<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INTERNATIONAL SPORTS WAGERING INC.
(Name of Small Business Issuer in Its Charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7373 22-3375134
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
201 LOWER NOTCH ROAD
LITTLE FALLS, NEW JERSEY 07424
(201) 256-8181
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
--------------------------
BARRY MINDES, CHAIRMAN OF THE BOARD
INTERNATIONAL SPORTS WAGERING INC.
201 LOWER NOTCH ROAD
LITTLE FALLS, NEW JERSEY 07424
(201) 256-8181
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
RICHARD M. HOFFMAN, ESQ. STEPHEN J. GULOTTA, JR., ESQ.
Rubin Baum Levin Constant & Friedman Squadron, Ellenoff, Plesent & Sheinfeld, LLP
30 Rockefeller Plaza 551 Fifth Avenue
New York, NY 10112 New York, New York 10176
Telephone: (212) 698-7700 Telephone: (212) 661-6500
Telecopier: (212) 698-7825 Telecopier: (212) 697-6686
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
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, as amended (the "Securities Act"), 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 Registration Statement for the same
offering. / /
If the 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 AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
<S> <C> <C>
Common Stock, par value $.001 per share.................................................. $ 12,075,000(2) $ 3,659.09
Representatives' Options................................................................. $ 150 $ .05
Common Stock, par value $.001 per share, underlying Representatives' Options............. $ 1,260,000 $ 381.82
Common Stock, par value $.001 per share, underlying Bridge Warrants (3).................. $ 702,000 $ 212.73
TOTAL.................................................................................... $ 14,037,150 $ 4,253.69
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act.
(2) Includes 225,000 shares subject to an over-allotment option granted to the
several underwriters.
(3) Represents warrants to purchase Common Stock issued to investors in October
1996.
----------------------------------
Pursuant to Rule 416, there are also being registered such additional shares
as may become issuable pursuant to the anti-dilution provisions of the
Representatives' Options and Bridge Warrants.
--------------------------
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 SUCH REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 1,500,000 shares
of Common Stock to be offered (the "Offering") by the Company, (ii) 225,000
shares issuable upon exercise of the over-allotment option granted to the
several Underwriters in connection with the Offering (iii) 195,000 shares of
Common Stock (the "Bridge Warrant Shares") issuable upon exercise of warrants
(the "Bridge Warrants") issued by the Company in October 1996 to certain
investors, (iv) options (the "Representatives' Options") to purchase 150,000
shares of Common Stock to be issued by the Company to the Representatives in
connection with the Offering, and (v) 150,000 shares of Common Stock purchasable
upon exercise of the Representatives' Options (the "Representatives' Option
Shares"). The Bridge Warrant Shares, the Representatives' Options and the
Representatives' Option Shares are offered by certain holders of such securities
(the "Selling Securityholders") and not for the account of the Company.
Following the prospectus included in this Registration Statement are certain
pages of the prospectus relating to the securities being offered by the Selling
Securityholders, including alternate front and back cover pages, an alternate
"The Offering" section of the "Prospectus Summary," and sections entitled
"Concurrent Sales By Company" and "Selling Stockholders." All other sections of
the prospectus for the Offering, other than "Underwriting," are to be used in
the prospectus relating to the Selling Securityholders. All references in the
prospectus for the Offering to the "Offering" will be changed to the "Company
Offering" in the prospectus relating to the Selling Securityholders. In
addition, cross-references in the prospectus for the Offering shall be adjusted
in the prospectus for Selling Securityholders to refer to the appropriate
alternate prospectus pages.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER OF FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
---------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
1. Front of the Registration Statement and Outside Front Cover Page
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Legal Proceedings Risk Factors; Business
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Certain Beneficial Principal Stockholders
Owners and Management
12. Description of Securities Outside Front Cover Page; Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Management-Limitations on Directors' Liability and
Indemnification for Securities Act Indemnification; Part II
Liabilities
15. Organization Within Last Five Years Plan of Operation
16. Description of Business Business
17. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
18. Description of Property Business--Property
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Outside Front Cover Page; Risk Factors-- Absence of
Stockholder Matters Trading Market; Negotiated Offering Price;
Underwriting
21. Executive Compensation Management--Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and Financial
Disclosure
24. Indemnification of Directors and Officers Management-Limitations on Directors' Liability and
Indemnification; Part II
25. Other Expenses of Issuance and Part II
Distribution
26. Recent Sales of Unregistered Securities Certain Transactions; Part II
27. Exhibits Part II; Exhibits
28. Undertakings Part II
</TABLE>
<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 OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER , 1996
PROSPECTUS
INTERNATIONAL SPORTS WAGERING INC.
1,500,000 SHARES
COMMON STOCK
----------------
International Sports Wagering Inc. (the "Company") hereby offers 1,500,000
shares (the "Shares") of common stock, par value $.001 per share (the "Common
Stock"), of the Company.
Prior to the Offering (the "Offering"), there has been no public market for
the Common Stock. The Company has applied for quotation of the Common Stock on
the Nasdaq SmallCap Market ("NASDAQ") under the proposed symbol "ISWI" and for
listing of the Common Stock on the Boston Stock Exchange ("BSE") under the
symbol "ISW." It is currently anticipated that the initial public offering price
of the Shares will be between $5.00 and $7.00 per share. The initial public
offering price has been determined by negotiations among the Company and
Barington Capital Group, L.P. ("Barington") and GKN Securities Corp. (together
with Barington, the "Representatives") who are serving as the representatives of
the several underwriters named herein (collectively, the "Underwriters"). See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price.
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 AND "DILUTION" ON
PAGE 17.
------------------------
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.
NEITHER THE NEVADA STATE GAMING CONTROL BOARD NOR THE NEVADA GAMING
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
</TABLE>
(1) Does not reflect additional compensation to be received by the
Representatives including (i) a non-accountable expense allowance equal to
3% of the gross proceeds of the Offering (of which $ has been paid),
(ii) options entitling the Representatives to purchase from the Company, for
a period of five years from the date of this Prospectus, up to 150,000
shares of Common Stock at an exercise price equal to 120% of the initial
public offering price (the "Representatives' Options"), and (iii) a right of
first refusal granted to Barington with respect to certain future offerings.
The Company has also agreed to indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses payable by the Company (including the
Representatives' non-accountable expense allowance) estimated at $760,000
($800,500, if the Over-Allotment Option (as defined below) is exercised in
full).
(3) The Company has granted an option to the Underwriters, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional
225,000 shares of Common Stock, on the same terms and conditions set forth
above, solely to cover over-allotments (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full, the Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ , and $ , respectively. See "Underwriting."
------------------------
The Shares offered hereby are offered, subject to prior sale, when, as and
if delivered to and accepted by the several Underwriters and subject to approval
of certain legal matters by its counsel and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and to
reject any order in whole or in part. It is expected that delivery of the
certificates representing the Common Stock will be made at the offices of
Barington Capital Group, L.P., 888 Seventh Avenue, New York, New York 10019 on
or about , 1996.
------------------------
BARINGTON CAPITAL GROUP, L.P. GKN SECURITIES
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
GAP SHEET
PHOTOS
Panorama of individuals using Player Betting Stations
Player using the System
Player Betting Station Screens illustrating
(a) betting propositions
(b) immediate cash-out
(c) Player account
(d) SportXction-TM- logo
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, IN THE
OVER-THE-COUNTER MARKET, ON THE BOSTON STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Prior to the Offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company intends to furnish to its stockholders annual reports containing
financial statements audited by independent accountants and such other periodic
reports as the Company may deem appropriate or as may be required by law.
2
<PAGE>
UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO THE "COMPANY"
CONTAINED IN THIS PROSPECTUS REFER TO INTERNATIONAL SPORTS WAGERING INC., A
DELAWARE CORPORATION, AND ITS PREDECESSOR. UNLESS OTHERWISE STATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS (I) ASSUMES THAT THE OVER-ALLOTMENT
OPTION HAS NOT BEEN EXERCISED, AND (II) REFLECTS A 3.0230479-FOR-1 STOCK SPLIT
(THE "STOCK SPLIT") EFFECTED ON OCTOBER 24, 1996. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS." THE SHARES OFFERED
HEREBY INVOLVE A HIGH DEGREE OF RISK. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER "RISK FACTORS."
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS AND, ACCORDINGLY, SHOULD BE READ IN
CONJUNCTION WITH SUCH INFORMATION, FINANCIAL STATEMENTS AND NOTES. EACH
PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
International Sports Wagering Inc. (the "Company") has designed and
developed an interactive, proprietary, PC-based computer system that enables
users to wager during the course of a sporting event. The Company's
SportXction-TM- sports wagering system (the "System") accepts bets not only on
the outcome of a sporting event, but also on discrete parts of the event and on
specific game situations, such as will a team get a first down, will a batter
get on base, or will a player make two foul shots. The System is unique in that
it permits betting while these game situations are in progress, such as between
downs or pitches, permitting more frequent placing and cashing of wagers. The
Company believes that the System will generate additional patrons, wagering and
higher commissions for gaming establishments than more traditional forms of
sports wagering.
SPORTXCTION-TM- SPORTS WAGERING SYSTEM
The interactive element of the System is a player betting station ("PBS")
that is a personal computer with a touch screen, operating a "windowing" system
which displays a television picture of a live sporting event in the upper left
quadrant of the PC monitor. A list of available bets, together with the terms of
those bets (including the amount of the wager necessary to receive a particular
payout and the contestants upon whom the wager is being placed) and other
details relating to the event being watched and the bets previously placed are
displayed on the remainder of the monitor. By touching the screen, a bettor can
place a variety of bets within seconds on the sporting event then being viewed.
The System is capable of permitting bettors to select from multiple sporting
events being televised simultaneously, thereby allowing the bettor to bet on
numerous games while using the System.
The System's proprietary software permits fixed price betting during the
course of a sporting event by continuously balancing the betting pool on each
betting proposition to within a pre-set level. The System operator begins by
setting up a number of pools or wagering propositions (for example, the winner
of a game, the team leading at the end of a particular period of play, over or
under scoring on the game or period, and wagers on specific events or games
situations). Once the sporting event begins, the System sets the initial odds on
each betting proposition. As wagering continues, if the pool becomes unbalanced,
the System automatically adjusts the odds on both sides of the betting
proposition to induce a betting pattern which returns the pool to balance. The
System maintains a record of all wagers placed by each bettor and keeps an
account for each bettor, adding winnings and subtracting losses.
In sports wagering currently, bets are taken only before a sporting event or
segment thereof begins. Since most sporting events take several hours to
complete, bettors can place bets, and cash in winning bets to use in subsequent
wagers, only a few times each day, thereby limiting the number of wagers bettors
may
3
<PAGE>
be inclined to make each day. As a result, sports betting facilities are
frequently under-utilized. In addition, sports books currently are rarely
perfectly balanced. To the extent that the book is not balanced, the sports book
takes risk on the outcome of the game or event.
The Company has recently completed a pre-trial of the System (with play
money) and, on October 27, 1996, commenced a live trial (with real money) at the
Excalibur Hotel & Casino in Las Vegas, Nevada. The trial is expected to be
completed in late November. Successful completion of the trial is one of the
conditions for obtaining approval by Nevada gaming authorities for the use of
the System. If use of the System is approved, the Company will be able to sell
or lease the System to casinos and other sports wagering establishments in the
State of Nevada. See "Risk Factors--Governmental Regulation."
The Company has filed two United States patent applications relating to its
proprietary wagering methods and its related computer processing system, which
applications are currently pending before the United States Patent and Trademark
Office (the "PTO"). The Company has been advised by the PTO that the claims in
its initial United States patent application, as amended, have been allowed, and
that the application is in the publication division for printing and issuance.
Corresponding applications have been filed in numerous foreign countries. See
"Risk Factors--Uncertainties Regarding Intellectual Property."
STRATEGY
Sports wagering is currently legal only in the State of Nevada and in
numerous foreign countries. In Nevada, sports wagering currently takes place at
large modern casinos and at dedicated sports wagering facilities ("sports
books"). Sports wagering at Nevada's gaming establishments increased from
approximately $294 million in 1980 to approximately $2.4 billion in 1995. In
1995, there were approximately 115 gaming establishments in Nevada that offered
sports wagering.
The Company believes that the market for sports wagering in Nevada could
accommodate between 12,000 and 15,000 of the Company's Player Betting Stations,
with some of the larger casinos utilizing between 300 and 400 PBSs. If the
System is approved for use in Nevada, the Company intends to utilize its own
sales personnel and focus its initial marketing efforts on the larger more
modern casinos that could accommodate a larger number of PBSs. The Company
initially intends to lease the System to casinos and other gaming
establishments; provide training services to their personnel so they can operate
and maintain the System. Thereafter, the Company intends to provide the System
to sports wagering establishments in consideration for either a portion of the
revenue received by the establishment or on a transaction fee basis. However,
prior to entering into any such compensation arrangement, the Company may be
required to obtain a gaming license from Nevada gaming authorities, a process
which is expected to take between nine and 12 months from the date all required
applications are filed and the investigation commences. See "Risk
Factors--Governmental Regulation."
The Company may also seek to operate the System through a single or several
central hubs which control all terminals located in a group of casinos owned by
one or more entities, a group of unrelated casinos, or gaming establishments
located within a given city or in the state, subject to obtaining an appropriate
license. By linking smaller casinos or other gaming establishments that have
insufficient sports wagering on their own to accommodate the System, the Company
believes that the market for the System can be expanded. See "Risk
Factors--Governmental Regulation."
In the future, the Company also intends to market the System in foreign
countries in which sports wagering is legal. The Company has no contracts with
any gaming establishment, domestic or foreign, and has not yet attempted to
market the System to any casinos or other gaming establishments. The Company
also may, in the future, explore alternative applications of its proprietary
technology, including adaptation of the System for use in non-wagering
activities such as interactive games in bars, and games and other activities
conducted over the Internet, cable television and other communications media.
See "Use of Proceeds" and "Business--Marketing and Sales Strategy."
4
<PAGE>
HISTORY
The Company was founded by Mr. Barry Mindes, who currently serves as its
Chairman of the Board. Since 1962, Mr. Mindes has been involved in the design,
development and implementation of large computer and telecommunications systems,
including systems used by the Midwest Stock Exchange, the initial off-track
betting system used by the City of New York and the system originally used by
the New Jersey Lottery. See "Management."
The Company is a development stage company which was incorporated under the
laws of the State of Delaware on May 22, 1995, and is the successor by merger to
Systems Enterprises Inc., an S-corporation incorporated in the State of New
Jersey on December 17, 1992. The Company's corporate offices are located at 201
Lower Notch Road, Suite 2B, Little Falls, New Jersey 07424. The Company's
telephone number is (201) 256-8181.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 1,500,000 shares
Common Stock Outstanding Immediately Prior to
the Offering(1)............................ 6,024,277 shares
Common Stock to be Outstanding Following the
Offering(1)(2)............................. 7,524,277 shares
Risk Factors................................. The shares of Common Stock offered hereby
involve a high degree of risk and
substantial dilution and should be
purchased only by persons who can afford to
sustain the loss of their entire
investment. See "Risk Factors" and
"Dilution."
Use of Proceeds.............................. The net proceeds of the Offering will be used
(i) to purchase equipment to be used in the
System, (ii) to fund the Company's sales
and marketing efforts, (iii) to fund
further product enhancement and
development, (iv) to repay the Bridge
Notes, and (v) for general corporate and
working capital purposes.
Proposed NASDAQ Trading Symbol(3)............ ISWI
Proposed BSE Trading Symbol(3)............... ISW
</TABLE>
- ------------------------
(1) Does not include (i) 195,000 shares of Common Stock issuable upon exercise
of warrants (the "Bridge Warrants") to purchase Common Stock, at an exercise
price equal to the lesser of $3.60 or 60% of the initial public offering
price per share in the Offering, issued by the Company to purchasers of its
10% Senior Promissory Notes (the "Bridge Notes") in connection with a debt
financing consummated prior to the Offering (the "Bridge Financing"), and
(ii) an aggregate of 1,467,390 shares of Common Stock reserved for issuance
pursuant to options under the Company's existing stock option plans, of
which options to purchase 642,390 shares have been granted and remain
outstanding as of the date hereof. See "Management--Stock Option Plans,"
"Description of Securities--Bridge Units," and "Underwriting."
5
<PAGE>
(2) Does not include (i) up to 225,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option, and (ii) 150,000 shares of Common
Stock issuable upon exercise of the Representatives' Options. See
"Underwriting."
(3) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Company has applied for quotation of the Common Stock on
NASDAQ and listing of the Common Stock on BSE. There can be no assurance,
however, that such applications will be approved, or if approved, will be
maintained. See "Risk Factors--Absence of Trading Market; Negotiated
Offering Price."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical financial data for the
Company for the period from inception of the Company, May 22, 1995, through
September 30, 1996. The historical financial data are derived from the audited
Financial Statements included elsewhere in this Prospectus. The summary
historical financial data should be read in conjunction with the "Plan of
Operation" and Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MAY 22, 1995)
THROUGH SEPTEMBER 30,
1996
-------------------------
<S> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Research and development............................................................... $ 791
General and administrative............................................................. 226
Total operating expenses............................................................... 1,017
Loss from operations................................................................... (1,017)
Interest income........................................................................ 40
Net loss............................................................................... (977)
Net loss per share(1).................................................................. $ (0.15)
Shares used in computing net loss per share(1)......................................... 6,612,006
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------
<S> <C> <C> <C>
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
--------- ------------- --------------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 361 $ 911 $ 7,590
Total assets.............................................................. 902 1,517 8,085
Total current liabilities................................................. 186 186 186
Long-term obligations..................................................... -- 425 --
Deficit accumulated during the development stage.......................... (977) (977) (1,278)
Total stockholders' equity................................................ 716 906 7,945
</TABLE>
- ------------------------
(1) Net loss per share is computed based upon the weighted average number of
shares of Common Stock outstanding during the periods and gives effect to
certain adjustments described below. The net loss calculations give
retroactive recognition to the Stock Split for all periods presented. Also,
pursuant to the requirements of the Securities and Exchange Commission (the
"Commission"), all shares issued and shares underlying warrants issued
within the 12 months immediately preceding the initial filing of the
Registration Statement for the Offering at a price below the anticipated
Offering price, totaling 1,481,605 shares of Common Stock, have been
included in the calculation for all periods presented utilizing the
"treasury stock method."
(2) Pro forma to give effect to the issuance of $650,000 aggregate principal
amount of Bridge Notes in the Bridge Financing (with related expenses of
$100,000) and the application of the net proceeds therefrom. Long term
obligations are stated net of debt discount of $225,000 ascribed to the
Bridge Warrants issued as part of the Bridge Financing. This discount amount
will be amortized to interest expense over the period the debt is
outstanding. See Note 8 of Notes to Financial Statements.
(3) Adjusted to give effect to (i) the sale of 1,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $6.00 per
share and the application of the estimated net proceeds therefrom, and (ii)
interest expense of $301,000 (including non-recurring interest expense of
$290,000 resulting from the repayment of the Bridge Notes and $11,000 of
cash interest expense, based on an assumed repayment in December 1996). See
"Use of Proceeds" and Note 8 to Notes to Financial Statements.
7
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE SUBSTANTIAL RISKS AND SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT.
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL
DATA SET FORTH ELSEWHERE IN THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
SHARES. THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS ARE NOT
INTENDED TO BE AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC RISKS INVOLVED, BUT
MERELY IDENTIFY CERTAIN RISKS THAT ARE NOW FORESEEN BY THE COMPANY. IT MUST BE
RECOGNIZED THAT OTHER RISKS, NOT NOW FORESEEN, MIGHT BECOME SIGNIFICANT IN THE
FUTURE AND THAT THE RISKS WHICH ARE NOW FORESEEN MIGHT AFFECT THE COMPANY TO A
GREATER EXTENT THAN IS NOW FORESEEN OR IN A MANNER NOT NOW CONTEMPLATED. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER ALL INFORMATION CONTAINED IN THIS
PROSPECTUS AND SHOULD GIVE PARTICULAR CONSIDERATION TO THE FOLLOWING RISK
FACTORS BEFORE DECIDING TO PURCHASE THE COMMON STOCK OFFERED HEREBY.
SINGLE PRODUCT; UNCERTAIN MARKET ACCEPTANCE. The Company's success will
depend on the success of a single product, the System. The Company conducted a
pre-trial of the System at a Las Vegas casino which consisted of five events
utilizing play money. A live trial utilizing real money began on October 27,
1996 and will continue for at least 30 days, including a minimum of 10 events.
There can be no assurance that the System will operate successfully in a live
wagering environment. The Company has not been licensed to manufacture,
distribute, sell or lease the System nor has it sold or leased it to any casino
or other gaming establishment. To achieve commercial success, the System must be
approved for use in Nevada, and accepted both by casino and sports book
operators and by gaming patrons. The Company believes that acceptance by casino
and sports book operators will ultimately depend upon player acceptance. The
Company has not performed market studies to support its belief that the System
will be perceived by patrons as a preferred alternative to current sports
wagering practices or other wagering alternatives, and there can be no assurance
that the System will be accepted by its intended market. If the System does not
perform well in its initial evaluations or does not achieve sufficient market
acceptance, the Company's business, financial condition and results of operation
would be materially and adversely affected, and investors would be exposed to
the loss of their entire investment. There can be no assurance that the System
will perform its intended function, meet applicable regulatory standards, be
capable of production at reasonable costs and on a timely basis, be successfully
marketed or prove to be commercially viable.
DEVELOPMENT STAGE COMPANY; EXPECTATION OF LOSSES. The Company is in the
development stage and, as such, has not generated revenues from the sale of the
System. As of September 30, 1996, the Company had cumulative net losses since
inception of approximately $1,000,000, and the Company expects to continue to
incur substantial losses and negative cash flow at least through calendar 1997.
There can be no assurance that the Company will become profitable or that cash
flow will become positive at any time in the future. The likelihood of the
Company's success must be considered in light of the problems, delays, expenses
and difficulties encountered by an enterprise in the Company's stage of
development, many of which may be beyond the Company's control. These include,
but are not limited to, unanticipated problems relating to further product
enhancement and development; software design, development and enhancement;
testing; gaming regulations and taxes; System assembly; the competitive and
regulatory environment in which the Company plans to operate; marketing
problems; and additional costs and expenses that may exceed current estimates.
CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING. The Company
anticipates that the net proceeds of the Offering, together with existing
resources, will be adequate to fund its capital and operating requirements
through the next 18 to 24 months based upon the Company's current business plan.
See "Use
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<PAGE>
of Proceeds" and "Plan of Operation." The Company's capital requirements may
vary materially from those now planned due to a number of factors, including the
rate at which the Company can introduce the System, the market acceptance and
competitive position of the System, the response of competitors to the System
and the ability of the Company and its management to satisfy applicable
licensing requirements. The Company may need to raise additional capital to fund
its future operations. There can be no assurance that additional financing will
be available when needed on terms acceptable to the Company, or at all. If
additional funds are raised by issuing equity securities, further dilution to
existing stockholders will result and future investors may be granted rights
superior to those of existing stockholders. Insufficient funds may prevent the
Company from implementing its business strategy or may require the Company to
limit its operations significantly. See "Use of Proceeds" and "Plan of
Operation."
GOVERNMENTAL REGULATION. The System qualifies as "associated equipment" as
that term is defined in the Nevada Gaming Control Act (the "Nevada Act").
Associated equipment is generally defined as any equipment or mechanical,
electromechanical or electronic contrivance, component or machine used remotely
or directly in connection with gaming, any game, race book or sports pool that
would not otherwise be classified as a gaming device. All associated equipment
that is manufactured, sold, transferred, offered or distributed for use or play
in Nevada must first be administratively approved by the Chairman of the Nevada
Gaming Control Board (the "Nevada Board"). The administrative approval process
for associated equipment includes an evaluation by the Nevada Board's audit
division (the "Audit Division") and, in some cases, by the Nevada Board's
electronic services laboratory, followed by a field trial. The System has been
cleared by the Audit Division to undergo a trial period at a casino, subject to
terms and conditions imposed by the Chairman of the Nevada Board. The pre-trial
phase of the trial (with play money) has been completed and, on October 27,
1996, the Company commenced the live phase of the trial (with real money) at the
Excalibur Hotel & Casino in Las Vegas, Nevada. There can be no assurance that
the System will be approved upon conclusion of the trial period. The Nevada Act
provides that no licensee shall install or use associated equipment without the
prior approval of the Chairman of the Nevada Board. If the System is not
approved, the Company will be unable to sell or distribute it for use or play
within the State of Nevada.
In order for the Company to be compensated for use of the System on the
basis of a percentage of revenue received by a licensed gaming establishment or
on a transaction fee basis, the Company may be required to obtain a Nevada
Gaming License (as hereinafter defined), a process which is expected to take
between nine and 12 months from the date all required applications are filed and
the investigation commences. No assurance can be given that the investigation
will commence on a timely basis or will not take longer than 12 months. In
addition, the Nevada Commission has the discretion to require that the Company
apply for a finding of suitability to be a manufacturer and distributor of
associated equipment. The Company may seek to operate the System through a
central hub. There can be no assurance that the Nevada Act would permit such
operation and, even if permitted, the Company may be required to obtain a
license to do so. The operation of licensed gaming in general, and the operation
of race books and sports pools in particular, is subject to strict licensing and
regulatory control by the Nevada Board, the Nevada Commission and various local,
city and county regulatory agencies. No applicant for a registration, license,
finding of suitability or approval (individually, a "Gaming License" and
collectively, "Gaming Licenses") has any right to the Gaming License sought. Any
Gaming License issued or granted is a revocable privilege, and no holder
acquires any vested rights therein or thereunder. The Company has not yet
applied for or received any Gaming Licenses. There can be no assurance that such
Gaming Licenses will be granted or maintained, or that no burdensome conditions,
limitations or restrictions will be imposed upon the Company. Furthermore, if
the Company's application for Gaming Licenses is denied, any existing approval
for the System could be revoked and the Nevada Commission could order the
termination of any existing contracts for the System. Furthermore, the Company
would be prevented from selling or distributing the System for use or play in
Nevada after the date of such denial.
The United States Congress has recently passed legislation which creates a
national gaming study commission (the "National Gaming Commission"). The
National Gaming Commission will generally have
9
<PAGE>
the duty to conduct a comprehensive legal and factual study of gambling in the
United States and existing Federal, state and local policies and practices with
respect to the legalization or prohibition of gambling activities, to formulate
and propose changes in such policies and practices and to recommend legislation
and administrative actions for such changes. It is not possible to predict the
future impact of these proposals on the Company and its operations. Any such
proposals could have a material adverse affect on the Company's business. See
"Business--Governmental Regulation."
COMPETITION AND RAPID TECHNOLOGICAL CHANGE. The Company's operations will
compete with other forms of gambling, both within and outside of Nevada,
including, but not limited to, sports wagering as currently conducted in Nevada,
casino games (such as traditional slot machines, video slot, poker and blackjack
machines, roulette, card games, keno and craps), bingo, state-sponsored
lotteries, on-and off-track betting on horses and dogs, jai alai, offshore
cruise ships, riverboats and Native American gaming operations. The gaming
industry is also subject to shifting consumer preferences and perceptions. A
shift in consumer acceptance or interest in gaming could adversely affect the
Company. Moreover, competition is intense and increasing among providers of
wagering and gaming equipment, both hardware and software, and the Company
believes that new competitors will emerge in the future. Many of the Company's
competitors or potential competitors may have products that may compete directly
with the System and such competitors may have significantly greater financial,
technological, manufacturing, marketing, operating and other resources than the
Company. In addition, certain of the Company's potential competitors, including
large providers of wagering, gaming and computer equipment, may have
technological capabilities that would allow them to develop new or alternative
systems. The wagering and gaming equipment industry is subject to rapid change
and is characterized by constant technological innovation. There can be no
assurance that future technological advances will not result in improved
products or services that could adversely affect the Company's business or that
the Company will be able to develop and introduce competitive uses for its
products and to bring such uses to market in a timely manner. Increased
competition is likely to result in price reductions, reduced operating margins
and loss of market share, any of which could materially and adversely affect the
Company's business, operating results or financial condition. Furthermore, any
success the Company might have may induce new competitors to enter the market.
There can be no assurance that the Company will be a successful competitor in
the wagering and gaming equipment and service industry. See
"Business--Competition."
UNCERTAINTIES REGARDING INTELLECTUAL PROPERTY. The Company regards the
System and related technology as proprietary and relies primarily on a
combination of patent, trademark, copyright and trade secret laws and employee
and third-party non-disclosure agreements to protect its proprietary rights. The
Company has filed two United States patent applications relating to its
proprietary wagering methods and its related computer processing system, which
applications are currently pending before the PTO. The Company has been advised
by the PTO that the claims in its initial United States patent application, as
amended, have been allowed and that the application is in the publishing
division for printing and issuance. Corresponding patent applications have been
filed in numerous foreign countries. No assurance can be given that any of the
Company's patent applications will issue as patents, that any issued patents
will provide the Company with significant competitive advantages, or that
challenges will not be instituted against the validity or enforceability of any
patent owned by the Company or, if instituted, that such challenges will not be
successful. Defense of intellectual property rights can be difficult and costly,
and there can be no assurance that the Company will be able effectively to
protect its technology from misappropriation by competitors. Additionally, third
party infringement claims may result in the Company being required to enter into
royalty arrangements or pay damages, any of which could materially and adversely
affect the Company's business, financial condition and results of operations. It
is the Company's policy that all employees and consultants involved in research
and development activities sign non-disclosure agreements; however, this may not
afford the Company sufficient protection for its know-how and its proprietary
information and products. Other parties may independently develop similar or
more advanced technologies or design around aspects of the Company's technology
which may be patented or duplicate the Company's trade secrets.
10
<PAGE>
As the number of software products in the industry increases and the
functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. Although the
Company has not received any claim that it is infringing any other patent or
proprietary information and is not currently aware of any claim that it is
infringing any intellectual property rights of others, there can be no assurance
that the Company will not face claims, with or without merit, in the future. Any
such claims or litigation could be costly and could result in a diversion of
management's attention, which could have a material adverse effect on the
Company's business and financial condition. Any settlement of such claims or
adverse determinations in such litigation could also have a material adverse
effect on the Company's business and financial condition. See "Business--
Intellectual Property."
MANAGEMENT OF GROWTH. Execution and implementation of the Company's plan of
operation will require significant growth. The Company's current plans for
growth will place a significant strain on the Company's financial, managerial
and other resources. The Company's ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and to attract, motivate and train key employees. If the
Company's executives are unable to manage growth effectively, the Company's
business, operating results and financial condition would be materially and
adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the continued
efforts and abilities of its executive officers and other key personnel such as
Barry Mindes, the Company's founder and Chairman of the Board, and Bernard
Albanese, a director of the Company and the Company's President and Treasurer.
The loss or unavailability of Messrs. Mindes or Albanese for any significant
period could have a material and adverse effect on the Company's business,
financial condition and results of operations. The Company's operations will
also depend to a great extent on the Company's ability to attract new key
personnel and retain existing key personnel in the future. Competition is
intense for highly skilled employees and there can be no assurance that the
Company will be successful in attracting and retaining such personnel, or that
it can avoid increased costs in order to do so. The Company's failure to attract
additional qualified employees or to retain the services of key personnel could
have a material adverse effect on the Company's operating results and financial
condition. See "Business--Personnel" and "Management."
LIMITED MARKETING EXPERIENCE; NEED FOR ADDITIONAL PERSONNEL. The Company
has very limited marketing resources and limited experience in marketing and
selling the System. The Company intends to rely on its own personnel in
marketing and selling the System. Presently, only the Chairman of the Board is
expected to devote attention to marketing and sales, and the Company will need
to hire additional personnel to market and sell the System if it is approved by
the Nevada Board. There can be no assurance that the Company will be able to
establish adequate marketing and sales capabilities. Achieving market
penetration will require significant efforts by the Company to create awareness
of, and demand for, the System. The failure by the Company to successfully
develop its marketing capabilities would have a material adverse effect on the
Company's business, financial condition and results of operations. Further,
there can be no assurance that the development of such marketing capabilities
will lead to sales or leases of the System. See "Business--Marketing and Sales
Strategy."
LIMITED MARKET SIZE. Presently, the market for the System in the United
States is limited to casinos and sports book operations in the State of Nevada.
No assurance can be given that new markets will develop or that legislation
permitting sports wagering in other states within the United States will be
adopted. In addition, while sports wagering exists outside of the United States,
no assurance can be given that the System would be accepted in such foreign
markets or that compliance with any regulatory conditions imposed by foreign
jurisdictions will be achieved.
SEASONALITY OF SPORTING EVENTS. The Company's operations are substantially
dependent on a continuous supply of broadcast sporting events on which bettors
can wager. The Company believes that certain sports or certain sporting events
(such as the World Series in baseball and the Superbowl in football) may
11
<PAGE>
generate more wagering revenue than others. A concentration in any calendar
period of sports or sporting events which induce higher wagering, will, to the
extent the Company's revenue is derived based on wagering revenue, result in
higher revenue for such periods. The Company is aware of one company whose
revenue from sports book operations has been seasonal, with more than half of
the wagers received being placed between September and January, and with wagers
on professional and college football games historically comprising approximately
40% of the bets placed. In addition, strikes in professional sports may result
in a significant loss of revenue and adversely affect the Company's results of
operations for the periods in which they occur.
POSSIBLE EXCLUSIVE RELATIONSHIPS BETWEEN CASINOS AND THIRD PARTIES. The
Company will initially focus its marketing efforts on casinos and sports book
operations in Nevada. The Company believes that sports wagering facilities in
casinos are currently operated either by the casino itself or pursuant to
contractual relationships with licensed sports book operators. The Company is
aware of one entity which owns and operates sports book facilities in
approximately 35 casinos and other gaming establishments. Such entity or any
other entity which operates sports books in casinos may have exclusive
relationships with casinos which could limit the ability of casinos to contract
directly with the Company. As a result, the Company might be required to pay
substantial sums to such third parties for the privilege of supplying the System
to any such casino, which could have a material and adverse effect on the
Company's financial condition and results of operations.
POSSIBLE OBJECTIONS BY LEAGUES AND BROADCASTERS. The System operates in
conjunction with live broadcasts of sporting events shown in casinos or other
gaming establishments. The broadcast of sporting events by television stations
is typically covered by agreements with players' leagues such as the National
Football League or the National Basketball Association. In addition, display by
casinos within their sports betting parlors of sporting events is typically
subject to agreement with broadcasters of sporting events. In the event either
leagues or sporting event broadcasters object to wagering on sporting events in
general, or use of the System in particular, the Company's financial condition
and results of operations could be materially and adversely affected.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS. Upon the closing of the
Offering, the Company's stockholders prior to the Offering will beneficially own
approximately 80% of the outstanding shares of Common Stock (78% if the
Over-Allotment Option is exercised in full). Barry Mindes, the Company's founder
and Chairman of the Board, Mindes Family Limited Partnership, of which Mr.
Mindes is general partner, Bernard Albanese, a director and executive officer of
the Company, and the Marie Albanese Trust, a trust for the benefit of Mr.
Albanese's wife, together will beneficially own approximately 46% of the
outstanding shares of Common Stock immediately after the Offering (45% if the
Over-Allotment Option is exercised in full). As a result of such ownership, the
existing stockholders of the Company will have the ability to control the
election of the directors of the Company and the outcome of issues submitted to
a vote of the stockholders of the Company. See "Principal Stockholders."
BROAD DISCRETION AS TO USE OF PROCEEDS. Approximately 17% of the net
proceeds of the Offering has been allocated to general corporate and working
capital purposes and will be used for such specific purposes as management may
determine. Accordingly, management will have broad discretion with respect to
the expenditure of that portion of the net proceeds of the Offering. In
addition, the Company's estimate of its allocation of the use of proceeds of the
Offering is subject to a reapportionment of proceeds among the categories set
forth herein or to new categories. The amount and timing of expenditures will
vary depending upon a number of factors, including the progress of the Company's
product development and marketing efforts, changing competitive conditions and
general economic conditions. See "Use of Proceeds."
ABSENCE OF TRADING MARKET; NEGOTIATED OFFERING PRICE. Prior to the
Offering, there has been no public market for the Common Stock. There can be no
assurance that any trading market for the Common Stock will develop or, if any
such market develops, that it will be sustained. The public offering price of
the Shares has been established by negotiation between the Company and the
Representatives and does not
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<PAGE>
bear any relationship to the Company's book value, assets, past operating
results, financial condition or other established criteria of value. See
"Underwriting."
POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON STOCK. The market price of
securities of development stage companies and many emerging companies has been
highly volatile, experiencing wide fluctuations not necessarily related to the
operating performance of such companies. Factors such as the Company's operating
results, announcements by the Company or its competitors concerning
technological innovations, new products or systems may have a significant impact
on the market price of the Company's securities. Accordingly, purchasers of the
Shares may experience difficulty selling or otherwise disposing of their Shares.
NASDAQ AND BSE DELISTING; LOW STOCK PRICE. The trading of the Company's
Common Stock on NASDAQ and BSE will be conditioned upon the Company meeting
certain asset, capital and surplus earnings and stock price tests set forth by
NASDAQ and BSE. To maintain eligibility for trading on NASDAQ, the Company will
be required to maintain total assets in excess of $2,000,000, capital and
surplus in excess of $1,000,000 and (subject to certain exceptions) a bid price
of $1.00 per share. To maintain eligibility on BSE, the Company will be
required, among other things, to maintain total net tangible assets in excess of
$1,000,000. Upon completion of the Offering and the receipt of the proceeds
therefrom, the Company believes that it will meet the respective asset, capital
and surplus earnings tests set forth by NASDAQ and BSE. If the Company fails any
of the tests, the Common Stock may be delisted from trading on NASDAQ or BSE.
The effects of delisting include the limited release of the market prices of the
Company's securities and limited news coverage of the Company. Delisting may
restrict investors' interest in the Company's securities and materially
adversely affect the trading market and prices for such securities and the
Company's ability to issue additional securities or to secure additional
financing. In addition to the risk of volatile stock prices and possible
delisting, low price stocks are subject to the additional risks of federal and
state regulatory requirements and the potential loss of effective trading
markets. In particular, if the Common Stock were delisted from trading on NASDAQ
and BSE and the trading price of the Common Stock was less than $5.00 per share,
the Common Stock could be subject to Rule 15g-9 under the Exchange Act which,
among other things, requires that broker/dealers satisfy special sales practice
requirements, including making individualized written suitability determinations
and receiving purchasers' written consent, prior to any transaction. If the
Company's securities could also be deemed penny stocks under the Securities
Enforcement and Penny Stock Reform Act of 1990, this would require additional
disclosure in connection with trades in the Company's securities, including the
delivery of a disclosure schedule explaining the nature and risks of the penny
stock market. Such requirements could severely limit the liquidity of the
Company's securities and the ability of purchasers in the Offering to sell their
securities in the secondary market.
FUTURE SALES OF RESTRICTED SECURITIES; REGISTRATION RIGHTS. Upon the
completion of the Offering, the Company will have 7,524,277 shares of Common
Stock outstanding (7,749,277 shares if the Over-Allotment Option is exercised in
full). Of these shares, all of the 1,500,000 shares of Common Stock sold in the
Offering (1,725,000, if the Over-Allotment Option is exercised in full)
generally will be freely tradable by persons other than affiliates of the
Company, without restriction or further registration under the Securities Act.
The remaining 6,024,277 shares of Common Stock (the "Restricted Shares")
outstanding were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted securities"
as defined in Rule 144 promulgated under the Securities Act and may not be sold
in the absence of registration under the Securities Act unless an exemption
therefrom, including an exemption afforded by Rule 144, is available. Under Rule
144 (and subject to the conditions thereof), 3,023,048 of the Restricted Shares
owned by Barry Mindes, the Company's Chairman of the Board, and Mindes Family
Limited Partnership, will become eligible for sale beginning 90 days after the
date of this Prospectus; and substantially all of the remaining 3,001,229
Restricted Shares will become eligible for sale at various times from May 1997
through June 1998. Prior to the Offering, the Company, its officers, directors
and existing stockholders will enter into agreements which prohibit them from
selling stock in the Company without the prior written consent of Barington for
a period of 12 months following
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<PAGE>
the effective date of the Offering. The Company's existing stockholders, the
holders of the Bridge Warrants and the Representatives' Options are also
entitled to certain rights with respect to the registration under the Securities
Act of the securities held by them. The sale of a substantial number of shares
of Common Stock or the availability of Common Stock for sale could adversely
affect the market price of the Common Stock prevailing from time to time. See
"Description of Securities--Registration Rights," "Shares Eligible for Future
Sale," and "Underwriting."
EFFECT OF PREVIOUSLY ISSUED OPTIONS, WARRANTS AND REPRESENTATIVES' OPTIONS
ON STOCK PRICE. The Company has reserved from the authorized, but unissued,
Common Stock 1,467,398 shares of Common Stock for issuance to key employees,
officers, directors, and consultants pursuant to options granted or available
for grant under the existing stock option plans and has reserved 195,000 shares
of Common Stock for issuance upon exercise of the Bridge Warrants. In connection
with the Offering, the Company will also sell to the Representatives, for
nominal consideration, the Representatives' Options to purchase an aggregate of
150,000 shares of Common Stock at a price per share equal to 120% of the initial
public offering price per share in the Offering, subject to adjustment as
provided therein. The existence of the Bridge Warrants, the Representatives'
Options, any outstanding options issued under the Company's stock option plans,
and other options or warrants may prove to be a hindrance to future financings,
since the holders of such warrants and options may be expected to exercise them
at a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. In addition, the holders of such
securities (as well as holders of shares issued prior to the Offering) have
certain registration rights, and the sale of the shares issuable upon exercise
of such securities or the availability of such shares for sale could adversely
affect the market price of the Common Stock. Additionally, if the holders of the
Representatives' Options were to exercise their registration rights to effect a
distribution of the Representatives' Options or underlying securities, the
Representatives, prior to and during such distribution, may be unable to make a
market in the Company's securities and would be required to comply with other
limitations on trading set forth in Rules 10b-2, 10b-6 and 10b-7 promulgated
under the Exchange Act. Such rules restrict the solicitation of purchasers of a
security when a person is interested in the distribution of such security and
also limit market making activities by an interested person until the completion
of the distribution. If the Representatives were required to cease making a
market, the market and market price for such securities may be adversely
affected and holders of such securities may be unable to sell such securities.
See "Description of Securities" and "Underwriting."
DILUTION. The assumed initial public offering price per share exceeds the
book value per share of the Common Stock. Investors in the Offering will
therefore incur immediate and substantial dilution of $4.94 or 82.3% per share.
The Company has granted to officers, directors, certain principal stockholders
and others, options and warrants to purchase Common Stock at prices below the
Offering price. Investors who purchase shares of Common Stock in the Offering
will incur additional dilution to the extent outstanding options and warrants
are exercised. See "Dilution."
ABSENCE OF DIVIDENDS. The Company has not paid any dividends on its
outstanding Common Stock since its inception and does not intend to pay any
dividends to its stockholders in the foreseeable future. The Company currently
intends to reinvest earnings, if any, in the development and expansion of its
business.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION
AND DELAWARE LAW. The Company's Certificate of Incorporation authorizes the
issuance of 2,000,000 shares of Preferred Stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without obtaining
stockholder approval, to issue such Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. In the event of issuance,
the Preferred Stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in the control of the Company.
Certain provisions of Delaware law may also discourage third party attempts to
acquire control of the Company.
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby, at an
assumed initial offering price of $6.00 per share, and after deducting
underwriting discounts and commissions and other expenses of the Offering, are
estimated to be $7,340,000 ($8,514,500 if the Over-Allotment Option is exercised
in full).
The Company intends to use the net proceeds of the Offering (i) to purchase
equipment to be used in the System, (ii) to fund the Company's sales and
marketing efforts, (iii) to fund the Company's further product enhancement and
development activities, (iv) to repay the Bridge Notes, and (v) for general
corporate and working capital purposes, approximately as follows:
<TABLE>
<CAPTION>
PERCENTAGE
APPROXIMATE OF
USE AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
System equipment purchases........................................ $ 4,000,000 $ 54.6%
Sales and marketing............................................... 750,000 10.2%
Further product enhancement and development....................... 700,000 9.5%
Repayment of Bridge Notes......................................... 661,000 9.0%
General corporate and working capital purposes.................... 1,229,000 16.7%
------------ ------------
$ 7,340,000 100%
------------ ------------
------------ ------------
</TABLE>
The Company intends to use approximately $4,000,000 of the net proceeds of
the Offering to purchase equipment to be used in the System, including personal
computers, monitors, touch screens, network equipment and control computer
equipment. The amount allocated to purchasing such equipment will vary
significantly depending on the rate at which the System is introduced and its
acceptance in the market, and on the availability and terms of suitable
equipment financing. See "Risk Factors--Single Product; Uncertain Market
Acceptance" and "Risk Factors--Governmental Regulation."
The Company intends to use approximately $750,000 of the net proceeds of the
Offering to fund expansion of its sales and marketing activities, including
hiring a sales and marketing executive and other sales and marketing personnel.
See "Business--Marketing and Sales Strategy."
The Company intends to use approximately $700,000 of the net proceeds of the
Offering to fund further product enhancement and development activities. A small
portion of the net proceeds allocated to product development is anticipated to
be devoted to exploring alternative applications of the Company's proprietary
technology, including adaptation of the System for use in non-wagering
activities. See "Business--The Company" and "Business--Marketing and Sales
Strategy."
Approximately $661,000 of the net proceeds will be used to repay the
principal amount of the Bridge Notes, along with estimated accrued interest
thereon through the estimated closing date of the Offering. The Bridge Notes
bear interest at a rate of 10% per annum, compounded annually, and are due upon
the closing of the Offering. The Bridge Notes were sold as units along with the
Bridge Warrants in the Bridge Financing. The net proceeds received by the
Company from the Bridge Financing were approximately $550,000 and are being used
to finance the Company's short-term working capital needs and to fund expenses
of the Company in connection with the Offering. See "Description of
Securities--Bridge Units."
The balance of the net proceeds of the Offering are intended to be used for
general corporate and working capital purposes. Any net proceeds received by the
Company from the exercise of the Over-Allotment Option or the Representatives'
Options will be added to working capital. See "Risk Factors-- Broad Discretion
as to Use of Proceeds." The Company anticipates that the net proceeds of the
Offering, together with existing resources, will be adequate to fund its capital
and operating requirements through the next 18 to 24 months based upon the
Company's current business plan. See "Risk Factors--Capital Requirements; Need
for Additional Financing" and "Plan of Operation."
15
<PAGE>
The foregoing represents the Company's best estimate of its allocation of
the estimated net proceeds of the Offering and is subject to a reapportionment
of proceeds among the categories listed above or to new categories in response
to, among other things, changes in its plans, regulations, industry conditions,
and future revenue and expenditures. The amount and timing of expenditures will
vary depending on a number of factors, including changes in the Company's
contemplated operations or business plan and changes in economic and industry
conditions.
Until used, the Company intends to invest the net proceeds of the Offering
in short-term, interest-bearing, investment grade, debt securities, money market
accounts, certificates of deposit or direct or guaranteed obligations of the
United States government.
DIVIDEND POLICY
The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends to its stockholders in the foreseeable
future. Any future determination as to dividend policy will be made by the Board
of Directors of the Company in its discretion, and will depend on a number of
factors, including the future earnings, if any, capital requirements, financial
condition and business prospects of the Company and such other factors as the
Board of Directors may deem relevant. See "Risk Factors--Absence of Dividends."
16
<PAGE>
DILUTION
As of September 30, 1996, the Company had a pro forma net tangible book
value of approximately $790,000, or $0.13 per share of Common Stock. Without
taking into account any other changes in the pro forma net tangible book value
of the Company after September 30, 1996, other than to give effect to the sale
by the Company of the Shares offered hereby at an assumed initial offering price
of $6.00 per share and the receipt and application of the estimated net proceeds
therefrom (including repayment of the Bridge Notes and accrued cash interest
thereon), the pro forma net tangible book value would have been approximately
$7,941,000, or $1.06 per share, which represents an immediate increase in the
pro forma net tangible book value of $0.93 per share to present stockholders and
an immediate dilution of $4.94 per share to new investors. The following table
illustrates this dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON STOCK
-------------
<S> <C> <C>
Assumed initial public offering price per Share(1).................................... $ 6.00
Pro forma net tangible book value before the Offering............................... $ 0.13
Increase attributable to purchase of Shares by new investors........................ $ 0.93
-----
Pro forma net tangible book value after the Offering.................................. 1.06
-----
Dilution of net tangible book value to investors in the Offering...................... $ 4.94
-----
-----
</TABLE>
- ------------------------
(1) Represents the initial public offering price per Share, before deducting
underwriting discounts and offering expenses payable by the Company.
The following table summarizes, on a pro forma basis as of September 30,
1996, the differences between existing stockholders and investors in the
Offering with respect to the number and percentage of shares of Common Stock
purchased from the Company, the amount and percentage of consideration paid and
the average price paid per Share, before deduction of underwriting discounts and
offering expenses:
<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 6,024,277 80.1% $ 1,693,000 15.8% $ 0.28
New Investors..................................... 1,500,000 19.9% $ 9,000,000 84.2% $ 6.00
---------- ----------- ------------- -----------
Total............................................. 7,524,277 100.0% $ 10,693,000 100.0%
---------- ----------- ------------- -----------
---------- ----------- ------------- -----------
</TABLE>
The foregoing table does not include (i) 195,000 shares of Common Stock
issuable upon exercise of Bridge Warrants, and (ii) an aggregate of 1,467,390
shares of Common Stock reserved for issuance pursuant to options under the
Company's existing stock option plans, of which options to purchase 642,390
shares have been granted and remain outstanding as of the date hereof. See
"Management--Stock Option Plans" and "Description of Securities."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1996, (ii) as of September 30, 1996 on a pro forma basis assuming
the issuance of $650,000 aggregate principal amount of Bridge Notes, and (iii)
on a pro forma as adjusted basis to reflect the sale of 1,500,000 shares of
Common Stock by the Company offered hereby at an assumed initial public offering
price of $6.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction with
the Financial Statements of the Company and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------
<S> <C> <C> <C>
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
------------ ------------- -------------
<CAPTION>
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
10% Senior promissory notes $ -- $ 425,000 $ --
Stockholders' equity:
Preferred stock, par value $.001 per share, 2,000,000 shares
authorized, no shares issued and outstanding, actual, and pro
forma as adjusted................................................. -- -- --
Common stock, par value $.001 per share, 20,000,000 shares
authorized, 6,024,277 shares issued and outstanding, actual and
pro forma; 7,524,277 shares issued and outstanding, as
adjusted(3)....................................................... 6,024 6,024 7,524
Additional paid-in capital.......................................... 1,687,089 1,877,089 9,215,589
Deficit accumulated during the development stage.................... (977,199) (977,199) (1,278,199)
------------ ------------- -------------
Total stockholders' equity...................................... 715,914 905,914 7,944,914
------------ ------------- -------------
Total capitalization............................................ $ 715,914 $ 1,330,914 $ 7,944,914
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
- ------------------------
(1) Pro forma to give effect to the issuance of $650,000 aggregate principal
amount of Bridge Notes (with related expenses of approximately $100,000) and
the application of the estimated net proceeds therefrom. Senior promissory
notes are stated net of debt discount of $225,000 ascribed to the Bridge
Warrants issued as part of the Bridge Financing. This discount amount will
be amortized to interest expense over the period the debt is outstanding.
See Note 8 to Notes to Financial Statements.
(2) Adjusted to give effect to (i) the sale by the Company of the 1,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $6.00 per share and the application of the estimated net proceeds
therefrom and (ii) interest expense of $301,000 (including non-recurring
interest expense of $290,000 resulting from the repayment of the Bridge
Notes and $11,000 of cash interest expense, based on an assumed repayment in
December 1996). See "Use of Proceeds" and Note 8 to Notes to Financial
Statements.
(3) Does not include (i) 195,000 shares of Common Stock issuable upon exercise
of Bridge Warrants, and (ii) an aggregate of 1,467,390 shares of Common
Stock reserved for issuance pursuant to options under the Company's existing
stock option plans, of which options to purchase 642,390 shares have been
granted and remain outstanding as of the date hereof at an exercise price
$0.70 per share. See "Management--Stock Option Plans" and "Description of
Securities."
18
<PAGE>
PLAN OF OPERATION
HISTORY
The Company commenced operations in May 1995. Prior thereto, through its
predecessor, Systems Enterprises, Inc., which was organized in December 1992,
the System was conceived and a simulation of the System was developed for use in
determining if casinos had interest in the System. Additionally, an initial
patent application covering the System was prepared and filed with the PTO.
Commencing in May 1995 and continuing to date, the Company raised approximately
$1,700,000 in equity capital and net proceeds of $550,000 through the Bridge
Financing. The current personnel were recruited and hired and the Company
engaged in research and development and testing of the System. To date, the
Company has not generated any revenue.
PLAN OF OPERATION
The Company's plan of operation over the 12 months following consummation of
the Offering focuses primarily on (i) having the System approved for use in the
State of Nevada by the Chairman of the Nevada Board, (ii) sales and marketing to
casinos and other sports book operators in Nevada, (iii) the hiring of
additional personnel in the area of sales and marketing, equipment installation,
maintenance and training, (iv) continued research and further product
enhancement and development, including adapting the System for new betting
propositions, (v) securing further intellectual property protection, including
additional patent, trademark and copyright protections, and (vi) exploring
opportunities in foreign markets and alternative applications of the Company's
proprietary technology, including adaptation of the System for use in
non-wagering activities. See "Use of Proceeds." The Company expects to purchase
from others all of the hardware used in the System. The Company believes that
all of such hardware is available from numerous sources.
Based upon its current proposed plans and assumptions relating to its
operations, the Company anticipates that the net proceeds of the Offering,
together with existing resources, will be sufficient to satisfy the contemplated
cash requirements of the Company for 18 to 24 months following consummation of
the Offering. During the first 12 month period, the Company expects to begin
generating revenue from the leasing of Systems to casinos and other gaming
establishments in Nevada. See "Risk Factors--Capital Requirements; Need for
Additional Financing." The Company also plans to seek a gaming license which
will enable it to provide the System to sports wagering establishments in
exchange for a portion of the revenue received by the establishment or on the
basis of a transaction fee. See "Risk Factors--Governmental Regulation."
In the event that the Company's plans change or its assumptions prove
inaccurate or the proceeds of the Offering are insufficient to fund operations
due to unanticipated delays, problems, expenses or otherwise, the Company would
be required to seek additional funding sooner than anticipated. Depending upon
the Company's progress in marketing the System, its acceptance by casinos,
sports book operators and their patrons and the state of the capital markets,
the Company may determine that it is advisable to raise additional equity
capital. The Company has no current arrangements with respect to, or specific
sources of, any such capital and there can be no assurance that such additional
capital will be available to the Company when needed on commercially reasonable
terms or at all. The inability of the Company to obtain additional capital would
have a material adverse effect on the Company and could cause it to be unable to
implement its business strategy. Additional equity financing may involve
substantial dilution to the interests of the Company's then existing
stockholders.
19
<PAGE>
RESEARCH AND DEVELOPMENT
The Company has incurred approximately $703,000 and $791,000 in research and
development expenses for the fiscal year ended September 30, 1996 and for the
period from inception through September 30, 1996, respectively. The Company
expects to continue to incur substantial research and development expenses for
further product enhancement and development activities. See "Use of Proceeds"
and "Business--Marketing and Sales Strategy."
20
<PAGE>
BUSINESS
THE COMPANY
International Sports Wagering Inc., a development stage company, has
designed and developed an interactive, proprietary, PC-based computer system
that enables users to wager during the course of a sporting event, such as
football, baseball, basketball and hockey. The System accepts bets not only on
the outcome of a sporting event but also on discrete parts of the event and on
specific game situations, such as will a team get a first down, will a batter
get on base, or will a player make two foul shots. The System is unique in that
it permits betting while these game situations are in progress, such as between
downs or pitches, permitting more frequent placing and cashing of wagers. The
Company believes that the System will generate additional patrons, wagering and
higher commissions for gaming establishments than more traditional forms of
sports wagering.
The interactive element of the System is a Player Betting Station that is a
personal computer with a touch screen, operating a "windowing" system which
displays a television picture of a live sporting event in the upper left-hand
quadrant of the PC monitor. A list of available bets together with the terms of
those bets (including the amount of the wager necessary to receive a particular
payout and the contestants upon whom the wager is being placed) and other
details relating to the event being watched and the bets previously placed are
displayed on the remainder of the monitor. By touching the screen, a bettor can
place a variety of bets within seconds on the sporting event then being viewed.
The System is capable of permitting bettors to select from multiple sporting
events being televised simultaneously, thereby allowing the bettor to bet on
numerous games while using the System.
The System's proprietary software permits fixed price betting during the
course of a sporting event by continuously balancing the betting pool on each
betting proposition to within a pre-set level. Wagers may be placed
simultaneously on multiple computer terminals in a casino or other sports
wagering facility. The System maintains a record of all wagers placed by each
bettor and keeps an account for each bettor, adding winnings and subtracting
losses.
The Company has recently completed a pre-trial of the System (with play
money) and, on October 27, 1996, commenced a live trial (with real money) at the
Excalibur Hotel & Casino in Las Vegas, Nevada. The trial is expected to be
completed in late November. Successful completion of the trial is one of the
conditions for obtaining approval by Nevada gaming authorities for the use of
the System. See "--Governmental Regulation."
If use of the System is approved, the Company initially intends to lease the
System to casinos and other gaming establishments in Nevada. Thereafter, the
Company intends to provide the System to sports wagering establishments in
consideration for either a portion of the revenue received by the establishment
or on a transaction fee basis. However, prior to entering into any such
compensation arrangement, the Company may be required to obtain a gaming license
from Nevada gaming authorities, a process which is expected to take between nine
and 12 months from the date all required applications are filed and the
investigation commences. No assurance can be given that the Company will receive
the necessary gaming license, that casinos or other gaming establishments will
install the System, or that they will agree to the form of compensation
requested by the Company. See "--Governmental Regulation."
In the future, the Company also intends to market the System in foreign
countries in which sports wagering is legal. The Company has no contracts with
any gaming establishment, domestic or foreign, and has not yet attempted to
market the System to any casinos or other gaming establishments. In the future,
the Company also may explore alternative applications of its proprietary
technology, including adaptation of the System for use in non-wagering
activities such as interactive games in bars and games, and activities conducted
over the Internet, cable television and other communications media.
INDUSTRY OVERVIEW
In Nevada, sports wagering currently takes place at large modern casinos and
at dedicated sports wagering facilities ("sports books"). Some casinos manage
their own sports book and some contract with
21
<PAGE>
sports book operators to operate a sports book in the casino. Casinos currently
conducting sports wagering typically have a room in which large projection
screens and television monitors display various sporting events while manual or
electronic displays show the wagering odds. Wagers are placed and cashed at
clerk-operated betting terminals located in the room.
Wagers at these facilities are principally placed on the outcome of a game
or event. Wagers also may be accepted on segments of a game, such as points
scored in a quarter; however the wager is accepted only before the segment
begins. Since most sporting events take several hours to complete, bettors can
place bets and cash winning bets to use on subsequent wagers, only a few times
each day, thereby limiting the number of wagers bettors may be inclined to make
each day. As a result, sports wagering facilities are frequently under-utilized.
In sports wagering, the gaming establishment, or "house," generally intends
to serve as a broker, attempting to attract equal amounts of bets on each side
of a particular betting proposition (a "balanced book") by giving either a
handicap (the point spread or margin by which the favorite must win) or odds (a
greater than equal payout on winning to the underdog or a lesser one to the
favorite) on the outcome of the event, or a combination of both. The house's
goal in general is to have the funds paid to the winners equal the amount
received from the losers, less the commissions that the house charges for
brokering the transactions and the use of its facilities.
Sports bettors want to know the odds or point spread (the "line") of the
wager at the time the bet is placed. While the odds may change as the house
attempts to balance its book, the terms for a previously placed bet remain the
same. Thus, bettors who place several bets on the same team or contestant over a
period of time could have different odds or point spreads on each wager
depending upon when the bet was placed.
The sports book's profit depends upon the reliability of the odds and its
adjustment of the odds when necessary. On occasion, the house's initial handicap
or odds will not result in a balanced book because the players do not agree with
the house's assessment of the outcome of the event. The house will attempt to
attract bets on one side of the proposition in order to achieve equalization by
changing or moving the line up or down to induce betting patterns in order to
balance the book. If this is not possible, the house may also refuse to accept
wagers on one of the contestants or limit the maximum amount of money that will
be accepted on a line to attempt to avoid the risk of taking an unacceptable
number of bets on one side of a betting proposition. When the limit is reached,
the line is moved. Currently, sports wagering establishments do not change odds
or handicaps frequently in order to balance pools. The odds or handicaps are
changed usually only after the book gets substantially out of balance, if at
all. Sports books currently are rarely perfectly balanced. To the extent that
the book is not balanced, the sports book takes risk on the outcome of the game
or event.
MARKETING AND SALES STRATEGY
Sports wagering is currently legal only in the State of Nevada, and in
several foreign countries. Sports wagering in Nevada's gaming establishments
increased from approximately $294 million in 1980 to $2.4 billion in 1995. In
1995, there were approximately 115 licensed gaming establishments in Nevada that
offered sports wagering.
The Company believes that the market for sports wagering in Nevada could
accommodate between 12,000 and 15,000 PBSs, with some of the larger casinos able
to accommodate between 300 and 400 PBSs. Licensed gaming establishments in
Nevada include casinos of varying sizes, which offer a variety of gaming
activities in addition to sports wagering, as well as gaming establishments
which offer primarily wagering on sports and horse races. In some instances, the
sports wagering activities of casinos or other gaming establishments are
operated by licensed sports book operators, some of whom may also own sports
wagering establishments. Most casinos and sports book operators are potential
customers for the System, although sports book operators may also be
competitors. See "--Competition." If the System is approved for use in Nevada,
the Company intends to utilize its own sales personnel and focus its initial
marketing
22
<PAGE>
efforts on the larger more modern casinos that could accommodate a larger number
of PBSs. See "Risk Factors--Limited Marketing Experience; Need for Additional
Personnel."
The System can be operated as a stand-alone system in an individual casino
or sports book, provided an adequate number of bettors are wagering through that
System to generate sufficient interest and large enough betting pools. Systems
located in individual casinos or other gaming establishments, can also be linked
by telecommunications lines resulting in larger combined wagering pools. By
linking smaller casinos or other gaming establishments that have insufficient
sports wagering on their own, the market for the System can be expanded. The
Company may seek to operate the System through a single or several central hubs
which control all terminals located in a group of casinos owned by one entity, a
group of unrelated casinos, or casinos or gaming establishments located within a
given city or in the state, subject to obtaining an appropriate license. See
"--Government Regulation." Under this arrangement, all pools would be combined
to produce fewer odds changes and more betting volume for arcane wagers.
Controller personnel would only be required at the hub, with one controller team
for each sporting event instead of one controller team for each event at each
casino. This would greatly reduce operating costs for the casinos and ensure
uniformity of rules for all users of the System. Individual casinos or groups of
casinos could still offer special betting propositions.
The Company initially intends to lease the System to casinos and other
gaming establishments; provide training services to casino personnel so they can
operate the System; and service and maintain the System through its personnel,
independent maintenance organizations or the manufacturers of the terminals. The
Company also intends to seek a gaming license in order to be in a position to
provide the System to sports wagering establishments in exchange for either a
portion of the revenue received by the establishment or on a transaction fee
basis. Such a license may also allow the Company to operate one or more central
hubs with casinos and other gaming establishments having only PBSs and cashier
terminals that would be controlled at the hubs. See "--Governmental Regulation."
There can be no assurance that the Company will receive the licenses necessary
to permit it to be compensated on the basis of a portion of the revenue received
by the casino or gaming establishment or on a transaction fee basis or to
operate a central hub; nor is there any assurance that if such licenses are
obtained, casinos and sports book operators will agree to the form of
compensation requested by the Company or to participate in the Company's hub
system. See "Risk Factors--Governmental Regulation."
In the future, the Company also intends to market the System in foreign
countries in which sports wagering is legal. The Company has no contracts with
any betting establishment, domestic or foreign, and has not yet attempted to
market the System to any casinos or other betting establishments. In the future,
the Company also may explore alternative applications of its proprietary
technology, including adaptation of the System for use in non-wagering
activities such as interactive games in bars, and games and activities conducted
over the Internet, cable television and other communications media.
THE SPORTXCTION-TM- SPORTS WAGERING SYSTEM
OVERVIEW OF THE SYSTEM
The SportXction-TM- sports wagering system permits continuous fixed price
betting during the course of a sporting event by continuously balancing the
betting pool on each betting proposition to within a pre-set level. It allows
bettors to view a live sporting event and wager throughout that event as it is
underway. The period during which wagers may be placed is thereby extended.
The System accepts bets on the outcome of the sporting event, on discrete
parts of the event, and on specific game situations, such as will a team get a
first down, will a batter get on base, or will a player make two foul shots. The
System also permits betting while these game situations are in progress, such as
between downs, pitches or foul shots. Wagers may also be cashed-out before the
outcome of the event is determined, at the then current value (the initial price
modified by any change in odds). Betting is therefore nearly continuous,
somewhat analogous to the situation which exists at a craps table, with each
play being potentially a "new game." The Company believes that the System should
increase betting
23
<PAGE>
volume and thus revenue from sports wagering for those casinos and other sports
wagering facilities which use the System.
Furthermore, the System operates under continuous computer-controlled pool
balancing, which can virtually assure the house of a known minimum return on any
betting volume.
OPERATION OF THE SYSTEM
The System operator begins by setting up a number of pools or wagering
propositions (for example, the winner of a game or the team leading at the end
of a particular period of play, over or under scoring on the game or period, and
wagers on specific events or games situations). Prior to commencement of the
sporting event, the System operator also sets the odds or handicap (point
spread) with greater odds given to the less capable contestant. Once the
sporting event begins, the System sets the initial odds on each betting
proposition. The System changes the odds automatically as bets are made in order
to induce a betting pattern which would lead to a balanced pool. The bettor may
therefore make multiple wagers on the same betting proposition as the odds
change. As wagering continues, a pool may become underfunded, that is, players
have bet less money on one side of a particular betting proposition (the
underfunded side) than players have bet on the opposite side of such betting
proposition (the overfunded side). If this occurs, and if the overfunded side of
the betting proposition wins, the house would have to pay out more money to the
winning bettors on the overfunded side than the house would have received from
the bettors on the underfunded side. To limit the house's exposure, the System
is designed to automatically adjust the odds to induce bettors to wager on the
underfunded side of the betting proposition and thereby balance the pool to
within a pre-set level. Since the System is designed for a fixed payout, the
changing odds are reflected in the amount that the bettor must bet to receive
the fixed amount (including return of his wager). For example, the odds of Team
A winning a game may be set initially so that, in order to receive a $20 payout
(including the return of his wager), the bettor must bet $12. If, during the
game, Team A is ahead by 10 points, the System would automatically change the
odds so that in order to receive $20, the bettor might, at that point in the
game, be required to bet $16. If a pool can no longer be kept to within a
pre-set level of balance, it will be closed and another pool opened with a
handicap or odds designed to lead to balance. This would happen dynamically
during the entire event. There could be many different betting propositions
available during the course of a sporting event; however, prior to establishing
a new betting proposition, the house must believe that there will be sufficient
player interest so that a balanced pool could be maintained.
The System permits, and the sports wagering operator is likely to have, both
long- and short-term propositions on a sporting event. Long-term propositions
may be based upon the outcome of an entire game or discrete segments of a game.
Wagering continues on the long-term propositions even as game conditions change,
causing the odds on the outcome to change during the course of the event.
Examples of typical short-term propositions are, in football, will the
offensive team make a first down on a specific possession; and in basketball,
which team will be the next to score 10 points. Betting is almost continuous
until the specific event occurs or the specific game situation is completed.
Since short-term pools open and close rapidly, sometimes in several minutes or
less, there are new propositions constantly available during the entire contest.
The System works on a "bet against deposited funds" basis. When a bettor
desires to begin wagering, he deposits a sum of money (above a minimum set by
the house) with a cashier and receives an account number and a personal
identification ("PIN") number. The bettor places wagers using his funds on
deposit. The System automatically adds the bettor's winnings and subtracts
losses from his account. When the player wishes to commence play, he signs on to
a Player Betting Station using his account number and PIN number. The PBS will
show credits equal to his deposit. As wagers are placed, the credit balance in
the PBS is reduced by the amounts wagered. Each wager is also printed on a
continuous receipt that is printed contemporaneously at the PBS. When the bettor
wins, the monitor on the PBS shows that the bettor has won and his credit
balance in the PBS is automatically increased by his winnings.
24
<PAGE>
When the player signs off a PBS, he removes the printed receipt which shows
his bets and balance and a bar code summary for accelerated cashing at the
sports wagering cashier station. The funds can also be kept on deposit for
future betting.
A player may also suspend wagering on a PBS. To do so, he touches the
appropriate button on the PBS and is prompted for his PIN number. When he enters
his PIN number, operation of the PBS is suspended for a limited period of time.
Upon the player's return, he reactivates his PBS by entering his PIN number. All
bets which are open or undecided continue to be paid off as they are decided.
Bettors may cash-out their wagers before the winner is determined or the
betting proposition is complete. Cashed-out wagers are paid at their then
current value. The System determines the then current value by placing a hedging
bet on the other contestant at the odds in effect when the bet is being cashed.
The player being cashed-out early would therefore not win as much as he might if
his team is ultimately victorious; nor would that player lose as much as he
might if his team ultimately lost.
The System is a continuous action pool-balancing system. As such, it reacts
by changing the odds on open or undecided betting propositions to reflect
current bettor sentiment as expressed by their bets. This can result in rapid
changes in odds, particularly if game conditions alter abruptly as in the case
of a sudden score, injury, or player ejection. Odds can even change while the
bettor is in the process of entering a wager into the System. As betting is
continuous, bets may be entered while game conditions are changing. At times,
bets will be delayed until a play is completed and the results of the play are
entered by those controlling the System to prevent past posting. Consequently,
all bet entries are treated as "requests" to make a bet at the odds which were
displayed when the bet entry process started. If the amount that must be wagered
to win a fixed payout has changed after the request is made and before the bet
is accepted, the player will be shown the new amount, asked to reconfirm his bet
request and be given a short period of time to respond. If the bet is not
reconfirmed within this time period, the bet is automatically cancelled. It is
even possible that the amount may change again before the bettor's decision on
the new price is made, in which event the process will be repeated. The player
will either reconfirm his request at the new price if he finds it acceptable, or
the bet will automatically be cancelled. If the player finds an acceptable
price, and the System accepts the bet, the price on the bet stays fixed
regardless of future changes in odds on that bet, the game or betting patterns.
As game conditions change, for example, the score changes or the time clock
advances, the odds will usually change as a result of the betting pattern. This
may result in existing pools closing if they can no longer be held to a desired
level of balance. Such pools may then be replaced with new pools covering the
same proposition. This is generally done automatically, although the house can
override the System with manual pool opening and closing capability.
For ease of player use, the System shows odds by displaying fixed payouts
with corresponding bet sizes which must be placed to receive the fixed payout.
The sum of the bet sizes on each side of a proposition will equal the fixed
payout plus the house commission. For example, in a fixed payout of $20 with a
hypothetical house commission of $2, if the amount that a bettor had to wager on
the favorite was $16 in order to receive $20, the amount that the bettor would
have to wager on the underdog to receive $20 would be $6.
It is not necessary that the book be perfectly balanced, but only that the
imbalance be less than some percentage of the pool set by the house. Under these
circumstances, the house can ensure that its exposure is no more than a fixed
percentage, which is an acceptable portion of the profit from its commissions.
The System automatically prevents the house exposure from exceeding a specified
maximum amount by changing the betting terms in the pool to induce bettors to
wager on the side which is underfunded, thereby inducing balancing of the pool.
In extreme cases, the house or the System may automatically stop accepting bets
on the underfunded side when the exposure limit is reached while continuing to
accept bets on the other side. Under these circumstances, the pool will
presumably tend to return to balance after which the house can resume taking
bets on the contestant or proposition for which betting was suspended.
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The System is computerized, with complete, time-stamped records, providing
regulatory authorities as well as gaming establishments with the ability to
audit, analyze and control a game.
SYSTEM COMPONENTS
The proprietary software and state-of-the-art, commonly available hardware,
is configured in an arrangement designed specifically for the System. The
innovative software continuously balances wagering pools to within pre-set
levels, thereby permitting wagers to be made continuously during the course of a
sporting event while assuring the gaming establishment of a pre-determined
minimum commission. The software permits the operator to make available a wide
variety of betting propositions to players. By using statistical data and
modeling within the System, the System automatically sets and adjusts odds on
the betting propositions.
The major elements of the System include the Transaction Processor, Pool
Processor, plus numerous input and control computer terminals, including the
Player Betting Station, Game Controller Terminal, Game Supervisor Terminal,
Shift Manager Terminal, Administrative Terminal, and Cashier's Terminal, all of
which are controlled by proprietary software. There are also a variety of
printers for printing receipts and reports. The System processes secure messages
exchanged between the various elements in real time and employs sophisticated
mathematical algorithms in their functioning. These are used with event
statistics and statistical modeling. The television display is independent of
the System, being merely a standard television signal which is picked up and
shown for the convenience of the bettor. The System can operate without a
television signal. A player could, for example, view any television or display
while betting, or even bet without viewing the game, such as before the game
begins. The System uses redundant hardware and rest and recovery software to
maximize System up time upon component failure.
All terminals are connected to the central processing unit via a
client/server network. The central processing unit is a computer that maintains
all pools, calculates odds, opens and closes all wagering on all pools, controls
all input and output devices (such as betting terminals, printers and management
terminals) produces all management and regulatory reports and is the repository
of all current and historical data on the wagering system. The proprietary
software permits continuous, rapid recalculation of odds, based upon changing
betting patterns and an evaluation of bets that have been placed.
The Player Betting Station employs a personal computer with a touch screen,
through which bettors are able to enter bets into the System. Utilizing a
windowing system, the PBS shows a television picture of a live sporting event in
the upper left quadrant of the monitor. Shown in the lower left quadrant is
status information appropriate to the sporting event being displayed, such as
the score, inning or which team has ball possession, and a player's financial
summary. On the right half of the display all of the betting propositions which
are available are shown vertically. Wagers are entered by touching sequentially
the payout size button on the terminal screen (initially to select a given
payout amount, and subsequently if the bettor changes the payout amount
desired), the appropriate bet button and the bet confirmation button. Also on
the screen are a series of housekeeping buttons for use in signing on, signing
off, and tuning to the desired sporting event. An alternative display screen
shows a list of the bettor's won, lost and open bets, his deposits, and his
available betting balance. Shown on another selectable screen are the current
value of bets previously placed. This screen is used to immediately cash-out
previously placed bets while the event on which the wager has been placed is
still in process. The System prints contemporaneously a continuous record of
bets and immediate payouts on a small printer at the PBS.
Data relating to all substantive events during the course of a sporting
event that affect the betting odds are entered into the System through the Game
Controller Terminal by the game controller for each event. These events include,
points or runs scored, period, inning, outs, downs, team having possession of
the ball, and the like, depending upon the sport. The System sends this
information to the pool processor to open and close betting propositions,
declare unofficial winners and set opening lines, among other things. Because
the game controller is entering data during a live sporting event, bets are
delayed briefly to enable the game controller to enter the data.
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The Game Supervisor Terminal is utilized by the game supervisor of each
sporting event to manage the wagering on that sporting event. The Game
Supervisor Terminal is used to open betting lines, maintain the desired level of
house commission as pool balances change, close or suspend one or both sides of
a betting proposition, and declare official pool winners. This terminal is also
utilized by the game supervisor to oversee the accuracy of the information input
by the game controller.
The Shift Manager Terminal is used by the shift manager to oversee the
entire operation of the System at one time. This terminal allows the shift
manager to monitor the overall house commission for each event, to view any
event on which wagers are being taken and to observe in parallel the inputs by
the operators and the operation of virtually any terminal in the System.
The Administrative Terminal is the main management terminal in the System.
It is used to authorize personnel to operate the System, keep the chart of
future events upon which wagers will be accepted, together with when betting can
commence and when the game (day, date and time) actually begins. It also keeps
the pools to be allowed in an event and the sizes of the bets which will be
accepted in each pool in each event. This terminal is also used to start and
shut the System and to restart the System if it does not recover automatically
after a failure. It is through this terminal that most reports are accessed.
Reports produced by this terminal are used by the casino or sports book operator
and regulatory authorities.
The Cashier's Terminal can access the status of every player account which
is open. When a player wishes to receive cash, he goes to the cashier and gives
his account number and enters his PIN number on a keypad. The Cashier's Terminal
verifies that the PIN number is correct, as well as certain other information
for security purposes.
When an account no longer has any undecided bets and there no longer is a
balance to be paid out, the account will automatically close, with a journal
being recorded for the historical record. The account will also be closed and an
uncollected payout record written for any account which has uncollected funds
after a certain period of time, which is set as a System parameter.
INTELLECTUAL PROPERTY
The Company regards the System, including the software contained therein as
proprietary.
The Company has two pending patent applications with the PTO relating to its
proprietary wagering methods and its related computer processing system. The
Company has been advised by the PTO that the claims in its initial United States
patent application, as amended, have been allowed and that the application is in
the publishing division of the PTO for granting and issuance. Corresponding
applications have been filed in numerous foreign countries. See "Risk
Factors--Uncertainties Regarding Intellectual Property."
It is the Company's policy that all employees and outside consultants
involved in research or development activities sign proprietary information,
non-disclosure and patent assignment agreements. This may not afford adequate
protection for the Company's know-how and proprietary products. Other parties
may develop products similar to the System or otherwise attempt to duplicate the
System in ways which circumvent the Company's technology and patents, if they
are granted.
The Company believes that the System and its other technology do not
infringe any patents or other rights of third parties. However, there can be no
assurance that third parties may not assert infringement claims against the
Company, which claims the Company would be required to defend at considerable
expense or enter into arrangements requiring the Company to pay royalties or
other damages, any of which could materially and adversely affect the Company's
business. See "Risk Factors--Uncertainties Regarding Intellectual Property."
The Company has applied for Federal trademark registration with the PTO for
the name SportXction-TM- and will apply for state trademark protection in the
State of Nevada. There can be no assurance that the Company will obtain
registered Federal or state trademark protection for the name SportXction-TM-.
If the Company fails to obtain such protection, the Company may be required to
select a new name for the System and incur additional marketing and other
expenses to promote its name.
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GOVERNMENTAL REGULATION
The ownership and operation of casino gaming facilities, in Nevada,
including sports pools, the manufacture, sale and distribution of gaming devices
for use or play in Nevada or for distribution outside of Nevada, and the
manufacture, sale and distribution of associated equipment for use or play in
Nevada is subject to The Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act") and various local
ordinances and regulations. Such activities are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the "Nevada Commission"),
the Nevada State Gaming Control Board (the "Nevada Board"), and various local,
city and county regulatory agencies (collectively with the Nevada Commission and
the Nevada Board referred to as the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming, or manufacturing or
distribution of gaming devices at any time or in any capacity; (ii) the strict
regulation of all persons, locations, practices, associations and activities
related to the operation of licensed gaming establishments and the manufacture
or distribution of gaming devices and equipment; (iii) the establishment and
maintenance of responsible accounting practices and procedures; (iv) the
maintenance of effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal fiscal affairs
and the safeguarding of assets and revenues, providing reliable record keeping
and requiring the filing of periodic reports with the Nevada Gaming Authorities;
(v) the prevention of cheating and fraudulent practices; and (vi) providing a
source of state and local revenues through taxation and licensing fees. Change
in such laws, regulations and procedures could have a material adverse effect on
the Company's operations.
Sports wagering is legal in Nevada and numerous foreign jurisdictions,
including Canada and Mexico. Pursuant to the Professional and Amateur Sports
Protection Act, 28 U.S.C. Section 3701, et. seq. (hereinafter referred to as the
"Sports Act"), which was effective January 1, 1993, the proliferation of
legalized sports books was significantly curtailed. Although the Sports Act
generally prohibits sports wagering in every jurisdiction in the United States,
including those jurisdictions subject to the Indian Gaming Regulatory Act (25
U.S.C. Section 2701 et. seq.), the Sports Act permits such wagering in those
jurisdictions that authorized sports wagering prior to the effective date of the
Act. 28 U.S.C. Section 3704. Thus, sports books and wagering are permitted to
continue to operate in Nevada. Moreover, the Interstate Wire Act, 18 U.S.C.
Section 1084, also prohibits those in the business of betting and wagering from
utilizing a wire communication facility for the transmission in interstate or
foreign commerce of any bets, wagers or information assisting in the placing of
such bets and wagers on any sporting event or contest unless such betting or
wagering activity is specifically authorized in each jurisdiction involved.
A licensed race book or sports pool in Nevada may not accept bets received
by use of wire communications facilities, including telephones and computers,
unless such bets originated in a jurisdiction wherein such betting or wagering
is legal. On July 1, 1995, the State of Nevada amended Charter 464 of the Nevada
Revised Statutes to allow persons licensed to accept, pursuant to regulations
adopted by the Nevada Commission, wagers from other jurisdictions in which
pari-mutuel wagering is legal. However, the regulations of the Nevada Commission
issued prior to July 1995 currently prohibit any licensed race books and sports
pools in the State of Nevada from accepting any telephone wagers from interstate
locations. In order for persons licensed to accept off-track pari-mutuel wagers
to be able to take advantage of the business opportunity provided by the new
law, and for the Company to benefit therefrom, the Nevada Commission must amend
its regulatory restrictions. There can be no assurances that the Nevada
Commission will amend or remove such regulatory restrictions or that any such
amendment would not be burdensome to the Company.
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The Company's SportXction-TM- sports wagering system qualifies as
"associated equipment" as that term is defined in the Nevada Act. Associated
equipment is generally defined in the Nevada Act as any equipment or mechanical,
electromechanical or electronic contrivance, component or machine used remotely
or directly in connection with gaming, any game, race book or sports pool that
would not otherwise be classified as a gaming device. A "gaming device" is
generally defined as any equipment or mechanical electromechanical or electronic
contrivance, component or machine used remotely or directly in connection with
gaming, any game, race book or sports pool which affects the result of a
wagering by determining win or loss. All associated equipment that is
manufactured, sold or distributed for use or play in Nevada must first be
administratively approved by the Chairman of the Nevada Board. The
administrative approval process for associated equipment includes an evaluation
by the Nevada Board's audit division (the "Audit Division") and, in some cases,
by the Board's electronic services laboratory, followed by a field trial. The
System has been evaluated by the Audit Division and, on September 27, 1996, the
Company was advised by the Audit Division that it found the System suitable for
installation in a casino environment for a pre-trial (with the use of play
money) of five events and a trial period (with real money) of at least 30 days
including a minimum of 10 events. The Company has arranged with the Excalibur
Hotel & Casino in Las Vegas, Nevada to conduct the pre-trial and trial, subject
to such terms and conditions imposed by the Chairman of the Nevada Board. The
pre-trial began October 6 1996, and concluded on October 24, 1996, at which time
the Audit Division authorized commencement of the trial. The trial period began
on October 27, 1996 and is expected to conclude in late November 1996. There can
be no assurances that the System will be approved upon conclusion of the trial.
The Nevada Act provides that no licensee shall install or use associated
equipment without the prior approval of the Chairman of the Nevada Board.
Manufacturers and distributors of associated equipment are not subject to
the mandatory licensing requirements of the Nevada Act imposed upon
manufacturers and distributors of gaming devices, but may be required by the
Nevada Commission, upon the recommendation of the Nevada Board, to file an
application for a finding of suitability to be a manufacturer and distributor of
associated equipment. It is unknown whether the Nevada Board and Nevada
Commission will require the Company to file an application for a finding of
suitability if the System is approved by the Chairman of the Nevada Board.
In order for the Company to be compensated for use of the System on the
basis of a percentage of the revenue received by a licensed gaming establishment
or on a transaction fee basis, the Company may be required to obtain a Nevada
gaming license and to be registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation"). In addition, because the
Company will qualify as a Registered Corporation after this Offering, it will be
required to receive an exemption from provisions of the Nevada Act that render a
Registered Corporation ineligible to hold a gaming license. The Company intends
to file an application for such exemption in connection with its application for
registration and licensing. Although there can be no assurances that the Company
will be registered and licensed, the Company is unaware of any reason that it
should not receive such exemption in the event that the Nevada Board and Nevada
Commission determine that it is suitable to be registered and licensed. The
Nevada Gaming Authorities may deny an application for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all costs of the investigation. Determination of suitability or of
questions pertaining to licensing are not subject to judicial review in Nevada.
If the Company applies for and obtains such registration and a gaming license,
the following regulatory requirements will apply to it.
As a Registered Corporation and gaming licensee, the Company will be
required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information which the Nevada Commission
may require.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered Corporation
and gaming licensee in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
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directors and certain key employees of the Company would be required to file
applications with the Nevada Gaming Authorities and may also be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the Company who are actively and directly involved in
gaming activities in respect of the operation of the System may be required to
be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Determination of
suitability or of questions pertaining to licensing are not subject to judicial
review in Nevada. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application for
a finding of suitability of licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, it would have to sever all relationships with
such person. In addition, the Nevada Commission may require the Company to
terminate the employment of any person who refuses to file appropriate
applications. Determination of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
Upon becoming a Registered Corporation and gaming licensee, the Company will
be required to submit detailed financial and operating reports to the Nevada
Commission. Substantially all material loans, leases, sales of securities and
similar financing transactions would be required to be reported to or approved
by the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
registration and licenses it held could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Furthermore, the Nevada Commission could
revoke the approval of the System and could order the termination of existing
contracts for the System. Limitation, conditioning or suspension of the
registration and licenses held by the Company could (and revocation of any
registration and license would) materially adversely affect the Company's
manufacturing and distribution operations.
Any beneficial holder of the Company's voting securities, regardless of the
number or shares owned, may be required to file an application, be investigated,
and have his suitability determined as a beneficial holder of the Company's
voting securities if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of the
Registered Corporation's voting securities may apply to the Nevada Commission
for a waiver of such finding of suitability if such institutional investor holds
the voting securities for investment purposes only. An institutional investor
shall not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the Registered
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Corporation's corporate charter, bylaws, management, policies or operations of
the Registered Corporation, or any of its gaming affiliates, or any other action
which the Nevada commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts of informational purposes and not to cause a change in its
management policies or operations; and (iii) such other activities as the Nevada
Commission may determine to be consistent with such investment intent. If the
beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company will be subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a stockholder or
to have any other relationship with the Company, it (i) pays that person any
dividend or interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pays remuneration in any form to that
person for services rendered or otherwise, or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
including, if necessary, the immediate purchase of said voting securities for
cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation if the
Nevada Commission has reason to believe that his acquisition of such debt
security would otherwise be inconsistent with the declared policy of the State
of Nevada. If the Nevada Commission determines that a person is unsuitable to
own such security, then pursuant to the Nevada Act, the Registered Corporation
can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever, (ii) recognizes any voting
right by such unsuitable person in connection with such securities, (iii) pays
the unsuitable person remuneration in any form, or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
After registration and licensing, the Company will be required to maintain a
current stock ledger in Nevada which may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be ground for finding the record holder unsuitable. The Company
will also be required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has the power to require the
stock certificates of the Company to bear a legend indicating that the
securities are subject to the Nevada Act. It is unknown whether the Commission
would impose such a requirement on the Company.
A Registered Corporation may not make a public offering of its securities
without the prior approval of the Nevada Commission if the securities or
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
such purposes. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
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Changes in control of a Registered Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and the Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchase of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan or recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which gaming operations are to be conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon either (i) a percentage of the
gross revenues received; or (ii) the number of gaming devices operated. Annual
fees are also payable to the State of Nevada for renewal of licenses as a
manufacturer and distributor.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A Licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the state of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
The Company may also be required to make annual filings with the Attorney
General of the United States in connection with the operation of the System.
The United States Congress has recently passed legislation which creates the
National Gaming Commission. The National Gaming Commission will generally have
the duty to conduct a comprehensive legal and factual study of gambling in the
United States and existing Federal, state and local policies and practices with
respect to the legalization or prohibition of gambling activities, to formulate
and propose changes in such policies and practices and to recommend legislation
and administrative actions for such
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changes. It is not possible to predict the future impact of these proposals on
the Company and its operations. Any such proposals could have a material adverse
affect on the Company's business.
COMPETITION
Sports wagering competes with other forms of gambling available to the
general public both within and outside of the State of Nevada, including, but
not limited to, casino games (such as traditional slot machines, video slot,
poker and blackjack machines, roulette, card games, keno and craps), bingo,
state-sponsored lotteries, on-and-off track betting on horses and dogs, jai
alai, offshore cruise ships, riverboats and Native American gaming operations.
In addition, the System will compete with sports wagering as it currently exists
in Nevada. The Company is not aware of any system currently in operation or
under development that is similar to the System. No assurance can be given that
such a system does not exist or is not under development.
Autotote Corporation sells sports wagering equipment and terminals which the
Company believes are currently used by over 100 of the 115 casinos and sports
book operations in Nevada. These systems are, however, largely record keeping
systems. American Wagering, Inc., through its subsidiary Leroy's Horse and
Sports Place ("Leroy's"), is a licensed bookmaker with 35 sports books, the
largest number of sports book locations in the State of Nevada. Leroy's sports
books are operated primarily in casinos in major metropolitan areas in Nevada
and in its own facilities. Leroy's offers casinos a turnkey sports betting
operation that allows casinos to offer sports wagering to its patrons without
bearing the risk and overhead associated with conducting the operation
themselves. See "Risk Factors--Competition and Rapid Technological Change."
In addition, the Company may compete with suppliers of other forms of gaming
equipment and services most of whom are substantially larger with greater
technological, financial and other resources than the Company. Among the
companies currently producing gaming equipment are International Game
Technology, which is the largest supplier of slot machines; GTECH Corporation,
the largest supplier of equipment and systems to state sponsored lotteries;
AmTote International, Inc., a supplier of equipment, systems and devices for
pari-mutuel wagering on horses, dogs and in jai alai; Video Lottery
Technologies, Inc., which operates video lottery systems and, through its
subsidiary, United Wagering System, Inc., operates in the pari-mutuel wagering
business; WMS Industries Inc., which designs, manufactures and sells
coin-operated pinball and video games, home video games, casino gaming devices
and video lottery terminals; Bally Gaming Industry International, Inc. which
designs, manufactures and distributes electronic slot machines, video gaming
machines, video lottery terminals and computer gaming management systems; and
several smaller companies. See "Risk Factors--Competition and Rapid
Technological Change."
PERSONNEL
The Company has seven full-time employees, consisting of Messrs. Mindes,
Albanese and Harbison and four software engineers and programmers; and one
part-time employee, Ms. Norman, the Company's Chief Financial Officer. The
Company considers its relations with its employees to be good.
The Company also has used, and may from time to time in the future use,
outside consultants on specific assignments or projects.
If the System is approved for use in the State of Nevada, the Company will
seek to hire marketing and sales personnel to market the System to casinos and
sports book operators. If it is successful in contracting with customers to
install the System, it will also hire training personnel and technicians to
install and maintain the System as well as additional engineers and
administrative personnel. See "Risk Factors-- Management of Growth" and "Risk
Factors--Dependence on Key Personnel."
33
<PAGE>
FACILITIES
The Company's only facility is located at 201 Lower Notch Road, Suite 2B,
Little Falls, New Jersey 07424. The Company leases approximately 1,000 square
feet of office space at this location. Annual lease payments at this facility at
which all development and administrative activities are currently conducted are
expected to be approximately $13,000 in the fiscal year ending September 30,
1997. If the Company's System is approved for use in Nevada, the Company expects
to lease additional space at its current location or a substitute location in
New Jersey and will require space in Nevada for sales and marketing personnel,
maintenance of equipment, storage of equipment and the like.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
34
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL OF THE COMPANY
The Company's directors, executive officers and key personnel are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Barry Mindes........................... 64 Chairman of the Board of Directors
Bernard Albanese....................... 48 President, Treasurer and Director
Jeneene M. Norman...................... 43 Chief Financial Officer
Andrew Harbison........................ 38 Vice President--Software Development
Fredric Kupersmith(2).................. 62 Director
Janet B. Mindes(1)..................... 29 Director
Harold Rapaport(1)(2).................. 74 Director
</TABLE>
- ------------------------
(1) Member of the Stock Option Committee.
(2) Member of the Audit Committee.
BARRY MINDES is the founder of the Company and has served as Chairman of the
Board of Directors of the Company since inception. From inception through August
1996, he also served as Chief Executive Officer, President and Secretary of the
Company, and from inception to July 1995, he also served as Treasurer of the
Company. Mr. Mindes founded Systems Enterprises Inc., the predecessor of the
Company, in December 1992, and from its inception until its merger with the
Company in May 1995, served as its only officer, director and stockholder. Prior
to founding the Company, from 1986 to 1992, Mr. Mindes co-founded and was Chief
Executive Officer of Script Systems Inc., a public company which was
subsequently merged into Infomed Holdings Inc. and which developed and sold
computer systems to large medical practices, hospitals and pharmacies. From 1979
to 1986, Mr. Mindes served as President of Information Industries, Inc., a
private company which developed and sold turnkey computer systems, including
systems developed for the Midwest Stock Exchange. From 1969 to 1971, Mr. Mindes
served as Vice President--Engineering of New York City Off-Track Betting
Corporation ("NY-OTB") where he was responsible for implementing its computer
system. From 1964 to 1969, Mr. Mindes served as general manager of an
independent profit center of Computer Sciences Corp. which planned, designed and
developed computer and communications systems and software. During that time, he
was responsible for the design and selling of the initial off-track betting
system to the City of New York and the creation of the original design of the
New Jersey Lottery. Mr. Mindes also served as project manager for the Aircraft
Control and Warning System for the Republic of Korea in 1963, and in 1968 he
directed the design of the long distance telephone system in the Republic of
Bolivia. Mr. Mindes has been granted ten United States patents and has written
more than 12 technical papers which have been published in professional
journals. In 1958, Mr. Mindes received the Contributions Award for
Communications Systems from the Institute for Electronic and Electrical
Engineers.
BERNARD ALBANESE has served as President of the Company since September
1996, as Treasurer since July 1995 and as Vice President--Systems from July 1995
until August 1996. From 1993 to 1995, Mr. Albanese was Vice
President--Operations of Advanced Data Systems Inc., a provider of medical-
related computer systems, in which position he was responsible for all
installation, training and telephone support for an installed base of over 1,000
customers. Mr. Albanese was a co-founder with Mr. Mindes of Script Systems Inc.
and was its Executive Vice President until 1993. From 1980 to 1986, Mr. Albanese
served as Vice President of Information Industries, Inc., in which position he
was responsible for, among other things, software development for the Midwest
Stock Exchange and other large projects. From 1971 to 1977, Mr. Albanese was
employed by STC Systems, Inc., which developed, sold and supported mini-computer
business systems, where he was responsible for development and implementation of
over 20
35
<PAGE>
large computer projects. From 1969 to 1971, Mr. Albanese served as a member of
the technical staff at Bell Telephone Laboratories.
ANDREW HARBISON has served as Vice President--Software Development of the
Company since October 1996. From June 1995 to October 1996, Mr. Harbison served
as Manager of Software Development of the Company. From 1993 to 1995, Mr.
Harbison served as Vice President of Programming of Infomed Holdings Inc., in
which position he was in charge of the programming and data conversion
department consisting of 25 individuals involved in developing computer systems
for medical billing, clinical records and managed care systems. From 1987 to
1993, he was Vice President--Programming and Support of Script Systems Inc., and
from 1985 to 1987, he was Vice President--Programming of Healthcare Computer
Associates, Inc., a private company which developed, sold and supported computer
systems for physicians.
JENEENE M. NORMAN has served on a part-time basis as Chief Financial Officer
of the Company since October 1996. From 1989 to 1995, Ms. Norman was employed on
a part-time basis by First Fidelity Bank where she was responsible, at various
periods, for management of the international operations of a subsidiary bank and
developed new business with importers and exporters. From 1974 to 1988, Ms.
Norman was employed by Midlantic National Bank/North in varying capacities
including Vice President and Manager of the International Department from 1979
to 1986, in which capacity she was responsible for organization, policy,
financial planning, budgeting and profitability of that Department.
HAROLD RAPAPORT has served as a director of the Company since July 1995. Mr.
Rapaport is an electronics, communications and computer executive with over 40
years experience in management, technology and marketing. He is President of
Rapaport Associates, management consultants to high technology businesses. From
1982 until 1995, he was Chairman of Control Transaction Corporation, a
manufacturer of computer-based point of sale systems. From 1971 to 1990, he was
a member of the Board of Directors of General Instrument Corporation ("GIC").
From 1965 to 1974, Mr. Rapaport was employed by GIC in various executive
capacities, including Executive Vice President, Systems and Services (with
responsibility for GIC's subsidiaries, American Totalisator Co., Inc., a
supplier of totalisator equipment for on-and-off track wagering and, later,
lottery systems and Jerrold Electronics Corporation, the largest supplier of
equipment to cable television operators); Director and member of the Office of
Chief Executive from 1971 to 1974; Senior Vice President, Planning and
Development from 1970 to 1971; and Group Vice President, Defense and Engineering
Products from 1965 to 1970. From 1960 to 1965, he held various executive
positions with ITT Corporation, including Executive Vice President, ITT Kellogg
and Vice President, Communications Division, ITT Federal Labs from 1963 to 1965;
Director of Marketing, ITT Defense and Engineering Products Group from 1962 to
1963; and Executive Vice President, International Electric Corporation from 1960
to 1962. Mr. Rapaport served as Chairman of the Board and Chief Executive
Officer of Digital Computer Controls from 1974 to 1976; and Chairman of the
Board of RE Harrington Inc. from 1987 to 1996, when it was acquired by Health
Plan Services Inc. He currently serves on the Board of Directors of Cybernetic
Services Inc.
JANET B. MINDES has served as a director of the Company since July 1995.
Since 1992, Ms. Mindes has served as Assistant Managing Director of KuwAm
Corporation, a private investment firm. From 1991 to 1992, Ms. Mindes was a
sales consultant with Nordstrom, a department store chain. Ms. Mindes received
an MBA in finance and investments from The George Washington University in 1991.
Ms. Mindes is the daughter of Barry Mindes.
FREDRIC KUPERSMITH has served as a director of the Company since October
1996. Since 1992, Mr. Kupersmith has been President of Polsim Consultants Inc.,
a private company that provides consulting services to the communications,
computer and television distribution industries. From 1971 to 1992, Mr.
Kupersmith served in varying executive capacities at NY-OTB, including Vice
President--Computers and Communications Systems from 1981 to 1992, and Executive
Director of Technical Services from 1971 to
36
<PAGE>
1981. In such capacities, he was responsible for NY-OTB's computer,
communications, television distribution and display and betting office systems.
From 1968 to 1971, Mr. Kupersmith served as a Vice President and corporate
officer of Frequency Electronics Inc., a public company engaged in the design
and development of electronic equipment such as time, frequency and space
communications equipment. From 1966 to 1968, Mr. Kupersmith was director of
research at Computer Sciences Corp.'s New York Operations Center where he was
responsible for numerous satellite communications research projects.
All directors hold their offices until the next annual meeting of
stockholders of the Company and until their successors are elected and
qualified. Mr. Harold Rapaport and Ms. Janet Mindes were elected directors as
the designees of Mr. Barry Mindes under a Rights Agreement with certain
investors entered into in connection with a financing in June 1995, which
Agreement terminates upon the effective date of the Offering.
All officers of the Company serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company except that Mr. Barry Mindes is the father of
Ms. Janet Mindes.
COMMITTEES
The Board of Directors has two committees, a Stock Option Committee and an
Audit Committee. The Stock Option Committee has authority to administer the
Company's 1996 Stock Option Plan. The Audit Committee has authority to recommend
annually to the Board of Directors the engagement of the Company's independent
accountants and to review the independence of the accounting firm, the audit and
non-audit fees of the independent accountants and the adequacy of the Company's
internal control procedures.
DIRECTOR COMPENSATION
Directors do not receive any cash compensation for their services as members
of the Board of Directors, although they are reimbursed for their out-of-pocket
expenses incurred in attending Board of Directors and Committee meetings. The
Company intends to compensate non-employee directors by means of annual option
grants exercisable at fair market value on the date of grant. In April 1996, Mr.
Rapaport and Ms. Mindes were each granted options to purchase 12,092 shares of
Common Stock pursuant to the Company's 1995 Stock Option Plan, of which options
for 3,023 shares vested immediately. The remaining options for 9,069 shares were
to vest at the rate of 1,511 for each Board of Directors meeting attended. As a
result of attendance at meetings of the Board of Directors subsequent to April
15, 1996, (i) an additional 4,534 of Mr. Rapaport's options vested, and in
September 1996, Mr. Rapaport exercised all 7,557 options that were vested, and
(ii) an additional 3,023 of Ms. Mindes' options vested. Ms. Mindes has not
exercised any of such options. On August 30, 1996 each of Mr. Rapaport and Ms.
Mindes were granted options to purchase an additional 9,069 shares, all of which
will vest on November 1, 1996. In October 1995, Mr. Albanese, who at the time
was an officer but not a director of the Company, was granted an option to
purchase 90,691 shares of Common Stock and, in June 1996, Mr. Albanese was
granted an option to purchase 75,576 shares of Common Stock, each of which
options is exercisable at $0.70 per share and vests in four equal annual
installments on the anniversary date of such grant.
ADVISORY COMMITTEE
Prior to the Offering, an Advisory Committee, consisting of Stephen Katz,
Eli Oxenhorn and Barry Rubenstein, will be established for the purpose of
providing industry, financial and other advice to the Company's Board of
Directors. The backgrounds of Messrs. Katz, Oxenhorn and Rubenstein are
described below. Messrs. Oxenhorn and Rubenstein have previously served as
directors of the Company and are beneficial stockholders of the Company.
STEPHEN KATZ has served since 1995 as Chief Executive Officer of Coin Bill
Validator, Inc., a publicly-held manufacturer and marketer of paper currency
validation systems used to automate payment in the
37
<PAGE>
gaming and vending industries worldwide. Mr. Katz is also founder and Chairman
of the Board and Chief Executive Officer of Cellular Technical Services Company,
Inc., a public software company which provides real-time data management
software products and services for the wireless communications industry. Mr.
Katz was also one of the founders and, from 1986 to 1995, served as Chairman of
the Board and Chief Executive Officer, of Nationwide Cellular Service, Inc., a
former publicly-traded company which was acquired by MCI Communications
Corporation in 1995.
ELI OXENHORN, a private investor, served as a director of the Company from
June 1995 to October 1996. Mr. Oxenhorn was Chairman of the Board of Cheyenne
Software, Inc. ("Cheyenne") from October 1986 to May 1994, and served as
President and Chief Executive Officer of Cheyenne from October 1986 to October
1993.
BARRY RUBENSTEIN, a private investor, served as a director of the Company
from June 1995 to October 1996. Since February 1995, Mr. Rubenstein has served
as an officer of InfoMedia Associates, Ltd., a New York corporation which is a
general partner of 21st Century Communications Partners, L.P., 21st Century
Communications T-E Partners, L.P. and 21st Century Communications Foreign
Partners, L.P. In addition, Mr. Rubenstein has served as a general partner of
several investment partnerships, including Wheatley Partners, L.P. (since June
1996), Applewood Associates, L.P. (since 1992), Seneca Ventures (since 1979),
Woodland Partners (since 1985) and Woodland Venture Fund (since 1976). Since
September 1994, Mr. Rubenstein has served as a director of Infonautics, Inc., a
public company.
DIRECTORS' LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Certificate of Incorporation includes provisions which (a) eliminate the
personal liability of directors for monetary damages resulting from breaches of
their fiduciary duty (except for liability for breaches of the duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, violations under Section 174 of the DGCL, or for any
transaction from which the director derived an improper personal benefit), and
(b) indemnify the directors and officers to the fullest extent permitted by the
DGCL, including under circumstances under which indemnification is otherwise
discretionary. Such limitation of liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission. The Company's
obligation to indemnify each of its directors and officers applies with respect
to all liability and loss suffered and expenses incurred by such person in any
action, suit or proceeding in which such person was or is made or threatened to
be made a party or is otherwise involved by reason of the fact that such person
is or was a director or officer of the Company. The Company is also obligated to
pay the expenses of the directors and officers incurred in defending such
proceedings, subject to reimbursement if it is subsequently determined that such
person is not entitled to indemnification. The Certificate of Incorporation
further provides that if the DGCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the DGCL as amended or supplemented.
The Company intends to obtain directors' and officers' liability insurance
prior to the effective date of the Offering, and expects to continue to carry
such insurance following the Offering. In addition, the Company will enter into
an indemnification agreement with each of its directors and executive officers
under which the Company will agree to indemnify each of them against expenses
and losses incurred for claims brought against them by reason of being a
director or officer of the Company.
The Company believes that the limitation of liability and indemnification
provisions in its Certificate of Incorporation, the liability insurance and the
indemnification agreements will enhance the Company's ability to continue to
attract and retain qualified individuals to serve as directors and officers.
There is no pending litigation or proceeding involving a director, officer or
employee of the Company to which the indemnification provisions would apply, and
the Company is not aware of any threatened litigation or proceeding that may
result in a claim for indemnification.
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by
the Company for services rendered in all capacities to the Company during each
fiscal year since inception by Mr. Mindes, its Chairman of the Board, and by Mr.
Albanese, the only other executive officer of the Company during its fiscal year
ended September 30, 1996. Information given for Mr. Mindes for dates prior to
May 22, 1995 represents amounts paid or accrued by the Company's predecessor.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
NUMBER OF SHARES
-------------------- OF COMMON STOCK ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- -------------------------------------------- ------------- --------- --------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Mr. Barry Mindes,........................... 1996 $ 43,347 $ -- -- $ 804(1)
Chairman of the Board 1995 $ -- $ -- -- --
Mr. Bernard Albanese,....................... 1996 $ 70,646 $ -- 166,267 --
President and Treasurer (2) 1995 $15,000 $ -- -- --
</TABLE>
- ------------------------
(1) Represents income attributable to the Company's payments for lease of a car.
(2) Mr. Albanese became an officer of the Company in July 1995.
The following table sets forth certain information on grants of stock
options made during the fiscal year ended September 30, 1996, to the executive
officers named in the Summary Compensation Table and certain information
concerning all options exercised and held by such persons.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SHARES OF GRANTED TO VALUE AT
COMMON EMPLOYEES IN ASSUMED ANNUAL RATES OF
STOCK FISCAL YEAR STOCK PRICE APPRECIATION
UNDERLYING ENDED PER SHARE FOR OPTION TERM(1)
OPTIONS SEPTEMBER 30, EXERCISE EXPIRATION ------------------------
NAME GRANTED 1996 PRICE DATE 5% 10%
- ------------------------------ --------------- ----------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Bernard Albanese.......... 90,691 19.2 $ 0.70 2,005 $ 822,873 $ 1,347,891
75,576 16.0 $ 0.70 2,006 $ 685,729 $ 1,123,245
</TABLE>
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved for the options
if exercised at the end of the term of the options. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the options were granted to their expiration date and are not
intended to forecast possible future appreciation, if any, in the price of
the Common Stock. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise of the options or sale of the underlying shares. The actual gains,
if any, on the option exercises will depend on the future performance of the
Common Stock, the holder's continued employment through applicable vesting
periods and the date on which the options are exercised. The potential
realizable value of the foregoing options is calculated by assuming that the
fair market value of the Common Stock on the date of grant of such options
equalled the exercise price of such options.
39
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1996 SEPTEMBER 30, 1996(1)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harold Rapaport.................. 7,557 $ 40,052 -- 13,603 -- $ 72,096
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock on September 30,
1996. Accordingly, solely for the purpose of this table, the values have
been calculated on the basis of an assumed initial public offering price of
the Common Stock of $6.00 per share minus the exercise price of $.70 per
share, multiplied by the number of Shares underlying the option.
See "--Stock Options Plans" for a discussion of stock option grants to
management and others.
EMPLOYMENT AGREEMENTS
The Company entered into three-year employment agreements with each of Barry
Mindes and Bernard Albanese as of May 22, 1995 and June 1, 1995, respectively,
pursuant to which (i) Mr. Mindes received no salary during the first year and
will receive a base salary of not less than $115,000 during each of the second
and third years of the agreement (unless otherwise approved by 80% of the Board
of Directors), and Mr. Albanese received a base salary of $52,000 during the
first year and will receive a base salary of not less than $108,000 during each
of the second and third years of the agreement; (ii) they are entitled to such
salary increases, bonuses or other incentive compensation as may be approved by
the Board of Directors (the approval of 80% of the directors is required in the
case of Mr. Mindes' agreement); (iii) they are entitled to such health and life
insurance as may be provided to other executives of the Company; and (iv) they
will be entitled to severance equal to six months' base salary in the event, (a)
the Company requests that the executive relocate and, as a consequence, the
executive voluntarily terminates his employment, or (b) the Company terminates
such executive's employment other than for cause (as defined in the agreement)
or due to death or disability after the term of the agreement but before July 1,
2000 without having renewed or replaced the agreement. In addition, in the event
of a "change of control" (as defined in the agreement) of the Company followed
by termination of the executive's employment either (i) by the Company other
than as a result of death or disability or for cause, or (ii) by the executive
for "good reason" (as defined in the agreement), the executive is entitled to
(a) if termination occurs during the term, continued payment of base
compensation and benefits until the end of the term but not for less than six
months, or (b) if termination occurs after the term but prior to July 1, 2000,
payment of six months' base salary. Mr. Mindes is also entitled, at the
Company's expense, to use of a leased automobile, including all operating,
maintenance and insurance expenses. Each of Messrs. Mindes and Albanese have
entered into agreements restricting competitive activities for 12 months
following termination of employment and prohibiting disclosure of confidential
information. For a discussion of certain rights granted to these individuals to
cause the Company to register their shares of Common Stock under the Securities
Act, see "Description of Securities--Registration Rights."
STOCK OPTION PLANS
1995 STOCK OPTION PLAN. In May 1995, the Board of Directors adopted and the
stockholders approved the 1995 Stock Option Plan (the "1995 Plan"). The purpose
of the 1995 Plan is to attract and retain exemplary employees, agents,
consultants and directors. Options covering all of the 649,955 shares of Common
Stock authorized for issuance under the 1995 Plan have been granted, of which
options for 7,557 shares have been exercised. The shares subject to and
available under the 1995 Plan may consist, in whole or in part, of authorized
but unissued stock or treasury stock not reserved for any other purpose. Any
shares subject to an option that terminates, expires or lapses for any reason,
and any shares purchased
40
<PAGE>
pursuant to an option and subsequently repurchased by the Company pursuant to
the terms of the option, shall again be available for grant under the 1995 Plan.
The 1995 Plan provides for the grant of incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and non-qualified stock options ("NQSOs") at the
discretion of the Board of Directors of the 1995 Plan. The Board of Directors
administers the 1995 Plan. Subject to the terms of the 1995 Plan, the Board of
Directors determines the terms and conditions of options granted under the 1995
Plan. Options granted under the 1995 Plan are evidenced by written agreements
which contain such terms, conditions, limitations and restrictions as the Board
of Directors deems advisable and which are not inconsistent with the 1995 Plan.
ISOs may be granted to individuals, who, at the time of grant, are officers or
other employees of the Company. NQSOs may be granted to directors, officers,
agents and consultants of the Company whether or not employees of the Company.
The 1995 Plan provides that the Board of Directors must establish an exercise
price for ISOs that is no less than the fair market value per share of the
Common Stock at the date of grant. The exercise price for NQSOs shall be
determined by the Board of Directors.
Options under the 1995 Plan may provide for the payment of the exercise
price by (i) delivery of cash or a check payable to the order of the Company,
(ii) "cashless exercises" (delivery of such shares of stock of the Company
having a fair market value equal to the exercise price), or (iii) any
combination of (i) or (ii).
To the extent that the aggregate fair market value, as of the date of grant,
of the shares to which ISOs become exercisable for the first time by an optionee
during a calendar year exceeds $100,000, the ISO will be treated as a NQSO. In
addition, if an optionee owns more than 10% of the Company's stock at the time
the individual is granted an ISO, the option price per share cannot be less than
110% of the fair market value per share and the term of the option cannot exceed
five years. Options granted under the 1995 Plan may not have a term in excess of
10 years from the date of grant. In addition, no options may be granted under
the 1995 Plan later than 10 years after the 1995 Plan's effective date.
Options granted under the 1995 Plan to officers, directors, employees or
consultants of the Company may be exercised only while the optionee is employed
or retained by the Company or within one year after termination of the
optionee's employment or consulting relationship by reason of death or permanent
disability, and three months after termination for any other reason except
termination for cause (unless such options expire sooner by their terms).
Options are nontransferable, except by will or the laws of descent and
distribution. The Board of Directors has certain rights to amend or terminate
the 1995 Plan provided any necessary stockholder approval is obtained.
1996 STOCK OPTION PLAN. In October 1996, the Board of Directors adopted and
the stockholders approved the 1996 Stock Option Plan (the "1996 Plan"). The 1996
Plan is substantially similar to the 1995 Plan, except that there are 825,000
shares of Common Stock authorized and available for issuance pursuant to options
which may be granted thereunder. The 1996 Plan is administered by the Stock
Option Committee. No options have been granted under the 1996 Plan.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the beneficial ownership of the Company's outstanding
Common Stock by (i) each of the Company's directors, (ii) each of the executive
officers named in the table under "Management--Executive Compensation," (iii)
all directors and executive officers of the Company as a group, and (iv) each
other person known by the Company to beneficially own more than five percent of
the outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED -----------------------------------
IMMEDIATELY BEFORE BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) THE OFFERING(2) OFFERING OFFERING
- -------------------------------------------------------- ------------------ ----------------- ----------------
<S> <C> <C> <C>
Mr. Barry Mindes(3)..................................... 3,023,954 50.2% 40.2%
Mindes Family Limited Partnership....................... 1,511,524 25.1% 20.0%
Mr. Bernard Albanese(4)................................. 173,824 2.9% 2.3%
The Marie Albanese Trust, Marie Albanese and Christine
Marie Albanese, trustees(5)........................... 302,304 5.0% 4.0%
Mr. Fredric Kupersmith.................................. 19,196 * *
Ms. Janet Mindes(6)..................................... 15,115 * *
Mr. Harold Rapaport(7).................................. 37,787 * *
Mr. Barry Rubenstein(8)................................. 995,812 16.4% 13.2%
DISS Partners(9)........................................ 483,686 8.0% 6.4%
All executive officers and directors as a group (7
persons)(10).......................................... 3,572,180 58.8% 47.2%
</TABLE>
- ------------------------
* Denotes less than 1%
(1) The address of each beneficial owner is c/o International Sports Wagering
Inc., 201 Lower Notch Road, Little Falls, NJ 07424.
(2) Percentage of ownership before the Offering is based on 6,024,277 shares of
Common Stock outstanding as of the date of this Prospectus. For each
beneficial owner, shares of Common Stock underlying derivative securities
exercisable or convertible within 60 days of the date of this Prospectus are
deemed outstanding only for computing the percentage of such beneficial
owner. Unless otherwise noted, all shares are beneficially owned and sole
voting and investment power is held by the persons named, subject to
community property laws where applicable. See "Description of Securities--
Common Stock."
(3) Includes 1,511,524 shares held by Mindes Family Limited Partnership, of
which Mr. Mindes is general partner. Does not include shares beneficially
owned by Mr. Mindes' daughter, Ms. Janet Mindes, as to which Mr. Mindes
disclaims beneficial ownership.
(4) Includes 22,672 shares underlying options held by Mr. Albanese.
(5) Marie Albanese and Christine Marie Albanese are the wife and daughter,
respectively, of Mr. Bernard Albanese. Mr. Albanese disclaims beneficial
ownership of the shares of Common Stock held in such trust.
(6) Represents shares underlying options held by Ms. Mindes.
(7) Includes (i) 9,069 shares underlying options held by Mr. Rapaport, and (ii)
21,161 shares owned by Rapaport Family Limited Partnership, of which Mr.
Rapaport is the General Partner. Mr. Rapaport disclaims beneficial ownership
of the shares owned by Rapaport Family Limited Partnership to the extent
such shares exceed his proportionate interest therein.
42
<PAGE>
(8) Represents 284,518 shares held by each of Seneca Ventures, Woodland
Partners, and Woodland Venture Fund, each a partnership as to which Mr.
Rubenstein serves as a general partner, and 142,258 shares held by Mr.
Rubenstein's wife.
(9) DISS Partners is a general partnership, the partners of which include Mr.
Stephen Katz, a member of the Company's Advisory Committee, Mr. Don
Chaifetz, who owns 15,115 shares of Common Stock in addition to the shares
owned by DISS Partners, and their respective wives. Each of Messrs. Katz,
Chaifetz and their respective wives disclaims beneficial ownership of the
shares of Common Stock owned by DISS Partners to the extent such shares
exceed their proportionate ownership interests in DISS Partners.
(10) Includes an aggregate of 46,857 shares underlying options held by all
executive officers and directors as a group.
CERTAIN TRANSACTIONS
On May 22, 1995, Barry Mindes, the Company's Chairman of the Board,
purchased 906 shares of Common Stock for an aggregate purchase price of $3.00.
On May 25, 1995, Systems Enterprises Inc., the Company's predecessor, was merged
into the Company. Effective upon the merger, the outstanding shares of common
stock of the predecessor, all of which were held by Barry Mindes, were converted
into 3,023,048 shares of the Company's Common Stock. At the time of the merger,
Mr. Mindes was reimbursed approximately $9,000 for actual expenses paid by him
in connection with a patent application, which application was assigned to the
Company.
In May 1995, the Company sold, at a purchase price of $.001 per share, an
aggregate of 558,356 shares of Common Stock to six individuals, including
453,456 shares to Bernard Albanese, the Company's President and Treasurer and a
director of the Company, 19,196 shares to Fredric Kupersmith, a director of the
Company, and 30,230 shares to Andrew Harbison, the Company's Vice
President--Software Development. None of Messrs. Albanese, Kupersmith and
Harbison were directors of officers of the Company at the time of such
purchases. In connection with Mr. Albanese's purchase of stock he gave a proxy
to Mr. Mindes with respect to 302,305 shares, which proxy expires upon this
Offering.
In June and July 1995, the Company sold a total of 399,997 units, each
consisting of 3.0230479 shares of Common Stock and one Warrant (the "Investor
Warrants") to purchase 3.0230479 shares of Common Stock, to a group of
approximately 18 accredited investors, for an aggregate of approximately
$850,000, or $0.70 per unit. Between February and April 1996, Investor Warrants
to purchase an aggregate of 1,164,753 shares of Common Stock were exercised at a
total purchase price of approximately $818,750, or $0.70 per share. Investment
partnerships of which Mr. Barry Rubinstein is the general partner and Mr.
Rubinstein's wife purchased 164,705 units at an aggregate purchase price of
$350,000. Subsequently, such entities and individual exercised an aggregate of
164,705 Investor Warrants at an aggregate exercise price of $350,000.
In June 1996, the Company sold 60,460 shares of Common Stock to seven
individuals (including Andrew Harbison, currently the Company's Vice
President--Software Development, and Harold Rapaport, a director of the
Company), for a total purchase price of $42,500, or $0.70 per share.
For a discussion of certain management compensation, including option grants
and employment agreements entered into with Messrs. Mindes and Albanese, see
"Management."
43
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of the securities of the Company is
qualified in its entirety by reference to the Certificate of Incorporation, the
Bridge Notes and the Bridge Warrants, forms of which have been filed as exhibits
to the Registration Statement on Form SB-2 of which this Prospectus forms a
part.
COMMON STOCK
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $.001 per share, of which 6,024,277 shares are outstanding as of the
date hereof. Holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, holders of
Common Stock are entitled to receive ratably, dividends when, as, and if
declared by the Board of Directors out of funds legally available therefor and,
upon the liquidation, dissolution, or winding up of the Company, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on any preferred stock. See
"Risk Factors--Absence of Dividends" and "Dividend Policy." Holders of Common
Stock have no preemptive rights and have no rights to convert their Common Stock
into any other securities. The outstanding Common Stock is validly authorized
and issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value $.001 per share, of which no shares are outstanding as of the
date hereof. The preferred stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by stockholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such preferred stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. The ability of the Board of Directors to issue preferred stock
could discourage, delay, or prevent a takeover of the Company. See "Risk
Factors--Anti-Takeover Effects of Certain Provisions of Certificate of
Incorporation and Delaware Law."
BRIDGE UNITS
The Bridge Units consist of the Bridge Notes and the Bridge Warrants. Each
Bridge Unit consists of a Bridge Note issued by the Company in the principal
amount of $100,000 and a Bridge Warrant to purchase up to 30,000 shares of
Common Stock at an exercise price equal to the lesser of $3.60 per share or 60%
of the initial public offering price per share in the Offering. The Bridge Notes
and the Bridge Warrants are separately transferable, subject to certain
restrictions upon transferability.
BRIDGE NOTES
The Bridge Notes bear interest at the rate of 10% per annum with interest to
accrue from the date of issuance and payable in four quarterly installments on
the first day of each February, May, August and November commencing on February
1, 1997 and at maturity. Principal of, and any accrued and unpaid interest on
the Bridge Notes will be due and payable in full on the earlier of (i) the
closing of the Offering, (ii) one year from the date on which the Bridge Notes
were issued, subject to extension as set forth below, and (iii) the date of the
closing of a sale (or the closing of the last of a series of sales) of
securities by the Company or any subsidiary or affiliate thereof (other than the
Bridge Notes and Bridge Warrants), the net
44
<PAGE>
proceeds of which, in the aggregate, equal or exceed $650,000. The principal
balance of the Bridge Notes, and accrued interest thereon, will be repaid with
the net proceeds of the Offering. See "Use of Proceeds."
The Company has the right, at its option, to extend the maturity date of the
Bridge Notes for up to six months. In the event that the Company elects to
extend such maturity date then (i) the number of shares issuable upon the
exercise of each Bridge Warrant shall automatically increase by an additional 5%
for each month that the Bridge Notes continue to remain outstanding during such
extension period; and (ii) the exercise price per share of each Bridge Warrant
shall be reduced to the lesser of $3.50 per share or 50% of the initial public
offering price per share in the Offering.
The Bridge Notes rank senior in right of payment to all Junior Debt of the
Company, which is defined as all existing and future indebtedness other than (i)
the indebtedness represented by the Bridge Notes; (ii) capital lease
obligations; and (iii) certain other indebtedness permitted by the Bridge Notes.
BRIDGE WARRANTS
The Bridge Warrants entitle the holders thereof to purchase, in the
aggregate, up to 195,000 shares of Common Stock at an exercise price equal to
the lesser of $3.60 per share or 60% of the initial public offering price per
share of Common Stock in the Offering, subject to adjustment. The Bridge
Warrants may be exercised at any time after issuance and expire on October 28,
2001. The shares underlying the Bridge Warrants are being registered
concurrently with the Offering, and are subject to a two-year lock-up with
Barington who served as placement agent in connection with the Bridge Financing.
The number of shares issuable upon exercise of the Bridge Warrants and the
exercise price thereof may be adjusted in the event of the occurrence of certain
events, including stock dividends, stock splits, combinations or
reclassifications involving or in respect of the Common Stock, or an extension
by the Company of the maturity date of the Bridge Notes. If the Company extends
the maturity date of the Bridge Notes for a period of six months, (i) the number
of shares issuable upon exercise of each Bridge Warrant shall automatically
increase by an additional 5% for each month that the Bridge Notes continue to
remain outstanding during such extension period, and (ii) the exercise price per
share shall be reduced to the lesser of $3.50 per share or 50% of the initial
public offering price per share of Common Stock in the Offering.
REGISTRATION RIGHTS
In the event the Company proposes to register any of its securities under
the Securities Act, holders (including Barry Mindes) of approximately 5,129,828
shares of Common Stock are entitled to notice of such registration and to
include their shares of Common Stock in such registration, subject to marketing
and other limitations ("Piggyback Registration Rights"). Moreover, holders of
approximately 4,503,452 shares of Common Stock may be entitled, in addition to
Piggyback Registration Rights, (i) to require the Company at any time from and
after the earlier of (a) May 31, 1998 or (b) 180 days after the closing of the
Offering, to effect two demand registrations at its own expense upon the written
request from the holders of a majority of registered securities then
outstanding, and (ii) to require the Company, subject to certain limitations, to
file a Registration Statement on Form S-3 covering the resale of such shares, at
any time when the Company is entitled to use such form, provided that the
Company shall not be required to file a Registration Statement on Form S-3 if
the aggregate offering price (net of any voluntary discounts and commissions) of
the shares to be included therein (including shares held by other holders
entitled to registration) is less than $500,000. The rights referred to in the
immediately preceding sentence will expire on the third anniversary of
consummation of the Offering. Prior to the Offering, holders of all of the
foregoing rights are expected to agree not to exercise any of such rights
without Barington's prior consent. The holders of the Bridge Warrants are
entitled to certain "piggyback" and demand registration rights, as well.
45
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Company has appointed American Stock Transfer and Trust Company as
transfer agent for the Common Stock.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to Section 203 of the DGCL ("Section 203") which,
subject to certain exceptions and limitations, prohibits a Delaware corporation
from engaging in any "business combination" with any "interested stockholder"
for a period of three years following the date that such stockholder became an
interested stockholder, unless: (i) prior to such date, the Board of Directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder 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 (for the purposes of determining the number of shares outstanding
under the DGCL, those shares owned (x) by persons who are directors and also
officers, and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, are excluded from the
calculation); or (iii) on or subsequent to such date, the business combination
is approved by the Board of Directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
For purposes of Section 203, "a business combination" includes (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,524,277 shares of
Common Stock outstanding (7,749,277 shares of Common Stock outstanding if the
Over-Allotment Option is exercised in full). Of these shares, the 1,500,000
Shares offered hereby (1,725,000 shares if the Over-Allotment Option is
exercised in full) will be freely tradeable without further registration under
the Securities Act. With respect to the remainder of such shares, all officers
and directors and current stockholders of the Company have agreed not to
publicly sell, or otherwise dispose of any securities of the Company for a
period of 12 months from the date of this Prospectus without Barington's prior
written consent except under certain circumstances. See "Underwriting."
All of the presently outstanding 6,024,277 shares of Common Stock are
"restricted securities" within the meaning of Rule 144 and, if held for at least
two years, would be eligible for sale in the public market in reliance upon, and
in accordance with, the provisions of Rule 144 following the expiration of such
two-year period. In general, under Rule 144 as currently in effect, a person or
persons whose shares are aggregated, including a person who may be deemed to be
an "affiliate" of the Company as that term is defined under the Securities Act,
would be entitled to sell within any three-month period a number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person and who has beneficially owned shares of Common Stock for at least
three years may sell such shares without regard to the volume, manner of sale,
or notice requirements of Rule 144. Beginning 90 days after the date of this
Prospectus and subject to the 12 month lock-up restriction described above,
approximately 3,023,048 shares owned by Barry Mindes and Mindes Family Limited
Partnership will be available for sale in reliance upon Rule 144. Subject to
such 12-month restriction, substantially all of the remaining 3,001,229
Restricted Shares will become eligible for sale at various times from May 1997
through June 1998.
Pursuant to the Representatives' Options, the Representatives have the right
to purchase up to 150,000 shares of Common Stock during the period commencing on
the date of the closing of the Offering and terminating on the fifth anniversary
of such date. The Holders of the Representatives' Options have certain demand
and "piggyback" registration rights as to such options and the underlying shares
of Common Stock. Such options and any and all shares of Common Stock purchased
upon the exercise of the Representatives' Options may be freely tradeable,
provided that the Company satisfies certain securities registration and
qualification requirements in accordance with the terms of the Representatives'
Options. See "Underwriting."
The Company cannot predict the effect, if any, that sales of shares of
Common Stock pursuant to Rule 144 or otherwise, or the availability of such
shares for sale, will have on the market price prevailing from time to time.
Sales by the current stockholders of a substantial number of shares of Common
Stock in the public market could materially adversely affect prevailing market
prices for the Common Stock. The availability for sale of a substantial number
of shares of Common Stock acquired through the exercise of the Representatives'
Options, the Bridge Warrants or any options under the Company's existing stock
option plans could also materially adversely affect prevailing market prices for
the Common Stock. See "Risk Factors--Future Sales of Restricted Securities;
Registration Rights."
47
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement (the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part), to
purchase from the Company the respective number of Shares set forth opposite
their names in the table below. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters shall be obligated to purchase all of the Shares if any
are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME TO BE PURCHASED
- ------------------------------------------------------------------------------------------------- -----------------
<S> <C>
Barington Capital Group, L.P.....................................................................
GKN Securities Corp..............................................................................
-----------------
Total...................................................................................... 1,500,000
-----------------
-----------------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the Shares offered hereby to the public at the offering price set forth
on the cover page of this Prospectus and that the Underwriters may allow to
certain dealers, who are members of the National Association of Securities
Dealers (the "NASD"), concessions of not in excess of $ per Share, of
which not in excess of $ may be reallowed to other dealers who are
members of the NASD. After the commencement of the Offering, the public offering
price, the concessions and the reallowance may be changed.
The Company has granted an option to the Underwriters exercisable during the
45-day period after the effective date of this Prospectus, to purchase up to an
aggregate of 225,000 additional Shares at the public offering price, less the
underwriting discounts and commissions. The Underwriters may exercise such
option only for the purpose of covering Over-Allotments made in connection with
the sale of the Shares offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with the Registration Statement of which this
Prospectus forms a part, including liabilities under the Securities Act.
The Company has agreed to pay the Representatives a non-accountable expense
allowance of 3% of the aggregate offering price of the Shares offered hereby
(including any Shares purchased pursuant to the Over Allotment Option), of which
$35,000 has been paid to date.
The Company has also agreed to sell to the Representatives, or their
respective designees, Representatives' Options to purchase 150,000 shares at a
price of $.001 per option. The Representatives' Options will be exercisable for
a period of five years, commencing on the date of closing of the Offering, at an
initial per share exercise price equal to 120% of the initial public offering
price per share. The Representatives' Options cannot be transferred, assigned or
hypothecated for one year from the date of their issuance, except that they may
be assigned, in whole or in part, to any successor, officer or partner of the
Representatives or their respective partners or members of the underwriting
group. The Representatives' Options may be exercised as to all or a lesser
number of shares and will contain certain registration rights and anti-dilution
provisions providing for appropriate adjustment of the exercise price and number
of shares which may be purchased upon exercise, upon the occurrence of certain
events.
The holder of the Representatives' Options has the right, in lieu of payment
in cash of the exercise price, to surrender all or part of the Representatives'
Options in exchange for a number of shares of Common Stock equal to the value of
the Representatives' Options being surrendered (determined by subtracting the
aggregate exercise price of the Representatives' Options being surrendered from
the Current Market Value (as defined) of the shares of Common Stock issuable
upon exercise of the Representatives' Options being surrendered) divided by the
Current Market Price of one share of Common Stock.
48
<PAGE>
The Company has agreed that it will, on any two occasions, register the
securities underlying the Representatives' Options, the first time at the
Company's expense. The Company has also agreed, during the seven year period
commencing on the date of the closing of the Offering, to register on a
"piggyback" basis, on an unlimited number of occasions, the securities
underlying the Representatives' Options whenever the Company files a
registration statement. Notwithstanding these registration rights, the Company
will not be required to register the securities underlying the Representatives'
Options if it delivers to the holders of the Representatives' Options an opinion
of counsel from counsel reasonably acceptable to such holders in form and
substance reasonably acceptable to such holders that such securities are freely
transferable without registration.
The Company has granted to Barington a right of first refusal with respect
to any sale of securities to be made by the Company, its subsidiaries,
affiliates or successors or any of the Company's stockholders owning at least 5%
of the Company's capital stock outstanding immediately after the date of the
Offering, within two years after the effective date of the Offering.
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the detailed
provisions of the Underwriting Agreement and the Representatives' Options, the
forms of which have been filed as exhibits to the Registration Statement on Form
SB-2, of which this Prospectus forms a part.
Barington acted as placement agent in connection with the Bridge Financing.
In connection therewith, Barington received sales commissions of $65,000 in the
aggregate, was reimbursed a total of $30,000 for certain expenses (including
attorneys' fees) and was issued a total of 19,500 warrants which are identical
to the Bridge Warrants (the "Placement Agent's Warrants"). Barington has agreed
to relinquish the Placement Agent's Warrants upon the consummation of the
Offering.
Prior to the Offering, the Company and its directors, officers and the
holders of all of the Company's outstanding Common Stock will agree with the
Representatives not to sell, contract to sell or otherwise dispose of any of the
Company's securities held by them for a period of 12 months following the date
of this Prospectus without the prior written consent of the Representatives,
under certain circumstances. See "Shares Eligible For Future Sale."
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the public offering price of the Shares has been determined by
arms-length negotiation between the Company and the Representatives and does not
necessarily bear any relationship to the Company's book value, assets, past
operating results, financial condition, or other established criteria of value.
Factors considered in determining such price included an assessment of the
Company's future prospects, the qualifications of the Company's management, and
other relevant factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Rubin Baum Levin Constant &
Friedman, New York, New York. Richard M. Hoffman, who is of counsel to Rubin
Baum Levin Constant & Friedman, owns 24,184 shares and has options to purchase
39,299 shares of Common Stock. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Squadron, Ellenoff, Plesent
and Sheinfeld, LLP, New York, New York.
EXPERTS
The financial statements of the Company as of September 30, 1996, and for
the year ended September 30, 1996 and for the periods from inception through
September 30, 1995 and September 30, 1996 have been included herein and in the
Registration Statement of which this Prospectus forms a part in
49
<PAGE>
reliance on the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington D.C. 20549, a registration
statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission and copies of all or any part thereof may be
obtained from the Commission's Public Reference Section at 450 Fifth Street,
N.W., Washington D.C. 20549 or at certain of the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment
of the fees prescribed by the Commission. The Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. In addition, following approval of the
Common Stock for quotation on NASDAQ, reports and other information concerning
the Company may be inspected at the offices of the NASD, 1735 K Street, N.W,
Washington D.C. 20006 and at the offices of the Boston Stock Exchange, Inc., One
Boston Place, Boston, Massachusetts 02108.
50
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................................................. F-2
FINANCIAL STATEMENTS
Balance Sheet as of September 30, 1996.................................................................. F-3
Statements of Operations for the year ended September 30, 1996 and the period from
May 22, 1995 (date of inception) to September 30, 1995 and the period from
May 22, 1995 (date of inception) to September 30, 1996................................................ F-4
Statements of Stockholders' Equity for the period from
May 22, 1995 (date of inception) to September 30, 1996................................................ F-5
Statements of Cash Flows for the year ended September 30, 1996 and the period from
May 22, 1995 (date of inception) to September 30, 1995 and the period from
May 22, 1995 (date of inception) to September 30, 1996................................................ F-6
Notes to Financial Statements........................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
International Sports Wagering Inc.:
We have audited the accompanying balance sheet of International Sports
Wagering Inc. (a development stage company) as of September 30, 1996, and the
related statements of operations, stockholders' equity and cash flows for the
year ended September 30, 1996, for the period from May 22, 1995 (date of
inception) to September 30, 1995 and for the period from May 22, 1995 (date of
inception) to September 30, 1996. 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 International Sports
Wagering Inc. (a development stage company) as of September 30, 1996, and the
results of its operations and its cash flows for the year then ended, for the
period from May 22, 1995 (date of inception) to September 30, 1995 and for the
period from May 22, 1995 (date of inception) to September 30, 1996, in
conformity with generally accepted accounting principles.
Short Hills, New Jersey KPMG Peat Marwick LLP
October 28, 1996
F-2
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 537,546
Prepaid expenses and other current assets....... 8,885
-------------
Total current assets........................ 546,431
-------------
Property and equipment, net....................... 304,466
Other assets...................................... 4,258
Deferred financing costs.......................... 46,406
-------------
Total assets................................ $ 901,561
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 42,382
Accrued expenses................................ 143,265
-------------
Total current liabilities................... 185,647
-------------
Stockholders' equity:
Preferred stock, par value $.001 per share;
2,000,000 shares authorized, none issued or
outstanding................................... --
Common stock, par value $.001 per share;
20,000,000 shares authorized, 6,024,294 shares
issued and outstanding........................ 6,024
Additional paid-in capital...................... 1,687,089
Deficit accumulated during the development
stage......................................... (977,199)
-------------
Total stockholders' equity.................. 715,914
Commitments and contingencies
-------------
Total liabilities and stockholders'
equity.................................... $ 901,561
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 AND THE PERIOD
FROM MAY 22, 1995 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1995 AND THE PERIOD FROM MAY 22, 1995
(DATE OF INCEPTION) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
MAY 22, 1995 MAY 22, 1995
(DATE OF (DATE OF
YEAR ENDED INCEPTION) TO INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Costs and expense:
Research and development expense.................................. $ 702,952 88,343 791,295
General and administrative expense................................ 196,256 29,651 225,907
------------- ------------- -------------
Operating loss................................................ (899,208) (117,994) (1,017,202)
Interest income..................................................... 31,020 8,983 40,003
------------- ------------- -------------
Net loss...................................................... $ (868,188) (109,011) (977,199)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share.................................................. $ (.13) (.02) (.15)
------------- ------------- -------------
------------- ------------- -------------
Weighted average common shares and equivalents outstanding.......... 6,612,006 6,612,006 6,612,006
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
INTERNATIONAL SPORTS WAGERING, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 22, 1995
(DATE OF INCEPTION) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
--------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of shares of common stock upon incorporation
(May 22, 1995)..................................... 907 $ 1 2 -- 3
Issuance of common stock upon merger................. 3,023,048 3,023 (2,023) -- 1,000
Issuance of common stock............................. 1,767,567 1,768 813,843 -- 815,611
Net loss............................................. -- -- -- (109,011) (109,011)
---------- --------- ---------- ----------- ----------
Balance, September 30, 1995.......................... 4,791,522 4,792 811,822 (109,011) 707,603
Issuance of common stock............................. 60,461 60 42,440 -- 42,500
Issuance of common stock through exercise of
warrants........................................... 1,164,753 1,165 813,021 -- 814,186
Issuance of common stock through exercise of
options............................................ 7,558 7 5,306 -- 5,313
Issuance of options to consultants................... -- -- 14,500 -- 14,500
Net loss............................................. -- -- -- (868,188) (868,188)
---------- --------- ---------- ----------- ----------
Balance, September 30, 1996.......................... 6,024,294 $ 6,024 1,687,089 (977,199) 715,914
---------- --------- ---------- ----------- ----------
---------- --------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996 AND THE PERIOD
FROM MAY 22, 1995 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1995 AND THE PERIOD FROM MAY 22, 1995
(DATE OF INCEPTION) TO SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
MAY 22, 1995 MAY 22, 1995
(DATE OF (DATE OF
YEAR ENDED INCEPTION) TO INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (868,188) (109,011) (977,199)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 69,443 2,460 71,903
Issuance of options to consultants.............................. 14,500 -- 14,500
Changes in assets and liabilities:
Prepaid expenses and other current assets..................... 978 (9,863) (8,885)
Other assets.................................................. -- (5,305) (5,305)
Accounts payable.............................................. 13,974 28,408 42,382
Accrued expenses.............................................. 129,900 13,365 143,265
------------- ------------- -------------
Net cash used in operating activities........................... (639,393) (79,946) (719,339)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment................................ (333,464) (41,858) (375,322)
------------- ------------- -------------
Net cash used in investing activities........................... (333,464) (41,858) (375,322)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock............................ 861,999 816,614 1,678,613
Deferred financing costs.......................................... (46,406) -- (46,406)
------------- ------------- -------------
Net cash provided by financing activities....................... 815,593 816,614 1,632,207
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................ (157,264) 694,810 537,546
Cash and cash equivalents, beginning of period...................... 694,810 -- --
------------- ------------- -------------
Cash and cash equivalents, end of period............................ $ 537,546 694,810 537,546
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) DESCRIPTION OF BUSINESS
International Sports Wagering Inc. (the Company) was incorporated in the
State of Delaware on May 22, 1995 to develop and market an interactive,
client/server based computer system for purposes of wagering on sporting events.
The Company is the successor by merger to Systems Enterprises, Inc. (SEI), an
S-corporation incorporated in the State of New Jersey on December 17, 1992, 100%
owned by the Company's founding shareholder, that had nominal operating
activities during its existence. Subsequent to the merger, the Company
reimbursed the founding shareholder for certain legal fees incurred by SEI that
were specific to the Company's planned business activities.
The Company is a development stage company which has not commenced
generating revenue from its planned primary business activities. Since the
Company's inception, it has been primarily engaged in product research and
development, market testing its intended product, recruitment of key personnel,
and raising capital. As a consequence, there are no operating revenues and there
have been no product sales from inception of the Company through September 30,
1996. The Company plans to finance its operations through private placements of
debt and equity securities and a planned initial public offering (the "IPO")
(note 8). There can be no assurance that the Company will be able to manufacture
or market its product in the future, that future revenues will be significant,
that any sales will be profitable, or that the Company will have sufficient
funds available to manufacture or market its product. Further, the Company's
future operations are dependent on the success of the Company's
commercialization efforts, market acceptance, and regulatory approval of its
product.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of funds held on deposit with banking
institutions with original maturities of less than 90 days.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets, generally three to seven years, using the straight-line method.
Expenditures for repairs and maintenance are charged to expense as incurred.
DEFERRED FINANCING COSTS:
Costs paid to the Company's attorneys associated with the Company's private
placement and IPO (note 8) are deferred and will be recorded as a reduction of
the proceeds received upon consummation of the private placement and IPO.
RESEARCH AND DEVELOPMENT:
All research and development, patent application and patent maintenance
costs are charged to expense as incurred.
F-7
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents and accounts payable as
reflected in the financial statements approximate fair value because of the
short-term maturity of these instruments.
INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred income taxes are
measured using the enacted tax rates and laws that are anticipated to be in
effect when the differences are expected to reverse.
STOCK SPLIT:
On October 24, 1996, the Company effected a stock split related to its
common stock, whereby each common share outstanding was converted by a factor of
3.0230479, thus increasing the number of common shares outstanding from a
pre-split amount of 1,992,788 at September 30, 1996 to 6,024,294. The Board of
Directors voted to increase the total number of shares of common stock
authorized at September 30, 1996 to 20,000,000 in connection with this stock
split. All share and per share information contained in the accompanying
financial statements has been retroactively adjusted to reflect the stock split.
LOSS PER SHARE:
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
Topic 4:D, stock issued and stock options and warrants granted during the
12-month period preceding the date of the planned IPO have been included in the
calculation of weighted average common shares outstanding for the periods prior
to the IPO, even when the impact of such incremental shares is antidilutive. The
computation of weighted average common shares and equivalents outstanding as
follows:
<TABLE>
<S> <C>
Weighted average common shares outstanding, exclusive of issuances within 12
months prior to the IPO....................................................... 4,791,522
Shares, options and warrants issued within 12 months prior to the IPO assumed to
be outstanding for the entire period.......................................... 1,820,484
-----------
Weighted average common shares and equivalents outstanding...................... 6,612,006
-----------
-----------
</TABLE>
USE OF 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-8
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS:
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation", which must be
adopted by the Company in fiscal 1997. The Company has elected not to implement
the fair value based accounting method for employee stock options, but has
elected to disclose, commencing in fiscal 1997, the pro-forma net income and
earnings per share as if such method has been used to account for stock-based
compensation cost as described in the Statement.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which must also be adopted by the Company in fiscal 1997. The effect of adopting
this standard will be insignificant.
(3) PREFERRED AND COMMON STOCK
In May 1995, the Company's Chairman of the Board and principal shareholder
established the Company by purchasing shares and exchanging the shares of SEI
for additional shares of Company stock. Also in May 1995, the Company issued
shares to certain other founding shareholders.
In June and July 1995, the Company sold a total of 399,997 units, each
consisting of 3.0230479 shares of common stock and one warrant to purchase
3.0230479 additional shares of common stock for an aggregate of approximately
$850,000 or approximately $.70 per unit to an investor group. Such amounts were
reduced by certain costs of issuance. Between February and April 1996 warrants
to purchase an aggregate of 1,164,753 shares were exercised and proceeds of
approximately $814,000 ($.70 per share) were received by the Company. All
unexercised warrants issued in June and July 1995 expired by their own terms.
In June 1996, the Company sold 60,461 shares to seven individuals including
employees, directors and investors resulting in proceeds of $42,500 ($.70 per
share) to the Company.
In May 1995, the Board of Directors adopted and the stockholders approved
the 1995 Stock Option Plan (the 1995 Plan). The 1995 Plan provides for the grant
of incentive stock options (ISOs) and nonqualified stock options (NQSOs). The
total number of shares of common stock with respect to which options may be
granted under the 1995 Plan is 649,955 of which all have been granted. ISOs and
NQSOs may be granted to individuals, who, at the time of grant, are directors,
officers, employees or consultants of the Company. Additionally, NQSOs may be
granted to directors, agents and consultants of the Company, whether or not the
individual is an employee of the Company. The 1995 Plan provides that the
administrator must establish an exercise price for ISOs that is no less than the
fair market value per share of the common stock at the date of grant. The
exercise price of NQSOs shall be determined by the Board of Directors. Options
granted under the 1995 Plan may not be exercisable for terms in excess of ten
years from the date of grant, with vesting periods varying for option grants.
F-9
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(3) PREFERRED AND COMMON STOCK (CONTINUED)
Activity related to the Plan is as follows:
<TABLE>
<CAPTION>
SHARES
----------
<S> <C>
Outstanding, May 22, 1995............................................................... --
Granted ($.70 per share)............................................................ 75,576
Exercised........................................................................... --
Outstanding, September 30, 1995......................................................... 75,576
Granted ($.70 per share)............................................................ 574,379
Exercised ($.70 per share).......................................................... (7,558)
----------
Outstanding, September 30, 1996 (exercisable 68,774 shares)............................. 642,397
----------
----------
</TABLE>
During fiscal 1996, the Company granted options to purchase common stock to
consultants for services. The estimated fair value of such options of $14,500
has been recorded as expense and credited to capital.
In October 1996, the Board of Directors adopted and the stockholders
approved the 1996 Stock Option Plan (the 1996 Plan). The 1996 Plan is
substantially similar to the 1995 Plan, except that there are 825,000 shares of
Common Stock authorized and available for issuance pursuant to options which may
be granted thereunder. The 1996 Plan is administered by the Stock Option
Committee. No options have been granted under the 1996 Plan.
The designations, rights, and preferences of the preferred stock are to be
determined by the Board of Directors at the time of issuance.
See note 2 with respect to the October 1996 stock split effected by the
Company.
See note 8 with respect to the Company's October 1996 private placement and
planned initial public offering.
(4) PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 consist of the following:
<TABLE>
<S> <C>
Furniture and fixtures............................................ $ 5,133
Computer equipment................................................ 370,189
---------
375,322
Less accumulated depreciation..................................... (70,856)
---------
$ 304,466
---------
---------
</TABLE>
F-10
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(5) ACCRUED EXPENSES
Accrued expenses at September 30, 1996 consist of the following:
<TABLE>
<S> <C>
Professional fees................................................. $ 60,749
Payroll and related costs......................................... 82,116
Other............................................................. 400
---------
$ 143,265
---------
---------
</TABLE>
Included in the accrued professional fees is $58,610 due to the Company's
attorney who is also a stockholder of the Company. The Company recognized
$19,339 and $8,212 in expense related to this stockholder in 1996 and 1995,
respectively.
(6) COMMITMENTS
LEASES:
The Company leases office facilities and equipment under operating leases.
Minimum rental commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
---------------
<S> <C>
1997............................................................................ $ 20,190
1998............................................................................ 21,462
1999............................................................................ 15,597
2000............................................................................ 12,420
2001............................................................................ --
---------
$ 69,669
---------
---------
</TABLE>
Rent expense under operating leases during 1996 and 1995 was $19,342 and
$4,861, respectively.
EMPLOYMENT AGREEMENTS:
The Company entered into employment agreements with two executive employees
of the Company expiring in June 1998 which provide for an aggregate minimum
compensation of $223,000 and $158,000 in fiscal 1997 and fiscal 1998,
respectively. Compensation expense recognized under these agreements for the
period from May 22, 1995 (date of inception) to September 30, 1995 and for the
year ended September 30, 1996 was $15,000 and $110,000, respectively. The
agreements also provide for severance payments upon certain events, as defined.
F-11
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(7) INCOME TAXES
Income tax benefit for the year ended September 30, 1996 and the period from
May 22, 1995 (date of inception) to September 30, 1995 differed from the amounts
computed by applying the U.S. Federal income tax rate of 34% to pretax loss as a
result of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Computed tax benefit at 34%........................................... $ (295,184) (37,064)
Increase in valuation allowance for Federal deferred tax assets....... 295,184 37,064
----------- ---------
Income tax expense.................................................... $ -- --
----------- ---------
----------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1996 are presented below:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Deferred tax assets:
Federal and state net operating loss carryforward............................... $ 348,798
Book vs. tax basis accumulated depreciation..................................... 10,882
Book vs. tax basis patent amortization.......................................... 27,875
Book vs. tax basis software amortization........................................ 2,739
----------
Total gross deferred tax assets........................................... 390,294
Less valuation allowance........................................................ (390,294)
----------
Net deferred tax assets................................................... $ --
----------
----------
</TABLE>
As of September 30, 1996, the Company had a net operating loss carryforward
of approximately $870,000 for Federal and state income tax reporting purposes
available to offset future taxable income through the year 2011. The Company has
provided a valuation allowance of $390,294 and $43,539 at September 30, 1996 and
1995, respectively, against its deferred tax assets since it is more likely than
not that the Company will not realize such assets due to the Company's
development stage nature of operations and the pre-tax loss since inception.
(8) PRIVATE PLACEMENT AND PLANNED INITIAL PUBLIC OFFERING
On October 28, 1996, the Company raised approximately $550,000, net of
expenses, from the sale of 6 1/2 units in a private placement for $100,000 per
unit, each unit consisting of a 10% senior promissory note in the principal
amount of $100,000 and warrants to purchase 30,000 shares of the Company's
common stock at an exercise price equal to the lesser of $3.60 per share or 60%
of the IPO price per share in its planned IPO. The senior promissory notes are
due on the earlier of the consummation of the Company's planned IPO or October
28, 1997 subject to extension for up to six additional months at the option of
the Company. In September 1996, the Company entered into a letter of intent with
an underwriter to offer 1.5 million shares of common stock to the public. There
can be no assurance that the Company will be able to successfully complete its
IPO.
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAD BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH
INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 15
Dividend Policy................................. 16
Dilution........................................ 17
Capitalization.................................. 18
Plan of Operation............................... 19
Business........................................ 21
Management...................................... 35
Principal Stockholders.......................... 42
Certain Transactions............................ 43
Description of Securities....................... 44
Shares Eligible for Future Sale................. 47
Underwriting.................................... 48
Legal Matters................................... 49
Experts......................................... 49
Available Information........................... 50
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS FROM THE DATE HEREOF) 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 AN UNDERWRITER
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,500,000 SHARES
INTERNATIONAL SPORTS WAGERING INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BARINGTON CAPITAL
GROUP, L.P.
GKN SECURITIES
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED , 199
INTERNATIONAL SPORTS WAGERING INC.
This Prospectus relates to the Offering (the "Offering") by certain selling
stockholders (the "Selling Stockholders") of shares (the "Shares") of
Common Stock, par value $.001 per share, which may be sold from time to time by
the Selling Stockholders, or by transferees, on or after the date of this
Prospectus, subject to contractual restrictions which provide that such
securities may not be sold for a period of two years after the closing of the
Company Offering (defined below) without the prior written consent of Barington
Capital Group, L.P., one of the representatives of the several underwriters of
the Company Offering ("Barington"). See "Risk Factors--Future Sales of
Restricted Securities; Registration Rights," "Description of Securities,"
"Selling Stockholders," and "Concurrent Registration by the Company."
No underwriting arrangements have been entered into by the Selling
Stockholders. The distribution of the Shares by the Selling Stockholders may be
effected from time to time in transactions on the Nasdaq SmallCap Market and the
Boston Stock Exchange in negotiated transactions, through the writing of options
on the Shares, or a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated prices. The Selling
Stockholders may effect such transactions by the sale of the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agent or to whom they may sell as principal, or both. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders in connection with sales of the Shares. No underwriting
arrangements have been entered into by the Selling Stockholders.
The Selling Stockholders and intermediaries through whom the Shares are sold
may be deemed "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Act"), with respect to the securities offered and any profits
realized or commissions received may be deemed underwriting compensation.
The Company will not receive any proceeds from sales of the Shares. See
"Selling Stockholders."
A registration statement under the Act has been filed with the Securities
and Exchange Commission with respect to an underwritten public offering on
behalf of the Company of 1,500,000 shares of Common Stock, plus up to 225,000
shares which may be offered pursuant to the exercise of the Underwriters' over-
allotment option (the "Company Offering"). See "Concurrent Registration by
Company."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED CAREFULLY AND
ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE HEREIN.
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.
NEITHER THE NEVADA STATE GAMING CONTROL BOARD NOR THE NEVADA GAMING
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE
INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
A-1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered..................... shares of Common Stock, par value $.001 per share.
See "Risk Factors--Futures Sales of Restricted
Securities; Registration Rights" and "Description
of Securities." No underwriting arrangements have
been entered into by the Selling Stockholders.
See "Selling Stockholders."
Common Stock Outstanding after the
Company Offering(1)(2)...............
Shares of Common Stock to be
Outstanding After the
Offering(1)(2).......................
Use of Proceeds........................ The Company will not receive any proceeds from
sales of the Shares.
Risk Factors........................... An investment in the securities offered hereby
involves a high degree of risk [and immediate
substantial dilution] and investors should
consider carefully the risks identified under
"Risk Factors."
Trading Symbols........................ The Common Stock is traded on the Nasdaq SmallCap
Market under the symbol ISWI and the Boston Stock
Exchange under the symbol ISW.
</TABLE>
- ------------------------
(1) Does not include an aggregate of 1,467,390 shares of Common Stock reserved
for issuance pursuant to options granted or available for grant under the
Company's existing stock option plans. See "Management--Stock Option Plans."
(2) Does not include up to 150,000 shares of Common Stock issuable upon exercise
of the Representatives' Options.
A-2
<PAGE>
CONCURRENT REGISTRATION BY THE COMPANY
A registration statement under the Securities Act of 1933 (the "Act") has
been filed by the Company with the Securities and Exchange Commission with
respect to an underwritten public offering by the Company of 1,500,000 shares of
Common Stock, plus 225,000 shares which may be offered pursuant to exercise of
the Underwriters' over-allotment option.
Concurrent sales of securities by both the Company and by the Selling
Stockholders would likely have an adverse effect on the market price of the
Common Stock. The Shares are subject to contractual restrictions upon resale
with Barington. See "Selling Stockholders--Lock-Up Arrangements," "Risk
Factors--Future Sales of Restricted Securities; Registration Rights," and
"Description of Securities."
SELLING STOCKHOLDERS
The following table sets forth the name of each person who is a Selling
Stockholder, the number of Shares owned by each person, the percentage or
outstanding shares of Common Stock of the Company owned by such person prior to
the Offering, the number of shares being sold by such person, the number of
shares of Common Stock such person will own after the completion of the
Offering, and the percentage of outstanding shares of Common Stock of the
Company owned by such person after the completion of the Offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
- -------------------------------------------- NUMBER OF SHARES --------------------------------------------
SHARES PERCENTAGE BEING SOLD SHARES PERCENTAGE
- --------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------
* less than 1%
LOCK-UP ARRANGEMENTS
The Selling Stockholders have agreed prior to the closing of the Company
Offering that they will not publicly sell, offer to sell, contract to offer to
sell, transfer, assign or pledge any of the Shares which are being registered on
their behalf by the Registration Statement of which this Prospectus forms a
part, for a period of two years from the closing of the Company Offering without
the prior written consent of Barington. See "Risk Factors--Future Sales of
Restricted Securities; Registration Rights," "Certain Transactions" and
"Description of Securities."
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in transactions on NASDAQ or BSE in negotiated transactions,
through the writing of options on the Shares, or a combination of such methods
of sale, at fixed prices that may be changed, at market prices prevailing at the
time of the sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Stockholders may effect such transactions by the
sale of the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both.
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the Selling Stockholders in connection with sales of the Shares. No
underwriting arrangements have been entered into by the Selling Stockholders.
The Selling Stockholders and intermediaries through whom the Shares are sold
may be deemed "underwriters" without 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 Stockholders against certain liabilities, including liabilities under
the Act.
A-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article Seventh of the Certificate of Incorporation of International Sports
Wagering Inc. (the "Registrant") eliminates the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such elimination of the personal
liability of a director of the Registrant does not apply to (a) any breach of
the director's duty of loyalty to the Registrant or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) actions prohibited under Section 174 of the
Delaware General Corporation Law, or (d) any transaction from which the director
derived an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid by
the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the registration fee, all
amounts shown are estimates.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 4,289.14
NASD Registration Fee.......................................... 1,915.42
Blue Sky fees.................................................. 25,000.00
Boston Stock Exchange Fee...................................... 7,500.00
Printing and Engraving......................................... 60,000.00
Legal fees and expenses........................................ 290,000.00
Accounting fees and expenses................................... 65,000.00
Transfer Agent fees and expenses............................... 5,000.00
NASDAQ SmallCap Market fees.................................... 6,500.00
Representatives' Non-Accountable Expense
Allowance.................................................... 270,000.00
Miscellaneous expenses......................................... 24,795.44
----------
Total........................................................ $760,000.00
----------
----------
</TABLE>
- ------------------------
(1) Assuming an initial public offering price of $6.00 per Share.
(2) If the Over-Allotment Option is exercised in full, the Representatives'
Non-Accountable Expense Allowance and the Total would be $310,500 and
$800,500, respectively.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the past three years, the Registrant has made the following sales of
unregistered securities, all of which sales were exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or as
otherwise indicated herein. All information gives effect to a stock split
effected in October 1996 pursuant to which each outstanding share of Common
Stock was converted into 3.0230479 shares of Common Stock.
In October 1996, the Registrant, through Barington Capital Group, L.P.
("Barington"), acting as placement agent, issued and sold 6.5 Units of its
securities, each consisting of one $100,000 principal amount 10% Senior
Promissory Note and a five-year Warrant to purchase 30,000 shares of Common
Stock at an exercise price equal to the lesser of $3.60 per share or 60% of the
initial public offering price per
II-1
<PAGE>
share in the Offering, at $100,000 per Unit ($650,000, total) solely to
accredited investors. The Registrant believes that each issuance and sale of
such securities was exempt from registration pursuant to Section 4(2) of the
Securities Act and/or Rule 506 promulgated thereunder. Barington received, for
its services, a placement fee of 10% of the gross proceeds from the sale of the
Units, warrants to purchase 19,500 shares of Common Stock (which warrants will
be relinquished upon consummation of the Offering) and reimbursement of certain
other expenses.
On June 20, 1996, the Registrant sold 60,460 shares of Common Stock to seven
individuals (including five employees and one director) for a total purchase
price of $42,500, or $0.70 per share.
At various times from June 1995 through August 1996, the Company granted
options under the 1995 Plan to purchase an aggregate of 649,955 shares of Common
Stock to certain directors, employees and consultants of the Registrant. In
September 1996, a director of the Registrant purchased 7,557 shares upon
exercise of his option at $.70 per share. The Company believes that the issuance
and exercise of such options was exempt from registration pursuant to Sections
3(b) and 4(2) of the Securities Act and Rule 701 promulgated thereunder.
On June 2, 1995 and July 12, 1995, the Registrant sold a total of 399,997
units, each consisting of 3.0230479 shares of Common Stock and one Warrant (the
"Investor Warrants") to purchase 3.0230479 shares of Common Stock, to a group of
approximately 18 accredited investors, for an aggregate of approximately
$850,000, or $2.125 per unit. Between February and April 1996, Investor Warrants
to purchase an aggregate of 1,164,753 shares of Common Stock were exercised at a
total purchase price of approximately $818,750, or $0.70 per share.
In May 1995, the Registrant sold an aggregate of 558,354 shares of Common
Stock to certain directors, employees and consultants of the Company for an
aggregate purchase price of $184.70. The purchase price was equal to the par
value of the number of shares sold.
In May 1995, Systems Enterprises Inc., a New Jersey corporation, was merged
into the Company which was then newly-formed. Each of the 100 shares of Systems
Enterprises Inc. common stock then outstanding was converted into 30,230.479
shares of the Registrant's Common Stock. All of the outstanding shares of common
stock of Systems Enterprises Inc. were purchased by Barry Mindes in December
1992 for a total purchase price of $1.00.
ITEM 27. EXHIBITS
(a) The following exhibits are filed herewith:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.1(a) Amendment, filed October 24, 1996, to Certificate of Incorporation of the Registrant
3.2 By-Laws of the Registrant
4.1 Form of Representatives' Option Agreement
4.2* Form of Stock Certificate
4.3 Form of Bridge Warrant
4.4 Form of Bridge Note
5.1* Opinion of Rubin Baum Levin Constant & Friedman
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.1 Employment Agreement between the Registrant and Barry Mindes, dated as of May 22,
1995
10.2 Employment Agreement between the Registrant and Bernard Albanese, dated as of June
1, 1995
10.3 Form of Proprietary Information, Inventions and Non-Solicitation Agreement
10.4 Form of Subscription Agreement
10.5 Rights Agreement among the Registrant and the investors listed on Schedule A
therein, dated as of June 2, 1995
10.6 Stock and Warrant Purchase Agreement among the Registrant and the investors listed
on Schedule A therein, dated as of June 2, 1995
10.7 Rights Agreement between the Registrant and Barry Mindes, dated as of June 20, 1996
10.8 Form of Stockholders Agreement among the Registrant, Barry Mindes and all
stockholders of the Registrant (other than stockholders who are party to the Rights
Agreement referred to in 10.5 above)
10.9 Lease between Eastern American Mortgage Company, Inc. and the Registrant, dated June
9, 1995
10.10* Form of Indemnification Agreement to be entered into between the Registrant and its
directors and executive officers
10.11 1995 Stock Option Plan
10.12 1996 Stock Option Plan
10.13 Voting Agreement among the Registrant, Barry Mindes and the investors listed on
Schedule A therein, dated as of June 2, 1995
23.1 Consent of KPMG Peat Marwick LLP
23.2* Consent of Rubin Baum Levin Constant & Friedman (contained in the Opinion filed as
Exhibit 5.1)
24.1 Power of Attorney (Included on page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum Offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if,
II-3
<PAGE>
in the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate Offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on the
plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the Offering of the securities at that time 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) The Registrant hereby undertakes to provide the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
(d) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A under the Securities Act
and contained in a form of prospectus filed by the Registrant under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Securities and Exchange Commission
declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered in the
registration statement, and that 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, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, New York on October 29, 1996.
<TABLE>
<S> <C> <C>
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ BARRY MINDES
------------------------------------------
Barry Mindes, Chairman of the Board
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Mindes and Bernard Albanese, or any one of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign and file (i) any and all pre- or post-effective
amendments to this Registration Statement, with all exhibits hereto, relating to
the Offering covered hereby, and (ii) any registration statement, and any and
all amendments thereto, relating to the Offering covered hereby pursuant to Rule
462(b) under the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ BARRY MINDES Chairman of the Board of October 29, 1996
- ------------------------------ Directors (Principal
Barry Mindes Executive Officer)
/s/ BERNARD ALBANESE President, Treasurer and October 29, 1996
- ------------------------------ Director
Bernard Albanese
/s/ JENEENE M. NORMAN Chief Financial Officer October 29, 1996
- ------------------------------ (Principal Financial and
Jeneene M. Norman Accounting Officer)
/s/ FREDRIC KUPERSMITH Director October 29, 1996
- ------------------------------
Fredric Kupersmith
/s/ JANET B. MINDES Director October 29, 1996
- ------------------------------
Janet B. Mindes
/s/ HAROLD RAPAPORT Director October 29, 1996
- ------------------------------
Harold Rapaport
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.1(a) Amendment, filed October 24, 1996, to Certificate of Incorporation of the Registrant
3.2 By-Laws of the Registrant
4.1 Form of Representatives' Option Agreement
4.2* Form of Stock Certificate
4.3 Form of Bridge Warrant
4.4 Form of Bridge Note
5.1* Opinion of Rubin Baum Levin Constant & Friedman
10.1 Employment Agreement between the Registrant and Barry Mindes, dated as of May 22, 1995
10.2 Employment Agreement between the Registrant and Bernard Albanese, dated as of June 1, 1995
10.3 Form of Proprietary Information, Inventions and Non-Solicitation Agreement
10.4 Form of Subscription Agreement
10.5 Rights Agreement among the Registrant and the investors listed on Schedule A therein, dated as of
June 2, 1995
10.6 Stock and Warrant Purchase Agreement among the Registrant and the investors listed on Schedule A
therein, dated as of June 2, 1995
10.7 Rights Agreement between the Registrant and Barry Mindes, dated as of June 20, 1996
10.8 Form of Stockholders Agreement among the Registrant, Barry Mindes and all stockholders of the
Registrant (other than stockholders who are party to the Rights Agreements referred to in 10.5
and 10.6 above)
10.9 Lease between Eastern American Mortgage Company, Inc. and the Registrant, dated June 9, 1995
10.10* Form of Indemnification Agreement to be entered into between the Registrant and its directors and
executive officers
10.11 1995 Stock Option Plan
10.12 1996 Stock Option Plan
10.13 Voting Agreement among the Registrant, Barry Mindes and the investors listed on Schedule A
therein dated as of June 2, 1995
23.1 Consent of KPMG Peat Marwick LLP
23.2* Consent of Rubin Baum Levin Constant & Friedman (contained in the Opinion filed as Exhibit 5.1)
24.1 Power of Attorney (Included on page II-5)
27.1 Financial Data Schedule
</TABLE>
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* To be filed by amendment.
<PAGE>
[1,500,000] Shares of Common Stock
INTERNATIONAL SPORTS WAGERING INC.
UNDERWRITING AGREEMENT
_________ ___, 1996
Barington Capital Group, L.P.
GKN Securities Corp.
As Representatives of the several
Underwriters named in
Schedule I attached hereto
c/o Barington Capital Group, L.P.
888 Seventh Avenue
New York, New York 10019
Dear Sirs:
The undersigned, International Sports Wagering Inc., a Delaware
corporation (the "Company"), hereby confirms its agreement with you (the
"Representatives") and the other underwriters named in Schedule I hereto (you
and the other underwriters being herein collectively called the "Underwriters")
in connection with a proposed offering of securities (the "Offering") as
follows:
1. INTRODUCTORY. The Company proposes to issue and sell to the
Underwriters [1,500,000] shares (the "Firm Stock") of Common Stock, par value
$.001 per share, of the Company (the "Common Stock"). In addition, solely for
the purpose of covering over-allotments, the Company proposes to grant the
Underwriters the option to purchase from it up to an additional [225,000] shares
(the "Additional Stock") of Common Stock. The Common Stock is more fully
described in the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Act"), a registration statement, and may have filed one or more amendments
thereto, on Form SB-2 (Registration No. 333- ), including in such
registration statement and each such amendment a related Preliminary
Prospectus (as hereinafter defined) for the registration of (i) the Firm
Stock; (ii) the Additional Stock; (iii) the Common Stock purchase options
referred to in Section 5(v)
<PAGE>
(the "Representatives' Options"); (iv) the shares of Common Stock (the
"Representatives' Option Stock") issuable upon exercise of the
Representatives' Options; and (v) the shares of Common Stock (the "Bridge
Stock") issuable upon exercise of the warrants issued to investors in
connection with the bridge financing (the "Bridge Financing") consummated
prior to the Offering (the Firm Stock, the Additional Stock, the
Representatives' Options, the Representatives' Option Stock and the Bridge
Stock are collectively referred to as the "Securities").
The term "Registration Statement" as used in this Agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Offering (herein called a
"Rule 462(b) registration statement"), and, in the event of any amendment
thereto after the effective date of such registration statement (herein called
the "Effective Date"), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any Rule 462(b)
registration statement). The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares first filed with the Commission
pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as
included in the Registration Statement) and, in the event of any supplement or
amendment to such prospectus after the Effective Date, shall also mean (from and
after the filing with the Commission of such supplement or the effectiveness of
such amendment) such prospectus as so supplemented or amended. The term
"Preliminary Prospectus" as used in this Agreement shall mean each prospectus
subject to completion included in such registration statement and any amendment
thereto (including the prospectus subject to completion, if any, included in
the Registration Statement or any amendment thereto at the time it is declared
effective.
(b) When any Preliminary Prospectus was filed with the Commission it (i)
contained all statements required to be stated therein in accordance with,
and complied in all material respects with the requirements of, the Act and
the rules and regulations of the Commission thereunder (the "Regulations"),
and (ii) did not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto becomes effective,
and at all times subsequent thereto to and including the Closing Date (as
defined in Section 3) and each Additional Closing Date (as defined in
Section 3), and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriter or a dealer, and
during such longer period until any post-effective amendment thereto shall
become effective, the Registration Statement (and any post-effective amendment
thereto) and the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment or supplement to the
Registration Statement or the Prospectus) will: (i) contain all statements
required to be stated therein in accordance with, and will comply in all
material respects with the requirements of the Act and the Regulations, and
(ii) not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; no event shall have occurred which should
have been set forth in an amendment or supplement to the Registration
Statement or
-2-
<PAGE>
the Prospectus which has not then been set forth in such an amendment or
supplement; if a Prospectus containing such information (the "Rule 430A
Information") as is required or permitted by Rule 430A of the Act is included in
the Registration Statement at the time it becomes effective, the Prospectus
filed pursuant to Rules 430A and 424(b)(1) or (4) will: (i) contain all Rule
430A Information, (ii) contain all statements which are required to be stated
therein in accordance with the Act or the Regulations, and will comply with the
Act and the Regulations, and (iii) will not 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 statement therein not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made
in any Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company as
stated in Section 8(b) with respect to any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b), then (i) the
Company has filed a Rule 462(b) Registration Statement in compliance with and
that is effective upon filing pursuant to Rule 462(b) and has received
confirmation of its receipt, and (ii) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 promulgated under the Act or the Commission has received payment of such
filing fee.
(d) Neither the Commission nor the "blue sky" or securities authority of
any jurisdiction have issued an order (a "Stop Order") suspending the
effectiveness of the Registration Statement, preventing or suspending the use of
any Preliminary Prospectus, the Prospectus, the Registration Statement, or any
amendment or supplement thereto, refusing to permit the effectiveness of the
Registration Statement, or suspending the registration or qualification of any
of the Securities, nor has any of such authorities instituted or threatened to
institute any proceedings with respect to a Stop Order.
(e) Any contract, agreement, instrument, lease, or license required to
be described in the Registration Statement or the Prospectus has been
properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to the Registration Statement.
(f) The Company has no subsidiaries (as defined in the Regulations).
The Company is a corporation duly organized, validly existing, and in good
standing under the laws of Delaware, with full corporate power and authority,
and all necessary consents, authorizations, approvals, orders, licenses,
certificates, and permits of and from, and declarations and filings with, all
federal, state, local, and other governmental authorities and all courts and
other tribunals, to own, lease, license, and use its properties and assets
and to carry on the business in the manner described in the Prospectus. The
Company is duly qualified to do business and is in good standing in every
jurisdiction in which its
-3-
<PAGE>
ownership, leasing, licensing, or use of property and assets or the conduct of
its business makes such qualification necessary.
(g) The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, of which 6,024,277 shares are outstanding, and
2,000,000 shares of undesignated preferred stock, par value $.001 per share,
of which no shares are outstanding. Each outstanding share of Common Stock
is validly authorized, validly issued, fully paid, and nonassessable, without
any personal liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive rights of
stockholders. There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company or any security or other instrument
which by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as may be properly described in the
Prospectus. There is outstanding no security or other instrument which by
its terms is convertible into or exchangeable for capital stock of the
Company except for (i) options to purchase no more than an aggregate of
1,467,398 shares of Common Stock pursuant to the Company's existing stock
option plans, and (ii) warrants to purchase 195,000 shares of Common Stock
issued in connection with the Bridge Financing, all of which have been
properly described in the Prospectus. There is outstanding no indebtedness
other than (i) trade payables incurred in the ordinary course of business,
(ii) certain capital lease obligations, and (iii) $650,000 principal amount
of 10% Senior Promissory Notes issued in connection with the Bridge Financing.
(h) The financial statements of the Company included in the Registration
Statement and the Prospectus, fairly present the financial position, the
results of operations, and the other information purported to be shown
therein at the respective dates and for the respective periods to which they
apply. Such financial statements have been prepared in accordance with
generally accepted accounting principles (except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), consistently applied
throughout the periods involved, are correct and complete, and are in
accordance with the books and records of the Company. The accountants whose
report on the audited financial statements is filed with the Commission as a
part of the Registration Statement are, and during the periods covered by
their report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants within the meaning of the Act
and the Regulations. No other financial statements are required by Form SB-2
or otherwise to be included in the Registration Statement or the Prospectus.
There has at no time been a material adverse change in the financial
condition, results of operations, business, properties, assets, liabilities,
or future prospects of the Company from the latest information set forth in
the Registration Statement or the Prospectus, except as may be properly
described in the Prospectus.
-4-
<PAGE>
(i) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, threatened, or in
prospect (or any basis therefor) with respect to the Company, or any of its
operations, business, properties, assets, liabilities or future prospects,
except as may be properly described in the Prospectus or such as individually
or in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or assets
of the Company. The Company is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree except as
may be properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a material adverse effect upon
the operations, business, properties, or assets of the Company; nor is the
Company required to take any action in order to avoid any such violation or
default.
(j) The Company has good and marketable title in fee simple absolute to
all real properties and good title to all other properties and assets which
the Prospectus indicates are owned by it, free and clear of all liens,
security interests, pledges, charges, encumbrances, and mortgages (except as
may be properly described in the Prospectus. No real property owned, leased,
licensed, or used by the Company lies in an area which is, or to the
knowledge of the Company will be, subject to zoning, use, or building code
restrictions which would prohibit, and no state of facts relating to the
actions or inaction of another person or entity or his or its ownership,
leasing, licensing, or use of any real or personal property exists or will
exist which would prevent, the continued effective ownership, leasing,
licensing, or use of such real property in the business of the Company as
presently conducted or as the Prospectus indicates it contemplates conducting
(except as may be properly described in the Prospectus).
(k) The Company, or to the knowledge of the Company any other party, is
not now or not expected by the Company, to be in violation or breach of, or in
default with respect to, complying with any material provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as to
them in accordance with its terms. The Company enjoys peaceful and undisturbed
possession under all leases and licenses under which it is operating. The
Company is not a party to or bound by any contract, agreement, instrument,
lease, license, arrangement, or understanding, or subject to any charter or
other restriction, which has had or may in the future have a material adverse
effect on the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company. The Company is not in
violation or breach of, or in default with respect to, any term of its
certificate of incorporation (or other charter document) or by-laws.
(l) All patents, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, franchises, and other intangible
properties and assets (all of the foregoing being herein called "Intangibles")
that the Company owns or has pending, or under which it is
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licensed, are in good standing and uncontested. The "SportsXction" name and
its related logo is a trademark and service mark used by the Company to
identify its products, and such trademarks and service marks are protected by
registration in the name of the Company on the principal register in the
United States Patent and Trademark Office. There is no right under any
Intangible necessary to the business of the Company as presently conducted or
as the Prospectus indicates it contemplates conducting (except as may be so
designated in the Prospectus). The Company has not infringed, is not
infringing, and has not received notice of infringement with respect to
asserted Intangibles of others. To the knowledge of the Company, there is no
infringement by others of Intangibles of the Company. To the knowledge of
the Company, there is no Intangible of others which has had or may in the
future have a materially adverse effect on the financial condition, results
of operations, business, properties, assets, liabilities, or future prospects
of the Company.
(m) Neither the Company nor any director, officer, agent, employee, or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(n) The Company has all requisite corporate power and authority to
execute, deliver, and perform each of (i) this Agreement, and (ii) the
certificates evidencing the Representatives' Options (the "Representatives'
Option Agreement" and collectively with this Agreement, the "Company
Documents"). All necessary corporate proceedings of the Company have been duly
taken to authorize the execution, delivery, and performance of each of the
Company Documents by the Company. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and is enforceable as to the Company in accordance
with its terms. The Representatives' Option Agreement has been duly authorized
by the Company and, when executed and delivered by the Company, will be, the
legal, valid, and binding obligation of the Company, enforceable against the
Company in accordance with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution, delivery, or
performance by the Company of any of the Company Documents (except filings under
the Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or state securities laws
which have been obtained at or prior to the date of this Agreement). No consent
of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a party, or to which any
of its properties or assets are subject, is required for the execution,
delivery, or performance of the Company Documents; and the execution, delivery,
and performance of any of the Company Documents will not violate, result in a
breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license, arrangement, or
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understanding, or violate or result in a breach of any term of the certificate
of incorporation (or other charter document) or by-laws of the Company or
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject.
(o) The Firm Stock and the Additional Stock are validly authorized and,
when issued and delivered in accordance with this Agreement, will be validly
issued, fully paid, and nonassessable, without any personal liability attaching
to the ownership thereof, and will not be issued in violation of any preemptive
rights of stockholders. The Underwriters will receive good title to the Firm
Stock and Additional Stock purchased by them, respectively, free and clear of
all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts.
(p) The Representatives' Option Stock is validly authorized and reserved
for issuance and, when issued and delivered upon exercise of the
Representatives' Options, in accordance with the Representatives' Option
Agreement, the Representatives' Option Stock will be validly issued, fully paid
and non-assessable, without any personal liability attaching to ownership
thereof, and will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Representatives' Options will receive good
title to the securities purchased by them, respectively, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts.
(q) The Common Stock, the Securities and the Representatives' Option
Agreement conform to all statements relating thereto contained in the
Registration Statement or the Prospectus.
(r) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as may otherwise
be properly described in the Prospectus, the Company has not (i) issued any
securities or incurred any liability or obligation, primary or contingent,
for borrowed money, (ii) entered into any transaction not in the ordinary
course of business, or (iii) declared or paid any dividend on its capital
stock.
(s) Neither the Company nor any of its officers, directors, or affiliates
(as defined in the Regulations), has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Firm Stock or Additional Stock.
(t) The Company has obtained from each of its directors, officers, and
affiliates (as defined in the Regulations), and from each other person or entity
who beneficially owned, as of the effective date of the Registration Statement,
any unregistered shares of Common Stock (an "Original Stockholder"), an
enforceable written agreement, in form and substance satisfactory to
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counsel for the Underwriters, that for a period of 12 months from the effective
date of the Registration Statement he, she or it will not, without the prior
written consent of Barington Capital Group, L. P. ("Barington"), offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock issuable under any
outstanding stock options other than (i) the sale of an aggregate of 25,000
shares of Common Stock underlying outstanding stock options held by employees of
the Company other than ________, and (ii) transfers by an Original Stockholder
(a) by gift, will or by the laws of descent and distribution, or otherwise to an
Original Stockholder's spouse, children or grandchildren, (b) a trust for the
benefit of an Original Stockholder's spouse, children or grandchildren, (c) a
partnership, the general partner of which is the Original Stockholder or a
corporation, a majority of whose outstanding stock is owned of record or
beneficially by the Original Stockholder or any of the foregoing, or (d)
partners of the Original Stockholder in connection with a distribution of the
Company's Common Stock to such partners; PROVIDED THAT, in each such case, each
such transferee agrees in writing to be bound by such transfer restrictions as
if such transferee were a party thereto.
(u) No person or entity has the right, other than any such person who has
delivered a waiver of such right, to require the Company to register any
securities for offering and sale under the Act by reason of the filing of the
Registration Statement with the Commission or the issue and sale of the
Securities.
(v) Except as may be set forth in the Prospectus, the Company has not
incurred any liability for a fee, commission, or other compensation on account
of the employment of a broker or finder in connection with the transactions
contemplated by this Agreement.
(w) The Company has obtained from each existing Principal Stockholder (as
defined in Section 5(x)) his enforceable written agreement in form and substance
satisfactory to counsel for the Underwriters, to comply with the provisions of
Section 5(x).
(x) Neither the Company nor any of its subsidiaries or affiliates is
presently doing business with the government of Cuba or with any person or
affiliate located in Cuba. If, at any time after the date that the Registration
Statement is declared effective with the Commission or with the Florida
Department of Banking and Finance (the "Florida Department"), whichever date is
later, and prior to the end of the period referred to in the first clause of
Section 2(b), the Company commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba, the Company will so inform
the Florida Department within ninety days after such commencement of business in
Cuba, and during the period referred to in Section 2(b) will inform the Florida
Department within ninety days after any change occurs with respect to previously
reported information.
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(y) The Securities have been approved for quotation on the NASDAQ SmallCap
Market, subject to official notice of issuance.
(z) The Securities have been approved for listing on the Boston Stock
Exchange, subject to official notice of issuance.
(aa) Except as contemplated herein or therein or as may have been waived,
no person or entity has any right of first refusal, preemptive right, right to
any compensation, or other similar right or option, in connection with the
Offering, this Agreement, the Representatives' Options or any of the
transactions contemplated hereby or thereby.
3. PURCHASE, SALE, AND DELIVERY OF THE FIRM STOCK AND THE ADDITIONAL
STOCK. On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to the several
Underwriters, and the Underwriters, severally and not jointly, agree to purchase
from the Company, the numbers of shares of Firm Stock set opposite the
respective names of the Underwriters in Schedule I hereto.
The purchase price per share of Firm Stock to be paid by the several
Underwriters shall be $__________. The initial public offering price per share
of Firm Stock shall be $_________.
Payment for the Firm Stock by the Underwriters shall be made by certified
or official bank check or checks drawn upon or by New York Clearing House bank
and payable in next day funds to the order of the Company at the offices of
Barington Capital Group, L.P., 888 Seventh Avenue, New York, New York 10019, or
at such other place in the New York City Metropolitan Area as you shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of the Firm Stock to you for the respective accounts of the
Underwriters. Such delivery and payment shall be made at 10:00 A.M., New York
City Time, on the third business day following the commencement of the Offering,
or at such other time as shall be agreed upon between you and the Company. The
time and date of such delivery and payment are herein called the "Closing Date."
Certificates for the Firm Stock shall be registered in such name or names
and in such authorized denominations as you may request in writing at least two
full business days prior to the Closing Date. The Company shall permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.
In addition, the Company hereby grants to the several Underwriters the
option to purchase all or a portion of the Additional Stock as may be necessary
to cover over-allotments, at the same purchase price per share to be paid by the
several Underwriters to the Company for the Firm Stock as provided for in this
Section 3. The Additional Stock shall be purchased by the several Underwriters
from the Company as provided herein, pro rata in accordance with the ratio which
the number of shares of Firm Stock set forth opposite such Underwriter's name on
Schedule I bears to the total number of shares of Firm Stock, subject to
adjustment to avoid fractional shares. This option may be exercised only to
cover over-allotments in the sale of Firm Stock by the several
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Underwriters. This option may be exercised by you on the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the forty-fifth day following the effective
date of the Registration Statement, by written notice by you to the Company.
Such notice shall set forth the aggregate number of shares of Additional Stock
as to which the option is being exercised and the time and date, as determined
by you, when such Additional Stock is to be delivered (such time and date are
herein called an "Additional Closing Date"); provided, however, that no
Additional Closing Date shall be earlier than the Closing Date nor earlier than
the second business day after the date on which the notice of the exercise of
the option shall have been given nor later than the eighth business day after
the date on which such notice shall have been given.
Payment for the Additional Stock by the Underwriters shall be made by
certified or official bank check or checks drawn upon or by New York Clearing
House bank and payable in next day funds to the order of the Company at the
offices of Barington Capital Group, L.P., 888 Seventh Avenue, New York, New York
10019, or at such other place in the New York City Metropolitan Area as you
shall determine and advise the Company by at least two full day's notice in
writing, upon delivery of the shares of Additional Stock to you for the
respective accounts of the Underwriters.
Certificates for the Additional Stock shall be registered in such name or
names and in such authorized denominations as you may request in writing at
least two full business day prior to the Additional Closing Date with respect
thereto. The Company shall permit you to examine and package such certificates
for delivery at least one full business day prior to the Additional Closing Date
with respect thereto.
4. OFFERING. The Underwriters are to make a public offering of the Firm
Stock as soon, on or after the effective date of the Registration Statement, as
you deem it advisable so to do. The Firm Stock is to be initially offered to
the public at the initial public offering price as provided for in Section 3
(such price being herein called the "public offering price"). After the initial
public offering, you may from time to time increase or decrease the public
offering price, in your sole discretion, by reason of changes in general market
conditions or otherwise.
5. COVENANTS OF THE COMPANY. The Company covenants that it will:
(a) Use its best efforts to cause the Registration Statement, if not
effective at the time of execution of this Agreement, and any amendments
thereto to become effective as promptly as possible. If the Registration
Statement has become or becomes effective with a form of prospectus
omitting Rule 430A Information, or filing of the Prospectus is otherwise
required under Rule 424(b), the Company will file the Prospectus, properly
completed, pursuant to Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to you of such timely filing. During
any time when a prospectus relating to the Firm Stock and the Additional
Stock is required to be delivered hereunder or under the Act or the
Regulations, the Company (i) will comply with all requirements imposed upon
it by the Act, as now existing and hereafter amended, and the Regulations,
as
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<PAGE>
from time to time in force, to the extent necessary to permit the
continuance of sales of or dealings in the Firm Stock or Additional Stock,
in accordance with the provisions hereof and of the Prospectus, as then
amended or supplemented, and (ii) will not file with the Commission the
Prospectus, any amendment or supplement to the Prospectus, or any amendment
to the Registration Statement of which the Representatives shall not have
given its consent. The Company will prepare and file with the Commission,
in accordance with the rules and regulations of the Commission, promptly
upon request by the Representatives or counsel for the Underwriters, any
amendments to the Registration Statement or amendments or supplements to
the Prospectus that may be necessary or advisable in connection with the
distribution of the Firm Stock and the Additional Stock by the several
Underwriters, and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective by the Commission as
promptly as possible.
(b) Notify you immediately, and confirm such notice in writing, (i)
when the Registration Statement and any post-effective amendment thereto
become effective, (ii) of the receipt of any comments from the Commission
or the "blue sky" or securities authority of any jurisdiction regarding the
Registration Statement, any post-effective amendment thereto, the
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, and (iii) of the receipt of any notification with respect to a
Stop Order or the initiation or threatening of any proceeding with respect
to a Stop Order. The Company will use its best efforts to prevent the
issuance of any Stop Order and, if any Stop Order is issued, to obtain the
lifting thereof as promptly as possible.
(c) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Firm Stock and the Additional Stock is required
to be delivered hereunder or under the Act or the Regulations, or (ii) the
Additional Closing Date, any event occurs as a result of which the
Registration Statement or the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or
if for any other reason it is necessary at any time to amend or supplement
the Registration Statement or the Prospectus to comply with the Act or the
Regulations, the Company will promptly notify the Representatives thereof
and, subject to Section 5(a) hereof, will prepare and file with the
Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects
such statement or omission or effects such compliance.
(d) The Company will, without charge, provide (i) to each of the
Representatives and to counsel for the Underwriters a signed copy of the
Registration Statement and each amendment thereto (in each case including
exhibits thereto), (ii) to each other Underwriter, a conformed copy of such
registration statement and each amendment thereto (in each case without
exhibits thereto), and (iii) so long as a prospectus relating to the Firm
Stock and the Additional Stock is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, as the Representatives may reasonably
request; without limiting the application of clause (iii) of
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this sentence, the Company, no later than (A) 6:00 P.M., New York City
time, on the date of determination of the public offering price, if such
determination occurred at or prior to 12:00 Noon, New York City time, on
such date or (B) 6:00 P.M., New York City time, on the business day
following the date of determination of the public offering price, if such
determination occurred after 12:00 Noon, New York City time, on such date,
will deliver to the Representatives, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Representatives
may reasonably request for purposes of confirming orders that are expected
to settle on the Closing Date.
(e) Endeavor in good faith, in cooperation with you, at or prior to
the time the Registration Statement becomes effective, to qualify the Firm
Stock and the Additional Stock for offering and sale under the "blue sky"
or securities laws of such jurisdictions as you may designate; provided,
however, that no such qualification shall be required in any jurisdiction
where, as a result thereof, the Company would be subject to service of
general process or to taxation as a foreign corporation doing business in
such jurisdiction to which it is not then subject. In each jurisdiction
where such qualification shall be effected, the Company will, unless you
agree in writing that such action is not at the time necessary or
advisable, file and make such statements or reports at such times as are or
may be required by the laws of such jurisdiction.
(f) Use its best efforts to keep the Prospectus and the Registration
Statement current and effective by filing post-effective amendments, as
necessary.
(g) Make generally available (within the meaning of Section 11(a) of
the Act and the Regulations) to its security holders as soon as
practicable, but not later than ____________, 1997, an earnings statement
(which need not be certified by independent certified public accountants
unless required by the Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Act and the Regulations) covering a
period of at least 12 months beginning after the effective date of the
Registration Statement.
(h) For a period of 12 months after the date of the Prospectus, not,
without your prior written consent, offer, issue, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or other securities of the Company
(or any security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for shares of Common Stock or other
securities of the Company) except as provided in Section 3 and except for
(i) the issuance of Common Stock issuable upon the exercise of stock
options and warrants outstanding on the date hereof which are properly
described in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), and (ii) the issuance of the
Securities.
(i) For a period of five years after the effective date of the
Registration Statement, furnish you, without charge, the following:
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(i) within 90 days after the end of each fiscal year, three
copies of financial statements certified by independent certified
public accountants, including a balance sheet, statement of income,
and statement of cash flows of the Company and its then existing
subsidiaries, with supporting schedules, prepared in accordance with
generally accepted accounting principles, as at the end of such fiscal
year and for the 12 months then ended, which may be on a consolidated
basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission, three copies
of each annual and interim financial and other report or communication
sent by the Company to its stockholders or filed with the Commission;
(iii) as soon as practicable, two copies of every press release
and every material news item and article in respect of the Company or
its affairs which was released by the Company; and
(iv) such additional documents and information with respect to
the Company and its affairs and the affairs of any of its subsidiaries
as you may from time to time reasonably request.
(j) Apply the net proceeds received by it from the Offering in the
manner set forth under "Use of Proceeds" in the Prospectus.
(k) Furnish to you as early as practicable prior to the Closing Date
and any Additional Closing Date, as the case may be, but no less than two
full business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements of the Company and its
consolidated subsidiaries which have been read by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 7(e).
(l) Comply with all registration, filing, and reporting requirements
of the Exchange Act which may from time to time be applicable to the
Company.
(m) Comply with all provisions of all undertakings contained in the
Registration Statement.
(n) Prior to the Closing Date or any Additional Closing Date, as the
case may be, issue no press release or other communication directly or
indirectly, and hold no press conference with respect to the Company, the
financial conditions, results of operations, business, properties, assets,
liabilities of the Company, or this offering, without your prior written
consent.
(o) File timely with the Commission an appropriate form to register
the Common Stock pursuant to Section 12(b) under the Exchange Act.
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<PAGE>
(p) File timely and accurate reports on Form SR with the Commission
in accordance with Rule 463 of the Regulations or any successor provision.
(q) If the principal shareholders, officers, or directors of the
Company are required by the "blue sky" or securities authority of any
jurisdiction selected by you pursuant to Section 5(e) to escrow or agree to
restrict the sale of any security of the Company owned by them for the
Company to qualify or register the Common Stock for sale under the "blue
sky" or securities laws of such jurisdiction, cause each such person to
escrow or restrict the sale of such security on the terms and conditions
and in the form specified by the securities administrator of such
jurisdiction.
(r) Use its best efforts to cause the application for quotation of
the Firm Stock and the Additional Stock on the Nasdaq SmallCap Market
("NASDAQ") to be approved as soon as possible.
(s) Use its best efforts to complete the listing of the Securities on
the Boston Stock Exchange.
(t) On or prior to the Closing Date, sell to the Representatives (or
their respective designees), individually and not as representatives of the
Underwriters, the Representatives' Options to purchase an aggregate of
[150,000] shares of Common Stock, which Representatives' Options shall be
evidenced by the Representatives' Option Agreement in the form set forth as
an exhibit to the Registration Statement.
(u) Until expiration of the Representatives' Options, keep reserved
sufficient shares of Common Stock for issuance upon exercise of the
Representatives' Options.
(v) Deliver to you, without charge, within a reasonable period after
the last Additional Closing Date or the expiration of the period in which
the Underwriters may exercise the over-allotment option, three bound
volumes of the Registration Statement and all related materials.
(w) For a period of five years after the Closing Date, supply to the
appropriate parties such information as may be necessary or desirable, and
otherwise use its best efforts, so that during such five-year period the
Company will be listed in one or more of the securities manuals published
by Standard & Poor's Corporation and Moody's Investors Service, Inc. and
that at all times during such period such listing will, at a minimum,
contain the names of the Company's officers and directors, a balance sheet
as of a date not more than 18 months prior to such time, and a statement of
operations for either the fiscal year preceding such date or the most
recent fiscal year of operations.
(x) Until the expiration of two years from the Closing Date, afford
Barington, individually and not as a representative of the Underwriters,
the right of first refusal to purchase for Barington's own account or to
sell for the account of the Company or any
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subsidiary of or successor to the Company, or any of the Company's
stockholders owning at least five percent (5%) of the Common Stock (the
"Principal Stockholders"), any securities of the Company or any such
subsidiary or successor which the Company or any such subsidiary or
successor or any of the Principal Stockholders may seek to sell (other than
(i) sales in connection with a joint venture, strategic partnership or
other similar arrangement or to a strategic investor approved by the
Company, (ii) sales in connection with a debt financing or equipment
leasing arrangement, or (iii) sales of small amounts of securities by
Principal Stockholders through brokers in open market transactions),
whether pursuant to registration under the Act or otherwise. Any of the
Company or any subsidiary or successor to the Company intending to make
such an offering is hereinafter referred to as a "Company Offeror." If
during such two-year period any Company Offeror or Principal Stockholder
intends to make an offering, the Company shall notify Barington of such
intention and of the proposed terms of the offering and will offer to
Barington the opportunity to purchase or sell all (but not less than all)
such securities on terms not more favorable to the Company Offeror or
Principal Stockholder, as the case may be, than those of the proposed
offering. The Company shall thereafter promptly furnish you with such
information concerning the operations, business, properties, or assets of
the Company or such subsidiary or successor and, if applicable, the
Principal Stockholder shall furnish such information concerning himself, as
you may reasonably request. If within 10 business days (5 business days
with respect to any non-public sale of such stock) after such notice
Barington does not accept in writing the offer to purchase or sell such
securities for Barington's own account, as aforesaid with respect to such
offering upon the terms proposed, the Company Offeror or Principal
Stockholder, as the case may be, shall be free to enter into discussions
with other underwriters with respect to such offering and to effect such
offering upon such proposed terms. Before the Company Offeror or Principal
Stockholder, as the case may be, shall accept any proposal less favorable
to it or him than that conveyed to Barington in such notice, the rights set
forth in this Section 5(x) shall be reinstated and the same procedure with
respect to such modified proposal as provided above shall be adopted.
Barington's failure to exercise its rights under this Section 5(x) with
respect to any particular proposed offering shall not affect its rights
under this section 5(x) with respect to any other proposed offering.
Notwithstanding the foregoing, in the event that such future proposal
relates to an underwritten public offering to be lead managed by an
institutionally-based major bracket or large regional underwriting firm,
Barington agrees that it shall only have the right to co-manage such
offering (right hand side of prospectus) provided Barington receives at
least 25% of the total economics and 25% of the total number of shares to
be issued or sold in such offering. In lieu of the foregoing preferential
right, the Company may elect to pay Barington a fee of $300,000 upon the
closing of any sale of securities to which such right would otherwise have
applied. Payment of such fee will release the Company Offerors and the
Principal Stockholders of any and all obligations to Barington with respect
to such preferential right for that transaction As Well As All Future
Transactions To Which Such Right Might Otherwise Have Applied. The Company
will use its best efforts to cause its Principal Stockholders to comply
with the provisions of this Section 5(x).
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6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all
expenses (other than fees of counsel for the Underwriters, except as
provided in Sections 6(c) and 6(e)) in connection with (a) the preparation,
printing, filing, distribution, and mailing of the Registration Statement,
any Preliminary Prospectus, the Prospectus and the printing, filing,
distribution, and mailing of this Agreement, any Agreement Among
Underwriters, any selected dealers agreement, any Blue Sky Survey, and if
appropriate, any Underwriter's Questionnaire and Power of Attorney, and
related documents, including the cost of all copies thereof and of the
Preliminary Prospectuses and of the Prospectus and any amendments or
supplements thereto supplied to the Underwriters in quantities as
hereinabove stated, (b) the issuance, sale, transfer, and delivery of the
Firm Stock and the Additional Stock, including any transfer or other taxes
payable thereon, (c) the qualification of the Firm Stock and the Additional
Stock under state or foreign "blue sky" or securities laws, including the
costs of printing and mailing the preliminary and final "Blue Sky Survey"
and the fees of counsel for the Underwriters (up to a maximum of $30,000)
and related disbursements in connection therewith, (d) the filing fees
payable to the Commission, the NASD, and the jurisdictions in which such
qualification is sought, (e) the reasonable fees of counsel for the
Underwriters and the disbursements in connection therewith relating to all
filings with the NASD, (f) the quotation of the Common Stock on the NASDAQ
SmallCap Market and the listing of the Common Stock on the Boston Stock
Exchange, (g) the fees and expenses of the Company's transfer agent and
registrar, (h) the fees and expenses of the Company's legal counsel and
accountants, (i) the costs of placing a "tombstone" advertisement in the
national edition of the WALL STREET JOURNAL and in such other publications
as the Representatives shall determine which shall not exceed $10,000, and
(j) the costs of preparing a reasonable number of bound volumes. In
addition, the Company hereby agrees to pay to the Representatives a
non-accountable expense allowance equal to 3% of the aggregate gross
proceeds received by the Company from the sale of the Firm Stock and the
Additional Stock, which amounts (less amounts, if any, previously paid to
you in respect of such non-accountable expense allowance) shall be paid to
you on the Closing Date (with respect to Firm Stock sold by the Company on
the Closing Date) and, if applicable, on the Closing Date and any
Additional Closing Date (with respect to Additional Stock sold by the
Company on the Closing Date or such Additional Closing Date).
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, shall be subject, in their discretion, to the
continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as of the date hereof and as of the Closing
Date (or the Additional Closing Date, as the case may be), to the performance by
the Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective not later
than 6:00 P.M., New York City Time, on the date of this Agreement or such
later date and time as shall be consented to in writing by you.
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(b) At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received the favorable opinion of Rubin Baum Levin
Constant & Friedman, counsel for the Company, dated the date of delivery,
addressed to the Underwriters, and in form, scope and satisfactory to
counsel for the Underwriters, with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
(i) the Company is a corporation, duly organized, validly
existing, and in good standing under the laws of Delaware with full
corporate power and authority, and all necessary consents,
authorizations, approvals, orders, certificates, and permits of and
from, and declarations and filings with, all federal, state, local,
and other governmental authorities and all courts and other tribunals,
to own, lease, license, and use its properties and assets and to
conduct its business in the manner described in the Prospectus. The
Company is duly qualified to do business and is in good standing in
every jurisdiction in which its ownership, leasing, licensing, or use
of property and assets or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified
does not now have and will not in the future have a material adverse
effect on the operations, business, properties, or assets of the
Company.
(ii) the authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, of which 6,024,277 shares are
outstanding, and 2,000,000 shares of undesignated preferred stock, par
value $.001 per share, of which no shares are outstanding. Each
outstanding share of Common Stock is validly authorized, validly
issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof has not been issued and is not
owned or held in violation of any preemptive right of stockholders.
To the knowledge of such counsel, there is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant, or other
right calling for the issuance of, any share of capital stock of the
Company, or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for capital stock
of the Company, except as may be properly described in the Prospectus.
There is outstanding no security or other instrument which by its
terms is convertible into or exchangeable for capital stock of the
Company except as may be properly described in the Prospectus;
(iii) to the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect (or
any basis therefor) with respect to the Company, or any of its
operations, businesses, properties, or assets except as may be
properly described in the Prospectus or as individually or in the
aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, or assets of
the Company. To the knowledge of such counsel, the Company is not in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as may be properly
described in the Prospectus or such as in the aggregate do not now
have and will not in the future
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have a material adverse effect upon the operations, business,
properties, or assets of the Company; nor is the Company required to
take any action in order to avoid any such violation or default;
(iv) to the knowledge of such counsel, neither the Company nor
any other party is now or is expected by the Company to be in
violation or breach of, or in default with respect to, complying with
any material provision of any contract, agreement, instrument, lease,
license, arrangement, or understanding known to such counsel which is
material to the Company;
(v) the Company is not in violation or breach of, or in default
with respect to, any term of its certificate of incorporation (or
other charter document) or by-laws;
(vi) the Company has all requisite corporate power and authority
to execute, deliver, and perform each of the Company Documents. All
necessary corporate proceedings of the Company have been taken to
authorize the execution, delivery, and performance by the Company of
the Company Documents. Each Company Document has been duly authorized
by the Company. Each Company Document has been duly executed and
delivered by the Company. Each Company Document is the legal, valid,
and binding obligation of the Company, and (subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally) is enforceable as to the Company in
accordance with its terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or
any court or other tribunal is required by the Company for the
execution, delivery, or performance by the Company of any of the
Company Documents (except filings under the Act which have been made
prior to the Closing Date and consents consisting only of consents
under "blue sky" or securities laws). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel to which the Company is a party,
or to which any of its properties or assets are subject, is required
for the execution, delivery, or performance of any of the Company
Documents; and the execution, delivery, and performance of the Company
Documents will not violate, result in a breach of, conflict with, or
(with or without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel, or violate or result in a breach
of any term of the certificate of incorporation (or other charter
document) or by-laws of the Company, or violate, result in a breach
of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its operations,
business, properties, or assets are subject;
(vii) the Firm Stock and the Additional Stock are validly
authorized. Such opinion delivered at the Closing Date or any
Additional Closing Date shall state that each share of Firm Stock or
Additional Stock, as the case may be, to be delivered on
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that date is validly issued, fully paid, and nonassessable, with no
personal liability attaching to the ownership thereof, and is not
issued in violation of any preemptive rights of stockholders, and the
Underwriters have received good title to the Firm Stock and Additional
Stock purchased by them, respectively, from the Company, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts;
(viii) the Representatives' Option Stock has been duly and
validly reserved for issuance. Such opinion delivered at the Closing
Date shall state that the Representatives' Options has been duly and
validly issued and delivered. The Representatives' Option Stock, when
issued and delivered in accordance with the Representatives' Option
Agreement, will be validly authorized, validly issued, fully paid, and
nonassessable, with no personal liability attaching to the ownership
thereof, and will not have been issued in violation of any preemptive
rights of stockholders; and the holders of the Representatives'
Options will receive good title to the securities purchased by them,
respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts;
(ix) the Common Stock, the Securities and the Representatives'
Option Agreement conform to all statements relating thereto contained
in the Registration Statement or the Prospectus;
(x) to the knowledge of such counsel, any contract, agreement,
instrument, lease, or license required to be described in the
Registration Statement or the Prospectus has been properly described
therein. To the knowledge of such counsel, any contract, agreement,
instrument, lease, or license required to be filed as an exhibit to
the Registration Statement has been filed with the Commission as an
exhibit to the Registration Statement;
(xi) insofar as statements in the Prospectus purport to summarize
the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements,
instruments, leases, or licenses, such statements have been prepared
or reviewed by such counsel and accurately reflect the status of such
litigation and provisions purported to be summarized and are correct
in all material respects;
(xii) to the knowledge of such counsel, the conditions for use of
Form SB-2 have been satisfied with respect to the Registration
Statement;
(xiii) the Common Stock has been approved for quotation on the
NASDAQ SmallCap Market, subject to official notice of issuance;
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(xiv) the Securities have been approved for listing on the Boston
Stock Exchange, subject to official notice of issuance;
(xv) to the knowledge of such counsel, no person or entity has
the right, other than any such person who has delivered a waiver of
such right, to require the Company to register any securities for
offering and sale under the Act by reason of the filing or
effectiveness of the Registration Statement with the Commission or the
issue and sale of the Securities, except as may be properly described
in the Prospectus;
(xvi) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, pursuant to Rule 424(b)
has been made in the manner and within the time period required by
Rule 424(b). To the knowledge of such counsel, no Stop Order has been
issued and no proceedings for that purpose have been instituted or
threatened;
(xvii) the Registration Statement and the Prospectus, and any
amendment or supplement thereto (other than financial statements and
other financial data and schedules which are or should be contained in
any thereof, as to which such counsel need express no opinion), comply
as to form in all material respects with the requirements of the Act
and the Regulations;
(xviii) such counsel has no reason to believe that the
Registration Statement or the Prospectus, or any amendment or
supplement thereto (other than financial statements and other
financial data and schedules which are or should be contained in any
thereof, as to which such counsel need express no opinion), 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;
(xix) to the knowledge of such counsel, since the effective date
of the Registration Statement, no event has occurred which should have
been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not been set forth in such an
amendment or supplement; and
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(xx) any right of first refusal, preemptive right, right to
compensation, or other similar right or option, in connection with the
Offering, this Agreement, the Underwriter's Options or the Consulting
Agreement, or any of the transactions contemplated hereby or thereby
known to such counsel and not contemplated by the Offering, this
Agreement , the Underwriter's Options or the Consulting Agreement has
been waived.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States, the laws of the State of New York and the General Corporation Law
of the State of Delaware, to the extent counsel for the Company deems
proper and to the extent specified in such opinion, upon an opinion or
opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for
the Company shall state that the opinion or opinions of such other counsel
are satisfactory in scope, form, and substance to counsel for the Company
and that reliance thereon by counsel for the Company and the Underwriters
is reasonable; (B) as to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Company; and (C) to the
extent they deem proper, upon written statements or certificates 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 counsel for the Underwriters.
(c) At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received the favorable opinion of Pennie & Edmonds,
patent counsel for the Company, dated the date of delivery addressed to the
Underwriters, and in form, scope and substance satisfactory to counsel for
the Underwriters, with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that the statements in the
Prospectus and the Registration Statement under "Risk Factors-Uncertainties
Regarding Intellectual Property" and "Business-Intellectual Property" and
other references to intellectual property therein in so far as such
statements constitute a summary of the terms of legal matters, documents or
proceedings referred to therein, such statements fairly present the
information called for with respect to such terms, legal matters, documents
and proceedings.
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(d) Schreck Jones Bernhard Woloson & Godfrey, regulatory counsel for
the Company, dated the date of delivery addressed to the Underwriters, and,
in form, scope and substance satisfactory to counsel for the Underwriters,
with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that insofar as the statements in the
Prospectus and the Registration Statement under "Risk Factors-Governmental
Regulation" and "Business-Governmental Regulation," and other references to
regulatory matters therein in so far as such statements constitute a
summary of the terms of legal matters, documents or proceedings referred
to therein, fairly present the information called for with respect to
such terms, legal matters, documents and proceedings.
(e) At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the
Closing Date or such Additional Closing Date, as the case may be, to the
effect that the condition set forth in Section 7(a) has been satisfied,
that as of the date of this Agreement and as of the Closing Date or such
Additional Closing Date, as the case may be, the representations and
warranties of the Company contained herein were and are accurate, and that
as of the Closing Date or such Additional Closing Date, as the case may be,
the obligations to be performed by the Company hereunder on or prior
thereto have been fully performed.
(f) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, you shall have
received a letter from KPMG Peat Marwick LLP, certified public accountants,
dated the date of delivery and addressed to the Underwriters, in form and
substance satisfactory to you, with reproduced copies or signed
counterparts thereof for each of the Underwriters.
(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Firm Stock and the Additional Stock shall be
satisfactory in form and substance to you and to counsel for the
Underwriters, and the Underwriters shall have received from such counsel
for the Underwriters a favorable opinion, dated as of the Closing Date and
the Additional Closing Date, as the case may be, with respect to such of
the matters set forth under Section 7 (b), and with respect to such other
related matters, as you may reasonably request.
(h) The NASD, upon review of the terms of the public offering of the
Firm Stock and the Additional Stock, shall not have objected to the
Underwriters' participation in such offering.
(i) Prior to or on the Closing Date, the Company shall have entered
into the Representatives' Option Agreement with the Representatives.
(j) Prior to or on the Closing Date, the Company shall have provided
to you copies of the agreements referred to in Sections 2(s) and (v).
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(k) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such
information, documents, certificates, and opinions as they may reasonably
require for the purpose of enabling them to review the matters referred to
in Section 7(b), and in order to evidence the accuracy, completeness, or
satisfaction of any of the representations, warranties, covenants,
agreements, or conditions herein contained, or as you may reasonably
request.
Any certificate or other document signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company hereunder to the Underwriters as to
the statements made therein. If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or any Additional
Closing Date, as the case may be, is not so fulfilled, you may on behalf of the
several Underwriters terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION. (a) Subject to the conditions set
forth below, the Company agrees to indemnify and hold harmless each Underwriter,
its officers, directors, partners, employees, agents, and counsel, and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 8, but not be limited to, attorneys' fees and any and
all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or (B) in any application or other document or communication (in this Section 8
collectively called an "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify any of the Securities under the "blue sky"
or securities laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company as stated in Section 8(b) with
respect to any Underwriter by or on behalf of such Underwriter through the
Representative expressly for inclusion in any Preliminary Prospectus, any Rule
430A Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant, or agreement of the Company
contained in this Agreement. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including liabilities
arising under this Agreement.
If any action is brought against an Underwriter or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of an Underwriter (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing
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paragraph, such indemnified party or parties shall promptly notify the Company
in writing of the institution of such action (but the failure so to notify shall
not relieve the Company from any liability it may have pursuant to this Section
8(a) or otherwise) and the Company shall promptly assume the defense of such
action, including the employment of counsel (satisfactory to such indemnified
party or parties) and payment of expenses. Such 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 the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel satisfactory to
such indemnified party or parties to have charge of the defense of such action
or such indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld. The Company shall not, without the
prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Underwriters of the commencement of
any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Firm Stock or the Additional Stock,
any Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the several Underwriters in Section 8(a), but only with respect
to statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application in
reliance upon and in conformity with written information furnished to the
Company as stated in this Section 8(b) with respect to any Underwriter by or on
behalf of such Underwriter through the Representative expressly for inclusion in
the Registration Statement or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be; provided, however, that the
obligation of each Underwriter to provide indemnity under the provisions of this
Section 8(b) shall be limited to the amount which represents the product of the
number of shares of Firm Stock and Additional Stock underwritten by such
Underwriter hereunder and the initial public offering price per share set forth
on the cover page of the Prospectus. For all purposes of this Agreement, the
amounts of the selling concession and reallowance set forth in the Prospectus
constitute the only information furnished in writing by or on behalf of any
Underwriter
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expressly for inclusion in any Preliminary Prospectus, any the Registration
Statement, or the Prospectus (as from time to time amended or supplemented), or
any amendment or supplement thereto, or in any application, as the case may be.
If any action shall be brought against the Company or any other person so
indemnified based on any Preliminary Prospectus, the Registration Statement, or
the Prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against any Underwriter pursuant
to this Section 8(b), such Underwriter shall have the rights and duties given to
the Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
8(a).
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 8(a) or 8(b)
(subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company), as one entity, and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party), as a second entity, shall contribute to
the losses, liabilities, claims, damages, and expenses whatsoever to which any
of them may be subject, so that the Underwriters are responsible for the
proportion thereof equal to the percentage which the underwriting discount per
share set forth on the cover page of the Prospectus represents of the initial
public offering price per share set forth on the cover page of the Prospectus
and the Company is responsible for the remaining portion; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in the aggregate in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses shall also be
considered. The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission 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 statement, alleged statement, omission,
or alleged omission. The Company and the Underwriters agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8(c). In no
case shall any Underwriter be responsible for a portion of the contribution
obligation imposed on all Underwriters in excess of its pro rata share based on
the number of shares of Firm Stock underwritten by it as compared to the number
of shares of Firm Stock underwritten by all Underwriters who do not default in
their obligations under this Section 8(c). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(c), each person, if any, who
controls an Underwriter within the meaning of Section
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15 of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent, and counsel of an Underwriter shall have the same
rights to contribution as such Underwriter 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, each officer of the Company who shall have 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 the provisions of this
Section 8(c). Anything in this Section 8(c) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8(c) is
intended to supersede any right to contribution under the Act, the Exchange Act,
or otherwise.
9. DEFAULT BY AN UNDERWRITER. (a) If any Underwriter or Underwriters
shall default in its or their obligation to purchase Firm Stock or Additional
Stock hereunder, and if the number of shares of Firm Stock or Additional Stock
to which the defaults of all Underwriters in the aggregate relate does not
exceed 10% of the number of shares of Firm Stock or Additional Stock, as the
case may be, which all Underwriters have agreed to purchase hereunder, then such
Firm Stock or Additional Stock to which such defaults relate shall be purchased
by the non-defaulting Underwriters in proportion to their respective commitments
hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of shares
of Firm Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, you may in your discretion arrange for
yourself or for another party or parties to purchase such Firm Stock or
Additional Stock, as the case may be, to which such default relates on the terms
contained herein. If you do not arrange for the purchase of such Firm Stock or
Additional Stock, as the case may be, within one business day after the
occurrence of defaults relating to in excess of 10% of the Firm Stock or the
Additional Stock, as the case may be, then the Company shall be entitled to a
further period of one business day within which to procure another party or
parties satisfactory to you to purchase such Firm Stock or Additional Stock, as
the case may be, on such terms. If you or the Company do not arrange for the
purchase of the Firm Stock or Additional Stock, as the case may be, to which
such defaults relate as provided in this Section 9(b), this Agreement may be
terminated by you or by the Company without liability on the part of the Company
(except that the provisions of Sections 6, 8, 10, and 13 shall survive such
termination) or the several Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for any damages occasioned by its default
hereunder.
(c) If the Firm Stock or Additional Stock to which such defaults relate
are to be purchased by the non-defaulting Underwriters, or are to be purchased
by another party or parties as aforesaid, you or the Company shall have the
right to postpone the Closing Date or the Additional Closing Date, as the case
may be, for a reasonable period but not in any event more than seven days in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements with respect to the Firm Stock or the Additional Stock, and the
Company agrees to prepare and file promptly any amendment or supplement to the
Registration Statement or the Prospectus which in the opinion of counsel for the
Underwriters may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any party substituted under this Section 9 as if
such party had originally been a party
-26-
<PAGE>
to this Agreement and had been allocated the number of Firm Stock and Additional
Stock actually purchased by it as a result of its original commitment to
purchase Firm Stock and Additional Stock and its purchase of Firm Stock or
Additional Stock pursuant to this Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any indemnified person,
or by or on behalf of the Company or any person or entity which is entitled to
be indemnified under Section 8(b), and shall survive termination of this
Agreement or the delivery of the Firm Stock and the Additional Stock to the
several Underwriters. In addition, the provisions of Sections 6, 8, 10, 11, and
13 shall survive termination of this Agreement, whether such termination occurs
before or after the Closing Date or any Additional Closing Date.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF. (a) This
Agreement shall become effective at 9:30 A.M., New York City Time, on the first
full business day following the day on which the Registration Statement becomes
effective or at the time of the initial public offering by the Underwriters of
the Firm Stock, whichever is earlier. The time of the initial public offering
shall mean the time, after the Registration Statement becomes effective, of the
release by you for publication of the first newspaper advertisement which is
subsequently published relating to the shares or the time, after the
Registration Statement becomes effective, when the Firm Stock are first released
by you for offering by the Underwriters or dealers by letter or telegram,
whichever shall first occur. You or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
noted below in this Section 11, by giving the notice indicated in Section 11(c)
before the time this Agreement becomes effective.
(b) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, you shall have the right to terminate this Agreement at
any time prior to the Closing Date or any Additional Closing Date, as the case
may be, by giving notice to the Company if any domestic or international event,
act, or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, the securities markets; or if there shall
have been a general suspension of, or a general limitation on prices for,
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the NASDAQ SmallCap Market or the Boston Stock Exchange or in the
over-the-counter market; or if there shall have been an outbreak of major
hostilities or other national or international calamity; or if a banking
moratorium has been declared by a state or federal authority; or if a moratorium
in foreign exchange trading by major international banks or persons has been
declared; or if there shall have been a material interruption in the mail
service or other means of communication within the United States; or if the
Company shall have sustained a material or substantial loss 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 your
opinion, make it inadvisable to proceed with the offering, sale, or delivery of
the Firm Stock or the Additional Stock, as the case may be; or if there shall
have been such change in the market
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<PAGE>
for securities in general or in political, financial, or economic conditions as
in your judgment makes it inadvisable to proceed with the offering, sale, and
delivery of the Firm Stock or the Additional Stock, as the case may be, on the
terms contemplated by the Prospectus.
(c) If you elect to prevent this Agreement from becoming effective, as
provided in this Section 11, or to terminate this Agreement pursuant to Section
7, 9, or this Section 11, you shall notify the Company promptly by telephone,
telex, or telegram, confirmed by letter. If the Company elects to prevent this
Agreement from becoming effective, as provided in this Section 11, or to
terminate this Agreement pursuant to Section 9 of this Agreement, the Company
shall notify you promptly by telephone, telex, or telegram, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding other than
Section 11(e), if this Agreement shall not become effective by reason of an
election pursuant to this Section 11 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any covenant or agreement or
satisfy any condition of this Agreement by it to be performed or satisfied, the
sole liability of the Company to the several Underwriters, in addition to the
obligations the Company assumed pursuant to Section 6, will be to (i) reimburse
the several Underwriters for such out-of-pocket expenses (including the fees and
disbursements of their counsel) as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale, and delivery of the
Firm Stock and the Additional Stock, and upon demand the Company agrees to pay
promptly the full amount thereof to you for the respective accounts of the
Underwriters, and (ii) if the Company has elected to prevent this Agreement from
becoming effective or if you terminate this Agreement pursuant to Section 7, the
provisions of Section 5(x) of this Agreement shall become operative and shall
remain in full force and effect for a period of two years from the date of such
election or termination.
(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 6, 8, 10, and 13 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. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, to Barington Capital Group, L.P., 888 Seventh
Avenue, New York, New York 10019, Attention: Carl Kleidman; or if sent to the
Company, shall be mailed, delivered, or telexed or telegraphed and confirmed by
letter, to the Company, International Sports Wagering Inc., 201 Lower Notch
Road, Little Falls, New Jersey 07424. All notices hereunder shall be effective
upon receipt by the party to which it is addressed.
13. PARTIES. You represent that you are authorized to act on behalf of
the several Underwriters named in Schedule I hereto, and the Company shall be
entitled to act and rely on any request, notice, consent, waiver, or agreement
purportedly given on behalf of the Underwriters when the same shall have been
given by either of you on such behalf. This Agreement shall inure solely to the
benefit of, and shall be binding upon, the several Underwriters and the Company
and the
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<PAGE>
persons and entities referred to in Section 8 who are entitled to
indemnification or contribution, and their respective successors, legal
representatives, and assigns (which shall not include any buyer, as such, of the
Firm Stock or the Additional Stock), 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 provision herein contained.
Notwithstanding anything contained in this Agreement to the contrary, all of the
obligations of the Underwriters hereunder are several and not joint.
14. CONSTRUCTION. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to conflict of laws.
TIME IS OF THE ESSENCE IN THIS AGREEMENT.
15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement, any document or instrument delivered pursuant to,
in connection with or simultaneously with this Agreement, or a breach of this
Agreement or any such document or instrument. In any such action or proceeding,
the Company waives personal service or any summons, complaint or other process
and agrees that service thereof may be made in accordance with Section 12.
Within 30 days after such service, or such other time as may be mutually agreed
upon in writing by the attorneys for the parties to such action or proceeding,
the Company shall appear or answer such summons, complaint or other process.
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<PAGE>
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
INTERNATIONAL SPORTS WAGERING INC.
By:
-----------------------------------
Barry Mindes, Chairman of the Board
Accepted as of the date first above written.
New York, New York
BARINGTON CAPITAL GROUP, L.P.
By: LNA CAPITAL CORP.,
General Partner
By:
-----------------------------------
Marc Cooper, Executive Vice President
GKN SECURITIES CORP.
By:
-----------------------------------
Name:
Title:
On behalf of itself and the other several
Underwriters named in Schedule I hereto.
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<PAGE>
SCHEDULE I
Total
Number
of Firm
Stock to be
Underwriter Purchased
----------- ---------
Barington Capital Group, L.P. [insert number of shares]
GKN Securities Corp.
---------
Total 1,500,000
---------
---------
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL SPORTS WAGERING INC.
(A Delaware corporation)
FIRST: The name of the Corporation is:
INTERNATIONAL SPORTS WAGERING INC.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is c/o United Corporate Services, Inc., 15 East North Street,
City of Dover, County of Kent. The name of its registered agent at such address
is United Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of capital stock which may be
issued by the Corporation is three million (3,000,000), divided into classes of
which two million five hundred thousand (2,500,000) shall be Common Stock, par
value $.001 per share, and of which five hundred thousand (500,000) shall be
Preferred Stock, par value $.001 per share.
(b) The designations and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the shares of
Common Stock of the Corporation are as follows:
1. Dividends may be paid upon the Common Stock as and when
declared by the Board of Directors out of any funds legally available
therefor.
2. Upon any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock shall be entitled to receive
any and all assets of the Corporation remaining to be paid or distributed.
3. Except as otherwise provided by statute, by any express
provision of this Certificate or by any agreement to the contrary between
the Corporation and its stockholders, all rights to vote and all voting
power shall be exclusively vested in the Common Stock and the holders
thereof shall be entitled to one vote for each share of
<PAGE>
Common Stock for the election of directors and upon all other matters.
4. The Corporation shall be entitled to treat the person in whose
name any share, right or option is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other claim
to or interest in such share, right or option on the part of any other
person, whether or not the Corporation shall have notice thereof, save as
may be expressly provided by the laws of the State of Delaware.
(c) The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article FOURTH, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions thereof.
1. The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(3) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms
of such voting rights;
(4) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(5) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(6) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that
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<PAGE>
series, and, if so, the terms and amount of such sinking fund;
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment
of shares of that series; and
(8) Any other relative rights, preferences and limitations
of that series.
2. Dividends on outstanding shares of Preferred Stock shall be
paid or declared and set apart for payment before any dividends shall be
paid or declared and set apart for payment on the shares of Common Stock
with respect to the same dividend period.
3. If upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all
series of Preferred stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with
respect thereto.
4. The Corporation shall be entitled to treat the person in whose
name any share, right or option is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other claim
to or interest in such share, right or option on the part of any other
person, whether or not the Corporation shall have notice thereof, save as
may be expressly provided by the laws of the State of Delaware.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
---- ---------------
Richard M. Hoffman c/o Rubin Baum Levin Constant &
Friedman
30 Rockefeller Plaza, 29th Floor
New York, New York 10112
SIXTH: (a) The number of directors of the Corporation which shall
constitute the whole Board of Directors of the Corporation shall be such as from
time to time may be fixed by or in the manner provided in the By-laws, but in no
case shall the number of directors be less than one. Except as may
-3-
<PAGE>
otherwise be required by law, vacancies in the Board of Directors of the
Corporation and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director.
(b) All corporate powers of the Corporation shall be
exercised by the Board of Directors except as otherwise provided herein or by
law. In furtherance of the powers conferred by statute and by law, the Board of
Directors shall have the power to adopt, alter, amend or repeal the By-laws of
the Corporation, without any action on the part of the Corporation's
stockholders.
SEVENTH: (a) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breaches
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit; it being the intention of the foregoing
provision to eliminate the liability of the Corporation's directors to the
fullest extent permitted by Section 102(b)(7) of the General Corporation Law of
the State of Delaware, as amended from time to time.
(b) Any repeal or modification of the foregoing subparagraph (a) by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
(c) If the General Corporation Law of the State of Delaware is amended
after approval by the stockholders of this paragraph SEVENTH to authorize
corporate action further eliminating or limiting the personal liability of
directors, then a director of the Corporation, in addition to the circumstances
in which he is not now personally liable, shall be free of liability to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as so amended.
(d) Each director, officer, employee and agent, past or present, of
the Corporation, and each person who serves or may have served at the request of
the Corporation as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and their
respective heirs, administrators and executors, shall be indemnified by the
Corporation in accordance with, and to the fullest extent permitted by, the
provisions of the General Corporation Law of the State of Delaware as it may
from time to time be amended. The provisions of this subparagraph (d) shall
apply to any member of any committee appointed by the Board of
-4-
<PAGE>
Directors as fully as though such person shall have been an officer or director
of the Corporation.
(e) The provisions of this paragraph SEVENTH shall be in addition to
and not in limitation of any other rights, indemnities, or limitations of
liability to which any director or officer may be entitled, as a matter of law
or under the By-laws of the Corporation or any agreement, vote of stockholders
or otherwise.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: Elections of directors need not be by written ballot unless the
By-laws of the Corporation so provide.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Incorporation to be signed by Richard M. Hoffman, its Sole Incorporator, this
22nd day of May, 1995.
BY:/s/ Richard M. Hoffman
-----------------------------
Richard M. Hoffman,
Sole Incorporator
-5-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL SPORTS WAGERING INC.
International Sports Wagering Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the amendments set forth below to the
Corporation's Certificate of Incorporation were duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware, and notice
of such adoption was given in accordance with Section 228 thereof:
FIRST: Article FOURTH of the Corporation's Certificate of
Incorporation is hereby amended to read in its entirety as follows:
I. FOURTH: A. The total number of shares of capital stock which may be
issued by the Corporation is twenty-two million (22,000,000), divided into
classes of which twenty million (20,000,000) shall be Common Stock, par
value $.001 per share, and of which two million (2,000,000) shall be
Preferred Stock, par value $.001 per share. The Corporation hereby is
increasing the number of shares of Common Stock issued and outstanding by
means of a stock split of 3.0230479 shares for every one share issued and
outstanding immediately prior to the filing of this Certificate of
Amendment. Upon surrender to the Corporation of certificates (duly
endorsed in blank) representing shares of Common Stock to be converted,
certificates representing the appropriate number of shares of Common Stock
(less fractions thereof) shall be issued and delivered to the surrendering
stockholders. The Corporation shall pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined.
B. The designations and the powers, prefer-ences and rights,
and the qualifications, limitations or restrictions of the shares of
Common Stock of the Corporation are as follows:
1. Dividends may be paid upon the Common Stock as and when
declared by the Board of Directors out of any funds legally
available therefor.
2. Upon any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock shall be entitled to
receive any and
<PAGE>
all assets of the Corporation remaining to be paid or distributed.
3. Except as otherwise provided by statute, by any express
provision of this Certificate or by any agreement to the contrary
between the Corporation and its stockholders, all rights to vote and
all voting power shall be exclusively vested in the Common Stock and
the holders thereof shall be entitled to one vote for each share of
Common Stock for the election of directors and upon all other
matters.
4. The Corporation shall be entitled to treat the person in
whose name any share, right or option is registered as the owner
thereof, for all purposes, and shall not be bound to recognize any
equitable or other claim to or interest in such share, right or
option on the part of any other person, whether or not the
Corporation shall have notice thereof, save as may be expressly
provided by the laws of the State of Delaware.
C. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article FOURTH,
to provide for the issuance of the shares of Preferred Stock in series,
and by filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
1. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of
the following:
a. The number of shares constituting that series and the
distinctive designation of that series;
b. The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date
or dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
c. Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms
of such voting rights;
<PAGE>
d. Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
e. Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
f. Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
g. The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up
of the corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
h. Any other relative rights, preferences and
limitations of that series.
2. Dividends on outstanding shares of Preferred Stock shall be
paid or declared and set apart for payment before any dividends
shall be paid or declared and set apart for payment on the shares of
Common Stock with respect to the same dividend period.
3. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets available
for distribution to holders of shares of Preferred Stock of all
series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets
shall be distributed ratably among the shares of all series of
Preferred stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with
respect thereto.
4. The Corporation shall be entitled to treat the person in
whose name any share, right or option is registered as the owner
thereof, for all purposes, and shall not be bound to recognize any
<PAGE>
equitable or other claim to or interest in such share, right or
option on the part of any other person, whether or not the
Corporation shall have notice thereof, save as may be expressly
provided by the laws of the State of Delaware.
IN WITNESS WHEREOF, INTERNATIONAL SPORTS WAGERING INC. has caused
this certificate to be signed and attested by its duly authorized officers, this
24th day of October, 1996.
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ Bernard Albanese
------------------------------
President
ATTEST:
By: /s/ Richard M. Hoffman
--------------------------------
Secretary
<PAGE>
BY-LAWS
OF
INTERNATIONAL SPORTS WAGERING INC.
AS AMENDED THROUGH AUGUST 30, 1996
(A Delaware corporation)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be located at United Corporate Services,
Inc., 15 East North Street, in the City of Dover, County of Kent or such other
place as the Board of Directors may designate from time to time.
SECTION 2. Other Offices. The Corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of meeting or in a
duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of meeting or in a duly executed waiver
thereof. At such annual meeting, the stockholders shall elect, by a plurality
vote, a Board of Directors and shall transact such other business as may
properly be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board of
Directors or by the Chairman of the Board, if one shall have been elected.
SECTION 4. Notice of Meetings. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which such meeting is called, shall be
given to each stockholder of record entitled to vote thereat
<PAGE>
not less than ten nor more than sixty days before the date of the meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purpose or purposes stated in the notice. Notice shall be given personally
or by mail and, if by mail, shall be sent in a postage prepaid envelope,
addressed to each stockholder at such stockholder's address as it appears on the
records of the Corporation. Notice by mail shall be deemed given at the time
when the same shall be deposited in the United States mail, postage prepaid.
Notice of any meeting shall not be required to be given to any person who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 6. Quorum, Adjournments. The holders of a majority of the voting
power of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, until a quorum
shall be present or represented. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which adjournment is taken. At any such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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SECTION 7. Organization. At each meeting of stockholders, the Chairman of
the Board, if one shall have been elected, or, in his absence or if one shall
not have been elected, the President, shall act as chairman of the meeting. The
Secretary or, in his absence or inability to act, the person whom the chairman
of the meeting shall appoint secretary of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
SECTION 8. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
SECTION 9. Voting. Except as otherwise provided by statute, by the
Certificate of Incorporation or by any agreement to the contrary between the
Corporation and its stockholders, each stockholder of the Corporation having the
right to vote shall be entitled to one vote in person or by proxy for each share
of the capital stock having voting power held by such stockholder. When a quorum
is present at any meeting, directors shall be elected by a plurality of the
voting power of the issued and outstanding stock of the Corporation present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. In all matters other than the election of directors, the
affirmative vote of the majority of the voting power of the issued and
outstanding stock of the Corporation present in person or represented by proxy
and entitled to vote on the subject matter shall be the act of the stockholders
except where the General Corporation Law of the State of Delaware, the
Corporation's Certificate of Incorporation or any agreement between the
Corporation and its stockholders prescribes a different percentage of votes
and/or a different exercise of voting power. In the election of directors,
voting need not be by written ballot. Unless required by statute, or determined
by the chairman of the meeting to be advisable, the vote on any question need
not be by written ballot. On a vote by ballot, each ballot shall be signed by
the stockholder voting, or by his proxy, if there be such proxy, and shall state
the number of shares voted.
Section 10. Proxy Representation. Each stockholder entitled to vote at any
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
by a proxy signed by such stockholder or his attorney-in-fact, but no proxy
shall be voted after three years from its date, unless the proxy provides for a
longer period. Any such proxy shall be delivered to the secretary of the meeting
at or prior to the time designated in the order of business for so delivering
such proxies.
SECTION 11. Inspectors. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof and make a written report thereof. The Board of
Directors may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the person presiding at the meeting shall appoint one
or more inspectors to act at the meeting. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his ability. The inspectors shall: ascertain the
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number of shares outstanding and the voting power of each; determine the shares
represented at a meeting and the validity of proxies and ballots; count all
votes and ballots; determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors; and certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of inspectors. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
an inspector of an election of directors. Inspectors need not be stockholders.
SECTION 12. Action by Consent. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any provision of statute or any provision of the
Certificate of Incorporation or of these By-laws, the meeting and vote of
stockholders may be dispensed with, and the action taken without such meeting
and vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares of stock of the Corporation entitled to vote thereon
were present and voted, and shall be delivered to the Corporation by delivery to
its registered office in the State of Delaware, its principal place of business
or to an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The number
of Directors constituting the initial Board of Directors shall be one.
Thereafter, the number of directors may be fixed, from time to time, by the
affirmative vote of a majority of the entire Board of Directors or by action of
the stockholders of the Corporation; provided, however, that such number shall
not be less than one. Any decrease in the number of directors shall be effective
at the time of the next succeeding annual meeting of stockholders unless there
shall
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be vacancies in the Board of Directors, in which case such decrease may become
effective at any time prior to the next succeeding annual meeting to the extent
of the number of such vacancies. Directors need not be stockholders of the
Corporation. Except as otherwise provided by statute, these By-laws or any
agreement to the contrary between the Corporation and its stockholders, the
directors (other than members of the initial Board of Directors) shall be
elected at the annual meeting of stockholders. Each director shall hold office
until his successor shall have been elected and qualified, or until his death,
or until he shall have resigned, or have been removed, as hereinafter provided
in these By-laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 4. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place as shall be specified in a notice thereof given as
hereinafter provided in Section 7 of this ARTICLE III.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held each fiscal year at such time and place as the majority of the
Board of Directors may from time to time designate. If any day designated for a
regular meeting shall be a legal holiday at the place where the meeting is to be
held, then the meeting which would otherwise be held on that day shall be held
at the same hour on the next succeeding business day. Notice of regular meetings
of the Board of Directors need not be given except as otherwise required by
statute or these By-laws.
SECTION 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, or
by a majority of the directors in office.
SECTION 7. Notice of Meetings. Notice of each special meeting of the Board
of Directors (and of each regular meeting for which notice is required) shall be
given by the Secretary as hereinafter provided in this Section 7, in which
notice shall be stated the place, date and hour of the meeting. Except as
otherwise required by these By-laws, such notice need not state the purposes of
such meeting. Notice of each such meeting shall be mailed, postage prepaid, to
each director, addressed to such director at such director's residence or usual
place of business, by first class mail, at least two days before the day on
which such meeting is to be held, or shall be sent addressed to him at such
place by telegraph, cable, telex, telecopier or other similar means, or be
delivered to him personally or be given to him by telephone or other similar
means, at least twenty-four hours before the time at which such
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meeting is to be held. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting, except when he shall attend for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. Quorum and Manner of Acting. A majority of the total number of
directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. Except as otherwise expressly required by
statute, the Certificate of Incorporation, these By-laws or any agreement to the
contrary between the Corporation and its stockholders, the act of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to all the directors unless such time and place
were announced at the meeting at which the adjournment was taken, in which case
such notice shall only be given to the directors who were not present thereat.
At any adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally called.
The directors shall act only as a Board and the individual directors shall have
no power as such.
SECTION 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in his absence, another director chosen by a majority of the directors present)
shall act as chairman of the meeting and preside thereat. The Secretary or, in
his absence, any person appointed by the chairman of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Except as may otherwise be required by law and
subject to the terms of any agreement to the contrary between the Corporation
and its stockholders, any vacancy in the Board of Directors, whether arising
from death, resignation, removal or any other cause, and any newly created
directorship resulting from any increase in the authorized number of directors
of the Corporation, may be filled by the vote of a majority of the Directors
then in office, though less than a quorum, or by the sole remaining director or
by the stockholders at the next annual meeting thereof or at a special meeting
thereof. Each director so elected shall hold office until his successor shall
have been elected and qualified.
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SECTION 12. Removal of Directors. Subject to the terms of any agreement to
the contrary between the Corporation and its stockholders, any director may be
removed, either with or without cause, at any time by the holders of a majority
of the voting power of the issued and outstanding capital stock of the
Corporation entitled to vote at an election of directors.
SECTION 13. Compensation. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of directors
for services to the Corporation as directors.
SECTION 14. Committees. The Board of Directors shall have the authority to
appoint any temporary or standing committee to exercise any powers or authority
as the Board of Directors may see fit, subject to such conditions as may be
prescribed by the Board of Directors. All committees so appointed shall keep
regular minutes of their meetings and shall cause such minutes to be recorded in
books kept for that purpose in the principal office of the Corporation and shall
report the same to the Board of Directors as required by it. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In addition, in the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Except to
the extent restricted by statute or the Certificate of Incorporation, each such
committee, to the extent provided in the resolution creating it, shall have and
may exercise all the powers and authority of the Board of Directors and may
authorize the seal of the Corporation to be affixed to all papers which require
it. Each such committee shall serve at the pleasure of the Board of Directors
and have such name as may be determined from time to time by resolution adopted
by the Board of Directors.
SECTION 15. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting by such means shall
constitute presence in person at a meeting.
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ARTICLE IV
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the President, one
or more vice-presidents, the Secretary and the Treasurer. If the Board of
Directors wishes, it may also elect as an officer of the Corporation a Chairman
of the Board and may elect other officers (including one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a director. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, or until his death, or until he shall
have resigned or have been removed, as hereinafter provided in these By-laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed, either
with or without cause, at any time, by the Board of Directors at any meeting
thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall
have been elected, shall be a member of the Board, an officer of the Corporation
and, if present, shall preside at each meeting of the Board of Directors or the
stockholders. He shall perform all duties incident to the office of Chairman of
the Board and such other duties as may from time to time be assigned to him by
the Board of Directors.
SECTION 5. The President. The President shall, in the absence of the
Chairman of the Board or if a Chairman of the Board shall not have been elected,
preside at each meeting of the Board of Directors or the stockholders. He shall
perform all duties incident to the office of President and such other duties as
may from time to time be assigned to him by the Board of Directors.
SECTION 6. Vice-President. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors,
the Chief Executive Officer or the President. At the request of the President or
in his absence or in the event of his inability or refusal to act, the
Vice-President, or if there shall be more than one, the Vice-Presidents in the
order determined by the Board of Directors (or if there be no such
determination, then the Vice-Presidents in the order of their election), shall
perform the duties
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of the President, and, when so acting, shall have the powers of and be subject
to the restrictions placed upon the President in respect of the performance of
such duties.
SECTION 7. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of Directors
or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the Corporation;
and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 8. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed by the Corporation
are properly kept and filed; and
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(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 11. Officers' Bonds or Other Security. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
as the Board of Directors may require.
SECTION 12. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Stock Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board or the President or a Vice-President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restriction of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing
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requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or
such owner's legal representative, to give the Corporation a bond in such sum as
the Board of Directors may direct sufficient to indemnify the Corporation
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate or certificates.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, to cancel the old certificate and to record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any
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adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 8. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Delaware.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. General. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses (including, without
limitation, attorneys' fees and expenses), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner 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. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, in and of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding, create a
presumption that the person had reasonable cause to believe that his conduct was
unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed
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action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against all expenses
(including, without limitation, attorneys' fees and expenses) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation; provided,
however, that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this ARTICLE VI, or in defense of any claim, issue or
matter therein, he shall be indemnified against all expenses (including, without
limitation, attorneys' fees and expenses) actually and reasonably incurred by
him in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this
ARTICLE VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 1 and 2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders of the Corporation.
SECTION 5. Advances for Expenses. The right to indemnification conferred
in this ARTICLE VI upon a director or officer shall include the right to be paid
by the Corporation all the expenses (including, without limitation, attorneys'
fees and expenses) incurred in defending an action, suit or proceeding of the
types set forth in Sections 1 and 2 of this ARTICLE VI in advance of the final
disposition of such action, suit or proceeding; provided, however, that if the
General Corporation Law of the State of Delaware requires, an advancement of
expenses incurred by an indemnitee in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined that such indemnitee is not entitled to be
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indemnified for such expenses under this ARTICLE VI or otherwise. Expenses
(including, without limitation, attorneys' fees and expenses) incurred by an
employee or agent in defending an action, suit or proceeding of the types set
forth in Sections 1 and 2 of this ARTICLE VI may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such employee or agent to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
for such expenses by the Corporation under this ARTICLE VI or otherwise.
SECTION 6. Rights Not Exclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other sections of this ARTICLE
VI shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
SECTION 7. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this ARTICLE VI.
SECTION 8. Definition of Corporation. For the purposes of this ARTICLE VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this ARTICLE VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
SECTION 9. Definitions with respect to Employee Benefit Plans. For
purposes of this ARTICLE VI, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed upon a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any services as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and the person
who acted in good faith and in manner he reasonably believed to be in the
interest of the participants and
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<PAGE>
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this ARTICLE VI.
SECTION 10. Survival of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to, this ARTICLE VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors. Dividends may be paid in cash, in property or
in shares of stock of the Corporation, unless otherwise provided by statute or
the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed,
and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation
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to enter into or execute and deliver any and all deeds, bonds, mortgages,
contracts and other obligations or instruments, and such authority may be
general or confined to specific instances.
SECTION 7. Voting of Stock in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
stockholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. If one or more attorneys
or agents are appointed, the Chairman of the Board or the President may instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent. The Chairman of the Board or the President may, or may
instruct the attorneys or agents appointed to, execute or cause to be executed
in the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be necessary
or proper in the circumstances.
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FORM OF REPRESENTATIVES' OPTION AGREEMENT
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. HOWEVER, NEITHER THE OPTIONS NOR SUCH SHARES MAY BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS OPTION IS
RESTRICTED AS DESCRIBED HEREIN.
INTERNATIONAL SPORTS WAGERING INC.
Option for the Purchase of Shares of Common Stock,
par value $.001 per Share
No. __ [150,000] Shares
THIS CERTIFIES that, for receipt in hand of [$150.00] and other value
received, ____________________________, ____________________________________
(the "Holder"), is entitled to subscribe for and purchase from International
Sports Wagering Inc., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time after [effective
date], and before 5:00 P.M. on [five years after effective date], New York time
(the "Exercise Period"), [150,000] shares (the "Option Shares") of the Company's
Common Stock, par value $.001 per share (the "Common Stock"), at a price of
$_____ per Share (the "Exercise Price"). This Option is the option or one of
the options (collectively, including any options issued upon the exercise or
transfer of any such options in whole or in part, the "Options") issued pursuant
to the Underwriting Agreement, dated __________, between the Company and
Barington Capital Group, L.P. and GKN Securities Corp., as representatives of
the several Underwriters named therein. As used herein the term "this Option"
shall mean and include this Option and any Option or Options hereafter issued as
a consequence of the exercise or transfer of this Option in whole or in part.
This Option may not be sold, transferred, assigned or hypothecated until [one
year after the effective date] except that it may be transferred, in whole or in
part, to (i) one or more officers or partners of the Holder (or the officers or
partners of any such partner); (ii) any other underwriting firm or member of the
selling group which participated in the public offering of Common Stock which
commenced on [effective date] (or the officers or partners of any such firm);
(iii) a successor to the Holder, or the officers or partners of such successor;
(iv) a purchaser of substantially all of the assets of the Holder; or (v) by
operation of law; and the term
<PAGE>
the "Holder" as used herein shall include any transferee to whom this Option has
been transferred in accordance with the above.
The number of shares of Common Stock issuable upon exercise of the
Option (the "Option Shares") and the Exercise Price may be adjusted from time to
time as hereinafter set forth.
1. This Option may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Option Shares, by the surrender of this
Option (with the election at the end hereof duly executed) to the Company at its
office at 201 Lower Notch Road, Little Falls, New Jersey 07424, or at such other
place as is designated in writing by the Company, together with a certified or
bank cashier's check payable to the order of the Company in an amount equal to
the Exercise Price multiplied by the number of Option Shares for which this
Option is being exercised (the "Stock Purchase Price").
2. (a) In lieu of the payment of the Stock Purchase Price, the
Holder shall have the right (but not the obligation), to require the Company to
convert this Option, in whole or in part, into shares of Common Stock (the
"Conversion Right") as provided for in this Section 2. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment by
the Holder of any of the Stock Purchase Price) that number of shares of Common
Stock (the "Conversion Shares") equal to the quotient obtained by dividing (x)
the value of this Option (or portion thereof as to which the Conversion Right is
being exercised if the Conversion Right is being exercised in part) at the time
the Conversion Right is exercised (determined by subtracting the aggregate Stock
Purchase Price of the shares of Common Stock as to which the Conversion Right is
being exercised in effect immediately prior to the exercise of the Conversion
Right from the aggregate Current Market Price (as defined in Section 6(e)
hereof) of the shares of Common Stock as to which the Conversion Right is being
exercised) by (y) the Current Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(b) The Conversion Rights provided under this Section 2 may be
exercised in whole or in part and at any time and from time to time while any
Options remain outstanding. In order to exercise the Conversion Right, the
Holder shall surrender to the Company, at its offices, this Option with the
Notice of Conversion at the end hereof duly executed. The presentation and
surrender shall be deemed a waiver of the Holder's obligation to pay all or any
portion of the aggregate purchase price payable for the shares of Common Stock
as to which such Conversion Right is being exercised. This Option (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Option for conversion in accordance with the foregoing
provisions.
3. Upon each exercise of the Holder's rights to purchase Option
Shares or Conversion Shares, the Holder shall be deemed to be the holder of
record of the Option Shares or Conversion Shares issuable upon such exercise or
conversion, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing such Option Shares or Conversion Shares
shall not then have been actually delivered to the Holder. As soon as
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<PAGE>
practicable after each such exercise or conversion of this Option, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Option Shares or Conversion Shares issuable upon such exercise or conversion,
registered in the name of the Holder or its designee. If this Option should be
exercised or converted in part only, the Company shall, upon surrender of this
Option for cancellation, execute and deliver a new Option evidencing the right
of the Holder to purchase the balance of the Option Shares (or portions thereof)
subject to purchase hereunder.
4. Any Options issued upon the transfer or exercise or conversion in
part of this Option shall be numbered and shall be registered in a Option
Register as they are issued. The Company shall be entitled to treat the
registered holder of any Option on the Option Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Option on the part of any other person, and
shall not be liable for any registration or transfer of Options which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Option shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Option or Options to the person
entitled thereto. This Option may be exchanged, at the option of the Holder
thereof, for another Option, or other Options of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Option Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Options to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
5. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of the rights to purchase all Option Shares and/or Conversion
Shares granted pursuant to the Options, such number of shares of Common Stock as
shall, from time to time, be sufficient therefor. The Company covenants that
all shares of Common Stock issuable upon exercise of this Option, upon receipt
by the Company of the full Exercise Price therefor, and all shares of Common
Stock issuable upon conversion of this Option, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
6. (a) In case the Company shall at any time after the date the
Options were first issued (i) declare a dividend on the outstanding Common Stock
payable in shares of its capital stock, (ii) subdivide the outstanding Common
Stock, (iii) combine the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of its capital stock by reclassification of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price,
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<PAGE>
and the number and kind of securities issuable upon exercise or conversion of
this Option, in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination, or reclassification, shall
be proportionately adjusted so that the Holder after such time shall be entitled
to receive the aggregate number and kind of shares which, if such Option had
been exercised or converted immediately prior to such time, he would have owned
upon such exercise or conversion and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. Such adjustment shall
be made successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, warrants, or options to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
Current Market Price and the denominator of which shall be the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible or exchangeable securities so to be offered are initially
convertible or exchangeable). Such adjustment shall become effective at the
close of business on such record date; PROVIDED, HOWEVER, that, to the extent
the shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Exercise Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
with respect to Options exercised after such expiration), to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock) actually issued. In case any subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the board of directors of the Company, whose determination shall be conclusive
absent manifest error. Shares of Common Stock owned by or held for the account
of the Company or any majority-owned subsidiary shall not be deemed outstanding
for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the stockholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or assets (other than cash
dividends or distributions and dividends payable in shares of Common Stock), or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Exercise Price is provided pursuant to Section 6(b) hereof),
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<PAGE>
then, in each case, the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants or convertible or exchangeable securities, applicable to one share, and
the denominator of which shall be such Current Market Price per share of Common
Stock. Such adjustment shall be made whenever any such distribution is made,
and shall become effective on the record date for the determination of
stockholders entitled to receive such distribution.
(d) In case the Company shall issue shares of Common Stock or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for Common Stock (excluding shares, rights,
options, warrants, or convertible or exchangeable securities, issued or issuable
(i) in any of the transactions with respect to which an adjustment of the
Exercise Price is provided pursuant to Sections 6(a), 6(b), or 6(c) above, (ii)
upon any issuance of securities pursuant to the Underwriting Agreement,
(Iii) upon exercise of the Options, or (iv) upon the grant of options to
purchase 1,467,398 shares of Common Stock pursuant to the Company's existing
stock option plans), at a price per share (determined, in the case of such
rights, options, warrants, or convertible or exchangeable securities, by
dividing (x) the total amount received or receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate consideration
payable to the Company upon exercise, conversion, or exchange thereof, by
(y) the maximum number of shares covered by such rights, options, warrants, or
convertible or exchangeable securities) lower than the Current Market Price per
share of Common Stock in effect immediately prior to such issuance, then the
Exercise Price shall be reduced on the date of such issuance to a price
(calculated to the nearest cent) determined by multiplying the Exercise Price in
effect immediately prior to such issuance by a fraction, (iii) the numerator of
which shall be an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issuance plus (B) the quotient
obtained by dividing the consideration received by the Company upon such
issuance by such Current Market Price, and (iv) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
issuance. For the purposes of such adjustments, the maximum number of shares
which the holders of any such rights, options, warrants, or convertible or
exchangeable securities, shall be entitled to initially subscribe for or
purchase or convert or exchange such securities into shall be deemed to be
issued and outstanding as of the date of such issuance, and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum aggregate consideration or premiums
stated in such rights, options, warrants, or convertible or exchangeable
securities, to be paid for the shares covered thereby. No further adjustment of
the Exercise Price shall be made as a result of the actual issuance of shares of
Common Stock on exercise of such rights, options, or warrants, or on conversion
or exchange of such convertible or exchangeable securities. On the expiration
or the termination of such rights, options, or warrants, or the termination of
such right to convert or exchange, the Exercise Price shall forthwith be
readjusted (but only with respect to
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<PAGE>
Options exercised or converted after such expiration or termination) to such
Exercise Price as would have obtained had the adjustments made upon the issuance
of such rights, options, warrants, or convertible or exchangeable securities,
been made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options, or warrants,
or upon the conversion or exchange of any such securities; and on any change of
the number of shares of Common Stock deliverable upon the exercise of any such
rights, options, or warrants or conversion, or exchange of such convertible or
exchangeable securities, or any change in the consideration to be received by
the Company upon such exercise, conversion, or exchange, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Exercise Price, as then in effect, shall forthwith be readjusted (but only with
respect to Options exercised or converted after such change) to such Exercise
Price as would have been obtained had an adjustment been made upon the issuance
of such rights, options, or warrants not exercised prior to such change, or
securities not converted or exchanged prior to such change, on the basis of such
change. In case the Company shall issue shares of Common Stock or any such
rights, options, warrants, or convertible or exchangeable securities, for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 6(d) shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 6, the
Current Market Price per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange (including, for purposes hereof,
the NASDAQ National Market System) on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, the highest reported bid price for the
Common Stock as furnished by the National Association of Securities Dealers,
Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting
such information. If on any such date the Common Stock is not listed or
admitted to trading on any national securities exchange and is not quoted by
NASDAQ or any similar organization, the fair value of a share of Common Stock
on such date, as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error, shall be
used.
(f) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; PROVIDED, HOWEVER, that any adjustments which by
reason of this Section 6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 6 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(g) In any case in which this Section 6 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect
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<PAGE>
to defer, until the occurrence of such event, issuing to the Holder, if the
Holder exercised or converted this Option after such record date, the shares of
Common Stock, if any, issuable upon such exercise or conversion over and above
the shares of Common Stock, if any, issuable upon such exercise or conversion on
the basis of the Exercise Price in effect prior to such adjustment; PROVIDED,
HOWEVER, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 6(b), 6(c), or 6(d) hereof, this Option shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (i)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Option prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price, by (ii) the
Exercise Price in effect after such adjustment of the Exercise Price.
(i) Whenever there shall be an adjustment as provided in this Section
6, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Option Register, which notice shall be accompanied by an officer's
certificate setting forth the number of Option Shares purchasable upon the
exercise of this Option and the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
computation thereof, which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.
(j) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise or
conversion of this Option. If any fraction of a share would be issuable on the
exercise or conversion of this Option (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the same
fraction of the Current Market Price of such share of Common Stock on the date
of exercise or conversion of this Option.
7. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise or conversion of this Option solely
the kind and amount of shares of stock and other securities, property, cash, or
any combination thereof receivable upon such consolidation, merger, sale, lease,
or conveyance by a holder of the number of shares of Common Stock for which this
Option might have been exercised or converted immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its certificate of incorporation or
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<PAGE>
otherwise, if necessary, to effect such agreement. Such agreement shall provide
for adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise or conversion of the Option (other than a change in
par value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise or conversion of this Option
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock for
which this Option might have been exercised or converted immediately prior to
such reclassification, change, consolidation, or merger. Thereafter,
appropriate provision shall be made for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
8. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater
amount per share than the most recent such cash dividend) to all holders of
Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment to
the Exercise Price;
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<PAGE>
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Option Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the exercise
or conversion of this Option, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue 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.
10. (a) If, at any time during the seven-year period commencing upon
completion of the Company's initial public offering, the Company shall file a
registration statement (other than on Form S-4, Form S-8, or any successor form)
with the Securities and Exchange Commission (the "Commission") while any
Underwriters' Securities (as hereinafter defined) are outstanding, the Company
shall give all the then holders of any Underwriters' Securities (the "Eligible
Holders") at least 45 days prior written notice of the filing of such
registration statement. If requested by any Eligible Holder in writing within
30 days after receipt of any such notice, the Company shall, at the Company's
sole expense (other than the fees and disbursements of counsel for the Eligible
Holders and the underwriting discounts, if any, payable in respect of the
Underwriters' Securities sold by any Eligible Holder), register or qualify all
or, at each Eligible Holder's option, any portion of the Underwriters'
Securities of any Eligible Holders who shall have made such request,
concurrently with the registration of such other securities, all to the extent
requisite to permit the public offering and sale of the Underwriters' Securities
through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Underwriters'
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his or its
Underwriters' Securities shall delay the offering and sale of such
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<PAGE>
Underwriters' Securities (or the portions thereof so designated by such managing
underwriter) for such period, not to exceed 90 days (the "Delay Period"), as the
managing underwriter shall request, provided that no such delay shall be
required as to any Underwriters' Securities if any securities of the Company are
included in such registration statement and eligible for sale during the Delay
Period for the account of any person other than the Company and any Eligible
Holder unless the securities included in such registration statement and
eligible for sale during the Delay Period for such other person shall have been
reduced pro rata to the reduction of the Underwriters' Securities which were
requested to be included and eligible for sale during the Delay Period in such
registration. As used herein, "Underwriters' Securities" shall mean the Options
and the Option Shares and the Conversion Shares which, in each case, have not
been previously sold pursuant to a registration statement or Rule 144
promulgated under the Act.
(b) If, at any time during the five-year period commencing [one year
after effective date,] the Company shall receive a written request, from
Eligible Holders who in the aggregate own (or upon exercise of all Options then
outstanding would own) a majority of the total number of shares of Common Stock
then included (or upon such exercise would be included) in the Underwriters'
Securities (the "Majority Holders"), to register the sale of all or part of such
Underwriters' Securities, the Company shall, as promptly as practicable, prepare
and file with the Commission a registration statement sufficient to permit the
public offering and sale of the Underwriters' Securities through the facilities
of all appropriate securities exchanges and the over-the-counter market, and
will use its best efforts through its officers, directors, auditors, and counsel
to cause such registration statement to become effective as promptly as
practicable; PROVIDED, HOWEVER, that the Company shall only be obligated to file
one such registration statement for which all expenses incurred in connection
with such registration (other than the fees and disbursements of counsel for the
Eligible Holders and underwriting discounts, if any, payable in respect of the
Underwriters' Securities sold by the Eligible Holders) shall be borne by the
Company and one additional such registration statement for which all such
expenses shall be paid by the Eligible Holders. Within three business days
after receiving any request contemplated by this Section 10(b), the Company
shall give written notice to all the other Eligible Holders, advising each of
them that the Company is proceeding with such registration and offering to
include therein all or any portion of any such other Eligible Holder's
Underwriters' Securities, provided that the Company receives a written request
to do so from such Eligible Holder within 30 days after receipt by him or it of
the Company's notice.
(c) In the event of a registration pursuant to the provisions of this
Section 10, the Company shall use its best efforts to cause the Underwriters'
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; PROVIDED, HOWEVER, that the Company shall not be
required to qualify to do business in any state by reason of this Section 10(c)
in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 10 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for
-10-
<PAGE>
such period of time as shall be required to permit the Eligible Holders to
complete the offer and sale of the Underwriters' Securities covered thereby.
The Company shall in no event be required to keep any such registration or
qualification in effect for a period in excess of nine months from the date on
which the Eligible Holders are first free to sell such Underwriters' Securities;
PROVIDED, HOWEVER, that, if the Company is required to keep any such
registration or qualification in effect with respect to securities other than
the Underwriters' Securities beyond such period, the Company shall keep such
registration or qualification in effect as it relates to the Underwriters'
Securities for so long as such registration or qualification remains or is
required to remain in effect in respect of such other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 10, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of
copies of each prospectus contained in such registration statement and each
supplement or amendment thereto (including each preliminary prospectus), all of
which shall conform to the requirements of the Act and the rules and regulations
thereunder, and such other documents, as any Eligible Holder may reasonably
request to facilitate the disposition of the Underwriters' Securities included
in such registration.
(f) In the event of a registration pursuant to the provisions of this
Section 10, the Company shall furnish each Eligible Holder of any Underwriters'
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Act and no order suspending the effectiveness of the
registration statement, preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus, or any amendment or
supplement thereto has been issued, nor has the Commission or any securities or
blue sky authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order, (ii) the registration statement and
each prospectus forming a part thereof (including each preliminary prospectus),
and any amendment or supplement thereto, complies as to form with the Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Underwriters' Securities have been registered or
qualified for sale pursuant to the provisions of Section 10(c).
(g) In the event of a registration pursuant to the provision of this
Section 10, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Underwriters'
Securities.
(h) The Company agrees that until all the Underwriters' Securities
have been sold under a registration statement or pursuant to Rule 144 under the
Act, it shall keep current in filing
-11-
<PAGE>
all reports, statements and other materials required to be filed with the
Commission to permit holders of the Underwriters' Securities to sell such
securities under Rule 144.
(i) Except for rights granted to holders of the Options and rights
existing prior to the issuance of the Options, the Company will not, without the
written consent of the Majority Holders, grant to any persons the right to
request the Company to register any securities of the Company, provided that the
Company may grant such registration rights to other persons so long as such
rights are subordinate to the rights of the Eligible Holders.
11. (a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 11, but not be
limited to, attorneys' fees and any and all reasonable expense whatsoever
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), as and when incurred, arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
any of the Underwriters' Securities, or (B) in any application or other document
or communication (in this Section 11 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
register or qualify any of the Underwriters' Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to such Eligible
Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Option. The foregoing agreement to indemnify shall be
in addition to any liability the Company may otherwise have, including
liabilities arising under this Option.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability pursuant to this Section 11(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) and payment of
expenses. Such 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
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<PAGE>
counsel shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 11 to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify the Eligible Holders of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of any Underwriters' Securities or any preliminary
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Underwriters'
Securities.
(b) The Holder agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have signed
any registration statement covering Underwriters' Securities held by the Holder,
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the
Company to the Holder in Section 11(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 11(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
11(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 11(a) or
11(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
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<PAGE>
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the
Underwriters' Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party), as a second entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault of the
Company and such Eligible Holders in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses. The relative fault, in
the case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and
the Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 11(c). In no case shall any Eligible Holder be responsible
for a portion of the contribution obligation imposed on all Eligible Holders in
excess of its pro rata share based on the number of shares of Common Stock owned
(or which would be owned upon exercise of all Underwriters' Securities) by it
and included in such registration as compared to the number of shares of Common
Stock owned (or which would be owned upon exercise of all Underwriters'
Securities) by all Eligible Holders and included in such registration. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section
11(c), each person, if any, who controls any Eligible Holder within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent, and counsel of each such Eligible Holder or
control person shall have the same rights to contribution as such Eligible
Holder or control person 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, each officer of the Company who shall have signed any such registration
statement, each director of the Company, and its or their respective counsel
shall have the same rights to contribution as the Company, subject in each case
to the provisions of this Section 11(c). Anything in this Section 11(c) to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 11(c) is intended to supersede any right to contribution under the
Act, the Exchange Act or otherwise.
12. Unless registered pursuant to the provisions of Section 10
hereof, the Option Shares or Conversion Shares issued upon exercise or
conversion of the Options shall be subject to a stop transfer order and the
certificate or certificates evidencing such Option Shares shall bear the
following legend:
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<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH
SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION
STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT."
13. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Option (and upon surrender of any
Option if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Option of like date, tenor, and denomination.
14. The Holder of any Option shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Option.
15. This Option shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
16. The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Option, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Option, or a breach of this Option or any such document
or instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 12 of the Underwriting Agreement.
Within 30 days after such service, or such other time as may be mutually
agreed upon in writing by the attorneys for the parties to such action or
proceeding, the Company shall appear to answer such summons, complaint or other
process.
Dated: , 1996
INTERNATIONAL SPORTS WAGERING INC.
By:
-------------------------------
Barry Mindes, Chairman of the Board
[Seal]
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<PAGE>
- ------------------------------
Secretary
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Option.)
FOR VALUE RECEIVED, _______________________________ hereby sells,
assigns, and transfers unto __________________ a Option to purchase __________
shares of Common Stock, par value $.001 per share, of International Sports
Wagering Inc. (the "Company"), together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint __________________
_________ attorney to transfer such Option on the books of the Company, with
full power of substitution.
Dated:
------------------
Signature:
----------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Option in every particular, without alteration or
enlargement or any change whatsoever.
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<PAGE>
To: International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Option Shares covered by the within Option and tenders payment herewith in the
amount of $_________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- ---------------------------------
- --------------------------------
- ------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Option Shares shall not be all the Option Shares covered
by the within Option, that a new Option for the balance of the Option Shares
covered by the within Option be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated: Name
------------------ ------------------------
(Print)
Address:
---------------------
---------------------------
(Signature)
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<PAGE>
To: International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Option)
The undersigned hereby irrevocably elects to surrender its Option for the
number of shares of Common Stock as shall be issuable pursuant to the cashless
exercise provisions of the within Option, in respect of _____ shares of Common
Stock underlying the within Option, and requests that certificates for such
securities be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares shall not be all the shares exchangeable or
purchasable under the within Option, that a new Option for the balance of the
Option Shares covered by the within Option be registered in the name of, and
delivered to, the undersigned at the addressed stated below.
Dated: Name
------------------------- -----------------------------
(Print)
Address:
-------------------------------------------------------------
----------------------------------
(Signature)
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<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AND SUBJECT TO A LOCK-UP
AGREEMENT AS DESCRIBED HEREIN.
INTERNATIONAL SPORTS WAGERING INC.
Warrant for the Purchase of Shares of Common Stock,
par value $.001 per share
This Warrant Expires on _______________, 2001
No. ____ ______ Shares
THIS CERTIFIES that, for value received, _______________________________
with an address at ___________________ (including any permitted transferee, the
"Holder"), is entitled to subscribe for and purchase from International Sports
Wagering Inc., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time before 5:00 P.M.
on [Closing date], 2001, New York time (the "Exercise Period"), _______ shares
of the Company's Common Stock, par value $.001 per share ("Common Stock"), at a
price equal to (i) $3.60 per share prior to consummation of the Company's
initial public offering, or (ii) the lesser of (x) $3.60 per share or (y) 60% of
the initial public offering price per share of Common Stock in such initial
public offering thereafter (the "Exercise Price"). If the Company avails itself
of the Extension Period (as such term is defined in Section 1(e) of the
Subscription Agreement, dated the date hereof between the Company and the
original Holder hereof (the "Subscription Agreement"), then the number of shares
of Common Stock which this Warrant represents the right to purchase shall be
increased by five percent for each month the Notes remain outstanding during the
Extension Period and the Exercise Price shall thereafter be reduced to $3.50 per
share prior to the consummation of the Company's initial public offering or the
lesser of $3.50
<PAGE>
per share or 50% of such initial public offering price per share of Common Stock
in such initial public offering thereafter.
For purposes of this Warrant, if the Company's initial public offering of
securities is an offering of securities which are convertible into Common Stock,
the initial public offering price per share of Common Stock shall be the price
at which such convertible securities are convertible into Common Stock. If the
Company's initial public offering of securities is an offering of Units, the
initial public offering price per share of Common Stock shall be the portion of
the initial public offering price per Unit attributable to one share of Common
Stock. If said Units contain securities in addition to shares of Common Stock,
unless a portion of the initial public offering price per Unit is specifically
allocated to such securities, the entire purchase price of said Units shall be
attributed to the shares of Common Stock included therein.
This Warrant is one of the warrants (collectively, including any warrants
issued upon the exercise or transfer of any such warrants in whole or in part,
the "Warrants") issued pursuant to an offering (the "Offering") by the Company
of units, each consisting of (i) a $100,000 senior promissory note
(collectively, with all notes included in the units, the "Notes"), and (ii) a
warrant to purchase 30,000 shares of Common Stock, pursuant to a Confidential
Private Placement Memorandum, dated October 16, 1996, as it may be amended or
supplemented (the "Memorandum"). As used herein the term "this Warrant" shall
mean and include this Warrant and any Warrant or Warrants hereafter issued as a
consequence of the exercise or transfer of this Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of the Warrants
(the "Warrant Shares") and the Exercise Price may be adjusted from time to time
as hereinafter set forth.
1. (a) This Warrant may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the election at the end hereof duly executed) to the Company at
its office at 201 Lower Notch Road, Little Falls, New Jersey 07424, or at such
other place as is designated in writing by the Company. Subject to Section 1(b)
hereof, such executed election must be accompanied by payment in an amount (the
"Stock Purchase Price") equal to the Exercise Price multiplied by the number of
Warrant Shares for which this Warrant is being exercised. Such payment may be
made by certified or bank cashier's check payable to the order of the Company.
(b) The Holder shall have the right (but not the obligation), to
require the Company to either (x) convert this Warrant in whole or in part, into
shares of Common Stock or (y) to apply the principal and/or interest in the
amount specified in the election at the end hereof under the Holder's Note as
payment for the Warrant Shares for which this Warrant is being exercised. The
number of shares of Common Stock the Holder shall receive upon exercise pursuant
to clause (x) of this Section 1(b) shall equal the quotient obtained by dividing
(x) the value of this Warrant or portion thereof being converted if this Warrant
is converted in part (determined by subtracting the aggregate Stock Purchase
Price of the shares
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of Common Stock as to which the conversion is being exercised in effect
immediately prior to the exercise of the conversion from the aggregate Current
Market Price (as hereinafter defined) of the shares of Common Stock as to which
the conversion is being exercised) by (y) the Current Market Price of one share
of Common Stock immediately prior to the exercise of the conversion. The amount
credited toward the payment due from the Holder upon such exercise in respect of
prepayment of Notes pursuant to clause (y) of this Section 1(b) shall equal the
amount of principal and interest deemed prepaid thereby.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a Warrant Register as they
are issued. The Company shall be entitled to treat the registered holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, 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 Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
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(b) The Holder acknowledges that he has been advised by the Company
that neither this Warrant nor the Warrant Shares have been registered under the
Act, that this Warrant is being or has been issued and the Warrant Shares may be
issued on the basis of the statutory exemption provided by Section 4(2) of the
Act or Regulation D promulgated thereunder, or both, relating to transactions by
an issuer not involving any public offering, and that the Company's reliance
thereon is based in part upon the representations made by the original Holder in
the original Holder's Subscription Agreement executed and delivered in
accordance with the terms of the Offering. The Holder acknowledges that he has
been informed by the Company of, or is otherwise familiar with, the nature of
the limitations imposed by the Act and the rules and regulations thereunder on
the transfer of securities. In particular, the Holder agrees that no sale,
assignment or transfer of this Warrant or the Warrant Shares issuable upon
exercise hereof shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless (i)
the sale, assignment or transfer of this Warrant or such Warrant Shares is
registered under the Act, it being understood that neither this Warrant nor such
Warrant Shares are currently registered for sale and that the Company has no
obligation or intention to so register this Warrant or such Warrant Shares
except as specifically provided herein, or (ii) this Warrant or such Warrant
Shares are sold, assigned or transferred in accordance with all the requirements
and limitations of Rule 144 under the Act, it being understood that Rule 144 is
not available at the time of the original issuance of this Warrant for the sale
of this Warrant or such Warrant Shares and that there can be no assurance that
Rule 144 sales will be available at any subsequent time, or (iii) such sale,
assignment, or transfer is otherwise exempt from registration under the Act.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the rights to purchase all Warrant Shares granted pursuant to
the Warrants, such number of shares of Common Stock as shall, from time to time,
be sufficient therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. (a) In case the Company shall at any time after the date the Warrants
were first issued (i) declare a dividend on the outstanding Common Stock payable
in shares of its capital stock, (ii) subdivide the outstanding Common Stock,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock by reclassification of the Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then, in each case,
the Exercise Price, and the number of Warrant Shares issuable upon exercise of
this Warrant, in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination, or reclassification, shall
be proportionately adjusted so that the Holder after such time shall be entitled
to receive the aggregate number and kind of shares which, if such Warrant had
been exercised immediately prior to such time, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall
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be made successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock (as
defined in Section 5(e) hereof) on such record date, then, in each case, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on such record date
plus the number of shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so to be offered (or the aggregate
initial conversion or exchange price of the convertible or exchangeable
securities so to be offered) would purchase at such Current Market Price and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock to be
offered for subscription or purchase (or into which the convertible or
exchangeable securities so to be offered are initially convertible or
exchangeable); provided, however, that no such adjustment shall be made which
results in an increase in the Exercise Price. Such adjustment shall become
effective at the close of business on such record date; provided, however, that,
to the extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the Exercise Price
shall be readjusted after the expiration of such rights, options, or warrants
(but only with respect to Warrants exercised after such expiration), to the
Exercise Price which would then be in effect had the adjustments made upon the
issuance of such rights, options, or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the stockholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other than
distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or changeable for shares of Common Stock (excluding those with
respect to the issuance of which an adjustment of the Exercise Price is provided
pursuant to section 5(b) hereof), then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of stockholders entitled to receive
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<PAGE>
such distribution by a fraction, the numerator of which shall be the Current
Market Price per share of Common Stock on such record date, less the fair market
value (as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error) of the portion of
the evidences of indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, or the amount of
such cash, applicable to one share, and the denominator of which shall be such
Current Market Price per share of Common Stock. Such adjustment shall become
effective at the close of business on such record date.
(d) In case the Company shall issue shares of Common Stock or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for Common Stock (excluding shares, rights,
options, warrants, or convertible or exchangeable securities issued or issuable
(i) in any of the transactions with respect to which an adjustment of the
Exercise Price is provided pursuant to Sections 5(a), 5(b), or 5(c) above, (ii)
in connection with the Offering or the proposed initial public offering as
described in the Memorandum, (iii) upon exercise of the Warrants, (iv) upon
issuance or exercise of any warrants issued to Barington Capital Group, L.P.
("Barington") or its designees in connection with the Offering or the initial
public offering proposed to be made as described in the Memorandum, (v) upon
adjustment of the number of shares of Common Stock issuable upon exercise of the
Warrants pursuant to the preamble hereof, or (vi) upon the grant of options, or
upon issuance of shares of Common Stock upon the exercise of stock options
granted or to be granted, to the directors, officers, consultants or employees
of the Company pursuant to any stock option plan or plans; provided, in each
such case that the exercise price of such options is equal to but not less than
the fair market value of the Common Stock (as determined in accordance with the
stock option plan or plans, or if such options are not granted pursuant to a
plan, as determined by the Company's Board of Directors whose determination
shall be conclusive absent manifest error) on the date of grant of the options;
and further provided, that if options are issued (x) at less than the fair
market value of the Common Stock determined as aforesaid or (y) to persons other
than directors, officers, consultants or employees of the Company, the
provisions of this Section 6(d) relating to an adjustment of the Exercise Price
shall not be made until any condition to the vesting thereof shall be fulfilled
or satisfied (and then only with respect to the portion thereof which shall have
vested)) at a price per share (determined, in the case of such rights, options,
warrants, or convertible or exchangeable securities, by dividing (1) the total
amount received or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the minimum aggregate consideration payable to the Company upon
exercise, conversion, or exchange thereof, by (2) the maximum number of shares
covered by such rights, options, warrants, or convertible or exchangeable
securities) lower than the Current Market Price per share of Common Stock in
effect immediately prior to the date on which such price is fixed, then the
Exercise Price shall be reduced on the date of such issuance to a price
(calculated to the nearest cent) determined by multiplying the Exercise Price in
effect immediately prior to such issuance by a fraction, (A) the numerator of
which shall be an amount equal to the sum of (aa) the number of shares of Common
Stock outstanding immediately prior to such issuance plus (bb) the quotient
obtained by dividing the consideration received by the Company upon
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<PAGE>
such issuance by such Current Market Price, and (B) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such issuance. For the purposes of such adjustments, the maximum number of
shares which the holders of any such rights, options, warrants, or convertible
or exchangeable securities shall be entitled to initially subscribe for or
purchase or convert or exchange such securities into shall be deemed to be
issued and outstanding as of the date of such issuance, and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum aggregate consideration or premiums
stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares covered thereby. No further adjustment of
the Exercise Price shall be made as a result of the actual issuance of shares of
Common Stock on exercise of such rights, options, or warrants or on conversion
or exchange of such convertible or exchangeable securities. On the expiration or
the termination of such rights, options, or warrants, or the termination of such
right to convert or exchange, the Exercise Price shall be readjusted (but only
with respect to Warrants exercised after such expiration or termination) to such
Exercise Price as would have obtained had the adjustments made upon the issuance
of such rights, options, warrants, or convertible or exchangeable securities
been made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options, or warrants
or upon the conversion or exchange of any such securities; and on any change of
the number of shares of Common stock deliverable upon the exercise of any such
rights, options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion, or exchange, including, without
limitation, a change resulting from the antidilution provisions thereof, the
Exercise Price, as then in effect, shall forthwith be readjusted (but only with
respect to Warrants exercised after such change) to such Exercise Price as would
have been obtained had an adjustment been made upon the issuance of such rights,
options, or warrants not exercised prior to such change, or securities not
converted or exchanged prior to such change, on the basis of such change. In
case the Company shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 5(d) shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 5, the
Current Market Price per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices for the 15 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange (including, for purposes hereof, the
NASDAQ National Market) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
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<PAGE>
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDAQ is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by NASDAQ or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used;
provided, that the fair value of a share of Common Stock on any date prior to
the effective date of the Company's initial public offering shall not be less
than the Exercise Price in effect on such date.
(f) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(g) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 5(b), 5(c), or 5(d) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price by (B) the
Exercise Price in effect after such adjustment of the Exercise Price.
(i) Whenever there shall be an adjustment as provided in this Section
5, the Company shall promptly cause written notice thereof to be sent by
certified or registered mail, postage prepaid, to the Holder, at its address as
it shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(j) The Company shall not be required to issue fractions of shares
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of Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share would be issuable on the exercise of this
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price of such share of Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of this Warrant solely the kind and amount
of shares of stock and other securities, property, cash, or any combination
thereof receivable upon such reclassification, change, consolidation, or merger
by a holder of the number of shares of Common Stock for which this Warrant might
have been exercised immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 5.
(c) Notwithstanding anything to the contrary herein contained, in the
event of a transaction contemplated by Section 6(a) in which the surviving,
continuing, successor, or purchasing corporation demands that all outstanding
Warrants be extinguished prior to the closing date of the contemplated
transaction, the Company shall give prior notice (the "Merger Notice") thereof
to the Holders advising them of such transaction. The Holders shall have ten
days after the date of the Merger Notice to elect to (i) exercise the Warrants
in the manner provided herein or (ii) receive from the surviving, continuing,
successor, or
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purchasing corporation the same consideration receivable by a holder of the
number of shares of Common Stock for which this Warrant might have been
exercised immediately prior to such consolidation, merger, sale, or purchase
reduced by such amount of the consideration as has a market value equal to the
Exercise Price, as determined by the Board of Directors of the Company, whose
determination shall be conclusive absent manifest error. If any Holder fails to
timely notify the Company of its election, the Holder shall be deemed for all
purposes to have elected the option set forth in (ii) above. Any amounts
receivable by a Holder who has elected the option set forth in (ii) above shall
be payable at the same time as amounts payable to stockholders in connection
with any such transaction.
(d) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, or other securities; or
(c) effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 6; or
(d) effect any liquidation, dissolution, or winding-up of the
Company; or
(e) take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by certified or registered mail, postage prepaid, to the Holder
at the Holder's address as it shall appear in the Warrant Register, mailed at
least 15 days prior to (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation,
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merger, sale, lease, conveyance of property, liquidation, dissolution, or
winding-up is expected to become effective, and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, change of outstanding shares, consolidation, merger,
sale, lease, conveyance of property, liquidation, dissolution, or winding-up, or
(iii) the date of such action which would require an adjustment to the Exercise
Price.
8. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue 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.
9. (a) If, at any time following the date of issuance of this Warrant,
the Company shall file a registration statement for the Company's initial public
offering with the Securities and Exchange Commission (the "Commission") while
any Registrable Securities (as hereinafter defined) are outstanding, the Company
shall, at the Company's sole expense (other than the fees and disbursements of
counsel for the then holders of any Registrable Securities (the "Eligible
Holders") and the underwriting discounts, if any, payable in respect of the
Registrable Securities sold by and Eligible Holder) include all of the
Registrable Securities of any Eligible Holders, in such registration to the
extent necessary to permit the public offering and sale of the Registrable
Securities through the facilities of all securities exchanges and the
over-the-counter markets on which the Company's securities are traded, and will
use its best efforts through its officers, directors, auditors, and counsel to
cause such registration statement to become effective as promptly as
practicable. As used herein, "Registrable Securities" shall mean the Warrant
Shares, if any, which, in each case, have not been previously sold pursuant to a
registration statement or Rule 144 promulgated under the Act.
(b) If, at any time following the date of issuance of this Warrant,
the Company shall file a registration statement (other than for the Company's
initial public offering or any registration statement on Form S-4, Form S-8, or
any successor form) with the Commission while any Registrable Securities are
outstanding, and for any reason any Eligible Holder will not otherwise have, as
of the effective date of such registration statement, the benefit of an
effective registration statement, including all required amendments and
supplements, filed pursuant to Section 9(a) or 9(c) hereof, registering for sale
such Eligible Holders' Registrable Securities, the Company shall give all such
Eligible Holders at least 30 days prior written notice of the filing of such
registration statement. If requested by any such Eligible Holder in writing
within 20 days after receipt of any such notice, the Company shall, at the
Company's sole expense (other than the fees and disbursements of counsel for the
such Eligible Holders and the underwriting discounts, if any, payable in respect
of the Registrable Securities sold by any such Eligible Holder), register or
qualify all or, at each such Eligible Holder's option, any portion of the
Registrable Securities of any such Eligible Holders who shall have made such
request, concurrently with the registration of such other securities, all to the
extent requisite to permit the public offering and sale of such Eligible
Holders'
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Registrable Securities through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable. Notwithstanding the
foregoing, if the managing underwriter of any such offering shall advise the
Company in writing that, in its opinion, the distribution of all or a portion of
the Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then any Eligible Holder who shall have requested
registration of his or its Registrable Securities shall not be entitled to have
such Eligible Holder's Registrable Securities (or the portions thereof so
designated by such managing underwriter included in such registration statement,
provided that no such exclusion or reduction shall be made as to any Registrable
Securities if any securities of the Company are included in such registration
statement for the account of any person other than the Company and any Eligible
Holder unless the securities so included in such registration statement for each
such other person or persons requesting registration shall have been reduced by
the same proportion (based upon the total amount of securities for which each
person is entitled to request registration in such registration statement) as
the Registrable Securities which were requested to be included in such
registration were reduced.
(c) If, at any time after 12 months after the effective date of the
Company's initial public offering, and for any reason any Eligible Holders do
not otherwise have as of such date the benefit of an effective registration
statement, including all required amendments and supplements thereto, filed
pursuant to Section 9(a) or 9(b) hereof registering their Registrable
Securities, the Company shall receive a written request, from Eligible Holders
who in the aggregate own (or which upon exercise of all Warrants then
outstanding would own) a majority of the Registrable Securities which are not
then subject to the benefits of an effective registration statement ("Majority
Holders") to register the sale of all or part of such Registrable Securities,
the Company shall, as promptly as practicable, prepare and file with the
Commission a registration statement sufficient to permit the public offering and
sale of such Registrable Securities through the facilities of all appropriate
securities exchanges and the over-the-counter markets on which the Company's
securities are traded, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable; provided, however, that the Company shall
only be obligated to file one such registration statement for which all expenses
incurred in connection with such registration (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Registrable Securities sold by the Eligible
Holders) shall be borne by the Company and one additional such registration
statement for which all such expenses shall be paid by the Eligible Holders
electing to include Registrable Securities in such registration statement. The
Company shall not be obligated to effect any registration of its securities
pursuant to this Section 9(c) either (i) within six months after the effective
date of a previous registration statement prepared and filed in accordance with
Sections 9(a), 9(b)(in which Registrable Securities could have been included) or
9(c), or (ii) if the managing underwriter of any underwritten offering shall
advise the Company in writing that, in its opinion, the distribution of all or a
portion of the Registrable Securities requested to be included in the
registration
- 12 -
<PAGE>
would materially adversely affect the distribution of securities by the Company
for its own account, then any Eligible Holder who shall have requested
registration of his or its Registrable Securities shall delay the offering and
sale of such Registrable Securities for such period not to exceed 120 days (the
"Delay Period"), as the managing underwriter shall request, provided that no
such delay shall be required as to any Registrable Securities if any securities
of the Company are included in such registration statement and eligible for sale
during the Delay Period for the account of any person other than the Company and
any Eligible Holder unless the securities included in such registration
statement and eligible for sale during the Delay Period for such other person
shall have been reduced pro rata to the reduction of the Registrable Securities
which were requested to be included and eligible for sale during the Delay
Period in such registration. Within ten business days after receiving any
request contemplated by this Section 9(c), the Company shall give written notice
to all the other Eligible Holders whose Registrable Securities are not then
subject to the benefits of an effective registration statement, advising each of
them that the Company is proceeding with such registration and offering to
include therein all or any portion of any such other Eligible Holder's
Registrable Securities, provided that the Company receives a written request to
do so from such Eligible Holder within 15 days after receipt by him or it of the
Company's notice.
(d) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not by reason
of this Section 9(d) be required to qualify to do business in any state in which
it is not otherwise required to qualify to do business or to file a general
consent to service process.
(e) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Registrable Securities covered thereby; provided, however, that
the Company shall in no event be required to keep registration or qualification
under Section 9(a) above in effect for more than two years from the effective
date thereof, and (ii) any registration or qualification under Section 9(b) or
9(c) above in effect for a period in excess of nine months from the date on
which the Eligible Holders are first free to sell such Registrable Securities
taking into account any lock-up agreement agreed to by such Holder and the
underwriter of the Company's initial public offering; provided, however, that,
if the Company is required to keep any such registration or qualification in
effect with respect to securities other than the Registrable Securities beyond
such period, the Company shall keep such registration or qualification in effect
as it relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(f) In the event of a registration pursuant to the provisions of this
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<PAGE>
Section 9, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such number of copies of each
prospectus contained in such registration statement and each supplement or
amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Registrable Securities included in such
registration.
(g) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish, upon request, each Eligible Holder of any
Registrable Securities so registered with an opinion of its counsel (reasonably
acceptable to the Eligible Holders) to the effect that (i) the registration
statement has become effective under the Act and no order suspending the
effectiveness of the registration statement, preventing or suspending the use of
the registration statement, any preliminary prospectus, any final prospectus, or
any amendment or supplement thereto has been issued, nor to the best knowledge
of such counsel has the Commission or any securities or blue sky authority of
any jurisdiction instituted or threatened to institute any proceedings with
respect to such an order, (ii) each report filed with the Commission, if any,
incorporated by reference in the registration statement and the prospectus
included therein (except for financial statements and related schedules, as to
which such counsel need express no opinion) complied as to form when filed with
the Commission in all material respects with the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder, (iii) the registration statement and the prospectus
included therein and any supplements or amendments thereto (except for financial
statements and related schedules, as to which such counsel need express no
opinion) comply as to form in all material respects with the Act and the rules
and regulations of the Commission thereunder, and (iv) to such counsel's
knowledge (except for financial statements and related schedules and such other
exclusions as shall be mutually agreed upon, as to which such counsel need
express no opinion) such registration statement and the prospectus included
therein at the time such registration statement became effective did not contain
any untrue statement of a material fact or omit to state a 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 the
prospectus, as amended or supplemented, if applicable, does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such opinion shall also state the
jurisdictions in which the Registrable Securities have been registered or
qualified for sale pursuant to the provisions of Section 9(d). The Company shall
also furnish to each Eligible Holder, upon request, a cold comfort letter from
the independent certified public accountants of the Company in form and
substance similar to that delivered in connection with the Company's initial
public offering.
(h) In the event of a registration pursuant to the provision of this
Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of
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<PAGE>
expenses, and customary closing conditions, including, without limitation,
opinions of counsel and accountants' cold comfort letters, with any underwriter
who acquires any Registrable Securities.
(i) The Company agrees that, after the completion of its initial
public offering and until all the Registrable Securities have been sold under a
registration statement or pursuant to Rule 144 under the Act, it shall use its
best efforts to keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Registrable Securities to sell such securities under Rule 144.
(j) Except for rights granted to holders of the Warrants, and any
warrants issued or issuable to Barington or its designees in connection with
this Offering or any other public or private offering, the Company will not
grant to any persons the right to request the Company to register any securities
of the Company without the written consent of the Majority Holders, provided
that the Company may grant such registration rights to other persons so long as
such rights are pari passu or subordinate to the rights of the holders of the
Registrable Securities.
10. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 10, without limitation, reasonable attorneys' fees and any and all
reasonable expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
relating to the sale of any of the Registrable Securities, or (B) in any
application or other document or communication (in this Section 10 collectively
called an "application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to register or qualify any of the Registrable Securities
under the securities or blue sky laws thereof or filed with the Commission or
any securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in any of the Notes or Warrants. The foregoing agreement to
indemnify shall be in addition to any liability the Company may otherwise have,
including liabilities arising under any of the Notes or Warrants.
- 15 -
<PAGE>
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability under this Section 10(a) unless the Company shall
have been materially prejudiced by such failure or relieve the Company from any
liability other than pursuant to this Section 10(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) and payment of
expenses. Such 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 the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
employed counsel reasonably satisfactory to such indemnified party or parties to
have charge of the defense of such action or such indemnified party or parties
shall have reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are different from
or additional to those available to the Company, in any of which events such
reasonable fees and expenses shall be borne by the Company and the Company shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 10 to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company agrees promptly to notify the Eligible
Holders of the commencement of any litigation or proceedings against the Company
or any of its officers or directors in connection with the sale of any
Registrable Securities or any preliminary prospectus, prospectus, registration
statement, or amendment or supplement thereto, or any application relating to
any sale of any Registrable Securities.
(b) The Holder agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have signed
any registration statement covering Registrable Securities held by the Holder,
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the
Company to the Eligible Holders in Section 10(a), but only with respect to
statements or omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon
and in conformity with written information furnished to the Company with respect
to the Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 10(b), the Holder shall have the rights and duties given to the
Company, and the Company and each
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<PAGE>
other person so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Warrant expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Registrable
Securities included in such registration in the aggregate (including for this
purpose any contribution by or on behalf of an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Eligible Holders and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 10(c). In no case shall any Eligible Holder be
responsible for a portion of the contribution obligation imposed on all Eligible
Holders in excess of its pro rata share based on the number of Registrable
Securities owned by it and included in such registration as compared to the
number of Registrable Securities owned by all Eligible Holders and included in
such registration. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent representation. For purposes of
this Section 10(c), each person, if any, who controls any Eligible Holder within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, partner, employee, agent, and counsel of each such
Eligible Holder or control person shall have the same rights to contribution as
each Eligible Holder or control person 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, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 10(c). Anything in this
Section 10(c) to the contrary notwithstanding, no party shall be liable for
contribution with
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<PAGE>
respect to the settlement of any claim or action effected without its written
consent. This Section 10(c) is intended to supersede any right to contribution
under the Act, the Exchange Act or otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof, the
Warrant Shares issued upon exercise of the Warrants shall be subject to a stop
transfer order and the certificate or certificates evidencing such Warrant
Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF
SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS."
In the event the Warrant Shares are registered pursuant to Section 9, the
foregoing legend will be replaced by a legend reflecting the regulatory
requirements applicable to the resale of registered shares.
12. Each Holder agrees that, for a period of two years following the
consummation of the Company's initial public offering, he or it shall not
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of any Warrants or shares underlying the Warrants at any time during
such period, without the prior written consent of Barington, other than to
donees or affiliates within the meaning of Rule 144 of the Act, if the
transferee agrees in writing to be similarly bound.
13. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and indemnity reasonably satisfactory to the Company, the
Company shall execute and deliver to the Holder
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<PAGE>
thereof a new Warrant of like date, tenor, and denomination.
14. The Holder of any Warrant shall not have solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
15. This Warrant has been negotiated and consummated in the State of New
York and shall be construed in accordance with the laws of the State of New York
applicable to contracts made and performed within such State, without regard to
principles governing conflicts of law.
16. The Company irrevocably consents to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 17 hereof.
17. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at 201 Lower Notch Road, Little Falls, New
Jersey 07424, Attention: President, with a copy to Rubin Baum Levin Constant &
Friedman, 30 Rockefeller Plaza, New York, New York 10112, Attention: Richard
Hoffman, Esq. (ii) if to the Holder, at its address set forth on the first page
hereof, or (iii) in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 17.
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 17. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means permitted by this
Section 17 shall be deemed given at the time of receipt thereof.
18. No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Warrant upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
19. This Warrant may be amended or any of its provisions waived only by a
written consent or consents executed by the Company and Holders of Warrants
representing
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<PAGE>
a majority of the shares underlying the Warrants issued and outstanding to
investors pursuant to the Memorandum. Any amendment or waiver shall be binding
upon all existing and future Holders.
- 20 -
<PAGE>
Dated: , 1996
INTERNATIONAL SPORTS WAGERING INC.
By:
-----------------------------
Name:
Title:
[Seal]
- ---------------------------------
Secretary
- 21 -
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, par value $.001 per share, of International Sports Wagering, Inc.
(the "Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ______________________________
attorney to transfer such Warrant on the books of the Company, with full power
of substitution.
Dated:
-----------------
Signature
------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
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<PAGE>
To: International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: Name
----------------- -----------------------
(Print)
Address:
-------------------------------------------------------------------
---------------------------
(Signature)
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<PAGE>
To: International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
CASHLESS ELECTION TO EXERCISE
The undersigned hereby (a) irrevocably elects to surrender his or its
Warrant for the number of shares of Common Stock as shall be issuable pursuant
to the cashless exercise provisions of the within Warrant, in respect of
___________ shares of Common Stock underlying the within Warrant, or (b) elects
to apply $ _________ of the principal and/or $ __________ of the accrued or
unpaid interest under his or its Note as payment for _________ Warrant Shares;
and requests that certificates for such securities be issued in the name of, and
delivered to:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the shares exchangeable
or purchasable under the Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: Name
----------------- -----------------------
(Print)
Address:
-------------------------------------------------------------------
---------------------------
(Signature)
- 24 -
<PAGE>
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE, NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
INTERNATIONAL SPORTS WAGERING INC.
10% Senior Promissory Note
$__________ , 1996
New York, New York
INTERNATIONAL SPORTS WAGERING INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to
______________________ _________________________________________, with an
address at _____________
_____________________________________________________________________, or
registered assigns (the "Holder"), the principal amount of
_______________________________ dollars ($__________________) on the Maturity
Date (as defined below), and to pay interest on the unpaid principal balance
hereof at the rate of 10% per annum (calculated on the basis of a 360-day
year consisting of twelve 30-day months) on the first day of each of January,
April, July, and October commencing January 1, 1997 and on the Maturity Date
(each such date being an "Interest Payment Date") all as hereafter further
provided.
In no event shall any interest to be paid hereunder exceed the maximum rate
permitted by law. In any such event, this Note shall automatically be deemed
amended to permit interest charges at an amount equal to, but no greater than,
the maximum rate permitted by law.
1. Offering, Subscription Agreement and Security.
This Note was issued by the Company in an offering (the "Offering") of
units, each full unit consisting of one 10% senior promissory note and a warrant
to purchase 30,000 shares of Common Stock, par value $.001 per share, of the
Company (the "Common Stock"), subject to adjustment as provided therein, made
pursuant to a certain Confidential Private Placement Memorandum, dated October
__, 1996, as it may be supplemented and amended (the "Memorandum"), and a
subscription agreement (the "Subscription Agreement") between the Company and
the original Holder hereof. The series of promissory notes issued in connection
with the Offering are referred to hereafter as the "Notes" and the warrants
issued in connection with the Offering are referred to hereafter as the
"Warrants".
<PAGE>
2. Payments.
(a) Principal of, and any accrued and unpaid interest on, this Note
shall be due and payable in full on the Maturity Date. The "Maturity Date" shall
be the date which is the earliest of (i) [Closing date], 1997 (the "Stated
Maturity Date"), (ii) the date of the closing of an initial public offering of
securities of the Company pursuant to a registration statement filed with the
Securities and Exchange Commission under the Act, and (iii) the date of the
closing of a sale (or the closing of the last of a series of sales) of
securities of the Company after the date hereof (other than pursuant to the
Memorandum), the net proceeds of which, in the aggregate, equal or exceed the
aggregate principal amount of the Notes issued. The Company may elect to extend
the Stated Maturity Date for a period of up to six months (the "Extension"),
during which interest shall continue to accrue on the Notes and the number of
shares of Common Stock purchasable upon exercise of the Warrants, and the
exercise price thereof, shall be adjusted as provided therein. The Company shall
be deemed to have elected to extend the Stated Maturity Date through any date at
which the Notes and any accrued interest remain unpaid.
(b) Interest on this Note shall accrue from the most recent Interest
Payment Date to which interest has been paid or, if no interest has been paid on
this Note, from [Closing date for this Note], 1996, to but excluding the next
Interest Payment Date, and shall be payable in arrears on each Interest Payment
Date.
(c) If any Interest Payment Date or the Maturity Date would fall on a
day that is not a Business Day (as defined below), the payment due on such
Interest Payment Date or Maturity Date will be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day
which is not a Saturday or Sunday and is not a day on which banking institutions
are generally authorized or obligated to close in the City of New York, New
York.
(d) The Company may, at its option, prepay all or any part of the
principal of this Note, without payment of any premium or penalty. The Holder
may elect upon written notice to the Company at any time to apply any or all of
the principal or interest then outstanding under this Note to payment of the
exercise price due upon exercise of any Warrant; such application of amounts
outstanding hereunder shall be deemed to be prepayment by the Company of such
amounts. All payments on this Note shall be applied first to accrued interest
hereon and the balance to the payment of principal hereof.
(e) Payments of principal and interest on this Note shall be made by
check sent to the Holder's address set forth above or to such other address as
the Holder may designate for such purpose from time to time by written notice to
the Company, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts.
(f) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit
and
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<PAGE>
diligence in taking any action to collect any amount called for hereunder, and
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for hereunder.
(g) Other than any application of the principal amounts of the Notes
and/or the interest thereon in connection with the exercise of a Warrant or
Warrants pursuant to Section 1(b) of the Warrant, each payment or prepayment of
principal of any Note or all Notes shall be made for account of the Holders pro
rata in accordance with the respective unpaid principal amounts of the Notes
held by them, and each payment of interest on the Notes shall be made for the
account of the Holders pro rata in accordance with the amounts of interest on
such Notes then due and payable to the respective Holders of the Notes.
3. Ranking of Note.
(a) The Company, for itself, its successors and assigns, covenants
and agrees that the payment of the principal of and interest on this Note is
senior in right of payment to the payment of all existing and future Junior Debt
(as hereinafter defined). "Junior Debt" shall mean all existing and future
Indebtedness (as hereinafter defined) other than (i) the Indebtedness
represented by the Notes, (ii) capital lease obligations and (iii) other
Indebtedness permitted by Section 4(a)(iv). "Indebtedness" shall mean (A) any
liability of the Company (x) for borrowed money, (y) evidenced by a note,
debenture, bond or other instrument of indebtedness (including, without
limitation, a purchase money obligation), including any given in connection with
the acquisition of property, assets or service, or (z) for the payment of rent
or other amounts relating to capitalized lease obligations; (B) any liability of
others described in Section 3(a)(A) which the Company has guaranteed or which is
otherwise its legal liability; and (C) any modification, renewal, extension,
replacement or refunding of any such liability described in Section 3(a)(A) or
(B); provided, that Indebtedness does not include unsecured accounts payable
incurred in the ordinary course of business, including, without limitation,
accrued and unpaid salaries.
(b) The Company covenants and agrees to use its best efforts to cause
any current holder of Junior Debt and to cause any future holder of Junior Debt
to execute such subordination agreements, instruments or waivers as may be
reasonably necessary to reflect the terms set forth herein.
(c) Until the payment in full of all amounts of principal of and
interest on the Notes, and all other amounts owing under the Notes, no payment
may be made with respect to the principal of or interest on or other amounts
owing with respect to any Junior Debt, or in respect of any redemption,
retirement, purchase or other acquisition thereof.
(d) Upon any payment or distribution of the assets of the Company to
creditors upon dissolution, total or partial liquidation or reorganization of or
similar proceeding relating to the Company, the Holders of the Notes will be
entitled to receive payment in full before any holder of Junior Debt is entitled
to receive any payment.
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<PAGE>
4. Covenants.
The Company covenants and agrees with the Holder that, so long as any
amount remains unpaid on the Notes, unless the consent of the Holders of a
majority of the principal amount outstanding under the Notes is obtained
(excluding for this purpose the principal amount of any Note held by or for the
account of the Company or any affiliate of the Company), the Company:
(a) Shall not create, incur, or suffer to exist any Indebtedness
except (i) the Indebtedness represented by the Notes, (ii) Junior Debt,(iii)
capital lease obligations, and (iv) accounts payable incurred in the ordinary
course of business, including, without limitation, accrued and unpaid salaries.
(b) Shall not create, incur or suffer to exist any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind on any of its
property or assets (collectively, "Liens"), except (i) Liens for taxes not yet
due or contested in good faith with appropriate reserves maintained on the books
of the Company, (ii) carriers', warehousemen's, mechanics', and similar Liens
arising in the ordinary course of business which are not overdue for more than
90 days or are being contested in good faith, (iii) easements, rights of way,
zoning restrictions, and similar Liens on real property, which in the aggregate
are not material and do not materially detract from the use of such property,
and (v) Liens for Indebtedness permitted to be incurred or in existence under
Sections 4(a) (iii).
(c) Shall not create, acquire, or maintain any subsidiaries (except
as may be necessary or appropriate to ease regulatory burdens imposed by the
State of Nevada gaming authorities).
(d) Shall not pay any dividend or make any distribution on, or
purchase, redeem, or retire, any shares of its capital stock or any warrants,
options, or other rights to reacquire any such shares, except that the Company
may pay dividends payable solely in shares of its capital stock.
(e) Shall not change its primary line of business.
(f) Shall not (i) enter into any merger or consolidation, (ii)
liquidate, wind up its affairs or dissolve, or (iii) except in the ordinary
course of business, convey, sell, lease, transfer or otherwise dispose of, or
purchase or acquire, any business, assets, capital stock or other property.
(g) Shall not, directly or indirectly, enter into any transaction
with or for the benefit of an affiliate (other than reasonable compensation,
consistent with Section 4(h), for services as an officer, director or employee).
(h) Shall not in any manner increase the compensation of its existing
officers and directors from the levels in effect on the date of issuance of this
Note.
(i) Shall use the proceeds of the Offering in substantially the
manner specified in the Memorandum.
(j) Shall deliver to each Holder and to the Secured Party:
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<PAGE>
(i) as soon as available, and in any event within 45 days after
the end of each of the first three quarterly fiscal periods of each fiscal year
of the Company or, if the Company is subject to the periodic reporting
requirements set forth in Sections 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), when such reports are filed with the
Commission, whichever is later, statements of income, retained earnings and cash
flow of the Company, for such period and for the period from the beginning of
the respective fiscal year to the end of such period, and the related balance
sheet of the Company as at the end of such period setting forth in the case of
each such statement in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by a certificate
of the chief financial officer of the Company, which certificate shall state
that (A) such financial statements fairly present in all material respects the
financial position and results of operations of the Company, all in accordance
with generally accepted accounting principles consistently applied, and (B) no
Default (as hereinafter defined) has occurred and is continuing or, if any
Default has occurred and is continuing, a description thereof in reasonable
detail and of the action the Company has taken or proposes to take with respect
thereto;
(ii) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company or, if the Company is subject to the
periodic reporting requirements set forth in Sections 13 or 15(d) of the
Exchange Act, when such reports are filed with the Commission, whichever is
later, statements of income, retained earnings and cash flow of the Company for
such fiscal year, and the related balance sheet of the Company as at the end of
such fiscal year, setting forth in the case of each such statement in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by (A) an opinion thereon of independent certified public
accountants which opinion shall state that such financial statements present
fairly, in all material respects, the financial position and results of
operations of the Company in conformity with generally accepted accounting
principles consistently applied, and (B) a certificate of the chief financial
officer of the Company stating that no Default has occurred and is continuing
or, if any Default has occurred and is continuing, a description thereof in
reasonable detail and of the action the Company has taken or proposes to take
with respect thereto;
(iii) promptly upon their becoming available, copies of all
registration statements which the Company shall have filed with the Securities
and Exchange Commission (or any governmental agency substituted therefor) or any
national securities exchange;
(iv) promptly after the Company shall obtain knowledge of such,
written notice of all legal or arbitral proceedings, and of all proceedings by
or before any governmental or regulatory authority or agency, and each material
adverse development in respect of such legal or other proceedings, affecting the
Company, except proceedings which, if adversely determined, would not have a
material adverse effect on the Company; and
(v) promptly after the Company shall obtain knowledge of the
occurrence of any Event of Default (as hereinafter defined) or any event which
with notice or lapse of time or both would become an Event of Default (an Event
of Default or such other event being a "Default"), a notice specifying that such
notice is a "Notice of Default" and describing such Default in reasonable
detail, and, in such Notice of Default or as soon thereafter as
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<PAGE>
practicable, a description of the action the Company has taken or proposes to
take with respect thereto.
5. Events of Default.
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and
as the same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and as
the same shall become due and payable, which default shall continue for five
business days after the date fixed for the making of such interest payment.
(c) A default in the performance, or a breach, in either case in any
material respect, of any of the covenants of the Company contained in Section 3
or 4 of this Note.
(d) A default in the performance, or a breach, in either case in any
material respect, of any other covenant or agreement of the Company in this Note
and continuance of such default or breach for a period of 30 days after receipt
of notice from the Holder as to such breach or after the Company had or should
have had knowledge of such breach.
(e) A default or event of default which remains uncured following any
applicable cure period shall have occurred with respect to any Junior Debt.
(f) A default or event of default which remains uncured following any
applicable cure period shall have occurred with respect to any existing or
future Indebtedness.
(g) Any representation, warranty or certification made by the Company
in or pursuant to this Note or the Subscription Agreement shall prove to have
been false or misleading as of the date made in any material respect.
(i) A final judgment or judgments for the payment of money in excess
of $50,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction over
the Company and the same shall not be discharged (or provision shall not be made
for such discharge), or a stay of execution thereof shall not be procured,
within 60 days from the date of entry thereof and the Company shall not, within
such 60-day period, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(j) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a
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<PAGE>
voluntary case under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under federal bankruptcy law or any other
applicable federal or state law, or the consent by it to the filing of such
petition or to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action.
6. Remedies Upon Default.
(a) Upon the occurrence of an Event of Default referred to in Section
5(j), the principal amount then outstanding of, and the accrued interest on,
this Note shall automatically become immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company. Upon the occurrence of an Event of
Default referred to in Section 5(a) or 5(b), the Holder, by notice in writing
given to the Company, may declare the entire principal amount then outstanding
of, and the accrued interest on, this Note to be due and payable immediately,
and upon any such declaration the same shall become and be due and payable
immediately, without presentment, demand, protest or other formalities of any
kind, all of which are expressly waived by the Company. Upon the occurrence of
an Event of Default other than one referred to in Sections 5(a), (b) and (j),
the Holders of not less than 50% in principal amount of then outstanding Notes
(excluding any Notes held by or for the account of the Company or any affiliate
of the Company) may declare the principal amount then outstanding of, and the
accrued interest on, the Notes to be due and payable immediately, and upon such
declaration the same shall become due and payable immediately, without
presentation, demand, protest or other formalities of any kind, all of which are
expressly waived by the Company. In any case, the Holder also may take any
action available to it under any instrument, agreement or other document
executed in connection herewith.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, reasonable attorneys' fees and expenses.
7. Transfer.
(a) Any Notes issued upon the transfer of this Note shall be numbered
and shall be registered in a Note Register as they are issued. The Company shall
be entitled to treat the registered holder of any Note on the Note Register as
the owner in fact thereof for all purposes and shall not be bound to recognize
any equitable or other claim to or interest in such Note on the part of any
other person, and shall not be liable for any registration or transfer of Notes
which are registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such
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<PAGE>
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Note shall be transferable only
on the books of the Company upon delivery thereof duly endorsed by the Holder or
by his duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment, or authority to transfer. In all cases of
transfer by an attorney, executor, administrator, guardian, or other legal
representative, duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Note or Notes to the person entitled thereto. This Note may be exchanged, at the
option of the Holder thereof, for another Note, or other Notes of different
denominations, of like tenor and representing in the aggregate a like principal
amount, upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Notes to be transferred on its books to any person if, in the opinion of counsel
to the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder.
(b) The Holder acknowledges that he has been advised by the Company
that this Note has not been registered under the Act, that the Note is being or
has been issued on the basis of the statutory exemption provided by Section 4(2)
of the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by the
original Holder in the original Holder's Subscription Agreement executed and
delivered in accordance with the terms of the Offering. The Holder acknowledges
that he has been informed by the Company of, or is otherwise familiar with, the
nature of the limitations imposed by the Act and the rules and regulations
thereunder on the transfer of securities. In particular, the Holder agrees that
no sale, assignment or transfer of the Note shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment or
transfer, unless (i) the sale, assignment or transfer of the Note is registered
under the Act, it being understood that the Note is not currently registered for
sale and that the Company has no obligation or intention to so register the
Notes or (ii) such sale, assignment, or transfer is exempt from registration
under the Act.
8. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 201 Lower Notch
Road, Little Falls, New Jersey 07424, Attention: President, with a copy to Rubin
Baum Levin Constant & Friedman, 30 Rockefeller Plaza, 29th Floor, New York, New
York 10112 Attn: Richard Hoffman, Esq. (ii) if to the Holder, at its address set
forth on the first page hereof, or (iii) in either case, to such other address
as the party shall have furnished in writing in accordance with the provisions
of this Section 8(a). Notice to the estate of any party shall be sufficient if
addressed to the party as provided in this Section 8(a). Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 8(a) shall be deemed given at the time of
receipt thereof.
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<PAGE>
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note (and upon surrender of this Note
if mutilated), and upon reimbursement of the Company's reasonable incidental
expenses and in the case of loss, theft or destruction, indemnity as the Company
shall, at its option, reasonably request, the Company shall execute and deliver
to the Holder a new Note of like date, tenor and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note has been negotiated and consummated in the State of New
York and shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to principles governing conflicts of
law.
(e) The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Note, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 8(a).
9. This Note may be amended, or any of its provisions waived (which
amendment or waiver shall be binding upon all future Holders) only by written
consent or consents executed by the Company and the Holders of Notes
representing a majority in principal amount of the Notes issued to investors
pursuant to the Memorandum (excluding any Notes held by or for the account of
the Company or any affiliate of the Company), provided, however that any waiver
or amendment to the interest rate, Maturity Date or any Interest Payment Date
provided hereunder shall be effective only with respect to Notes the Holders of
which have consented thereto.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
INTERNATIONAL SPORTS WAGERING INC.
By:
---------------------------
Name:
Title:
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 22nd day of May, 1995 between International
Sports Wagering Inc., a Delaware corporation (the "Corporation"), and Barry
Mindes ("Employee").
W I T N E S S E T H:
WHEREAS, the Corporation is in the business of developing, producing,
marketing, licensing and servicing computerized sports wagering systems; and
WHEREAS, the Corporation desires to employ Employee as its President and
Chief Executive Officer and Employee desires to serve the Corporation in such
capacity:
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions herein contained, the
Corporation hereby employs Employee as its President and Chief Executive Officer
and Employee hereby agrees
to serve the Corporation in such capacity.
2. DUTIES.
(a) Employee agrees, during the Term (as hereinafter defined), to
devote his full business attention and best efforts to the business of the
Corporation and to perform such duties of an executive and administrative nature
as the Board of Directors of the Corporation, acting reasonably, shall assign or
direct consistent with his status and position as President and
<PAGE>
Chief Executive Officer, including, without limitation, such duties as would
typically be performed by persons holding similar positions in other companies.
(b) Employee shall conduct himself at all times in a manner
consistent with his position with the Corporation.
3. TERM
(a) The term of Employee's employment (the "Term") shall commence as
of May 22, 1995, and shall terminate on June 30, 1998, subject to earlier
termination only (i) in the event of Employee's death; (ii) at the option of the
Corporation, in the event of disability (as hereinafter defined) for 90
consecutive working days or an aggregate of 120 working days during any
consecutive six month period during the Term; or (iii) for cause.
(b) For the purpose of this Agreement, "disability" shall mean any
injury or any physical or mental condition or illness which shall render
Employee unable to perform his duties in accordance with this Agreement.
4. COMPENSATION AND BENEFITS. As compensation for all duties to be
rendered by Employee to the Corporation in all capacities, the Corporation shall
pay to Employee during the Term a minimum of the following, payable in
accordance with the normal payroll practice of the Corporation:
4.1 During the first year of the Term, the Employee shall receive no
base salary; during the second and third years of the Term, the Employee shall
receive a base salary of not less
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<PAGE>
than $115,000 per annum, unless otherwise approved by 80% of the Board of
Directors of the Corporation.
4.2 In addition, Employee shall be entitled to receive (a) such
salary increases, bonuses or other incentive compensation as may be approved by
80% of the Board of Directors; (b) three weeks vacation during each year of the
Term; (c) such health insurance as the Corporation may from time to time provide
to its other executive employees; provided, however that until such time as the
Corporation has instituted a health insurance plan for all of its employees it
shall reimburse Employee up to a maximum of $700 per month for his actual out of
pocket cost of family health insurance coverage including the premiums for such
health insurance and any deductible or co-pay amount associated with such
insurance payable by Employee. Any portion of such $700 per month that is not
paid to Employee during any particular month shall be reimbursable to Employee
in a succeeding month, provided that the total amount reimbursable to Employee
per annum during the Term shall not exceed $8,400; (d) such life insurance as
the Corporation may provide to all other executive employees; (e) such other
fringe benefits as the Corporation may provide to its employees, and (f) at the
Corporation's expense, the use of a leased automobile plus all expenses of
operating such automobile, including but not limited to insurance and
maintenance costs.
5. REQUIRED RELOCATION.
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<PAGE>
5.1 During the Term, the Corporation shall not require the Employee
to relocate outside of the New York City/New Jersey metropolitan area (the
"Area").
5.2 In the event that after the Term of this Agreement and prior to
July 1, 2000, the Corporation requires the Employee to relocate outside the Area
and the Employee elects in his discretion, not to do so, the Employee may
voluntarily leave the employ of the Corporation and in such event the
Corporation shall pay to the Employee an amount equal to six month's base
salary, (at the employee's base salary at the time of termination) (the
"Severance Amount"). The Severance Amount shall be paid to the Employee in six
equal monthly installments commencing on the first day of the month immediately
following such termination.
5.3 Notwithstanding the foregoing, the Employee may be required to
travel away from his home for reasonable periods of time in fulfillment of his
responsibilities for the Corporation.
6. NON RENEWAL OF EMPLOYMENT AGREEMENT
In the event that at the end of the Term of this Agreement, the
Agreement is not renewed or a new Agreement is not entered into, and thereafter,
but prior to July 1, 2000, the Employee's employment with the Corporation is
terminated by the Corporation other than for cause, or due to the death or
disability of the Employee, the Corporation shall pay to the Employee the
Severance Amount in the manner provided in Section 5.2.
7. CHANGE OF CONTROL:
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<PAGE>
7.1 In the event of a "Change of Control" (as hereafter defined)
following which the Employee's employment is terminated (a) by the Corporation
other than as a result of the death or disability of the Employee or for cause,
or (b) by the Employee for "Good Reason" (as hereinafter defined) the Employee
shall be entitled to the following:
(a) If the termination is during the Term, the Employee shall be
entitled to continued payment of his base compensation and benefits as provided
in Section 4 until the end of the Term, but in no event less than six months of
base salary and benefits.
(b) If the termination occurs after the Term but prior to July 1,
2000, the Employee shall be entitled to the Severance Amount payable in the
manner provided in Section 5.2.
(c) "Change of Control" shall mean, if any person, or any two or
more persons acting a group, and all affiliates of such person or persons, who
prior to such time beneficially owned (as defined in Rule 13d-3 under the
Securities and Exchange Act of 1934 (the "Exchange Act") less than 50% of the
then outstanding Common Stock of the Corporation, shall acquire additional
shares of Common Stock in one or more transactions or series of transactions,
such that following such transaction or transactions, such person or group and
affiliates beneficially own 50% or more of the Common Stock outstanding.
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<PAGE>
(d) "Good Reason", when used with reference to a voluntary
termination by the Employee of his employment with the Corporation, shall mean:
i) the assignment to the Employee of any duties inconsistent
in a material way with, or the reduction of powers or functions associated
with, his positions, duties, responsibilities and status with the
Corporation, Employee's reporting responsibilities or any removal of the
Employee from or any failure to reelect the Employee to any significant
positions or offices the Employee held immediately prior to the time of
the Change in Control, except in connection with the termination of the
Employee's employment by the Corporation for Cause or for Death or
Disability;
ii) a reduction by the Corporation in the Employee's base
salary or benefits that existed immediately prior to the Change in
Control;
iii) a change in the Employee's principal work location,
except for required travel on the Corporation's business to an extent
substantially consistent with the Employee's business travel obligations
immediately prior to the Change of Control; provided, however, that no
event shall constitute a Good Reason unless the Employee notifies the
Corporation that it has committed an action or inaction specified in
clauses (i) through (iii) (a "Covered Action") and the Corporation does
not cure such Covered Action within 30 days
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<PAGE>
after such notice, at which time such Good Reason shall be deemed to have
arisen. Notwithstanding the immediately preceding sentence, no action by the
Corporation shall give rise to a Good Reason if it results from the Employee's
termination for Cause, Disability or death or from the Employee's resignation
for other than a Good Reason. If the Employee has a Good Reason to resign, he
may in fact resign for a Good Reason by notice of termination given within 60
days after the Good Reason arises.
8. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse Employee for
all reasonable business expenses paid or incurred by him on behalf of the
Corporation, including, but not limited to, travel and entertainment expenses,
that he shall incur during the Term in connection with the performance of his
duties hereunder; provided that he submits, in a timely manner, receipts or
other expense records in such detail as may be required by the Corporation.
9. NO CONFLICTING COMMITMENTS.
Employee represents and warrants that he has no commitments or
obligations of any kind whatsoever inconsistent with this Agreement which would
impair, infringe upon or limit his ability to enter into this Agreement or to
perform the services required of him hereunder.
10. PROPRIETARY INFORMATION. Simultaneous with the execu- tion of this
Employment Agreement, Employee agrees to sign the Proprietary Information
Agreement attached hereto as Exhibit A.
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<PAGE>
11. ENTIRE AGREEMENT. This Agreement embodies the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof, and no
promise, condition, representation or warranty, express or implied, not herein
set forth shall bind any party hereto. None of the terms and conditions of this
Agreement may be changed, modified, waived or cancelled orally or otherwise
except in a writing signed by both the parties hereto, specifying such change,
modification, waiver or cancellation. A waiver at any time of compliance with
any of the terms and conditions of this Agreement shall not be considered a
modification, cancellation or waiver of such terms and conditions of any
preceding or succeeding breach thereof unless expressly so stated.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respec- tive legal representatives,
successors and assigns.
13. GOVERNING LAW. This Agreement shall be governed by the internal laws
of the State of New Jersey without regard to principles of conflicts of law.
14. NOTICES. Any notice or other communication required or desired to be
given shall be in writing and shall be sent by registered or certified mail
return receipt requested or by express mail. Each such notice shall be deemed
given at the time it is mailed in any post office maintained by the United
States to the following respective addresses, which either party may change as
to such party upon ten (10) days' notice to the other.
To the Corporation:
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<PAGE>
International Sports Wagering Inc.
32 Heights Road
Wayne, New Jersey 07470
Attn: President
With a copy to:
Richard M. Hoffman, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza (29th Floor)
New York, New York 100112
To Employee:
Mr. Barry Mindes
32 Heights Road
Wayne, NJ 07470
15. EXTRAORDINARY RELIEF. Employee acknowledges and agrees that
irreparable damage will result to the Corporation in the event of a breach of
the Proprietary Information Agreement. Accordingly, Employee agrees that the
Corporation shall be entitled to enforce its rights under said Proprietary
Information Agreement, in the event of a breach or threatened breach thereof, in
the court of equity, and shall be entitled to a decree of specific performance
or appropriate injunctive relief. Such remedies shall be cumulative and not
exclusive and shall be in addition to any other rights or remedies available to
the Corporation.
16. INVALIDITY. Any provision of this Agreement found to be prohibited by
law shall be ineffective as written without invalidating the remainder of this
Agreement and shall be deemed amended to the fullest extent allowable by
applicable law to effectuate the purposes of said provision.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ Bernard Albanese
--------------------------------
Bernard Albanese, President
/s/ Barry Mindes
--------------------------------
Barry Mindes
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the lst day of June, 1995 between International
Sports Wagering Inc., a Delaware corporation (the "Corporation"), and Bernard
Albanese ("Employee").
W I T N E S S E T H:
WHEREAS, the Corporation is in the business of developing, producing,
marketing, licensing and servicing computerized sports wagering systems; and
WHEREAS, the Corporation desires to employ Employee as its Vice President
- - Systems and Employee desires to serve the Corporation in such capacity:
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions herein contained, the
Corporation hereby employs Employee as its Vice President - Systems and Employee
hereby agrees to serve the Corporation in such capacity.
2. DUTIES.
(a) Employee agrees, during the Term (as hereinafter defined), to
devote his full business attention and best efforts to the business of the
Corporation and to perform such duties of an executive and administrative nature
as the Chief Executive Officer, President or Board of Directors of the
Corporation, acting reasonably, shall assign or direct
<PAGE>
(i) consistent with his status and position as Vice President Systems,
including, without limitation, such duties as would typically be performed by
persons holding similar positions in other companies, and (ii) such other duties
of a managerial nature relating to operations, finance, personnel or support.
(b) Employee shall conduct himself at all times in a manner
consistent with his position with the Corporation.
3. TERM
(a) The term of Employee's employment (the "Term") shall commence as
of June __, 1995, and shall terminate on June 30, 1998, subject to earlier
termination only (i) in the event of Employee's death; (ii) at the option of the
Corporation, in the event of disability (as hereinafter defined) for 90
consecutive working days or an aggregate of 120 working days during any
consecutive six month period during the Term; or (iii) for cause.
(b) For the purpose of this Agreement, "disability" shall mean any
injury or any physical or mental condition or illness which shall render
Employee unable to perform his duties in accordance with this Agreement.
4. COMPENSATION AND BENEFITS. As compensation for all
duties to be rendered by Employee to the Corporation in all
capacities, the Corporation shall pay to Employee during the Term
a minimum of the following, payable in accordance with the normal
payroll practice of the Corporation:
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<PAGE>
4.1 During the first year of the Term, a base salary of $52,000 per
year; and during the second and third years of the Term, a base salary of not
less than $108,000 per annum.
4.2 In addition, Employee shall be entitled to receive (a) such
salary increases, bonuses or other incentive compensation as may be approved by
the Board of Directors; (b) three weeks vacation during each year of the Term;
(c) such health insurance as the Corporation may from time to time provide to
its other executive employees; provided, however that until such time as the
Corporation has instituted a health insurance plan for all of its employees it
shall reimburse Employee up to a maximum of $700 per month for his actual out of
pocket cost of family health insurance coverage including the premiums for such
health insurance and any deductible or co-pay amount associated with such
insurance payable by Employee. Any portion of such $700 per month that is not
paid to Employee during any particular month shall be reimbursable to Employee
in a succeeding month, provided that the total amount reimbursable to Employee
per annum during the Term shall not exceed $8,400; (d) such life insurance as
the Corporation may provide to all other executive employees; and (e) such other
fringe benefits as the Corporation may provide to its employees.
5. REQUIRED RELOCATION.
5.1 During the Term, the Corporation shall not require the Employee
to relocate outside of the New York City/New Jersey metropolitan area (the
"Area").
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<PAGE>
5.2 In the event that after the Term of this Agreement and prior to
July 1, 2000, the Corporation requires the Employee to relocate outside the Area
and the Employee elects in his discretion, not to do so, the Employee may
voluntarily leave the employ of the Corporation and in such event the
Corporation shall pay to the Employee an amount equal to six month's base
salary, (at the employee's base salary at the time of termination) (the
"Severance Amount"). The Severance Amount shall be paid to the Employee in six
equal monthly installments commencing on the first day of the month immediately
following such termination.
5.3 Notwithstanding the foregoing, the Employee may be required to
travel away from his home for reasonable periods of time in fulfillment of his
responsibilities for the Corporation.
6. NON RENEWAL OF EMPLOYMENT AGREEMENT
In the event that at the end of the Term of this Agreement, the
Agreement is not renewed or a new Agreement is not entered into, and thereafter,
but prior to July 1, 2000, the Employee's employment with the Corporation is
terminated by the Corporation other than for cause, or due to the death or
disability of the Employee, the Corporation shall pay to the Employee the
Severance Amount in the manner provided in Section 5.2.
7. CHANGE OF CONTROL:
7.1 In the event of a "Change of Control" (as hereafter defined)
following which the Employee's employment is terminated (a) by the Corporation
other than as a result of the
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<PAGE>
death or disability of the Employee or for cause, or (b) by the Employee for
"Good Reason" (as hereinafter defined) the Employee shall be entitled to the
following:
(a) If the termination is during the Term, the Employee shall be
entitled to continued payment of his base compensation and benefits as provided
in Section 4 until the end of the Term, but in no event less than six months of
base salary and benefits.
(b) If the termination occurs after the Term but prior to July 1,
2000, the Employee shall be entitled to the Severance Amount payable in the
manner provided in Section 5.2.
(c) "Change of Control" shall mean, if any person, or any two or
more persons acting a group, and all affiliates of such person or persons, who
prior to such time beneficially owned (as defined in Rule 13d-3 under the
Securities and Exchange Act of 1934 (the "Exchange Act") less than 50% of the
then outstanding Common Stock of the Corporation, shall acquire additional
shares of Common Stock in one or more transactions or series of transactions,
such that following such transaction or transactions, such person or group and
affiliates beneficially own 50% or more of the Common Stock outstanding.
(d) "Good Reason", when used with reference to a voluntary
termination by the Employee of his employment with the Corporation, shall mean:
i) the assignment to the Employee of any duties inconsistent
in a material way with, or the reduction of
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<PAGE>
powers or functions associated with, his positions, duties,
responsibilities and status with the Corporation, Employee's reporting
responsibilities or any removal of the Employee from or any failure to
reelect the Employee to any significant positions or offices the Employee
held immediately prior to the time of the Change in Control, except in
connection with the termination of the Employee's employment by the
Corporation for Cause or for Death or Disability;
ii) a reduction by the Corporation in the Employee's base
salary or benefits that existed immediately prior to the Change in
Control;
iii) a change in the Employee's principal work location,
except for required travel on the Corporation's business to an extent
substantially consistent with the Employee's business travel obligations
immediately prior to the Change of Control; provided, however, that no
event shall constitute a Good Reason unless the Employee notifies the
Corporation that it has committed an action or inaction specified in
clauses (i) through (iii) (a "Covered Action") and the Corporation does
not cure such Covered Action within 30 days after such notice, at which
time such Good Reason shall be deemed to have arisen. Notwithstanding the
immediately preceding sentence, no action by the Corporation shall give
rise to a Good Reason if it results from the Employee's termination for
Cause, Disability or death or from the Employee's resignation for other
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<PAGE>
than a Good Reason. If the Employee has a Good Reason to resign, he may in
fact resign for a Good Reason by notice of termination given within 60
days after the Good Reason arises.
8. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse Employee for
all reasonable business expenses paid or incurred by him on behalf of the
Corporation, including, but not limited to, travel and entertainment expenses,
that he shall incur during the Term in connection with the performance of his
duties hereunder; provided that he submits, in a timely manner, receipts or
other expense records in such detail as may be required by the Corporation.
9. NO CONFLICTING COMMITMENTS.
Employee represents and warrants that he has no commitments or
obligations of any kind whatsoever inconsistent with this Agreement which would
impair, infringe upon or limit his ability to enter into this Agreement or to
perform the services required of him hereunder.
10. PROPRIETARY INFORMATION. Simultaneous with the execu- tion of this
Employment Agreement, Employee agrees to sign the Proprietary Information
Agreement attached hereto as Exhibit A.
11. ENTIRE AGREEMENT. This Agreement embodies the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof, and no
promise, condition, representa- tion or warranty, express or implied, not herein
set forth shall bind any party hereto. None of the terms and conditions of this
Agreement may be changed, modified, waived or cancelled orally or
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<PAGE>
otherwise except in a writing signed by both the parties hereto, specifying such
change, modification, waiver or cancellation. A waiver at any time of compliance
with any of the terms and conditions of this Agreement shall not be considered a
modification, cancellation or waiver of such terms and conditions of any
preceding or succeeding breach thereof unless expressly so stated.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respec- tive legal representatives,
successors and assigns.
13. GOVERNING LAW. This Agreement shall be governed by the internal laws
of the State of New Jersey without regard to principles of conflicts of law.
14. NOTICES. Any notice or other communication required or desired to be
given shall be in writing and shall be sent by registered or certified mail
return receipt requested or by express mail. Each such notice shall be deemed
given at the time it is mailed in any post office maintained by the United
States to the following respective addresses, which either party may change as
to such party upon ten (10) days' notice to the other.
To the Corporation:
Mr. Barry Mindes, President
International Sports Wagering Inc.
32 Heights Road
Wayne, New Jersey 07470
With a copy to:
Richard M. Hoffman, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza (29th Floor)
New York, New York 100112
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<PAGE>
To Employee:
Mr. Bernard Albanese
12 Weiss Drive
Towaco, N.J. 07082
15. EXTRAORDINARY RELIEF. Employee acknowledges and agrees that
irreparable damage will result to the Corporation in the event of a breach of
the Proprietary Information Agreement. Accordingly, Employee agrees that the
Corporation shall be entitled to enforce its rights under said Proprietary
Information Agreement, in the event of a breach or threatened breach thereof, in
the court of equity, and shall be entitled to a decree of specific performance
or appropriate injunctive relief. Such remedies shall be cumulative and not
exclusive and shall be in addition to any other rights or remedies available to
the Corporation.
16. INVALIDITY. Any provision of this Agreement found to be prohibited by
law shall be ineffective as written without invalidating the remainder of this
Agreement and shall be deemed amended to the fullest extent allowable by
applicable law to effectuate the purposes of said provision.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ Barry Mindes
------------------------------
Barry Mindes, President
/s/ Bernard Albanese
----------------------------------
Bernard Albanese
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<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
PROPRIETARY INFORMATION
INVENTIONS AND NON-SOLICITATION AGREEMENT FOR EMPLOYEES
I recognize that International Sports Wagering Inc. a Delaware
corporation, together with its subsidiaries and affiliates (collectively, the
"Company"), is engaged in a continuous program of research, development and
production respecting its business, present and future.
I understand that:
A. As part of my employment by the Company, I am expected to make new
contributions and inventions of value to the Company;
B. My employment creates a relationship of confidence and trust between me
and the Company with respect to any information:
(1) Applicable to the business of the Company; or
(2) Applicable to the business of any client or customer of the
Company, which may be made known to me by the Company or by
any client or customer of the Company, or learned by me in
such context during the period of my employment.
C. The Company possesses and will continue to possess information that has
been created, discovered, developed, or otherwise become known to the Company
(including, without limitation, information created, discovered, developed, or
made known by me during the period of or arising out of my employment by the
Company) and/or in which property rights have been assigned or otherwise
conveyed to the Company, which information has commercial value in the business
in which the Company is or may become engaged. All of the aforementioned
information is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, processes, structures, formulas, data and know-how, improvements,
inventions, product concepts, techniques, marketing plans, strategies,
forecasts, customer lists, information regarding products, designs, methods,
systems, software programs, works of authorship, projects, plans and proposals,
information about the Company's employees and/or consultants (including, without
limitation, the compensation, job responsibility and job performance of such
employees and/or consultants, information about business and financial matters
(including, without limitation, information relating to costs, profits, budgets
and plans for future development and any other trade secrets and proprietary
information relating to the Company or its customers, other than information
which is otherwise generally available to the public other than as a result of a
disclosure by me.
<PAGE>
D. As used herein, the period of my employment includes any time in which
I may be retained by the Company as a director or consultant.
In consideration of my employment or continued employment, as the case may
be, and the compensation received by me from the Company from time to time, I
hereby agree as follows:
1. Ownership of Proprietary Information. All Proprietary Information shall
be the sole property of the Company and its assigns, and the Company and its
assigns shall be the sole owner of all patents, copyrights and other rights in
connection therewith. I hereby assign to the Company any rights I may have or
acquire in such Proprietary Information. At all times, both during my employment
by the Company and after its termination, I will keep in confidence and trust
all Proprietary Information, and I will not use or disclose any Proprietary
Information or anything directly relating to it without the written consent of
the Company, except as may be necessary in the ordinary course of performing my
duties as an employee of the Company and only for the benefit of the Company.
Notwithstanding the foregoing, it is understood that, at all such times I am
free to use (a) information in the public domain not as a result of a breach of
this Agreement and (b) my own skill, knowledge, know-how and experience to
whatever extent and in whatever way I wish, in each case consistent with any of
the obligations as an employee of the Company.
2. Sole Employment. I agree that during the term of my employment by the
Company I will devote my efforts diligently and faithfully on a full-time basis
to the business of the Company.
3. Delivery of Documents and Data. I agree that during my employment I
shall not make, use or permit to be used any notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials of any nature relating to any matter within the
scope of the business of the Company or concerning any of its dealings or
affairs (the "Materials") otherwise than for the benefit of the Company. I
further agree that I shall not, after the termination of my employment, use or
permit to be used any such Materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of the Company. In the event
of the termination of my employment by me or by the Company for any reason, I
will deliver to the Company all Materials, I will not take with me or deliver to
anyone else any Materials or any reproduction of any description containing or
pertaining to any Proprietary Information and I will sign and deliver the
"Termination Certification" attached hereto as Exhibit B.
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<PAGE>
4. Disclosure of Inventions. I will promptly disclose to the Company, or
any persons designated by it, all improvements, modifications, developments,
documentation, data, inventions, designs, ideas, copyrightable works,
discoveries, trademarks, copyrights, trade secrets, formulas, processes,
techniques, know-how, and data, whether or not patentable, made or conceived or
reduced to practice or learned by me, either alone or jointly with others,
during the period of my employment (whether or not during normal working hours)
which are related to or useful in the actual or anticipated business of the
Company, or result from tasks assigned me by the Company or result from use of
premises or equipment owned, leased, or contracted for by the Company (all said
improvements, inventions, designs, ideas, copyrightable works, discoveries,
trademarks, copyrights, trade secrets, formulas, processes, techniques, know-how
and data shall be collectively hereinafter called "Inventions").
5. Assignment of and Assistance on Inventions. I hereby assign to the
Company any rights I may have or acquire in all Inventions and agree that all
Inventions shall be the sole property of the Company and its assigns, and the
Company and its assigns shall be the sole owner of all patents, copyrights and
other rights in connection therewith. I further agree to assist the Company in
every proper way (but at the Company's expense) to obtain and, from time to
time, enforce patents, copyrights or other rights on said Inventions in any and
all countries, and to that end I will execute all documents necessary:
(a) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) letters patent, copyrights or
other analogous protection in any country throughout the world and
when so obtained or vested to renew and restore the same; and
(b) to defend any opposition proceedings in respect of such applications
and any opposition proceedings or petitions or applications for
revocation of such letters patent, copyright or other analogous
protection.
In the event the Company is unable, after reasonable effort, to secure my
signature on any letters patent, copyright or other analogous protection
relating to an Invention, whether because of my physical or mental incapacity or
for any other reason whatsoever, I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and in my behalf and stead to execute and file any
such application or applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent, copyright or other
analogous protection thereon with the same legal force and effect as if executed
by me. My obligation to
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<PAGE>
assist the Company in obtaining and enforcing patents and copyrights for such
Inventions in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance.
I acknowledge that all original works of authorship which are made by me
(solely or jointly with others) within the scope of my employment and which are
protectable by copyright are being created at the instance of the Company and
are "works made for hire," as that term is defined in the United States
Copyright Act (17 USCA, Section 101). If such laws are inapplicable or in the
event that such works, or any part thereof, are determined by a court of
competent jurisdiction not to be a work made for hire under the United States
copyright laws, this agreement shall operate as an irrevocable and unconditional
assignment by me to the Company of all of my right, title and interest
(including, without limitation all rights in and to the copyrights throughout
the world, including the right to prepare derivative works and the right to all
renewals and extensions) in the works in perpetuity.
6. Prior Inventions. All improvements, inventions, designs, ideas,
copyrightable works, discoveries, trademarks, copyrights, trade secrets,
formulas, processes, techniques, know-how and data relevant to the subject
matter of my employment by the Company which have been made or conceived or
first reduced to practice by me alone or jointly with others prior to my
engagement by the Company shall be deemed "Inventions" for the purposes of this
Agreement except as set forth on Exhibit A hereto. I represent that the
Inventions identified in the pages, if any, attached hereto comprise all the
unpatented and uncopyrighted Inventions which I have made or conceived prior to
my employment by the Company, which Inventions are excluded from this Agreement.
I understand that it is only necessary to list the title and purpose of such
Inventions but not details thereof.
7. No Breach of Duty. I represent that my performance of all the terms of
this Agreement and as an employee of the Company does not, and to the best of my
present knowledge and belief, will not breach any agreement or duty to keep in
confidence proprietary information acquired by me in confidence or in trust
prior to my employment by the Company. I have not entered into, and I agree will
not enter into, any agreement either written or oral in conflict herewith. I am
not at the present time restricted from being employed by the Company or
entering into this Agreement.
8. No Prior Employer Property. I understand as part of the consideration
for the offer of employment extended to me by the Company and of my employment
or continued employment by the
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<PAGE>
Company, that I have not brought and will not bring with me to the Company, or
use in the performance of my responsibilities at the Company, any materials or
documents of a former employer which are not generally available to the public,
unless I or the Company have obtained written authorization from the former
employer for their possession and use.
Accordingly, this is to advise the Company that the only materials or
documents of a former employer which are not generally available to the public
that I will bring to the Company or use in my employment are identified on
Exhibit A attached hereto, and as to each such item, I represent that I have
obtained, prior to the effective date of my employment with the Company, written
authorization for their possession and use in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality or duty that I have to former
employers, and I agree that I shall fulfill all such obligations during my
employment with the Company.
9. Non-Solicitation. During the term of my employment by the Company, and
for twelve months thereafter, I shall not, directly or indirectly, without the
prior written consent of the Company:
(a) solicit or induce any employee of the Company to leave the
employ of the Company or hire for any purpose any employee of
the Company or any employee who has left the employment of the
Company within six months of the termination of said
employee's employment with the Company;
(b) solicit or accept employment or be retained by any competitor
of the Company, unless such employment or retention would not
involve my engaging in competitive activities with the
business of the Company at the time of termination of my
employment; or
(c) solicit or accept the business of any client of the
Company.
The provisions of Subsection 9(c) above shall not apply to me if my
employment with the Company is terminated by the Company without "cause."
"Cause" shall mean (i) that I have engaged in willful and material misconduct,
including willful and material failure to perform my duties as an employee of
the Company, or (ii) that I have breached this Agreement in any material
respect, which
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<PAGE>
breach has not been cured by me within thirty days after written notice of such
breach has been delivered to me.
10. No Employment Agreement. I agree that the Company is not by reason of
this Agreement obligated to continue me in its employment.
11. Remedies for Breach. I agree that any breach of this Agreement by me
would cause irreparable damage to the Company and that, in the event of such
breach, the Company shall have, in addition to any and all remedies of law, the
right to an injunction, specific performance or other equitable relief to
prevent or redress the violation of my obligations hereunder. Nothing contained
herein shall be construed to prohibit the Company from pursuing any other
remedies available at law or equity for any breach or threatened breach or
violation of any obligation hereunder, including, without limitation, the
recovery of damages.
12. Separability. If any provision hereof shall be declared unenforceable
for any reason, such enforceability shall not affect the enforceability of the
remaining provisions of this Agreement. Further, such provision shall be
reformed and construed to the extent permitted by law so that it would be valid,
legal and enforceable to the maximum extent possible.
13. Effective Date. This Agreement shall be effective as of the first day
of my employment by the Company, namely: __________.
14. Assignability. This Agreement shall be binding upon me, my heirs,
executors, assigns, and administrators, shall inure to the benefit of the
Company, its successors, and assigns, and shall survive the termination of my
employment by the Company, regardless of the manner of such termination.
15. Applicable Law. This Agreement shall in all respects be governed by,
and construed and enforced in accordance with the laws of the State of New York,
without reference to conflict of laws principles.
16. Amendment; Waiver. Any amendment to or modification of this Agreement,
and any waiver of any provision hereof, shall be in writing. Any waiver by the
Company of a breach of any provision of
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<PAGE>
this Agreement shall not operate or be construed as a waiver of my
subsequent breach hereof.
Dated as of: By:
--------------- -------------------------
(Signature)
ACCEPTED AND AGREED TO:
----------------------------
(Print or Type Name)
INTERNATIONAL SPORTS WAGERING INC.
By:
--------------------------
Name:
Title:
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EXHIBIT A
International Sports Wagering Inc.
32 Heights Rd
Wayne, NJ 07470
Ladies and Gentlemen:
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by you (the "Company") which
have been made or conceived or first reduced to practice by me alone or jointly
with others prior to my employment by the Company which shall not be deemed to
be "Inventions" for purposes of the foregoing Proprietary Information,
Inventions and Non-Solicitation Agreement:
No inventions or improvements
--------
See Below
--------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
Additional sheets attached
--------
2. I propose to bring to my employment the following materials and
documents of a former employer which are not generally available to the public,
which materials and documents may be used in my employment:
No materials
--------
See Below
--------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
Additional sheets attached
--------
The signature below confirms that my continued possession and use of these
materials is authorized by my former employer.
Very truly yours,
--------------------------
(Signature)
Dated as of
------------------ --------------------------
(Print or Type Name)
<PAGE>
EXHIBIT B
INTERNATIONAL SPORTS WAGERING INC.
Termination Certification
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to International Sports Wagering Inc., its subsidiaries,
affiliates, successors or assigns (together, the "Company").
I further certify that I have complied with all the terms of the Company's
Proprietary Information, Inventions and Non-Solicitation Agreement signed by me,
including the reporting of any Inventions and original works of authorship (as
defined therein), conceived or made by me (solely or jointly with others)
covered by that agreement.
I further agree that, in compliance with the Proprietary Information,
Inventions and Non-Solicitation Agreement, I will preserve as confidential all
trade secrets, confidential knowledge, data and other proprietary information
relating to products, processes, know-how, designs, formulas, developmental or
experimental work, computer lists, business plans, financial works or
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Company or any of its clients,
consultants or licenses.
Date:
----------------------------
--------------------------
(Signature)
---------------------------
(print or type name)
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SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of ____________, by and between
International Sports Wagering Inc., a corporation organized under the laws of
the State of Delaware (the "Corporation"), and _____________, having an address
at _________________________________________________ (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Subscriber wishes to purchase shares of the Corporation's
common stock, par value $.001 per share (the "Common Stock") on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants, and agreements contained herein, the
parties hereby agree as follows:
1. Subscription for Shares. The Subscriber hereby subscribes for ______
shares (the "Shares") of Common Stock for an aggregate purchase price of
____________ dollars ($________). Such consideration shall be paid in cash or by
bank, certified or personal check payable to the Corporation upon the Closing on
the Closing Date. Such subscription is hereby accepted and agreed to by the
Corporation.
2. Closing. The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of the Corporation, 32 Heights Road,
Wayne, NJ 07470, or at such other place as the Corporation shall designate, on
the date (the "Closing Date") a counterpart duly executed by the Subscriber of
this
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Agreement together with the purchase price for the Shares, are delivered to the
Corporation. Upon payment of the purchase price for the Shares by the
Subscriber, the Corporation shall deliver to the Subscriber one or more
certificates representing the Shares purchased pursuant to this Agreement.
3. Ratification by the Corporation. The Board of Directors of the
Corporation has adopted appropriate resolutions authorizing the Corporation to
enter into this Agreement and undertaking to fulfill all of the terms of this
Agreement.
4. Legend on Share Certificates. All certificates representing shares of
Common Stock now or hereafter issued by the Corporation to the Subscriber or to
any of his permitted assignees or designees shall be subject to this Agreement
and shall bear the following legends:
"The shares evidenced by this certificate or any certificate issued
in exchange or transfer therefor are and will be subject to, and may not
be transferred except in accordance with, the terms of a certain
Stockholders Agreement, dated as of May 25, 1995 (as the same may be
subsequently amended, modified, restated or supplemented), by and among
certain stockholders of the Corporation and the Corporation, which
agreement provides, among other things, for restrictions on the sale,
transfer and disposition of the shares of the Corporation, an executed
copy of which agreement is on file at the principal office of the
Corporation."
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state and may be offered and sold only if so registered or if the
Corporation has been furnished with an opinion of counsel, reasonably
satisfactory to the Corporation, to the effect that an exemption from such
registration is available to the holder of the shares."
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5. Representations and Warranties with Respect to the Subscriber.
Recognizing that the Corporation will be relying on the information and on the
representations and warranties set forth herein, the Subscriber hereby
acknowledges, represents and warrants to the Corporation as follows:
(a) The Subscriber is an Accredited Investor as that term is defined
in Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), a copy of which is annexed hereto as EXHIBIT A.
(b) In deciding whether to acquire shares of Common Stock, the
Subscriber has relied exclusively upon consultations with the Subscriber's
legal, financial and tax advisers with respect to this Agreement and the nature
of the investment and has not relied upon any offering memoranda or other
similar instruments prepared by the Corporation, any officer, director or
stockholder of the Corporation, or any third party.
(c) The shares of Common Stock are being acquired by the Subscriber
solely for the Subscriber's own account, for investment, with no present
intention of making a distribution thereof within the meaning of the Securities
Act. The shares of Common Stock will not be sold or transferred by the
Subscriber in violation of the Securities Act or any state or other
jurisdiction's securities laws, and the financial condition of the Subscriber is
such that this investment can be made on a long-term basis. The Subscriber is
aware that the shares of Common Stock to be acquired hereby have not been
registered under the Securi-
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ties Act or any state or other jurisdiction's securities laws, that the shares
of Common Stock to be acquired hereby must be held indefinitely unless
subsequently registered or an exemption from such registration is available and
that the Corporation is under no obligation to register such shares of Common
Stock under the Securities Act or any state or other jurisdiction's securities
laws. The Subscriber is aware that an exemption from the registration
requirements of the Securities Act pursuant to Rule 144 promulgated thereunder
is not currently available; and that the Corporation has not undertaken to take
or refrain from taking any action in order to make available an exemption from
the registration requirements pursuant to such Rule 144 or any successor rule
for resale of such shares of Common Stock. The Subscriber further acknowledges
that there is currently no market for the purchase and sale of such shares of
Common Stock and there is no assurance that such market will develop.
(d) The Subscriber confirms that the Corporation has made available
to the Subscriber, or to the representatives of the Subscriber, the opportunity
to ask questions and to acquire such additional information about the business
and financial condition of the Corporation as the Subscriber has requested.
(e) The Subscriber understands and appreciates all risk factors
related to the purchase of the Common Stock, and its knowledge and experience,
and/or that of its authorized representatives, in financial and business matters
is such that it is, and/or its authorized representatives are, capable of
evaluating
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the business condition, financial or otherwise, of the Corporation. The
Subscriber should recognize that the purchase of the Common Stock involves a
high degree of risk in that (i) the Corporation is in the development stage and
has had only limited operations, no revenue and may require substantial funds in
addition to the proceeds of this private placement, (ii) an investment in the
Corporation is highly speculative and only persons who can afford the loss of
their entire investment should consider investing in the Common Stock, (iii) the
Subscriber may not be able to liquidate his investment, and (iv) transferability
of the Common Stock is extremely limited. The Subscriber acknowledges that it
has been advised by the Corporation, among other things, as follows:
(1) Development Stage Company; Early Stage of Product Development;
No Assurance of Success; No Commercial Operations. The Corporation is in
the development stage and has not commenced any commercial operations to
date. The Investor should be aware of the problems, delays, expenses and
difficulties encountered by an enterprise in the Corporation's stage of
development, many of which may be beyond the Corporation's control. These
include, but are not limited to, unanticipated problems relating to
prototype development, software design and development, testing,
regulatory compliance, system assembly, the competitive and regulatory
environment in which the Corporation plans to operate, marketing problems
and additional costs and expenses that may exceed current estimates. There
can be no assurance that the software necessary for the Corporation's
proposed system can be successfully developed or, if developed, will
operate successfully in a live wagering environment, nor can there by any
assurance that the Corporation's system will have acceptances by casinos
in the U.S., wagering establishments outside of the U.S. or their
respective patrons. There can be no assurance that the Corporation's
products will perform their intended function, meet applicable regulatory
standards, be capable of construction at reasonable costs and on a timely
basis, prove to be commercially viable or be successfully marketed or
attract the required additional financing.
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(2) Expectation of Substantial Future Losses. During the current
fiscal year and thereafter, the Corporation will conduct significant
additional research, development and testing activities which, together
with other general and administrative expenses, are expected to result in
significant operating losses which will continue for the foreseeable
future. There can be no assurance that the Corporation will ever achieve
significant revenues or profitable operations.
(3) Need For Substantial Additional Financing to Develop Commercial
Operations; Dilution; No Assurance Of Additional Financing. Substantial
additional funds will be required to finance any additional research and
development activities or to make any additional progress in the
development of the Corporation's products. If additional funds are raised
by issuing equity securities, dilution to stockholders of the Corporation
will result. There can be no assurance that the Corporation will be able
to obtain such financing or that such financing, if available, will be on
acceptable terms to enable it to complete development of or commercialize
the Corporation's products.
(4) Competition and Rapid Technological Change. Large,
well-capitalized companies may be developing products that are or may be
competitive with the Corporation's products. Competition is intense and
increasing among providers of wagering and gaming equipment, both hardware
and software, and the Corporation believes that new competitors will
emerge in the future. Many of the Corporation's competitors or potential
competitors may have patented products that may compete with the
Corporation's technology and such competitors have significantly greater
financial, technological, manufacturing, marketing, operating and other
resources than the Corporation. In addition, certain of the Corporation's
potential competitors, including large providers of wagering, gaming and
computer equipment, may have technological capabilities that would allow
them to develop new or alternative systems rather than utilize the
Corporation's products. The wagering and gaming equipment industry is
subject to rapid change and is characterized by constant technological
innovation. There can be no assurance that future technological advances
will not result in improved products or services that could adversely
affect the Corporation's business or that the Corporation will be able to
develop and introduce competitive uses for its products and to bring such
uses to market in a timely manner.
(5) Uncertain Protection of Patents and Proprietary Rights; No
Assurance of Enforceability or Significant Competitive Advantage. The
Corporation considers patent protection of its technology to be important
to its business
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prospects. The Corporation has filed one (1) United States patent
application relating to its systems technology, which is currently pending
before the United States Patent and Trademark Office (the "Office") and
corresponding applications in certain foreign countries. The Corporation
has received an initial Office action denying the claims of the patent, to
which the Corporation has responded. Although management believes that a
patent containing the most important of the claims asserted in the pending
patent application will be granted, no assurance of that can be given. In
addition, no assurance can be given that if any patents issue, they will
provide the Corporation with significant competitive advantages or that
challenges will not be instituted against the validity or enforceability
of any patent owned by the Corporation or, if instituted, that such
challenges will not be successful. Furthermore, there can be no assurance
that others will not independently develop similar or more advanced
technologies or design around aspects of the Corporation's technology
which may be patented or duplicate the Corporation's trade secrets. In
some cases, the Corporation may rely on trade secrets to protect its
innovations. There can be no assurance that trade secrets will be
established, or that secrecy obligations will be honored or that others
will not independently develop similar or superior technology.
(6) Dependence Upon President and Principal Stockholder. The
Corporation is dependent significantly on the services of Barry Mindes,
its President and principal stockholder (the "Principal Stockholder").
Loss of the services of the Principal Stockholder could have a material
adverse effect on the Corporation's business.
(7) Continued Control by Management and Principal Stockholder.
Following the purchase of the Shares by the Subscriber and the issuance of
certain additional shares of Common Stock and options to other investors
and certain key employees, the Principal Stockholder will beneficially own
or control, in the aggregate, a majority of the issued and outstanding
Common Stock. Accordingly, the Principal Stockholder will, subject to
agreements entered into with other stockholders relating to the election
of directors, continue to be able to elect at least a majority of the
Corporation's Board of Directors and to direct the Corporation's affairs.
(8) Absence of Public Market and No Obligation to Effect
Registration. There is and has been no public market for the Common Stock.
The Common Stock has not been registered under the Securities Act of 1933,
as amended, nor any state securities laws, and the Company has no present
plans and is under no obligation to effect any such registration although
under certain circumstances certain stockholders
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have the right to demand registration. There can be no assurance that an
active trading market for the Common Stock will develop at any time
hereafter or, if developed, that such a market will be sustained.
(9) No Dividends Anticipated. The Corporation has never paid any
cash dividends on the Common Stock. The Corporation anticipates that in
the future, any earnings will be retained for use in the business or for
other corporate purposes, and it is not anticipated that cash dividends in
respect of the Common Stock will be paid.
(10) Market Size. At the current time the market for the
Corporation's products in the US is limited to casinos in the State of
Nevada. No assurance can be given that new markets will develop or that
legislation permitting sports wagering in other states within the U.S.
will be adopted. In addition, while sports wagering exists outside of the
U.S., no assurance can be given that the Corporation's products would be
accepted in such foreign markets or that compliance with any regulatory
conditions imposed by foreign jurisdictions will be achieved.
(11) Regulatory Environment. The Corporation, its principal
stockholders, directors, officers and key employees may be required to be
licensed in the State of Nevada and in any other jurisdiction in which the
Corporation's products or services are sold, provided or intended to be
sold or provided. Although the Corporation is not aware of any factor in
the background of any of these individuals which would prevent licensing,
no assurance can be given that licenses will be granted. The Corporation's
equipment and software may also have to be licensed by the State of Nevada
and any other jurisdiction in which the Company's products or services are
sold or provided or intended to be sold or provided. No assurance can be
given that such licenses will be granted.
(12) Reliance on Subscribers Own Advisors. Subscribers are not to
construe this document as offering any investment advice. Subscribers
should consult their own legal counsel, accountant and other professional
advisors as to financial, legal, tax and related matters concerning their
investment.
(f) The Subscriber acknowledges that the Corporation and/or the
Principal Stockholder may have entered into agreements or understandings with
other stockholders or subscribers to stock
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of the Corporation on terms different from those set forth herein.
6. Representations and Warranties with Respect to the Corporation.
Recognizing that the Subscriber will be relying on the information and on the
representations and warranties set forth herein, the Corporation hereby
acknowledges, represents and warrants to the Subscriber as follows:
(a) The Corporation is a corporation validly existing and in good
standing under the laws of the State of Delaware with full corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The Corporation's authorized capital stock consists of
2,500,000 shares of Common Stock, $.001 par value more than a majority of which
are held by the Principal Stockholder and 500,000 shares of Preferred Stock,
$.001 par value, none of which are outstanding. The Corporation has entered into
subscription and other agreements with third parties pursuant to which
additional shares of Common Stock may be issued to such parties on terms
different from those applicable to the Subscriber.
(b) The Corporation has full power and authority (corporate or
otherwise) to execute, deliver and perform this Agreement, and the execution,
delivery and performance of this Agreement will not result in (i) the breach of
or default under, with or without the giving of notice or passage of time, or
both, its Certificate of Incorporation, By-Laws, any mortgage, indenture,
contract, agreement or other arrangement to which it is a party
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or by which it or its properties may be bound, (ii) the violation of any law,
statute, rule, decree, order, judgment or regulation binding upon it, or (iii)
(except as contemplated by this Agreement) the creation or imposition of any
lien or encumbrance on any of its properties or assets.
(c) This Agreement and all transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Corporation and constitute a legal, valid and binding obligation of the
Corporation enforceable against it in accordance with its terms.
(d) The Shares, when paid for by and issued to the Subscriber in
accordance with the terms of this Agreement will be duly authorized, issued and
fully paid and non-assessable.
(e) The Corporation owns of record the patent applications listed on
EXHIBIT B annexed hereto; provided, however, that the Corporation makes no
representation or warranty with respect to the patentability of any invention
claimed on such EXHIBIT B or the validity or enforceability of any patent that
may be issued to the Corporation.
7. Notices. All notices, offers and acceptances ("Notices") hereunder
shall be in writing, signed by the party giving or making the same, and shall be
delivered personally or sent by internationally recognized courier service or by
telex or facsimile transmission to each party entitled to receive the same, at
such party's last known address on the books of the Corporation, unless such
party shall have previously notified in
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writing the party sending such Notice of a change of address, in which case it
shall be sent to the new address. A copy of each such Notice shall also be sent
in similar fashion to Rubin Baum Levin Constant & Friedman, 30 Rockefeller
Plaza, 29th Floor, New York, New York 10112, Attention: Richard M. Hoffman, Esq.
All Notices shall be deemed given when delivered, sent or transmitted in
accordance herewith.
8. Miscellaneous.
(a) This Agreement contains the entire understanding of the parties
hereto concerning the subject matter hereof and supersedes any and all prior
agreements made by the parties with respect thereto and may not be amended,
terminated or discharged, except by an instrument in writing, signed by the
party to be charged.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, legatees,
distributees, executors, administrators, successors and permitted assigns.
(c) Each of the parties agrees to execute and deliver any and all
documents or other instruments and shall do or cause to be done all such acts or
things as may reasonably be necessary or proper to carry out the purposes of
this Agreement.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but which shall together constitute a single
instrument.
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(e) The parties hereto irrevocably consent that any suit, legal
action or proceeding with respect to any of the rights or obligations arising
directly or indirectly under or relating to this Agreement may be brought in any
New York State or United States Federal court located in the Borough of
Manhattan, City and State of New York, and by execution and delivery of this
Agreement each party hereby irrevocably submits to and accepts with regard to
any such suit, legal action or proceeding, for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each party irrevocably consents to the service of process in any such
suit, legal action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, return receipt requested, to it at its
address set forth herein. The foregoing shall not limit the right of any party
to serve process in any other manner permitted by law. Each party hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any suit, legal action or proceeding arising directly or
indirectly under or relating to this Agreement in any court located in the
Borough of Manhattan, City and State of New York and hereby further irrevocably
waives any claim that a court located in the Borough of Manhattan, City and
State of New York is not a convenient forum for any such suit, legal action or
proceeding. Each party hereby (i) irrevocably waives any right it may have under
the laws of any jurisdiction to commence by publication any suit, legal action
or proceeding with respect to
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this Agreement, and (ii) irrevocably agrees that any suit, legal action or
proceeding commenced by it with respect to any rights or obligations arising
directly or indirectly under or relating to this Agreement shall be brought
exclusively in any New York State or United States Federal court located in the
Borough of Manhattan, City and State of New York.
(f) This Agreement shall be governed by the laws of the State of New
York applicable to contracts made and wholly performed within that State.
(g) All captions and headings contained in this Agreement are for
the convenience of the parties only and shall not affect the interpretation or
construction of this Agreement.
IN WITNESS WHEREOF, the parties have signed and sealed this Agreement.
INTERNATIONAL SPORTS WAGERING INC.
By:
---------------------------------------------
Barry Mindes, Chairman of the
Board, Chief Executive Officer
and President
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Subscriber
(signature)
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Subscriber
(print or type name)
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EXHIBIT A
Reg. ss.230.501 (Rule 501) Definitions and Terms Used in Regulation D.
Reg. ss.230.501. As used in Regulation D (ss.ss.230.501-230.508), the
following terms shall have the meaning indicated:
(a) Accredited investor. "Accredited investor" shall mean any person who
comes within any of the following categories, or who the issuer reasonably
believes comes within any of the following categories, at the time of the sale
of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity;
any broker or dealer registered pursuant to section 15 of the Securities
Exchange Act of 1934; any insurance company as defined in section 2(13) of the
Act; any investment company registered under the Investment Company Act of 1940
or a business development company as defined in section 2(a)(48) of that Act;
Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
advisor, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in ss.230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited
investors.
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EXHIBIT B
Patents and Patent Applications
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Patents
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Inventor Date Issued Title Patent Number Country
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Patent Applications
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Inventor Date Filed Title Application Country
Serial Number
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Barry Mindes February 28, 1994 28/203213 U.S.A.
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Note: The Corporation received an office action from the U.S. Patent and
Trademark Office dated August 17, 1994 denying the claims of the patent,
to which the Corporation has responded.
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT (the "Agreement") dated as of the 2nd day of June
1995, by and among International Sports Wagering Inc., a Delaware corporation
(the "Company") and certain purchasers of the Company's Common Stock and
Warrants listed on Schedule A hereto (the "Investors"):
W I T N E S S E T H:
WHEREAS, the parties entered into a Stock and Warrant Purchase
Agreement of even date herewith (the "Purchase Agreement") pursuant to which
the Company sold and the Investors purchased certain shares of the Company's
Common Stock and warrants to purchase shares of the Company's Common Stock
(the "Warrants"). (The shares of Common Stock purchased by the Investors and
any shares of Common Stock issuable or issued upon exercise of the Warrants
are herein referred to as the "Shares").
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereby agree as follows:
1. Restrictions on Transferability. The Shares shall not be sold,
assigned, transferred or pledged except upon conditions specified in this
Agreement, which conditions are intended to assure compliance with the
provisions of the Securities Act. Subject to the provisions of Section 2.13 each
Investor will cause any proposed purchaser, assignee, transferee or pledgee of
the Shares to agree to take and hold such securities subject to the provisions
specified in this Agreement. The parties agree that the Warrants shall not be
transferrable other than to other Investors and pursuant to the terms of the
Warrants.
2. Registration Rights.
2.1 Definitions. As used in this Agreement:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended (the
"Securities Act") and the subsequent declaration or ordering of the
effectiveness of such registration statement.
(b) The term "Registrable Securities" means (i) the Shares,
and (ii) any other shares of Common Stock of the Company issued as or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as a divi-
<PAGE>
dend or other distribution with respect to, or in exchange for or in
replacement of, the Shares or the Warrants, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned; provided, however, that Shares or
other securities shall only be treated as Registrable Securities if and so long
as they have not been (A) sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(d) The term "Holder" means any holder of outstanding
Registrable Securities who acquired such Registrable Securities in a transaction
or series of transactions not involving any registered public offering.
(e) The term "Form S-3" means such form under the Securities
Act of 1933, as amended (the "Act") as in effect on the date hereof or any
registration form under the Act subsequently adopted by the Securities and
Exchange Commission ("SEC") which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
2.2 Demand Registration.
(a) If the Company shall receive at any time after the earlier
of (i) May 31, 1998 or (ii) 180 days after the closing of the Company's initial
registered public offering of Common Stock under the Securities Act of 1933, a
written request from the Holders of a majority of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
covering the registration of at least fifty percent (50%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would equal or
exceed $5,000,000), then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders and shall,
subject to the limitations of subsection 2.2(b), effect as soon as practicable,
and in any event within 120 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request
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to be registered within twenty (20) days of the mailing of such notice by the
Company in accordance with Section 4.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting they shall so advise the
Company as a part of their request made pursuant to this Section 2.2 and the
Company shall include such information in the written notice referred to in
subsection 2.2(a). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
2.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 2.2, if the underwriter advises the Initiating Holders in writing that
it requires a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders and any
other holders of Common Stock entitled to registration rights whose shares of
Common Stock were to be included in such registration statement, in proportion
(as nearly as practicable) to the amount of Common Stock of the Company owned by
each such person.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 2.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore reasonable to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve month period.
(e) If within thirty (30) days after the request to register
Registerable Securities the Company gives notice that
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it intends to initiate an initial firmly underwritten registered public offering
within forty-five (45) days of the time of the request, then the Company shall
have the right to defer such filing, provided that it initiates such public
offering such filing within such forty-five (45) day period.
2.3 "Piggyback" Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
Common Stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
either to the sale of securities to participants in a Company stock option,
stock purchase or similar plan or to an SEC Rule 145 transaction), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 4.5,
the Company shall, subject to the provisions of Section 2.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
2.4 Obligations of the Company. Whenever required under this Section
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder keep
such registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall
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be reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an 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 the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 2, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 2, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters on the date that the registration statement with respect to
such securities becomes effective, a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
2.5 Furnish Information. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
2.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and
the reasonable fees and expenses of one special counsel all of the selling
stockholders (provided, however that the maximum expense of such
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special counsel which the Company shall be obligated to pay shall be $10,000)
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Holders participating therein shall bear such
expenses), unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 2.2.
2.7 Expenses of "Piggyback" Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.3 for each Holder (which right may be assigned as provided
in Section 2.13), including (without limitation) all registration, filing, and
qualification fees, printers, accounting fees relating or apportionable thereto
and the reasonable fees and expenses of one special counsel of the selling
stockholders (provided, however that the maximum expense of such special counsel
which the Company shall be obligated to pay shall be $10,000), but excluding
underwriting discounts and commissions relating to Registrable Securities.
2.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 2.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities that the underwriters
reasonably believe is compatible with the success of the Offering, then the
Company shall be required to include in the offering only that number of such
securities including Registrable Securities, which the underwriters believe will
not jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder; provided, however, that if such offering is the initial public
offering of the Company's securities, in which case the selling stockholders may
be excluded if the underwriters make the determination described above and no
other stockholder's securities are included. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any
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such partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder," and any
pro rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder," as defined in
this sentence.
2.9 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities law; and the Company will pay as
incurred to each such Holder, underwriter or controlling person, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 2.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use
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in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 2.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
2.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided that
in no event shall any indemnity under this subsection 2.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this
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Section 2.10, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 2.10.
(d) The obligations of the Company and Holders under this
Section 2.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 2, and otherwise.
2.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to use its reasonable
efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
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2.12 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of the Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 2.12, (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be detrimental to the Company and its stockholders for
such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 120 days after receipt of the request of
the Holder or Holders under this Section 2.12; provided, however, that the
Company shall not utilize this right more than twice in any twelve month period;
(4) if the Company has, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 2.12; (5) if the Holders can sell Registrable
Securities pursuant to Rule 144 or otherwise free of the registration
requirements of the Securities Act; (6) if the Company has effected another S-3
registration within 12 months prior to receipt of a request pursuant to this
Section 2.12; or (7) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practi-
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cable after receipt of the request or requests of the Holders. All expenses
incurred in connection with a registration requested pursuant to Section 2.12,
including (without limitation) all registration, filing, qualification,
printer's and accounting fees and the reasonable fees and disbursements of
counsel for the Company, shall be borne by the Company. Registrations effected
pursuant to this Section 2.12 shall not be counted as demands for registration
or registrations effected pursuant to Section 2.2 or 2.3.
2.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may only
be assigned by a Holder to a transferee or assignee of the Shares provided that
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
2.14 "Market Stand-still" Agreement. Holders holding Registrable
Securities exceeding one percent (1%) of the outstanding stock of the Company
hereby agree that during the 180- day period following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and its underwriter, sell or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any Common
Stock of the Company held by it at any time during such period except Common
Stock included in such registration; provided, however, that: all officers and
directors of the Company and all other Holders holding Registrable Securities
exceeding one percent (1%) of the outstanding stock of the Company whether or
not pursuant to this Agreement) enter into similar agreements. To enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Registrable Securities of the Investors (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
2.15 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 2 after three (3) years
following the consummation of the Company's initial sale of its Common Stock in
a bona fide, firm commitment underwriting pursuant to a registration statement
on Form S-1 under the Securities Act of 1933, as amended, which results in
aggregate gross cash proceeds to the Company of at least $5,000,000 (other than
a registration statement relating either to the sale of securities to employees
of the Company pursuant to a stock option, stock purchase or similar plan or a
SEC Rule 145 transaction) or at and after such time following the
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Company's initial public offering as such Holder holds Registrable Securities
equal to 5% or less of the outstanding stock of the Company.
3. Additional Rights.
3.1 Pre-emptive Right. Subject to the terms and conditions specified
in this Section 3.1, the Company hereby grants to each Investor, a pre-emptive
right with respect to future sales by the Company of its New Securities (as
hereinafter defined).
(a) If at any time during the term of this Agreement the
Company proposes to offer, issue, sell or otherwise dispose of shares of the
Common Stock or any other class or series of common stock or preferred stock of
the Company, or options, rights, warrants, conversion rights or appreciation
rights relating thereto, or any other type of equity security that the
Corporation may lawfully issue (collectively, the "New Securities") to any
person or entity other than the Investors or any affiliates thereof:
(b) The Company shall, prior to any such issuance or sale,
give notice in accordance with Section 4.5 (a "Preemptive Notice") to the
Investors setting forth the purchase price of such New Securities, the type and
aggregate number of New Securities to be so offered, issued, sold or otherwise
disposed of, the terms, price and conditions of such offer, issuance, sale or
other disposition and the rights, powers and duties inhering in such additional
New Securities.
(c) The Investors shall have the right (the "Preemptive
Right") to acquire the percentage of such New Securities proposed to be so
offered, issued, sold or otherwise disposed of equal to the number of shares of
Common Stock then held by the Investors divided by the aggregate number of
shares of the Company's Common Stock and stock options outstanding (assuming all
such stock options were exercised) immediately prior to such offer, issuance,
sale or other disposition of New Securities; provided, however, that the terms
and conditions of this Section 3.1 shall not apply to any offer, issuance, sale
or other disposition of (i) New Securities issuable upon exercise of the
Warrants, (ii) New Securities issued in connection with any stock split, stock
dividend, or recapitalization of the Company, (iii) New Securities issuable upon
exercise of any warrant, option or convertible securities if the issuance
thereof was subject to the pre-emptive right granted in this Section 3.1, (iv)
New Securities or rights to acquire New Securities to any person or entity
pursuant to a stock option plan established by the Company for the benefit of
its employees, officers, directors, agents or consultants, or otherwise granted
to an employee of, or consultant to, the Company in connection with such person
or entity's
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employment or retention by the Company; (v) New Securities or rights to acquire
New Securities to a person or entity in connection with the acquisition by the
Company of all or a substantial portion of the stock, assets or business of such
person or entity; (vi) New Securities or rights to acquire New Securities to a
financial institution in connection with the making of, or the agreement to
make, loans to, or other financial arrangements with, the Company by such
financial institution; (vii) New Securities or rights to acquire New Securities
to a person or entity in connection with license arrangements of the Company;
(viii) New Securities or rights to acquire New Securities to strategic corporate
investors as determined by not less than 80% of the Board of Directors; and (ix)
New Securities or rights to acquire New Securities pursuant to any underwritten
public offering of New Securities of the Company pursuant to an effective
registration statement under the Securities Act.
(d) The Investors may exercise such Preemptive Right, in whole
or in part, on the terms and conditions and for the purchase price set forth in
the Preemptive Notice, by giving to the Company notice to such effect, within 10
days after the giving of the Preemptive Notice. The closing of the sale of New
Securities by the Company to those exercising their Preemptive Right shall take
place simultaneously with the closing of the sale of New Securities to third
parties. After the expiration of such 10-day period, the Company shall have the
power to offer, issue, sell and otherwise dispose of any or all of the New
Securities referred to in the applicable Preemptive Notice as to which no
Preemptive Right has been exercised but only upon the terms and conditions, and
for a purchase price not lower than the purchase price, set forth in the
Preemptive Notice. If the Company does not offer, issue, sell or otherwise
dispose of the New Securities referred to in the applicable Preemptive Notice on
the terms and conditions set forth in such Preemptive Notice within 90 days
after the expiration of such 10-day period, then any subsequent proposal by the
Company to offer, issue, sell or otherwise dispose of Equity Securities shall be
subject to this Section 3.1.
3.2 Tag Along Rights.
(a) Barry Mindes (the "Founder") shall not, during the term of
this Agreement, sell, transfer or otherwise dispose of any of the shares of
Common Stock that he beneficially owns or controls in the Company to any party
unless the Founder shall first notify the Investors in writing of the terms and
conditions of such proposed sale, transfer or other disposition and shall obtain
for the Investors prior to any such sale, transfer or other disposition, a put
option for a period of at least 15 days to sell, transfer or otherwise dispose
to such person on the same per share terms and at the same per share price as
the proposed sale, transfer or other disposition by the Founder, up
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to that number of shares of Common Stock then owned by the Investor that bears
the same proportion to the total number of shares of Common Stock at the time
owned by the Investor as the number of shares of Common Stock being sold,
transferred or otherwise disposed of by the Founder bears to the total number of
shares of Common Stock at the time owned by the Founder.
(b) In order to exercise such put option, the Investor must,
within 15 days after the giving of the notice of a proposed sale, transfer or
other disposition of the Common Stock by the Founder referred to in Section
3.2(a) hereof, deliver to the Founder written notice that the Investor has
elected to sell, transfer or otherwise dispose of the Investor's shares of
Common Stock pursuant to this Section 3 upon the same terms and at the same per
share price as the proposed sale, transfer or other disposition by the Founder,
whereupon such sale, transfer or other disposition by the Investor shall be
completed contemporaneously with the proposed sale, transfer or other
disposition by the Founder.
(c) Notwithstanding anything to the contrary contained in this
Section 3, the Founder or any Founder's Affiliate (as hereinafter defined),
shall have the right at any time during the term of this Agreement to transfer,
whether by sale, by gift inter vivos, by will, or by laws of descent and
distribution, or otherwise, all or any portion of the shares of Common Stock of
the Corporation then owned by it to (i) any such party's spouse, children or
grandchildren, (ii) a trust for the benefit of any such party or such party's
spouse, children or grand-children, or (iii) a partnership the general partner
of whom is the Founder or a corporation all of whose outstanding shares are
owned of record and beneficially, by the Founder (each of the foregoing parties
described in clauses (i)-(iii) above being a "Founder's Affiliate" and being
deemed to be included in the definition of the Founder for all purposes of this
Agreement) and the provisions of Section 3.2 and 3.3 hereof shall not apply to
any such transfer. Any permitted assignee or designee of the Founder or any
Founder Affiliate thereof pursuant to this Section 3 shall, as a condition to
such transfer, be required to execute and deliver a counterpart of this
Agreement, whereby such party agrees to be subject to and bound by all of the
terms and provisions of this Agreement to the same extent as the Founder, and
unless such an agreement is so executed and delivered, such transfer shall be
null and void.
(d) Notwithstanding the foregoing, the rights granted to the
Investors in this Section 3.2 shall not apply to any transfer by the Founder in
one or more transactions of up to a total of 5% of the shares of Common Stock
held by him as of the date of the Initial Closing as defined in the Purchase
Agreement, as adjusted to reflect any stock dividends, splits, contributions,
recapitalizations or other similar events; provided that
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if the Founder proposes to sell or transfer pursuant to this Section 3.2(d) more
than 5% of the shares of Common Stock held by him as of the date of the Initial
Closing in a single transaction or series of related transactions then the
rights granted to the Investors in Section 3.2 (a) shall be applicable.
3.3 Right of First Refusal.
(a) At any time after the date hereof and prior to 18 months
after the date hereof (the "First Refusal Period"), the Founder shall not,
without the prior written consent of the Investors sell, assign, transfer, or
grant a proxy to any person to vote or otherwise act in respect of, (any of the
foregoing being referred to hereafter as a "Disposition") any share of Common
Stock now owned or hereafter acquired by the Founder, effect a Disposition of
any shares of Common Stock, now owned or hereafter acquired by the Founder,
except upon the following terms and conditions. If the Founder desires to sell
all or any portion of the shares of Common Stock held by him during the First
Refusal Period (the "Offered Shares"), and the Founder shall have received an
irrevocable bona fide, arm's-length, written offer (the "Bona Fide Offer") for
the purchase of the Offered Shares, for cash, notes or other consideration, or
any combination thereof, from a prospective purchaser (the "Prospective
Purchaser"), the Founder shall give a notice in writing (the "Option Notice") to
the Investors setting forth the price and terms and conditions of the proposed
sale, the name and address of the Prospective Purchaser, and the effective date
of such Option Notice. For a period of 10 days following the effective date of
such Option Notice (the "Investors' Option Period"), the Investors shall have an
option, on the terms and conditions set forth in this Section 3.3, to purchase
all, but not less than all, of the Offered Shares. The Investors option may be
exercised by giving a written counter-notice (a "Notice of Exercise") to the
Founder within the Investors' Option Period, setting forth the number of the
Offered Shares with respect to which the Investors' option is exercised.
(b) Upon the timely giving of the Notice of Exercise by the
Investors, the Investors shall be obligated to purchase from the Founder, and
the Founder shall be obligated to sell to the Investors the number of the
Offered Shares with respect to which the option has been exercised, at the price
and on the terms and conditions specified in the Bona Fide Offer; provided,
however, that if the Investors do not give Notice(s) of Exercise setting forth
their intention to purchase all of the Offered Shares, then in such event any
Notice(s) of Exercise shall be null and void. If the Bona Fide Offer was for
consideration consisting of other than cash or for consideration consisting in
part of other than cash, then the consideration to be paid by the Investors for
the Offered Shares shall consist of cash, to the extent that the consideration
in the Bona Fide Offer
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consisted of cash, and, to the extent such consideration consisted of other than
cash, a cash consideration equal to the fair market value of such non-cash
consideration set forth in the Bona Fide Offer, which fair market value shall
promptly be determined by an investment banker mutually acceptable to the
Founder and the Investors. If such parties are unable to agree within 20 days
after the expiration of the Investors' Option Period, the appraisal shall be
conducted by an investment banker designated, upon the application of the
Founder or the Investors, by the American Arbitration Association in New York,
New York. The cost of the appraisal shall be borne by the Investors. The
decision of such investment banker shall be final and binding upon the Founder
and the Investors, and each of their respective heirs, legatees, administrators,
executors, successors and assigns.
(c) If the Notice(s) of Exercise shall not have been duly
given as to all of the Offered Shares as aforesaid by the Investors, the Founder
may, within a period of 120 days after the expiration of the Investors' Option
Period, sell the Offered Shares to the Prospective Purchaser upon the terms and
conditions, and for a price not lower than the price, set forth in the Bona Fide
Offer; provided, however, that if the sale to the Prospective Purchaser is not
completed within such 120-day period, the Offered Shares shall continue to
remain subject to all the provisions of this Section 3.3.
(d) The closing of any purchase by the Investors under this
Section 3.3 shall take place at the office of the Company or at such other place
designated by the Founder on a date designated by the Founder, which date shall
not be more than 10 days following the expiration of the Investors' Option
Period.
3.4 Termination. The rights granted in Section 3.1, 3.2 and 3.3
shall terminate and be of no further force or effect upon the first to occur of
(a) any merger or sale of the Company in which the Company is not the surviving
corporation (other than a merger with or into a wholly-owned subsidiary) or any
transaction in which more than 50% of the voting power of the Company is
disposed of; (b) the consummation of the Company's sale of its Common Stock or
other securities pursuant to a registration statement under the Securities Act
of 1933, as amended, (other than a registration statement relating either to
sale of securities to employees of the Company pursuant to its stock option,
stock purchase or similar plan or a SEC Rule 145 transaction); (c) if the
Investors and their affiliates cease to own at least twenty-five percent (25%)
of the outstanding voting securities of the Company; or (d) the Investors
failure to timely exercise the Warrants dated as of the date hereof to purchase
400,000 shares of Common Stock.
3.5 Assignment of Rights. Subject to compliance with all applicable
securities laws, the rights granted under Sections
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3.1, 3.2 and 3.3 may be assigned by an Investor to a transferee or assignee of
such party's shares of the Company's stock. In the event that the Investor shall
assign its rights pursuant to Section 3.1, 3.2 or 3.3 in connection with the
transfer of less than all of its shares of the Company's stock, the Investor
shall also retain its rights as to the proportion of shares not transferred.
4. Miscellaneous.
4.1 Assignment. Subject to the provisions of Section 2.13 and 3.4
hereof, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties hereto.
This Agreement shall be binding upon any person to whom shares of Common Stock
are transferred in violation of the provisions hereof and the successors,
assigns, heirs, legatees, distributees, executors and administrators of such
transferee and the Corporation may refuse to permit the transfer of such stock
on its books.
4.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
4.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflict of laws.
4.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but which shall together constitute a
single instrument.
4.5 Notices. All notices ("Notices") hereunder shall be in writing,
signed by the party giving or making the same, and shall be delivered personally
or sent by internationally recognized courier service or by telex or facsimile
transmission to each party entitled to receive the same, at such party's last
known address on the books of the Corporation, unless such party shall have
previously notified in writing the party sending such Notice of a change of
address, in which case it shall be sent to the new address. A copy of each such
Notice to the Corporation or the Founder shall also be sent in similar fashion
to Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, 29th Floor, New
York, New York 10112, Attention: Richard M. Hoffman, Esq. A copy of each such
Notice to the Investors shall also be sent in similar fashion to Mr. Matthew
Smith, c/o Geo Capital, 767 Fifth Avenue, 45th Floor, New York, New York 10153.
All Notices shall be deemed given when delivered, sent or transmitted in
accordance herewith.
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4.6 Amendment and Waiver. Any provision of this Agreement may be
amended with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities, and the Company.
4.7 Effect of Amendment or Waiver. Investors and their respective
successors and assigns acknowledge that by the operation of Section 4.7 hereof
the holders of a majority of the Registrable Securities, acting in conjunction
with the Company, will have the right and power to diminish or eliminate all
rights pursuant to this Agreement.
4.8 Rights of Holders. Each holder of Registrable Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
4.9 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
4.10 Stock Splits, Stock Dividends, etc. In the event of any
additional issuance of securities to the Founder or Investors, including but not
limited to, any securities issued on a stock split, stock dividend,
recapitalization, reorganization or combination, or upon exercise of any stock
option or warrant, the securities issued to the Investors or the Founder shall
be subject to this Agreement.
4.11 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be
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effective and valid under applicable law, but if any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
4.12 Captions. The captions and headings contained in this agreement
are for the convenience of the parties only and shall not effect the
interpretation or construction of this Agreement.
4.13 Early Termination. Notwithstanding anything to the contrary
provided herein this Agreement and all rights granted to the Investors herein
shall terminate automatically if the Investors fail to purchase a minimum of
400,000 shares of Common Stock of the Company at the "Initial Closing" and
"Second Closing" (as defined in the Stock and Warrant Purchase Agreement of even
date herewith).
4.14 Miscellaneous.
(a) This Agreement contains the entire understanding of the
parties hereto concerning the subject matter hereof and supersedes any and all
prior agreements made by the parties with respect thereto and may not be
amended, terminated or discharged, except by an instrument in writing, signed by
the party to be charged.
(b) Each of the parties agrees to execute and deliver any and
all documents or other instruments and shall do or cause to be done all such
acts or things as may reasonably be necessary or proper to carry out the
purposes of this Agreement.
(c) The parties hereto irrevocably consent that any suit,
legal action or proceeding with respect to any of the rights or obligations
arising directly or indirectly under or relating to this Agreement may be
brought in any New York State or United States federal court located in the
Borough of Manhattan, City and State of New York, and by execution and delivery
of this Agreement each party hereby irrevocably submits to and accepts with
regard to any such suit, legal action or proceeding, for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each party irrevocably consents to the service of process in
any such suit, legal action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, return receipt requested, to it
at its address set forth herein. The foregoing shall not limit the right of any
party to serve process in any other manner permitted by law. Each party hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any suit, legal action or proceeding aris-
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ing directly or indirectly under or relating to this Agreement in any court
located in the Borough of Manhattan, City and State of New York and hereby
further irrevocably waives any claim that a court located in the Borough of
Manhattan, City and State of New York is not a convenient forum for any such
suit, legal action or proceeding. Each party hereby (i) irrevocably waives any
right it may have under the laws of any jurisdiction to commence by publication
any suit, legal action or proceeding with respect to this Agreement, and (ii)
irrevocably agrees that any suit, legal action or proceeding commenced by it
with respect to any rights or obligations arising directly or indirectly under
or relating to this Agreement shall be brought exclusively in any New York State
or United States federal court located in the Borough of Manhattan, City and
State of New York.
The parties hereto have executed this Agreement as of the day and year
first above written.
COMPANY:
INTERNATIONAL SPORTS WAGERING INC.
By:/s/ Barry Mindes
--------------------------------------
Barry Mindes, President
Address: 32 Heights Road
Wayne, NJ 07470
Fax: (201) 694-4843
/s/ Barry Mindes
--------------------------------------
Barry Mindes, individually with
respect only to Sections 3.2 and 3.3
Address: 32 Heights Road
Wayne, NJ 07470
Fax: (201) 694-4843
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Schedule A
Investors
Seneca Ventures
Woodland Partners
Woodland Venture Fund
Marilyn Rubenstein
Eli Oxenhorn
DISS Partners
David Nussbaum
Robert Gladstone
William G. Walters
Larry Altman
Shelly Finkel
Gerald Josephson
Irwin Lieber
Barry Fingerhut
Michael Marocco
Stephen J. Posner
ReiJane Huai
Alan W. Kaufman
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
PURCHASE AGREEMENT ("Agreement") dated as of the 2nd day of June, 1995, by
and between International Sports Wagering Inc, a Delaware corporation (the
"Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor."
W I T N E S S E T H:
WHEREAS, the Investors desire to purchase certain shares of Common Stock
and warrants to purchase Common Stock of the Company and the Company desires to
sell such shares of Common Stock and warrants to purchase Common Stock to the
Investors.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein the parties hereby agree
as follows:
1. Purchase and Sale of Stock and Warrants.
1.1 Sale and Issuance of Common Stock and Warrants.
(a) Sale and Issuance. Subject to the terms and conditions of this
Agreement, each Investor agrees to purchase and the Company agrees to sell and
issue to each Investor, that number of Units ("Units") set forth opposite each
Investor's name on Schedule A hereto for the purchase price set forth thereon.
Each Unit shall consist of one share of Common Stock of the Company, par value
$.001 per share ("Common Stock") and one Warrant to purchase one share of Common
Stock in the form attached hereto on Exhibit A (the "Warrant").
(b) Closing Dates. Each purchase and sale of the Common Stock and/or
Warrants shall take place at the offices of Rubin Baum Levin Constant &
Friedman, 30 Rockefeller Plaza (29th Floor), New York, NY 10112. On June 2, 1995
or at such other time and place as the Company and Investors acquiring in the
aggregate more than half the Common Stock and Warrants to be sold at the initial
closing mutually agree (which time and place are designated as the "Initial
Closing") the Investors shall purchase 211,761 out of a total 400,000 shares of
Common Stock and a similar number of Warrants in accordance with the terms set
forth in Exhibit A for an aggregate purchase price of $449,992.13. The remaining
188,239 shares of Common Stock and Warrants to purchase 188,239 shares of Common
Stock shall be purchased for an aggregate of $400,007.88 at a second closing
(the "Second Closing") to be held no later than 30 days following the Initial
Closing. Upon exercise of the Warrants, in accordance with the terms thereof,
the Investors shall purchase 400,000 shares of Common Stock for an aggregate
price of $850,000. The date on which the Warrants shall be exercised
<PAGE>
shall be no later than April 1, 1996 (the "Final Closing"). At each of the
Initial Closing, the Second Closing and the Final Closing (each a "Closing"),
the Company shall deliver to each Investor a certificate representing the Common
Stock which such Investor is purchasing against payment by such Investor of the
purchase price therefor by check drawn on a U.S. bank payable to the Company's
order or, at the Company's option, by wire transfer to an account designated by
the Company. At the Initial Closing and the Second Closing the Company shall
also deliver to each Investor Warrant agreements in the Form of Exhibit A hereto
representing the number of Warrants being purchased.
2. Representations and Warranties of the Company. Except as set forth on a
Schedule of Exceptions attached as Schedule B and on Exhibit B hereto, the
Company hereby represents and warrants to each Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
Company consists, or will consist prior to the Initial Closing, of:
(a) Common Stock. 2,500,000 shares of common stock ("Common Stock"),
of which 1,185,000 are issued and outstanding and are owned by the persons, and
in the numbers shown on Exhibit B and 500,000 shares of Preferred Stock, none of
which are outstanding. No options for the purchase of shares of Common Stock of
the Company ("Options") have been granted or are outstanding. However, options
to purchase shares of Common Stock shall be granted to the persons, and in the
amounts, specified in Exhibit B, on the dates such persons become employees of
the Company. Exhibit B also specifies or refers to terms relating to vesting,
rights of repurchase, rights of first refusal or similar rights or restrictions
relating to such shares or options.
(b) Except for (i) the Options (ii) the Warrants and (iii) the
rights provided in the Rights Agreement of even date herewith by and between the
Company and the Investors and attached hereto as Exhibit C (the "Rights
Agreement"), there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. The Company is not a party
or subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company, except for the Voting
Agreement dated as of the date hereof, by and among
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the Company, Barry Mindes (the "Founder") and the Investors in the form attached
hereto as Exhibit D (the "Voting Agreement").
2.3 Subsidiaries. The Company does not presently own or control, directly
or indirectly, any interest in any other corporation, association, or other
business entity.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, issuance (or reservation for issuance)
and delivery of the Common Stock and the Common Stock issuable upon exercise of
the Warrants has been taken or will be taken prior to the Initial Closing. This
Agreement, when executed and delivered by the Company, shall constitute a valid
and legally binding obligation of the Company, enforceable in accordance with
its terms, except as the indemnification provisions of the Rights Agreement
hereof may be limited by principles of public policy, and subject to the laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of laws governing specific performance, injunctive relief or other
equitable remedies.
2.5 Valid Issuance of Common Stock.
(a) The Common Stock when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable. The Common Stock issuable upon
exercise of the Warrants has been duly and validly reserved for issuance and,
upon exercise thereof for the consideration expressed therein will be duly and
validly issued, fully paid and nonassessable.
(b) The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable.
2.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement.
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or, to the knowledge of the Company currently threatened against the
Company which in any way materially affects the validity of (1) this Agreement,
(2) the Rights Agreement, (3) the Voting Agreement, (4) the Warrants or the
right of the Company to enter into it, or them, or to consummate the
transactions contemplated hereby, or thereby, or which might result, either
individually or in the aggregate, in any material adverse effect on the Company,
nor is the Company aware that there is any basis for the foregoing. The Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or
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government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company currently
intends to initiate.
2.8 Proprietary Information and Inventions Assignment Agreements. Each
employee, consultant and officer of the Company has executed a proprietary
information and inventions agreement substantially in the form of Exhibit E
hereto. The Company is not aware that any of its employees are in violation
thereof.
2.9 Patents and Trademarks. The Company owns the patent application set
forth in Schedule B and has received from the U.S. Patent and Trademark office
(the "office") the office action referred to in Schedule B. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the foregoing. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
2.10 Compliance with Other Instruments.
(a) The Company is not in violation or default of any provisions of
its Certificate of Incorporation or its Bylaws or of any instrument, judgment,
order, writ, decree or material contract to which it is a party or by which it
is bound or, to its knowledge, of any provision of any federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of this Agreement, the Rights Agreement, the Voting Agreement and
the Warrants and the consummation of the transactions contemplated hereby and
thereby, will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
2.11 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby, there are
no agreements, understandings or proposed transactions between the Company and
any of its officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound which may involve (i) obligations (contingent
or otherwise) of, or payments to the Company in excess of, $10,000, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, (iii) provisions restricting or affecting the
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development, manufacture or distribution of the Company's products or services
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $10,000 or, in the case of
indebtedness and/or liabilities individually less than $10,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sales in the ordinary
course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Certificate of
Incorporation or its Bylaws, which materially adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.
2.12 Rights of Registration and First Refusal. Except as contemplated
herein and as set forth in the Stockholders Agreements and Stock Option
Agreements referred to in Schedule B, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.13 Corporate Documents. Except for amendments, if any necessary to
satisfy representations and warranties or conditions contained herein, the
Certificate of Incorporation and Bylaws of the Company are in the form
previously provided to the Investors.
2.14 Title to Property and Assets. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets.
2.15 Employee Benefit Plans. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.16 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions.
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2.17 Labor Agreements and Actions. The Company is not bound by or subject
to (and none of its assets or properties is bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the knowledge of the Company, has
sought to represent any of the employees, representatives or agents of the
Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees.
3. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants that:
3.1 Authorization. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with each
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Common Stock and Warrants to be received by such Investor, and the
Common Stock issuable upon exercise of the Warrants (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, each Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to any of the Securities. Each Investor represents that it has full
power and authority to enter into this Agreement and that he is an "Accredited
Investor" as that term is defined in Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"), a copy of which is annexed
hereto on Exhibit F.
3.3 Disclosure of Information. Each Investor believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Common Stock and Warrants. Each Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Common Stock and
Warrants and that any questions raised by it or its representatives concerning
the transaction have been answered to the satisfaction of it and its
representatives. Its decision to purchase the Common Stock and Warrants and
Common Stock issuable upon exercise of the Warrants hereunder is based in part
on the answers to those questions and its own evaluation of the risks and merits
of the purchase and the Company's proposed business activities.
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3.4 Investment Experience. Each Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Common Stock and Warrants and Common
Stock issuable upon exercise of the Warrants. If other than an individual,
Investor also represents it has not been organized for the purpose of acquiring
the Common Stock and Warrants and Common Stock issuable upon exercise of the
Warrants.
3.5 Restricted Securities. Each Investor understands that the shares of
Common Stock and Warrants and Common Stock issuable upon exercise of the
Warrants it is purchasing are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, each
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.6 No Public Market. Each Investor understands that no public market now
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Common Stock and
Warrants and Common Stock issuable upon exercise of the Warrants and that, even
if such a public market exists at some future time, the Company may not then be
satisfying the current public information requirements of Rule 144 under the
Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, each Investor further agrees (i) that the
Warrants are not transferrable other than to other Investors and pursuant to the
terms of the Warrants and (ii) not to make any disposition of all or any portion
of the Common Stock and Common Stock issuable upon exercise of the Warrants
unless and until:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act.
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3.8 Legends. It is understood that the certificates evidencing the Common
Stock (and the Common Stock issuable upon exercise of the Warrants) may bear one
or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.9 Each Investor recognizes and appreciates all risk factors relating to
the purchase of the Company's Common Stock, Warrants and Common Stock issuable
upon exercise of the Warrants including, but not limited to, those listed below.
Each Investor should recognize that the purchase of the Common Stock, Warrants
and Common Stock issuable upon exercise of the Warrants involves a high degree
of risk in that (i) the Company is in the development stage and has had only
limited operations, no revenue and may require substantial funds in addition to
the proceeds of this private placement, (ii) an investment in the Company is
highly speculative and only Investors who can afford the loss of their entire
investment should consider investing in the Common Stock, (iii) the Investor may
not be able to liquidate his investment, and (iv) transferability of the Common
Stock is extremely limited.
(1) Development Stage Company; Early Stage of Product Development;
No Assurance of Success; No Commercial Operations. The Company is in the
development stage and has not commenced any commercial operations to date.
The Investor should be aware of the problems, delays, expenses and
difficulties encountered by an enterprise in the Company's stage of
development, many of which may be beyond the Company's control. These
include, but are not limited to, unanticipated problems relating to
prototype development, software design and development, testing,
regulatory compliance, system assembly, the competitive and regulatory
environment in which the Company plans to operate, marketing problems and
additional costs and expenses that may exceed current estimates. There can
be no assurance that the software necessary for the Company's proposed
system can be successfully developed or, if developed, will operate
successfully in a live wagering environment, nor can there by any
assurance that the Company's system will have acceptance by casinos in the
U.S., wagering establishments outside of the U.S. or their respective
patrons. There can be no assurance that the Company's products will
perform their intended function, meet applicable regulatory standards, be
capable of construction at reasonable costs and on a timely basis, prove
to be commercially viable or be successfully marketed or attract the
required additional financing.
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(2) Expectation of Substantial Future Losses. During the current
fiscal year and thereafter, the Company will conduct significant
additional research, development and testing activities which, together
with other general and administrative expenses, are expected to result in
significant operating losses which will continue for the foreseeable
future. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations.
(3) Need For Substantial Additional Financing to Develop Commercial
Operations; Dilution; No Assurance Of Additional Financing. Assuming sale
of all of the shares of Common Stock and exercise of all of the Warrants
contemplated herein, available funds will only be sufficient to provide
financing for approximately 18 additional months of research and
development and operations by the Company. Substantial additional funds
will be required to finance any additional research and development
activities or to make any additional progress in the development of the
Company's products. If additional funds are raised by issuing equity
securities, dilution to stockholders of the Company will result. There can
be no assurance that the Company will be able to obtain such financing or
that such financing, if available, will be on acceptable terms to enable
it to complete development of or commercialize the Company's products.
(4) Competition and Rapid Technological Change. Large,
well-capitalized companies may be developing products that are or may be
competitive with the Company's products. Competition is intense and
increasing among providers of wagering and gaming equipment, both hardware
and software, and the Company believes that new competitors will emerge in
the future. Many of the Company's competitors or potential competitors may
have patented products that may compete with the Company's technology and
such competitors may have significantly greater financial, technological,
manufacturing, marketing, operating and other resources than the Company.
In addition, certain of the Company's potential competitors, including
large providers of wagering, gaming and computer equipment, may have
technological capabilities that would allow them to develop new or
alternative systems rather than utilize the Company's products. The
wagering and gaming equipment industry is subject to rapid change and is
characterized by constant technological innovation. There can be no
assurance that future technological advances will not result in improved
products or services that could adversely affect the Company's business or
that the Company will be able to develop and introduce competitive uses
for its products and to bring such uses to market in a timely manner.
(5) Uncertain Protection of Patents and Proprietary Rights; No
Assurance of Enforceability or Significant Competitive Advantage. The
Company considers patent protection of its technology to be important to
its business prospects. The Company has filed one United States patent
application relating to its systems technology, which is currently pending
before the United States Patent and Trademark Office (the
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"Office") and corresponding applications in certain foreign countries. The
Company has received an initial Office action denying the claims of the
patent, to which the Company has responded. Although management believes
that a patent containing the most important of the claims asserted in the
pending patent application will be granted, no assurance of that can be
given. In addition, no assurance can be given that if any patents issue,
they will provide the Company with significant competitive advantages or
that challenges will not be instituted against the validity or
enforceability of any patent owned by the Company or, if instituted, that
such challenges will not be successful. Furthermore, there can be no
assurance that others will not independently develop similar or more
advanced technologies or design around aspects of the Company's technology
which may be patented or duplicate the Company's trade secrets. In some
cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance that trade secrets will be established, or that
secrecy obligations will be honored or that others will not independently
develop similar or superior technology.
(6) Dependence Upon President and Principal Stockholder. The Company
is dependent significantly on the services of Barry Mindes, its founder,
CEO, President and principal stockholder (the "Principal Stockholder").
Loss of the services of the Principal Stockholder could have a material
adverse effect on the Company's business.
(7) Continued Control by Principal Stockholder. Following the
purchase of the shares of Common Stock and exercise of the Warrants by the
Investors and the issuance of certain additional shares of Common Stock
and options to other investors and certain key employees, the Principal
Stockholder will beneficially own or control, in the aggregate, a majority
of the issued and outstanding Common Stock. Accordingly, the Principal
Stockholder will, subject to agreements entered into with other
stockholders relating to the election of directors, continue to be able to
elect at least a majority of the Company's Board of Directors and to
direct the Company's affairs.
(8) Absence of Public Market and No Obligation to Effect
Registration. There is and has been no public market for the Common Stock.
The Common Stock has not been registered under the Securities Act of 1933,
as amended, or any state securities laws, and the Company has no present
plans and is under no obligation to effect any such registration, although
under certain circumstances certain stockholders have the right to demand
registration. There can be no assurance that an active trading market for
the Common Stock will develop at any time hereafter or, if developed, that
such a market will be sustained.
(9) No Dividends Anticipated. The Company has never paid any cash
dividends on the Common Stock. The Company anticipates that in the future,
any earnings will be retained for use in the business or for other
corporate purposes, and it is not anticipated that cash dividends in
respect of the Common Stock will be paid.
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(10) Market Size. At the current time the market for the Company's
products in the U.S. is limited to casinos in the State of Nevada. No
assurance can be given that new markets will develop or that legislation
permitting sports wagering in other states within the U.S. will be
adopted. In addition, while sports wagering exists outside of the U.S., no
assurance can be given that the Company's products would be accepted in
such foreign markets or that compliance with any regulatory conditions
imposed by foreign jurisdictions will be achieved.
(11) Regulatory Environment. The Company, its principal
stockholder(s), directors, officers and key employees may be required to
be licensed in the State of Nevada and in any other jurisdiction in which
the Company's products or services are sold, provided or intended to be
sold or provided. Although the Company is not aware of any factor in the
background of any of these individuals which would prevent licensing, no
assurance can be given that licenses will be granted. The Company's
equipment and software may also have to be licensed by the State of Nevada
and any other jurisdiction in which the Company's products or services are
sold/or provided or intended to be sold or provided. No assurance can be
given that such licenses will be granted.
(12) Reliance on Own Advisors. Investors are not to construe this
document as offering any investment advice. Investors should consult their
own legal counsel, accountants and other professional advisors as to
financial, legal, tax and related matters concerning their investment.
3.10 Except as set forth herein no representation or warranty has been
made to the Investors by the Company or any agent, affiliate, employee, officer
or representative thereof, and in entering into this transaction each Investor
is not relying upon any information other than that contained herein and the
results of such Investor's independent investigation.
4. Blue Sky Laws.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPO-
RATIONS OR EQUIVALENT OF ANY STATE.
5. Conditions of Investor's Obligations at Closing. The obligations of each
Investor under Section 1.1 of this Agreement are subject to the fulfillment on
or before the Initial Closing and, with respect to Section 5.9 the Second and
Final Closings, of each of the following conditions, the waiver of which shall
not be effective against any Investor who does not consent in writing thereto:
5.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true on and as of the Initial
Closing.
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5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial
Closing.
5.3 Compliance Certificate. The President of the Company shall deliver to
each Investor at the Initial Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no material adverse
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company since April 30, 1995.
5.4 Qualifications. The Company shall have complied with all applicable
requirements of state securities laws.
5.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Initial Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5.6 Proprietary Information Agreement. Each employee of the Company shall
have entered into a proprietary information and inventions agreement
substantially in the form set forth as Exhibit E hereto.
5.7 Rights Agreement. The Company and the Investors shall have entered
into the Rights Agreement.
5.8 Voting Agreement. The Company, the Founder and the Investors shall
have entered into the Voting Agreement.
5.9 Stock Certificates and Warrant. The Company shall deliver (i) stock
certificates representing the shares of Common Stock being purchased and (ii)
Warrant agreements representing the Warrants being purchased.
5.10 No Material Adverse Change. Since April 30, 1995, there shall have
been no material adverse change in the Company's assets, properties, financial
condition, operating results, business or prospects.
6. Conditions of the Company's Obligations at Closing. The obligations of the
Company to each Investor under this Agreement are subject to the fulfillment on
or before the Initial Closing, and, with respect to Section 6.2 the Second and
Final Closings, of each of the following conditions by that Investor:
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6.1 Representations and Warranties. The representations and warranties of
the Investors contained in Section 3 shall be true on and as of the Initial
Closing.
6.2 Payment of Purchase Price. The Investors shall have delivered the
purchase price specified in Section 1.2.
6.3 Rights Agreement. The Company and the Investors shall have entered
into the Rights Agreement.
6.4 Voting Agreement. The Company, the Founder and the Investors shall
have entered into the Voting Agreement.
7. Covenants of the Company.
7.1 Delivery of Financial Statements. Commencing on January 1, 1997, for
so long as the Investors continue to hold at least 25% of the outstanding stock
of the Company the Company shall deliver to each Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter.
7.2 Interim Financial Information. Prior to January 1, 1997, the Company
shall furnish to the Investors so long as the Investors continue to hold at
least 25% of the outstanding stock of the Company, upon request (i) the same
financial information utilized by the Company on a monthly basis (but not less
than a statement showing cash at the beginning and end of the month and the
expenses paid or incurred during the month) and (ii) such other information as
the Investor shall reasonably request.
7.3 Inspection. For as long as an Investor is eligible to receive reports
under Section 7.2, the Company shall permit each Investor, at such Investor's
expense, to visit and inspect the Company's properties, and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor and upon reasonable notice
to the Company; provided, however, that the Company shall not be obligated
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pursuant to this Section 7.3 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
7.4 Termination of Information and Inspection Covenants. The covenants set
forth in Sections 7.2 and 7.3 shall terminate as to Investors and be of no
further force or effect when the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the offering of
its securities to the general public, is consummated or when the Company first
becomes subject to the periodic reporting requirements of Section 12(g) of the
1934 Act, whichever event shall first occur.
8. Miscellaneous.
8.1 Survival of Warranties. The warranties, representations and covenants
of the Company and Investors contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and each Closing.
8.2 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any shares of Common Stock sold hereunder or any Common Stock issued upon
exercise of the Warrants thereof). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. This Agreement shall be binding upon any person to whom
shares of Common Stock are transferred in violation of the provisions hereof and
the successors, assigns, heirs, legatees, distributees, executors and
administrators of such transferee and the Company may refuse to permit the
transfer of such stock on its books.
8.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of New York without regard to principles of conflict of
laws.
8.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which shall together constitute a single
instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.6 Notices. All notices ("Notices") hereunder shall be in writing, signed
by the party giving or making the same, and shall be delivered personally or
sent by internationally recognized courier service or by telex or facsimile
transmission to each party entitled to receive the same, at such party's last
known address on the books of the Company, unless such party shall have
previously notified in writing the party sending such Notice of a change of
address, in which case it shall be sent to the new address. A copy of each such
Notice to the
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Company or the Founder shall also be sent in similar fashion to Rubin Baum Levin
Constant & Friedman, 30 Rockefeller Plaza, 29th Floor, New York, New York 10112,
Attention: Richard M. Hoffman, Esq. A copy of each such Notice to the Investors
shall also be sent in similar fashion to Mr. Matthew Smith c/o Geo Capital 767
Fifth Avenue (45th Fl) New York, NY 10153. All Notices shall be deemed given
when delivered, sent or transmitted in accordance herewith.
8.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or com- pensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
8.8 Expenses. Irrespective of whether any Closing is effected, the Company
and the Investors shall pay all costs and expenses that each incurs with respect
to the negotiation, execution, delivery and performance of this Agreement.
8.9 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Common Stock
issued to the Investors excluding shares previously sold to the public. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
8.10 Effect of Amendments or Waivers. Investors and their respective
successors and assigns acknowledge that by the operation of Section 8.9 hereof,
the holders of a majority of the Common Stock issued to the Investors excluding
shares previously sold to the public, acting in conjunction with the Company
will have the right and power to diminish or eliminate all rights pursuant to
this Agreement.
8.11 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provision of this
Agreement.
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8.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.13 Miscellaneous.
(a) This Agreement contains the entire understanding of the parties
hereto concerning the subject matter hereof and supersedes any and all prior
agreements made by the parties with respect thereto and may not be amended,
terminated or discharged, except by an instrument in writing, signed by the
party to be charged.
(b) Each of the parties agrees to execute and deliver any and all
documents or other instruments and shall do or cause to be done all such acts or
things as may reasonably be necessary or proper to carry out the purposes of
this Agreement.
(c) The parties hereto irrevocably consent that any suit, legal
action or proceeding with respect to any of the rights or obligations arising
directly or indirectly under or relating to this Agreement may be brought in any
New York State or United States federal court located in the Borough of
Manhattan, City and State of New York, and by execution and delivery of this
Agreement each party hereby irrevocably submits to and accepts with regard to
any such suit, legal action or proceeding, for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each party irrevocably consents to the service of process in any such
suit, legal action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, return receipt requested, to it at its
address set forth herein. The foregoing shall not limit the right of any party
to serve process in any other manner permitted by law. Each party hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any suit, legal action or proceeding arising directly or
indirectly under or relating to this Agreement in any court located in the
Borough of Manhattan, City and State of New York and hereby further irrevocably
waives any claim that a court located in the Borough of Manhattan, City and
State of New York is not a convenient forum for any such suit, legal action or
proceeding. Each party hereby (i) irrevocably waives any right it may have under
the laws of any jurisdiction to commence by publication any suit, legal action
or proceeding with respect to this Agreement, and (ii) irrevocably agrees that
any suit, legal action or proceeding
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commenced by it with respect to any rights or obligations arising directly or
indirectly under or relating to this Agreement shall be brought exclusively in
any New York State or United States federal court located in the Borough of
Manhattan, City and State of New York.
The parties have executed this Agreement as of the date first written
above.
COMPANY:
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ BARRY MINDES
-----------------------------------
Barry Mindes, President
Address: 32 Heights Road
Wayne, NJ 07470
Fax: (201) 694-4843
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Schedule A
Investors
Seneca Ventures
Woodland Partners
Woodland Venture Fund
Marilyn Rubenstein
Eli Oxenhorn
DISS Partners
David Nussbaum
Robert Gladstone
William G. Walters
Larry Altman
Shelly Finkel
Gerald Josephson
Irwin Lieber
Barry Fingerhut
Michael Marocco
Stephen J. Posner
ReiJane Huai
Alan W. Kaufman
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT (the "Agreement") dated as of the 20th day of June
1996, by and among International Sports Wagering Inc., a Delaware corporation
(the "Company") and Barry Mindes, residing at 32 Heights Road, Wayne, New Jersey
07470 ("Mindes"):
W I T N E S S E T H:
WHEREAS, the Company wishes to grant Mindes certain pre-emptive and
registration rights in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereby agree as follows:
1. Registration Rights.
1.1 Definitions. As used in this Agreement:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended (the
"Securities Act") and the subsequent declaration or ordering of the
effectiveness of such registration statement.
(b) The term "Registrable Securities" means (i) the shares of
Common Stock par value $.001 per share now or hereafter owned by Mindes (the
"Shares"), and (ii) any other shares of Common Stock of the Company issued as or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Shares, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned; provided, however, that Shares or
other securities shall only be treated as Registrable Securities if and so long
as they have not been (A) sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions,
and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
<PAGE>
(c) The number of shares of "Registrable Securi- ties then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(d) The term "Holder" means any holder of outstanding
Registrable Securities who acquired such Registrable Securities in a transaction
or series of transactions not involving any registered public offering.
(e) The term "Form S-3" means such form under the Securities
Act of 1933, as amended (the "Act") as in effect on the date hereof or any
registration form under the Act subsequently adopted by the Securities and
Exchange Commission ("SEC") which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
1.2 Demand Registration.
(a) If the Company shall receive at any time after the earlier
of (i) May 31, 1998 or (ii) 180 days after the closing of the Company's initial
registered public offering of Common Stock under the Securities Act of 1933, a
written request from the Holders of a majority of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
covering the registration of at least fifty percent (50%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would equal or
exceed $5,000,000), then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders and shall,
subject to the limitations of subsection 1.2(b), effect as soon as practicable,
and in any event within 120 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
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provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
it requires a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders and any
other holders of Common Stock entitled to registration rights whose shares of
Common Stock were to be included in such registration statement, in proportion
(as nearly as practicable) to the amount of Common Stock of the Company owned by
each such person.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore reasonable to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve month period.
(e) If within thirty (30) days after the request to register
Registerable Securities the Company gives notice that it intends to initiate an
initial firmly underwritten registered public offering within forty-five (45)
days of the time of the request, then the Company shall have the right to defer
such filing, provided that it initiates such public offering such filing within
such forty-five (45) day period.
1.3 "Piggyback" Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
Common Stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
either to the sale of securities to participants in a Company stock option,
stock purchase or similar plan or to an SEC Rule 145 transaction), the Company
shall, at such time,
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promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall, subject
to the provisions of Section 1.8, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder keep
such registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the
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Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an 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 the light
of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters on the date that the registration statement with respect to
such securities becomes effective, a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and
the reasonable fees and expenses of one special counsel all of the selling
stockholders (provided, however that the maximum expense of such special counsel
which the Company shall be obligated to pay shall be $10,000) shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (in which case all
Holders participating therein shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.7 Expenses of "Piggyback" Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for
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each Holder (which right may be assigned as provided in Section 1.13), including
(without limitation) all registration, filing, and qualification fees, printers,
accounting fees relating or apportionable thereto and the reasonable fees and
expenses of one special counsel of the selling stockholders (provided, however
that the maximum expense of such special counsel which the Company shall be
obligated to pay shall be $10,000), but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities that the underwriters
reasonably believe is compatible with the success of the Offering, then the
Company shall be required to include in the offering only that number of such
securities including Registrable Securities, which the underwriters believe will
not jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder; provided, however, that if such offering is the initial public
offering of the Company's securities, in which case the selling stockholders may
be excluded if the underwriters make the determination described above and no
other stockholder's securities are included. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
stockholder," and any pro rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
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1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities law or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities law; and the Company will pay as
incurred to each such Holder, underwriter or controlling person, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each
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case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity under this subsection
1.10(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
(d) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
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pursuant to a registration on Form S-3, the Company agrees to use its reasonable
efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of the Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distri-
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<PAGE>
bution of all or such portion of such Holder's or Holders' registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 15 days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 1.12, (1) if Form S-3 is not available for
such offering by the Holders; (2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $500,000; (3) if the Company shall furnish to the
Holders a certificate signed by the president of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than 120 days after receipt of the request of the Holder or Holders under this
Section 1.12; provided, however, that the Company shall not utilize this right
more than twice in any twelve month period; (4) if the Company has, already
effected two registrations on Form S-3 for the Holders pursuant to this Section
1.12; (5) if the Holders can sell Registrable Securities pursuant to Rule 144 or
otherwise free of the registration requirements of the Securities Act; (6) if
the Company has effected another S-3 registration within 12 months prior to
receipt of a request pursuant to this Section 1.12; or (7) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the Company, shall be borne by
the Company. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Section 1.2 or 1.3.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may only
be assigned by a Holder to a transferee or assignee of the Shares provided that
the Company is, within a
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reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Act.
1.14 "Market Stand-still" Agreement. Holders holding Registrable
Securities exceeding one percent (1%) of the outstanding stock of the Company
hereby agree that during the 180- day period following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and its underwriter, sell or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any Common
Stock of the Company held by it at any time during such period except Common
Stock included in such registration; provided, however, that: all officers and
directors of the Company and all other Holders holding Registrable Securities
exceeding one percent (1%) of the outstanding stock of the Company whether or
not pursuant to this Agreement) enter into similar agreements. To enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Registrable Securities of the Investors (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
1.15 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after three (3) years
following the consummation of the Company's initial sale of its Common Stock in
a bona fide, firm commitment underwriting pursuant to a registration statement
on Form S-1 under the Securities Act of 1933, as amended, which results in
aggregate gross cash proceeds to the Company of at least $5,000,000 (other than
a registration statement relating either to the sale of securities to employees
of the Company pursuant to a stock option, stock purchase or similar plan or a
SEC Rule 145 transaction) or at and after such time following the Company's
initial public offering as such Holder holds Registrable Securities equal to 5%
or less of the outstanding stock of the Company.
2. Additional Rights.
2.1 Pre-emptive Right. Subject to the terms and conditions specified
in this Section 2.1, the Company hereby grants to Mindes, a pre-emptive right
with respect to future sales by the Company of its New Securities (as
hereinafter defined).
(a) If at any time during the term of this Agreement the
Company proposes to offer, issue, sell or otherwise dispose of shares of the
Common Stock or any other class or
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series of common stock or preferred stock of the Company, or options, rights,
warrants, conversion rights or appreciation rights relating thereto, or any
other type of equity security that the Corporation may lawfully issue
(collectively, the "New Securities") to any person or entity other than Mindes
or any affiliates thereof:
(b) The Company shall, prior to any such issuance or sale,
give notice in accordance with Section 3.5 (a "Preemptive Notice") to the
Investors setting forth the purchase price of such New Securities, the type and
aggregate number of New Securities to be so offered, issued, sold or otherwise
disposed of, the terms, price and conditions of such offer, issuance, sale or
other disposition and the rights, powers and duties inhering in such additional
New Securities.
(c) Mindes shall have the right (the "Preemptive Right") to
acquire the percentage of such New Securities proposed to be so offered, issued,
sold or otherwise disposed of equal to the number of shares of Common Stock then
held by Mindes divided by the aggregate number of shares of the Company's Common
Stock and stock options outstanding (assuming all such stock options were
exercised) immediately prior to such offer, issuance, sale or other disposition
of New Securities; provided, however, that the terms and conditions of this
Section 2.1 shall not apply to any offer, issuance, sale or other disposition of
(i) New Securities issued in connection with any stock split, stock dividend, or
recapitalization of the Company, (ii) New Securities issuable upon exercise of
any warrant, option or convertible securities if the issuance thereof was
subject to the pre-emptive right granted in this Section 2.1, (iii) New
Securities or rights to acquire New Securities to any person or entity pursuant
to a stock option plan established by the Company for the benefit of its
employees, officers, directors, agents or consultants, or otherwise granted to
an employee of, or consultant to, the Company in connection with such person or
entity's employment or retention by the Company; (iv) New Securities or rights
to acquire New Securities to a person or entity in connection with the
acquisition by the Company of all or a substantial portion of the stock, assets
or business of such person or entity; (v) New Securities or rights to acquire
New Securities to a financial institution in connection with the making of, or
the agreement to make, loans to, or other financial arrangements with, the
Company by such financial institution; (vi) New Securities or rights to acquire
New Securities to a person or entity in connection with license arrangements of
the Company; (vii) New Securities or rights to acquire New Securities to
strategic corporate investors as determined by not less than 80% of the Board of
Directors; and (viii) New Securities or rights to acquire New Securities
pursuant to any underwritten public offering of New Securities of the Company
pursuant to an effective registration statement under the Securities Act.
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(d) Mindes may exercise such Preemptive Right, in whole or in
part, on the terms and conditions and for the purchase price set forth in the
Preemptive Notice, by giving to the Company notice to such effect, within 10
days after the giving of the Preemptive Notice. The closing of the sale of New
Securities by the Company to those exercising their Preemptive Right shall take
place simultaneously with the closing of the sale of New Securities to third
parties. After the expiration of such 10-day period, the Company shall have the
power to offer, issue, sell and otherwise dispose of any or all of the New
Securities referred to in the applicable Preemptive Notice as to which no
Preemptive Right has been exercised but only upon the terms and conditions, and
for a purchase price not lower than the purchase price, set forth in the
Preemptive Notice. If the Company does not offer, issue, sell or otherwise
dispose of the New Securities referred to in the applicable Preemptive Notice on
the terms and conditions set forth in such Preemptive Notice within 90 days
after the expiration of such 10-day period, then any subsequent proposal by the
Company to offer, issue, sell or otherwise dispose of Equity Securities shall be
subject to this Section 2.1.
2.2 Termination. The rights granted in Section 2.2 shall terminate
and be of no further force or effect upon the first to occur of (a) any merger
or sale of the Company in which the Company is not the surviving corporation
(other than a merger with or into a wholly-owned subsidiary) or any transaction
in which more than 50% of the voting power of the Company is disposed of; (b)
the consummation of the Company's sale of its Common Stock or other securities
pursuant to a registration statement under the Securities Act of 1933, as
amended, (other than a registration statement relating either to sale of
securities to employees of the Company pursuant to its stock option, stock
purchase or similar plan or a SEC Rule 145 transaction); or (c) if Mindes and
his affiliates cease to own at least twenty-five percent (25%) of the
outstanding voting securities of the Company.
2.3 Assignment of Rights. Subject to compliance with all applicable
securities laws, the rights granted under Section 2.1 may be assigned by Mindes
to a transferee or assignee of such party's shares of the Company's stock. In
the event that Mindes shall assign its rights pursuant to Section 2.1 in
connection with the transfer of less than all of his shares of the Company's
stock, Mindes shall also retain his rights as to the proportion of shares not
transferred.
3. Miscellaneous.
3.1 Assignment. Subject to the provisions of Section 1.13 and 2.3
hereof, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective
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successors and assigns of the parties hereto. This Agreement shall be binding
upon any person to whom shares of Common Stock are transferred in violation of
the provisions hereof and the successors, assigns, heirs, legatees,
distributees, executors and administrators of such transferee and the
Corporation may refuse to permit the transfer of such stock on its books.
3.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
3.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflict of laws.
3.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but which shall together constitute a
single instrument.
3.5 Notices. All notices ("Notices") hereunder shall be in writing,
signed by the party giving or making the same, and shall be delivered personally
or sent by internationally recognized courier service or by telex or facsimile
transmission to each party entitled to receive the same, at such party's last
known address on the books of the Corporation, unless such party shall have
previously notified in writing the party sending such Notice of a change of
address, in which case it shall be sent to the new address. A copy of each such
Notice to the Corporation shall also be sent in similar fashion to Rubin Baum
Levin Constant & Friedman, 30 Rockefeller Plaza, 29th Floor, New York, New York
10112, Attention: Richard M. Hoffman, Esq. All Notices shall be deemed given
when delivered, sent or transmitted in accordance herewith.
3.6 Amendment and Waiver. Any provision of this Agreement may be
amended only by a written agreement signed by Mindes and the Company.
3.7 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
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conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
3.8 Stock Splits, Stock Dividends, etc. In the event of any
additional issuance of securities to Mindes, including but not limited to, any
securities issued on a stock split, stock dividend, recapitalization,
reorganization or combination, or upon exercise of any stock option or warrant,
the securities issued to Mindes shall be subject to this Agreement.
3.9 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
3.10 Captions. The captions and headings contained in this agreement
are for the convenience of the parties only and shall not effect the
interpretation or construction of this Agreement.
3.11 Miscellaneous.
(a) This Agreement contains the entire understanding of the
parties hereto concerning the subject matter hereof and supersedes any and all
prior agreements made by the parties with respect thereto and may not be
amended, terminated or discharged, except by an instrument in writing, signed by
the party to be charged.
(b) Each of the parties agrees to execute and deliver any and
all documents or other instruments and shall do or cause to be done all such
acts or things as may reasonably be necessary or proper to carry out the
purposes of this Agreement.
(c) The parties hereto irrevocably consent that any suit,
legal action or proceeding with respect to any of the rights or obligations
arising directly or indirectly under or relating to this Agreement may be
brought in any New York State or United States federal court located in the
Borough of Manhattan, City and State of New York, and by execution and delivery
of this Agreement each party hereby irrevocably submits to and accepts with
regard to any such suit, legal action or proceeding, for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each party irrevocably consents to the service of process in
any
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such suit, legal action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, return receipt requested, to it
at its address set forth herein. The foregoing shall not limit the right of any
party to serve process in any other manner permitted by law. Each party hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any suit, legal action or proceeding arising directly or
indirectly under or relating to this Agreement in any court located in the
Borough of Manhattan, City and State of New York and hereby further irrevocably
waives any claim that a court located in the Borough of Manhattan, City and
State of New York is not a convenient forum for any such suit, legal action or
proceeding. Each party hereby (i) irrevocably waives any right it may have under
the laws of any jurisdiction to commence by publication any suit, legal action
or proceeding with respect to this Agreement, and (ii) irrevocably agrees that
any suit, legal action or proceeding commenced by it with respect to any rights
or obligations arising directly or indirectly under or relating to this
Agreement shall be brought exclusively in any New York State or United States
federal court located in the Borough of Manhattan, City and State of New York.
The parties hereto have executed this Agreement as of the day and year
first above written.
COMPANY:
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ Bernard Albanese
-----------------------------------
Bernard Albanese,
Vice President
Address: 201 Lower Notch Road
Suite 2B
Little Falls, NJ 07424
Fax: (201) 256-____
/s/ Barry Mindes
---------------------------------------
BARRY MINDES
Address: 32 Heights Road
Wayne, NJ 07470
Fax: (201) 694-4843
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ATTACHED IS A FORM OF STOCKHOLDERS' AGREEMENT WHICH EACH OF THE FOLLOWING
INDIVIDUALS HAS EXECUTED WITH THE COMPANY AND BARRY MINDES:
BERNARD ALBANESE
ROY STUDENT
FRED KUPERSMITH
ANDREW HARBISON
RICHARD M. HOFFMAN
HAROLD RAPPAPORT
WAYNE MILLER
FANG WAN
STEVEN LAZAN
NOUGZAR BOUKIIA
DON CHAIFETZ
THE ONLY PROVISION OF THE AGREEMENT THAT SURVIVES AFTER THE OFFERING IS SECTION
10 GRANTING CERTAIN REGISTRATION RIGHTS. ALL OTHER PROVISIONS TERMINATE UPON THE
OFFERING.
<PAGE>
STOCKHOLDERS AGREEMENT
AGREEMENT, dated as of _____________, among INTERNATIONAL SPORTS WAGERING
INC., a corporation organized under the laws of the State of Delaware, having an
office at 201 Lower Notch Road, Little Falls, New Jersey 07424 (the
"Corporation"), BARRY MINDES, having an address at 32 Heights Road, Wayne, N.J.
07470 (the "Principal Stockholder"); and _______________ having an address at
_______________________________________ (the "Other Stockholder"; the Principal
Stockholder and the Other Stockholder are sometimes hereinafter referred to
collectively as the "Stockholders").
W I T N E S S E T H:
WHEREAS, each of the Stockholders is the holder of the number of shares of
the Corporation's common stock, $.001 par value (the "Common Stock"), set forth
on SCHEDULE A annexed hereto and made a part hereof; and
WHEREAS, the Stockholders desire to provide for continuity and stability
in the affairs of the Corporation and to impose certain restrictions with
respect to the transfer or other disposition of the Common Stock upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants, and agreements contained herein, the
parties hereby agree as follows:
<PAGE>
1. Restrictions on Disposition of Shares.
(a) The Other Stockholder shall not at any time during the period
after the date of this Agreement and prior to the second (2nd) anniversary of
the date of this Agreement (the "Initial Holding Period"), sell, assign,
transfer, grant a proxy to any person to vote or otherwise act in respect of,
grant a participation in, grant a security interest in, pledge, encumber or
otherwise dispose of, whether by operation of law or otherwise (any of the
foregoing being referred to hereinafter as a "Disposition"), any shares of
Common Stock, now owned or hereafter acquired by the Other Stockholder, other
than to the Principal Stockholder or his designee or to an Other Stockholder
Affiliate (as defined in Section 1.(c) hereof), except with the Principal
Stockholder's prior written consent.
(b) (i) At any time after the Initial Holding Period, the Other
Stockholder shall not, without the prior written consent of the Principal
Stockholder, effect a Disposition of any shares of Common Stock, now owned or
hereafter acquired by the Other Stockholder, other than to the Principal
Stockholders or his designee, or to the Corporation except upon the following
terms and conditions: Notwithstanding the foregoing, if at any time after the
expiration of the Initial Holding Period, the Other Stockholder desires to sell
all or any portion of the shares of Common Stock held by the Other Stockholder
(the "Offered Shares"), and the Other Stockholder shall have received an
irrevocable bona fide, arm's-length, written offer (the "Bona
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Fide Offer") for the purchase of the Offered Shares, for cash, notes or other
consideration, or any combination thereof, from a prospective purchaser (the
"Prospective Purchaser"), the Other Stockholder shall give a notice in writing
(the "Option Notice") to each of the Corporation and the Principal Stockholder
containing a copy of the original executed Bona Fide Offer, setting forth the
price and terms and conditions of the proposed sale, the name and address of the
Prospective Purchaser, and the effective date of such Option Notice. For a
period of 20 business days following the effective date of such Option Notice
(the "Principal Stockholder's Option Period"), the Principal Stockholder shall
have an option, on the terms and conditions set forth in this Section 1.(b), to
purchase all or any portion of the Offered Shares. The Principal Stockholder's
option may be exercised by giving a written counter-notice (a "Notice of
Exercise") to the Other Stockholder within the Principal Stockholder's Option
Period, setting forth the number of the Offered Shares with respect to which the
Principal Stockholder's option is exercised. If, upon the expiration of the
Principal Stockholder's Option Period, the Principal Stockholder has failed to
exercise his option to purchase all of the Offered Shares, then for a period of
15 business days following the expiration of the Principal Stockholder's Option
Period (the "Corporation's Option Period"), the Corporation shall have an
option, on the terms and conditions set forth in this Section 1.(b), to purchase
all of the remaining Offered Shares. The Corporation's option
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may be exercised by giving a Notice of Exercise to the Other Stockholder within
the Corporation's Option Period, setting forth the number of the Offered Shares
with respect to which the Corporation's option is exercised.
(ii) Upon the timely giving of the Notice of Exercise by the
Principal Stockholder and/or the Corporation, the Principal Stockholder and/or
the Corporation, as the case may be, shall be obligated to purchase from the
Other Stockholder, and the Other Stockholder shall be obligated to sell to the
Principal Stockholder and/or the Corporation, as the case may be, the number of
the Offered Shares with respect to which each such party's option has been
exercised, at the price and on the terms and conditions specified in the Bona
Fide Offer; provided, however, that if the Principal Stockholder and/or the
Corporation do not give Notice(s) of Exercise setting forth their intention to
purchase all of the Offered Shares, then in such event any Notice(s) of Exercise
shall be null and void. If the Bona Fide Offer was for consideration consisting
of other than cash or notes (or a combination thereof), or for consideration
consisting in part of other than cash or notes (or a combination thereof), then
the consideration to be paid by the Principal Stockholder and/or the
Corporation, as the case may be, for the Offered Shares shall consist of cash or
notes, to the extent that the consideration in the Bona Fide Offer consisted of
cash or notes, and, to the extent such consideration consisted of other than
cash or notes, a cash consideration equal to the fair market
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<PAGE>
value of such non-cash or non-note consideration set forth in the Bona Fide
Offer, which fair market value shall promptly be determined by an investment
banker mutually acceptable to the Other Stockholder, the Principal Stockholder
and the Corporation. If such parties are unable to agree within 60 days after
the expiration of the Corporation's Option Period, the appraisal shall be
conducted by an investment banker designated, upon the application of the Other
Stockholder, the Principal Stockholder or the Corporation, by the American
Arbitration Association in New York, New York. The cost of the appraisal shall
be borne equally by the Other Stockholder, on the one hand, and the Principal
Stockholder and/or the Corporation, on the other hand (such share of the
Principal Stockholder and/or the Corporation to be borne by each of such parties
in proportion to the number of the Offered Shares with respect to which each
such party's option has been exercised). The decision of such investment banker
shall be final and binding upon the Other Stockholder, the Principal Stockholder
and the Corporation, and each of their respective heirs, legatees,
administrators, executors, successors and assigns.
(iii) If the Notice(s) of Exercise shall not have been duly
given as to all of the Offered Shares as aforesaid by the Principal Stockholder
and the Corporation, the Other Stockholder may, within a period of 60 days after
the expiration of the Corporation's Option Period, sell the Offered Shares to
the Prospective Purchaser upon the terms and conditions, and for
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a price not lower than the price, set forth in the Bona Fide Offer; provided,
however, that if the sale to the Prospective Purchaser is not completed within
such 60-day period, the Offered Shares shall continue to remain subject to all
the provisions of this Section 1.(b). If the Other Stockholder obtains the right
to sell the Offered Shares to a Prospective Purchaser pursuant to this Section
1.(b), such Prospective Purchaser shall, as a condition to such sale, be
required to execute and deliver a counterpart of this Agreement, whereby such
Prospective Purchaser agrees to be subject to and bound by all of the terms and
provisions of this Agreement to the same extent as the Stockholders party
hereto.
(iv) The closing of any purchase by the Principal Stockholder
or the Corporation under this Section 1.(b) shall take place at the office of
the Corporation or at such other place designated by the Corporation or the
Principal Stockholder, as the case may be, on a date designated by the
Corporation or the Principal Stockholder, as the case may be, which date shall
not be more than 30 days following the expiration of the Principal Stockholder's
or the Corporation's Option Period, as the case may be.
(c) Notwithstanding anything to the contrary contained herein, the
Other Stockholder and any Other Stockholder Affiliate shall have the right at
any time during the term of this Agreement and at any time during such party's
lifetime or upon such party's death to transfer, whether by sale, by gift inter
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vivos, by will, or by laws of descent and distribution, or otherwise, all or any
portion of the shares of Common Stock of the Corporation then owned by it to (i)
the Other Stockholder's spouse, children or grandchildren, (ii) a trust for the
benefit of the Other Stockholder's spouse, children or grandchildren, or (iii) a
partnership the general partner of which is the Other Stockholder or a
corporation all of whose outstanding shares are owned of record and
beneficially, by the Other Stockholder (each of the foregoing parties described
in clauses (i)-(iii) above being an "Other Stockholder Affiliate" and being
deemed to be included in the definition of the Other Stockholder for all
purposes of this Agreement) and the provisions of Section 1.(b) hereof shall not
apply to any such transfer. Any permitted assignee or designee of the Other
Stockholder or an Other Stockholder Affiliate pursuant to this Section 1.(c)
shall, as a condition to such transfer, be required to execute and deliver a
counterpart of this Agreement, whereby such party agrees to be subject to and
bound by all of the terms and provisions of this Agreement to the same extent as
the Stockholders party hereto, and unless such an agreement is so executed and
delivered, such transfer shall be null and void.
2. Certain Prohibited Transfers. Notwithstanding anything to the contrary
contained herein, the Other Stockholder shall not, at any time during the term
of this Agreement, effect a Disposition of any shares of Common Stock, now owned
or hereafter acquired by the Other Stockholder, to any person or entity
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<PAGE>
engaged in any business that is competitive with any business then engaged in by
the Corporation, or to any person or entity which directly or indirectly
controls, or is controlled by, or is under common control with, any such person
or entity.
3. Section 3 is intentionally omitted.
4. Legend on Share Certificates. All certificates representing shares of
Common Stock now or hereafter issued by the Corporation to any Stockholder or to
any of such Stockholder's permitted assignees or designees shall be subject to
this Agreement and shall bear the following legends:
"The shares evidenced by this certificate or any certificate issued
in exchange or transfer therefor are and will be subject to, and may not
be transferred except in accordance with, the terms of a certain
Stockholders Agreement, dated as of June 20, 1996 (as the same may be
subsequently amended, modified, restated or supplemented), by and among
certain stockholders of the Corporation and the Corporation, which
agreement provides, among other things, for restrictions on the sale,
transfer and disposition of the shares of the Corporation, an executed
copy of which agreement is on file at the principal office of the
Corporation."
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state and may be offered and sold only if so registered or if the
Corporation has been furnished with an opinion of counsel, reasonably
satisfactory to the Corporation, to the effect that an exemption from such
registration is available to the holder of the shares."
5. Term. The term of this Agreement shall commence as of the date first
above written and except as otherwise provided herein shall continue until the
earliest to occur of (a) the tenth (10th) anniversary of the date hereof; (b)
the Corporation
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<PAGE>
being adjudicated bankrupt or insolvent, or an order being entered, remaining
unstayed by appeal or otherwise for 120 days, appointing a receiver or trustee
for the Corporation, or for substantially all of its property, or approving a
petition seeking reorganization or other similar relief under the bankruptcy or
other similar laws of the United States or of any state, or the Corporation
filing a petition seeking any of the foregoing or consenting thereto, or filing
a petition to take advantage of any debtors' acts, or making a general
assignment for the benefit of creditors, or admitting in writing its inability
to pay its debts as they mature; (c) the consummation of an underwritten public
offering of equity securities of the Corporation pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") that provides gross proceeds to the Corporation of not less
than $5,000,000; and (d) the termination of this Agreement pursuant to a written
agreement executed by all of the parties hereto; provided, however, that the
Stockholders' rights under Section 10 hereof shall survive any termination of
this Agreement; and provided, further, however, that Section 1 of this Agreement
shall terminate in any event on the fifth (5th) anniversary of the date hereof.
6. Representations and Warranties of the Corporation. The Corporation
hereby acknowledges, represents and warrants to the Stockholders as follows:
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<PAGE>
(a) The Corporation is a corporation validly existing and in good
standing under the laws of the State of Delaware with full corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The Corporation's authorized capital stock consists of
2,500,000 shares of Common Stock, par value $.001 per share of which 1,970,288
shares are issued and outstanding and 500,000 shares of Preferred Stock, par
value $.001 per share, of which none are issued and outstanding. True and
correct copies of the Certificate of Incorporation and the By-laws of the
Corporation are available to the Other Stockholder upon request.
(b) The Corporation has full power and authority (corporate or
otherwise) to execute, deliver and perform this Agreement, and the execution,
delivery and performance of this Agreement will not result in (i) the breach of
or default under, with or without the giving of notice or passage of time, or
both, its Certificate of Incorporation, By-Laws, any mortgage, indenture,
contract, agreement or other arrangement to which it is a party or by which it
or its properties may be bound, (ii) the violation of any law, statute, rule,
decree, order, judgment or regulation binding upon it, or (iii) (except as
contemplated by this Agreement) the creation or imposition of any lien or
encumbrance on any of its properties or assets.
(c) This Agreement and all transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Corporation and constitute a legal,
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<PAGE>
valid and binding obligation of the Corporation enforceable against it in
accordance with its terms. The Board of Directors of the Corporation has adopted
appropriate resolutions authorizing the Corporation to enter into this Agreement
and undertaking to fulfill all the terms of this Agreement.
(d) The Corporation owns of record the patent application listed on
SCHEDULE B annexed hereto; provided, however, that the Corporation makes no
representation or warranty with respect to the patentability of any invention
claimed on such SCHEDULE D or the validity or enforceability of any patent that
may be issued to the Corporation.
7. Representations and Warranties of the Stockholders. Each of the
Stockholders hereby acknowledges, represents and warrants to the remaining
Stockholders and to the Corporation as follows:
(a) Such Stockholder owns the number of shares of the Common Stock
set forth on SCHEDULE A annexed hereto, free and clear of all liens, claims,
encumbrances, proxies, pledges, security interests, charges, encumbrances, title
retention agreements or any other liability, claim or restriction on
transferability of any nature whatsoever, other than pursuant to this Agreement.
(b) Such Stockholder has full power and authority to execute,
deliver and perform this Agreement, and the execution, delivery and performance
of this Agreement will not result in (i) the breach of or default under, with or
without the giving of
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<PAGE>
notice or passage of time, or both, any mortgage, indenture, contract, agreement
or other arrangement to which it is a party or by which it or its properties may
be bound, (ii) the violation of any law, statute, rule, decree, order, judgment
or regulation binding upon it, or (iii) (except as contemplated by this
Agreement) the creation or imposition of any lien or encumbrance on any of its
properties or assets.
8. Tag Along Rights.
(a) Subject to the provisions of Section 8.(c) hereof, the Principal
Stockholder shall not, during the term of this Agreement, sell, transfer or
otherwise dispose of any of the shares of Common Stock beneficially owned in the
Corporation to any party unless the Principal Stockholder shall first notify the
Other Stockholder in writing of the terms and conditions of such proposed sale,
transfer or other disposition and shall obtain for the Other Stockholder prior
to any such sale, transfer or other disposition, a put option for a period of at
least 15 days to sell, transfer or otherwise dispose to such person on the same
per share terms and at the same per share price as the proposed sale, transfer
or other disposition by the Principal Stockholder, up to that number of shares
of Common Stock then owned by the Other Stockholder that bears the same
proportion to the total number of shares of Common Stock at the time owned by
the Other Stockholder as the number of shares of Common Stock being sold,
transferred or otherwise disposed of by the Principal Stockholder
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bears to the total number of shares of Common Stock at the time owned by the
Principal Stockholder.
(b) In order to exercise such put option, the Other Stockholder
must, within 15 days after the giving of the notice of a proposed sale, transfer
or other disposition of the Common Stock by the Principal Stockholder referred
to in Section 7(a) hereof, deliver to the Principal Stockholder written notice
that the Other Stockholder has elected to sell, transfer or otherwise dispose of
the Other Stockholder's shares of Common Stock pursuant to this Section 8 upon
the same terms and at the same per share price as the proposed sale, transfer or
other disposition by the Principal Stockholder, whereupon such sale, transfer or
other disposition by the Other Stockholder shall be completed contemporaneously
with the proposed sale, transfer or other disposition by the Principal
Stockholder.
(c) Notwithstanding anything to the contrary contained in this
Section 8, the Principal Stockholder, or any Principal Stockholder's Affiliate,
shall have the right at any time during the term of this Agreement to transfer,
whether by sale, by gift inter vivos, by will, or by laws of descent and
distribution, or otherwise, all or any portion of the shares of Common Stock of
the Corporation then owned by it to (i) any such party's spouse, children or
grandchildren, (ii) a trust for the benefit of any such party or such party's
spouse, children or grandchildren, or (iii) a partnership the general partner of
which is the Principal Stockholder or a corporation all of whose outstanding
shares are
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owned of record and beneficially, by the Principal Stockholder (each of the
foregoing parties described in clauses (i)-(iii) above being a "Principal
Stockholder Affiliate" and being deemed to be included in the definition of the
Principal Stockholder for all purposes of this Agreement) and the provisions of
Section 8.(a) hereof shall not apply to any such transfer. Any permitted
assignee or designee of the Principal Stockholder or any Principal Stockholder
Affiliate thereof pursuant to this Section 8.(c) shall, as a condition to such
transfer, be required to execute and deliver a counterpart of this Agreement,
whereby such party agrees to be subject to and bound by all of the terms and
provisions of this Agreement to the same extent as the Stockholders party
hereto, and unless such an agreement is so executed and delivered, such transfer
shall be null and void.
(d) Notwithstanding anything to the contrary contained in this
Section 8, the rights granted to the Other Stockholder in this Section 8 shall
not apply to any transfer by the Principal Stockholder in one or more
transactions of up to a total of 5% of the shares of Common Stock held by him as
of the date hereof, as adjusted to reflect any stock dividends, splits,
contributions, recapitalizations or other similar events; provided that if the
Principal Stockholder proposes to sell or transfer other than pursuant to
Section 8(c) more than 5% of the shares of Common Stock held by him as of the
date hereof in a single transaction or series of related transactions then the
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rights granted to the Other Stockholder in Section 8 shall be applicable.
9. Drag Along. At any time prior to the time the Principal Stockholder
ceases to own less than forty (40%) percent of the issued and outstanding shares
of Common Stock of the Corporation, the Principal Stockholder may, if he elects
(the "Drag Along Election") at any time during such period to sell all of his
shares of Common Stock to a bona fide third-party purchaser not related to,
controlled by or under common control with the Principal Stockholder, cause a
sale of all of the then issued and outstanding shares of Common Stock of the
Corporation owned by the Other Stockholder to be made to such third-party
purchaser in an arm's-length transaction for cash and/or registered, freely
marketable securities. Any such sale of all of the issued and outstanding shares
of the Corporation held by the Other Stockholder must be made on the same terms
and conditions, including the price per share, upon which the Principal
Stockholder has agreed to sell all of his shares of Common Stock to the
third-party purchaser. The Principal Stockholder can trigger a Drag Along
Election by providing a written notice of such election (the "Drag Along
Notice") to the Other Stockholder, such Drag Along Notice to include the price
per share being paid to the Principal Stockholder by such third-party purchaser
and the other material terms and conditions of such sale. Upon the Other
Stockholder's receipt of a Drag Along Notice, the Other Stockholder shall fully
cooperate with the
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Principal Stockholder and shall take all actions and steps to effect such sale
as the Principal Stockholder may deem necessary, desirable or appropriate,
including, without limitation, the prompt delivery to the Principal Stockholder
of duly endorsed stock powers with respect to all of the shares of Common Stock
at such time owned by the Other Stockholder.
10. Registration Rights.
(a) As used in this Section 10, the following terms shall have the
following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Public Offering" shall mean a firm commitment underwritten public
offering of the Common Stock having aggregate minimum gross proceeds to the
Corporation of $5,000,000 (based upon the then current market price or fair
value estimated by the Corporation's underwriter or underwriters).
"Register", "registered" and "registration" shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the applicable rules and regulations promulgated thereunder,
and the declaration or ordering of the effectiveness of such registration
statement.
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"Registration Expenses" shall mean all of the costs, fees and expenses
incurred by the Corporation in compliance with this Section 10, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Corporation (but not counsel for any
Stockholder participating in the registration), blue sky fees and the expense of
any audits incident to or required by any such registration.
(b) Piggyback Registrations.
(i) Right to Piggyback. Whenever the Corporation proposes to
effectuate a Public Offering or to otherwise register any of its securities
under the Securities Act (other than a registration (A) on Form S-8 or S-4 or
any successor or similar form, (B) relating to Common Stock issuable upon
exercise of employee stock options or in connection with any employee benefit or
similar plan of the Corporation, or (C) in connection with a direct or indirect
acquisition by the Corporation of another company in a manner which would permit
registration of Common Stock for sale to the public under the Securities Act)
and the registration form to be used may be used for the registration of the
shares of Common Stock of the Corporation (a "Piggyback Registration"), the
Corporation will give prompt written notice (the "Piggyback Registration
Notice") to each Stockholder and the other stockholders of the Corporation, if
any, who may have similar piggyback registration rights of its intention to
effect such a registration and will, subject to Section 10.(b)(ii) hereof, use
its best efforts to include in such registration all
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of the shares of Common Stock with respect to which the Corporation has received
written requests from any Stockholder and such other stockholders of the
Corporation for inclusion therein within 45 days after the date of the
Corporation's Piggyback Registration Notice to the Stockholders and such other
stockholders.
(ii) Priority on Piggyback Registrations. Notwithstanding any
provision to the contrary contained herein, if a Piggyback Registration is an
underwritten primary registration on behalf of the Corporation, and the
Corporation's underwriter or underwriters advise the Corporation in writing that
the number of securities requested to be included in such registration by the
Corporation and the Stockholders and other stockholders of the Corporation
exceeds the number of securities which in the estimation of such underwriter or
underwriters can reasonably be expected to be sold in such offering, or if such
underwriter determines that the sale of shares by selling stockholders in such
offering would in any way adversely affect the offering by the Corporation, the
Corporation will include in such registration (a) first, the securities the
Corporation proposes to sell, and (b) second, if and only if additional shares
of Common Stock can be included in such registration in the estimation of the
Corporation's underwriter or underwriters, the shares of Common Stock, if any,
which were requested by the Stockholders and the other stockholders to be
included in such registration, on a pro rata basis with respect to each such
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Stockholder and other stockholders based upon its respective percentage
ownership of the aggregate number of shares of Common Stock requested to be
included in such registration by all of the stockholders of the Corporation
electing to participate in such registration. No such reduction shall reduce the
securities being offered by the Corporation for its own account to be included
in the registration and underwriting. If any Stockholder or any other
stockholder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Corporation and the Corporation's
underwriter, delivered at least 25 days prior to the effective date of the
registration statement. Any shares of Common Stock excluded or withdrawn from
such underwriting shall be withdrawn from the registration. All Stockholders and
other stockholders proposing to distribute their shares of Common Stock through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected by the Corporation for such
underwriting.
(c) Registration Expenses. In the event of a Piggyback Registration,
the Corporation shall bear all of the Registration Expenses except that each
Stockholder and each of the other stockholders of the Corporation participating
in a Piggyback Registration shall be responsible for (i) its own legal fees and
expenses in connection with such registration and (ii) its proportionate share
of all fees and commissions payable to brokers and underwriters in connection
with such registration,
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such proportionate share to be equal to a fraction the numerator of which is the
number of shares of Common Stock being so registered by such Stockholder or
other stockholder, as the case may be, and the denominator of which is the
aggregate number of shares of Common Stock being registered by the Corporation
and all of the stockholders of the Corporation (including the Stockholders)
participating in such registration.
(d) Registration Procedures. In connection with any Piggyback
Registration, the Corporation will use its best efforts to effect the
registration and the sale of the securities offered thereby and the Corporation
will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to such securities, which registration statement will
state that the Stockholders and other stockholders covered thereby may sell
their shares of Common Stock under such registration statement and use its best
efforts to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Corporation will furnish to the counsel selected by a
majority of the selling stockholders covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to
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keep such registration statement effective for the period set forth in
subparagraph (d)(vi) hereof and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period;
(iii) furnish to each stockholder participating in such
registration such number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such stockholder may reasonably request in order to facilitate the public
offering of the securities covered by such registration statement;
(iv) use its best efforts to register or qualify the shares of
Common Stock offered pursuant to such registration by the Stockholders under
such other securities or blue sky laws of such jurisdictions as any Stockholder
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable each Stockholder to consummate the
disposition in such jurisdictions of the shares of Common Stock owned by such
Stockholder (provided that the Corporation will not be required to (a) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (b) subject itself to taxation in
any such jurisdiction, or (c) consent to general service of process in any such
jurisdiction, and provided further that
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<PAGE>
notwithstanding any provision to the contrary contained herein, if any
jurisdiction in which such shares of Common Stock shall be qualified shall
require that expenses in that jurisdiction be borne by the stockholders
participating in the registration rather than the Corporation, then such
expenses shall be payable by the stockholders participating in the registration
pro rata (based upon the percentage ownership of each stockholder of shares of
Common Stock being registered with respect to all of the shares of Common Stock
being registered by all of the stockholders), to the extent required by such
jurisdiction);
(v) notify each stockholder selling shares of Common Stock, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any fact necessary to make the statements
contained therein not misleading, and, at the request of any such stockholder,
the Corporation will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading; and
(vi) keep such registration effective for a period of 90 days
or until the selling stockholders have completed the
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<PAGE>
distribution described in the registration statement relating thereto, whichever
first occurs.
(e) Indemnification.
(i) The Corporation will indemnify each Stockholder
participating in a Piggyback Registration, and each of its agents, employees,
controlling persons within the meaning of the Securities Act, officers,
directors and partners and each underwriter, if any, participating in such
registration and each person which controls any such underwriter within the
meaning of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, offering circular or other document
incident to any such registration or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements contained therein not misleading, or any violation by the
Corporation of the Securities Act or any rule or regulation thereunder
applicable to the Corporation in connection with any such registration and will
reimburse such Stockholder, each of its agents, employees, officers, directors
and partners, and each person controlling such Stockholder and each such
underwriter and each person which controls any such underwriter, for any legal
and any other expenses reasonably incurred by any such party in connection with
investigating or defending any such claim, loss, damage,
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<PAGE>
liability or action; provided, however, that the Corporation will not be liable
in any such case to the extent that any such claim, loss, damage, liability,
action or expense arises out of or is based on any untrue statement or omission
based upon written information furnished to the Corporation by such Stockholder,
or any such agent, employee, officer, director, partner or controlling person or
any underwriter or controlling person thereof and stated to be specifically for
use therein.
(ii) Each Stockholder will, if shares of Common Stock held by
it are included in the securities as to which a Piggyback Registration is being
effected, indemnify the Corporation and each of its employees, agents,
controlling persons within the meaning of the Securities Act, directors,
partners and officers and each underwriter, if any, participating in such
registration and each person which controls any such underwriter within the
meaning of the Securities Act, and each other stockholder participating in such
registration and each of their agents, employees, controlling persons within the
meaning of the Securities Act, officers, directors and partners, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document incident to such registration or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements
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<PAGE>
contained therein not misleading, or any violation by such Stockholder of the
Securities Act or any rule or regulation thereunder applicable to such
Stockholder in connection with any such registration and will reimburse the
Corporation and such other stockholders and each of their agents, employees,
directors, officers, partners, underwriters and control persons for any legal or
any other expenses reasonably incurred by any such party in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Corporation by such Stockholder or any agent, employee, officer, director,
partner or controlling person thereof and stated to be specifically for use
therein; provided, however, that the obligations of each Stockholder hereunder
are several only and not joint and the aggregate obligations of each Stockholder
hereunder shall be limited to an amount equal to the gross proceeds received by
such Stockholder from the offering of the shares of Common Stock registered by
such Stockholder.
(iii) Each party entitled to indemnification under this
Section 10.(e) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has
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<PAGE>
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 10.(e). The parties to this Agreement reserve any rights to make a claim
under this Agreement for damages actually incurred by reason of any failure of
the Indemnified Party to give prompt notice of a claim. To the extent counsel
for the Indemnifying Party shall have a conflict in representing both an
Indemnified Party and the Indemnifying Party or if an Indemnifying Party does
not assume the defense of any such claim or litigation, the Indemnified Party
shall be entitled to separate counsel at the expense of the Indemnifying Party.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the prior consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation and the
acknowledgement by the claimant or plaintiff to such Indemnified Party that
there was no wrongdoing or culpability on the part of the Indemnified Party in
respect to such claim or litigation. Each Indemnified Party
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<PAGE>
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(f) Information Provided by Stockholders. Each Stockholder holding
shares of Common Stock included in any Piggyback Registration shall furnish to
the Corporation such information regarding such Stockholder and the intended
method of disposition of its shares of Common Stock proposed by such Stockholder
as the Corporation may reasonably request in writing and as shall be reasonably
required in connection with any such Piggyback Registration. Each Stockholder
agrees to sell its securities in accordance with the terms of any underwriting
arrangements approved pursuant to Section 10.(g) hereof and shall complete and
execute all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably and customarily required under the
terms of such underwriting arrangements.
(g) Selection of Underwriters. The Corporation shall have the right,
in its sole discretion, to select the investment banker(s) and manager(s) in
connection with any Piggyback Registration (such banker(s) and manager(s) to be
a firm or firms of nationally recognized standing), to administer the offering
of any such registration of securities of the Corporation pursuant to this
Section 10.
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<PAGE>
(h) Holdback Agreements. Each Stockholder hereby agrees that it
shall not, to the extent requested by the Corporation or any underwriter of
securities of the Corporation, sell or otherwise transfer or dispose of any
shares of Common Stock for a period of up to 180 days following the effective
date of a registration statement of the Corporation filed under the Securities
Act.
(i) Delay of Registration. No Stockholder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any registration
of the securities of the Corporation as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section 10.
11. Section 11 is intentionally omitted.
12. Notices. All notices, offers and acceptances ("Notices") hereunder
shall be in writing, signed by the party giving or making the same, and shall be
delivered personally or sent by internationally recognized courier service or by
telex or facsimile transmission to each party entitled to receive the same, at
such party's last known address on the books of the Corporation, unless such
party shall have previously notified in writing the party sending such Notice of
a change of address, in which case it shall be sent to the new address. A copy
of each such Notice shall also be sent in similar fashion to the Corporation and
Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, 29th Floor, New
York, New York 10112,
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<PAGE>
Attention: Richard M. Hoffman, Esq. All Notices shall be deemed given when
delivered, sent or transmitted in accordance herewith.
13. Miscellaneous.
(a) This Agreement contains the entire understanding of the parties
hereto concerning the subject matter hereof and supersedes any and all prior
agreements made by the parties with respect thereto and may not be amended,
terminated or discharged, except by an instrument in writing, signed by the
party to be charged.
(b) The provisions of this Agreement shall apply, to the full extent
set forth herein with respect to the shares of Common Stock now or hereinafter
owned by each Stockholder, to any and all securities of the Company or any
successor or assign of the Company (whether by merger, consolidation or
otherwise) that may be issued in respect of, in exchange for, or in substitution
of such shares of Common Stock, and shall be appropriately adjusted for any
stock dividends, stock splits, reverse splits, combinations, recapitalizations
and the like occurring after the date hereof.
(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, legatees,
distributees, executors, administrators, successors and permitted assigns. This
Agreement shall be binding upon any person to whom shares of Common Stock are
transferred in violation of the provisions hereof, and the successors, assigns,
heirs, legatees, distributees, executors and
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<PAGE>
administrators of such transferee and the Corporation may refuse to permit the
transfer of such stock on its books.
(d) Each of the parties agrees to execute and deliver any and all
documents or other instruments and shall do or cause to be done all such acts or
things as may reasonably be necessary or proper to carry out the purposes of
this Agreement.
(e) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but which shall together constitute a single
instrument.
(f) The parties hereto irrevocably consent that any suit, legal
action or proceeding with respect to any of the rights or obligations arising
directly or indirectly under or relating to this Agreement may be brought in any
New York State or United States federal court located in the Borough of
Manhattan, City and State of New York, and by execution and delivery of this
Agreement each party hereby irrevocably submits to and accepts with regard to
any such suit, legal action or proceeding, for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each party irrevocably consents to the service of process in any such
suit, legal action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, return receipt requested, to it at its
address set forth herein. The foregoing shall not limit the right of any party
to serve process in any other manner permitted by law. Each party hereby
irrevocably waives any objection which it may now or hereafter
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<PAGE>
have to the laying of venue of any suit, legal action or proceeding arising
directly or indirectly under or relating to this Agreement in any court located
in the Borough of Manhattan, City and State of New York and hereby further
irrevocably waives any claim that a court located in the Borough of Manhattan,
City and State of New York is not a convenient forum for any such suit, legal
action or proceeding. Each party hereby (i) irrevocably waives any right it may
have under the laws of any jurisdiction to commence by publication any suit,
legal action or proceeding with respect to this Agreement, and (ii) irrevocably
agrees that any suit, legal action or proceeding commenced by it with respect to
any rights or obligations arising directly or indirectly under or relating to
this Agreement shall be brought exclusively in any New York State or United
States federal court located in the Borough of Manhattan, City and State of New
York.
(g) This Agreement shall be governed by the laws of the State of New
York applicable to contracts made and wholly performed within that State.
(h) All captions and headings contained in this Agreement are for
the convenience of the parties only and shall not affect the interpretation or
construction of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have signed and sealed this Agreement.
INTERNATIONAL SPORTS WAGERING INC.
By:
---------------------------
Barry Mindes, Chairman
of the Board, Chief Executive
Officer and President
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<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
Parties THIS LEASE, dated the 9th day of June, 1995
Between Eastern American Mortgage Company, Inc.
located at 201 Lower Notch Rd., Little Falls, NJ
07424, hereinafter referred to as the Landlord,
and International Sports Wagering, Inc., located
at 32 Heights Rd., Wayne, NJ 07470, hereinafter
referred to as Tenant,
WITNESSETH: That the Landlord hereby demises and
leases to the Tenant, and the Tenant hereby hires
and takes from the Landlord for the term and upon
the rentals hereinafter specified, the premises
described as follows, situated in the Township of
Little Falls County of Passaic and State of New
Jersey.
Premises Suite 2B
Second Floor
201 Lower Notch Rd.
Little Falls, New Jersey
(Schedule "A" designates floor plan and suite
location)
Term The term of this demise shall be for five (5)
years, zero (0) months, eleven (11) days,
beginning June 19, 1995, and ending June 30, 2000.
Rent The rent for the demised term shall be seventy
thousand thirty-two dollars and zero cents
($70,032.00), which shall accrue at the yearly
rate, commencing on July 1, 1995 as follows:
Year 1: $11,460.00 per year
Year 2: $12,732.00 per year
Year 3: $14,004.00 per year
Year 4: $15,276.00 per year
Year 5: $16,560.00 per year
The said rent is to be payable monthly in advance
on the first day of each calendar month for the
term hereof, in installments as follows:
Payment of Rent
Year(s) 1, Month 1-12 - $955.00 per month
Year(s) 2, Month 13-24 - $1,061.00 per month
Year(s) 3, Month 25-36 - $1,167.00 per month
Year(s) 4, Month 37-48 - $1,273.00 per month
Year(s) 5, Month 49-60 - $1,380.00 per month
at the office of Platinum Realty Group, 201 Lower
Notch Rd. Little Falls, NJ 07424, or as may be
otherwise directed by the Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING
CONDITIONS:
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
Peaceful First.-The Landlord covenants that the
Possession Tenant, on paying the said rental and performing
the covenants and conditions in this Lease
contained, shall and may peaceably and quietly
have, hold and enjoy the demised premises for the
term aforesaid.
Second.-The Tenant covenants and agrees to
use the demised premises as a(n)
Purpose Administrative Office
and agrees not to use or permit the premises
to be used for any other purpose without the prior
written consent of the Landlord endorsed hereon.
Default in Third.-The Tenant shall, without any previous
Payment of Rent demand therefor, pay to the Landlord, or its
agent, the said rent at the times and in the
manner above provided. In the event of the
** SEE RIDER non-payment of said rent, or any installment
thereof, at the times and in the manner above
provided, and if the same shall remain in default
for ten days after, or if the Tenant shall be
Abandonment of dispossessed for non-payment of rent, or if the
Premises leased premises shall be deserted or vacated, the
Landlord or its agents shall have the right to and
may enter the said premises as the agent of the
Tenant, either by force or otherwise, without
Re-entry and being liable for any prosecution or damages
Reletting by therefor, and may relet the premises as the agent
Landlord of the Tenant, and receive the rent therefor, upon
such terms as shall be satisfactory to the
Landlord, and all rights of the Tenant to
repossess the premises under this lease shall be
Tenant Liable forfeited. Such re-entry by the Landlord shall not
for Deficiency operate to release the Tenant from any rent to be
paid or covenants to be performed hereunder during
the full term of this lease. For the purpose of
reletting the Landlord shall be authorized to make
Lien of such repairs or alterations in or to the leased
Landlord to premises as may be necessary to place the same in
Secure good order and condition. The Tenant shall be
liable to the Landlord for the cost of such
repairs or alterations, and all expenses of such
Performance reletting. If the sum realized or to be realized
from the reletting is insufficient to satisfy the
monthly or term rent provided in this lease, the
Attorney's Fees Landlord, at its option, may require the Tenant to
pay such deficiency month by month, or may hold
the Tenant in advance for the entire deficiency to
be realized during the term of the reletting. The
Tenant shall not be entitled to any surplus
accruing as a result of the reletting. The
Landlord is hereby granted a lien, in addition to
any statutory lien or right to distrain that may
exist, on all personal property of the Tenant in
or upon the demised premises, to secure payment of
the rent and performance of the covenants and
conditions of this lease. The
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<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
Landlord shall have the right, as agent of
the Tenant, to take possession of any furniture,
fixtures or other personal property of the Tenant
found in or about the premises, and sell the same
at public or private sale and to apply the
proceeds thereof to the payment of any monies
becoming due under this lease, the Tenant hereby
waiving the benefit of all laws exempting property
from execution, levy and sale on distress or
judgement. The Tenant agrees to pay, as additional
rent, all attorney's fees and other expenses
incurred by the Landlord in enforcing any of the
obligations under this lease.
Sub-letting and Fourth.-The Tenant shall not sub-let the
Assignment demised premises nor any portion thereof, nor
shall this lease be assigned by the Tenant without
the prior written consent of the Landlord endorsed
hereon.
** SEE RIDER Fifth.-The Tenant has examined the demised
premises, and accepts them in their present
condition (except as otherwise expressly provided
Condition of herein) and without any representations on the
Premises part of the Landlord or its agents as to the
present or future condition of the said premises.
The Tenant shall keep the demised premises good
Repairs condition. The Tenant shall quit and surrender the
premises at the end of the demised term in as good
condition as the reasonable use thereof will
Alterations and permit. The Tenant shall not make any alterations,
Improvements additions, or improvements to said premises
without the prior written consent of the Landlord.
All erections, alterations, additions and
Sanitation, improvements, permanent in character, which may be
Inflammable made upon the premises either by the Landlord or
Materials the Tenant except furniture or moveable trade
fixtures installed at the expense of the Tenant,
shall be the property of the Landlord and shall
Sidewalks remain upon and be surrendered with the premises
as a part thereof at the termination of this
Lease, without compensation to the Tenant. The
** SEE RIDER Tenant further agrees to keep said premises and
all parts thereof in a clean and sanitary
condition and free from trash, inflammable
material and other objectionable matter. If this
lease covers premises, all or a part of which are
on the ground floor, further agrees to keep the
sidewalks in front of such ground floor portion of
the demised premises clean and free of
obstructions, snow and ice.
Mechanics' Sixth.-In the event that any mechanics' lien
Liens is filed against the premises as a result of
alterations, additions or improvements made by the
Tenant, the Landlord, at its option, after thirty
days' notice to Tenant, may terminate this lease
and may pay the said lien, without inquiring into
the validity thereof, and the Tenant shall
forthwith reimburse the Landlord the
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<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
total expense
incurred by the Landlord in discharging the said
lien, as additional rent hereunder.
Glass Seventh.-The Tenant agrees to replace at the
Tenant's expense any and all glass which may
become broken in and on the demised premises.
Plate glass and mirrors, if any, shall be insured
by the Tenant at their full insurable value in a
company satisfactory to the Landlord. Said policy
shall be of the full premium type, and shall be
deposited with the Landlord or its agent.
Liability of Eighth.-The Landlord shall not be responsible
Landlord for the loss of or damage to the property, or
injury to persons, occurring in or about the
** SEE RIDER demised premises, by reason of any existing or
future condition, defect, matter or thing in said
demised premises or the property of which the
premises are' a part, or for the acts, omissions
or negligence of other persons or tenants in and
about the said property. The Tenant agrees to
indemnify and save the Landlord harmless from all
claims and liability for losses of or damage to
property, or injuries to persons occurring in or
about the demised premises.
Services and Ninth.-Utilities and services furnished to
Utilities the demised premises for the benefit of the Tenant
shall be provided and paid for as follows: water
by the Landlord; gas by the Landlord; electricity
by the Landlord; heat by the Landlord; air
refrigeration by the Landlord; hot water by the
Landlord.
** SEE RIDER The Landlord shall not be liable for any
interruption or delay in any of the above services
for any reason.
Right to Tenth.-The Landlord, or its agents, shall
Inspect and have the right to enter the demised premises at
Exhibit reasonable hours in the day or night to examine
the same, or to run telephone or other wires, or
to make such repairs, additions or alterations as
it shall deem necessary for the safety,
preservation or restoration of the improvements,
or for the safety or convenience of the occupants
** SEE RIDER or users thereof (there being no obligation,
however, on the part of the Landlord to make any
such repairs, additions, or alterations), or to
exhibit the same to prospective purchasers and put
upon the premises a suitable "For Sale" sign. For
three months prior to the expiration of the
demised term, the Landlord, or its agents, may
similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs
thereon.
Damage by Fire, Eleventh.-In the event of the destruction of
Explosion, The the demised premises or the building containing
Elements or the said premises by fire, explosion, the elements
Otherwise or otherwise during the term hereby created, or
previous
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<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
thereto, or such partial destruction thereof
** SEE RIDER as to render the premises wholly untenantable or
unfit for occupancy, or should the demised
premises be so badly injured that the same cannot
be repaired within ninety days from the happening
of such injury, then and in such case the term
hereby created shall, at the option of the
Landlord, cease and become null and void from the
date of such damage or destruction, and the Tenant
shall immediately surrender said premises and all
the Tenant's interest therein to the Landlord, and
shall pay rent only to the, time of such
surrender, in which event the Landlord may
re-enter and re-possess the premises thus
discharged from this lease and may remove all
parties therefrom. Should the demised premises be
rendered untenantable and unfit for occupancy, but
yet be repairable within days from the happening
of said injury, the Landlord may enter and repair
the same with reasonable speed, and the rent shall
not accrue after said injury or while repairs are
being made, but shall recommence immediately after
said repairs shall be completed. But if the
premises shall be so slightly injured as not to be
rendered untenantable and unfit for occupancy,
then the Landlord agrees to repair the same with
reasonable promptness and in that case the rent
accrued and accruing shall not cease or determine.
The Tenant shall immediately notify the Landlord
in case of fire or other damage to the premises.
Observation of Twelfth.-The Tenant agrees to observe and
Laws, comply with all laws, ordinances, rules and
Ordinances, regulations of the Federal, State, County and
Rules and Municipal authorities applicable to the business
Regulations to be conducted by the Tenant in the demises
premises. The Tenant agrees not to do or permit
anything to be done in said premises, or keep
anything therein, which will increase the rate of
fire insurance premiums on the improvements or any
part thereof, or on the property kept therein, or
which will obstruct or interfere with the rights
of other tenants or conflict with the regulations
of the Fire Department or with any insurance
policy.
Signs Thirteenth.-No sign, advertisement or notice
shall be affixed to or placed upon any part of the
demised premises by the Tenant, except in such
manner, and of such size, design and color as
shall be approved in advance in writing by the
Landlord.
Subordination Fourteenth.-This lease is subject and is
to Mortgages hereby subordinated to all present and future
and Deeds of mortgages, deeds of trust and other encumbrances
Trust affecting the demised premises or the property of
which said premises are a part. The Tenant agrees
to execute, at no expense to the Landlord, any
instrument which may be deemed necessary or
desirable by the Landlord to further effect the
subordination
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<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
of this lease to any such mortgage, deed of
trust or encumbrance.
Sale of Fifteenth.-In the event of the sale by the
Premises Landlord of the demised premises, or the property
of which said premises are a part, the Landlord or
** SEE RIDER the purchaser may terminate this lease.
Rules and Sixteenth.-The rules and regulations
Regulations of regarding the demised premises, affixed to this
Landlord lease, if any, as well as any other and further
reasonable rules and regulations which shall be
made by the Landlord, shall be observed by the
Tenant and by the Tenant's employees, agents and
customers. The Landlord reserves the right to
rescind any presently existing rules applicable to
the demised premises, and to make such other and
further reasonable rules and regulations as, in
its judgement, may from time to time be desirable
for the safety, care and cleanliness of the
premises, and for the preservation of good order
therein, which rules, when so made and notice
thereof given to Tenant, shall have the same force
and effect if originally made a part of this
lease. Such other and further rules shall not,
however, be inconsistent with the proper and
rightful enjoyment by Tenant of the demised
premises.
Violation of Seventeenth.-In case of violation by the
Covenants, Tenant of any of the covenants, agreements and
Forfeiture of conditions of this lease, or of the rules and
Lease, Re-entry regulations now or hereafter to be reasonably
by Landlord established by the Landlord, and upon failure to
discontinue such violation within ten days after
notice thereof given to the Tenant, this lease
shall thenceforth, at the option of the Landlord,
become null and void, and the Landlord may
re-enter without further notice or demand. The
Non-waiver of rent in such case shall become due, be apportioned
Breach and paid on and up to the day of such re-entry,
and the Tenant shall be liable for all loss or
damage resulting from such violation as aforesaid.
No waiver by the Landlord of any violation or
breach of condition by the Tenant shall constitute
or be construed as a waiver by the Landlord of any
violation or breach of condition, nor shall lapse
of time after breach of condition by the Tenant
before the Landlord shall exercise its option
under this paragraph operate to defeat the right
of the Landlord to declare this lease null and
void and to re-enter upon the demised premise
after the said breach or violation.
Notices Eighteenth.-All notices and demands, legal or
otherwise, incidental to this lease, or the
occupation the demised premises, shall be in
writing. If the Landlord or its agent desires to
give or serve upon the Tenant any notice or
demand, it shall be sufficient to send a copy
thereof by registered mail, addressed to the
Tenant at the demised
-6-
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
premises, or to leave a copy
thereof with a person of suitable age found on the
premises, or to post a copy thereof upon the door
to said premises. Notices from the Tenant to the
Landlord shall be sent by registered mail or
delivered to the Landlord at the place
hereinbefore designated for the payment of rent,
or to such party or place as the Landlord may from
time to time designate in writing.
Bankruptcy, Nineteenth.-It is further agreed that if at
Insolvency, any time during the term of this lease the Tenant
Assignment for shall make any assignment for the benefit of
Benefit of creditors, or be decreed insolvent or bankrupt
Creditors according to law, or if a receiver shall be
appointed for the Tenant, then the Landlord may at
its option, terminate this lease, exercise of such
option to be evidenced by notice to that effect
served upon the assignee, receiver, trustee or
other person in charge of the liquidation of the
property of the Tenant or the Tenant's estate, but
such termination shall not release or discharge
any payment of rent payable hereunder and then
accrued, or any liability then accrued by reason
of any agreement or covenant herein contained on
the part of the Tenant, or the Tenant's legal
representatives.
Holding Over by Twentieth.-In the event that the Tenant shall
Tenant remain in the demised premises after the
expiration of the term of this lease without
having executed a new written lease with the
Landlord, such holding over shall not constitute a
renewal or extension of this lease. The Landlord
may, at its option, elect to Treat the Tenant as
one who has not removed at the end of his term,
and thereupon be entitled to all of the remedies
against the Tenant provided by law in that
situation, or the Landlord may elect, at its
option, to construe such holding over as a tenancy
from month to month, subject to all the terms
conditions of this lease, except as to duration
thereof, and in that event the Tenant shall pay
monthly rent in advance at the rate provided
herein as effective during the last month of the
demised term.
Eminent Domain, Twenty-First.-If the property or any part
Condemnation thereof wherein the demised premises are located
shall be taken by public or quasi-public authority
under any power of eminent domain or condemnation,
this lease, at the option of the Landlord, shall
forthwith terminate and the Tenant shall have no
claim or interest in or to any award of damages
for such taking.
Security Twenty-second.-The Tenant has this day
deposited with the Landlord the sum of $1,380.00
as security for the full and faithful performance
by the Tenant of all the terms, covenants and
conditions of this lease upon the Tenant's part to
be performed, which
-7-
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
said sum shall be returned to the Tenant
after the time fixed as the expiration of the term
herein, provided the Tenant has fully and
faithfully carried out all of said terms,
covenants and conditions on Tenant's part to be
performed. In the event of a bona fide sale,
subject to this lease, the Landlord shall have the
right to transfer the security to the vendee for
the benefit of the Tenant and the Landlord shall
be considered released by the Tenant from all
liability for the return of such security; and the
Tenant agrees to look to the new Landlord solely
for the return of the said security, and it is
agreed that this shall apply to every transfer or
assignment made of the security to a new Landlord.
The security deposited under this lease shall not
be mortgaged, assigned or encumbered by the Tenant
without the written consent of the Landlord.
Arbitration Twenty-third.-Any dispute arising under this
lease shall be settled by arbitration. Then
Landlord and Tenant shall each choose an
arbitrator, and the two arbitrators thus chosen
shall select a third arbitrator. The findings and
award of the three arbitrators thus chosen shall
be final and binding on the Parties hereto.
Delivery of Twenty-fourth.-No rights are to be conferred
Lease upon the Tenant until this lease has been signed
by the Landlord, and an executed copy of the lease
has been delivered to the Tenant.
Lease Twenty-fifth.-The foregoing rights and
Provisions Not remedies are not intended to be exclusive but as
Exclusive additional to all rights and remedies the Landlord
would otherwise have by law.
Lease Binding Twenty-sixth.-All of the terms, covenants and
on Heirs, conditions of this lease shall inure to the
Successors, benefit of and be binding upon the respective
Etc. heirs, executors, administrators, successors and
assigns of the parties hereto. However, in the
event of the death of the Tenant, if an
individual, the Landlord may, at its option,
terminate this lease by notifying the executor or
administrator of the Tenant at the demised
premises.
Twenty-seventh.-This lease and the obligation
of Tenant to pay rent hereunder and perform all of
the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be
affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any
service expressly or impliedly to be supplied or
is unable to make, or is delayed in making any
repairs, additions, alterations or decorations or
is unable to supply or is delayed in supplying any
equipment or fixtures if Landlord is prevented or
delay from so doing by reason of governmental
-8-
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
preemption in connection with the National
** SEE RIDER Emergency declared by the President of the United
States or in connection with any rule, order or
regulation of any department or subdivision
thereof of any governmental agency or by reason of
the conditions of supply and demand which have
been or are affected by the war.
Twenty-eighth.-This instrument may not be
changed orally.
IN WITNESS WHEREOF, the said parties have
hereto set their hands and seals the day and year
first written above.
Witness: Eastern American Mortgage Company (SEAL)
--------------------------------
Landlord
By /s/
- --------------------------------- ------------------------------------
International Sports Wagering Inc.
- --------------------------------- ---------------------------------------
Tenant
By /s/ Barry Mindes
------------------------------------
Barry Mindes, President
-9-
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
GUARANTY
In consideration of the execution of the within lease by the Landlord, at
the request of the undersigned and in reliance of this guaranty, the undersigned
hereby guarantees unto the Landlord, its successors and assigns, the prompt
payment of all rent and the performance of all of the terms, covenants and
conditions provided in said lease, hereby waiving all notice of default, and
consenting to any extensions of time or changes in the manner of payment or
performance of any of the terms and conditions of the said lease the Landlord
may grant to the Tenant, and further consenting to the assignment and the
successive assignments of the said lease, and any modifications thereof,
including the sub-letting and changing of the use of the demised premises, all
without notice to the undersigned. The undersigned agrees to pay the Landlord
all expenses incurred in enforcing the obligations of the Tenant under the
within lease and in enforcing this guaranty.
Witness: INTERNATIONAL SPORTS WAGERING,
INC.
By /s/ Barry Mindes (SEAL)
- --------------------------------- -----------------------------
Barry Mindes, President
(SEAL)
- --------------------------------- -------------------------------
Date:
---------------------------
-10-
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
ASSIGNMENT AND ACCEPTANCE OF ASSIGNMENT
For value received the undersigned Tenant hereby assigns all of said
Tenant's right, title and interest in and to the within lease from and after
____________ ___, 19__ unto ________________________________________________
_______________________________________________________________________________
heirs, successors, and assigns, the demised premises to be used and occupied for
_______________________________________________________________________________
and for no other purpose, it being expressly agreed that this assignment shall
not in any manner relieve the undersigned assignor from liability upon any of
the covenants of this lease:
Witness:
(SEAL)
- --------------------------------- -------------------------------
(SEAL)
- --------------------------------- -------------------------------
Date:
---------------------------
In consideration of the above assignment and the written consent of
the Landlord thereto, the undersigned assignee,
______________________________________________________________________________
hereby assumes and agrees from and after ______ __, 19__ to make all payments
and to perform all covenants and conditions provided in the within lease by the
Tenant therein to be made and performed.
Witness:
(SEAL)
- --------------------------------- -------------------------------
(SEAL)
- --------------------------------- -------------------------------
Date:
----------------------------
-11-
<PAGE>
LEASE - Eastern American Mortgage Company, Inc. (Landlord)
to International Sports Wagering, Inc. (Tenant)
CONSENT TO ASSIGNMENT
The undersigned Landlord hereby consents to the assignment
of the within lease to _________________________________________________________
_______________________________________________________________________________
on the express conditions that the original Tenant ____________________________
________________________________________________________________________________
the assignor, herein, shall remain liable for the prompt payment of the rent and
the performance of the covenants provided in the said lease by the Tenant to be
made and performed, and that no further assignment of said lease or sub-letting
of any part of the premises thereby demised shall be made without the prior
written consent of the undersigned Landlord.
------------------------------------------
Landlord
Date: By:
---------------------- --------------------------------------
-12-
<PAGE>
FIRST RIDER TO LEASE DATED JUNE 9, 1995
BETWEEN
EASTERN AMERICAN MORTGAGE COMPANY, INC. (LANDLORD)
AND
INTERNATIONAL SPORTS WAGERING, INC. (TENANT)
DATED: June 9, 1995
REVISIONS TO PARAGRAPHS CONTAINED IN THE LEASE AGREEMENT
Third.INSERT- ..."default for ten days after Landlord shall notice Tenant
of same, or if"...
Fourth.INSERT- ..."which consent shall not be unreasonably withheld."
Fifth.INSERT- ..."ground floor, the Landlord further agrees"...
Eighth.INSERT- ..."the said property, other than Landlord, its Agents and
representatives. The Tenant"...
Ninth.INSERT- ..."for any reason. However, Landlord shall use best efforts
towards the restoration of said utilities and services."...
Tenth.INSERT- ..."signs thereon. Landlord shall not unreasonably interfere
with Tenants business activities."
Eleventh.INSERT- ..."at the option of Landlord or Tenant, cease and become
null"...
INSERT- ..."repairable within thirty days from the happening of said
injury, or if comparable space in the building can be provided to accommodate
Tenant during the repair period, the Landlord may enter" ...
Fifteenth.INSERT- ..."terminate this lease upon ninety days prior written
notice throughout the term or any extensions of this lease."
Seventeenth.INSERT- ..."violation by Tenant of any of the material
covenants, agreements .... or of the material rules and"...
Twenty-seventh.INSERT- ..."affected by the war. However,
Landlord shall utilize best efforts to correct said delay."
ADDITIONS TO PARAGRAPHS CONTAINED IN THE LEASE AGREEMENT
Twenty-ninth.-There will be a twenty-five dollar ($25.00) charge assessed
to Tenant each time that any check submitted by Tenant to Landlord is returned
for insufficient funds by Landlord's bank. There will be a late payment charge
assessed to Tenant in the amount of twenty-five dollars ($25.00) for the first
late rent payment, which payment shall be considered late if received by
Landlord later than ten (10) days from said due date. Thereafter, a late payment
charge will be assessed to Tenant in the amount of thirty-five dollars ($35.00)
or five percent (5%) of the amount due, whichever is greater, for the second or
any subsequent late rent payment, or for the late payment of any other monies
due to Landlord by Tenant, which payment shall be considered late if received by
Landlord later than five (5) days from said due date. All charges assessed to
Tenant for returned checks or late payments shall be considered additional rent.
Thirtieth.-This lease is a gross lease. However, Tenant hereby agrees to
pay as additional rent, its proportionate share of direct and indirect expenses
associated with the periodic and day to day
-13-
<PAGE>
operation of the building(s), land and all improvements associated with the
demised premises (hereinafter, "Complex Charges"), for the benefit of Tenant and
other building occupants, only to the extent that said Complex Charges increase
by greater than five percent (5%) in any year completed, when averaged over all
then completed years of the lease, e.g., at the end of the third year the
increase would have to be 15% (fifteen percent) for an increase to apply, over
the base year (1995) amount of $5.75 per gross square foot of building area, and
with a cap on such additional rent of one dollar ($1.00) per square foot
annually. Complex Charges shall include real estate taxes, insurance expenses,
common area maintenance/repair expenses (hereinafter, "C.A.M. expenses"), and an
administrative fee of fifteen percent (15%) of the aforementioned C.A.M.
expenses. Landlord shall have the option of billing Tenant monthly for those
expenditures made on behalf of Complex Charges as they become due or are
procured by Landlord, or establishing an annual budget of anticipated Complex
Charges, which budget may be adjusted quarterly, and billed monthly, with any
surpluses being credited on account of Tenant at the end of said budget period,
or deficiencies being considered as additional rent and shall be due at the end
of said budget period. For the purpose of this lease, Tenant's proportionate
share of all Complex Charges shall be 11.58%. Whenever "proportionate share",
"pro-rata share" or "percentage of occupancy" of Complex Charges are referred to
in this lease, it is hereby agreed that 11.58% shall be used.
Real estate taxes shall include all property taxes and Municipal or other
governmental utility charges (ie. water, sewer) assessments of the land and all
improvements associated with the use of the demised premises.
Insurance expenses shall include all fire, liability, boiler (mechanical), and
other insurance premiums and deductibles deemed reasonable and necessary by
Landlord.
C.A.M. expenses shall include all expenses deemed reasonable and necessary by
Landlord, to provide suitable use and occupancy conditions for the Tenant and
other building occupants, to maintain or repair, and provide adequate utility
and other essential services to, the building(s), land and all improvements
associated with the demised premises, including but not limited to landscaping,
snow and ice removal, garbage container service and removal, parking lot patch
paving and line striping, janitorial service, plumbing and mechanical equipment,
and any nonstructural building component. Specifically excluded from C.A.M.
charges are the total replacement of the roof, parking lot or retaining wall.
Landlord shall have the right to separate, at Landlord's expense, any or all
utility service or mechanical equipment in such a way, that said service and/or
equipment might service only the common areas or specific suites within the
building, and require Tenant, at Landlord's option, to pay its pro-rata share of
Complex Charges associated with the common use of said service and/or equipment,
and become individually responsible for those services and/or equipment which
are exclusive to the demised premises.
Thirty-first.-In the event that Tenant sub-leases or assigns this lease,
subject to Landlord's rights as contained in the fourth paragraph of this lease,
to any individual, partnership or corporation, it is agreed that Landlord shall
receive not less than one hundred percent (100%) of any additional rent or
consideration paid on behalf of the assignment of this lease, by or on behalf of
said assignee, or any subsequent assignee.
Thirty-second.-The procedure for arbitration as contained in the
twenty-third paragraph of this lease shall be limited to disputes having
monetary value of ten thousand dollars ($10,000.00) or less, and disputes having
no monetary value whatsoever.
-14-
<PAGE>
Thirty-third.-Tenant shall be permitted to change the "Eastern American
Mortgage" sign located on the exterior of the west side of the building at
Tenant's expense, to a sign of same dimensions and character as said sign,
subject to Landlord's approval which shall not unreasonably be withheld.
Thirty-fourth.-Any improvements that Tenant may require subsequent to the
initial full execution date of the within Lease, shall be subject to Landlord's
approval, at Landlord's sole and exclusive option. Said improvements shall be
made at Tenant's sole and exclusive expense.
Thirty-fifth.-The effective date of the term of this lease shall be June
19, 1995. However, any delay in the commencement of the term of this lease shall
in no way extend the termination date of this lease.
Thirty-sixth.-Upon the passing of the ninth month of the term of this
lease, Tenant shall have the right of early termination of said lease, subject
to there being no default of the subject lease by Tenant and upon Tenant
providing Landlord with at least ninety days prior notice of said early
termination.
IN WITNESS WHEREOF, the said parties have hereto set their hands and seals the
day and year first written above.
Witness: (SEAL)
--------------------------------
Landlord
By
- --------------------------------- -------------------------------------
(SEAL)
- --------------------------------- --------------------------------
Tenant
-15-
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1995 STOCK OPTION PLAN
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1995 STOCK OPTION PLAN
Table of Contents
Page
----
1. Purpose of the Plan.................................................... 1
2. Stock Subject to the Plan.............................................. 1
3. Administration of the Plan............................................. 1
4. Type of Option......................................................... 2
5. Eligibility............................................................ 2
6. Restrictions on Options................................................ 2
7. Option Agreement....................................................... 3
8. Option Price........................................................... 3
9. Manner of Payment; Manner of Exercise.................................. 4
10. Exercise of Options.................................................... 5
11. Term of Options; Exercisability........................................ 5
12. Options Not Transferable............................................... 6
<PAGE>
13. Recapitalization, Reorganizations and the Like......................... 6
14. No Special Employment Rights........................................... 7
15. Withholding............................................................ 7
16. Restrictions on Exercise of Options and Issuance of Shares............. 8
17. Purchase for Investment; Rights of Holder on Subsequent Registration... 8
18. Loans.................................................................. 9
19. Modification of Outstanding Options.................................... 9
20. Approval of Board and Stockholders..................................... 9
21. Termination and Amendment of Plan...................................... 9
22. Duties of the Company.................................................. 10
23. Limitation of Rights in the Option Shares.............................. 10
24. Governing Law.......................................................... 10
25. Notices................................................................ 10
26. Headings............................................................... 10
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1995 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the International Sports Wagering Inc. 1995 Stock Option
Plan (the "Plan") is to advance the interests of International Sports Wagering
Inc., a Delaware corporation (the "Company"), by providing an opportunity for
ownership of the stock of the Company by employees, agents and directors of, and
consultants to, the Company or of any subsidiary corporation (herein called
"subsidiary" or "subsidiaries"), as defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury regulations
promulgated thereunder (the "Regulations"). Such employees, agents and directors
of, and consultants to, the Company or any subsidiary are hereinafter referred
to individually as an "Eligible Person" and collectively as "Eligible Persons".
By providing an opportunity for such stock ownership, the Company seeks to
attract and retain qualified personnel, and otherwise to provide additional
incentive for optionees to promote the success of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or treasury
shares of the common stock, having no par value per share, of the Company (the
"Common Stock") for which options may be granted under the Plan (the "Options")
shall be 215,000, subject to adjustment as provided in Section 13 hereof.
(b) If an Option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent Option grants under the
Plan.
(c) Common Stock issuable upon exercise of an Option may be subject to
such restrictions on transfer, repurchase rights or other conditions or
restrictions as shall be determined by the Board of Directors of the Company
(the "Board").
3. Administration of the Plan.
(a) The Plan shall be administered by the Board. No member of the Board
shall act upon any matter affecting any Option granted or to be granted to
himself or herself under the Plan; provided, however, that nothing contained
herein shall be deemed to prohibit a member of the Board from acting upon any
matter generally affecting the Plan or any Options granted thereunder. A
majority of the members of the Board shall constitute a quorum, and any action
may be taken by a majority of those present and voting at any meeting. The
decision of the Board as to all questions of interpretation and application of
the Plan shall be final, binding and conclusive on all persons. The Board, in
its sole discretion, may grant Options to purchase shares of the Common Stock
only as provided in the Plan, and shares shall be issued upon exercise of such
Options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to determine the Eligible Persons who shall be
issued Options, the times when Options shall be granted and within which they
may be exercised, the prices at which Options shall be exercised, the number of
shares of Common Stock to be subject to each Option and whether an Option shall
be treated as an incentive stock option or a non-qualified stock option. The
Board shall also have the authority, subject to the express provisions of the
Plan, to amend the Plan, to determine the terms and provisions of the respective
option
1
<PAGE>
agreements, which may but need not be identical, to construe the respective
option agreements and the Plan, and to make all other determinations in the
judgment of the Board necessary or desirable for the administration of the Plan.
Notwithstanding the foregoing, the maximum aggregate number of Options that may
be granted to any Eligible Person during any one year period shall not exceed
75,000. The Board may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to implement the Plan and shall be the sole and
final judge of such expediency. The Board, in its discretion, may delegate its
power, duties and responsibilities to a committee, consisting of two or more
members of the Board, all of whom are "disinterested persons" (as hereinafter
defined). If a committee is so appointed, all references to the Board herein
shall mean and relate to such committee. For the purposes of the Plan, a
director or member of such committee shall be deemed to be a "disinterested
person" only if such person qualified as a "disinterested person" within the
meaning of paragraph (c)(2) of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as such term is
interpreted from time to time.
4. Type of Option.
Options granted pursuant to the Plan shall be authorized by action of the
Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Code or non-qualified stock options which are
not intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Board. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified stock options
automatically without further action by the Board on the date of such failure to
continue to meet the requirements of Section 422 of the Code.
5. Eligibility.
Options designated as incentive stock options may be granted only to
Eligible Persons who are officers or employees of the Company or of any
subsidiary. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified stock options may be granted to
any Eligible Person.
The Board shall take into account such factors as it may deem relevant in
determining the number of shares of Common Stock to be included in an Option to
be granted to any Eligible Person.
6. Restrictions on Options.
Incentive stock options (but not non-qualified stock options) granted
under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of the
shares of Common Stock with respect to which incentive stock options are
granted (determined as of the date the incentive stock options are
granted), exercisable for the first time by an individual during any
calendar year shall not exceed $100,000. If an incentive stock option is
granted pursuant to which the aggregate fair market value of shares with
respect to which it first becomes exercisable in any calendar year by an
individual exceeds such $100,000 limitation, the portion of such option
which is in excess of the $100,000 limitation shall be treated as a
non-qualified stock option pursuant to Section 422(d)(1) of the Code. In
determining the fair market value under this clause (a), the provisions of
Section 8 hereof shall apply.
2
<PAGE>
In the event that an individual is eligible to participate in any other
stock option plan of the Company or any subsidiary of the Company which is
also intended to comply with the provisions of Section 422 of the Code,
such $100,000 limitation shall apply to the aggregate number of shares for
which incentive stock options may be granted under this Plan and all such
other plans.
(b) Ten Percent Stockholder. If any Eligible Person to whom an incentive
stock option is granted pursuant to the provisions of the Plan is on the
date of grant the owner of stock (as determined under Section 424(d) of
the Code) possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any subsidiary of the Company, then
the following special provisions shall be applicable to the incentive
stock options granted to such individual:
(i) The Option price per share subject to such Options shall be not less
than 110% of the fair market value of the shares of Common Stock
with respect to which Options are granted (determined as of the date
such Option was granted). In determining the fair market value under
this clause (i), the provisions of Section 8 hereof shall apply.
(ii) The Option by its terms shall not be exercisable after the
expiration of five years from the date such Option is granted.
7. Option Agreement; Disqualifying Dispositions.
(a) Each Option shall be evidenced by an option agreement, in a form
approved from time to time by the Board (the "Agreement"), duly executed on
behalf of the Company and by the optionee to whom such Option is granted, which
Agreement shall comply with and be subject to the terms and conditions of the
Plan. The Agreement may contain such other terms, provisions and conditions
which are not inconsistent with the Plan as may be determined by the Board;
provided that Options designated as incentive stock options shall meet all of
the conditions for incentive stock options as defined in Section 422 of the
Code. No Option shall be granted within the meaning of the Plan and no purported
grant of any Option shall be effective until the Agreement shall have been duly
executed on behalf of the Company and the optionee.
(b) If an optionee makes a "disposition" (within the meaning of Section
424(c) of the Code) of shares of Common Stock issued upon exercise of an
incentive stock option within two years from the date of grant or within one
year from the date the shares of Common Stock are transferred to the optionee,
the optionee shall, within ten days of disposition, notify the Board and deliver
to it any withholding and employment taxes due. However, if the optionee is a
person subject to Section 16(b) of the Exchange Act, delivery of any withholding
and employment taxes due may be deferred until ten days after the date any
income on the disposition is recognized under Section 83 of the Code. The
Company may cause a legend to be affixed to certificates representing shares of
Common Stock issued upon exercise of incentive stock options to ensure that the
Board receives notice of disqualifying dispositions.
8. Option Price.
(a) The Option price or prices of shares of the Common Stock for Options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the Option
price or prices of shares of the Company's Common Stock designated as incentive
stock options shall be at least the fair market value of
3
<PAGE>
such Common Stock on the date the Option is granted as determined by the Board
in accordance with the Regulations promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of the grant of the Option or,
if there are no such sales on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the date of grant in accordance
with Section 25.2512-2 of the Regulations. If the shares are not then listed on
any such exchange, the fair market value of such shares shall be the mean
between the closing "Bid" and the closing "Ask" prices, if any, as reported in
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") for the date of the grant of the Option, or, if there are no such
prices on such date, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Section 25.2512-2 of
the Regulations. If the shares are not then either listed on any such exchange
or quoted in NASDAQ, the fair market value shall be the mean between the average
of the "Bid" and "Ask" prices, if any, as reported in the National Association
of Securities Dealers National Daily Quotation Service for the date of the grant
of the Option, or, if there are no such prices on such date, shall be determined
by taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant
in accordance with Section 25.2512-2 of the Regulations. If the fair market
value cannot be determined under the preceding three sentences, it shall be
determined in good faith by the Board in accordance with Section 422 of the
Code.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such Options, (ii) shares of
Common Stock owned by the optionee having a fair market value (at the date of
exercise) equal in amount to the exercise price of the Options being exercised,
or (iii) any combination of (i) and (ii). The fair market value of any shares of
Common Stock which may be delivered upon exercise of an Option shall be
determined by the Board in accordance with Section 8 hereof.
(b) To the extent that an Option is exercisable, Options may be exercised
in full at one time or in part from time to time, by giving written notice,
signed by the person or persons exercising the Option, to the Company, stating
the number of shares with respect to which the Option is being exercised,
accompanied by payment in full for such shares as provided in Section 9(a)
hereof. No exercise of an Option may be made for fewer than 100 full shares of
Common Stock unless such exercise is made for the entire fractional amount of a
share remaining to be purchased pursuant to such Option. Upon such exercise,
delivery of a certificate for paid-up, non-assessable shares shall be made by
the Company to the person or persons exercising the Option within 20 business
days after receipt of such notice by the Company.
10. Exercise of Options.
Each Option granted under the Plan shall, subject to Sections 11(b), 13
and 16 hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement; provided, however, that except as otherwise
provided pursuant to the provisions of Section 6(b) hereof, no Option granted
under the Plan shall have a term in excess of ten years from the date of grant.
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11. Term of Options; Exercisability.
(a) Term.
(i) Each Option shall expire on a date determined by the Board which is
not more than ten years from the date of the granting thereof,
except (a) as otherwise provided pursuant to the provisions of
Section 6(b) hereof, and (b) for earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 11, an Option granted
to any optionee who ceases to be an Eligible Person for any reason
shall terminate on the earlier of (i) three (3) months after the
date such optionee ceased to be an Eligible Person, or (ii) the date
on which the Option expires by its terms.
(iii) If an optionee ceases to be an Eligible Person because the Company
has terminated his or her status with the Company for cause (as such
term is defined in any employment or similar agreement between such
optionee and the Company or, if there is no such agreement, or such
agreement does not contain provisions relating to termination or
removal for cause, as such term is defined by the law of the State
of New York), such Option will, to the extent not terminated, be
deemed to have terminated on the date immediately preceding the date
the optionee ceased to be an Eligible Person.
(iv) If an optionee ceases to be an Eligible Person because the optionee
has become disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the earlier of (i) one year
after the date such optionee ceased to be an Eligible Person, or
(ii) the date on which the Option expires by its terms.
(v) In the event of the death of any optionee, such Option shall
terminate on the earlier of (i) one year after the date of death, or
(ii) the date on which the Option expires by its terms.
(b) Exercisability.
(i) Except as otherwise provided in this Section 11(b), an Option
granted to an optionee who thereafter ceases to be an Eligible
Person shall be exercisable only to the extent that the right to
purchase shares under such Option is exercisable on the date such
optionee ceased to be an Eligible Person.
(ii) An Option granted to an optionee who ceases to be an Eligible Person
because he or she has become disabled (as such term is defined in
any employment or similar agreement between such optionee and the
Company or, if there is no such agreement, or such agreement does
not contain provisions relating to termination or removal for
disability, as determined by the Board) shall be immediately
exercisable as to the full number of shares covered by such Option,
whether or not under the provisions of the Plan or Agreement such
Option was otherwise exercisable as of the date of disability.
(iii) In the event of the death of an optionee, the Option granted to such
optionee may be exercised as to the full number of shares covered by
such Option, whether or not under the provisions of the Plan or
Agreement the optionee was otherwise exercisable at the date of his
or her death, by the executor, administrator or personal
representative of such optionee, or by any person or persons who
acquired the right to exercise such Option by bequest or inheritance
or by reason of the death of such optionee.
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(iv) In addition to the acceleration of the exercisability of Options
pursuant to this Section 11(b) and Section 13(b)(ii) hereof, the
Board shall have the right, in the exercise of its discretion and
for any reason, and with the consent of the optionee, to accelerate
the date on which Options shall be exercisable.
12. Options Not Transferable.
The right of any optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such optionee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such optionee only by him or her. Any Option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, upon such Option.
13. Recapitalization, Reorganizations and the Like.
(a) In the event that the outstanding shares of the Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any reorganization, recapitalization,
reclassification, stock split, combination of shares, or dividends payable in
capital stock, appropriate and equitable adjustment shall be made by the Board,
in its sole discretion, in the number and kind of shares as to which Options may
be granted under the Plan and as to which outstanding Options or portions
thereof then unexercised shall be exercisable. Such adjustment in outstanding
Options shall be made without change in the total price applicable to the
unexercised portion of such Options and with a corresponding adjustment in the
Option price per share.
(b) (i) In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (I) merger or consolidation pursuant to which the
Company's stockholders shall receive cash or securities of another corporation
and less than 50% of the outstanding capital stock of the surviving corporation
pursuant to such merger or consolidation shall be owned by the stockholders of
the Company, (II) sale or conveyance to another entity of all or substantially
all of the property and assets of the Company or (III) Change in Control of the
Company, the Company shall, or shall cause such surviving corporation or the
purchaser(s) of the Company's assets to, deliver to the optionee the same kind
of consideration that is delivered to the stockholders of the Company as a
result of such merger, consolidation, sale, conveyance or Change in Control, or
the Board may cancel all outstanding Options in exchange for consideration in
cash or marketable securities, which consideration in both cases shall be equal
in value to the value of those shares of stock or other securities the optionee
would have received had the Option been exercised (but only to the extent then
exercisable) and had no disposition of the shares acquired upon such exercise
been made prior to such merger, consolidation, sale, conveyance or Change in
Control, less the Option price therefor or, in lieu thereof, the Board shall
give the optionee at least twenty days prior written notice of any such
transaction in order to enable the optionee to exercise the exercisable portion,
if any, of the Option. Upon receipt of such consideration or effective on the
date specified in such notice, all Options (whether or not then exercisable)
shall immediately terminate and be of no further force or effect. The value of
the stock or other securities the optionee would have received if the Option had
been exercised shall be determined in good faith by the Board, and in the case
of shares of Common Stock, in accordance with the provisions of Section 8
hereof.
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(ii) The Board shall also have the power and right to accelerate the
exercisability of any Options, notwithstanding any limitations in this Plan or
in the Agreement upon such merger, consolidation, sale, conveyance or Change in
Control.
(c) A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time Beneficially Owned (as defined in Rule 13d-3
under the Exchange Act) less than 40% of the then outstanding Common Stock,
shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person or group and affiliates Beneficially Own 50% or more
of the Common Stock outstanding.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan. In the event of such
issuance or assumption, the provisions of Section 13(b) hereof shall not be
applicable.
14. No Special Employment Rights.
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of his
or her employment by the Company or any subsidiary or interfere in any way with
the right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment for purposes of any Option shall be determined by the
Board at the time of such occurrence.
15. Withholding.
The Company's obligation to deliver shares upon the exercise of any Option
granted under the Plan shall be subject to the Option holder's satisfaction of
any applicable federal, state and local income and employment tax withholding
requirements. The Company and optionee may agree to withhold shares of Common
Stock purchased upon exercise of an Option to satisfy the above-mentioned
withholding requirements.
16. Restrictions on Exercise of Options and Issuance of Shares.
(a) Notwithstanding the provisions of Sections 9 and 11 hereof, an Option
cannot be exercised, and the Company may delay the issuance of shares covered by
the exercise of an Option and the delivery of a certificate for such shares,
until one of the following conditions shall be satisfied:
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(i) The shares with respect to which such Option has been exercised are
at the time of the issuance of such shares effectively registered or
qualified under applicable federal and state securities acts now in
force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that the issuance
of such shares is exempt from registration and qualification under
applicable federal and state securities acts now in force or as
hereafter amended.
(b) The Company shall be under no obligation to qualify shares or to cause
a registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issuance of shares in
respect of which any Option may be exercised or to cause the issuance of such
shares to be exempt from registration and qualification under applicable federal
and state securities acts now in force or as hereinafter amended, except as
otherwise agreed to by the Company in writing in its sole discretion.
17. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation and undertaking to the Company which is satisfactory in
form and scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the shares
issued pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an Option shall have been exercised, or to qualify any
such shares for exemption from the 1933 Act or other applicable statutes, then
the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
18. Loans.
At the discretion of the Board, the Company may loan to the optionee, or
pay to the optionee as a bonus, some or all of the purchase price of the shares
acquired upon exercise of an Option, the terms of such loans or bonus to be at
the discretion of the Board.
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19. Modification of Outstanding Options.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
optionee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Without limiting the foregoing, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution therefor new Options under the Plan covering the same or different
numbers of Shares and having, at the discretion of the Board and subject to
Sections 6 and 8 hereof, an exercise price, in the case of Options designated as
non-qualified stock options, as shall be determined by the Board and, in the
case of Options designated as incentive stock options, of not less than one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.
20. Approval of Board and Stockholders.
The Plan shall become effective upon adoption by the Board and the
stockholders of the Company; provided, however, that the Plan shall be submitted
for approval by the stockholders of the Company within 12 months after the date
of adoption of the Plan by the Board. If the stockholders of the Company fail to
approve the Plan within 12 months after the date of adoption of the Plan by the
Board, the Plan and all stock options granted thereunder shall be and become
null and void and of no further force or effect.
21. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate ten
years from the earlier of (x) the date on which the Plan was duly adopted by the
Board, and (y) the date on which the Plan was duly approved by the stockholders
of the Company. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable; provided, however, (i)
the Board may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 20 hereof, increase the maximum number
of shares for which Options may be granted or change the designation of the
class of persons eligible to receive Options under the Plan, and (ii) any such
modification or amendment of the Plan shall be approved by a majority of the
stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act, applicable state law, or applicable
NASD or exchange listing requirements. Termination or any modification or
amendment of the Plan shall not, without the consent of an optionee, affect his
or her rights under an Option theretofore granted to him or her.
22. Duties of the Company.
The Company shall at all times keep available for issuance or delivery
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
23. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Options until (x) the Option shall have been
exercised with respect thereto (including payment to the Company of the exercise
price) and (y) the earlier to occur of (i) the delivery by the Company to the
optionee of a certificate therefor, or (ii) the date on which the Company is
required to deliver a certificate pursuant to Section 9(b) hereof.
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24. Governing Law.
The Plan and all Options shall be governed by and construed under the laws
of the State of New York, without giving effect to principles of conflicts of
law.
25. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to an optionee, to his or her
address as it appears on the records of the Company.
26. Headings.
The headings contained in this Plan are for convenience of reference only
and in no way define, limit or describe the scope or intent of the Plan or in
any way affect this Agreement.
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INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN
Table of Contents
-----------------
Page
----
INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN...................................................... 1
1. Purpose of the Plan..................................................... 1
2. Stock Subject to the Plan............................................... 1
3. Administration of the Plan.............................................. 1
4. Type of Option.......................................................... 2
5. Eligibility............................................................. 2
6. Restrictions on Options................................................. 2
7. Option Agreement........................................................ 3
8. Option Price............................................................ 3
9. Manner of Payment; Manner of Exercise................................... 4
10. Exercise of Options..................................................... 4
11. Term of Options; Exercisability......................................... 5
<PAGE>
12. Transferability......................................................... 6
13. Recapitalization, Reorganizations and the Like.......................... 6
14. No Special Employment Rights............................................ 7
15. Withholding............................................................. 7
16. Restrictions on Exercise of Options and Issuance of Shares.............. 8
17. Purchase for Investment; Rights of Holder on Subsequent Registration.... 8
18. Loans................................................................... 9
19. Modification of Outstanding Options..................................... 9
20. Approval of Board and Stockholders...................................... 9
21. Termination and Amendment of Plan....................................... 9
22. Duties of the Company................................................... 10
23. Limitation of Rights in the Option Shares............................... 10
24. Governing Law........................................................... 10
25. Notices................................................................. 10
26. Headings................................................................ 10
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the International Sports Wagering Inc. 1996 Stock Option
Plan (the "Plan") is to advance the interests of International Sports Wagering
Inc., a Delaware corporation (the "Company"), by providing an opportunity for
ownership of the stock of the Company by employees, agents and directors of, and
consultants to, the Company or of any subsidiary corporation (herein called
"subsidiary" or "subsidiaries"), as defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code") and the Treasury regulations
promulgated thereunder (the "Regulations"). Such employees, agents and directors
of, and consultants to, the Company or any subsidiary are hereinafter referred
to individually as an "Eligible Person" and collectively as "Eligible Persons".
By providing an opportunity for such stock ownership, the Company seeks to
attract and retain qualified personnel, and otherwise to provide additional
incentive for optionees to promote the success of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or treasury
shares of the common stock, having no par value per share, of the Company (the
"Common Stock") for which options may be granted under the Plan (the "Options")
shall be 825,000, subject to adjustment as provided in Section 13 hereof.
(b) If an Option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent Option grants under the
Plan.
(c) Common Stock issuable upon exercise of an Option may be subject to
such restrictions on transfer, repurchase rights or other conditions or
restrictions as shall be determined by the Board of Directors of the Company
(the "Board").
3. Administration of the Plan.
(a) The Plan shall be administered by the Board. No member of the Board
shall act upon any matter affecting any Option granted or to be granted to
himself or herself under the Plan; provided, however, that nothing contained
herein shall be deemed to prohibit a member of the Board from acting upon any
matter generally affecting the Plan or any Options granted thereunder. A
majority of the members of the Board shall constitute a quorum, and any action
may be taken by a majority of those present and voting at any meeting. The
decision of the Board as to all questions of interpretation and application of
the Plan shall be final, binding and conclusive on all persons. The Board, in
its sole discretion, may grant Options to purchase shares of the Common Stock
only as provided in the Plan, and shares shall be issued upon exercise of such
Options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to determine the Eligible Persons who shall be
issued Options, the times when Options shall be granted and within which they
may be exercised, the prices at which Options shall be exercised, the number of
shares of Common Stock to be subject to each Option and whether an Option shall
be treated as an incentive stock option or a non-qualified stock option. The
Board shall also have the authority, subject to the express provisions of the
Plan, to amend
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the Plan, to determine the terms and provisions of the respective option
agreements, which may but need not be identical, to construe the respective
option agreements and the Plan, and to make all other determinations in the
judgment of the Board necessary or desirable for the administration of the Plan.
The Board may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to implement the Plan and shall be the sole and
final judge of such expediency. The Board, in its discretion, may delegate its
power, duties and responsibilities to a committee, consisting solely of two or
more "Non-Employee Directors" (as hereinafter defined). If a committee is so
appointed, all references to the Board herein shall mean and relate to such
committee. The existence of such a committee shall not affect the power or
authority of the Board to administer the Plan. For the purposes of the Plan, the
term "Non-Employee Director" shall have the meaning ascribed to it in paragraph
(b)(3) of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as such term is interpreted from time to time.
4. Type of Option.
Options granted pursuant to the Plan shall be authorized by action of the
Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Code or non-qualified stock options which are
not intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Board. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified stock options
automatically without further action by the Board on the date of such failure to
continue to meet the requirements of Section 422 of the Code.
5. Eligibility.
Options designated as incentive stock options may be granted only to
Eligible Persons who are officers or employees of the Company or of any
subsidiary. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified stock options may be granted to
any Eligible Person.
The Board shall take into account such factors as it may deem relevant in
determining the number of shares of Common Stock to be included in an Option to
be granted to any Eligible Person.
6. Restrictions on Options.
Incentive stock options (but not non-qualified stock options) granted
under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of the
shares of Common Stock with respect to which incentive stock options are
granted (determined as of the date the incentive stock options are
granted), exercisable for the first time by an individual during any
calendar year shall not exceed $100,000. If an incentive stock option is
granted pursuant to which the aggregate fair market value of shares with
respect to which it first becomes exercisable in any calendar year by an
individual exceeds such $100,000 limitation, the portion of such option
which is in excess of the $100,000 limitation shall be treated as a
non-qualified stock option pursuant to Section 422(d)(1) of the Code. In
determining the fair market value under this clause (a), the provisions of
Section 8 hereof shall apply. In the event that an individual is eligible
to participate
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<PAGE>
in any other stock option plan of the Company or any subsidiary of the
Company which is also intended to comply with the provisions of Section
422 of the Code, such $100,000 limitation shall apply to the aggregate
number of shares for which incentive stock options may be granted under
this Plan and all such other plans.
(b) Ten Percent Stockholder. If any Eligible Person to whom an incentive
stock option is granted pursuant to the provisions of the Plan is on the
date of grant the owner of stock (as determined under Section 424(d) of
the Code) possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any subsidiary of the Company, then
the following special provisions shall be applicable to the incentive
stock options granted to such individual:
(i) The Option price per share subject to such Options shall be not less
than 110% of the fair market value of the shares of Common Stock
with respect to which Options are granted (determined as of the date
such Option was granted). In determining the fair market value under
this clause (i), the provisions of Section 8 hereof shall apply.
(ii) The Option by its terms shall not be exercisable after the
expiration of five years from the date such Option is granted.
7. Option Agreement; Disqualifying Dispositions.
(a) Each Option shall be evidenced by an option agreement, in a form
approved from time to time by the Board (the "Agreement"), duly executed on
behalf of the Company and by the optionee to whom such Option is granted, which
Agreement shall comply with and be subject to the terms and conditions of the
Plan. The Agreement may contain such other terms, provisions and conditions
which are not inconsistent with the Plan as may be determined by the Board;
provided that Options designated as incentive stock options shall meet all of
the conditions for incentive stock options as defined in Section 422 of the
Code. No Option shall be granted within the meaning of the Plan and no purported
grant of any Option shall be effective until the Agreement shall have been duly
executed on behalf of the Company and the optionee.
(b) If an optionee makes a "disposition" (within the meaning of Section
424(c) of the Code) of shares of Common Stock issued upon exercise of an
incentive stock option within two years from the date of grant or within one
year from the date the shares of Common Stock are transferred to the optionee,
the optionee shall, within ten days of disposition, notify the Board and deliver
to it any withholding and employment taxes due. However, if the optionee is a
person subject to Section 16(b) of the Exchange Act, delivery of any withholding
and employment taxes due may be deferred until ten days after the date any
income on the disposition is recognized under Section 83 of the Code. The
Company may cause a legend to be affixed to certificates representing shares of
Common Stock issued upon exercise of incentive stock options to ensure that the
Board receives notice of disqualifying dispositions.
8. Option Price.
(a) The Option price or prices of shares of the Common Stock for Options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the Option
price or prices of shares of the Company's Common Stock designated as incentive
stock options shall be at least the fair market
3
<PAGE>
value of such Common Stock on the date the Option is granted as determined by
the Board in accordance with the Regulations promulgated under Section 422 of
the Code.
(c) If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of the grant of the Option or,
if there are no such sales on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the date of grant in accordance
with Section 25.2512-2 of the Regulations. If the shares are not then listed on
any such exchange, the fair market value of such shares shall be the mean
between the closing "Bid" and the closing "Ask" prices, if any, as reported in
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") for the date of the grant of the Option, or, if there are no such
prices on such date, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Section 25.2512-2 of
the Regulations. If the shares are not then either listed on any such exchange
or quoted in NASDAQ, the fair market value shall be the mean between the average
of the "Bid" and "Ask" prices, if any, as reported in the National Association
of Securities Dealers National Daily Quotation Service for the date of the grant
of the Option, or, if there are no such prices on such date, shall be determined
by taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant
in accordance with Section 25.2512-2 of the Regulations. If the fair market
value cannot be determined under the preceding three sentences, it shall be
determined in good faith by the Board in accordance with Section 422 of the
Code.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such Options, (ii) shares of
Common Stock owned by the optionee having a fair market value (at the date of
exercise) equal in amount to the exercise price of the Options being exercised,
or (iii) any combination of (i) and (ii). The fair market value of any shares of
Common Stock which may be delivered upon exercise of an Option shall be
determined by the Board in accordance with Section 8 hereof.
(b) To the extent that an Option is exercisable, Options may be exercised
in full at one time or in part from time to time, by giving written notice,
signed by the person or persons exercising the Option, to the Company, stating
the number of shares with respect to which the Option is being exercised,
accompanied by payment in full for such shares as provided in Section 9(a)
hereof. No exercise of an Option may be made for fewer than 100 full shares of
Common Stock unless such exercise is made for the entire fractional amount of a
share remaining to be purchased pursuant to such Option. Upon such exercise,
delivery of a certificate for paid-up, non-assessable shares shall be made by
the Company to the person or persons exercising the Option within 20 business
days after receipt of such notice by the Company.
10. Exercise of Options.
Each Option granted under the Plan shall, subject to Sections 11(b), 13
and 16 hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement;
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provided, however, that except as otherwise provided pursuant to the provisions
of Section 6(b) hereof, no Option granted under the Plan shall have a term in
excess of ten years from the date of grant.
11. Term of Options; Exercisability.
(a) Term.
(i) Each Option shall expire on a date determined by the Board which is
not more than ten years from the date of the granting thereof,
except (a) as otherwise provided pursuant to the provisions of
Section 6(b) hereof, and (b) for earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 11, an Option granted
to any optionee who ceases to be an Eligible Person for any reason
shall terminate on the earlier of (i) three (3) months after the
date such optionee ceased to be an Eligible Person, or (ii) the date
on which the Option expires by its terms.
(iii) If an optionee ceases to be an Eligible Person because the Company
has terminated his or her status with the Company for cause (as such
term is defined in any employment or similar agreement between such
optionee and the Company or, if there is no such agreement, or such
agreement does not contain provisions relating to termination or
removal for cause, as such term is defined by the law of the State
of New York), such Option will, to the extent not terminated, be
deemed to have terminated on the date immediately preceding the date
the optionee ceased to be an Eligible Person.
(iv) If an optionee ceases to be an Eligible Person because the optionee
has become disabled (within the meaning of Section 22(e)(3) of the
Code), such Option shall terminate on the earlier of (i) one year
after the date such optionee ceased to be an Eligible Person, or
(ii) the date on which the Option expires by its terms.
(v) In the event of the death of any optionee, such Option shall
terminate on the earlier of (i) one year after the date of death, or
(ii) the date on which the Option expires by its terms.
(b) Exercisability.
(i) Except as otherwise provided in this Section 11(b), an Option
granted to an optionee who thereafter ceases to be an Eligible
Person shall be exercisable only to the extent that the right to
purchase shares under such Option is exercisable on the date such
optionee ceased to be an Eligible Person.
(ii) An Option granted to an optionee who ceases to be an Eligible Person
because he or she has become disabled (as such term is defined in
any employment or similar agreement between such optionee and the
Company or, if there is no such agreement, or such agreement does
not contain provisions relating to termination or removal for
disability, as determined by the Board) shall be immediately
exercisable as to the full number of shares covered by such Option,
whether or not under the provisions of the Plan or Agreement such
Option was otherwise exercisable as of the date of disability.
(iii) In the event of the death of an optionee, the Option granted to such
optionee may be exercised as to the full number of shares covered by
such Option, whether or not under the provisions of the Plan or
Agreement the optionee was otherwise exercisable at the date of his
or her death, by the executor, administrator or personal
representative of such optionee,
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or by any person or persons who acquired the right to exercise such
Option by bequest or inheritance or by reason of the death of such
optionee.
(iv) In addition to the acceleration of the exercisability of Options
pursuant to this Section 11(b) and Section 13(b)(ii) hereof, the
Board shall have the right, in the exercise of its discretion and
for any reason, and with the consent of the optionee, to accelerate
the date on which Options shall be exercisable.
12. Transferability.
The right of any optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such optionee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such optionee only by him or her. Any Option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, upon such Option. The
Board shall have discretion to grant any Option that is not designated as an
incentive stock option, free of any or all of the restrictions described in this
Section.
13. Recapitalization, Reorganizations and the Like.
(a) In the event that after October 25, 1996 the outstanding shares of the
Common Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any reorganization,
recapitalization, reclassification, stock split, combination of shares, or
dividends payable in capital stock, appropriate and equitable adjustment shall
be made by the Board, in its sole discretion, in the number and kind of shares
as to which Options may be granted under the Plan and as to which outstanding
Options or portions thereof then unexercised shall be exercisable. Such
adjustment in outstanding Options shall be made without change in the total
price applicable to the unexercised portion of such Options and with a
corresponding adjustment in the Option price per share.
(b) (i) In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (I) merger or consolidation pursuant to which the
Company's stockholders shall receive cash or securities of another corporation
and less than 50% of the outstanding capital stock of the surviving corporation
pursuant to such merger or consolidation shall be owned by the stockholders of
the Company, (II) sale or conveyance to another entity of all or substantially
all of the property and assets of the Company or (III) Change in Control of the
Company, the Company shall, or shall cause such surviving corporation or the
purchaser(s) of the Company's assets to, deliver to the optionee the same kind
of consideration that is delivered to the stockholders of the Company as a
result of such merger, consolidation, sale, conveyance or Change in Control, or
the Board may cancel all outstanding Options in exchange for consideration in
cash or marketable securities, which consideration in both cases shall be equal
in value to the value of those shares of stock or other securities the optionee
would have received had the Option been exercised (but only to the extent then
exercisable) and had no disposition of the shares acquired upon such exercise
been made prior to such merger, consolidation, sale, conveyance or Change in
Control, less the Option price therefor or, in lieu thereof, the Board shall
give the optionee at least twenty days prior written notice of any such
transaction in order to enable the optionee to exercise the exercisable portion,
if any, of the Option. Upon receipt of such consideration
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or effective on the date specified in such notice, all Options (whether or not
then exercisable) shall immediately terminate and be of no further force or
effect. The value of the stock or other securities the optionee would have
received if the Option had been exercised shall be determined in good faith by
the Board, and in the case of shares of Common Stock, in accordance with the
provisions of Section 8 hereof.
(ii) The Board shall also have the power and right to accelerate the
exercisability of any Options, notwithstanding any limitations in this Plan or
in the Agreement upon such merger, consolidation, sale, conveyance or Change in
Control.
(c) A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time Beneficially Owned (as defined in Rule 13d-3
under the Exchange Act) less than 40% of the then outstanding Common Stock,
shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person or group and affiliates Beneficially Own 50% or more
of the Common Stock outstanding.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan. In the event of such
issuance or assumption, the provisions of Section 13(b) hereof shall not be
applicable.
14. No Special Employment Rights.
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of his
or her employment by the Company or any subsidiary or interfere in any way with
the right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment for purposes of any Option shall be determined by the
Board at the time of such occurrence.
15. Withholding.
The Company's obligation to deliver shares upon the exercise of any Option
granted under the Plan shall be subject to the Option holder's satisfaction of
any applicable federal, state and local income and employment tax withholding
requirements. The Company and optionee may agree to withhold shares of Common
Stock purchased upon exercise of an Option to satisfy the above-mentioned
withholding requirements.
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16. Restrictions on Exercise of Options and Issuance of Shares.
(a) Notwithstanding the provisions of Sections 9 and 11 hereof, an Option
cannot be exercised, and the Company may delay the issuance of shares covered by
the exercise of an Option and the delivery of a certificate for such shares,
until one of the following conditions shall be satisfied:
(i) The shares with respect to which such Option has been exercised are
at the time of the issuance of such shares effectively registered or
qualified under applicable federal and state securities acts now in
force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that the issuance
of such shares is exempt from registration and qualification under
applicable federal and state securities acts now in force or as
hereafter amended.
(b) The Company shall be under no obligation to qualify shares or to cause
a registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issuance of shares in
respect of which any Option may be exercised or to cause the issuance of such
shares to be exempt from registration and qualification under applicable federal
and state securities acts now in force or as hereinafter amended, except as
otherwise agreed to by the Company in writing in its sole discretion.
17. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation and undertaking to the Company which is satisfactory in
form and scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the shares
issued pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an Option shall have been exercised, or to qualify any
such shares for exemption from the 1933 Act or other applicable statutes, then
the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
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18. Loans.
At the discretion of the Board, the Company may loan to the optionee, or
pay to the optionee as a bonus, some or all of the purchase price of the shares
acquired upon exercise of an Option, the terms of such loans or bonus to be at
the discretion of the Board.
19. Modification of Outstanding Options.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
optionee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Without limiting the foregoing, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution therefor new Options under the Plan covering the same or different
numbers of Shares and having, at the discretion of the Board and subject to
Sections 6 and 8 hereof, an exercise price, in the case of Options designated as
non-qualified stock options, as shall be determined by the Board and, in the
case of Options designated as incentive stock options, of not less than one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.
20. Approval of Board and Stockholders.
The Plan shall become effective upon adoption by the Board and the
stockholders of the Company; provided, however, that the Plan shall be submitted
for approval by the stockholders of the Company within 12 months after the date
of adoption of the Plan by the Board. If the stockholders of the Company fail to
approve the Plan within 12 months after the date of adoption of the Plan by the
Board, the Plan and all stock options granted thereunder shall be and become
null and void and of no further force or effect.
21. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate ten
years from the earlier of (x) the date on which the Plan was duly adopted by the
Board, and (y) the date on which the Plan was duly approved by the stockholders
of the Company. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable; provided, however, (i)
the Board may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 20 hereof, increase the maximum number
of shares for which Options may be granted or change the designation of the
class of persons eligible to receive Options under the Plan, and (ii) any such
modification or amendment of the Plan shall be approved by a majority of the
stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act (if any), applicable state law, or
applicable NASD or exchange listing requirements. Termination or any
modification or amendment of the Plan shall not, without the consent of an
optionee, affect his or her rights under an Option theretofore granted to him or
her.
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22. Duties of the Company.
The Company shall at all times keep available for issuance or delivery
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
23. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Options until (x) the Option shall have been
exercised with respect thereto (including payment to the Company of the exercise
price) and (y) the earlier to occur of (i) the delivery by the Company to the
optionee of a certificate therefor, or (ii) the date on which the Company is
required to deliver a certificate pursuant to Section 9(b) hereof.
24. Governing Law.
The Plan and all Options shall be governed by and construed under the laws
of the State of New York, without giving effect to principles of conflicts of
law.
25. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to an optionee, to his or her
address as it appears on the records of the Company.
26. Headings.
The headings contained in this Plan are for convenience of reference only
and in no way define, limit or describe the scope or intent of the Plan or in
any way affect this Agreement.
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Exhibit 10.13
VOTING AGREEMENT
Voting Agreement (the "Agreement") dated as of the 2nd day of June
1995, among International Sports Wagering Inc., a Delaware corporation (the
"Company"), Barry Mindes (the "Founder"), and the investors listed on Schedule A
hereto (the "Investors").
W I T N E S S E T H:
WHEREAS, the Company and the Investors have entered into a Purchase
Agreement of even date herewith (the "Purchase Agreement"), pursuant to
which the Investors shall purchase certain shares of the Company's Common
Stock (the "Common Stock") and Warrants to purchase the Company's Common
Stock (the "Warrants"); and
WHEREAS, a condition to the obligations of the parties under the
Purchase Agreement is that the Company, the Founder and the Investors enter
into this Voting Agreement for the purpose of setting forth the terms and
conditions under which the Investors and the Founder shall, in certain
cases, vote their respective shares of the Company's Common Stock in the
election of directors.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements contained herein, the parties hereby agree as
follows:
1. SELECTION OF DIRECTORS.
(a) AGREEMENT TO CONSTITUTE BOARD. The Company's Board of Directors shall
consist of five (5) members. The Investors and the Founder hereby agree and
covenant to vote all of the Common Stock and other voting securities of the
Company then owned by the Investors and Founder, respectively, or as to which
the Investors and the Founder have voting power, at a meeting of stockholders or
by written consent in lieu of a meeting, to cause to be elected or appointed to
the Board of Directors of the Company; the Investors' Representatives (as
defined in Section 1(b) below); and (ii) the Founder's Representatives (as
defined in Section 1(b) below.
(b) INVESTOR'S REPRESENTATIVES. The Investors' representatives shall
consist of two persons selected by the Investors (the "Investor's
Representatives").
(c) FOUNDER'S REPRESENTATIVES. The Founder's representatives shall
consist of three persons selected by the Founder (the "Founder's
Representatives").
<PAGE>
(d) SUCCESSOR DIRECTORS. In the event that any of the persons nominated
pursuant to Sections 1(b) or (c) is unable or unwilling to serve as a director,
then the parties hereto agree to nominate and elect successors as follows:
(i) If the director in question is a nominee of the Investors, then
the successor director shall be nominated by the Investors and all of the
parties hereto agree to vote in favor of such nominee; and
(ii) If the director in question is a nominee of the Founder then the
successor director shall be nominated by the Founder, and all of the parties
hereto agree to vote in favor of such nominee.
In addition, the Investors and the Founder agree to vote their voting securities
for the removal (including removal without cause) of any director upon
instructions in writing to such effect from the party that designated such
director.
(e) SPECIFICATION OF DESIGNEES. Each of the parties entitled to designate
one or more of the directors shall notify the Company and the other parties
hereto of such designee within ten (10) days of receipt from the Company of
notice of any proposed stockholder meeting or the taking of any other action for
the purpose of electing directors. If a designee is not specified as provided
herein, the existing designees of such party or parties shall be elected or
appointed in accordance with this Agreement.
(f) BOARD MEMBERS. The members of the Board of Directors as of the Second
Closing (as defined in the Purchase Agreement), shall be comprised of Barry
Mindes, two persons designated by Barry Mindes, as the Founder's
Representatives, and Eli Oxenhorn and Barry Rubenstein as the Investors'
Representatives. All such directors shall remain in office until the next
annual meeting of the stockholders of the Company or such time as the
stockholders of the Company, pursuant to a special meeting or written consent in
lieu thereof, shall elect their successors.
2. LEGEND ON CERTIFICATES. Each certificate representing shares of Common
Stock held by the Investors or the Founder, and any assignees or transferees
thereof, shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT DATED AS OF JUNE 2, 1995, WHICH HAS BEEN DEPOSITED WITH THE
COMPANY AT ITS PRINCIPAL OFFICE. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST FROM THE SECRETARY OF THE COMPANY.
A counterpart of this Agreement shall be deposited with the Company at its
principal office and shall be subject to the same
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rights of examination by a stockholder of the Company (or a proposed bona fide
assignee or transferee thereof), in person or by agent or attorney, as are the
books and records of the Company.
3. NO LIABILITY FOR ELECTION OF RECOMMENDED DIRECTORS. Neither the Company,
the Founder, the Investors, nor any officer, director, stockholder, partner,
employee or agent of such parties, makes any representation or warranty as to
the fitness or competence of the nominee of any party hereunder to serve on the
Board of Directors of the Company by virtue of such party's execution of this
Agreement or by the act of such party in voting for such nominee pursuant to
this Agreement.
4. GRANT OF PROXY. Should the provisions of this Agreement be construed to
constitute the granting of proxies, such proxies shall be deemed coupled with an
interest and are irrevocable for the term of this Agreement.
5. SPECIFIC ENFORCEMENT. It is agreed and understood that monetary damages
would not adequately compensate an injured party for the breach of this
Agreement by any party, that this Agreement shall be specifically enforceable,
and that any breach or threatened breach of this Agreement shall be the proper
subject of a temporary or permanent injunction or restraining order. Further,
each party hereto waives any claim or defense that there is an adequate remedy
at law for such breach or threatened breach.
6. MANNER OF VOTING. The voting of shares pursuant to this Agreement may be
effected in person, by proxy, by written consent, or in any other manner
permitted by applicable law.
7. AMENDMENT AND WAIVERS. Any term hereof may be amended and the observance
of any term hereof may be waived only with the written consent of each party
hereto. Any amendment or waiver so effected shall be binding upon the Company,
the Investors and the Founder and any assignee or transferee thereof.
8. STOCK SPLITS, STOCK DIVIDENDS, ETC. In the event of any additional
issuance of securities to the Founder or Investors, including but not limited
to, any securities issued on a stock split, stock dividend, recapitalization,
reorganization or combination, or upon exercise of any stock option or warrant,
the securities issued to the Investors or the Founder shall be subject to this
Agreement.
9. SEVERABILITY. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating
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the remainder of such provision or the remaining provisions of this Agreement.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York without regard to principles
of conflict of laws.
11. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which shall together constitute a single
instrument.
12. ASSIGNEES AND TRANSFEREES. The Investors and the Founder hereby agree, and
any transferee or assignee of any voting securities of the Company that are
owned by the Investors or the Founder is hereby on notice that, any transfer or
assignment of such securities of the Company is conditioned upon such
transferee's or assignee's execution and delivery of this Agreement prior to
such transfer or assignment for the purpose of becoming a party to this
Agreement. Any transfer or assignment of any of such voting securities of the
Company in violation of this Section 12 shall be void and be of no force or
effect.
13. CAPTIONS. The captions and headings contained in this agreement are for
the convenience of the parties only and shall not effect the interpretation or
construction of this Agreement.
14. NOTICES. All notices ("NOTICES") hereunder shall be in writing, signed by
the party giving or making the same, and shall be delivered personally or sent
by internationally recognized courier service or by telex or facsimile
transmission to each party entitled to receive the same, at such party's last
known address on the books of the Corporation, unless such party shall have
previously notified in writing the party sending such Notice of a change of
address, in which case it shall be sent to the new address. A copy of each such
Notice to the Corporation or the Founder shall also be sent in similar fashion
to Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, 29th Floor, New
York, New York 10112, Attention: Richard M. Hoffman, Esq. A copy of each such
Notice to the Investors shall also be sent in similar fashion to Mr. Matthew
Smith, c/o Geo Capital, 767 Fifth Avenue, 45th Floor, New York, New York 10153.
All Notices shall be deemed given when delivered, sent or transmitted in
accordance herewith.
15. TERM. This Agreement shall terminate and be of no further force or effect
upon the first to occur of (a) any merger or sale of the Company in which the
Company is not the surviving corporation (other than a merger with or into a
wholly-owned subsidiary) or any transaction in which more than 50% of the voting
power of the Company is disposed of; (b) the consummation of the Company's sale
of its Common Stock or other securities pursuant to a registration statement
under the Securities Act of 1933, as amended,
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<PAGE>
(other than a registration statement relating either to sale of securities to
employees of the Company pursuant to its stock option stock purchase or similar
plan or a SEC Rule 145 transaction); or (c) if the Investors and their
affiliates do not purchase or cease to own at least twenty-five percent (25%) of
the outstanding voting securities of the Company. In the event that the
Investors fail to timely exercise all Warrants to purchase 400,000 shares of
Common Stock of the Company then the number of Investor's Representatives
referred to in Section 1(b) shall be reduced to one person and the number of
Founder's Representatives referred to in Section 1(c) shall be increased to four
persons, and all other provisions of this Agreement shall continue in accordance
with the terms set forth herein.
16. SURVIVAL. The provisions of Section 3 of this Agreement shall survive the
termination of this Agreement.
17. EXECUTION BY THE COMPANY. The Company, by its execution in the space
provided below, agrees that it will cause the certificate(s) evidencing the
shares of Common Stock to bear the legend required by Section 2 herein, and it
shall supply, free of charge, a copy of this Agreement to any holder of a
certificate evidencing shares of capital stock of the Company upon written
request from such holder to the Company at its principal office. The parties
hereto do hereby agree that the failure to cause the certificates evidencing the
shares of Common Stock to bear the legend required by Section 2 herein and/or
failure of the Company to supply, free of charge, a copy of this Agreement as
provided under this Section 2 shall not affect the validity or enforceability of
this Agreement.
18. OTHER MATTERS. This Agreement shall not effect the rights of the Founder
or the Investors with respect to voting on any matters on which stockholders of
the Company are entitled to vote, whether granted by law or by the Certificate
of Incorporation of the Company, except with respect to the election of
directors of the Company.
19. MISCELLANEOUS.
(a) This Agreement contains the entire understanding of the parties hereto
concerning the subject matter hereof and supersedes any and all prior agreements
made by the parties with respect thereto and may not be amended, terminated or
discharged, except by an instrument in writing, signed by the party to be
charged.
(b) Each of the parties agrees to execute and deliver any and all
documents or other instruments and shall do or cause to be done all such acts or
things as may reasonably be necessary or proper to carry out the purposes of
this Agreement.
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(c) The parties hereto irrevocably consent that any suit, legal action or
proceeding with respect to any of the rights or obligations arising directly or
indirectly under or relating to this Agreement may be brought in any New York
State or United States federal court located in the Borough of Manhattan, City
and State of New York, and by execution and delivery of this Agreement each
party hereby irrevocably submits to and accepts with regard to any such suit,
legal action or proceeding, for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each party
irrevocably consents to the service of process in any such suit, legal action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, return receipt requested, to it at its address set forth
herein. The foregoing shall not limit the right of any party to serve process
in any other manner permitted by law. Each party hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any suit,
legal action or proceeding arising directly or indirectly under or relating to
this Agreement in any court located in the Borough of Manhattan, City and State
of New York and hereby further irrevocably waives any claim that a court located
in the Borough of Manhattan, City and State of New York is not a convenient
forum for any such suit, legal action or proceeding. Each party hereby (i)
irrevocably waives any right it may have under the laws of any jurisdiction to
commence by publication any suit, legal action or proceeding with respect to
this Agreement, and (ii) irrevocably agrees that any suit, legal action or
proceeding commenced by it with respect to any rights or obligations arising
directly or indirectly under or relating to this Agreement shall be brought
exclusively in any New York State or United States federal court located in the
Borough of Manhattan, City and State of New York.
The parties hereto have executed this Agreement as of the and year first
written above.
COMPANY: FOUNDER:
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ Barry Mindes /s/ Barry Mindes
------------------------------- ---------------------------
Barry Mindes, President Barry Mindes
Address: 32 Heights Road Address: 32 Heights Road
Wayne, NJ 07470 Wayne, NJ 07470
Fax: 201-694-4843 Fax: 201-694-4843
-6-
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
INITIAL CLOSING:
- ---------------
Seneca Ventures
Woodland Partners
Woodland Venture Fund
Marilyn Rubenstein
Eli Oxenhorn
SECOND CLOSING:
- --------------
DISS Partners
David Nussbaum
Robert Gladstone
William G. Walters
Larry Altman
Shelly Finkel
Gerald Josephson
-7-
<PAGE>
INVESTORS, CONT.
Irwin Lieber
Barry Fingerhut
Michael Marocco
Stephen J. Posner
ReiJane Huai
Alan W. Kaufman
-8-
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
International Sports Wagering Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
October 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES F-3 AND F-4 OF THE COMPANY'S
FORM SB-2 FOR THE YEAR ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 538
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 546
<PP&E> 375
<DEPRECIATION> 71
<TOTAL-ASSETS> 902
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0
0
<COMMON> 6
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