (i) the
completion of a public offering of the Company's securities, or (ii) January 31,
1998.
5. INCOME TAXES:
At March 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,265,000, which is available to
offset future federal taxable income, if any, through 2011. A 100% valuation
allowance has been provided for the deferred tax asset resulting from the net
operating loss carryforward. Other temporary differences are insignificant.
6. 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 April 25, 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 with interest at the rate of 10% per annum. On
November 1, 1995, these notes were exchanged for 1,755,000 shares of common
stock.
In November 1995, the Company issued 429,000 shares of common stock for
$98,750.
During January 1996 and February 1996, the Company issued 480,000 shares of
common stock in connection with certain bridge loans as disclosed in Note 4.
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.
F-10
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY:--(CONTINUED)
All such options are authorized and approved by the Incentive Stock Plan
Administrative Committee at the time of issuance. During 1995, 174,000 qualified
and 36,000 non-qualified stock options have been granted at exercise prices
equal to $.25 per share or in some instances the greater of $.25 per share or
25% of the initial public offering price. Included in the accompanying
statements of operations for the period ended December 31, 1995 under the
caption 'General and Administrative Expenses' is an amount of $630,000
representing compensation expense for the aforementioned issuance of stock
option using a fair value of $3.25 per share along with corresponding credit to
additional paid-in capital.
c. Warrants
At March 31, 1997, 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 became exercisable on December 31, 1995 and expire on December 30,
2000.
d. Loss per share
Loss per share was computed by dividing net loss by the weighted number of
shares outstanding. The inclusion of warrants has no impact on the calculation
of loss per share using the treasury stock method.
The Company is contemplating an initial public offering ('IPO'). Pursuant
to Securities and Exchange Commission rules, common stock issued for
consideration below the estimated IPO price during the 12 months before the
filing of the registration statement has been included in the calculation of
weighted average number of shares, as if such shares had been outstanding for
all periods presented.
<TABLE>
<CAPTION>
CUMULATIVE
DURING
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DEVELOPMENT
1997 1996 1996 1995 STAGE
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Applicable common and common stock equivalent
shares:
Weighted average shares of common stock
outstanding during the period................ 2,904,000 2,904,000 2,904,000 2,424,000 2,904,000
Shares outstanding during the period resulting
from the assumed exercise of stock options... 210,000 210,000 210,000 210,000 210,000
Shares outstanding during period resulting from
issuance in connection with bridge loans..... -- -- -- 480,000 --
----------- ----------- ------------ ------------ ------------
Weighted average shares of common stock and
equivalents outstanding during the period.... 3,114,000 3,114,000 3,114,000 3,114,000 3,114,000
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
e. Reserved shares
At March 31, 1997, the Company has 2,390,000 shares of common stock
reserved for future issuances.
F-11
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1996
PERIOD APRIL 25, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY:--(CONTINUED)
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.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial Accounting Standards Board Statement No. 107, which requires
disclosures about the fair value of the Company's financial instruments. The
methods and assumptions used to estimate the value of the following classes of
financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash
and temporary cash investments, current receivables and payables and
certain other short-term financial instruments approximate their fair
value.
The carrying amount and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
-------------------------- --------------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 23,932 $ 23,932 $ 40,189 $ 40,189
Accounts receivable........... 10,000 10,000 10,000 10,000
Bridge notes payable.......... 1,200,000 1,200,000 1,364,000 1,364,000
Other current liabilities..... 486,779 486,779 548,526 548,526
</TABLE>
8. SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS:
During the period ended December 31, 1995, notes payable totaling $700,000
were issued for the purchase of licensed technology as disclosed in Note 3.
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. No payments of interest or income taxes
were made during the year ended December 31, 1996 and for the periods ended
December 31, 1995, March 31, 1997 and 1996.
9. UNAUDITED FINANCIAL STATEMENTS:
The financial statements as of March 31, 1997 and the three months ended
March 31, 1997 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.
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................... 3
The Company.................................................... 3
The Offering................................................... 4
Summary Financial Information.................................. 5
Risk Factors..................................................... 6
Use of Proceeds.................................................. 12
Dilution......................................................... 13
Capitalization................................................... 14
Dividend Policy.................................................. 14
Bridge Financing................................................. 14
Selected Financial Data.......................................... 15
Management's Discussion and Analysis of Financial Condition and
Plan of Operations............................................. 16
Business......................................................... 17
Management....................................................... 28
Principal Stockholders........................................... 32
Certain Relationships and Related Transactions................... 35
Description of Securities........................................ 36
Underwriting..................................................... 40
Legal Matters.................................................... 42
Experts.......................................................... 42
Available Information............................................ 42
Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (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.
675,000 SHARES OF COMMON STOCK
SPORTSTRAC, INC.
------------------------
PROSPECTUS
------------------------
I. A. RABINOWITZ & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In connection with the Offering, the Underwriters 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 Underwriters 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are as follows:
<TABLE>
<S> <C>
SEC filing fee.............................................. $ 13,229.15
The Nasdaq Small Cap Market filing fee...................... $ 10,000
NASD filing fee............................................. $ 3,865
Accounting fees and expenses*............................... $ 75,000
Legal fees and expenses*.................................... $300,000
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....................................................... $500,000
-----------
-----------
</TABLE>
- ------------------
* Estimated
II-1
<PAGE>
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.
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) January 31, 1998 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
II-2
<PAGE>
registrar of the Registrant will be instructed to mark 'stop 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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
<S> <C>
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.
10.06(C) -- Amended Bridge Loan Agreements dated July 31, 1996.
10.06(D) -- Amended Bridge Loan Agreements dated September 4, 1996.
10.06(E) -- Amended Bridge Loan Agreements dated December 31, 1996.*
10.07 -- The Study.
10.08 -- Agreement dated August 8, 1996 between the Company and The Palm
Springs Suns
10.09 -- Agreement dated August 8, 1996 between the Company and U.S. Golf,
Inc.
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.
</TABLE>
- ------------------
* Filed herewith. All other Exhibits previously filed.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the Offering of such securities at that time shall be deemed
to be the initial bona fide offering.
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-4
<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 May 5, 1997.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ---------------------------------------- -----------
<S> <C> <C>
/s/ MICHAEL MELLMAN, MD Chairman of the Board and Director May 5, 1997
- -------------------------
Michael Mellman, MD
/s/ MARC R. SILVERMAN Chief Executive Officer, President, May 5, 1997
- ------------------------- Chief Financial Officer, Principal
Marc R. Silverman Accounting Officer and Director
/s/ ELLIOT STEINBERG Director May 5, 1997
- -------------------------
Elliot Steinberg
/s/ SOLOMON A. WEISGAL Director May 5, 1997
- -------------------------
Solomon A. Weisgal
/s/ JOSHUA S. KANTER Director and Secretary May 5, 1997
- -------------------------
Joshua S. Kanter
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- -------- ------------------------------------------------------------ ----------
<S> <C>
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.
10.06(C) -- Amended Bridge Loan Agreements dated July 31, 1996.
10.06(D) -- Amended Bridge Loan Agreements dated September 4, 1996.
10.06(E) -- Amended Bridge Loan Agreements dated December 31, 1996.*
10.07 -- The Study.
10.08 -- Agreement dated August 8, 1996 between the Company and The
Palm Springs Suns
10.09 -- Agreement dated August 8, 1996 between the Company and
U.S. Golf, Inc.
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.
</TABLE>
- ------------------
* Filed herewith. All other Exhibits previously filed.
<PAGE>
SPORTSTRAC, INC.
675,000 Shares of Common Stock, $.01 par value
per share
UNDERWRITING AGREEMENT
, 1997
IAR Securities Corp.
As Representative of the
Several Underwriters
99 Wall Street
New York, New York 10005
Ladies and Gentlemen:
Sportstrac, Inc., a Delaware corporation (the "Company"), confirms its
agreement with IAR Securities Corp. ("IAR") and each of the other underwriters
named in Schedule I hereto (collectively, the "Underwriters," which term shall
also include any underwriter substituted as hereinafter provided in Section
12), for whom IAR is acting as representative (in such capacity, IAR shall
hereinafter be referred to as the "Representative"), with respect to the
proposed sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of the Company's
common stock, par value $.01 per share (the "Common Stock") set forth in said
Schedule I, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 3(b)
hereof to purchase all or any part of the additional shares of Common Stock for
the purpose of covering over-allotments, if any. The aforesaid 675,000 shares
of Common Stock (the "Firm Securities") and all or any part of the 101,250
shares of Common Stock subject to the option described in Section 3(b) hereof
(the "Option Securities") are hereinafter collectively referred to as the
"Securities." The Company also proposes to issue and sell to the Representative
warrants (the "Representative's Warrants") pursuant to the Representative's
Warrant Agreement (the "Representative's Warrant Agreement") for the purchase
of an aggregate of 67,500 additional shares of Common Stock. The shares of
Common Stock issuable upon exercise of the Representative's Warrants are
hereinafter sometimes referred to as the "Warrant Shares." The Common Stock and
the Warrant Shares are more fully described in the Registration Statement and
the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters as of the
date hereof, and as of the Closing Date (as defined in subsection 3(c) hereof)
and the Option Closing Date (as defined in Subsection 3(b) hereof, if any, as
follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-1634), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act"),
<PAGE>
which Registration Statement and amendment or amendments and Preliminary
Prospectuses have been prepared by the Company in conformity with the
requirements of the Act, and the rules and regulations (the "Regulations") of
the Commission under the Act. The Company will promptly file a further
amendment to said Registration Statement in the form heretofore delivered to
the Underwriters and will not, before the Registration Statement becomes
effective (the "Effective Date"), file any other amendment thereto unless the
Underwriters shall have consented thereto after having been furnished with a
copy thereof. Except as the context may otherwise require, such Registration
Statement, as amended, on file with the Commission at the time the Registration
Statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited to those documents or
information incorporated by reference therein under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and all information deemed to be a
part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement" and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Exchange Act, as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or part thereof and no
proceedings for a stop order have been instituted or are pending or, to the
best knowledge of the Company, threatened. Each of the Preliminary Prospectus,
the Registration Statement and Prospectus at the time of filing thereof
conformed in all material respects with the requirements of the Act and the
Rules and Regulations, and none of the Preliminary Prospectus, the Registration
Statement or Prospectus at the time of filing thereof contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made in reliance upon
and in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters expressly for
use in such Preliminary Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date (as defined in Subsection 3(c) hereof, if any, and during such longer
period as the Prospectus may be required to be delivered in connection with
sales by the Underwriters or a dealer, the Registration Statement and the
Prospectus will contain all material statements which are required to be stated
therein in compliance with the Act and the Rules and Regulations, and will in
all material respects conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement or the Prospectus, nor any
amendment or supplement thereto, will 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, in light of the circumstances
under which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information
2
<PAGE>
supplied to the Company in writing by or on behalf of any Underwriter expressly
for use in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(d) The Company and its subsidiaries have been duly
authorized and are validly existing as corporations in good standing under the
laws of the states of their respective incorporation. Except as set forth in
the Registration Statement or the Prospectus, the Company does not own an
interest in any corporation, partnership, trust, joint venture or other
business entity. The Company and its subsidiaries are duly qualified and
licensed and in good standing as foreign corporations in each jurisdiction in
which their ownership or leasing of properties or the character of their
operations require such qualification or licensing. Except as set forth in the
Prospectus, the Company does not, directly or indirectly own any equity
securities in any other company. The Company and its subsidiaries have all
requisite power and authority (corporate and other), and have obtained any and
all necessary applications, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease their properties and conduct
their business as described in the Prospectus; the Company and its subsidiaries
are and have been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
federal, state, local and foreign laws, rules and regulations; and the Company
has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operation of any of the Company or its subsidiaries. The disclosures in the
Registration Statement and the Prospectus concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the businesses of the
Company and its subsidiaries as currently conducted and as contemplated are
correct in all respects and do not omit to state a material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and the
Option Closing Date, if any, based upon the assumptions set forth therein, and
except as set forth in the Prospectus neither the Company nor any of its
subsidiaries is a party to or are bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement and as described in the
Prospectus. The Securities, the Representative's Warrants, and the Warrant
Shares and all other securities issued or issuable by the Company conform, or
when issued and paid for will conform, in all respects to all statements with
respect thereto contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company and its subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or any of its subsidiaries, or similar contractual
rights granted by the Company or any of its subsidiaries. The Common Stock and
the Representative's
3
<PAGE>
Warrants to be issued and sold by the Company hereunder and the Warrant Shares
issuable upon exercise of the Representative's Warrants, are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and non-assessable
and will conform to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any personal liability solely by reason
of being such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Representative's Warrants,
and the Warrant Shares has been duly and validly taken; and the certificates
representing the Common Stock, the Representative's Warrants, and the Warrant
Shares will be in due and proper form. Upon the issuance and delivery pursuant
to the terms hereof of the Common Stock to be sold by the Company hereunder,
the Underwriters will acquire good and marketable title to such Common Stock
free and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company, together with
the related notes and schedules thereto, included in the Registration
Statement, the Preliminary Prospectus and the Prospectus fairly present the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. There has been no material adverse change or
development involving a prospective change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business, or results of operation of any of the Company,
whether or not arising in the ordinary course of business, since the date of
the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company, conform in all respects to the
descriptions thereof contained in the Registration Statement and in the
Prospectus.
(g) The Company and each of its subsidiaries (i) have paid
all federal, state, local, and foreign taxes for which it is liable, including,
but not limited to, withholding taxes and taxes payable under Chapters 21
through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), and
has furnished all information returns it is required to furnish pursuant to the
Code, and has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company or (iii) the consummation by the Company of any of
its obligations under this Agreement.
(i) The Company and each of its subsidiaries maintain
insurance of the types and in the amounts which they reasonably believe to be
adequate for their businesses, all of which insurance is in full force and
effect.
4
<PAGE>
(j) Except as disclosed in the Prospectus, there is no
action, suit, proceeding, inquiry, investigation, litigation or governmental
proceeding (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or threatened
against (or circumstances that may give rise to the same), or involving the
properties or business of the Company or its subsidiaries which (i) questions
the validity of the capital stock of the Company or any of its subsidiaries or
this Agreement or of any action taken or to be taken by the Company pursuant to
or in connection with this Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
respects), or (iii) might materially and adversely affect the condition,
financial or otherwise, or in the earnings, business affairs, position,
prospects, value, operation, properties, business or results of operations of
the Company or its subsidiaries.
(k) The Company has full legal right, power and authority to
enter into this Agreement, the Representative's Warrant Agreement and the
Consulting Agreement (as defined in Section 7(n) hereof) and to consummate the
transactions provided for in such agreements; and this Agreement, the
Representative's Warrant Agreement and the Consulting Agreement have each been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement, the Representative's Warrant Agreement and the Consulting
Agreement, constitute a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of the Company's
execution or delivery of this Agreement, the Representative's Warrant Agreement
and the Consulting Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute a default under,
or result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity
of any kind whatsoever upon, any property or assets (tangible or intangible) of
the Company pursuant to the terms of (i) the articles of incorporation or
by-laws of the Company, (ii) any license, contract, indenture, mortgage, deed
of trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which it is or may be bound or to which any of their respective
properties or assets (tangible or intangible) is or may be subject to any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of their
respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the
5
<PAGE>
performance of this Agreement and the transactions contemplated hereby, except
such as have been or may be obtained under the Act or may be required under
state securities or Blue Sky laws in connection with the Underwriters' purchase
and distribution of the Securities to be sold by the Company hereunder.
(m) All executed material agreements or copies of executed
material agreements filed as exhibits to the Registration Statement to which
the Company or any of its subsidiaries are a party or by which any of them may
be bound or to which any of their respective assets, properties or businesses
may be subject have been duly and validly authorized, executed and delivered by
the Company and/or its subsidiaries, and constitute the legal, valid and
binding agreements of the Company or a subsidiary of the Company, as the case
may be, enforceable against them in accordance with their respective terms. The
descriptions in the Registration Statement and the Prospectus of contracts and
other documents are accurate and fairly present the information required to be
shown with respect thereto by Form SB-2 and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement and the Prospectus or filed as exhibits to the Registration Statement
which are not described or filed as required, and the Exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(n) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, neither
the Company nor any of its subsidiaries has (i) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed money,
(ii) entered into any transaction other than in the ordinary course of
business, or (iii) declared or paid any dividend or made any other distribution
on or in respect of its capital stock.
(o) No default exists in the due performance and observance
of any term, covenant or condition of any license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company or any of its subsidiaries
are a party or by which the Company or any of its subsidiaries may be bound or
to which any of the property or assets (tangible or intangible) of the Company
or any of its subsidiaries are subject or affected.
(p) The Company and its subsidiaries have generally enjoyed
satisfactory employer-employee relationships with their employees and are in
compliance in all material respects with all federal, state, local, and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company or to the Company's best knowledge of any
of its subsidiaries, by the U.S. Department of Labor, or any other governmental
or foreign agency responsible for the enforcement of such federal, state,
local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company or to the Company's best knowledge of
its subsidiaries, pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or to the Company's best knowledge of its
subsidiaries, or any predecessor entity of any of them, and none has ever
occurred. No representation question
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exists respecting the employees of the Company or any of its subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of its subsidiaries. No labor dispute with the
employees of the Company or any of its subsidiaries exists, or, to the best
knowledge of the Company, is imminent; and the Company and its subsidiaries are
not aware (having made no independent investigation for purposes of this
statement) of any existing or imminent labor disturbance by the employees of
any of their principal suppliers, manufacturers or contractors which might be
expected to result in any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company or any
of its subsidiaries.
(q) Since its inception, neither the Company nor any of its
subsidiaries has incurred any material liability arising under or as a result
of the application of the provisions of the Act.
(r) Neither the Company nor any of its subsidiaries maintain,
sponsor or contribute to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multi-employer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Neither the Company nor any of its subsidiaries maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. Neither the Company nor any of its subsidiaries have completely or
partially withdrawn from a "multi-employer plan."
(s) The Company and to the Company's best knowledge its
subsidiaries are not (nor the manner in which any of them conducts their
business or proposes to conduct their business) in violation of any domestic or
foreign laws ordinances or governmental rules or regulations to which they may
be subject.
(t) Except as provided for in the Registration Statement and
Prospectus, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any Registration Statement to be filed by the Company
within eighteen (18) months of the date hereof or to require the Company to
file a Registration Statement under the Act during such eighteen (18) month
period.
(u) None of the Company, nor any of its respective employees,
officers, directors, stockholders or affiliates (within the meaning of the
Rules and Regulations) has taken or will take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(v) Except as described in the Prospectus, neither the
Company nor any of its subsidiaries has any patents, patent applications,
trademarks, service marks, trade names and
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copyrights, and licenses and rights to the foregoing, which are in dispute so
far as known by the Company or are in any conflict with the right of any other
person or entity. To the best of the Company's knowledge, except as disclosed
in the Prospectus, (i) the Company and each of its subsidiaries owns or has the
right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all trademarks used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing, and (ii) except as
set forth in the Prospectus, neither the Company nor any of its subsidiaries is
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(w) The Company and each of its subsidiaries owns and has the
unrestricted right to use all trade secrets know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
properly") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by it, free
and clear of and without violating any right, lien, or claim of others,
including without limitation, former employers of its employees; provided,
however, that the possibility exists that other persons or entities, completely
independently of the Company or any subsidiary of the Company, as the case may
be, or their respective employees or agents, could have developed trade secrets
or items of technical information similar or identical to those of the Company
or any of its subsidiaries. The Company and its subsidiaries are not aware of
any such development of similar or identical trade secrets or technical
information by others.
(x) The Company and each of its subsidiaries has taken
reasonable security measures to protect the secrecy, confidentiality and value
of all the intellectual property.
(y) The Company and each of its subsidiaries has good and
marketable title to, or valid and enforceable leasehold estates in, all items
of real and personal property stated in the Prospectus, owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(z) Holtz Rubenstein & Co., LLP, independent certified public
accountants, whose report is filed with the Commission as a part of the
Registration Statement, are independent certified public accountants as
required by the Act and the Rules and Regulations.
(aa) On or before the Effective Date of the Registration
Statement, the Company shall cause to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and 5% or greater shareholders, or any person or entity deemed to be
an affiliate of the Company pursuant to the Rules and Regulations, has agreed
not to, directly or indirectly, offer to sell, sell, grant any option for the
sale of, assign,
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transfer, pledge, hypothecate or otherwise encumber any of their shares of
Common Stock or any of their options, warrants or other securities exercisable
for or convertible into or exchangeable for Common Stock (either pursuant to
Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than 24 months following
such Effective Date without the prior written consent of the Representative.
The Company will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing all of such
shares of Common Stock.
(bb) There are no claims, payments, issuances, arrangements
or understandings for services in the nature of a finder's or origination fee
with respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the Company or
any of its officers, directors, employees or affiliates that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers Inc. ("NASD").
(cc) The Securities have not been approved for quotation on
the SmallCap Market of the Nasdaq Stock Market.
(dd) None of the Company or any of its subsidiaries, nor any
of its respective officers, employees agents or any other person acting on
behalf of the Company or any of its subsidiaries, has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company or any of its
subsidiaries (or assist the Company or any of its subsidiaries, in connection
with any actual or proposed transaction) which (a) might subject the Company or
any of its subsidiaries, or any other such person to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a materially adverse
effect on the assets, business or operations of the Company or any its
subsidiaries, or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company or any of its
subsidiaries. The internal accounting controls of the Company and its
subsidiaries are sufficient to cause the Company and its subsidiaries to comply
with the Foreign Corrupt Practices Act of 1977, as amended.
(ee) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company or any of its subsidiaries, or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Rules and Regulations) of any such person or entity or the Company or
any of its subsidiaries, has or has had, either directly or indirectly, (i) an
interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company or any of its subsidiaries, or (B) purchases from or sells or
furnishes to the Company or any of its subsidiaries any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company
or any of its subsidiaries are a party or by which any of them may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no
9
<PAGE>
existing material agreements, arrangements, understandings or transactions, or
proposed material agreements, arrangements, understandings or transactions,
between or among the Company or any of its subsidiaries, and any officer,
director, or principal stockholder of the Company or any of its subsidiaries,
or any affiliate or associate of any such person or entity.
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
(gg) Neither the Company nor any of its subsidiaries has
entered into any employment agreements, except as described in the Prospectus.
(hh) The Company has granted the Underwriter and its counsel
access to all material agreements entered into by the Company or any of its
subsidiaries.
2. [Intentionally omitted]
3. Purchase, Sale and Delivery of the Securities and
Representative's Warrants.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter and
each Underwriter, severally and not jointly, agrees to purchase from the
Company at the price per Share as set forth below in subsection (c), that
proportion of the number of Firm Securities set forth in Schedule I opposite
the name of such Underwriter, as bears to the total number of Firm Securities,
subject to such adjustment as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares, plus any additional
numbers of Firm Securities which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 12 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
the Underwriters, severally and not jointly, to purchase up to an additional
101,250 shares of Common Stock at the price per share set forth below in
subsection (c). The option granted hereby will expire 30 days after the date of
this Agreement, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Firm Securities upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for such Option Securities. Any such time and
date of delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to Closing Date, as hereinafter
defined, unless otherwise agreed to between the Representative and the Company.
In the event such option is exercised, each of the Underwriters, acting
severally and not jointly, shall purchase that percentage of the total number
of Option Securities then being purchased which the number of Firm Securities
set forth in Schedule I hereto opposite the name of such Underwriter bears to
the total number of Firm Securities, subject in each case to such
10
<PAGE>
adjustments as the Representative in its discretion shall make to eliminate any
sales or purchases of fractional shares. Nothing herein contained shall
obligate the Underwriters to purchase any over-allotments. No Option Securities
shall be delivered unless the Firm Securities shall be simultaneously delivered
or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Representative, or at such other place as shall be agreed upon by the
Representative and the Company. Such delivery and payment shall be made at 10:00
a.m. (New York City time) on , 1997 or at such other time and date as
shall be agreed upon by the Representative and the Company but not less than
three (3) nor more than ten (10) business days after the Effective Date of the
Registration Statement (such time and date of payment and delivery being
hereafter called "Closing Date"). In addition, in the event that any or all of
the Option Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for such Option Securities shall be made
at the above mentioned office of the Representative or at such other place as
shall be agreed upon by the Representative and the Company on each Option
Closing Date as specified in the notice from the Representative to the Company.
Delivery of the certificates for the Firm Securities and the Option Securities,
if any, shall be made to Representative for the respective accounts of the
several Underwriters against payment by the several Underwriters through the
Representative of the purchase price for the Firm Securities and the Option
Securities, if any, to the order of the Company by New York Clearing House
funds. Certificates for the shares of Common Stock underlying the Firm
Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Representative may request in
writing at least two (2) business days prior to Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the shares of
Common Stock underlying the Firm Securities and the Option Securities, if any,
shall be made available to the Underwriters at such office or such other place
as the Representative may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to Closing Date or the
relevant Option Closing Date, as the case may be.
The purchase price per share of Common Stock to be paid by
the Underwriters, severally and not jointly, to the Company for the Securities
purchased hereunder will be the same for each share sold, and will be $5.40.
The Company shall not be obligated to sell any Securities hereunder unless all
Firm Securities to be sold by the Company are purchased hereunder. The Company
agrees to issue and sell 675,000 shares to the Underwriters and the Company
agrees to issue and sell up to an aggregate of 101,250 shares of Common Stock
to cover over-allotments.
(d) On Closing Date, the Company shall issue and sell to the
Representative, Representative's Warrants at a purchase price of $67.50, which
shall entitle the holders thereof to purchase an aggregate of 67,500 shares of
Common Stock. The Representative's Warrants shall be exercisable for a period
of four (4) years commencing one (1) year from the Effective Date of the
Registration Statement at initial exercise prices equal to $9.90 per share. The
Representative's Warrant Agreement and form of Warrant Certificates shall be
substantially in
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<PAGE>
the form filed as an Exhibit to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Closing Date.
4. Public Offering of the Securities. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms
set forth in the Prospectus. The Representative may from time to time increase
or decrease the public offering price after distribution of the Securities has
been completed to such extent as the Representative, in its sole discretion
deems advisable.
5. Covenants of the Company. The Company covenants and agrees with
the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act before termination of the offering of the Securities by
the Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
(b) As soon as the Company or any of its subsidiaries are
advised or obtains knowledge thereof, the Company will advise the
Representative and confirm the notice in writing, (i) when the Registration
Statement, as amended, becomes effective, if the provisions of Rule 430A
promulgated under the Act will be relied upon, when the Prospectus has been
filed in accordance with said Rule 430A and when any post-effective amendment
to the Registration Statement becomes effective, (ii) of the issuance by the
Commission of any stop order or of the initiation, or the threatening of any
proceeding, suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution or
proceeding for that purpose, (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of the
Securities for offering or sale in any jurisdiction or of the initiation, or
the threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Representative
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on
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<PAGE>
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifth business day after the Effective Date of
the Registration Statement.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), will furnish the Representative and its counsel with copies of
any such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
prospectus to which the Representative or its counsel shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may reasonably
designate, and shall make such applications, file such documents and furnish
such information as may be required for such purpose; provided, however, the
Company shall not be required to qualify as a foreign corporation or file a
general or limited consent to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Representative promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriters' counsel, and the Company will furnish
to the Underwriters a sufficient number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than
45 days after the end of the 12-month period beginning on the day after the end
of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that
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<PAGE>
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least 12 consecutive months
after the Effective Date of the Registration Statement.
(h) During a period of five years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports (if requested by the
Representative) of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly
reports to its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders and certified by
the Company' s principal financial or accounting officer;
(ii) concurrently with furnishing such annual
reports to its stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate thereon of independent public
accountants;
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(v) every press release and every material news item
or article of interest to the financial community in respect of the Company or
any of its subsidiaries or their respective affairs which is intended for
release by the Company; and
(vi) any additional information of a public nature
concerning the Company or any of its subsidiaries, and any future subsidiaries
or their respective businesses which the Representative may reasonably request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are consolidated,
and will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
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<PAGE>
(j) The Company will furnish to the Representative or on the
Representatives's order, without charge, at such place as the Representative
may designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto,
including any prospectus prepared after the Effective Date of the Registration
Statement, in each case as soon as available and in such quantities as the
Representative reasonably request.
(k) Except for the offering contemplated by this Agreement,
for a period of 24 months from the Effective Date of the Registration Statement
none of the Company, its officers or directors, or holders of 5% or more of the
Company's securities, including options, warrants and other like rights, prior
to the Effective Date, or any person or entity deemed to be an affiliate of the
Company pursuant to the Rules and Regulations, will, directly or indirectly,
issue, offer to sell, sell, grant an option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein without the prior written consent of the
Representative (the "Lockup"). On or before the Effective Date of the
Registration Statement, the Company shall cause to be duly executed legally
binding and enforceable agreements pursuant to which each of persons enumerated
in the preceding sentence who are subject to the Lock-up, has agreed to be
bound by the Lock-up. During the 24 month period commencing with the Effective
Date of the Registration Statement, the Company shall issue no shares of
capital stock, or securities convertible into or exchangeable for shares of
Common Stock, except (i) shares issuable upon the exercise of options or
warrants referred to in the Registration Statement or in conformity and
compliance with the terms of this Agreement (including without limitation an
aggregate of 480,000 shares of Common Stock pursuant to options which may be
granted under the Company's stock option plan) or (ii) in connection with any
acquisition from, or business combination with, an unaffiliated entity.
(l) None of the Company or any of its subsidiaries, nor any
of their respective officers or directors, nor affiliates of any of them
(within the meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or which might in the future reasonably be
expected to, cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the conditions, set forth under
"Use of Proceeds" in the Prospectus. No portion of the net proceeds will be
used directly or indirectly to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under
the Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and
15
<PAGE>
substance with the applicable requirements under the Act, the Exchange Act, and
the Rules and Regulations.
(o) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company which have been read by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to Section
7(j) hereof.
(p) The Company shall cause the Securities to be quoted on
the SmallCap Market of the Nasdaq Stock Market at such time as the Securities
are accepted for listing.
(q) For a period of three (3) years from the Closing Date,
the Company shall furnish to the Representative at the Company's sole expense,
(i) daily consolidated transfer sheets relating to the Common Stock; (ii) a
list of holders of Common Stock upon the Representative's reasonable requests;
and (iii) a list of the securities positions of participants in the Depository
Trust Company.
(r) For a period of five (5) years commencing during fiscal
1997 the Representative has right to appoint a director or representative to
the Company's Board of Directors. In the event the Representative does not
designate a member to be elected as a director, the Company shall notify the
Representative of each meeting of the Board. An individual selected by the
Representative shall be permitted to attend all meetings of the Board and to
receive all notices and other correspondence and communications sent by the
Company to members of the Board. The Company shall reimburse the
Representative's designee for his or her out-of-pocket expenses reasonably
incurred in connection with his or her attendance at the Board meetings.
(s) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Warrant Shares,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or other
appropriate form) for the registration under the Act of the Warrant Shares.
(t) Intentionally omitted.
(u) Intentionally omitted.
(v) On or before the Effective Date of the Registration
Statement, retain or make arrangements to retain a financial public relations
firm reasonably satisfactory to the Representative which shall be continuously
engaged from such engagement date to a date twenty-four months from Closing
Date.
(w) As soon as practicable, but in no event more than 30
business days from the Effective Date of the Registration Statement, (i) file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Company's securities and (ii) take all necessary and appropriate
actions to be included in Standard and Poor's Corporation
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Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(x) The Company shall furnish to the Representative, within
ninety (90) days following the Option Closing Date, three (3) bound volumes of
all papers and documents utilized in the public offering.
(y) Following the Effective Date of the Registration
Statement, the Company shall, at its sole cost and expense, prepare and file
such blue sky trading applications with such jurisdictions as the
Representative may reasonably request after consultation with the Company.
(z) The Company shall not amend or alter any term of any
written employment agreement, if any, between the Company and any executive
officer or director, during the term thereof, in a manner more favorable to
such employee or director, without the express written consent of the
Representative.
(aa) The Company shall engage the Company's legal counsel to
deliver to the Representative a memorandum detailing those states in which the
shares of Common Stock and Redeemable Warrants of the Company may be traded in
non-issuer transactions under the Blue Sky laws of the fifty states ("Secondary
Market Trading Memorandum"). The initial Secondary Market Trading Memorandum
shall be delivered to the Representative on the Effective Date of the
Registration Statement, which Memorandum shall be updated on the first
anniversary of the Effective Date. The Company will have its counsel prepare
and file a secondary trading application in each state, if required in such
state and if the Company meets the requirements for such application to be
approved, at the request of the Representative.
(bb) The Company shall not release any press releases for a
period of 90 days after the Effective Date of the Registration Statement
without the prior approval of the Underwriter and its counsel.
6. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date
and the Option Closing Date (to the extent not paid at Closing Date) all
expenses and fees (other than fees of counsel to the Underwriters, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, including, without limitation, (i) the fees and
expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing and delivery of this
Agreement, the Agreement Among Underwriters, Underwriters Questionnaires, the
Selected Dealer Agreements and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the Securities including any transfer or other taxes payable
thereon, (iv) the qualification of the Securities under state or foreign
securities or "Blue Sky"
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laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including but not limited to costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia, (vi) costs and
expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel or consultant retained, (vii)
fees and expenses of the Transfer Agent, (viii) applications for assignments of
a rating of the Securities by qualified rating agencies, (ix) the fees payable
to the NASD, and (x) the fees and expenses incurred in connection with the
listing of the Securities on the Nasdaq Stock Market and any other exchange.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 7, Section 11 or Section 13, the
Company shall reimburse and indemnify the Underwriters for all of their
out-of-pocket expenses.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 6, it will pay to
the Representative a non-accountable expense allowance equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the Firm
Securities, $121,500 of which has been paid to date to the Representative. The
Company will pay the remainder on the Closing Date by certified or bank
cashier's check or, at the election of the Underwriter, by deduction from the
proceeds of the offering contemplated herein. In the event the Representative
elects to exercise the over-allotment option described in Section 3(b) hereof,
the Company further agrees to pay to the Representative on the Option Closing
Date (by certified or bank cashier's check or, at the Representatives's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Securities.
7. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of each of its or his covenants and obligations hereunder
and to the following further conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and
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Regulations, the price of the Securities and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period, and
prior to Closing Date the Company shall have provided evidence satisfactory to
the Representative of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) The Representative shall not have advised the Company
that the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative shall
have received the favorable opinion of Bernstein & Wasserman, LLP, counsel to
the Company, addressed to the Representative and in form and substance
reasonably satisfactory to the Representative's Counsel, to the effect that:
(i) the Company and each of its subsidiaries (A) has
been duly organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) with full corporate power and authority
to own and operate its properties and to carry on its business as set forth in
the Registration Statement and Prospectus, and (C) is qualified as a foreign
corporation in each state in which its ownership of property or its conduct of
business requires such qualification and where the failure to so qualify would
have a material adverse effect on its business;
(ii) to the best of such counsel's knowledge, the
Company owns, directly or indirectly no subsidiaries except as disclosed in the
Prospectus;
(iii) except as described in the Prospectus, to the
best knowledge of such counsel, the Company does not own an interest in any
corporation, partnership, joint venture, trust or other business entity;
(iv) the Company has duly authorized, issued and
outstanding 15,000,000 shares of Common Stock, $.01 par value, of which
2,904,000 shares are issued and outstanding, and 100,000 shares of preferred
stock, of which no shares are issued and outstanding, as set forth in the
Prospectus, and any amendment or supplement thereto, under "Capitalization".
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and contain no
pre-emptive rights; the Securities have been duly and validly authorized, and
upon issuance thereof and payment therefor in accordance with
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<PAGE>
this Agreement, will be duly and validly issued, fully paid and non-assessable,
and will not be subject to pre-emptive rights of any shareholder of the
Company.
(v) to the best of such counsel's knowledge the
Registration Statement is effective under the Act, and, if applicable, filing
of all pricing information has been timely made in the appropriate form under
Rule 424(b) and no stop order suspending the effectiveness of the Registration
Statement has been issued and to the best of such counsel's knowledge, no
proceedings for that purpose have been instituted or are pending or threatened
or contemplated under the Act and the Registration Statement and Prospectus
comply as to form in all material respects with the requirements of the Act and
Rules and Regulations thereunder, and such counsel has no reason to believe and
based upon a certificate of the Company's officer's has received no notice to
the effect that either the Registration Statement or the Prospectus contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which made (except that no
opinion need be expressed as to financial statements contained in the
Registration Statement or Prospectus); and such counsel is familiar with all
contracts referred to in the Registration Statement or Prospectus and such
contracts are sufficiently summarized or disclosed therein or filed as exhibits
thereto as required, and to the best knowledge of counsel, there are no
material contracts required to be summarized or disclosed or filed, nor to the
best of such counsel's knowledge are there any legal or governmental
proceedings pending or threatened to which the Company is the subject which are
required to be disclosed in the Registration Statement or the Prospectus which
are not disclosed and properly described therein.
(vi) to the best of such counsel's knowledge the
Company has full legal right, power and authority to enter into each of this
Agreement, the Representative's Warrant Agreement, the Warrant Agreement, and
the Consulting Agreement, and to consummate the transactions provided for
therein; and each of this Agreement, the Representative's Warrant Agreement,
the Warrant Agreement and the Consulting Agreement has been duly authorized,
executed and delivered by the Company. This Agreement, the Representative's
Warrant Agreement and the Consulting Agreement, assuming due authorization,
execution and delivery by each other party thereto and further assuming that
they are valid and binding agreements of the Underwriters and the
Representative, so as the case may be, constitute legal, valid and binding
agreements of the Company enforceable as against the Company in accordance with
their terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable
law).
(vii) to the best of such counsels knowledge no
consent, approval, authorization or order, and no filing with, any court,
regulatory body, government agency or other body, domestic or foreign, (other
than such as may be required under Blue Sky laws, as to which no opinion need
be rendered) is required in connection with the issuance of the Securities
pursuant to the Prospectus and the Registration Statement, the performance of
the Agreement, the Representative's Warrants, the Warrant Agreement and the
Consulting Agreement, and the transactions contemplated thereby;
20
<PAGE>
(viii) the Securities have not been accepted for
quotation on the Nasdaq SmallCap Market of the Nasdaq Stock Market;
(ix) to the best of such counsel's knowledge, the
minute books of the Company and each of its subsidiaries has been made
available to Underwriters' counsel and to the best of such counsel's knowledge
contain a complete summary of all meetings and actions of their respective
directors and stockholders since the time of their respective incorporations
and reflect all transactions referred to in such minutes accurately in all
respects.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Representative's
counsel) of other counsel reasonably acceptable to Representative's counsel,
familiar with the applicable laws; and (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible
officers of the Company and certificates or other written statements of
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and each of
its subsidiaries, provided that copies of any such statements or certificates
shall be delivered to Representative's counsel if requested. The opinion of
such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and, in their opinion, the
Underwriters and they are justified in relying thereon.
At each Option Closing Date, if any, the Representative shall have
received the favorable opinion of Bernstein & Wasserman, counsel to the
Company, dated the Option Closing Date, addressed to the Representative and in
form and substance satisfactory to Underwriter's counsel confirming as of
Option Closing Date the statements made by Bernstein & Wasserman in their
opinion delivered on the Closing Date.
(d) Intentionally omitted.
(e) On or prior to each of the Closing Date and the Option
Closing Date, Underwriters' counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (b)
of this Section 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representation, warranties or conditions herein
contained.
(f) On or prior to each of the Closing Date and the Option
Closing Date, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(g) Prior to each of Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in
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<PAGE>
the condition, financial or otherwise, prospects or the business activities of
the Company or any of its subsidiaries, whether or not in the ordinary course
of business, from the latest dates as of which such condition is set forth in
the Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company or any of it's subsidiaries, from the latest date as of which the
financial condition of the Company and its subsidiaries are set forth in the
Registration Statement and Prospectus which is materially adverse to the
Company; (iii) neither the Company nor any of its subsidiaries shall be in
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement
and Prospectus; (v) no action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company or any of
its subsidiaries, or affecting any of their respective properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company or any of its subsidiaries, except as set
forth in the Registration Statement and Prospectus; and (vi) no stop order
shall have been issued under the Act and no proceedings therefor shall have
been initiated, threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date,
if any, the Representative shall have received a certificate of the Company
signed by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus
and each amendment and each supplement thereto, if any, contain all statements
and information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and
neither the Preliminary Prospectus nor any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
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(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor any of its subsidiaries, shall have incurred up to and
including the Closing Date or the Option Closing Date, as the case may be,
other than in the ordinary course of its business, any material liabilities or
obligations, direct or contingent. Neither the Company nor any of its
subsidiaries have paid or declared any dividends or other distributions on
their capital stock; or have entered into any transactions not in the ordinary
course of business. There shall not have been any change in the capital stock
or long-term debt or any increase in the short-term borrowings (other than any
increase in the short-term borrowings in the ordinary course of business) of
the Company or any of its subsidiaries; neither the Company nor any of its
subsidiaries shall have sustained any material loss or damage to its property
or assets, whether or not insured; there shall not be any litigation which is
pending or threatened against the Company or any of its subsidiaries which is
required to be set forth in an amended or supplemented Prospectus which has not
been set forth; and there shall not have occurred any event required to be set
forth in an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (h) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriters shall have received
clearance from NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the
Representative shall have received a letter, dated such date, addressed to the
Representative in form and substance satisfactory in all respects (including
the non-material nature of the changes or decreases, if any, referred to in
clause (iii) below) to the Representative and Representative's Counsel, from
Holtz Rubenstein & Co., LLP, independent certified public accounts:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion, the
consolidated financial statements and supporting schedules of the Company
included in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations thereunder and that the Underwriters may rely upon the opinion
of Lazar, Levine & Co., LLP, independent certified public accountants, with
respect to the financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim consolidated
financial statements of the Company (with an indication of the date of the
latest available unaudited interim financial statements), a reading of the
latest available minutes of the stockholders and board of directors and the
various committees of the boards of directors of the Company and its
subsidiaries, consultations with officers and other employees of the Company
and its subsidiaries responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their
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<PAGE>
attention which would lead them to believe that (A) the unaudited financial
statements and supporting schedules of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or (B) at a
specified date not more than five (5) days prior to the Effective Date of the
Registration Statement, there has been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries, or any decrease in
the stockholders' equity or net current assets or net assets of the Company or
any of its subsidiaries as compared with amounts shown in the Company's balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (C) during
the period from December 31, 1996 to a specified date not more than five (5)
days prior to the Effective Date of the Registration Statement, there was any
decrease in net revenues, net earnings or net earnings per common share of the
Company, in each case as compared with the corresponding period, other than as
set forth in or contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five
(5) days prior to the Effective Date of the Registration Statement, the amount
of liabilities of the Company (including a breakdown of commercial paper and
notes payable to banks);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(vi) stating that they have not during the
immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness", as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit, " in the Company' s internal controls; and
(vii) Intentionally omitted.
(viii) statements as to such other matters incident
to the transaction contemplated hereby as the Underwriters may reasonably
request.
(k) On the Closing Date, and each Option Closing Date, if
any, the Underwriters shall have received from Holtz Rubenstein & Co., LLP,
independent certified public accountants, a letter, dated as of the Closing
Date, and each Option Closing Date, if any, to the
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<PAGE>
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five days prior to Closing Date and each Option
Closing Date, if any, and, if the Company has elected to rely on Rule 430A of
the Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (v) of subsection (j) of this Section with
respect to certain amounts, percentages and financial information as specified
by the Representative and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(l) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 5 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or, to the knowledge of the Company, shall be contemplated.
(n) On or before the Closing Date the Company shall have (i)
executed and delivered to the Representative the consulting agreement and
mergers and acquisition agreement, substantially in the form as filed as
Exhibits to the Registration Statement (the "Consulting Agreement") and (ii)
paid to the Representative $100,000 representing the three year retainer fee
pursuant to the Consulting Agreement.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (including specifically each person who may be substituted for
an Underwriter as provided in Section 12 hereof) and each person, if any, who
controls any Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law
or otherwise or under the laws of foreign countries arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of Common Stock of the
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Company issued or issuable upon exercise of the Underwriters's Warrants; or
(iii) in any application or other document or written communication (in this
Section 8 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Common Stock under the securities laws thereof or filed with the
Commission, any state securities commission or agency, NASDAQ or any other
securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be. The indemnity agreement in this subsection
(a) shall be in addition to any liability which the Company may have at common
law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto or in any application made in reliance upon, and in
strict conformity with, written information furnished to the Company with
respect to any Underwriter by such Underwriter expressly for use in such
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriters in connection with
this Offering; provided, further, that the liability of each Underwriter to the
Company under this Section 8(b) shall be limited to the product of the
Underwriter's discount or commission and the number of Securities sold by such
Underwriter hereunder. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against
one or more indemnifying parties under this Section 8. notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this Section 8 except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party or
parties or the commencement thereof, the indemnifying party or parties will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing the indemnified party or parties shall have the right to employ
its or their own
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<PAGE>
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the
indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 8 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; provided however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution
in any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 8 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 this Section 8 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party shall contribute to the
amount paid as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (A) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified parties the relative benefits
received by the Company, on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to above in this subdivision (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the
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<PAGE>
provisions of this subdivision (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from
whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subparagraph (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
9. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the date of
execution of this Agreement, the Closing Date and the Option Closing Date, as
the case may be, and such representations, warranties and agreements of the
Company and the indemnity agreements contained in Section 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter, the Company, or any controlling
person, and shall survive termination of this Agreement or the issuance and
delivery of the Securities to the Underwriters.
10. Effective Date.
(a) This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the Effective
Date of the Registration Statement, or at such earlier time after the
Registration Statement becomes effective as the Underwriter, in its discretion,
shall release the Securities for the sale to the public, provided, however that
the provisions of Sections 6, 8 and 11 of this Agreement shall at all times be
effective. For purposes of this Section 10, the Securities to be purchased
hereunder shall be deemed to have been so released upon the earlier of dispatch
by the Representative of telegrams to securities dealers releasing such shares
for offering or the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the
Securities.
11. Termination.
(a) Subject to subsection (b) of this Section 11,
the Representative shall have the right to terminate this Agreement, (i) if any
calamitous domestic or international event or act or occurrence has materially
disrupted or in the Representative's opinion will in the immediate future
materially disrupt, general securities markets in the United States; or (ii) if
trading on the New York Stock Exchange, the American Stock Exchange, or in the
over-the-counter market shall have been suspended or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-
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<PAGE>
the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iii) if the United States shall
have become involved in a war or major hostilities; or (iv) if a banking
moratorium has been declared by a New York State or federal authority; or (v)
if a moratorium in foreign exchange trading has been declared; or (vi) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (vii) if there shall have been such material
adverse change in the conditions or prospects of the Company, or such material
adverse general market conditions or such material adverse market conditions
concerning the trading of the Securities as in the Representative's judgment
would make it inadvisable to proceed with the offering, sale and/or delivery of
the Securities.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 11 and 12 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 6 and Section 8 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
12. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7, Section 11 or
Section 13 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds
10% of the total number of Firm Securities, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
13. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to
29
<PAGE>
sell hereunder on such date, then this Agreement shall terminate (or, if such
default shall occur with respect to any Option Securities to be purchased on an
Option Closing Date), the Representative may at the Representative's option, by
notice from the Representative to the Company, terminate the Underwriters'
several obligations to purchase Securities from the Company on such date,
without any liability on the part of any non-defaulting party other than
pursuant to Section 6 and Section 8 hereof. No action taken pursuant to this
Section shall relieve the Company from liability, if any, in respect of such
default.
14. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at its offices of IAR Securities Corp. 99 Wall Street, New
York, New York, Attention: Syndicate Department. Notices to the Company shall
be directed to the Company at 6900 E. Belleview Avenue, Suite 200, Englewood
Colorado 80111.
15. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 8 hereof and their
respective successors, heirs, legal representatives and assigns, and their
respective successors, heirs, legal representatives and assigns and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
16. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the choice of law or conflict of laws principles.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
SPORTSTRAC, INC.
By: ___________________________
Marc Silverman, President
Confirmed and accepted as of the date first above written.
IAR SECURITIES CORP. For itself and as Representative of the other
Underwriters named in Schedule A hereto.
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<PAGE>
By:_____________________________
Name: __________________________ Title: _______________________
31
<PAGE>
SCHEDULE A
Number of Firm Securities to be Purchased: 675,000 shares of Common Stock,
$.01 par value per share.
Name of Underwriters:
IAR Securities Corp.
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<PAGE>
675,000 Shares of Common Stock
SPORTSTRAC, INC.
SELECTED DEALER AGREEMENT
, 1997
Gentlemen:
We have agreed as an underwriter (the "Underwriter") named in the
enclosed prospectus (the "Prospectus"), subject to the terms and conditions of
an Underwriting Agreement dated ______________, 1997 (the "Underwriting
Agreement"), to purchase from Sportstrac, Inc. (the "Company") 675,000 shares
of common stock, par value $.01 per share (the "Common Stock"). We may also
purchase as many as 101,250 additional shares of Common Stock (the "Option
Shares") from the Company pursuant to Section 3(b) of the Underwriting
Agreement. The Shares to be sold by the Company and the Option Shares are
sometimes collectively referred to herein as the "Securities" and are more
particularly described in the Prospectus, additional copies of which will be
supplied in reasonable quantities upon request.
We are offering a portion of the Securities for sale to selected
dealers (the "Selected Dealers"), among whom we are pleased to include you, at
the public offering price, less a concession in the amount set forth in the
Prospectus under "Underwriting." This offering is made subject to delivery of
the Securities and their acceptance by the Underwriter, to the approval of all
legal matters by our counsel, and to the terms and conditions herein set forth,
and may be made on the basis of the reservation of the Securities or an
allotment against subscription.
We will advise you by telegram of the method and terms of the
offering. Acceptances should be sent to IAR Securities Corp., 99 Wall Street,
New York, New York 10005, Attention: Syndicate Department. Subscription books
may be closed by us at any time without notice, and we reserve the right to
reject any subscription in whole or in part, but notification of allotments
against and rejections of subscriptions will be made as promptly as
practicable.
Any of the Shares purchased by you hereunder are to be promptly
offered by you to the public at the public offering price, except as herein
otherwise provided and except that a reallowance from any such public offering
price not in excess of the amount set forth in the Prospectus under
"Underwriting" may be allowed to dealers who are members in good standing of
the National Association of Securities Dealers, Inc. (the "NASD"), or foreign
dealers or institutions not eligible for membership in said association who
agree to abide by the conditions with respect to foreign dealers and
institutions set forth in your confirmation below. We may buy Securities from,
or sell Securities to, any Selected Dealer, and any Selected Dealer may buy
<PAGE>
Securities from, or sell Securities to, any other Selected Dealer at the public
offering price less all or any part of the concession set forth in the
Prospectus. After the Securities are released for sale to the public, we are
authorized to vary the offering price of the Securities and other selling
terms.
If, prior to the termination of this Agreement, we purchase or
contract to purchase any Securities which were purchased by you from us or any
Selected Dealer at a concession from the public offering price (or any
Securities which we believe have been substituted therefor): You agree that we
may (i) require you to pay us on demand an amount equal to the concession on
such Securities; (ii) sell for your account the Securities so purchased and
debit or credit your account with the loss or profit resulting from such sale;
or (iii) require you to purchase such Securities at a price equal to the total
cost of such purchase including commissions and transfer taxes on redelivery.
Securities accepted or allotted hereunder shall be paid for in full at
the public offering price, or, if we shall so advise you, at such price less
the concession to dealers, at the office of IAR Securities Corp., 99 Wall
Street, New York, New York 10005, prior to 8:30 a.m., New York City time, on
such day after the public offering date as we may advise, by certified or
official bank check payable in New York Clearing House funds to the order of
IAR Securities Corp., against delivery of certificates. If Securities are
purchased and paid for by you hereunder at the public offering price, the
concession will be paid to you after the termination of this Agreement.
We have been advised by the Company that a registration statement for
the Securities, filed under the Securities Act of 1933, as amended (the "Act"),
has become effective. You agree that in selling Securities purchased pursuant
hereto (which agreement shall also be for the benefit of the Company) you will
comply with the applicable requirements of the Act and of the Securities
Exchange Act of 1934, as amended, and the terms and conditions set forth in the
Prospectus. No person is authorized by the Company or any of the Underwriters
to give or rely on any information or to make any representations not contained
in the Prospectus in connection with the sale of Securities. You are not
authorized to act as agent for the Company or the Underwriter in offering the
Securities to the public or otherwise. Nothing contained herein shall
constitute the Selected Dealers partners with the Underwriter or with one
another.
The Underwriter shall not be under any liability (except for our own
want of good faith) for or in respect of the validity or value of, or title to,
any Securities; the form or completeness of, or the statements contained in, or
the validity of, the registration statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto or any other letters or
instruments executed by or on behalf of the Company or others; the form or
validity of the agreement for the purchase of the Securities or this Agreement;
the delivery of the Securities; the performance by the Company or others of any
agreement on its or their part; or any matter in connection with any of the
foregoing; provided, however, that nothing in this paragraph shall be deemed to
relieve the Underwriter from any liability imposed by the Act.
You, by your confirmation below, represent that (i) you are a member
in good standing of the NASD or are a foreign bank or dealer not eligible for
membership in the NASD which agrees to make no offers or sales of Securities
within the United States, its territories or its
2
<PAGE>
possessions, or to persons who are citizens thereof or residents therein; (ii)
neither you nor any of your directors, officers, partners or "persons
associated with" you (as defined in the By-Laws of the NASD) nor, to your
knowledge, any "related person" (as defined by the NASD in its Interpretation
of Article III, Section I of its Rules of Fair Practice, as amended) or any
other broker-dealer, have participated or intend to participate in any
transaction or dealing as to which documents or information are required to be
filed with the NASD pursuant to such Interpretation, and as to which such
documents or information have not been so filed as required.
You agree not to, at any time prior to the termination of this
Agreement, bid for, purchase, sell or attempt to induce others to purchase or
sell, directly or indirectly, any Common Stock other than (a) as provided for
in this Agreement or the Underwriting Agreement relating to the Securities, or
(b) purchases or sales as broker on unsolicited orders for the account of
others. In making the sales of Securities, if you are a member of the NASD, you
will comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation of Article II, Section I of its Rules of
Fair Practice with respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or if you are a foreign bank
or dealer, you agree to comply with such Interpretation of Sections 8, 24 and
36 of such Article as though you were such a member and Section 25 of such
Article as it applies to a nonmember broker or dealer in a foreign country.
Upon application to us, we will inform you as to the advice we have
received from counsel concerning the jurisdictions in which the Securities have
been qualified for sale or are exempt under the respective securities or blue
sky laws of such jurisdictions, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Securities in any jurisdiction.
As Underwriter, we 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. Neither we, acting as the Underwriter, shall be under any
obligation to you except for obligations expressly assumed by us in this
Agreement.
You agree, upon our request, at any time or times prior to the
termination of this Agreement, to report to us the number of Securities
purchased by you pursuant to the provisions hereof which then remain unsold.
Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate at the close
of business on the 30th business day after the initial public offering of the
Securities, but, in our discretion, may be extended by us for a further period
or periods not exceeding 30 business days in the aggregate and in our
discretion, whether or not extended, may be terminated at any earlier time.
Notwithstanding the termination of this Agreement, you shall remain liable for
your proportionate amount of any claim, demand or liability which may be
asserted against you alone, or against you together with other dealers
purchasing Securities upon the terms hereof, or against us, based upon the
claim that the Selected Dealers, or any of them, constitute an association, an
unincorporated business or other entity.
3
<PAGE>
This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles.
In the event that you agree to purchase Securities in accordance with
the terms hereof, and of the aforementioned telegram, kindly confirm such
agreement by completing and signing the form provided for that purpose on the
enclosed duplicate hereof and returning it to us promptly.
All communications from you should be addressed to IAR Securities
Corp., 99 Wall Street, New York, New York 10005, Attention: Syndicate
Department. Any notice from us to you shall be deemed to have been duly given
if mailed or telegraphed to you at this address to which this letter is mailed.
Very truly yours,
IAR SECURITIES CORP.
As Underwriter
By: _____________________
Name:
Title:
4
<PAGE>
IAR Securities Corp.
99 Wall Street
New York, New York 10005
Attention: Syndicate Department
Gentlemen:
We hereby confirm our agreement to purchase Securities (as such term
is defined in the Selected Dealer Agreement) of Sportstrac, Inc. subject to the
terms and conditions of the foregoing Agreement and your telegram to us
referred to herein. We hereby acknowledge receipt of the definitive Prospectus
relating to the Securities, and we confirm that in purchasing Securities we
have relied upon no statements whatsoever, written or oral, other than the
statements in such Prospectus. We have made a record of our distribution of
preliminary prospectuses and, when furnished with copies of any revised
preliminary prospectus, we have, upon your request, promptly forwarded copies
thereof to each person to whom we had theretofore distributed preliminary
prospectuses. We confirm that we have complied and will comply with all of the
requirements of Rule 15c2-8 under the Securities Exchange Act of 1934.
We hereby represent that we are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or, if we are not
such a member, we are a foreign dealer or institution not eligible for
membership in said Association which agrees to make no sales within the United
States, its territories or its possessions or to persons who are citizens
thereof or residents therein. If we are such a member, we agree to comply with
all applicable rules of the NASD, including, without limitation, the provisions
of Section 24 of Article III of the Rules of Fair Practice of the NASD, or, if
we are such a foreign dealer or institution, we agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Sections 8, 24
and 36 of such Article as if we were such a member, and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country.
_________________________
Corporate or Firm Name of
Selected Dealer
_________________________
(Signature of Authorized
Official or Partner)
Dated: , 1997
5
<PAGE>
IAR SECURITIES CORP.
, 1997
Sportstrac, Inc.
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
Attention: Mr. Marc Silverman, President
Gentlemen:
This letter, when executed by the parties hereto, will
constitute an agreement between Sportstrac, Inc. (the "Company") and IAR
Securities Corp. ("IAR") pursuant to which the Company agrees to retain IAR and
IAR agrees to be retained by the Company under the terms and conditions set
forth below.
1. The Company hereby retains IAR to perform consulting
services related to corporate finance and other financial services matters, and
IAR hereby accepts such retention. In this regard, subject to the terms set
forth below, IAR shall furnish to the Company advice and recommendations with
respect to such aspects of the business and affairs of the Company as the
Company shall, from time to time, reasonably request upon reasonable notice.
2. As compensation for the services described in paragraph 1
above, the Company shall pay to IAR a yearly fee of $33,333, for a period of
three years, all three years fees to be paid in advance, in full on the date
hereof. In addition, the Company will reimburse IAR for any and all reasonable
expenses incurred by IAR in the performance of its duties hereunder, and IAR
shall account for such expenses to the Company. Such reimbursement shall
accumulate and be paid monthly. Nothing contained herein shall prohibit IAR
from receiving any additional compensation under paragraphs 3 and 4 herein or
otherwise.
3. In addition, IAR shall hold itself ready to assist the
Company in evaluating and negotiating particular contracts or transactions, if
requested to do so by the Company, upon reasonable notice, and will undertake
such evaluations and negotiations upon prior written agreement as to additional
compensation to be paid by the Company to IAR with respect to such evaluations
and negotiations. Nothing herein shall require the Company to utilize IAR's
services in any particular transactions nor shall limit the Company's
obligations arising under any other agreement or understanding.
<PAGE>
4. The Company and IAR further acknowledge and agree that IAR
may act as a finder or financial consultant in various business transactions in
which the Company may be involved, such as mergers, acquisitions or joint
ventures. The Company hereby agrees that in the event IAR shall introduce to
the Company another party or entity, and that as a result of such introduction,
a transaction is consummated, the Company shall pay to IAR a fee equal to (i)
five percent (5%) of the first $1,000,000; (ii) four percent (4%) of the second
$1,000,000; (iii) three percent (3%) of the third $1,000,000; and (iv) two
percent (2%) of any consideration over $4,000,000 involved in any transaction.
Such fee shall be paid in cash at and subject to the closing of the transaction
to which it relates, and shall be payable whether or not the transaction
involves stock, or a combination of stock and cash, or is made on the
installment sale basis. In addition, if the Company shall, within 36 months
immediately following the termination of this Agreement, consummate a
transaction with any party or entity introduced by IAR to the Company, the
Company shall pay to IAR a fee with respect to such transaction calculated in
accordance with this paragraph. Nothing herein shall prevent the Company from
utilizing other individuals or entities in such capacities nor shall limit the
Company's obligations arising under any other agreement or understanding. As
used herein, "Company" shall include any and all subsidiaries and/or affiliates
of the Company.
5. All obligations of IAR contained herein shall be subject
to IAR's reasonable availability for such performance, in view of the nature of
the requested service and the amount of notice received. IAR shall devote such
time and effort to the performance of its duties hereunder as IAR shall
determine is reasonably necessary for such performance. IAR may look to such
others for such factual information, investment recommendations, economic
advice and/or research, upon which to base its advice to the Company hereunder,
as it shall deem appropriate. The Company shall furnish to IAR all information
relevant to the performance by IAR of its obligations under this Agreement, or
particular projects as to which IAR is acting as advisor, which will permit IAR
to know all facts material to the advice to be rendered, and all material or
information reasonably requested by IAR. In the event that the Company fails or
refuses to furnish any such material or information reasonably requested by
IAR, and thus prevents or impedes IAR's performance hereunder, any inability of
IAR to perform shall not be a breach of its obligations hereunder.
6. Nothing contained in this Agreement shall limit or
restrict the right of IAR or of any partner, employee, agent or representative
of IAR, to be a partner, director, officer, employee, agent or representative
of, or to engage in, any other business, whether of a similar nature or not,
nor to limit or restrict the right of IAR to render services of any kind to any
other corporation, firm, individual or association.
7. IAR will hold in confidence any confidential information
which the Company provides to IAR pursuant to this Agreement which is
designated by an appropriate stamp or legend as being confidential.
Notwithstanding the foregoing, IAR shall not be required to maintain
confidentiality with respect to information (i) which is or becomes part of the
public domain not due to the breach of this agreement by IAR; (ii) of which it
had independent knowledge prior to disclosure; (iii) which comes into the
possession of IAR in the normal and
2
<PAGE>
routine course of its own business from and through independent
non-confidential sources; or (iv) which is required to be disclosed by IAR by
governmental requirements. If IAR is requested or required (by oral questions,
interrogatories, requests for information or document subpoenas, civil
investigative demands, or similar process) to disclose any confidential
information supplied to it by the Company, or the existence of other
negotiations in the course of its dealings with the Company or its
representatives, IAR shall, unless prohibited by law, promptly notify the
Company of such request(s) so that the Company may seek an appropriate
protective order.
8. The Company agrees to indemnify and hold harmless IAR, its
partners, employees, agents, representatives and controlling persons (and the
officers, directors, employees, agents, representatives and controlling persons
of each of them) from and against any and all losses, claims, damages,
liabilities, costs and expenses (and all actions, suits, proceedings or claims
in respect thereof) and any legal or other expenses in giving testimony or
furnishing documents in response to a subpoena or otherwise (including, without
limitation, the cost of investigating, preparing or defending any such action,
suit, proceeding or claim, whether or not in connection with any action, suit,
proceeding or claim in which IAR is a party), as and when incurred, directly or
indirectly, caused by, relating to, based upon or arising out of IAR's service
pursuant to this Agreement so long as IAR shall not have committed an
intentional or willful misconduct, or shall have acted grossly negligent, in
connection with the services which form the basis of the claim for
indemnification. The Company further agrees that IAR shall incur no liability
to the Company or any other party on account of this Agreement or any acts or
omissions arising out of or related to the actions of IAR relating to this
Agreement or the performance or failure to perform any services under this
Agreement except for IAR's intentional or wilful misconduct. This paragraph
shall survive the termination of this Agreement.
9. This Agreement may not be transferred, assigned or
delegated by any of the parties hereto without the prior written consent of the
other party hereto.
10. The failure or neglect of the parties hereto to insist,
in any one or more instances, upon the strict performance of any of the terms
or conditions of this Agreement, or their waiver of strict performance of any
of the terms or conditions of this Agreement, shall not be construed as a
waiver or relinquishment in the future of such term or condition, but the same
shall continue in full force and effect.
11. This Agreement is for a term of thirty-six (36) months
and may not be terminated by the Company. This Agreement may be terminated by
IAR at any time upon 30 days' notice; provided IAR shall repay any portion of
their fee which was not earned on the effective date of such termination
($2,777.77 multiplied by the number of months paid in advance). Paragraphs 4, 7
and 8 shall survive the expiration or termination of this Agreement under all
circumstances.
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12. Any notices hereunder shall be sent to the Company and to
IAR at their respective addresses set forth above. Any notice shall be given by
certified mail, return receipt requested, postage prepaid, and shall be deemed
to have been given when deposited in the United States mail. Either party may
designate any other address to which notice shall be given, by giving written
notice to the other of such change of address in the manner herein provided.
13. This Agreement has been made in the State of New York and
shall be construed and governed in accordance with the laws thereof without
giving effect to principles governing conflicts of law.
14. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
15. This Agreement shall be binding upon the parties hereto,
the indemnified parties referred to in the Indemnification Provisions, and
their respective heirs, administrators, successors and permitted assigns.
If you are in agreement with the foregoing, please execute
two copies of this letter in the space provided below and return them to the
undersigned.
Very truly yours,
IAR SECURITIES CORP.
By: ____________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
SPORTSTRAC, INC.
By: ___________________________
Marc Silverman, President
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- ------------------------------------------------------------------------------
SPORTSTRAC, INC.
AND
IAR SECURITIES CORP.
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of , 1997
- ------------------------------------------------------------------------------
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of ____________, 1997 among
Sportstrac, Inc., a Delaware corporation (the "Company") and IAR Securities
Corp., a Delaware corporation (hereinafter referred to variously as the "Holder"
or the "Underwriter").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue to the Underwriter warrants to
purchase up to an aggregate of 67,500 shares of common stock, par value $.01
per share, of the Company ("Common Stock"); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between
the Underwriter and the Company, to underwrite the Company's proposed public
offering of 675,000 shares of Common Stock, at a public offering price of $6.00
per share (the "Public Offering"); and
WHEREAS, the Underwriter's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Underwriter in consideration for,
and as part of the compensation in connection with the Public Offering;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate of ten dollars ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. Grant. The Holder is hereby granted the right to purchase, at any
time from ____________, 1997 until; 5:30 p.m., New York time, on ____________,
2002 up to an aggregate 67,500 shares of Common Stock (subject to adjustment as
provided in Section 8 hereof) at a price of $9.90 (165% of the initial public
offering price), subject to the terms and conditions of this Agreement. Except
as set forth herein, the Common Stock issuable upon exercise of the
Underwriter's Warrants is in all respects identical to the shares of Common
Stock being purchased by the Underwriter for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall
be in the form set forth in Exhibit A, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section
8 hereof) as set forth in Section 6 hereof payable by certified or official
bank check in New York Clearing House funds, subject to adjustment as provided
in Section 8 hereof. Upon surrender at the Company's principal offices in
Colorado (presently located at 6900 E. Belleview Avenue, Suite 200, Englewood,
Colorado 80111), of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with
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payment of the Purchase Price (as hereinafter defined) for the shares of Common
Stock, the registered holder of a Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the shares of
Common Stock so purchased. The purchase rights represented by each
Underwriter's Warrant Certificate are exercisable at the option of the Holder
thereof, in whole or in part (but not as to fractional shares of the Common
Stock). In the case of the purchase of less than all the shares purchasable
under any Warrant Certificate, the Company shall cancel the Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the securities purchasable
thereunder.
4. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrants, the issuance of certificates for the Common Stock or other
securities, properties or rights underlying such Underwriter's Warrants, shall
be made forthwith (and in any event within three (3) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Underwriter and the Company
shall not be required to issue or deliver such certificates
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<PAGE>
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
The Underwriter's Warrant Certificates and the certificates
representing the Common Stock issuable upon exercise of the Underwriter's
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of
the then present Secretary or Assistant Secretary of the Company. Underwriter's
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of the Underwriter's Warrants. The Holder
of a Underwriter's Warrant Certificate, by its acceptance thereof, covenants
and agrees that the Underwriter's Warrants are being acquired as an investment
and not with a view to the distribution thereof; and that the Underwriter's
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date of
the Public Offering, except to officers or partners of the Underwriter or
members of the selling group and/or their officers and partners.
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<PAGE>
6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each of the shares
of Common Stock underlying the Underwriter's Warrants shall be $9.90 (165% of
the initial public offering price). The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
ss.6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price,
depending upon the context.
7. Registration Rights.
ss.7.1 Registration Under the Securities Act of 1933. The
Underwriter's Warrants, the shares of Common Stock issuable upon exercise of
the Underwriter's Warrants have been registered pursuant to a registration
statement on form SB-2 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Act").
ss.7.2 Piggyback Registration. If, at any time commencing after
_____________, 1997, through and including ________________, 2003
(84 months from the Effective Date), the Company proposes to register any of
its securities under the Act (other than in connection with a merger or
pursuant to Form S-8) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to
the Underwriter and to all other Holders of the Underwriter's Warrants
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<PAGE>
and/or the Common Stock underlying same of its intention to do so. If any of
the Underwriter or other Holders of the Underwriter's Warrants and/or Common
Stock underlying same notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such securities in
such proposed registration statement, the Company shall afford each of the
Underwriter and such Holders of the Underwriter's Warrants and/or Common Stock
underlying same the opportunity to have any such Common Stock underlying same
registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of
any such securities shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.
ss.7.3 Demand Registration.
(a) At any time commencing after ____________, 1998 (12 months from
the Effective Date) through and including ____________, 2002 (60 months from
the Effective Date), the Holders of the Underwriter's Warrants and/or Common
Stock underlying same representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Underwriter's Warrants)
shall have the right (which right is in addition to the registration rights
under Section 7.2 hereof), exercisable by
6
<PAGE>
written notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Underwriter and Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale of
their respective Common Stock underlying same for nine (9) consecutive months
by such Holders and any other Holders of the Underwriter's Warrants and/or
Common Stock underlying same who notify the Company within ten (10) days after
receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Underwriter's Warrants and the Common Stock
underlying same within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after ____________,
1998 (12 months from the Effective Date) through and including ____________,
2002 (60 months from the Effective Date), any Holder or Holders of a Majority
of Underwriter's Warrants and/or shares of Common Stock underlying same shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file, on one occasion, with the Commission a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by any
7
<PAGE>
such Holder or Holders, provided, however, that the provisions of Section
7.4(b) hereof shall not apply to any such registration request and registration
and all costs incident thereto shall be at the expense of the Holder or Holders
making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the shares of Common
Stock underlying the Underwriter's Warrants within the time period specified in
Section 7.4(a) hereof pursuant to the written notice specified in Section
7.3(a) of a Majority of the Holders of the Underwriter's Warrants and/or shares
of Common Stock underlying same, the Company agrees that upon the written
notice of election of a Majority of the Holders of the Underwriter's Warrants
and/or Common Stock underlying same it shall repurchase (i) any and all Common
Stock underlying the Underwriter's Warrants at the higher of the Market Price
per share of Common Stock on (x) the date of the notice sent pursuant to
Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a).
Such repurchase shall be in immediately available funds and shall close within
two (2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) or (ii) the delivery of the written notice of election specified
in this Section 7.3(d).
ss.7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
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<PAGE>
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Common
Stock underlying the Underwriter's Warrants, such number of prospectuses as
shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and blue sky fees and expenses.
The Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental, special and consequential damages and damages
due to loss of profit sustained by the Holder(s) requesting registration of
their Warrant Shares.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Common Stock underlying the Underwriter's
Warrants included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested by the
Holder(s), provided that
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<PAGE>
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Common Stock
underlying same to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Common Stock underlying the Underwriter's
Warrants to be sold pursuant to a registration statement, and their successors
and assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from
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<PAGE>
information furnished by or on behalf of such Holders, or their successors or
assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Underwriter's Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Common Stock underlying the Underwriter's Warrants to be included in
any registration statement filed pursuant to Section 7.3 hereof, or permit any
other registration statement to be or remain effective during the effectiveness
of a registration statement filed pursuant to Section 7.3 hereof, without the
prior written consent of the Holders of the Underwriter's Warrants and Common
Stock underlying same representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold
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<PAGE>
comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
have made "generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be audited)
complying with Section 11(a) of the Act and covering a period of at least 12
consecutive months beginning after the effective date of the registration
statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below, and
the managing underwriters, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with
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<PAGE>
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and
at such reasonable times and as often as any such Holder shall reasonably
request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Common Stock underlying same requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms
as are customarily contained in agreements of that type used by the managing
underwriter.
The Holders shall be parties to any underwriting agreement relating to
an underwritten sale of their Common Stock underlying same and may, at their
option, require that any or all the representations, warranties and covenants
of the Company to or for the benefit of such underwriters shall also be made to
and for the benefit of such Holders. Such Holders shall not be required to
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<PAGE>
make any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders, their intended methods
of distribution, and except for matters related to disclosures with respect to
such Holders, contained or required to be contained, in such registration
statement under the Act and the rules and regulations thereunder.
(1) For purposes of this Agreement, the term "Majority" in reference
to the Holders of Underwriter's Warrants, shall mean in excess of fifty percent
(50%) of the then outstanding Underwriter's Warrants assuming full exercise
thereof that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their families, persons acting as nominees or in conjunction therewith or (ii)
have not been resold to the public pursuant to Rule 144 under the Act or a
registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
ss.8.1 Intentionally Omitted.
ss.8.2 Intentionally Omitted.
ss.8.3 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision
or increased in the case of combination.
ss.8.4 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8,
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the number of shares of Common Stock underlying the Underwriter's Warrants
shall be adjusted to the nearest full amount by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Common Stock underlying same issuable upon exercise of the
Underwriter's Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
ss.8.5 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock, consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that the Company shall after the date hereof issue a class of Common
Stock with greater or superior voting rights than the shares of Common Stock
outstanding as of the date hereof, the Holder, at its option, may receive upon
exercise of any Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
ss.8.6 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
each Holder a
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supplemental warrant agreement providing that each Holder shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
such Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such Warrant might
have been exercised immediately prior to such consolidation or merger. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
ss.8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Underwriter's Warrants
or the shares of Common Stock issuable upon the exercise of (i) the
Underwriter's Warrants, (ii) the options and warrants outstanding on
the date hereof and described in the prospectus relating to the Public
Offering or (iii) up to an aggregate of 480,000 shares issuable upon
the exercise of options granted under the Company's 1995 Stock Plan;
or
(b) If the amount of such adjustment shall be less than two
cents ($.02) per share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which,
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together with any adjustment so carried forward, shall amount
to at least two cents ($.02) per share.
ss.8.9 Dividends and Other Distributions. In the event that the
Company shall at any time prior to the exercise of all Underwriter's Warrants
declare a dividend (other than a dividend consisting solely of shares of Common
Stock) or otherwise distribute to its stockholders any assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another, or any other thing of
value, the Holders of the unexercised Underwriter's Warrants shall thereafter
be entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Underwriter's Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Underwriter's Warrants had been exercised immediately prior to the record date
for such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this subsection 8.9.
ss.8.10 Reserved.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal
executive office of the Company, for a new Warrant Certificate of
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like tenor and date representing in the aggregate the right to purchase the
same number of shares of Common Stock underlying same in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Underwriter's
Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Underwriter's Warrants underlying same, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Underwriter's
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and
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agrees that, upon exercise of the Underwriter's Warrants and payment of the
exercise prices therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Underwriter's Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Underwriter's Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to the
public in connection herewith may then be listed and/or quoted on NASDAQ.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Underwriter's Warrants and their exercise, any
of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
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(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property assets and business as an
entirety shall be proposed; then, in any one or more of such events
the Company shall give written notice of such event at least fifteen
(15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend, or
the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
20
<PAGE>
All notices requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Underwriter's
Warrants, to the address of such Holder as shown on the books
of the Company; or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
14. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without
the approval of any holders of Warrant Certificates (other than the
Underwriter) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem shall not
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the
Company, the Holders and their respective successors and assigns
hereunder.
21
<PAGE>
16. Termination. This Agreement shall terminate at the close
of business on ____________, 2003. Notwithstanding the foregoing,
the indemnification provisions of Section 7 shall survive such
termination until the close of business on ____________, 2006.
17. Governing Law: Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be
a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of such
State without giving effect to the rules of said State governing
the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Underwriter
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 3 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company,
22
<PAGE>
the Underwriter and the Holders agree that the prevailing party(ies) in any
such action or proceeding shall be entitled to recover from the other
party(ies) all of its/their reasonable legal costs and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
18. Entire Agreement: Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the
parties hereto with respect to the subject matter hereof and may
not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is
sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this
Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not
intended, nor should they be construed as, a part of this Agreement
and shall be given no substantive effect.
21. Benefits or this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Common Stock underlying same any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the
23
<PAGE>
Company and the Underwriter and any other Holder(s) of the Warrant Certificates
or Warrant Shares.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] Sportstrac, Inc.
By _________________________
Marc Silverman
President
Attest:
______________________
Secretary
IAR SECURITIES CORP.
By _________________________
Name:
Title:
24
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE UNDERWRITER'S WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S WARRANTS REPRESENTED
BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME FEBRUARY 9, 2002
No. W-001 67,500 Underwriter's Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that IAR Securities Corp., or
registered assigns, is the registered holder of 67,500 Underwriter's Warrants
to purchase initially, at any time from ____________, 1998 [one year from the
effective date of the Registration Statement] until 5:30 p.m. New York time on
____________, 2002 ("Expiration Date"), up to 67,500 fully-paid and
non-assessable share of common stock, par value $.01 per share ("Common Stock")
of Sportstrac, Inc., a Delaware corporation (the "Company"), at the initial
exercise prices, subject to adjustment in certain events (the "Exercise
Prices"), of $9.90, upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Underwriter's warrant agreement dated as
of _______________, 1997 between the Company and IAR Securities, Inc. (the
"Underwriter's Warrant Agreement"). Payment of the Exercise Prices shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company.
1
<PAGE>
No Underwriter's Warrant may be exercised after 5:30 p.m., New York
time, on the Expiration Date, at which time all Underwriter's Warrants
evidenced hereby, unless exercised prior thereto, hereby shall thereafter be
void.
The Underwriter's Warrants evidenced by this Warrant Certificate are
part of a duly authorized issue of shares of Common Stock pursuant to the
Underwriter's Warrant Agreement, which agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the
Underwriter's Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Underwriter's
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter or otherwise impair,
the rights of the holder as set forth in the Underwriter's Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Underwriter's Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Underwriter's Warrant Agreement, without any charge except
for any tax or other governmental charge imposed in connection with such
transfer.
Upon the exercise of less than all of the Underwriter's Warrants
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such numbered unexercised
Underwriter's Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
2
<PAGE>
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _____________, 1997
Sportstrac, Inc.
[SEAL] By _____________________________
Name:
Title: President
Attest:
__________________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares of
Common Stock underlying the Underwriter's Warrants, and herewith tenders in
payment for such securities a certified or official bank check payable in New
York Clearing House Funds to the order of Sportstrac, Inc. in the amount of
$______________, all in accordance with the terms hereof. The undersigned
requests that a certificates for such securities be registered in the name of
IAR Securities Corp. whose address is 99 Wall Street, New York, New York 10005
and that such Certificate be delivered to IAR Securities, Inc. whose address is
99 Wall Street, New York, New York 10005.
Dated:
Signature _____________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
_______________________________
Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[LETTERHEAD OF BERNSTEIN & WASSERMAN, LLP]
May 5, 1997
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
675,000 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 101,250 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 67,500 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.
<PAGE>
Based on the foregoing, we are of the opinion that:
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,
/s/ Bernstein & Wasserman, LLP
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, as assignee, and
SportsTrac, Inc. (the "Company"), pursuant to which the undersigned, as
assignee, made a loan of $50,000 to the Company. Notwithstanding anything
contained in the Letter Agreement to the contrary, it is agreed that the Note
shall be payable on the earlier of (a) January 31, 1998 or (b) the closing of
the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC.
By: /s/ Marc Silverman /s/ Hartley T. Bernstein
----------------------------- -----------------------------
Name: Marc Silverman Hartley T. Bernstein
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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC. ULSTER INVESTMENTS
By: /s/ Marc Silverman By: /s/ Antigua International Trust Ltd.
----------------------------- ---------------------------------------
Name: Marc Silverman Name: Antigua International Trust Ltd.
Title: President Title: Director
<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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC. THE HOLDING COMPANY
By: /s/ Marc Silverman By: /s/ Burt Kanter
----------------------------- -----------------------------
Name: Marc Silverman Name: Burt 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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC. DUNE HOLDINGS, INC.
By: /s/ Marc Silverman By: /s/ Randolph Pace
----------------------------- -----------------------------
Name: Marc Silverman Name: Randolph 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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC.
By: /s/ Marc Silverman /s/ Scott A. Sinar
----------------------------- -----------------------------
Name: Marc Silverman Scott A. Sinar
Title: President
<PAGE>
Mr. Marc Silverman
SportTrac, Inc.
6900 E. Belleview Avenue, Suite 200 20,000
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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC.
By: /s/ Marc Silverman /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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC.
By: /s/ Marc Silverman /s/ John LaFalce
----------------------------- -----------------------------
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 Note shall be payable on the earlier of (a)
January 31, 1998 or (b) the closing of the Company's initial public offering.
As herein amended, the Letter Agreement is confirmed and shall
be in full force and effect.
Dated: December 31, 1996
SPORTSTRAC, INC.
By: /s/ Marc Silverman /s/ Michael Lulkin
----------------------------- -----------------------------
Name: Marc Silverman Michael Lulkin
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. 8 to Form SB-2 of our report dated March 18, 1997, 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
May 2, 1997
