<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997
REGISTRATION NO. 333-1634
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 10
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>
Units, each consisting of one
share of Common Stock, $.01
per share, and two Class A
Warrants(3)................... 776,250 $6.00 $4,657,500 $1,411.22
Common Stock, $.01 per share,
underlying Units.............. 776,250 -- -- --
Class A Warrants underlying
Units......................... 1,552,500 -- -- --
Common Stock, $.01 per share,
underlying Class A Warrants... 1,552,500 $5.00 $7,762,500 $2,352.04
Representative's Purchase
Option(4)..................... 67,500 $.0005 $33.75 $0.01
Units underlying
Representative's Purchase
Option........................ 67,500 $9.90 $668,250 $202.48
Common Stock, $.01 per share,
underlying Representative's
Purchase Option............... 67,500 -- -- --
Class A Warrants underlying
Representative's Purchase
Option........................ 135,000 -- -- --
Common Stock, $.01 per share,
underlying Class A Warrants in
Representative's Purchase
Option........................ 135,000 $8.25 $1,113,750 $337.47
Class A Warrants(5)........... 2,000,000 .01 $20,000 $6.06
Common Stock, $.01 per
share(6)...................... 2,000,000 $5 $10,000,000 $3,030
TOTAL......................... $24,222,033.75 $7,339.28(7)
</TABLE>
(Footnotes on following page)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(footnotes continued from previous page)
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the 'Act'), this
Registration Statement covers such additional indeterminate number of shares
of Common Stock as may be issued by reason of adjustments in the number of
shares of Common Stock pursuant to anti-dilution provisions contained in the
Warrant Agreement governing the Class A Warrants ('Class A Warrants') and
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 Units 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 Units at $9.90 per Unit (the 'Representative's Purchase
Option').
(5) Class A Warrants issued to Bridge Lenders.
(6) The number of shares of Common Stock specified is the number which may be
acquired by Bridge Lenders upon exercise of the Class A Warrants at the
maximum price thereof and which may be subsequently sold by such Bridge
Lenders.
(7) $13,229.15 previously paid.
<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)
<TABLE>
<CAPTION>
ITEM IN FORM SB-2 PROSPECTUS CAPTION
- ----------------------------------------- --------------------------------------
<S> <C>
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............... Selling Securityholders
8. Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Risk Factors; Underwriting
9. Legal Proceedings..................... Business--Litigation
10. Directors, Executive Officers,
Promoters and Control Persons....... Management
11. Security Ownership of Certain
Beneficial Owners and Management.... Principal Stockholders
12. Description of Securities............ Description of Securities;
Underwriting
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
</TABLE>
ii
<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering ('Offering') of
Units by SportsTrac, Inc. (the 'Company') and the concurrent offering of
securities by certain selling securityholders ('Selling Securityholders'). The
Company is registering, under the primary prospectus ('Primary Prospectus'),
776,250 Units (each Unit consisting of one share of Common Stock and two Class A
Warrants). The Company is registering on behalf of the Selling Securityholders,
under an alternate prospectus ('Alternate Prospectus'), 2,000,000 Class A
Warrants and 2,000,000 shares of Common Stock issuable upon the exercise of the
2,000,000 Class A Warrants. See 'Bridge Financing,' 'Selling Securityholders,'
and 'Description of Securities.' The Alternate Prospectus pages, which follow
the Primary Prospectus, are to be combined with all of the sections contained in
the Primary Prospectus, with the following exceptions: The front and back cover
pages and the sections entitled 'Concurrent Sales,' 'Selling Securityholders,'
and 'Plan of Distribution.' Such sections from the Alternate Prospectus pages
will be added to the Primary Prospectus. Furthermore, all references contained
in the Alternate Prospectus to 'the Offering' or 'this Offering' shall refer to
the Company's Offering under the Primary Prospectus.
iii
<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 JULY 21, 1997
PROSPECTUS
SPORTSTRAC, INC.
675,000 UNITS, EACH UNIT CONSISTING
OF ONE SHARE OF COMMON STOCK
AND TWO CLASS A WARRANTS
OFFERING PRICE PER UNIT--$6.00
------------------------
SportsTrac, Inc., a Delaware corporation (the 'Company' or 'SportsTrac'),
hereby offers (the 'Offering') 675,000 Units ('Units'), each Unit consisting of
one share of common stock, par value $.01 per share (the 'Common Stock' or
'Shares') and two redeemable Class A Warrants ('Class A Warrants' or 'Warrants,'
together with the Units and Common Stock, the 'Securities'). The Common Stock
and the Warrants are detachable and may trade separately immediately upon
issuance. Each Class A Warrant entitles the holder to purchase one (1) share of
the Company's Common Stock, at an exercise price of $5.00, subject to
adjustment, from , 1998 through , 2002. The Class A Warrants are
subject to redemption by the Company at any time after , 1998 on not less
than thirty (30) days notice at $.05 per Warrant, provided the average closing
price of the Common Stock for twenty (20) consecutive trading days ending within
fifteen (15) days prior to the notice equals or exceeds $9.00 per share. See
'Risk Factors' and 'Description of Securities.'
The registration statement of which this prospectus forms a part also covers
the resale of 2,000,000 Warrants owned by certain bridge lenders to the Company
('Bridge Lenders,' hereinafter collectively referred to as the 'Selling
Securityholders'), 2,000,000 shares of Common Stock issuable upon exercise of
the 2,000,000 Class A Warrants, the resale of the Common Stock underlying the
Class A Warrants by the Selling Securityholders or their transferees and the
exercise of such Warrants by the transferees of the Selling Securityholders.
These Class A Warrants are identical to the Class A Warrants included in the
Units offered by the Company. The securities held by the Selling Securityholders
may be sold concurrent with or after this Offering. Sales of such securities or
even the potential of such sales at any time may have an adverse effect on the
market prices of the Securities offered hereby. The Company will not receive any
of the proceeds from the sale of securities by the Selling Securityholders. See
'Selling Securityholders.'
Prior to this Offering, there has been no public market for the Common Stock
or Warrants. The offering price of the Units and the term of the Warrants have
been determined by negotiations between the Company and IAR Securities Corp.,
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 Units, see
'Risk Factors--Lack of Market,' 'Description of Securities' and 'Underwriting.'
The Company has applied for the inclusion of the Units, Common Stock and
Warrants 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 Securities on the OTC Bulletin
Board will be approved or that, if approved, a regular trading market for its
Securities will develop after this Offering or that, if developed, a regular
trading market will be sustained. In the event the Securities are not included
on the OTC Bulletin Board, quotes for the Securities may be included in the
'pink sheets' for the over-the-counter market. If the Company's Securities trade
for less than $5.00 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 Securities 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--No Assurance of Public Trading Market,' 'Denial of
Nasdaq Listing' and 'Penny Stock Regulations May Impose Certain Restrictions on
Marketability of Company's Securities.'
------------------------
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.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit....... $6.00 $0.60 $5.40
Total(3)....... $4,050,000 $405,000 $3,645,000
</TABLE>
(Notes on next page)
IAR SECURITIES CORP.
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 Units at $9.90 per Unit (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 $456,500 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 $3,188,500. See 'Use of
Proceeds' and 'Underwriting.'
(3) Does not include 101,250 additional Units 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 $474,725, respectively, and the total
net proceeds to the Company will be $3,717,025. See 'Underwriting.'
The Units 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
Warrants 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 SECURITIES 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 SECURITIES 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 SECURITIES IN THE EVENT THAT ADDITIONAL BROKER-
DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE CAN NO
ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE SALE
OR PURCHASE OF THE SECURITIES THROUGH AND/OR WITH THE UNDERWRITERS. THE
UNDERWRITERS HAVE ADVISED THE COMPANY THAT IT PRESENTLY CANNOT QUANTIFY THE
AMOUNT OF THE COMPANY'S SECURITIES 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 SECURITIES 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
SECURITIES. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET, MAY BECOME
DOMINATING INFLUENCES IN THE MARKET FOR THE SECURITIES. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITERS WILL OR WILL NOT CONTINUE TO BE DOMINATING
INFLUENCES. THE PRICES AND LIQUIDITY OF THE SECURITIES 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 SECURITIES. 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 SECURITIES. SEE 'RISK FACTORS--LACK OF PRIOR MARKET FOR SECURITIES,'
'NO ASSURANCE OF PUBLIC TRADING MARKET' AND 'DENIAL OF NASDAQ LISTING.' THE
UNDERWRITERS MAY DISCONTINUE THEIR PARTICIPATION IN SUCH MARKET AT ANY TIME OR
FROM TIME TO TIME.
2
<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 and
202,500 Class A Warrants included in the Units issuable upon exercise of the
Over-Allotment Option; (b) 67,500 shares of Common Stock and 135,000 Class A
Warrants issuable upon exercise of the Representative's Purchase Option; (c)
shares of Common Stock issuable upon exercise of the Class A Warrants included
in the Units offered hereby; (d) 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 (e) 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 a purchase agreement with the Palm Springs Suns
( a minor league baseball team which is not an affiliate 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 late 1997. The purchase price for 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 NHancement Technologies, Inc., formerly known as BioFactors,
Inc. ('NHancement') 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 NHancement'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.
NHancement licenses the software and associated protocols and methodology
for the CTT technology from STI. Although NHancement's exclusive licensing
agreement expires in 2008 (assuming the exercise of all available extensions),
as does the Company's own sublicensing agreement with NHancement, the Company
has negotiated an agreement with STI which allows the Company to assume
NHancement'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 NHancement. Pursuant
to the Company's sublicense agreement with NHancement, the Company agreed to pay
NHancement $1,000,000, all of which has been paid. In addition, the Company
agreed to issue 180,000 warrants to NHancement which were subsequently assigned.
See 'Certain Relationships and Related Transactions.' The Company is obligated
to pay NHancement 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, NHancement 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
<TABLE>
<S> <C>
Securities Offered by the
Company(1) ...................... 675,000 Units (each Unit consisting of one
(1) share of Common Stock and two (2) Class
A Warrants) at a price of $6.00 per Unit.
The Common Stock and Warrants are detachable
and may trade separately immediately upon
issuance. See 'Description of Securities.'
Securities Outstanding Prior to the
Offering......................... 2,904,000 shares of Common Stock
2,000,000 Class A Warrants
Securities Outstanding Subsequent
to the Offering.................. 3,579,000 shares of Common Stock(2)
3,350,000 Class A Warrants(3)
Terms of Class A Warrants.......... Each Class A Warrant entitles the holder to
purchase one (1) share of the Company's
Common Stock at a price of $5.00, subject to
adjustment, during the four (4) year period
beginning , 1998. The Class A
Warrants are subject to redemption by the
Company at any time, beginning ,
1998 through , 2002, on not less
than thirty (30) days' notice at $.05 per
Warrant, provided the average closing price
of the Common Stock equals or exceeds $9.00
per share for twenty (20) consecutive
trading days ending within fifteen (15) days
prior to the notice. See 'Description of
Securities.'
Use of Proceeds.................... The net proceeds to the Company from the
sale of the Common Stock offered hereby are
estimated to be $3,188,500. 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.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Risk Factors....................... The Securities are subject to a high degree
of risk and substantial dilution. See 'Risk
Factors' and 'Dilution.'
Proposed OTC Bulletin Board
Symbols(4)....................... Units-SPRTU
Common Stock-SPRT
Class A Warrants-SPRTW
</TABLE>
- ------------------
(1) Concurrently with this Offering, the Company is registering (i) 2,000,000
Class A Warrants owned by the Selling Securityholders and (ii) 2,000,000
shares of Common Stock issuable upon exercise of the Class A Warrants owned
by the Selling Securityholders. See 'Bridge Financing,' 'Selling
Securityholders' and 'Certain Relationships and Related Transactions.'
(2) Does not give effect to (i) 1,350,000 shares of Common Stock issuable upon
exercise of Class A Warrants included in the Units offered hereby; (ii)
2,000,000 shares of Common Stock issuable upon exercise of Class A Warrants
owned by Bridge Lenders of the Company; (iii) 101,250 shares of Common Stock
and 202,500 Class A Warrants issuable upon exercise of the Over-Allotment
Option; (iv) 67,500 shares of Common Stock and 135,000 Class A Warrants
issuable upon exercise of the Representative's Purchase Option; (v) 180,000
shares of Common Stock issuable upon exercise of certain warrants, and (vi)
480,000 shares of Common Stock issuable upon exercise of employee stock
options. See 'Bridge Financing,' 'Certain Transactions' and 'Description of
Securities.'
(3) Does not give effect to the possible issuance of (i) 202,500 Class A
Warrants issuable upon exercise of the Over-Allotment Option and (ii)
135,000 Class A Warrants issuable upon exercise of the Representative's
Purchase Option. See 'Description of Securities' and 'Underwriting.'
(4) Application has been made for the inclusion of the Units, Common Stock and
Class A Warrants on the OTC Bulletin Board. See 'Risk Factors--Lack of Prior
Market for Securities,' 'No Assurance of Public Trading Market' and 'Denial
of Nasdaq Listing'.
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
SIX MONTHS SIX MONTHS YEAR 1995 DURING
ENDED ENDED ENDED (INCEPTION) DEVELOPMENT
JUNE 30, 1997 JUNE 30, 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)................ (489,537) (691,976) (1,364,489) (821,525) (2,675,551)
Net (loss)...................... (489,537) (691,976) (1,364,489) (821,525) (2,675,551)
Net (loss) per share............ (.16) (.22) (.44) (.26) (.86)
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, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Working Capital (deficit)....................... $ (1,652,847) $(2,110,559)
Total assets.................................... 943,765 960,448
Total liabilities............................... 1,686,779 2,192,999
Deficit accumulated during development stage.... (2,186,014) (2,675,551)
Stockholders' (deficit)......................... (743,014) (1,232,551)
</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 Securities. Prior to this Offering, no public
trading market existed for the Securities. There can be no assurances that a
public trading market for the Securities will develop or that a public trading
market, if developed, will be sustained. The Company's application to list the
Securities on the Nasdaq SmallCap Market was denied. See 'Risk Factors--Denial
of Nasdaq Listing.'
2. No Assurance of Public Trading Market. Although the Company has applied
for the inclusion of the Units, Common Stock and Class A Warrants 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 Securities 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 Securities may be unable to resell the Securities offered
hereby at or near their original offering price or at any price. In the event
the Securities are not included on the OTC Bulletin Board, quotes for the
Securities 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
Securities and it is unlikely that any bank or financial institution will accept
such securities as collateral, which could have a material adverse effect in
developing or sustaining any market for the Securities. See 'Risk Factors--Penny
Stock Regulations May Impose Certain Restrictions on Marketability of Company's
Securities.'
3. Denial of Nasdaq Listing. The Company's application to list the
Securities 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.
4. Lack of Market. Prior to this Offering, there has been no public market
for the Securities. The initial public offering price of the Units and the terms
of the Warrants were 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
6
<PAGE>
worth or results of operations of the Company or any other established criteria
of value. In addition, the stock market in recent years has experienced extreme
price and volume fluctuations that have particularly affected the market prices
of many smaller companies. Frequently, such fluctuations have been unrelated or
disproportionate to the operating performance of such companies. These
fluctuations, as well as general economic and market conditions, may have a
material adverse effect on the market price of the Securities. See
'Underwriting--Determination of Public Offering Price,' 'Description of
Securities' and 'Financial Statements.'
5. Limited Operating History; Net Losses. The Company was formed in April
1995 for the purpose of developing and marketing devices to enhance athletic
performance. For the period April 25, 1995 (inception) to June 30, 1997, the
Company had net losses of $2,675,551. 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.'
6. 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 $2,186,014. 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.'
7. 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.'
8. 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
<PAGE>
9. 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.'
10. 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.
11. 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.'
12. 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.
13. 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 NHancement pursuant to a
sublicense agreement. NHancement, as the sublicensor to the Company, has
obtained certain rights to use the CTT pursuant to a license granted to
NHancement by Systems Technology, Inc. ('STI'), which is not affiliated with
either NHancement 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. See 'Business--Development of The SportsTrac(Trademark) System.'
8
<PAGE>
14. Potential Loss of Licensed Technology May Affect Operations;
Relationship with NHancement. The Company's sublicense of the CTT technology
expires on November 24, 2008 (assuming the exercise of all available
extensions), as does NHancement'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 NHancement and STI which allows the
Company to assume NHancement's rights and obligations should NHancement'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 NHancement. Certain members of management have a
relationship with NHancement. See 'Business-- General' and 'Certain
Relationships and Related Transactions.'
15. 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. On December
31, 1996 the United States Patent and Trademark Office informed the Company that
no similar trademark existed and requested that the Company provide them with
samples of its proposed trademark. Such samples were provided on May 22, 1997,
and the Company is awaiting final approval of its trademark application. 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. See 'Business--Trademarks and Service Marks.'
16. 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
Class A Warrants or other 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.'
17. Underwriters' As Market Makers of Company's Securities. Restrictions on
Marketing Activities During Warrant Solicitation May Affect Liquidity of
Securities. A significant amount of Securities 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 Securities if additional
broker-dealers do not make a market in the Company's Securities. 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 Securities. The
prices and liquidity of the Company's Securities 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
Securities. The prices and liquidity of the Company's Securities 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.
To the extent that the Underwriters solicit the exercise of Class A
Warrants, the Underwriters may be prohibited pursuant to the requirements of
Regulation M (formerly Rule 10b-6) under the Exchange Act from
9
<PAGE>
engaging in marketmaking activities during such solicitation and for specified
periods preceding such solicitation. As a result, the Underwriters may be unable
to continue to provide a market for the Company's Securities during certain
periods while the Class A Warrants are exercisable. The Underwriters are not
obligated to act as marketmakers. See 'Underwriting.'
18. 'Penny Stock' Regulations May Impose Certain Restrictions on
Marketability of Company's Securities. The Securities and Exchange Commission
(the 'Commission') has adopted regulations which generally define a 'penny
stock' to be any equity security that has a market price (as defined) of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exceptions. If the Securities are included on the OTC Bulletin Board
and is trading at less than $5.00, it may become subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document (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 Securities and may affect the ability of purchasers in
this Offering to sell the Company's Securities in the secondary market and the
price at which such purchasers can sell any such Securities.
19. 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.'
20. 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 $.35, representing a
dilution of $5.65 per share (94%) from the $6.00 offering price of the shares
(not including the Underwriters' Over Allotment Option or any value attributed
to the Warrants). See 'Dilution.'
21. 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.'
22. Proceeds of Offering to Benefit Principal Shareholders and Directors;
Regulatory History of Bridge Lender. 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 (cash or other) 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
10
<PAGE>
by Ulster Investment, Ltd. in the amount of $902,000. See 'Use of Proceeds,'
'Bridge Financing,' 'Principal Stockholders' and 'Certain Transactions'.
Randolph K. Pace, a beneficial owner of Dune Holdings, Inc., is a Bridge
Lender and shareholder. In 1987, Mr. Pace entered into a settlement of claims
brought by the Securities and Exchange Commission pursuant to which he
consented, without admitting or denying liability, to a suspension from
associating with a broker or dealer for a period of twelve (12) months and from
serving as a principal of a broker or dealer for an additional period of five
(5) years. In 1988, Mr. Pace entered into a settlement of claims brought by the
National Association of Securities Dealers (the 'NASD') pursuant to which he
consented, without admitting or denying liability, to a censure, fine and
suspension from associating with an NASD member for a period of two (2) years
and from acting in a supervisory capacity at an NASD member for a period of five
(5) years.
23. Substantial Portion of Proceeds to Satisfy Indebtedness; Proceeds to
Pay Accrued Salaries of Officers. Approximately 52% of the net proceeds of the
Offering will be used to repay indebtedness. See 'Risk Factors--Proceeds of
Offering to Benefit Principal Shareholders and Directors; Regulatory History of
Bridge Lender' and 'Use of Proceeds.' In addition, approximately 3% of the net
proceeds of the Offering will be used to pay accrued salaries to Messrs. Mellman
and Silverman. See 'Use of Proceeds.'
24. 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 exercise of up to
1,350,000 shares of Common Stock to purchase 1,350,000 shares of Common Stock
included in the Units offered hereby, the Representative's Purchase Option to
purchase up to 67,500 Units consisting of 67,500 shares of Common Stock and
135,000 Class A Warrants, the Underwriters' Over-Allotment Option of 101,250
Units consisting of 101,250 shares of Common Stock and 202,500 Class A Warrants,
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.
See 'Bridge Financing' and 'Description of Securities.'
The Company's directors and officers have agreed not to sell, transfer or
otherwise pledge their shares for a period of twenty-four (24) months following
the date of this Prospectus, unless it receives the prior written consent of the
Representative. The Representative has no agreements or understandings with any
of such persons with respect to the release of their securities prior to the
twenty-four (24) month period and has no present intention of releasing any or
all of such securities prior to such period. See 'Underwriting.'
Prospective investors should be aware that the possibility of resales by
stockholders of the Company, including the sale by the Selling Securityholders
of up to 2,000,000 Class A Warrants, may, in the future, have a material
depressive effect on the market price of the Company's Securities in any market
which may develop, and therefore, the ability of any investor to market his
shares may be dependent directly upon the number of shares that are offered and
sold. Affiliates of the Company may sell their shares during a favorable
movement in the market price of the Company's Securities which may have a
depressive effect on its price per share. See 'Description of Securities.'
25. Redemption of Redeemable Warrants May Affect Warrantholders. The Class
A Warrants are subject to redemption by the Company during the four (4) year
period commencing one (1) year following the date of this Prospectus at a price
of $.05 per Warrant if the closing bid price for the Common Stock equals or
exceeds $9.00 per share for any twenty (20) consecutive trading days ending no
earlier than the fifteenth (15th) trading day prior to the date of the notice of
redemption. In the event that the Warrants are called for redemption by the
11
<PAGE>
Company, Warrantholders will have thirty (30) days during which they may
exercise their rights to purchase shares of Common Stock. If holders of the
Warrants elect not to exercise them upon notice of redemption thereof, and the
Warrants are subsequently redeemed prior to exercise, the holders thereof would
lose the benefit of the difference between the market price of the underlying
Common Stock as of such date and the exercise price of such Warrants, as well as
any possible future price appreciation in the Common Stock. As a result of an
exercise of the Warrants, existing stockholders may be diluted and the market
price of the Common Stock may be adversely affected. If a Warrantholder fails to
exercise his rights under the Warrants prior to the date set for redemption,
then the Warrantholder will be entitled to receive only the redemption price of
$.05 per Warrant. Redemption of the Warrants could force the holders to exercise
the Warrants at a time when it may be disadvantageous to do so or sell the
Warrants at the then market value of the Warrants at the time of redemption. If
a current prospectus is not in effect, it is unlikely that the Company would
call the Warrants for redemption. See 'Risk Factors--Current Prospectus and
State Blue Sky Registration Required to Exercise Redeemable Warrants' and
'Description of Securities--Class A Warrants.'
26. Current Prospectus and State Blue Sky Registration Required to Exercise
Redeemable Warrants. Purchasers of Warrants will have the right to exercise the
Class A Warrants only if a current prospectus relating to the shares underlying
the Class A Warrants is then in effect and only if such shares are qualified for
sale under applicable state securities laws of the states in which the various
holders of the Warrants reside. There is no assurance that the Company will be
able to keep this Prospectus covering such shares current. Moreover, the Company
may decide not to seek or may not be able to obtain qualification of the
issuance of its Common Stock in all of the states in which the ultimate
purchasers of Warrants may reside. The Warrants may be deprived of any value if
a current prospectus covering the shares issuable upon exercise thereof is not
kept effective or if such shares are not registered in the states in which
holders of the Warrants reside. The Company has applied to register, or obtain
exemption, for the offer and sale of its securities in the following states:
Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii,
Illinois, Louisiana, Maryland, New York, Rhode Island and Wyoming. The offer and
sale of the securities of this offering are not available in any other state,
absent an exemption from registration. See 'Description of Securities--Class A
Warrants.'
27. Necessity for Updating Registration Statement. So long as the Warrants
or the Representative's Purchase Option are exercisable, or in the event that
the Company reduces the exercise price or exercise period of the Warrants, the
Company would be required to file one or more Post-Effective Amendments to its
Registration Statement to update the general and financial information contained
in this Prospectus. These obligations could result in substantial expense to the
Company and could be a hindrance to any future financing. Warrants may not be
exercised after , 199 (nine months from the date of this Prospectus),
unless and until a Post-Effective Amendment has been filed and becomes
effective. The Company will not notify Warrant holders if Warrants may not be
exercised due to the absence of an effective Post-Effective Amendment. Although
the Company has undertaken and intends to keep its Registration Statement
current, there is no assurance that the Company will keep its Registration
Statement current, and if for any reason it does not do so, the Warrants will
not be exercisable.
28. 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 Units consisting of 67,500 shares
of Common Stock and 135,000 Class A Warrants (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 Unit, 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 Securities, without assuming the risk of
ownership. The Company may find it more difficult to raise additional capital if
it should be needed for the business of the Company while the 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.'
29. 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
12
<PAGE>
provision and Delaware law, stockholders may have limited rights to recover
against directors for breach of fiduciary duty. See 'Description of Securities.'
30. 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.'
31. 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 Units 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 1,350,000 Class A Warrants
included in the Units offered hereby, 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 Units consisting of
67,500 shares of Common Stock and 135,000 Class A Warrants, the Underwriters'
Over-Allotment Option of 101,250 Units consisting of 101,250 shares of Common
Stock and 202,500 Class A Warrants, 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 4,518,950 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 included in the Units
offered hereby and owned by the Bridge Lenders and employee stock options), the
Company will have at least 6,902,050 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. Pursuant to the terms of the Underwriting Agreement, the Company's
officers and directors have agreed not to sell, transfer or otherwise pledge any
of their shares for a period of twenty-four (24) months following the date of
this Propectus, without the prior written consent of the Representative. The
Representative has no agreements or understandings with any of such persons with
respect to the release of their securities prior to the twenty-four (24) month
period and has no present intention of releasing any or all of such securities
prior to such period. See 'Description of Securities' and 'Underwriting.'
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 675,000 Units offered
hereby, are estimated to be 3,188,500 (after deducting approximately $405,000 in
underwriting discounts, other expenses of this Offering estimated to be
$456,500, 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 will not receive any of
the proceeds from the sale of the securities by the Selling Securityholders.
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 15.68%
Marketing and Sales........................... 500,000 15.68%
Repayment of Certain Indebtedness(2).......... 1,652,000 51.81%
Working Capital(3)............................ 536,500 16.83%
------------ -------
Total....................................... $3,188,500 100.00%
</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 NHancement under the Company's sublicense
agreement. Also represents the repayment of additional loans in the amount
of $552,000 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, legal and accounting fees and
expenses aggregating approximately $250,000, 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 cash 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.
14
<PAGE>
DILUTION
At June 30, 1997, the Company had outstanding an aggregate of 2,904,000
shares of Common Stock having an aggregate net tangible deficit value of
$(2,067,215) or $(.71) per share, based upon operating activity through June 30,
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 Units by the Company with net
proceeds of $3,288,500 (without deducting the $100,000 financial advisory fee),
the pro forma tangible book value of the Common Stock would have been $1,249,634
or approximately $.35 per share. This represents an immediate increase in pro
forma net tangible book value of $1.06 per share to the present stockholders and
an immediate dilution of $5.65 per share (94%) 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............................. $ (.71)
Increase per share attributable to the shares offered
hereby................................................... $1.06
Pro Forma net tangible book value per share after
offering(3).............................................. $ .35
Dilution of net tangible book value per share to purchasers
in this offering(2)(3)................................... $ 5.65
</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 the Class A Warrants or any outstanding warrants or
options. See 'Bridge Financing,' and 'Certain Transactions,' and
'Description of Securities.'
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing shareholders as of June 30, 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.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted giving effect to the sale of 675,000 Units offered
hereby and the application of net proceeds $3,288,500 therefrom assuming a
public offering price of $6.00 per Unit. 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..................................... $1,585,000 $ --
---------- ------------
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 4,695,710
---------- ------------
Deficit accumulated during the development
stage........................................... (2,675,551) (2,675,551)
---------- ------------
Total stockholders' (deficit) equity.............. (1,232,551) 2,055,949
---------- ------------
Total capitalization.............................. $ 352,449 2,055,949
---------- ------------
---------- ------------
</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 $2,088,500 therefrom, after deducting
estimated Offering expense of $761,500 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). See
'Risk Factors--Proceeds of Offering to Benefit Principal Shareholders and
Directors; Regulatory History of Bridge Lender.' None of the Bridge Lenders are
affiliated with the Company other than Solomon A. Weisgal, a director of the
Company, and The Holding Company, a principal stockholder of the Company. Burton
W. Kanter is the president of The Holding Company. Mr. Kanter is the father of
Joel Kanter, a principal stockholder of the Company, and Josh Kanter, a director
and Secretary of the Company. Ulster Investment Ltd. is an Antigua corporation
which is owned by the St. John's Trust. The beneficiaries of the St. John's
Trust are members of the family of Burton W. Kanter (but not including Burton W.
Kanter), including Joel Kanter, Josh Kanter and Janis Kanter, all of whom are
shareholders of the Company. In exchange for making loans to the Company, each
Bridge Lender received (i) a promissory note (each a 'Bridge Note') and (ii)
Bridge Units (aggregate 400,000 of such Bridge Units). Each of the Bridge Units
is comprised of one (1) share of Common Stock and five (5) Class A Warrants.
Each of the Bridge Notes bears interest at the rate of eight percent (8%) per
annum. The Bridge Notes are due and payable upon the earlier of (i) January 31,
1998 or (ii) the closing of an initial
16
<PAGE>
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. The Class A Warrants held by the Selling
Securityholders are identical to the Class A Warrants included in the Units
offered hereby. See 'Certain Transactions' and 'Underwriting.'
The registration statement, of which this Prospectus forms a part, also
covers the offering of the Class A Warrants held by the Selling Securityholders,
as well as the Common Stock issuable upon exercise of the Class A Warrants by
the Selling Securityholders or their transferees and the exercise of such Class
A Warrants by the transferees of the Selling Securityholders.
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 six (6) months ended June 30, 1997 and 1996 and cumulative during
development stage, and the balance sheet data at June 30, 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
SIX MONTHS SIX MONTHS YEAR APRIL 25, 1995 DURING
ENDED ENDED ENDED (INCEPTION) TO DEVELOPMENT
JUNE 30, 1997 JUNE 30, 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)....... (489,537) (691,976) (1,364,489) (821,525) (2,675,551)
Net (loss)............. (489,537) (691,976) (1,364,489) (821,525) (2,675,551)
Net (loss) per share... (.16) (.22) (.44) (.26) (.86)
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, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Working Capital (deficit)...................... $ (1,652,847) $(2,110,559)
Total assets................................... 943,765 960,448
Total liabilities.............................. 1,686,779 2,192,999
Deficit accumulated during development stage... (2,186,014) (2,675,551)
Stockholders' (deficit)........................ (743,014) (1,232,551)
</TABLE>
17
<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 $2,675,551 and $2,186,014 as of June 30, 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 June 30, 1997, the Company had a working capital deficit of
$2,110,559. 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. During 1996, the Company received $400,000 from
certain bridge lenders bearing interest at 8% per annum. 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. The total 480,000 shares represents a financing cost of $306,000
(effective interest rate of 651%). See
18
<PAGE>
'Bridge Financing' and 'Certain Transactions.' 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. On December 31, 1996 the
United States Patent and Trademark Office informed the Company that no similar
trademark existed and requested that the Company provide them with samples of
its proposed trademark. Such samples were provided on May 22, 1997, and the
Company is awaiting final approval of its trademark application.
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 a
purchase agreement with the Palm Springs Suns ( a minor league baseball team
which is not an affiliate 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 late 1997. The 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 agreement
provides 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
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of the Company's product by any professional team, or the athletes who utilize
The SportsTrac(Trademark) System in the pilot program.
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 NHancement Technologies, Inc., formerly known as
BioFactors, Inc. ('NHancement'), 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 NHancement 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 NHancement's non-invasive fitness for
duty testing device ('FACTOR 1000(Trademark)') for safety-related industrial
settings. NHancement 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 NHancement did not and has
not developed for commercial production. In addition, the license granted by
NHancement pursuant to the sublicense agreement was a license of the Factor
1000(Trademark) technology developed by NHancement, and a sublicense of the CTT
technology, which technologies the Company subsequently incorporated in its
SportsTrac(Trademark) System.
NHancement licenses the software and associated protocols and methodology
for the CTT technology from STI. Although NHancement's exclusive licensing
agreement expires in 2008 (assuming the exercise of all available extensions),
as does the Company's own sublicense agreement with NHancement, the Company has
negotiated an agreement with STI which allows the Company to assume NHancement'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 NHancement.
Pursuant to the Company's sublicense agreement with NHancement, the Company
agreed to pay NHancement $1,000,000, all of which has been paid. In addition,
the Company agreed to issue 180,000 warrants to NHancement, which were
subsequently assigned. See 'Certain Relationships and Related Transactions.' The
Company is also obligated to pay NHancement 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, NHancement
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
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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.
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.
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The Company maintains its executive offices at 6900 E. Belleview Avenue,
Suite 200, Englewood, Colorado 80111, telephone number (303) 771-3733.
DEVELOPMENT OF THE SPORTSTRAC(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 NHancement, 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
NHancement'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 NHancement 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 NHancement 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
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positive change in an athlete's training or game preparation even before such
changes affect game performance. Periodic high and low scores can identify an
athlete's personal biorhythmic cycle of coordination, a useful tool for any
player striving for maximum athletic performance.
Based upon its experience in its pilot program, management believes that
The SportsTrac(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 NHancement 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
NHancement 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 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 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
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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.
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. 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.
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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 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.
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 a
purchase agreement with the Palm Spring Suns (a minor league baseball team) to
install The SportsTrac(Trademark) System in late 1997. The purchase price for
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)
26
<PAGE>
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. On December 31, 1996 the United States and
Trademark Office informed the Company that no similar trademark existed and
requested that the Company provide them with samples of its proposed trademark.
Such samples were provided on May 22, 1997, and the Company is awaiting final
approval of its trademark application. However, no assurances can be made that
the Company's application will be approved by the United States Patent and
Trademark Office.
EMPLOYEES
As of 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.
27
<PAGE>
Diana Scott. Ms. Scott is an attorney with expertise in employment law and
wrongful termination. She has represented professional sports players and
executives in various areas of employment, litigation, and business.
Kenny Slutsky. Mr. Slutsky is currently Vice Chairman of Candle
Corporation, the leading provider of systems management software in the world.
He was previously Chairman of Kern Oil and Refining Co. and developed and
founded the Old Marsh Golf Club in Palm Beach County, Florida.
Reggie Smith. Mr. Smith played major league baseball for 17 seasons with
the Boston Red Sox, St. Louis Cardinals, Los Angeles Dodgers, and the San
Francisco Giants. He is currently the Los Angeles Dodgers' batting coach and is
founder of the Baseball Development Centers for skills instruction and training.
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.
28
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
<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
</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 NHancement on May 22,
1994. Mr. Silverman was an officer of NHancement 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 NHancement. Also, since 1992
Mr. Steinberg has been a director of Ganson Ltd. and Cege Co., Ltd. (Hong Kong),
both private companies
29
<PAGE>
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.
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>
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>
30
<PAGE>
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 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.
31
<PAGE>
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.
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
32
<PAGE>
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
Marc Silverman(4) .................. 234,000 7.89 6.43
c/o SportsTrac, Inc.
6900 E. Belleview Avenue
Suite 200
Englewood, Colorado 80111
</TABLE>
33
<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>
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)
1,350,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Units offered hereby; (ii) 101,250 shares of Common
Stock and 202,500 Class A Warrants issuable upon exercise of the
Over-Allotment Option; (iii) 67,500 shares of Common Stock and 135,000 Class
A Warrants issuable upon exercise of the Representative's Purchase Option;
(iv) 2,000,000 shares of Common Stock issuable upon exercise of the Class A
Warrants owned by the Bridge Lenders and (v) 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.'
(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.'
(Footnotes continued on next page)
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<PAGE>
(Footnotes continued from previous page)
(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.
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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 NHancement (on August 30, 1995) pursuant to the sublicense
agreement (although such warrants as issued contain different terms as initially
contemplated). NHancement 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 NHancement to
such persons (and affiliates), the deferment of such obligations of NHancement
and the conversion of such obligations of NHancement into shares of capital
stock of NHancement upon the closing of the initial public offering of
NHancement, if the same occurs prior to December 31, 1996 (otherwise such
obligations become due and payable). In January 1997, NHancement closed on its
initial public offering of securities and paid its obligations to such persons.
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). See 'Risk
Factors--Proceeds of Offering to Benefit Principal Shareholders and Directors;
Regulatory History of Bridge Lender.' 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.'
In August 1996, the Company received an advance of $350,000 from one of the
Bridge Lenders (Ulster Investments Ltd.). This advance bears interest at the
rate of 15% per annum and was used to pay off the balance of the note payable to
NHancement (See 'Use of Proceeds'). Repayment of this note is due on the earlier
of (i) the completion of a public offering of the Company's securities, or (ii)
January 31, 1998. See 'Use of Proceeds.'
In October 1996 and December 1996, the Company received advances of $50,000
each from one of the Bridge Lenders (Ulster Investments Ltd.). These advances
bear interest at the rate of 10% per annum and were used for working capital
purposes. Repayment of these notes are due on the earlier of (i) the completion
of a public offering of the Company's securities, or (ii) January 31, 1998. See
'Use of Proceeds.'
During the months of January 1997 to July 1997, the Company received
advances aggregating $452,000 from one of the Bridge Lenders (Ulster Investments
Ltd.). These notes bear interest at the rate of 10% per annum and were used for
working capital purposes. Repayment of these notes are due on the earlier of (i)
the completion of a public offering of the Company's securities, or (ii) January
31, 1998. See 'Use of Proceeds.'
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<PAGE>
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 NHancement on May 27, 1994,
the sublicensor of the CTT technology to the Company. Mr. Silverman was an
officer of NHancement, from 1993 until September 1, 1995 (and a director until
April 1995). Mr. Silverman is a minority stockholder of NHancement.
Mr. Steinberg, a director of the Company, served on the board of directors
of Performance Factors and served on the board of directors of NHancement 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
NHancement. 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 NHancement. 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 NHancement. Joel Kanter is the President
of the Kanter Family Foundation and Windy City, Inc., stockholders of the
Company, and is the brother of Joshua S. Kanter.
With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors. Currently there are no disinterested
directors serving on the Company's Board of Directors.
DESCRIPTION OF SECURITIES
The Company is offering 675,000 Units, each Unit consisting of one share of
Common Stock, par value $.01 per share and one Class A Warrant.
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.
37
<PAGE>
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
The Class A Warrants included in the Units are immediately detachable and
may trade immediately upon issuance. In connection with the Bridge Financing,
the Company issued 2,000,000 Class A Warrants included in the Bridge Units which
are identical to the Class A Warrants included in the Units offered hereby. Each
Class A Warrant entitles the holder to purchase one (1) share of Common Stock at
a price of $5.00 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,
equals or 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.
If there is no publicly traded market for the Common Stock, the Class A Warrants
will not be subject to redemption. Upon thirty (30) days' written notice to all
holders of Class A Warrants, the Company shall have the right, subject to
compliance with Rule 13E-4 under the Securities Exchange Act of 1934 and the
filing of Schedule 13E-4 and, if required, a post-effective amendment to this
registration statement, to reduce the exercise price and/or extend the term of
the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a holder
of Class A Warrant certificates resides, such holder might not be permitted to
exercise the Warrants. See 'Risk Factors--Requirements of Current Prospectus and
State Blue Sky Registration in Connection with the Excercise of the Class A
Warrants.'
Each Class A Warrant may be exercised by surrendering the warrant
certificate, with the form of election to purchase on the reverse side of the
Class A warrant certificate properly completed and executed, together with
payment of the exercise price, to the Transfer Agent. The Class A Warrants may
be exercised in whole or from time to time in part. If less than all of the
Class A Warrants evidenced by a warrant certificate are exercised, a new Class A
warrant certificate will be issued for the remaining number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the 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.
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<PAGE>
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
NHancement (on August 30, 1995) pursuant to the sublicense agreement (although
such warrants as issued contain different terms as initially contemplated).
NHancement 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 NHancement to such persons (and
affiliates), the deferment of such obligations of NHancement and the conversion
of such obligations of NHancement into shares of capital stock of NHancement
upon the closing of the initial public offering of NHancement, if the same
occurs prior to December 31, 1996 (otherwise such obligations become due and
payable). In January 1997, NHancement closed on its initial public offering of
securities and paid its obligations to such persons. 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
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<PAGE>
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.
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 Units, Common Stock and
Class A Warrants on the OTC Bulletin Board under the symbols 'SPRTU,' 'SPRT' and
'SPRTW'. There can be no assurance that such application will be approved or
that, if approved, a regular trading market for the Securities 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
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<PAGE>
Securities are not included on the OTC Bulletin Board, quotes for the Securities
may be included in the 'pink sheets' for the over-the-counter market. If the
Company's Securities trade for less than $5.00 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 Securities.'
The Company's application for listing of its Securities 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
Securities,' 'No Assurance of Public Trading Market,' and 'Denial of Nasdaq
Listing' and 'Penny Stock Regulations May Impose Certain Restrictions on
Marketability of the Company's Securities.'
TRANSFER AGENT & REGISTRAR
The transfer agent, warrant 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. All of
the Company's officers and directors have agreed not to sell, transfer or
otherwise pledge their shares for a period of twenty-four (24) months from the
date of this Prospectus without the prior written consent of the Representative.
The Representative has no agreements or understandings with any of such persons
with respect to the release of their securities prior to the twenty-four (24)
month period and has no present intention of releasing any or all of such
securities prior to such period. 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.'
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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 Units 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>
IAR Securities Corp................
............
............
............
............
----------------
675,000
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Units to the public at $6.00 per Unit 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 Unit, of which not in excess of $
per Unit 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 Units and the terms of the Warrants were
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 Units 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.
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 Units. 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 Units issuable upon exercise of the
Representative's Purchase Option during the period of exercisability shall be
$9.90 per Unit. The exercise price of the Class A Warrants included in the
Representative's Purchase Option is $8.25 (165% above the exercise price of the
Class A Warrants included in the Units offered hereby). 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
42
<PAGE>
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.
Prior to the date of this Prospectus, all of the directors and officers of
the Company have agreed in writing not to sell, transfer or otherwise pledge any
of their shares without the Representative's prior written consent for a period
of twenty-four (24) months from the date of the Prospectus. The Representative
has no agreements or understandings with any of such persons with respect to the
release of their securities prior to the twenty-four (24) month period and has
no present intention of releasing any or all of such securities prior to such
period.
The Company has also agreed to pay the Representative a warrant
solicitation fee equal to 4% of the Warrant exercise price for any of the
Warrants, when exercised, at any time commencing one year after the date of this
Prospectus, provided that the Representative or any NASD member firm has
solicited such exercise, as evidenced in writing signed by the warrant holder,
and that (a) the market price of the Common Stock on the date that any such
Warrant is exercised is greater than the exercise price of the Warrant: (b)
prior specific written approval for exercise is received from the customer if
the Warrant is held in a discretionary account; (c) disclosure of this
compensation arrangement is made prior to or upon the exercise of such Warrant;
(d) solicitation of the exercise is not in violation of Regulation M (formerly
Rule 10b-6) of the Exchange Act; and (e) solicitation of the exercise is in
compliance with NASD Notice to Members 81-38 which also provides that the
Warrantholder designates an NASD member firm in writing as having solicited the
Warrant. In addition, unless granted an exemption by the Commission from
Regulation M (formerly Rule 10b-6) under the Exchange Act, the Underwriters will
be prohibited from engaging in any market-making activities or solicted
brokerage activities with respect to the Company's securities for certain
periods prior to any solicitation of the exercise of any Warrant. As a result,
the Underwriters may be unable to continue to provide a market for the Company's
securities during certain periods while the Warrants are exercisable.
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 Securities.
The initial public offering price for the Units and the terms of the Warrants
have 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 Units, Common Stock and Class A Warrants
will be listed for quotation on the OTC Bulletin Board under the symbols
'SPRTU,' 'SPRT' and 'SPRTW' but there can be no
43
<PAGE>
assurances that an active trading market will develop, even if the Securities
are accepted for quotation. See 'Description of Securities--Certain Market
Information.'
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
covers the resale of 2,000,000 Class A Warrants owned by the Selling
Securityholders and 2,000,000 shares of Common Stock issuable upon exercise of
the Class A Warrants owned by the Selling Securityholders. The Company will not
receive any of the proceeds on the resale of the securities by the Selling
Securityholders. The Class A Warrants owned by the Selling Securityholders are
identical to the Warrants offered by the Company. See 'Description of
Securities.' The resale of the securities of the Selling Securityholders are
subject to Prospectus delivery and other requirements of the Securities Act of
1933, as amended (the 'Act'). Sales of such securities or the potential of such
sales at any time may have an adverse effect on the market prices of the
securities offered hereby. See 'Risk Factors--Shares Eligible for Future Sale
May Adversely Affect the Market.'
The securities offered may be sold from time to time directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling Securityholders
and intermediaries through whom such securities are sold may be deemed
'underwriters' within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
Offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public.
Sales of securities by the Selling Securityholder or even the potential of
such sales would likely have an adverse effect on the market prices of the
securities offered hereby.
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.
44
<PAGE>
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.
45
<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 June 30, 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, six months ended June 30, 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, six months ended June 30, 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, six months ended June 30, 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, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ---------------------------------------------
CURRENT ASSETS:
Cash....................................... $ 23,932 $ 72,440
Accounts Receivable........................ 10,000 10,000
------------ ------------
33,932 82,440
LICENSED TECHNOLOGY, net of accumulated
amortization of $97,976 and $134,144,
respectively (Note 3)...................... 842,484 806,316
COMPUTER EQUIPMENT, net of accumulated
depreciation of $10,060 and $14,560,
respectively............................... 40,238 39,183
DEFERRED OFFERING COSTS...................... 25,000 28,348
OTHER ASSETS................................. 2,111 4,161
------------ ------------
$ 943,765 $ 960,448
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------------
CURRENT LIABILITIES:
Bridge notes payable (Note 4).............. $1,200,000 $ 1,585,000
Deferred revenue........................... 20,000 20,000
Accrued expenses and other liabilities..... 466,779 587,999
------------ ------------
1,686,779 2,192,999
------------ ------------
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................................... (2,186,014) (2,675,551)
------------ ------------
(743,014) (1,232,551)
------------ ------------
$ 943,765 $ 960,448
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
SIX MONTHS SIX MONTHS APRIL 25, 1995 DURING
ENDED ENDED YEAR ENDED (INCEPTION) TO DEVELOPMENT
JUNE 30, 1997 JUNE 30, 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)............................ 317,631 249,160 758,150 735,524 1,811,305
Product design costs............. 64,050 45,500 90,825 26,439 181,314
Depreciation and amortization.... 40,668 38,166 81,296 26,740 148,704
Interest (Notes 3
and 5)........................ 67,188 359,150 434,218 32,822 534,228
------------- ------------- ----------------- ----------------- ------------
489,537 691,976 1,364,489 821,525 2,675,551
------------- ------------- ----------------- ----------------- ------------
NET LOSS........................... $ (489,537) $ (691,976) $(1,364,489) $(821,525) $ (2,675,551)
------------- ------------- ----------------- ----------------- ------------
------------- ------------- ----------------- ----------------- ------------
NET LOSS PER SHARE (Note 6)........ $ (.16) $ (.22) $ (.44) $ (.26) $ (.86)
------------- ------------- ----------------- ----------------- ------------
------------- ------------- ----------------- ----------------- ------------
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.................. -- -- -- -- -- (1,364,489) (1,364,489)
----- ----- --------- ------- ---------- ----------- -----------
Balance, December 31,
1996.................... -- $ -- 2,904,000 $29,040 $1,413,960 $(2,186,014) $ (743,014)
Net Loss (unaudited)...... -- -- -- -- -- (489,537) (489,537)
----- ----- --------- ------- ---------- ----------- -----------
Balance, June 30, 1997
(unaudited)............. -- $ -- 2,904,000 $29,040 $1,413,960 $(2,675,551) $(1,232,551)
----- ----- --------- ------- ---------- ----------- -----------
----- ----- --------- ------- ---------- ----------- -----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
SPORTSTRAC, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
SIX MONTHS SIX MONTHS APRIL 25, 1995 DURING
ENDED ENDED YEAR ENDED (INCEPTION) TO DEVELOPMENT
JUNE 30, 1997 JUNE 30, 1996 DECEMBER 31, 1996 DECEMBER 31, 1995 STAGE
------------- ------------- ----------------- ----------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................ $(489,537) $(691,976) $(1,364,489) $(821,525) $(2,675,551)
------------- ------------- ----------------- ----------------- -----------
Adjustments to reconcile
net loss to net cash
used in operations:
Amortization and
depreciation........ 40,668 38,166 81,296 26,740 148,704
Amortization of
imputed interest.... -- 335,740 339,040 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 and
other
liabilities...... 121,220 205,359 453,033 13,746 587,999
------------- ------------- ----------------- ----------------- -----------
Total adjustments..... 159,838 578,465 882,358 695,886 1,738,082
------------- ------------- ----------------- ----------------- -----------
Net cash used in operating
activities.............. (329,699) (113,511) (482,131) (125,639) (937,469)
------------- ------------- ----------------- ----------------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of licensed
technology............ -- -- -- (300,000) (300,000)
Acquisition of computer
equipment............. (3,445) (26,648) (28,140) (22,158) (53,743)
------------- ------------- ----------------- ----------------- -----------
Net cash used in investing
activities.............. (3,445) (26,648) (28,140) (322,158) (353,743)
------------- ------------- ----------------- ----------------- -----------
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) (192,085) (25,000) -- (28,348)
Proceeds from Bridge
notes payable......... 385,000 750,000 1,200,000 -- 1,585,000
Repayment of notes
payable............... -- (350,000) (700,000) -- (700,000)
------------- ------------- ----------------- ----------------- -----------
Net cash provided by
financing
activities.............. 381,652 223,415 490,500 491,500 1,363,652
------------- ------------- ----------------- ----------------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS ............ 48,508 83,256 (19,771) 43,703 72,440
CASH AND CASH EQUIVALENTS,
beginning of period..... 23,932 43,703 43,703 -- --
------------- ------------- ----------------- ----------------- -----------
CASH AND CASH EQUIVALENTS,
end of period........... $ 72,440 $ 126,959 $ 23,932 $ 43,703 $ 72,440
------------- ------------- ----------------- ----------------- -----------
------------- ------------- ----------------- ----------------- -----------
</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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 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 $2,675,500. 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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 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.
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.
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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
3. LICENSED TECHNOLOGY:--(CONTINUED)
Interest expense for the periods ended December 31, 1996, June 30, 1996 and
December 31, 1995 related to this note were $33,040, $29,740 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 (effective interest rate of 651%). This cost 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.
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.
f. During the months of April 1997 to June 1997, the Company received
advances aggregating $221,000 from one of the bridge lenders. These notes bear
interest at rates ranging between 10% to 15% per annum and are
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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
4. BRIDGE NOTES PAYABLE:--(CONTINUED)
payable on the earlier of (i) the completion of a public offering of the
Company's securities or (ii) January 31, 1998.
5. INCOME TAXES:
At June 30, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $1,530,000, 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 and 2,000,000 Class A Warrants 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.
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
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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
6. STOCKHOLDERS' EQUITY:--(CONTINUED)
public offering price. Included in the accompanying statements of operations for
the period ended December 31, 1995 under the caption 'General and Administrative
Expenses' is an amount of $630,000 representing compensation expense for the
aforementioned issuance of stock option using a fair value of $3.25 per share
along with corresponding credit to additional paid-in capital.
c. Warrants
At June 30, 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
JUNE 30, JUNE 30, 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 June 30, 1997, the Company has 2,660,000 shares of common stock reserved
for future issuances.
f. Proposed public offering
The Company filed 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 Units
consisting of shares of common stock and redeemable warrants. The proposed
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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS
UNAUDITED)
6. STOCKHOLDERS' EQUITY:--(CONTINUED)
transaction, the maximum number of Units 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 JUNE 30, 1997
-------------------------- --------------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 23,932 $ 23,932 $ 72,440 $ 72,440
Accounts receivable........... 10,000 10,000 10,000 10,000
Bridge notes payable.......... 1,200,000 1,200,000 1,585,000 1,585,000
Other current liabilities..... 486,779 486,779 587,999 587,999
</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, June 30, 1997 and 1996.
9. UNAUDITED FINANCIAL STATEMENTS:
The financial statements as of June 30, 1997 and the six months ended June
30, 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.................................................. 14
Dilution......................................................... 15
Capitalization................................................... 16
Dividend Policy.................................................. 16
Bridge Financing................................................. 16
Selected Financial Data.......................................... 17
Management's Discussion and Analysis of Financial Condition and
Plan of Operations............................................. 18
Business......................................................... 19
Management....................................................... 29
Principal Stockholders........................................... 33
Certain Relationships and Related Transactions................... 36
Description of Securities........................................ 37
Underwriting..................................................... 42
Selling Securityholders.......................................... 44
Legal Matters.................................................... 44
Experts.......................................................... 45
Available Information............................................ 45
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 UNITS, EACH UNIT
CONSISTING OF
ONE SHARE OF COMMON STOCK
AND TWO CLASS A WARRANTS
SPORTSTRAC, INC.
------------------------
PROSPECTUS
------------------------
IAR SECURITIES CORP.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 1997
ALTERNATE
PROSPECTUS
SPORTSTRAC, INC.
2,000,000 CLASS A WARRANTS AND
2,000,000 SHARES OF COMMON STOCK
UNDERLYING CLASS A WARRANTS
------------------------
This Prospectus relates to the resale of 2,000,000 redeemable Class A
Warrants ('Class A Warrants' or 'Warrants'), owned by certain bridge lenders
('Bridge Lenders' hereinafter collectively referred to as the 'Selling
Securityholders') of SportsTrac, Inc., a Delaware corporation (the 'Company'),
the resale of the 2,000,000 shares of Common Stock underlying such Class A
Warrants by the Selling Securityholders or their transferees and the exercise of
such Class A Warrants by the transferees of the Selling Securityholders. The
securities held by the Selling Securityholders may be sold concurrent with or
after the Company's Offering. See 'Description of Securities.' The Company will
not receive any of the proceeds on the resale of the securities by the Selling
Securityholders. The resale of the securities of the Selling Securityholders are
subject to Prospectus delivery and other requirements of the Securities Act of
1933, as amended (the 'Act'). Sales of such securities or the potential of such
sales at any time may have an adverse effect on the market prices of the
securities offered hereby. See 'Selling Securityholders' and 'Risk
Factors--Shares Eligible for Future Sale May Adversely Affect the Market.'
Each Class A Warrant entitles the holder to purchase one (1) share of the
Company's Common Stock, at an exercise price of $5.00, subject to adjustment,
from , 1998 through , 2002. The Class A Warrants are subject to
redemption by the Company at any time after , 1998 on not less than thirty
(30) days' notice at $.05 per Warrant, provided the average closing price of the
Common Stock for twenty (20) consecutive trading days ending within fifteen (15)
days prior to the notice equals or exceeds $9.00 per share. See 'Description of
Securities.'
The Company has applied for the inclusion of its Units, Common Stock and
Warrants (collectively, the 'Securities') 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
Securities on the OTC Bulletin Board will be approved or that, if approved, a
regular trading market for its Securities will develop after this Offering or
that, if developed, a regular trading market will be sustained. In the event the
Securities are not included on the OTC Bulletin Board, quotes for the Securities
may be included in the 'pink sheets' for the over-the-counter market. If the
Company's Securities trade for less than $5.00 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 Securities 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--No Assurance of Public Trading
Market,' 'Denial of Nasdaq Listing' and 'Penny Stock Regulations May Impose
Certain Restrictions on Marketability of Company's Securities.'
The securities offered by this Prospectus may be resold from time to time by
the Selling Securityholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders. The
distribution of the securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with sales of such securities.
The Selling Securityholders and intermediaries through whom such securities
may be sold may be deemed 'underwriters' within the meaning of the Act, with
respect to the securities offered and any profits realized or commissions
received may be deemed underwriting compensation. The Company has agreed to
indemnify the Selling Securityholders against certain liabilities, including
liabilities under the Act.
All costs incurred in the registration of the securities of the Selling
Securityholders are being borne by the Company. See 'Selling Securityholders.'
On the date hereof the Company commenced a public offering of 675,000 Units,
each Unit consisting of one share of Common Stock and two Class A Warrants. The
Class A Warrants sold hereunder are identical to the Class A Warrants offered by
the Company. See 'Company Offering.'
------------------------
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.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[ALTERNATE]
and computer software in the early 1960s. The Company has secured an exclusive
sublicense from NHancement Technologies, Inc., formerly known as BioFactors,
Inc. ('NHancement') 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 NHancement'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.
NHancement licenses the software and associated protocols and methodology
for the CTT technology from STI. Although NHancement's exclusive licensing
agreement expires in 2008 (assuming the exercise of all available extensions),
as does the Company's own sublicensing agreement with NHancement, the Company
has negotiated an agreement with STI which allows the Company to assume
NHancement'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 NHancement. Pursuant
to the Company's sublicense agreement with NHancement, the Company agreed to pay
NHancement $1,000,000, all of which has been paid. In addition, the Company
agreed to issue 180,000 warrants to NHancement which were subsequently assigned.
See 'Certain Relationships and Related Transactions.' The Company is obligated
to pay NHancement 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, NHancement 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
<TABLE>
<S> <C>
Securities Offered(1) ............. 2,000,000 Class A Warrants and 2,000,000
shares of Common Stock underlying Class A
Warrants. See 'Description of Securities.'
Securities Outstanding Prior to the
Offering......................... 2,904,000 shares of Common Stock
2,000,000 Class A Warrants
Securities Outstanding Subsequent
to the Offering.................. 3,579,000 shares of Common Stock(2)
3,350,000 Class A Warrants(3)
Terms of Class A Warrants.......... Each Class A Warrant entitles the holder to
purchase one (1) share of the Company's
Common Stock at a price of $5.00, subject to
adjustment, during the four (4) year period
beginning , 1998. The Class A
Warrants are subject to redemption by the
Company at any time, beginning ,
1998 through , 2002, on not less
than thirty (30) days' notice at $.05 per
Warrant, provided the average closing price
of the Common Stock equals or exceeds $9.00
per share for twenty (20) consecutive
trading days ending within fifteen (15) days
prior to the notice. See 'Description of
Securities.'
Use of Proceeds.................... The Company will not receive any of the
proceeds of the offering of the securities
offered hereby by the Selling
Securityholders.
Risk Factors....................... The Securities are subject to a high degree
of risk and substantial dilution. See 'Risk
Factors' and 'Dilution.'
</TABLE>
4
<PAGE>
[ALTERNATE]
<TABLE>
<S> <C>
Proposed OTC Bulletin Board
Symbols(4)....................... Units-SPRTU
Common Stock-SPRT
Class A Warrants-SPRTW
</TABLE>
- ------------------
(1) Concurrently with this Offering, the Company is offering 675,000 Units (each
Unit consisting of one share of Common Stock and two Class A Warrants). See
'Company Offering.'
(2) Does not give effect to (i) 1,350,000 shares of Common Stock issuable upon
exercise of Class A Warrants included in the Units offered by the Company;
(ii) 2,000,000 shares of Common Stock issuable upon exercise of Class A
Warrants owned by Bridge Lenders of the Company; (iii) 101,250 shares of
Common Stock and 202,500 Class A Warrants issuable upon exercise of the
Over-Allotment Option; (iv) 67,500 shares of Common Stock and 135,000 Class
A Warrants issuable upon exercise of the Representative's Purchase Option;
(v) 180,000 shares of Common Stock issuable upon exercise of certain
warrants, and (vi) 480,000 shares of Common Stock issuable upon exercise of
employee stock options. See 'Bridge Financing,' 'Certain Transactions' and
'Description of Securities.'
(3) Does not give effect to the possible issuance of (i) 202,500 Class A
Warrants issuable upon exercise of the Over-Allotment Option and (ii)
135,000 Class A Warrants issuable upon exercise of the Representative's
Purchase Option. See 'Description of Securities.'
(4) Application has been made for the inclusion of the Units, Common Stock and
Class A Warrants on the OTC Bulletin Board. See 'Risk Factors--Lack of Prior
Market for Securities,' 'No Assurance of Public Trading Market' and 'Denial
of Nasdaq Listing'.
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
SIX MONTHS SIX MONTHS YEAR 1995 DURING
ENDED ENDED ENDED (INCEPTION) DEVELOPMENT
JUNE 30, 1997 JUNE 30, 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)................ (489,537) (691,976) (1,364,489) (821,525) (2,675,551)
Net (loss)...................... (489,537) (691,976) (1,364,489) (821,525) (2,675,551)
Net (loss) per share............ (.18) (.22) (.44) (.26) (.86)
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, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Working Capital (deficit)....................... $ (1,652,847) $(2,110,559)
Total assets.................................... 943,765 960,448
Total liabilities............................... 1,686,779 2,192,999
Deficit accumulated during development stage.... (2,186,014) (2,675,551)
Stockholders' (deficit)......................... (743,014) (1,232,551)
</TABLE>
5
<PAGE>
[ALTERNATE]
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the Act with
respect to an underwritten public offering (the 'Offering') of 675,000 Units
(each Unit consisting of one share of Common Stock and two Class A Warrants) by
the Company was declared effective by the Securities and Exchange Commission
('SEC'), and the Company commenced the sale of securities offered thereby. Sales
of securities under this Prospectus by the Selling Securityholders or even the
potential of such sales may have an adverse effect on the market price of the
Company's securities.
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part covers the
resale of 2,000,000 Class A Warrants owned by the Selling Securityholders, and
2,000,000 shares of Common Stock issuable upon exercise of the Class A Warrants
owned by the Selling Securityholders. The Company will not receive any of the
proceeds on the resale of the securities by the Selling Securityholders. The
Class A Warrants owned by the Selling Securityholders are identical to the Class
A Warrants offered by the Company. The resale of the securities by the Selling
Securityholders is subject to Prospectus delivery and other requirements of the
Act.
The following table sets forth the holders of the Warrants which are being
offered by the Selling Securityholders and the number of Warrants owned before
the Offering, the number of Warrants being offered and the number of Warrants
and the percentage of the class to be owned after the Offering is complete.
<TABLE>
<CAPTION>
CLASS A CLASS A
WARRANTS CLASS A WARRANTS PERCENTAGE OF
OWNED BEFORE WARRANTS OWNED AFTER CLASS AFTER
NAME OFFERING OFFERED HEREBY OFFERING OFFERING
- ----------------------------------------------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Scott Sinar.......................................... 25,000 25,000 0 0
Solomon A. Weisgal, as trustee(1).................... 75,000 75,000 0 0
The Holding Company(2)............................... 325,000 325,000 0 0
Ulster Investments(3)................................ 500,000 500,000 0 0
Howard Kirschbaum.................................... 25,000 25,000 0 0
John LaFalce......................................... 50,000 50,000 0 0
Dune Holdings, Inc.(4)............................... 500,000 500,000 0 0
Matthew Harriton..................................... 100,000 100,000 0 0
Hartley Bernstein(5)................................. 250,000 250,000 0 0
Michael Lulkin....................................... 150,000 150,000 0 0
------------ -------------- ----------- -------------
Total................................................ 2,000,000 2,000,000 0 0
------------ -------------- ----------- -------------
------------ -------------- ----------- -------------
</TABLE>
- ------------------
(1) A director of the Company. See 'Management' and 'Principal Stockholders.'
(2) See 'Bridge Financing,' 'Principal Stockholders' and 'Certain Relationships
and Related Transactions.'
(3) See 'Use of Proceeds' and 'Bridge Financing.'
(4) See 'Bridge Financing' and 'Risk Factors--Proceeds of Offering to Benefit
Principal Shareholders and Directors; Regulatory History of Bridge Lender.'
(5) See 'Legal Matters' and 'Bridge Financing.'
PLAN OF DISTRIBUTION
The securities offered hereby may be resold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be resold by one or more of the
following methods, without limitations: (a) a block trade in
42
<PAGE>
which a broker or dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers,
and (d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed 'underwriters' within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a Prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
Offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for sales purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public.
Sales of securities by the Selling Securityholders or even the potential of
such sales would likely have an adverse effect on the market prices of the
securities offered hereby. See 'Company Offering.'
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.
43
<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 of Company Offering.............................. 14
Dilution......................................................... 15
Capitalization................................................... 16
Dividend Policy.................................................. 16
Selected Financial Data.......................................... 17
Management's Discussion and Analysis of Financial Condition and
Plan of Operations............................................. 18
Business......................................................... 19
Management....................................................... 29
Principal Stockholders........................................... 33
Certain Relationships and Related Transactions................... 36
Description of Securities........................................ 37
Selling Securityholders.......................................... 42
Plan of Distribution............................................. 42
Legal Matters.................................................... 43
Experts.......................................................... 43
Financial Statements............................................. F-1
</TABLE>
------------------------
2,000,000 CLASS A WARRANTS
AND 2,000,000 SHARES
OF
COMMON STOCK
UNDERLYING CLASS A WARRANTS
SPORTSTRAC, INC.
------------------------
PROSPECTUS
------------------------
, 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.............................................. $ 1,613.72
NASD filing fee............................................. $ 1,032.58
Accounting fees and expenses*............................... $ 35,000
Legal fees and expenses*.................................... $135,000
Blue Sky fees and expenses*................................. $ 15,000
Printing and engraving*..................................... $ 40,000
Transfer Agent's and Registrar's fees....................... $ 2,500
Miscellaneous expenses*..................................... $ 4,853.70
-----------
Total....................................................... $235,000
-----------
-----------
</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
NHancement (on August 30, 1995) pursuant to the sublicence agreement (although
such warrants as issued contain different terms as initially contemplated).
NHancement 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 NHancement to such persons (and
affiliates), the deferment of payment of such obligations of NHancement and the
conversion of such obligations of NHancement into shares of capital stock of
NHancement upon the closing of the initial public offering of NHancement if the
same occurs prior to December 31, 1996 (otherwise such obligations will become
due and payable). In January 1997, NHancement closed on its initial public
offering of securities and paid its obligations to such persons. 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). See 'Risk
Factors--Proceeds of Offering to Benefit Principal Shareholders and Directors;
Regulatory History of Bridge Lender.' 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
II-2
<PAGE>
Securities Act of 1933, as amended, as transactions by an issuer not involving
any public offering. The Registrant has been informed that each person is able
to bear the economic risk of his investment and is aware that the securities
were not registered under the Securities Act of 1933, as amended, and cannot be
re-offered or re-sold until they have been so registered or until the
availability of an exemption therefrom. The Transfer Agent and registrar of the
Registrant will be instructed to mark 'stop 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 -- Form of Lockup Letter with Officers and Directors.*
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
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 July 21, 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 July 21, 1997
- -------------------------
Michael Mellman, MD
/s/ MARC R. SILVERMAN Chief Executive Officer, President, July 21, 1997
- ------------------------- Chief Financial Officer, Principal
Marc R. Silverman Accounting Officer and Director
/s/ ELLIOT STEINBERG Director July 21, 1997
- -------------------------
Elliot Steinberg
/s/ SOLOMON A. WEISGAL Director July 21, 1997
- -------------------------
Solomon A. Weisgal
/s/ JOSHUA S. KANTER Director and Secretary July 21, 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 -- Form of Lockup Letter with Officers and Directors.*
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
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 Units, each Unit comprised
of one share of Common Stock
and Two Redeemable Class A Warrants
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 an aggregate of 675,000 Units, each unit (the
"Units") comprised of one share of the Company's common stock, par value $.01
per share (the "Common Stock") and two redeemable Class A Warrants (the "Class A
Warrants"), each of which entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $5.00, pursuant to a warrant agreement
between the Company and the warrant agent (the "Warrant Agreement"), 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 Units for the
purpose of covering over-allotments, if any. The aforesaid 675,000 Units,
comprised of one share of Common Stock and two Redeemable Class A Warrants (the
"Firm Securities") and all or any part of the 101,250 Units 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
Purchase Option") pursuant to the Representative's Purchase Option Agreement
(the "Representative's Purchase Option Agreement") for the purchase of an
aggregate of 67,500 additional Units. The shares of Common Stock issuable upon
exercise of the Class A Warrants, and the Class A Warrants issuable upon the
exercise of the Representative's Purchase Option are hereinafter sometimes
referred to as the "Warrant Shares." The Common Stock, the Class A Warrants,
Representative Warrant's 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
<PAGE>
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
Units under the Securities Act of 1933, as amended (the "Act"), 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
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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 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 has been duly authorized and is validly
existing as a corporation in good standing under the laws of the state of
Delaware. 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 is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of properties or the character of its 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 has all requisite power and authority (corporate and
other), and has 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 its
properties and conduct its business as described in the Prospectus; the Company
is and has 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. The disclosures in the Registration Statement
and the Prospectus concerning the effects of federal, state, local, and foreign
laws, rules and regulations on the business of the Company 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 the Company is not a party to or is 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 Units, the Representative's
Purchase Option, Common Stock, the Class A 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 have been duly authorized and validly
issued
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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 similar contractual rights granted by the Company. The Units, the
Common Stock, the Class A Warrants, the securities underlying the
Representative's Purchase Option, the Representative's Purchase Option to be
issued and sold by the Company hereunder and the Warrant Shares, 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 Units, the securities
comprising the Units, the Representative's Purchase Option, and the Warrant
Shares has been duly and validly taken; and the certificates representing the
Common Stock, the Class A Warrants, the Representative's Purchase Option, 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 and Class A Warrants
to be sold by the Company hereunder, the Underwriters will acquire good and
marketable title to such Common Stock and Class A Warrants 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 (i) has 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 Units, (ii) the purchase by the Underwriters of the Units
from the Company or (iii) the consummation by the Company of any of its
obligations under this Agreement.
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(i) The Company maintains insurance of the types and in the
amounts which it reasonably believes to be adequate for its businesses, all of
which insurance is in full force and effect.
(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 which (i) questions the validity of the capital stock of
the Company 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.
(k) The Company has full legal right, power and authority to
enter into this Agreement, the Representative's Purchase Option 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 Purchase Option 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 Purchase Option 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 Purchase Option
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.
5
<PAGE>
(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 Units pursuant to the
Prospectus and the Registration Statement, the 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 Units
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 is a party or by which it may be bound or to which its assets,
properties or businesses may be subject has been duly and validly authorized,
executed and delivered by the Company, and constitute the legal, valid and
binding agreements of the Company, enforceable against it in accordance with its
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, the Company has not
(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 is a party or by which the Company
may be bound or to which any of the property or assets (tangible or intangible)
of the Company is subject or affected.
(p) The Company has generally enjoyed satisfactory
employer-employee relationships with its employees and is 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, 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, 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 any predecessor entity and none
has ever occurred. No representation question exists respecting the employees of
the Company, and no collective bargaining agreement or modification thereof is
currently being
6
<PAGE>
negotiated by the Company. No labor dispute with the employees of the Company
exists, or, to the best knowledge of the Company, is imminent; and the Company
is 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.
(q) Since its inception, the Company has not incurred any
material liability arising under or as a result of the application of the
provisions of the Act.
(r) The Company does not 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"). The Company does
not maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. The Company has not completely or
partially withdrawn from a "multi-employer plan."
(s) The Company is not (nor the manner in which it conducts
its business or proposes to conduct its business) in violation of any domestic
or foreign laws ordinances or governmental rules or regulations to which it 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 Units or otherwise.
(v) Except as described in the Prospectus, the Company does
not have any patents, patent applications, trademarks, service marks, trade
names and 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 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
7
<PAGE>
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, the Company is not 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 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 independent 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. The Company is not aware of any such development of similar or
identical trade secrets or technical information by others.
(x) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of all the intellectual property.
(y) The Company 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 and
directors, has agreed not to, directly or indirectly, offer to sell, sell, grant
any option for the sale of, assign, 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.
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(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 Units 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 Units have not been approved for quotation on the
SmallCap Market of the Nasdaq Stock Market.
(dd) The Company, nor any of its respective officers,
employees agents or any other person acting on behalf of the Company, has not,
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 assist the Company, in connection with any actual or proposed
transaction) which (a) might subject the Company, 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 (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The internal accounting
controls of the Company are sufficient to cause the Company 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 "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, 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 (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficiary interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing material agreements, arrangements, understandings or
transactions, or proposed material agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, or
principal stockholder of the Company, 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) The Company has not entered into any employment
agreements, except as described in the Prospectus.
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(hh) The Company has granted the Representative and its
counsel access to all material agreements entered into by the Company.
2. [Intentionally omitted]
3. Purchase, Sale and Delivery of the Units and Representative's
Purchase Option.
(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
Unit 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
Units 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 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
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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
and Class A Warrants 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 and Class A Warrants 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 Unit to be paid by the Underwriters,
severally and not jointly, to the Company for the Units purchased hereunder will
be the same for each share sold, and will be $5.40. The Company shall not be
obligated to sell any Units hereunder unless all Firm Securities to be sold by
the Company are purchased hereunder. The Company agrees to issue and sell
675,000 Units to the Underwriters and the Company agrees to issue and sell up to
an aggregate of 101,250 Units to cover over-allotments.
(d) On Closing Date, the Company shall issue and sell to the
Representative, Representative's Purchase Option at a purchase price of $67.50,
which shall entitle the holders thereof to purchase an aggregate of 67,500
Units. The Representative's Purchase Option 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 Unit. The
Representative's Purchase Option Agreement and form of Warrant Certificates
shall be substantially in the form filed as an Exhibit to the Registration
Statement. Payment for the Representative's Purchase Option shall be made on the
Closing Date.
4. Public Offering of the Units. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Units (other than to residents
of or in any jurisdiction in which qualification of the Units 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 Units 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:
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(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 Units 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 is 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 Units 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
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 Units 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.
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(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 Units 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 Units 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 Units 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 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:
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(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 its affairs which is intended for release by the Company; and
(vi) any additional information of a public nature
concerning the Company 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.
(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,
the Company's officers and directors, will not, 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
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and Regulations or otherwise) or dispose of any beneficial interest therein
without the prior written consent of the Representative (the "Lock-up"). 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) Neither the Company, nor any of its officers or directors,
nor affiliates (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 Units 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 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 Units to be quoted on the
SmallCap Market of the Nasdaq Stock Market at such time as the Units 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.
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(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 five (5)
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 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
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Class A 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 Units
including any transfer or other taxes payable thereon, (iv) the qualification of
the Units under state or foreign securities or "Blue Sky" 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 Units 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 Units 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
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<PAGE>
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Firm Securities. The Company will pay this amount
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 Regulations, the price of the Units 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.
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<PAGE>
(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 (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 Units have been duly and validly authorized, and upon issuance
thereof and payment therefor in accordance with 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) 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
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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) The Company has full legal right, power and
authority to enter into each of this Agreement, the Representative's Purchase
Option Agreement, the Warrant Agreement, and the Consulting Agreement, and to
consummate the transactions provided for therein; and each of this Agreement,
the Representative's Purchase Option Agreement, the Warrant Agreement and the
Consulting Agreement has been duly authorized, executed and delivered by the
Company. This Agreement, the Representative's Purchase Option 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) 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 Units pursuant to the Prospectus and the Registration Statement,
the performance of the Agreement, the Representative's Purchase Option, the
Warrant Agreement and the Consulting Agreement, and the transactions
contemplated thereby;
(viii) The Units have not been accepted for
quotation on the Nasdaq SmallCap Market of the Nasdaq Stock Market;
(ix) The minute books of the Company have 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 the directors and
stockholders since the time of the Company's incorporation and reflects 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, 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.
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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 the condition, financial or
otherwise, prospects or the business activities of the Company, 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, from the latest date as of which the financial condition of
the Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company shall not 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 affecting any of its
properties or business 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, 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:
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(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
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company, shall not 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. The
Company has not paid or declared any dividends or other distributions on its
capital stock; or has 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; the Company shall not 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 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
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<PAGE>
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 Holtz, Rubenstein & 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, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their 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 decrease in the stockholders' equity or
net current assets or net assets of the Company 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
23
<PAGE>
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 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 Units.
(m) No order suspending the sale of the Units 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,
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<PAGE>
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 the Company issued or issuable upon exercise of
the Representative's Purchase Option; 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 and Class A Warrants 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 Units sold by such Underwriter
25
<PAGE>
hereunder. The Company acknowledges that the statements with respect to the
public offering of the Units 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
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 Units or (B) if the allocation provided
26
<PAGE>
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 Units (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 provisions of this
subdivision (d), the Underwriters shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Units 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
Units to the Underwriters.
10. Effective Date.
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<PAGE>
(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 Units 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 Units 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 Units.
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-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 Units; 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 Units as
in the Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Units.
(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 Units 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:
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<PAGE>
(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 Units which it is obligated to 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 Units 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 Units 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.
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<PAGE>
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.
By:_____________________________
Name: __________________________ Title: ____________________
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SCHEDULE A
Number of Firm Securities to be Purchased: 675,000 Units comprised of one
share of Common Stock, $.01 par value per share and two redeemable Class A
Warrants.
Name of Underwriters:
IAR Securities Corp.
31
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Units Comprised of One Share of Common Stock,
Par Value $.01 Per Share and Two Redeemable Class A Warrants
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") units (the
"Units"), each Unit comprised of one share of common stock, par value $.01 per
share (the "Common Stock") and two redeemable Class A Warrants (the "Class A
Warrants"). We may also purchase as many as additional Units (the "Option
Units") from the Company pursuant to Section 3(b) of the Underwriting Agreement.
The Units to be sold by the Company and the Option Units 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 Units 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
<PAGE>
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 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
2
<PAGE>
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 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
3
<PAGE>
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.
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>
[Form of Face of Class A Warrant Certificate]
No. WA ___________ Class A Warrants
VOID AFTER __________, 2002
CLASS A WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SportsTrac, Inc.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.01 par value ("Common Stock"), of SportsTrac,Inc., a Delaware
corporation (the "Company"), at any time between the Initial Warrant Exercise
Date (as herein defined) and the Expiration Date (as hereinafter defined), upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of AMERICAN
STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $5.00 ("Purchase Price") in lawful money of
the United States of America in cash or by official bank or certified check made
payable to American Stock Transfer & Trust Company, as Warrant Agent for
SportsTrac,Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________, 1997,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean __________, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on
___________,2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not
<PAGE>
be entitled to receive any notice of any proceedings of the Company,
except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at any time after the Initial Warrant
Exercise Date (as defined in the Warrant Agreement), provided the Market Price
(as defined in the Warrant Agreement) for the securities issuable upon exercise
of such Warrant shall equal or exceed $9.00 per share. Notice of redemption
shall be given not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.05 per Warrant upon surrender of this
Certificate prior to the Redemption Date (as defined in the Warrant Agreement).
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
SPORTSTRAC,INC.
By: _______________________________
Its
By: _______________________________
Its
Date: _____________________________
<PAGE>
[Seal]
COUNTERSIGNED:
American Stock Transfer & Trust Company
as Warrant Agent
By: ______________________________
Its
Authorized Officer
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert social security or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
Soliciting Broker:_________________________________
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
--------------------------------------------
(please insert social security or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
SPORTSTRAC, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
REDEEMABLE WARRANT
WARRANT AGREEMENT
Dated as of ___________, 1997
AGREEMENT dated as of , 1997, between
Sportstrac, Inc., a Delaware corporation (hereinafter called the Company), and
American Stock Transfer & Trust Company, a New York corporation, as Warrant and
Transfer Agent (hereinafter called the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell to the public
an aggregate of 675,000 units, each unit (the "Units") comprised of one share of
the Company's common stock, $.01 par value (hereinafter referred to as "Common
Stock or Common Shares") and two Redeemable Class A Warrants, each to purchase
one share of Common Stock at a purchase price of $5.00 each during the five (5)
year period commencing one year from the date hereof (the "Class A Warrants")
(plus an additional 101,250 Units to cover over-allotments). The Class A
Warrants are redeemable by the Company at any time after , 1998 upon 30 days
notice at a redemption price of $.05 each, provided that the closing bid
quotation of the Common Stock for each of the 20 trading days ending on the
third day prior to the day on which the Company gives notice has been at least
$9.00. The Class A Warrants remain exercisable during the 30 day notice period;
and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, registration, transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act for the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
<PAGE>
Section 2. Form of Warrants. The text of the Warrants and of
the form of election to purchase shares as is printed on the reverse thereof as
now outstanding, is substantially as set forth respectively in Exhibit A
attached hereto. The per share Warrant Price and the number of shares issuable
upon exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or any
future President or Vice President of the Company, under its corporate seal,
affixed or in facsimile, attested by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
The Warrants will be dated as of the date of issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
Section 3. Countersignature and Registration. The Warrant
Agent shall maintain books for the transfer and registration of Warrants. Upon
the initial issuance of the Warrants, the Warrant Agent shall issue and register
the Warrants in the names of the respective holders thereof. The Warrants shall
be countersigned manually or by facsimile by the Warrant Agent (or by any
successor to the Warrant Agent then acting as Warrant Agent under this
Agreement) and shall not be valid for any purpose unless so countersigned.
Warrants may be so countersigned, however, by the Warrant Agent (or by its
successor as warrant agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall
transfer, from time to time, any outstanding Warrants upon the books to be
maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee and the surrendered Warrant shall be delivered by the Warrant Agent.
Warrants so canceled shall be delivered by the Warrant Agent to the Company from
time to time upon request. Warrants may be exchanged at the option of the holder
thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Common
Shares.
Section 5. Rights of Redemption by Company. The Warrants are
redeemable by the Company at any time commencing thirty (30) days from the date
of the Prospectus upon 30 days notice at a redemption price of $.05 each,
provided that the closing bid quotation of the Common Stock for each of the 20
trading days ending on the third day prior to the day on which the Company gives
notice has been at least $9.00. The holder of any Warrants so called, and not
either converted or tendered back to the Company by the end of the date
specified in the Notice of Call, will be entitled only to the redemption price
of such Redeemable Warrant, if redeemed, and forfeit his right to so exercise.
Section 6. Exercise of Warrants. Subject to the provisions
of this Agreement, each registered holder of a Warrant shall have the right to
purchase one (1) share of Common
2
<PAGE>
Stock at a price of $5.00 each during the period commencing one year from the
date of the Company's Prospectus and ending five (5) years from the date of the
Prospectus. The Company shall issue and sell to such registered holder of
Warrants the number of fully paid and non-assessable shares of Common Stock
specified in such Warrants, upon surrender to the Company at the office of the
Warrant Agent of such Warrants, with the form of election to purchase duly
filled in and signed, and upon payment to the order of the Company for the
Warrant exercise price, determined in accordance with Sections 10 and 11 herein,
for the number of shares in respect of which such Warrants are then exercised.
Payment of such Warrant Price shall be made in cash or by certified check or
bank draft or postal or express money order, payable in United States Dollars to
the order of the Company. No adjustment shall be made for any dividends on any
Common Shares issuable upon exercise of any Warrant. Subject to Section 7, upon
such surrender of Warrants, and payment of the Warrant Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the largest number of whole Common Shares so purchased upon the
exercise of such Warrants. The Company shall not be required to issue any
fraction of a Share of Common Stock or make any cash or other adjustment as
provided in Section 12 herein, in respect of any fraction of a Common Share
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Shares as of the date
of the surrender of such Warrants and payment of the Warrant Price as aforesaid
and provided, however, that if at the date of surrender of such Warrants and
payment of such Warrant Price, the transfer books for the Common Shares or other
class of stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the Shares in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall be opened
and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the aforesaid
transfer books, unless otherwise required by law or by applicable rule of
national securities exchange, shall not be closed at any one time for a period
longer than 20 days. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered holders thereof, either as an
entirety or from time to time for part only of the Shares specified therein and,
in the event that any Warrant is exercised in respect of less than all of the
Shares specified therein at any time prior to the date of expiration of the
Warrant, a new Warrant or Warrants will be issued to such registered holder for
the remaining number of shares specified in the Warrant so surrendered, and the
Warrant Agent is hereby irrevocably authorized to countersign and to deliver the
required new Warrants pursuant to the provisions of this Section during the
warrant exercise period, and the Company, whenever requested by the Warrant
Agent, will supply the Warrant Agent with Warrants duly executed on behalf of
the Company for such purpose.
Section 7. Payment of Taxes. The Company will pay any
documentary stamp taxes attributable to the initial issuance of Common Shares
issuable upon the exercise of Warrants; provided, however, that the Company
shall not be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the issue or delivery of any
3
<PAGE>
certificates for Common Shares in a name other than that of the registered
holder of Warrants in respect of which such Shares are issued, and in such case,
neither the Company nor the Warrant Agent shall be required to issue or deliver
any certificate for Common Shares or any Warrant until the person requesting the
same has paid to the Company the amount of such tax or has established to the
Company's satisfaction that such tax has been paid.
Section 8. Mutilated or Missing Warrants. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, it its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant(s),
or in lieu of substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction of such Warrant, and indemnity, if requested,
also satisfactory to them. Applicants for such substitute Warrants shall also
comply with such other reasonable regulations and pay such reasonable charges as
the Company or the Warrant Agent may prescribe.
Section 9. Reservation of Common Shares. There have been
reserved, and the Company shall at all times keep reserved, out of the
authorized and unissued Common Shares, a number of Shares sufficient to provide
for the exercise of the rights of purchase represented by the Warrants, and the
Transfer Agent for the Common Shares and every subsequent transfer agent for any
Shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times to reserve such number of authorized and unissued Shares as shall be
requisite for such purpose. The Company agrees that all Common Shares issued
upon exercise of the Warrants shall be, at the time of delivery of the
certificates for such Common Shares, validly issued and outstanding, fully paid
and non-assessable and listed on any national security exchange upon which the
other Common Shares are then listed. The Company will file such Registration
Statement pursuant to the Securities Act of 1933 with respect to the Common
Shares as may be necessary to permit it to deliver to each person exercising a
Warrant, a Prospectus meeting the requirements of Section 11(a)(3) of such
Securities Act and otherwise complying therewith, and will deliver such a
Prospectus to each such person. The Company will keep a copy of this Agreement
on file with the Transfer Agent for the Common Shares and with every subsequent
transfer agent for any Shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Warrant
Agent is hereby irrevocably authorized to requisition from time to time such
Transfer Agent for stock certificates required to honor outstanding Warrants.
The Company will supply such Transfer Agent with duly executed stock
certificates for such purpose. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants shall
constitute sufficient evidence of the number of Common Shares which have been
issued upon the exercise of such Warrants. Promptly after the date of expiration
of the Warrants, the Warrant Agent shall certify to the Company the total
aggregate amount of Warrants then outstanding, and thereafter no Common Shares
shall be subject to reservation in respect to such Warrants which shall have
expired.
4
<PAGE>
Section 10. Warrant Price. Each Warrant shall allow the
holder thereof to purchase one share of Common Stock at a price of $5.00 per
whole Share. No fractional Shares shall be issued for the Warrants.
Section 11. Adjustments. Subject and pursuant to the
provisions of this Section 11, the Warrant Price and number of Common Shares
subject to this Warrant shall be subject to adjustment from time to time as
hereinafter set forth.
(A) If the Company shall at any time subdivide its
outstanding Common Shares by recapitalization, reclassification, split-up
thereof, or other such issuance without additional consideration, the Warrant
Price immediately prior to such subdivision shall be proportionately decreased
and, if the Company shall at any time combine the outstanding Common Shares by
recapitalization, reclassification or combination thereof, the Warrant Price
immediately prior to such combination shall be proportionately increased. Any
such adjustment to the Warrant Price shall become effective at the close of
business on the record date for such subdivision or combination.
(B) In the event that prior to any Warrant's
expiration date the Company adopts a resolution to merge, consolidate, or sell
all or substantially all of its assets, each Warrant holder upon the exercise of
his Warrant will be entitled to receive the same treatment as the holder of any
other Share of Common Stock. In the event the Company adopts a resolution for
the liquidation, dissolution, or winding up of the Company's business, the
Company will give written notice of such adoption of a resolution to the
registered holders of the Warrants. Thereupon, all liquidation and dissolution
rights under the Warrants will terminate at the end of thirty (30) days from the
date of the notice to the extent not exercised within those thirty (30) days.
(C) If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another corporation, or the sale of all or substantially all
of its assets to another corporation, shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities, cash, or
assets with respect to or in exchange for Common Stock, then as a condition of
such reorganization, reclassification, consolidation, merger or sale, the
Company or such successor or purchasing corporation, as the case may be, shall
execute with the Warrant Agent a Supplemental Warrant Agreement providing that
each registered holder of a Warrant shall have the right thereafter and until
the expiration date to exercise such Warrant for the kind and amount of stock
securities, cash, or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale by a holder of the number of
Shares of Common Stock for the purchase of which such Warrant might have been
exercised immediately prior to such reorganization, reclassification,
consolidation, merger or sale, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
11.
(D) In case at any time the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
Common Stock, then such Common
5
<PAGE>
Stock issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(E) Upon any adjustment of the Warrant Price as
hereinabove provided, the number of Common Shares issuable upon exercise of this
Warrant shall be changed to the number of Shares determined by dividing (i) the
aggregate Warrant Price payable for the purchase of all Shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Warrant Price per Share in effect immediately after such adjustment.
(F) Anything hereinabove to the contrary
notwithstanding, no adjustment of the Warrant Price or in the number of Common
Shares subject to this Warrant shall be made upon the issuance or sale by the
Company of any Common Shares pursuant to the exercise of any Underwriter's
Warrants which may be issued by the Company pursuant to any Underwriting
Agreement between the Company and Underwriter or pursuant to the issuance of
Shares of Common Stock upon exercise of any of the Warrants or pursuant to a
stock option plan which may be adopted by the Company.
(G) No adjustment in the Warrant Price shall be
required under Section 11 hereof, unless such adjustment would require an
increase or decrease in such price of at least $.01 provided, however, that any
adjustments which by reason of the foregoing are not required at the time to be
made shall be carried forward and taken into account and included in determining
the amount of any subsequent adjustment; and provided further, however, that in
case the Company shall at any time subdivide or combine the outstanding Common
Shares or issue any additional Common Shares as a dividend, said amount of $.01
per Share shall forthwith be proportionately increased in the case of a
combination or decreased in the case of a subdivision or stock dividend so as to
appropriately reflect the same.
(H) On the effective date of any new Warrant Price
the number of Shares as to which any Warrant may be exercised shall be increased
or decreased so that the total sum payable to the Company on the exercise of
such Warrant shall remain constant.
(I) The form of Warrant need not be changed because
of any change pursuant to this Article, and Warrants issued after such change
may state the same Warrant Price and the same number of shares as is stated in
the Warrants initially issued pursuant to this Agreement. However, the Company
may at any time in its sole discretion (which shall be conclusive) make any
change in the form of Warrant that the Company may deem appropriate and that
does not affect the substance thereof; and any Warrant thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
Section 12. Fractional Interest. The Company shall not be
required to issue fractions of Common Shares on the exercise of Warrants or any
cash or other adjustment in respect of such fractions of Common Shares. If any
fraction of a Common Share would, except for the provisions of this Section 12,
be issuable on the exercise of any Warrant (or specified
6
<PAGE>
portions thereof), the Company shall issue the largest number of whole shares of
Common Stock to which the Warrant Certificate is entitled. All calculations
under this Section 12 shall be made to the nearest whole Share.
Section 13. Notices to Warrantholders.
(A) Upon any adjustment of the Warrant Price and
the number of Shares issuable on exercise of a Warrant, then and in each such
case the Company shall give written notice thereof to the Warrant Agent, which
notice shall state the Warrant Price resulting from such adjustment and the
increase of decrease, if any, in the number of Shares purchasable at such price
upon the exercise of a Warrant, setting forth in reasonable detail the method
of calculations and the facts upon which such calculation is based. The Company
shall also publish such notice once in two Authorized Newspapers. For the
purpose of this Agreement, an Authorized Newspaper shall mean a newspaper
customarily published on each business day, in one or more morning editions or
one or more evening editions, or both (and whether or not it shall be published
in Saturday and Sunday editions or on holidays), printed in the English language
and of general circulation in the Borough of Manhattan, City and State of New
York. Failure to give or publish such notice, or any defect therein, shall not
affect the legality or validity of the subject adjustments.
(B) In case at any time:
(a) the Company shall pay any dividends
payable in stock upon its Common Stock or make any distribution (other than
regular cash dividends) to the holders of its Common Stock;
(b) the Company shall offer for
subscription pro rata to the holders of its Common Stock any additional shares
of stock of any class or other rights;
(c) there shall be any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or substantially all
of its assets to, another corporation; or
(d) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company; then, in any
one or more of such cases, the Company shall give written notice and publish the
same in the manner set forth in Section 13 of the date on which (i) the books of
the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other
7
<PAGE>
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale dissolution, liquidation or winding up, as the case may be. Such
notice shall be given and published at least 30 days prior to the action in
question and not less than 30 days prior to the record date or the date on which
the Company's transfer books are closed in respect thereof. Failure to give or
publish such notice, or any defect therein, shall not affect the legality or
validity of any of the matters set forth in this Section 13 inclusive.
(C) Upon any redemption of the Warrants pursuant
to Section 5 hereof, then and in each such case, the Company shall give written
notice thereof to the Warrant Agent, with directions that the Warrant Agent send
a copy of each such notice to each registered holder of Warrants by first class
mail, postage prepaid, at his address appearing on the Warrant register as of
the record date for the determination of the Warrantholders entitled to such
documents, which notice shall state the terms for such redemption, setting forth
in reasonable detail the procedure for redemption and the effect thereof. The
Company shall also publish such notice once in two Authorized Newspapers, one of
which shall be the Wall Street Journal. Failure to give or publish such notice,
or any defect therein, shall not affect the legality or validity of the subject
redemption.
(D) The Company shall cause copies of all financial
statements and reports, proxy statements and other documents as it shall send to
its stockholders to be sent by first class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing on the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
Section 14. Disposition of Proceeds on Exercise of Warrants.
(A) The Warrant Agent shall forward promptly to the
Company, with respect to Warrants exercised, the funds which will be deposited
in a special account in a bank designated by the Company for the benefit of the
Company, for the purchase of Common Shares through the exercise of such
Warrants.
(B) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of Warrants during normal business
hours.
Section 15. Merger or Consolidation or Change of Name of
Warrant Agent. Any corporation or company which may succeed to the business of
the Warrant Agent by any merger or consolidation or otherwise to which the
Warrant Agent shall be a party, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Warrant Agent under the provisions of
Section 17 of this Agreement. In case at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement, any of the Warrants
shall have been countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original Warrant Agent and
deliver such Warrants so countersigned; and in case at that time any of the
Warrants shall
8
<PAGE>
not have been countersigned, any successor to the Warrant Agent may countersign
such Warrants either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrants shall have
the full force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and in case at that time any of the
Warrants shall have not been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force provided in the Warrants and in
this Agreement.
Section 16. Duties of Warrant Agent. The Warrant Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Warrants, by their acceptance thereof, shall be bound:
(A) The statements of fact and recitals contained
herein and in the Warrants shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
(B) The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(C) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any holder
of any Warrant in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with opinion or the advice of such
counsel.
(D) The Warrant Agent shall incur no liability or
responsibility to the Company or to the holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order, certificate
or other papers, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(E) The Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all expenses,
taxes and governmental charges and other charges of any kind and nature incurred
by the Warrant Agent in the execution of this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted
9
<PAGE>
by the Warrant Agent in the execution of this Agreement except as a result of
the Warrant Agent's negligence, willful misconduct or bad faith.
(F) The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any of
the Warrants or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of the registered holders of the Warrants, as
their respective rights or interests may appear.
(G) The Warrant Agent and any stockholder,
director, officer, partner or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
free as though it were not Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
(H) The Warrant Agent shall act hereunder solely as
an agent and not in a ministerial capacity, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this Agreement
except for its own negligence, willful misconduct or bad faith.
(I) The Warrant Agent may execute and exercise any
of the rights or powers hereby vested in it or perform nay duty hereunder,
either itself or by or through its attorneys, agents, officer or employees, and
the Warrant Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys, agents, officers or employees or
for any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(J) Any request, direction, election, order or
demand of the Company shall be sufficiently evidenced by an instrument signed in
the name of the Company by its president or a vice president, or its secretary
or an assistant secretary or its treasurer or an assistant treasurer (unless
other evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Warrant Agent by a
copy thereof certified by the secretary or an assistant secretary of the
Company.
10
<PAGE>
Section 17. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by giving to the
Company notice in writing, and to the holders of the Warrants notice by mailing
such notice to holders at their addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation will take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and by like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, shall be a bank or trust company or an active transfer Agent,
in good standing, incorporated under the laws of the State of New York or of the
United States of America. After appointment, the successor Warrant Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
all canceled Warrants, records and property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to file or mail any notice provided for in this Section
17 however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.
Section 18. Identity of Transfer Agent. Forthwith upon the
appointment of any Transfer Agent for the Common Shares or of any subsequent
transfer Agent for Common Shares or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent. The Warrant Agent hereby
acknowledges that it is, at the time of execution hereof, the Transfer Agent,
and waives any statement required herein with respect thereto.
Section 19. Notices. Any notice pursuant to this Agreement to
be given or made by the Warrant Agent or by the registered holder of any Warrant
to the Company shall be sufficiently given or made if sent by first class mail,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
Sportstrac, Inc.
69000 Belleview Avenue
Suite 200
Englewood, California 80111
11
<PAGE>
Copy to:
Lampert & Lampert
10 East 40th Street
New York, New York 10016
Any notice pursuant to this Agreement to be given or made by the
Company or by the registered holder of any Warrant to or on the Warrant Agent
shall be sufficiently given or made if sent by first class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
American Stock Transfer & Trust Company
Attn: Compliance Department
Section 20. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interests of the holders of Warrants.
Section 21. Successors. All the covenants and provisions of
this Agreement by and for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 22. New York Contract. This Agreement 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 said State.
Section 23. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrants, any legal
or equitable right, remedy or claim under this Agreement, but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrants.
Section 24. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall be considered an
original.
Section 25. Effectiveness. This Agreement shall be deemed
binding and therefore in effect as of, and subject to, the effective date of the
Registration Statement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
SPORTSTRAC, INC.
By:___________________________
MARC SILVERMAN, PRESIDENT
(Seal)
Attest:
________________________
JOSHUA KANTER, Secretary
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:____________________________________
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the day of , before me personally came
MARC SILVERMAN, to me known, who being by me duly sworn, did depose and say that
he resides in , that he is the President of Sportstrac, Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation, that the seal affixed by order of the board
of directors of said corporation, and that he signed his name thereto by like
order.
________________________
Notary public
13
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the day of , 1996, before me personally
came , to me known, who being by me duly sworn, did depose and
say that he resides at , that he is the Principal of American
Stock Transfer & Trust Company, the company described in and which executed the
foregoing instrument.
________________________
Notary public
14
<PAGE>
SPORTSTRAC, INC.
AND
IAR SECURITIES CORP.
-------------
REPRESENTATIVE'S
PURCHASE OPTION AGREEMENT
Dated as of , 1997
<PAGE>
REPRESENTATIVE'S PURCHASE OPTION 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 "Representative").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue to the Representative an option
(the "Representative's Purchase Option") to purchase up to an aggregate of
67,500 units (the "Units"), with each Unit comprised of one share of common
stock, par value $.01 per share (the "Common Stock") and two redeemable Class A
Warrants (the "Warrants"); and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Representative and the Company, to underwrite the Company's proposed public
offering of 675,000 Units, at a public offering price of $6.00 per Unit (the
"Public Offering"); and
WHEREAS, the Representative's Purchase Option 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 Representative 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
Representative to the Company of an aggregate of ten dollars ($10.00), the
agreements herein set forth and other good and
<PAGE>
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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 Units (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
Units issuable upon exercise of the Representative's Purchase Options are in all
respects identical to the Units being purchased by the Representative for resale
to the public pursuant to the terms and provisions of the Underwriting Agreement
(although the Warrants which are issuable upon exercise of the Purchase Option
shall be exercisable at a price of $8.25 per Warrant [165% above the exercise of
the Warrants being offered to the public].
2. Purchase Option Certificates. The purchase option certificates (the
"Purchase Option 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 Purchase Option. The Purchase Options 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
2
<PAGE>
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 Purchase Option Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Purchase Price (as
hereinafter defined) for the Units, the registered holder of a Purchase Option
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the securities comprising the Units so purchased. The
purchase rights represented by each Representative's Purchase Option Certificate
are exercisable at the option of the Holder thereof, in whole or in part (but
not as to fractional Units). In the case of the purchase of less than all the
Units purchasable under any Purchase Option Certificate, the Company shall
cancel the Purchase Option Certificate upon the surrender thereof and shall
execute and deliver a new Purchase Option Certificate of like tenor for the
balance of the securities purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Representative's
Purchase Options, the issuance of certificates for the Units or securities
comprising the Units, 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
3
<PAGE>
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 Representative and the Company shall not be
required to issue or deliver such certificates 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 Representative's Purchase Option Certificates and the certificates
representing the Units issuable upon exercise of the Representative's Purchase
Options 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. Representative's
Purchase Option 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 Representative's Purchase Options.
The Holder of a Representative's Purchase Option Certificate, by its acceptance
thereof, covenants and agrees that the Representative's Purchase Options are
being acquired as an investment and not with a view to the distribution thereof;
and that the Representative's Purchase Options may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in
4
<PAGE>
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 Representative or members of the
selling group and/or their officers and partners.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each of the Units
underlying the Representative's Purchase Options shall be $9.90. The exercise
price of the Warrants included in the Representative's Purchase Options shall be
$8.25 (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.
Section 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.
Section 7.1 Registration Under the Securities Act of 1933. The
Representative's Purchase Options, the Units issuable upon exercise of the
Representative's Purchase Options, and the Warrant Shares underlying the
Warrants issuable upon exercise of the Purchase Options 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").
5
<PAGE>
Section 7.2 Piggyback Registration. If, at any time commencing after
, 1997, through and including , 2004 (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 Representative and to
all other Holders of the Representative's Purchase Options and/or the Units
underlying same of its intention to do so. If any of the Representative or other
Holders of the Representative's Purchase Options and/or Units 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 Representative and such Holders
of the Representative's Purchase Options and/or Units underlying same the
opportunity to have any such Units 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.
Section 7.3 Demand Registration.
6
<PAGE>
(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 Representative's Purchase Options and/or Units underlying same
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Representative's Purchase Options) shall have the
right (which right is in addition to the registration rights under Section 7.2
hereof), exercisable by 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 Representative and
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Units underlying same for nine (9)
consecutive months by such Holders and any other Holders of the Representative's
Purchase Options and/or Units 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 Representative's Purchase Options and the Units
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
7
<PAGE>
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 Representative's Purchase Options and/or shares of Units
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 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, the Warrants and the Warrant Shares underlying the Representative's
Purchase Options 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 Representative's Purchase Options and/or Units underlying same,
the Company agrees that upon the written notice of election of a Majority of the
Holders of the Representative's Purchase Options and/or Units underlying same it
shall repurchase (i) any and all Units underlying the Representative's Purchase
Options at the higher of the Market Price per Unit of the Units (or the combined
price of the securities contained in the Units) on (x) the date of the notice
sent pursuant to Section 7.3(a) or (y) the expiration of
8
<PAGE>
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).
Section 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:
(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 Units
underlying the Representative's Purchase Options, 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
9
<PAGE>
incidental, special and consequential damages and damages due to loss of profit
sustained by the Holder(s) requesting registration of their securities
hereunder.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Units (inclusive of the Shares, Warrants and
Warrant Shares underlying the Units) underlying the Representative's Purchase
Options 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 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 Units 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 Representative contained in Section 7 of the
Underwriting Agreement.
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<PAGE>
(e) The Holder(s) of the Units underlying the Representative's Purchase
Options 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 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
Representative has agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Representative's Purchase Options 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 Units underlying the Representative's Purchase Options 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,
11
<PAGE>
without the prior written consent of the Holders of the Representative's
Purchase Options and Units 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 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
12
<PAGE>
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 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 Units underlying same requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and
13
<PAGE>
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 Units 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 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 Representative's Purchase Options, shall mean in excess of fifty
percent (50%) of the then outstanding Representative's Purchase Options 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.
14
<PAGE>
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Intentionally Omitted.
Section 8.2 Intentionally Omitted.
Section 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.
Section 8.4 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of shares of common stock and Warrants underlying the Representative's Purchase
Options 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 securities underlying same issuable upon exercise of the
Representative's Purchase Options immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
Section 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
15
<PAGE>
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.
Section 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 supplemental Purchase Option agreement providing that each Holder
shall have the right thereafter (until the expiration of such Purchase Option
Agreement) to receive, upon exercise of such Purchase Option, 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 Units of the Company for
which such Purchase Option might have been exercised immediately prior to such
consolidation or merger. Such supplemental Purchase Option 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.
Section 8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
16
<PAGE>
(a) Upon the issuance or sale of the Representative's Purchase
Options or the Units issuable upon the exercise of (i) the
Representative's Purchase Options, (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, together with any adjustment so
carried forward, shall amount to at least two cents ($.02) per share.
Section 8.9 Dividends and Other Distributions. In the event that the
Company shall at any time prior to the exercise of all Representative's Purchase
Options 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 Representative's Purchase Options shall
thereafter be entitled, in addition to the shares of Common Stock, Warrants or
other securities and property receivable upon the exercise thereof, to receive,
upon the exercise of such Representative's Purchase Options, the same property,
17
<PAGE>
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 Representative's Purchase Options 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.
Section 8.10 Reserved.
9. Exchange and Replacement of Purchase Option Certificates. Each
Purchase Option Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive office of the
Company, for a new Purchase Option Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Units
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 Purchase Option
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 Representative's Purchase Options, if mutilated, the Company will make and
deliver a new Purchase Option Certificate of like tenor, in lieu thereof.
18
<PAGE>
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Units, or the
securities underlying same, upon the exercise of the Representative's Purchase
Options, 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 Units 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 Representative's
Purchase Options, such number of shares of Common Stock or other securities,
properties or rights as shall be issuable upon the exercise of the Purchase
Options and the Warrant Shares issuable upon exercise of the Warrants underlying
the Purchase Options. The Company covenants and agrees that, upon exercise of
the Representative's Purchase Options and payment of the exercise prices
therefor, all Units and securities underlying the Units (inclusive of the
Warrants Shares issuable upon exercise of the Warrants) shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Representative's Purchase Options
shall be outstanding, the Company shall use its best efforts to cause all
securities issuable upon the exercise of the Representative's Purchase Options
to be listed (subject to official notice of issuance) on all securities
exchanges on which the Units issued to
19
<PAGE>
the public in connection herewith may then be listed and/or quoted
on the Bulletin Board.
12. Notices to Purchase Option 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 Representative's Purchase Options and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
Units 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
(b) the Company shall offer to all the holders of any class of
its outstanding securities 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
20
<PAGE>
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. 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 Representative's
Purchase Options, to the address of such Holder as shown on
the books of the Company; or
21
<PAGE>
(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 Representative
may from time to time supplement or amend this Agreement without the approval of
any holders of Purchase Option Certificates (other than the Representative) 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 Representative may deem necessary or desirable and
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Purchase Option 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.
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
hase Option 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
22
<PAGE>
laws of such State without giving effect to the rules of said State governing
the conflicts of laws.
The Company, the Representative 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 Representative 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 Representative
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, the Representative 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
23
<PAGE>
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
Representative and any other registered Holder(s) of the Purchase Option
Certificates or Units 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 Company and the Representative and any other Holder(s)
of the Purchase Option Certificates or securities underlying same.
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.
24
<PAGE>
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:
25
<PAGE>
EXHIBIT A
[FORM OF PURCHASE OPTION CERTIFICATE]
THE REPRESENTATIVE'S PURCHASE OPTIONS 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 REPRESENTATIVE'S PURCHASE OPTIONS REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE PURCHASE OPTION AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME , 2002
No. W-001 67,500 Representative's Purchase
Options
PURCHASE OPTION CERTIFICATE
This Purchase Option Certificate certifies that IAR Securities Corp.,
or registered assigns, is the registered holder of 67,500 Representative's
Purchase Options 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 units (the "Units") comprised of one share of common stock, par
value $.01 per share ("Common Stock") and two redeemable Class A Warrants (the
"Warrants") 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 Purchase Option 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 Representative's Purchase Option
Agreement dated as of , 1997 between the Company and IAR Securities Corp.
(the "Representative's Purchase Option Agreement"). Payment of the Exercise
Prices shall be made by certified or official bank check
1
<PAGE>
in New York Clearing House funds payable to the order of the
Company.
No Representative's Purchase Option may be exercised after 5:30 p.m.,
New York time, on the Expiration Date, at which time all Representative's
Purchase Options evidenced hereby, unless exercised prior thereto, hereby shall
thereafter be void.
The Representative's Purchase Options evidenced by this Purchase Option
Certificate are part of a duly authorized issue of Units pursuant to the
Representative's Purchase Option 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 Representative's Purchase Options.
The Representative's Purchase Option 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
Purchase Option Certificate evidencing the adjustment in the Exercise Price and
the number and/or type of securities issuable upon the exercise of the
Representative's Purchase Options; provided, however, that the failure of the
Company to issue such new Purchase Option Certificates shall not in any way
change, alter or otherwise impair, the rights of the holder as set forth in the
Representative's Purchase Option Agreement.
Upon due presentment for registration of transfer of this Purchase
Option Certificate at an office or agency of the Company, a new Purchase Option
Certificate or Purchase Option Certificates of like tenor and evidencing in the
aggregate a like number of Representative's Purchase Options shall be issued to
the transferee(s) in exchange for this Purchase Option Certificate, subject to
the limitations provided herein and in the Representative's Purchase Option
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 Representative's Purchase
Options evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new Purchase Option Certificate representing such numbered
unexercised Representative's Purchase Options.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Purchase Option Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any
2
<PAGE>
distribution to the holder(s) hereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
All terms used in this Purchase Option Certificate which are defined in
the Representative's Purchase Option Agreement shall have the meanings assigned
to them in the Representative's Purchase Option Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase Option
Certificate to be duly executed under its corporate seal.
Dated as of , 1997
SPORTSTRAC, INC.
[SEAL] By_________________________
Name: Marc Silverman
Title: President
Attest:
__________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Purchase Option Certificate, to purchase Units underlying
the Representative's Purchase Options, 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 Corp. 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
Purchase Option Certificate.)
_______________________________
Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
IAR Securities, Inc.
99 Wall Street
New York, NY 10005
Re: SportsTrac, Inc.
Gentlemen:
The undersigned is the beneficial and record holder of shares of common
stock, par value $.01 per share ("Common Stock"), and/or other Securities
(together with Common Stock, the "Securities") of SportsTrac, Inc., a Delaware
corporation (the "Company") or is an officer or director of the Company. In
connection with the proposed public offering of Common Stock, and in
consideration of your acting as underwriter for such public offering, the
undersigned agrees to not directly or indirectly, for a period of twenty-four
(24) months following the effective date of the registration statement relating
to such public offering, offer, sell (including by effecting any short sale),
loan, hypothecate, pledge, grant any option for the sale of, acquire any option
to dispose of, or otherwise dispose of any Securities (including, without
limitation, Common Stock of the Company that may be deemed to be beneficially
owned by the undersigned in accordance with the rules and regulations of the
Securities and Exchange Commission) without obtaining your prior written consent
(which consent may be withheld or granted in your discretion), other than
Securities being offered by the undersigned pursuant to such registration
statement. The undersigned acknowledges and agrees that in order to enforce the
covenants contained in this letter agreement, the Company will impose
stop-transfer instructions with respect to the Securities owned by the
undersigned until the end of such twenty-four (24) month period.
Date: July __, 1997
--------------------------
Signature
--------------------------
Print Name
<PAGE>
[LETTERHEAD OF BERNSTEIN & WASSERMAN, LLP]
July 15, 1996
Board of Directors
SportsTrac, Inc.
6900 E. Belleview Avenue
Englewood, CO 80111
Re: SportsTrac, Inc.
Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
We have acted as counsel for SportsTrac, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing by the Company of
a registration statement (the "Registration Statement") on Form SB-2, File No.
333-1634, under the Securities Act of 1933, relating to the public offering of
675,000 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock") and 1,350,000 Class A Redeemable Common Stock Purchase Warrants
(the "Class A Warrants"). The offering also involves the grant to the
Underwriter of an option to purchase an additional 101,250 shares of Common
Stock and 202,500 Class A Warrants to cover over-allotments in connection with
the offering, the sale to the Underwriter of an option (the "Underwriter's
Option") to purchase up to 1,350,000 shares of Common Stock and 135,000 Class A
Warrants. 2,000,000 Class A Warrants are being registered on behalf of the
selling stockholders (the "Selling Securityholder's Securities").
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 and Class A Warrants, drafts of the Warrant
Agreement and Underwriter's Option, draft forms of certificates representing the
Common Stock and the Class A Warrants, 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
<PAGE>
Company and others.
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 Class A Warrants and the Underwriter's Option have been duly
authorized and, when issued and sold in accordance with the Prospectus, will be
validly issued.
3. The Class A Warrants included in the Selling Securityholder's
Securities have been duly authorized, validly issued, fully paid and
nonassessable; and, when sold in accordance with the Prospectus will continue to
be duly authorized, validly issued, fully paid and nonassessable.
4. The shares of Common Stock issuable upon exercise of the Class A
Warrants, the Underwriter's Option and the Class A Warrants included in the
Selling Securityholders Securities have been duly authorized and reserved for
issuance and, when issued in accordance with the terms of the Class A Warrants,
the Underwriter's Option or the Class A Warrants included in the Selling
Securityholders Securities, as the case may be, 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>
[LETTERHEAD OF BERNSTEIN & WASSERMAN, LLP]
July 15, 1996
Board of Directors
SportsTrac, Inc.
6900 E. Belleview Avenue
Englewood, CO 80111
Re: SportsTrac, Inc.
Registration Statement on Form SB-2
-----------------------------------
Gentlemen:
We have acted as counsel for SportsTrac, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing by the Company of
a registration statement (the "Registration Statement") on Form SB-2, File No.
333-1634, under the Securities Act of 1933, relating to the public offering of
675,000 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock") and 1,350,000 Class A Redeemable Common Stock Purchase Warrants
(the "Class A Warrants"). The offering also involves the grant to the
Underwriter of an option to purchase an additional 101,250 shares of Common
Stock and 202,500 Class A Warrants to cover over-allotments in connection with
the offering, the sale to the Underwriter of an option (the "Underwriter's
Option") to purchase up to 1,350,000 shares of Common Stock and 135,000 Class A
Warrants. 2,000,000 Class A Warrants are being registered on behalf of the
selling stockholders (the "Selling Securityholder's Securities").
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 and Class A Warrants, drafts of the Warrant
Agreement and Underwriter's Option, draft forms of certificates representing the
Common Stock and the Class A Warrants, 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
<PAGE>
Company and others.
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 Class A Warrants and the Underwriter's Option have been duly
authorized and, when issued and sold in accordance with the Prospectus, will be
validly issued.
3. The Class A Warrants included in the Selling Securityholder's
Securities have been duly authorized, validly issued, fully paid and
nonassessable; and, when sold in accordance with the Prospectus will continue to
be duly authorized, validly issued, fully paid and nonassessable.
4. The shares of Common Stock issuable upon exercise of the Class A
Warrants, the Underwriter's Option and the Class A Warrants included in the
Selling Securityholders Securities have been duly authorized and reserved for
issuance and, when issued in accordance with the terms of the Class A Warrants,
the Underwriter's Option or the Class A Warrants included in the Selling
Securityholders Securities, as the case may be, 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>
[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. 10 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
July 21, 1997
