<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 333-15005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
AMENDMENT NO. 1
TO
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
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Units, consisting of one share of Common Stock, par value $.001 per share, and one
Warrant to purchase an additional share of Common Stock.............................. $12,075,000(2) 3,659.09
Common Stock, par value $.001 per share, included in the Units......................... -- (4)
Warrants to purchase one share of Common Stock included in the Units................... -- (4)
Common Stock, par value $.001 per share, issuable upon exercise of the Warrants
included in the Units................................................................ 14,490,000 4,390.91
Representatives' Options............................................................... 150 .05
Units, issuable upon exercise of the Representatives' Options.......................... 1,260,000 381.82
Common Stock, par value $.001 per share, included in the Units issuable upon exercise
of the Representatives' Options...................................................... -- (4)
Warrants to purchase one share of Common Stock included in the Units issuable upon
exercise of the Representatives' Options............................................. -- (4)
Common Stock, par value $.001 per share, issuable upon exercise of the Warrants
included in the Units issuable upon exercise of the Representatives' Options......... 1,260,000 381.82
Common Stock, par value $.001 per share, underlying Bridge Warrants (3)................ 702,000 212.73
TOTAL.................................................................................. $29,787,150 $ 9,026.42(5)
</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 Units subject to an over-allotment option granted to the
several underwriters.
(3) Represents warrants to purchase Common Stock issued to investors in October
1996.
(4) In accordance with Rule 457(i) under the Securities Act, no separate
registration fee is required.
(5) Of the total Registration Fee, $4,253.69 has been paid previously, leaving a
balance of $4,772.73.
----------------------------------
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 Units
to be offered (the "Offering") by the Company, (ii) 225,000 Units issuable upon
exercise of the over-allotment option granted to the several Underwriters in
connection with the Offering (together with the Units referred to in clause (i),
the "Public Offering Units"), (iii) 3,450,000 shares of Common Stock included in
the Public Offering Units and underlying Warrants (the "Warrants"), each to
purchase one share of Common Stock, included in the same, (iv) 1,725,000
Warrants included in the Public Offering Units, (v) 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,
(vi) options (the "Representatives' Options") to purchase 150,000 Units to be
issued by the Company to the Representatives in connection with the Offering,
(vii) 300,000 shares of Common Stock included in the Units underlying the
Representatives' Options and underlying Warrants included in such Units, and
(viii) 150,000 Warrants included in the Units underlying the Representatives'
Options. The Bridge Warrant Shares, the Representatives' Options and the Common
Stock and Warrants included in the Units issuable upon exercise of the
Representatives' Options 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; Certain Tax Considerations
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 NOVEMBER , 1996
PROSPECTUS
INTERNATIONAL SPORTS WAGERING INC.
1,500,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
---------------------
International Sports Wagering Inc. (the "Company") hereby offers 1,500,000
units (each, a "Unit" and collectively, the "Units"), each Unit consisting of
one share of common stock, par value $.001 per share, of the Company (the
"Common Stock") and one redeemable warrant to purchase one share of Common Stock
at an exercise price per share equal to 120% of the initial Unit offering price,
subject to certain adjustments (each, a "Warrant" and collectively, the
"Warrants"). The Common Stock and Warrants will not be detachable or separately
transferable, and may be traded only as Units, for up to two years from the date
hereof or such earlier date as Barington Capital Group, L.P. ("Barington") may
determine or as the Company may determine after one year based on certain
circumstances (the "Separation Date"). The Warrants are not exercisable until
the Separation Date, expire five years from the date of this Prospectus, and are
redeemable. See "Description of Securities."
Prior to the Offering (the "Offering"), there has been no public market for
the Units, Common Stock or Warrants. The Company has applied for quotation of
the Units, Common Stock and Warrants on the Nasdaq SmallCap Market ("NASDAQ")
under the proposed symbols "ISWIU," "ISWI" and "ISWW," respectively. It is
currently anticipated that the initial public offering price of the Units will
be between $5.00 and $7.00 per Unit. The initial public offering price has been
determined by negotiations among the Company and 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 9 AND "DILUTION" ON
PAGE 18.
------------------------
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 Unit........................................ $ $ $
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 Units
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 Units, 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 Units 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 securities comprising the Units 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) Player account
(c) SportXction-TM- logo
Panaorama of individuals using Player Betting Stations
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 UNITS, COMMON
STOCK AND WARRANTS 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, 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 UNITS 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
and 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.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
The Units.................................... 1,500,000 Units, each Unit consisting of one
share of Common Stock and one Warrant. The
securities comprising the Units will not be
detachable or separately transferable, and
may be traded only as Units, until two
years from the date hereof or such earlier
date as Barington may determine or as the
Company may determine after one year based
on certain circumstances. See "Description
of Securities."
Common Stock................................. 1,500,000 shares of Common Stock included in
the Units.
Warrants..................................... 1,500,000 Warrants included in the Units.
Each Warrant entitles the holder to purchase
one share of Common Stock commencing on the
Separation Date and continuing until
, 2001 at an exercise price of
$ (120% of the initial Unit offering
price). The Warrants are redeemable by the
Company if the market value of the Common
Stock is equal to $ (200% of the initial
Unit offering price) for a period of 15
consecutive trading days ending within 15
days of the date upon which the Warrants
are called for redemption. See "Description
of Securities--Warrants."
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 Units 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.
</TABLE>
<TABLE>
<S> <C> <C>
Proposed NASDAQ Trading Symbols(3)........... Units............................ ISWIU
Common Stock..................... ISWI
Warrants......................... ISWIW
</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 Unit offering
price, 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
6
<PAGE>
"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."
(2) Does not include (i) 1,500,000 shares of Common Stock issuable upon exercise
of the Warrants included in the Units offered hereby, (ii) up to 450,000
shares of Common Stock issuable upon exercise of the Over-Allotment Option
and the Warrants underlying the same, and (iii) up to 300,000 shares of
Common Stock issuable upon exercise of the Representatives' Options and the
Warrants underlying the same (the "Representatives' Unit Warrants"). See
"Underwriting."
(3) There is currently no market for the Units, Common Stock or Warrants and
there can be no assurance that a market for any of such securities will
develop after the Offering. The Company has applied for quotation of the
Units, Common Stock and Warrants on NASDAQ. There can be no assurance,
however, that such application will be approved, or if approved, will be
maintained. See "Risk Factors--Absence of Trading Market; Negotiated
Offering Price" and "Risk Factors--NASDAQ Delisting; Low Stock Price."
7
<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 Units offered hereby at
an assumed initial public offering price of $6.00 per Unit 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.
8
<PAGE>
RISK FACTORS
THE UNITS 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
UNITS. 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 UNITS 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 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
9
<PAGE>
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 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
10
<PAGE>
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.
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
11
<PAGE>
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
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.
12
<PAGE>
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 Units, Common Stock or
Warrants. There can be no assurance that any trading market for the Units,
Common Stock or Warrants will develop or, if any such market develops, that it
will be sustained. The public offering price of the Units, and the exercise
price of the Warrants, have been established by negotiation between the Company
and the Representatives and do not 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 UNITS, COMMON STOCK AND
WARRANTS. 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 Units may experience difficulty selling or
otherwise disposing of their Units or the securities comprising the same.
13
<PAGE>
NASDAQ DELISTING; LOW STOCK PRICE. The trading of the Company's Units,
Common Stock and Warrants on NASDAQ will be conditioned upon the Company meeting
certain asset, capital and surplus earnings and stock price tests set forth by
NASDAQ. 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. Upon completion of the Offering and the receipt of the net proceeds
therefrom, the Company believes that it will meet the respective asset, capital
and surplus earnings tests set forth by NASDAQ. If the Company fails any of the
tests, the Units, Common Stock or Warrants may be delisted from trading on
NASDAQ. 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 Units, Common Stock or Warrants were delisted
from trading on NASDAQ and the trading price of the Units was less than $5.00
per Unit or the trading price of the Common Stock was less than $5.00 per share,
the Units, Common Stock or Warrants 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 included in
the Units 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. Upon the Separation Date, the 1,500,000 shares of Common Stock
issuable upon exercise of the Warrants included in the Units (1,725,000, if the
Over-Allotment Option is exercised in full) will, when such Warrants are
exercised, be eligible for immediate sale to the public without restriction. 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 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."
FEDERAL AND STATE REGISTRATION REQUIREMENTS; POSIBLE INABILITY TO EXERCISE
WARRANTS. Holders of Warrants will have the right to exercise them after the
Separation Date and only if there is a current registration statement in effect
with the Securities and Exchange Commission (the "Commission") and
14
<PAGE>
such shares are qualified with or approved for sale by various state securities
agencies, or if in the opinion of counsel for the Company, there is an effective
exemption from registration. There can be no assurance that the Company will be
able to keep a registration statement covering the shares underlying the
Warrants current. If a registration statement covering such shares of Common
Stock is not kept current for any reason, or if the shares underlying the
Warrants are not registered in the state in which a holder resides, the Warrants
will not be exercisable and may be deprived of any value.
EFFECT OF PREVIOUSLY ISSUED OPTIONS, WARRANTS AND REPRESENTATIVES' OPTIONS
ON SECURITIES' PRICES. 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 is issuing the Warrants
to purchase 1,500,000 shares of Common Stock (1,725,000, if the Over-Allotment
Option is exercised in full). In addition, as of the closing of the Offering,
the Company will sell to the Representatives, for nominal consideration, the
Representatives' Options to purchase an aggregate of 150,000 Units at a price
per Unit equal to 120% of the initial public offering price per Unit in the
Offering, subject to adjustment as provided therein. The existence of the Bridge
Warrants, the 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 the Bridge Warrants and the
Representatives' Options (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 Unit 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.
15
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Units offered hereby, at an assumed
initial offering price of $6.00 per Unit, 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."
16
<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."
17
<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 Units offered hereby at an assumed initial offering price
of $6.00 per Unit 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 Unit(1)..................................... $ 6.00
Pro forma net tangible book value before the Offering............................... $ 0.13
Increase attributable to purchase of Units 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 Unit, before deducting
underwriting discounts and offering expenses payable by the Company. For
purposes of the above discussion and table, no value has been allocated to
the Warrants included in the Units.
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, (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, (iii) 1,500,000
shares of Common Stock issuable upon exercise of the Warrants, (iv) 300,000
shares of Common Stock issuable upon exercise of the Representatives' Options
and the Representatives' Unit Warrants and (v) 450,000 shares of Common Stock
issuable upon exercise of the Over-Allotment Option and the Warrants underlying
the same. See "Management--Stock Option Plans" and "Description of Securities."
18
<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 Units offered
hereby at an assumed initial public offering price of $6.00 per Unit 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
Units offered hereby at an assumed initial public offering price of $6.00
per Unit 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, (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, (iii) 1,500,000 shares of Common Stock issuable upon exercise of the
Warrants, (iv) 300,000 shares of Common Stock issuable upon exercise of the
Representatives' Options and the Representatives' Unit Warrants and (v)
450,000 shares of Common Stock issuable upon exercise of the Over-Allotment
Option and the Warrants underlying the same. See "Management--Stock Option
Plans" and "Description of Securities."
19
<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.
20
<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."
21
<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
22
<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
23
<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
24
<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.
25
<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 or dollar amount set by the
house. Under these circumstances, the house can ensure that its exposure is no
more than a fixed percentage or dollar amount, 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.
26
<PAGE>
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 re-start 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.
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
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 the 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,
30
<PAGE>
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
31
<PAGE>
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.
32
<PAGE>
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
33
<PAGE>
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.
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. On October 25,
1996, American Wagering, Inc. acquired the subsidiary of Autotote Corporation
which sold sports wagering equipment and terminals to casinos and sports book
operators in Nevada. The Company believes that the subsidiary involved, sold
such equipment, which was largely record keeping equipment, to 100 of the 115
casinos and sports book operators in Nevada. 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."
34
<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.
35
<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 Automated Data Services 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
36
<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 1996, 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 1977, 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
37
<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
vested 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 1996 as Chairman of the Board and Chief
Executive Officer of Coin Bill Validator, Inc., a publicly-held manufacturer and
marketer of paper currency validation systems used to
38
<PAGE>
automate payment in the 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.
39
<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.
40
<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 included in the Units of $6.00 per share (with no value
being attributed to the Warrants included in the Units) 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.
41
<PAGE>
Any shares subject to an option that terminates, expires or lapses for any
reason, and any shares purchased 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 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.
42
<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(3)
- ------------------------------------------------------- ------------------ ----------------- -------------------
<S> <C> <C> <C>
Mr. Barry Mindes(4).................................... 3,023,954 50.2% 40.2%
Mindes Family Limited Partnership...................... 1,511,524 25.1% 20.0%
Mr. Bernard Albanese(5)................................ 173,824 2.9% 2.3%
The Marie Albanese Trust, Marie Albanese and Christine
Marie Albanese, trustees(6).......................... 302,304 5.0% 4.0%
Mr. Fredric Kupersmith................................. 19,196 * *
Ms. Janet Mindes(7).................................... 15,115 * *
Mr. Harold Rapaport(8)................................. 37,787 * *
Mr. Barry Rubenstein(9)................................ 995,812 16.4% 13.2%
DISS Partners(10)...................................... 483,686 8.0% 6.4%
All executive officers and directors as a group (7
persons)(11)......................................... 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) Does not include as outstanding (i) up to 1,500,000 shares of Common Stock
underlying the Warrants included in the Units offered hereby, (ii) up to
450,000 shares of Common Stock underlying the Over-Allotment Option and the
Warrants underlying the same, and (iii) up to 300,000 shares of Common Stock
underlying the Representatives' Options and the Representatives' Unit
Warrants.
(4) Includes 1,511,524 shares held by Mindes Family Limited Partnership, of
which Mr. Mindes is general partner. Mr. Mindes disclaims beneficial
ownership of the shares owned by Mindes Family Limited Partnership to the
extent such shares exceed his proportionate interest therein. Does not
include shares beneficially owned by Mr. Mindes' daughter, Ms. Janet Mindes,
as to which Mr. Mindes disclaims beneficial ownership.
(5) Includes 22,672 shares underlying options held by Mr. Albanese.
(6) 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.
(7) Represents shares underlying options held by Ms. Mindes.
43
<PAGE>
(8) 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.
(9) 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.
(10) 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, 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.
(11) 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 or 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."
44
<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
Warrant Agreement (as defined below), 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.
GENERAL
The authorized capital stock of the Company consists of 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; and, 2,000,000 shares of preferred stock, par
value $.001 per share, of which no shares are outstanding as of the date hereof.
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
Warrant entitling the holder to purchase one share of Common Stock. The shares
of Common Stock and the Warrants will be transferable only as part of a Unit
until the Separation Date.
COMMON STOCK
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. All of the outstanding shares of Common Stock are,
and all of the shares of Common Stock included in the Units and issuable upon
exercise of the Warrants will be, validly authorized and issued, fully paid, and
nonassessable.
PREFERRED STOCK
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."
WARRANTS
The Warrants will be issued pursuant to an agreement, dated as of the date
of this Prospectus (the "Warrant Agreement"), between the Company and American
Stock Transfer & Trust Company, as warrant agent (the "Warrant Agent"). None of
the Warrants have been issued prior to the Offering.
The Warrants will not be detachable or separately transferable from the
shares of Common Stock included in the Units until two years from the date
hereof or such earlier date as (i) Barington may determine or (ii) 30 days after
the Company may determine at any time after one year from the date
45
<PAGE>
hereof, provided that the Units have traded at 200% of the initial Unit offering
price for a period of 15 consecutive trading days ending within 15 days from the
date of determination (the "Separation Date"). Each Warrant will entitle the
holder to purchase, commencing on the Separation Date and at any time until the
fifth anniversary of the date of this Prospectus, one share of Common Stock at
an exercise price equal to 120% of the initial Unit offering price, subject to
certain adjustments. The Warrants may be exercised in whole or in part. Unless
exercised, the Warrants will automatically expire on the fifth anniversary of
the date of this Prospectus.
The Company may redeem the Warrants after the Separation Date, in whole but
not in part, at the option of the Company, upon not less than 15 days' notice,
at a price of $.05 per Warrant, provided the last sale price of the Common Stock
has been at least 200% of the initial Unit offering price for 15 consecutive
trading days ending within 15 days of the date of the notice of redemption. In
the event the Company exercises its right to redeem the Warrants, such Warrants
will be exercisable until the close of business on the date fixed for redemption
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and the holder thereof will be entitled
only to the redemption price.
For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Commission and qualification with or approval from
various state securities agencies with respect to the shares or other securities
underlying the Warrants, or an opinion of counsel for the Company that there is
an effective exemption from registration. As long as the Warrants remain
outstanding and exercisable, the Company may be required to file a registration
statement with the Commission and have such registration statement declared
effective. There can be no assurance, however, that such registration statement
can be kept current. If a registration statement covering such shares of Common
Stock is not kept current, or if the shares underlying the Warrants are not
registered in the state in which a holder resides, the Warrants may not be
exercisable and may be deprived of any value. See "Underwriting" and "Risk
Factors--Federal and State Registration Requirements; Possible Inability to
Exercise Warrants."
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 Unit offering price. 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 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 Unit
offering price.
46
<PAGE>
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 Unit offering price, 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
Unit offering price.
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.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The Company has appointed American Stock Transfer & Trust Company as
transfer agent and registrar for the Units, Common Stock and Warrants, and
warrant agent for the Warrants.
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
47
<PAGE>
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.
48
<PAGE>
CERTAIN TAX CONSIDERATIONS
The following discussion sets forth what the Company believes are the
material tax consequences of a purchase of the Units. However, the Company has
not requested a ruling from the Internal Revenue Service or a tax opinion from
its counsel. PROSPECTIVE PURCHASERS OF THE UNITS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE CONSEQUENCES TO THEM OF THE PURCHASE AND HOLDING OF
SUCH SECURITIES, INCLUDING THE COMMON STOCK AND THE WARRANTS INCLUDED IN THE
UNITS, AND THE APPLICABILITY AND EFFECT OF FEDERAL, STATE AND OTHER TAX LAWS AND
REGULATIONS.
The sale of a Unit or a share of Common Stock or the sale of a Warrant will
result in the recognition of gain or loss to the holder in an amount equal to
the difference between the amount realized and his adjusted basis therein. In
order to determine adjusted basis, a holder must allocate the consideration paid
for each Unit between the underlying share of Common Stock and the Warrant in
accordance with their relative fair market values.
The sale of a share of Common Stock will result in a capital gain or loss,
provided the Common Stock is a capital asset in the hands of the holder. The
sale of a Warrant will likewise result in a capital gain or loss provided the
Warrant is a capital asset in the hands of the holder, and the Common Stock
underlying the Warrant would be a capital asset to the holder if acquired by
him. Such capital gain or loss will be long-term capital gain or loss if the
Common Stock or Warrant being sold has been held for more than one year by the
holder at the time of such sale or exchange.
Under Section 305 of the Internal Revenue Code of 1986, as amended (the
"Code"), certain actual or constructive distributions of stock to a stockholder,
including warrants to purchase stock, with respect to the stock or warrants held
by a stockholder may be taxable to a stockholder of the Company. Adjustments in
the exercise price of the Warrants, or the number of shares purchasable upon
exercise of the Warrants, in each case made pursuant to the antidilution
provisions of the Warrants, may result in a distribution which is taxable as a
dividend under the Code to the holders of Warrants.
No gain or loss will be recognized by a holder of a Warrant on his purchase
of Common Stock for cash upon the exercise of the Warrant. The adjusted basis of
the Common Stock so acquired would be equal to the adjusted basis of the Warrant
plus the exercise price. The holding period of the Common Stock acquired upon
the exercise of a Warrant will begin on the day after the date of exercise.
If a Warrant is not exercised and is allowed to expire, the Warrant is
deemed to have been sold or exchanged on the expiration date. Any loss to the
holder of a Warrant will be a capital loss if the Warrant was held as a capital
asset and if the Common Stock underlying the Warrant would have been a capital
asset in the Warrant holder's hands had such Warrant been exercised. The capital
loss will be a long-term capital loss if the Warrant has been held for more than
one year and a short-term capital loss if the Warrant has been held for one year
or less.
No gain or loss will be recognized by the Company upon the sale of the
Units, or the acquisition, exercise or expiration of any Warrants.
49
<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 of Common Stock included in the Units 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. Upon the Separation Date, the
1,500,000 shares of Common Stock issuable upon exercise of the Warrants included
in the Units (1,725,000, if the Over-Allotment Option is exercised in full)
will, when such Warrants are exercised, be eligible for immediate sale to the
public without restriction. With respect to the remainder of the outstanding
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 Units 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."
50
<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 Units 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 Units if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF UNITS
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 Units 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 Unit, 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 Units 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 Units 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 Units offered hereby
(including any Units 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 Units 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 Unit exercise price equal to 120% of the initial Unit offering
price. The Warrants underlying the Representatives' Options are identical in all
respects to the Warrants to be issued to the public, except that while the
Warrants are held by the Representatives or certain transferees of the
Representatives they are not redeemable by the Company under any circumstances.
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 Units
and will contain certain registration rights and anti-dilution provisions
providing for appropriate adjustment of the exercise price and number of Units
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 Units 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 Price (as
51
<PAGE>
defined) of the Units issuable upon exercise of the Representatives' Options
being surrendered) divided by the Current Market Price of one Unit.
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 Units, Common
Stock or Warrants. Consequently, the public offering price of the Units, and the
exercise price of the Warrants, have been determined by arms-length negotiation
between the Company and the Representatives and do 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 prices 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 securities 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,
52
<PAGE>
1996 have been included herein and in the Registration Statement of which this
Prospectus forms a part in 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.
53
<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.
Subsequently, the parties agreed to offer 1.5 million units in lieu of the 1.5
million shares, each unit consisting of one share of common stock and one
redeemable warrant to purchase one share of common stock. 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.................................... 9
Use of Proceeds................................. 16
Dividend Policy................................. 17
Dilution........................................ 18
Capitalization.................................. 19
Plan of Operation............................... 20
Business........................................ 22
Management...................................... 36
Principal Stockholders.......................... 43
Certain Transactions............................ 44
Description of Securities....................... 45
Certain Tax Considerations...................... 49
Shares Eligible for Future Sale................. 50
Underwriting.................................... 51
Legal Matters................................... 52
Experts......................................... 52
Available Information........................... 53
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 UNITS
INTERNATIONAL SPORTS WAGERING INC.
---------------------
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 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 Units (each, a "Unit" and collectively, the
"Units"), each Unit consisting of one share of Common Stock and one redeemable
Warrant to purchase one share of Common Stock, plus up to 225,000 Units 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.
</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 (i) up to 1,500,000 shares of Common Stock underlying the
Warrants included in the Units, (ii) up to 450,000 shares of Common Stock
included in the Units underlying the Over-Allotment Option and the Warrants
underlying the same, and (iii) up to 300,000 shares of Common Stock included
in the Units underlying the Representatives' Options and the Warrants
underlying the same.
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 Units,
each Unit consisting of one share of Common Stock and one redeemable warrant to
purchase one share of Common Stock, plus 225,000 Units 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 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........................................... $ 9,026.42
NASD Registration Fee.......................................... 3,478.72
Blue Sky fees.................................................. 25,000.00
Printing and Engraving......................................... 65,000.00
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......................................... 20,994.86
----------
Total........................................................ $760,000.00
----------
----------
</TABLE>
- ------------------------
(1) Assuming an initial public offering price of $6.00 per Unit.
(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 share in the Offering, at $100,000 per Unit
($650,000, total) solely to accredited investors. The Registrant
II-1
<PAGE>
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 Revised Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant (1)
3.1(a) Amendment, filed October 24, 1996, to Certificate of Incorporation of the
Registrant (1)
3.2 By-Laws of the Registrant (1)
4.1 Revised Form of Representatives' Option Agreement
4.2 Form of Stock Certificate (2)
4.3 Form of Bridge Warrant (1)
4.4 Form of Bridge Note (1)
4.5 Form of Warrant Agreement between the Registrant and American Stock Transfer &
Trust Company
5.1 Opinion of Rubin Baum Levin Constant & Friedman (2)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.1 Employment Agreement between the Registrant and Barry Mindes, dated as of May 22,
1995 (1)
10.2 Employment Agreement between the Registrant and Bernard Albanese, dated as of June
1, 1995 (1)
10.3 Form of Proprietary Information, Inventions and Non-Solicitation Agreement (1)
10.4 Form of Subscription Agreement (1)
10.5 Rights Agreement among the Registrant and the investors listed on Schedule A
therein, dated as of June 2, 1995 (1)
10.6 Stock and Warrant Purchase Agreement among the Registrant and the investors listed
on Schedule A therein, dated as of June 2, 1995 (1)
10.7 Rights Agreement between the Registrant and Barry Mindes, dated as of June 20,
1996 (1)
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) (1)
10.9 Lease between Eastern American Mortgage Company, Inc. and the Registrant, dated
June 9, 1995 (1)
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 (1)
10.12 1996 Stock Option Plan (1)
10.13 Voting Agreement among the Registrant, Barry Mindes and the investors listed on
Schedule A therein, dated as of June 2, 1995 (1)
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) (2)
24.1 Power of Attorney (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ------------------------
(1) Previously filed.
(2) 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
II-3
<PAGE>
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, 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 Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in The City of New York, New York on November 11,
1996.
<TABLE>
<S> <C> <C>
INTERNATIONAL SPORTS WAGERING INC.
By: /s/ BARRY MINDES
------------------------------------------
Barry Mindes, Chairman of the Board
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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 November 11, 1996
- ------------------------------ Directors (Principal
Barry Mindes Executive Officer)
/s/ BERNARD ALBANESE President, Treasurer and November 11, 1996
- ------------------------------ Director
Bernard Albanese
* Chief Financial Officer November 11, 1996
- ------------------------------ (Principal Financial and
Jeneene M. Norman Accounting Officer)
* Director November 11, 1996
- ------------------------------
Fredric Kupersmith
* Director November 11, 1996
- ------------------------------
Janet B. Mindes
* Director November 11, 1996
- ------------------------------
Harold Rapaport
*By /s/ BARRY MINDES
- ------------------------------
AS ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1.1 Revised Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant (1)
3.1(a) Amendment, filed October 24, 1996, to Certificate of Incorporation of the Registrant (1)
3.2 By-Laws of the Registrant (1)
4.1 Revised Form of Representatives' Option Agreement
4.2 Form of Stock Certificate (2)
4.3 Form of Bridge Warrant (1)
4.4 Form of Bridge Note (1)
4.5 Form of Warrant Agreement between the Registrant and American Stock Transfer & Trust Company
5.1 Opinion of Rubin Baum Levin Constant & Friedman (2)
10.1 Employment Agreement between the Registrant and Barry Mindes, dated as of May 22, 1995 (1)
10.2 Employment Agreement between the Registrant and Bernard Albanese, dated as of June 1, 1995 (1)
10.3 Form of Proprietary Information, Inventions and Non-Solicitation Agreement (1)
10.4 Form of Subscription Agreement (1)
10.5 Rights Agreement among the Registrant and the investors listed on Schedule A therein, dated as of
June 2, 1995 (1)
10.6 Stock and Warrant Purchase Agreement among the Registrant and the investors listed on Schedule A
therein, dated as of June 2, 1995 (1)
10.7 Rights Agreement between the Registrant and Barry Mindes, dated as of June 20, 1996 (1)
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
above) (1)
10.9 Lease between Eastern American Mortgage Company, Inc. and the Registrant, dated June 9, 1995 (1)
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 (1)
10.12 1996 Stock Option Plan (1)
10.13 Voting Agreement among the Registrant, Barry Mindes and the investors listed on Schedule A
therein dated as of June 2, 1995 (1)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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)
(2)
24.1 Power of Attorney (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ------------------------
(1) Previously filed.
(2) To be filed by amendment.
<PAGE>
EXHIBIT 1.1
[1,500,000] Units
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] units (the "Units"), each Unit consisting of one share of Common
Stock, par value $.001 per share, of the Company (the "Common Stock") and one
Common Stock Purchase Warrant (the "Warrants"). 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] Units
(the "Additional Units") identical to the Units.
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 Units; (ii) the shares of Common Stock (the
"Firm Stock") and Warrants (the "Firm Warrants" and collectively with the Firm
Stock, the "Firm Securities") comprising the Units; (iii) the Additional
Units; (iv) the shares of Common Stock
<PAGE>
(the "Additional Stock") and Warrants (the "Additional Warrants" and,
collectively with the Additional Stock, the "Additional Securities") comprising
the Additional Units; (v) the shares of Common Stock underlying the Firm
Warrants (the "Firm Warrant Stock") and the Additional Warrants (the "Additional
Warrant Stock"); (vi) the Units (the "Representatives' Units") underlying the
Unit purchase option referred to in Section 5(s) (the "Representatives'
Options"); (vii) the shares of Common Stock (the "Representatives' Unit Stock")
and Warrants (the "Representatives' Unit Warrants") comprising the
Representatives' Units; (viii) the shares of Common Stock underlying the
Representatives' Unit Warrants (the "Representatives' Warrant Stock") and (ix)
the shares of Common Stock (the "Bridge Stock") issuable upon exercise of the
warrants (the "Bridge Warrants") issued to investors in connection with the
bridge financing (the "Bridge Financing") consummated prior to the Offering
(the Units, Firm Securities, the Additional Units, the Additional Securities,
the Firm Warrant Stock, the Additional Warrant Stock, the Representatives'
Options, the Representatives' Units, the Representatives' Unit Stock, the
Representatives' Unit Warrants, the Representatives' Warrant Stock, the Bridge
Warrants, 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 Units 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
- 2 -
<PAGE>
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 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
- 3 -
<PAGE>
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 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 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
- 5 -
<PAGE>
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, (ii) the Warrant Agreement
between the Company and American Stock Transfer & Trust Company, as Warrant
Agent (the "Warrant Agent"), relating to the Firm Warrants, Additional Warrants,
and Representatives' Unit Warrants (the "Public Warrant Agreement"), (iii) the
Firm Warrants, the Additional Warrants and the Representatives' Unit Warrants,
and (iv) the certificates evidencing the Representatives' Options (the
"Representatives' Option Agreement", and collectively with this Agreement, the
Public Warrant Agreement, the Firm Warrants, the Additional Warrants, and the
Representatives' Unit Warrants, 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. Each of the
other Company Documents 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 understanding, or violate or result in a
breach of any term of the
- 6 -
<PAGE>
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
Securities and Additional Securities purchased by them, respectively, free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts.
(p) The Firm Warrant Stock and Additional Warrant Stock are validly
authorized and reserved for issuance and, when issued and delivered upon
exercise of the Firm Warrants or Additional Warrants, as the case may be, in
accordance with the Public Warrant Agreement, will be validly issued, fully paid
and non-assessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Firm Warrants or Additional Warrants, as
the case may be, 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 Representatives' Units, including the Representatives' Unit Stock,
the Representatives' Unit Warrants, and the Representatives' Warrant Stock, are
validly authorized and reserved for issuance and, when issued and delivered upon
exercise of the Representatives' Options or Representatives' Unit Warrants, as
the case may be, in accordance with the Representatives' Option Agreement or the
Public Warrant Agreement, as the case may be, the Representatives' Unit Stock
and Representatives' Warrant 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 or Representatives' Unit
Warrants, as the case may be, 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.
(r) The Common Stock, the Securities and the Public Warrant Agreement
conform to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(s) 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.
(t) 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
- 7 -
<PAGE>
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 Units or
Additional Units.
(u) 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 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.
(v) 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.
(w) 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.
(x) 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).
(y) 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
- 8 -
<PAGE>
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.
(z) The Securities have been approved for quotation on the NASDAQ SmallCap
Market, 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 Units and the Additional Units. 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 Units set opposite the respective names of the Underwriters in
Schedule I hereto.
The purchase price per Unit to be paid by the several Underwriters shall be
$__________. The initial public offering price per Unit shall be $_________.
Payment for the Units 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 Units 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 Units 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 Units as may be necessary
to cover over-allotments,
- 9 -
<PAGE>
at the same purchase price per share to be paid by the several Underwriters to
the Company for the Units as provided for in this Section 3. The Additional
Units shall be purchased by the several Underwriters from the Company as
provided herein, pro rata in accordance with the ratio which the number of Units
set forth opposite such Underwriter's name on Schedule I bears to the total
number of Units, subject to adjustment to avoid fractional shares. This option
may be exercised only to cover over-allotments in the sale of Units by the
several 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 Additional Units
as to which the option is being exercised and the time and date, as determined
by you, when such Additional Units are 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 Units 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 Additional Units to you for the
respective accounts of the Underwriters.
Certificates for the securities comprising the Additional Units 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 Units as
soon, on or after the effective date of the Registration Statement, as you deem
it advisable so to do. The Units are 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
- 10 -
<PAGE>
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 Units, the Additional Units, the Firm Securities and the
Additional Securities 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
from time to time in force, to the extent necessary to permit the continuance of
sales of or dealings in the Units, the Additional Units, the Firm Securities and
the Additional Securities, 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
Units, the Additional Units, the Firm Securities and the Additional Securities
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 Units, the Additional Units, the Firm Securities and
the Additional Securities 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
- 11 -
<PAGE>
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 Units, the Additional Units, the Firm Securities
and the Additional Securities 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 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 Units, the
Additional Units, the Firm Securities and the Additional Securities 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.
- 12 -
<PAGE>
(i) For a period of five years after the effective date of the
Registration Statement, furnish you, without charge, the following:
(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.
- 13 -
<PAGE>
(o) File timely with the Commission an appropriate form to register
the Units, Common Stock, and Warrants pursuant to Section 12(b) under the
Exchange Act.
(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
Units, the the Common Stock and the Warrants on the Nasdaq SmallCap Market
("NASDAQ") to be approved as soon as possible.
(s) 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]
Units, which Representatives' Options shall be evidenced by the Representatives'
Option Agreement in the form set forth as an exhibit to the Registration
Statement.
(t) Until expiration of the Firm Warrants and any Additional Warrants
which may be issued, keep reserved sufficient shares of Common Stock for
issuance upon exercise thereof.
(u) Until expiration of the Representatives' Options, keep reserved
sufficient Units, including shares of Common Stock and Warrants, for issuance
upon exercise of the Representatives' Options; and until expiration of the
Representatives' Unit Warrants, keep reserved sufficient shares of Common Stock
for issuance upon exercise of the Representatives' Unit Warrants.
(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
- 14 -
<PAGE>
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 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
- 15 -
<PAGE>
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).
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 Units and the
Additional Units, including any transfer or other taxes payable thereon, (c)
the qualification of the Units and the Additional Units 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 Units, Common Stock and Warrants on the NASDAQ SmallCap Market, (g)
the fees and expenses of the Company's transfer agent and registrar and the
Warrant Agent, (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 Units and the Additional Units, 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
Units sold by the Company on the Closing Date) and, if applicable, on the
Closing Date and any Additional Closing Date (with respect to Additional
Units 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 Units and the Additional Units, 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:
- 16 -
<PAGE>
(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.
(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 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, 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
- 17 -
<PAGE>
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 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
- 18 -
<PAGE>
Company or to which any of its operations, business, properties, or
assets are subject;
(vii) the Units and the Additional Units are validly authorized.
Such opinion delivered at the Closing Date or any Additional Closing
Date shall state that each share of Units or Additional Units, as the
case may be, to be delivered on 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 Securities and Additional Securities 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 Firm Warrant Stock and Additional Warrant Stock are
validly authorized and reserved for issuance and, when issued and
delivered upon exercise of the Firm Warrants or Additional Warrants,
as the case may be, in accordance with the Public Warrant Agreement,
will be validly issued, fully paid and nonassessable, without any
personal liability attaching solely by virtue of the ownership
thereof, and will not be issued in violation of any preemptive rights
of stockholders; and the holders of the Firm Warrants or Additional
Warrants, as the case may be, 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 Representatives' Units, including the Representatives'
Unit Stock, the Representatives' Unit Warrants, and the
Representatives' Warrant Stock have been duly and validly reserved for
issuance. Such opinion delivered at the Closing Date shall state that
the Representatives' Options have been duly and validly issued and
delivered. The Representatives' Units, including the Representatives'
Unit Stock, the Representatives' Unit Warrants, and the
Representatives' Warrant Stock, when issued and delivered in
accordance with the Representatives' Option Agreement or Public
Warrant Agreement, as the case may be, 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 or Representatives' Unit
Warrants, as the case may be, 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;
(x) the Common Stock, the Securities and the Public Warrant
Agreement conform to all statements relating thereto contained in the
Registration Statement or the Prospectus;
(xi) to the knowledge of such counsel, any contract, agreement,
instrument, lease, or license required to be described in the
Registration
- 19 -
<PAGE>
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;
(xii) 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;
(xiii) to the knowledge of such counsel, the conditions for use
of Form SB-2 have been satisfied with respect to the Registration
Statement;
(xiv) the Securities have been approved for listing on the
[Philadelphia 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
- 20 -
<PAGE>
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
(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.
(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
- 21 -
<PAGE>
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, such
statements 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 Units and the Additional Units 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
Units and the Additional Units, 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(u) and (x).
(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
- 22 -
<PAGE>
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 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
- 23 -
<PAGE>
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
Units or the Additional Units, 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 Representatives 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 Units and Additional Units underwritten by such Underwriter
hereunder and the initial public offering price per Unit 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
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).
- 24 -
<PAGE>
(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
Unit set forth on the cover page of the Prospectus represents of the initial
public offering price per Unit 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 Units underwritten by it as compared to the number of
Units 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 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.
- 25 -
<PAGE>
9. Default by an Underwriter. (a) If any Underwriter or Underwriters shall
default in its or their obligation to purchase Units or Additional Units
hereunder, and if the number of Units or Additional Units to which the
defaults of all Underwriters in the aggregate relate does not exceed 10% of the
number of Units or Additional Units, as the case may be, which all
Underwriters have agreed to purchase hereunder, then such Units or Additional
Units 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
Units or Additional Units, 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 Units or Additional
Units, 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 Units or Additional
Units, as the case may be, within one business day after the occurrence of
defaults relating to in excess of 10% of the Units or the Additional Units, 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 Units or Additional Units, as the case may be, on such
terms. If you or the Company do not arrange for the purchase of the Units or
Additional Units, 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 Units or Additional Units 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 Units or the Additional Units, 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 to this Agreement and had been allocated the number of
Units and Additional Units actually purchased by it as a result of its original
commitment to purchase Units and Additional Units and its purchase of Units or
Additional Units 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
- 26 -
<PAGE>
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 Units and the Additional Units 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 Units, 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 Units 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 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 Units or the Additional Units, as the case may be;
or if there shall have been such change in the market 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 Units or the Additional Units, 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
- 27 -
<PAGE>
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
Units and the Additional Units, 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 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
Units or the Additional Units), 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.
- 28 -
<PAGE>
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.
- 29 -
<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:
-----------------------------------------
GKN SECURITIES CORP.
By:
-----------------------------------------
Name:
Title:
On behalf of itself and the other several
Underwriters named in Schedule I hereto.
- 30 -
<PAGE>
SCHEDULE I
Total
Number
of Units
to be
Underwriter Purchased
----------- ---------
Barington Capital Group, L.P. [insert number of Units]
GKN Securities Corp.
---------
Total 1,500,000
=========
- 31 -
<PAGE>
EXHIBIT 4.1
[FORM OF REPRESENTATIVES' OPTION AGREEMENT]
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE UNITS 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 UNITS 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 Units of Common Stock
and Warrants
No. __ 150,000 Units
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 [closing
date], and before 5:00 P.M. on [five years after closing date], New York time
(the "Exercise Period"), 150,000 units (the "Option Units"), at a price of
$_____ per Share (the "Exercise Price"). Subject to adjustment as provided
herein, each Option Unit is comprised of one share (the "Unit Share") of the
Company's common stock, par value $0.001 per share (the "Common Stock"), and one
warrant, each entitling the Holder to purchase one share of Common Stock (the
"Unit Warrant") which share shall be issued pursuant to a Warrant Agreement,
dated _____________, 1996 (the "Public Warrant Agreement"), between the Company
and American Stock Transfer & Trust Company as warrant agent (the "Warrant
Agent"). 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
<PAGE>
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 Units 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 the "Holder" as used
herein shall include any transferee to whom this Option has been transferred in
accordance with the above.
Each Unit Warrant shall entitle the holder thereof to purchase one share of
Common Stock (the shares of Common Stock issuable upon exercise of the Unit
Warrants being collectively referred to as the "Warrant Shares"). Each Unit
Warrant shall be identical in all respects to the warrants (the "Public
Warrants") issued pursuant to the Public Warrant Agreement and sold to the
public. If this Option is exercised after the expiration of the exercise period
of the Public Warrants, any Option Unit with respect to which this Option is
exercised will be comprised of only one Unit Share and will not include a Unit
Warrant.
1. This Option may be exercised during the Exercise Period, as to the whole
or any lesser number of whole Option Units, 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 Units for which this Option is
being exercised (the "Unit Purchase Price").
2. (a) In lieu of the payment of the Unit 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 Units (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 Unit Purchase
Price) that number of Units (the "Conversion Units") 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 Unit Purchase Price of the Units 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(g) hereof) of the Units as to which the Conversion Right is being
exercised) by (y) the Current Market Price of one Unit immediately prior to the
exercise of the Conversion Right.
(b) The Conversion Right 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 Units 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
- 2 -
<PAGE>
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 Units or
Conversion Units, the Holder shall be deemed to be the holder of record of the
Option Units or Conversion Units issuable upon such exercise or conversion,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing such Option Units or Conversion Units shall not then
have been actually delivered to the Holder. As soon as 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 Units or Conversion
Units 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 Units (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
Units (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 Units and/or Conversion Units
and the Unit 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 Option and the Unit Warrants, upon receipt
by the Company of the full Exercise Price
- 3 -
<PAGE>
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) Upon the occurrence of any event (an "Event") as a result of which
an adjustment is made to the exercise price (the "Public Exercise Price") of any
of the Public Warrants, the number of Unit Shares issuable thereafter upon
exercise of this Option shall be adjusted to equal the number of Unit Shares
issuable prior to such Event multiplied by a fraction, the numerator of which
shall be the Public Exercise Price in effect prior to such Event and the
denominator of which shall be the Public Exercise Price subsequent to such
Event.
(b) Notwithstanding any other provision of this Option, any adjustment of
the exercise price and/or the number of the Warrant Shares purchasable upon the
exercise of the Unit Warrants shall be determined solely by the antidilution and
other adjustment provisions contained in the Public Warrant Agreement (which
provisions are incorporated herein by reference) as if such Unit Warrants were
and had been outstanding on and from the date of original issuance of the Public
Warrants.
(c) 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.
(d) In any case in which this Section 6 shall require that an adjustment in
the number of Unit Shares 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 Option after such record
date, the shares of Common Stock, if any, issuable upon such exercise over and
above the number of Unit Shares, if any, issuable upon such exercise on the
basis of the number of Unit Shares 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.
(e) 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 Unit Shares issuable as part of each Option Unit and
the exercise price and the number of Warrant Shares purchasable upon the
exercise of each Unit Warrant 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.
(f) 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
- 4 -
<PAGE>
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.
(g) (i) Prior to the Separation Date (as defined in the Public Warrant
Agreement), the Current Market Price per Unit 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 (x) 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 Units are listed or admitted to
trading, (y) if the Units are 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, or
(z) if on any such date the Units are not listed or admitted to trading on any
national securities exchange and is not quoted by NASDAQ or any similar
organization, as determined by reference to the "pink sheets" published by the
National Quotation Bureau or, if not so published, by such other method of
determining market value as the board of directors of the Company shall in good
faith from time to time deem to be fair, whose determination shall be conclusive
absent manifest error, shall be used.
(ii) At any time after the Separation Date, the Current Market Price
per Unit shall be the aggregate of the Current Market Price per share of Common
Stock and the Current Market Price per Warrant. 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 (x) 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, (y) 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, or (z) 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, as
determined by reference to the "pink sheets" published by the National Quotation
Bureau or, if not so published, by such other method of determining market value
as the board of directors of the Company shall in good faith from time to time
deem to be fair, whose determination shall be conclusive absent manifest error,
shall be used. The Current Market Price per Warrant 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 (x) 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 Warrants are
listed or admitted to trading, (y) if the Warrants are not listed or admitted to
trading on any national securities exchange, the highest
- 5 -
<PAGE>
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, or (z) if on any such date the Warrants
are not listed or admitted to trading on any national securities exchange and is
not quoted by NASDAQ or any similar organization, as determined by reference to
the "pink sheets" published by the National Quotation Bureau or, if not so
published, by such other method of determining market value as the board of
directors of the Company shall in good faith from time to time deem to be fair,
whose determination shall be conclusive absent manifest error, shall be used.
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 and the Unit
Warrants 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 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 and
Unit Warrants 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.
- 6 -
<PAGE>
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
Public Exercise Price;
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 Public 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
- 7 -
<PAGE>
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 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
Units and the Conversion Units and the Unit Shares, the Unit Warrants and the
Warrant 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
- 8 -
<PAGE>
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 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
- 9 -
<PAGE>
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 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
- 10 -
<PAGE>
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 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.
- 11 -
<PAGE>
(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 Option 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
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
- 12 -
<PAGE>
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
Unit Shares or Conversion Units and Unit Warrants issued upon exercise or
conversion of the Options shall be subject to a stop transfer order and the
certificate or certificates evidencing such Option Units shall bear the
following legend:
"THE [SHARES] [WARRANTS] 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] [WARRANTS AND 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.
- 13 -
<PAGE>
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]
______________________________
Secretary
- 14 -
<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 __________ Units, par
value $.001 per Unit, 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.
- 15 -
<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 Units 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 Units shall not be all the Option Units covered by
the within Option, that a new Option for the balance of the Option Units 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)
- 16 -
<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 Units as shall be issuable pursuant to the cashless exercise
provisions of the within Option, in respect of _____ Units 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 Units shall not be all the Units exchangeable or
purchasable under the within Option, that a new Option for the balance of the
Units 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)
- 17 -
<PAGE>
EXHIBIT 4.5
WARRANT AGREEMENT
BETWEEN
INTERNATIONAL SPORTS WAGERING INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
Dated as of ________ ___, 1996
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ________ ___, 1996, between INTERNATIONAL
SPORTS WAGERING INC., a Delaware corporation (the "Company"), and AMERICAN STOCK
TRANSFER & TRUST COMPANY, a corporation organized under the banking laws of the
State of New York (the "Warrant Agent").
W I T N E S E T H:
WHEREAS, the Company proposes to make a public offering (the "Offering") of
Units (the "Units"), each Unit consisting of one share of the Company's Common
Stock, par value $0.001 per share (the "Common Stock"), and one redeemable
warrant (the "Public Warrants"), each Public Warrant entitling the holder to
purchase one share of the Company's Common Stock at an exercise price of
$_____ per share, [120% of the Unit offering price]; and
WHEREAS, the one share of Common Stock and the one Public Warrant included
in each Unit shall not be separable until two years following the date of
issuance, or such shorter period as (i) Barington Capital Group, L.P.
("Barington") may determine or (ii) 30 days after the Company may determine at
any time after one year, provided, that the last sale price of the Units has
been at least 200% of the initial Unit offering price for a period of 15
consecutive trading days ending within 15 days of such Company determination;
and
WHEREAS, the Company proposes to issue to the Representatives an option
(the "Representatives' Options") to purchase up to 150,000 Units (the
"Representatives' Units") such Representatives' Units to be identical to the
Units offered to the public; and
WHEREAS, the Company proposes to issue certificates evidencing the Public
Warrants and the Warrants underlying the Representatives' Units (the
"Representatives' Warrants", and together with the Public Warrants referred to
herein as the "Warrants") (such Warrant certificates issued pursuant to this
Agreement being hereinafter collectively called the "Warrant Certificates"); and
WHEREAS, the Company desires the Warrant Agent, and the Warrant Agent
agrees, to act on behalf of the Company in connection with the issuance,
transfer, exchange, replacement and surrender of the Warrant Certificates; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Warrant Agreement, among other things, the form and provisions of the Warrant
Certificates and the terms and conditions under which they may be issued,
transferred, exchanged, replaced and surrendered in connection with the exercise
of the Warrants;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
- 2 -
<PAGE>
ARTICLE I
DISTRIBUTION OF WARRANT CERTIFICATES
Section 1.1 Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act on behalf of the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
Section 1.2 Form of Warrant Certificates. The Warrant Certificates for the
Public Warrants and the Representatives' Warrants shall be issued in registered
form only and, together with the purchase and assignment forms to be printed on
the reverse thereof, shall be substantially in the form of Exhibit A and Exhibit
B attached hereto, respectively, and, in addition, may have such letters,
numbers or other marks of identification or designation and such legends,
summaries, or endorsements stamped, printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement or as, in any particular case, may be required, in the opinion
of counsel for the Company, to comply with any law or with any rule or
regulation of any regulatory authority or agency, or to conform to customary
usage.
Section 1.3 Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by its Chief Executive Officer or
Chairman of the Board, or President or any Vice President, and by its Chief
Financial Officer or any Assistant Treasurer or Secretary or any Assistant
Secretary, either manually or by facsimile signature printed thereon. The
Warrant Certificates shall be manually countersigned and dated the date of
countersignature by the Warrant Agent and shall not be valid for any purpose
unless so countersigned and dated. In case any authorized officer of the Company
who shall have signed any of the Warrant Certificates shall cease to be such
officer of the Company either before or after delivery thereof by the Company to
the Warrant Agent, the signature of such person on such Warrant Certificates,
nevertheless, shall be valid and such Warrant Certificates may be countersigned
by the Warrant Agent and issued and delivered to those persons entitled to
receive the Warrants represented thereby with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be such
officer of the Company.
Section 1.4 Issuance and Distribution of Warrant Certificates. Upon
completion of the Offering, the Company shall deliver to the Warrant Agent an
adequate supply of Warrant Certificates for the Public Warrants and the
Representatives'
- 3 -
<PAGE>
Warrants executed on behalf of the Company as described in Section 1.3 hereof.
Upon receipt of an order from the Company, the Warrant Agent shall within three
business days complete and countersign Warrant Certificates representing the
total number of Public Warrants to be issued hereunder and shall deliver such
Warrant Certificates pursuant to written instructions of the Company. Upon
receipt of an order from the Company acknowledging the exercise of the
Representatives' Options, the Warrant Agent shall within three business days
complete and countersign Warrant Certificates representing the total number of
Representatives' Warrants to be issued upon the exercise of the Representatives'
Option, and shall deliver such Warrant Certificates pursuant to written
instructions of the Company.
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 Exercise Price. Each Warrant Certificate shall, when signed by
the Chief Executive Officer or Chairman of the Board, or President or any Vice
President, and by the Chief Financial Officer or any Assistant Treasurer or
Secretary or any Assistant Secretary of the Company and countersigned by the
Warrant Agent, entitle the registered holder thereof, to purchase from the
Company one share of Common Stock for each Warrant evidenced thereby, at the
purchase price of $_______ per share (the "Initial Exercise Price"), or such
adjusted number of shares at such adjusted purchase price as may be established
from time to time pursuant to the provisions of Article IV hereof, payable in
full at the time of exercise of the Warrant. Except as the context otherwise
requires, the term "Exercise Price" as used in this Agreement shall mean the
purchase price of one share of Common Stock upon the exercise of a Public
Warrant or Representatives' Warrant, as the context requires, reflecting all
appropriate adjustments made in accordance with the provisions of Article IV
hereof.
Section 2.2 Registration of Common Stock and Exercisability of Warrants.
Each Warrant may be exercised at any time after the shares of Common Stock
issuable upon exercise of such Warrants have been effectively registered under
the Securities Act of 1933, as amended (the "Securities Act"), and such other
action as may be required by federal or state law relating to the issuance or
distribution of securities shall have been taken, but not before 9:30 A.M., New
York City time, on [two years after effective date], 1998 or such earlier date
(i) as Barington may determine or (ii) 30 days after the Company may determine
at any time after one year, provided, that the last sale price of the Units
has been at least 200% of the initial Unit offering price for a period of 15
consecutive trading days ending within 15 days of such Company determination,
(herein referred to as the "Separation Date"), and not after 5:00 P.M., New
York City time, on the earlier of [effective date], 2001, and the business
day immediately preceding the Call Date (as defined in Section
- 4 -
<PAGE>
4.9). The term "Exercise Deadline" as used in this Agreement shall mean the
latest time and date at which the Warrants may be exercised. The Company shall
use its best efforts to secure the effective registration of the aforementioned
shares of Common Stock under the Securities Act and to register or qualify such
shares under applicable state laws; the Company further agrees, from and after
the time such registration has become effective, to use its best efforts to
maintain such registration or qualification in effect and to keep available for
delivery upon the exercise of Warrants a prospectus that meets the requirements
of Section 10 of the Securities Act, until the earlier of the date by which all
Warrants are exercised or the Exercise Deadline; provided however, that the
Company shall have no obligation to register such Common Stock or maintain the
effectiveness of such registration or qualification or to keep available a
prospectus, as aforesaid, in the event that, by amendment to the Securities Act
or otherwise, such registration or qualification or the delivery of such
prospectus is not required at the time said Common Stock is to be issued; and
provided further, that in the event, by amendment to the Securities Act or
otherwise, some other or different requirement shall be imposed by act of the
Congress of the United States which shall relate to the issuance of Common Stock
upon exercise of the Warrants, the Company shall use its best efforts to comply
with such requirements so long as the same shall not be more burdensome to the
Company than the registration statement under the Securities Act. Promptly after
a registration statement under the Securities Act covering the aforementioned
Common Stock has become effective, or such other action as contemplated hereby
and as may be required has been taken, as the case may be, the Company shall
cause notice thereof or a copy of the prospectus covering the aforementioned
Common Stock to be mailed to each registered holder of a Warrant Certificate.
Section 2.3 Procedure for Exercise of Warrants. During the period specified
in and subject to the provisions of Section 2.2 hereof, Warrants may be
exercised by surrendering the Warrant Certificates representing such Warrants to
the Warrant Agent at [the principal office of its corporate trust department]
(the "Principal Office"), which is presently at ____________________, with the
election to purchase form set forth on the Warrant Certificate duly completed
and executed, with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank or trust company located in the United
States, a member of the National Association of Securities Dealers, Inc., or
other eligible guarantor institution which is a participant in a signature
guarantee program (as such terms are defined in Reg. 240.17Ad-15 under the
Securities Exchange Act of 1934, as amended) acceptable to the Warrant Agent
("Signatures Guaranteed"), accompanied by payment in full of the Exercise Price
as provided in Section 2.1 in effect at the time of such exercise, together with
such taxes as are specified in Section 7.1 hereof, for each share of Common
Stock with respect to which
- 5 -
<PAGE>
such Warrants are being exercised. Such Exercise Price and taxes shall be paid
in full by certified check or money order payable in United States currency to
the order of the Company. The date on which Warrants are exercised in accordance
with this Section 2.3 is sometimes referred to herein as the Date of Exercise of
such Warrants.
Section 2.4 Issuance of Common Stock. As soon as practicable after the Date
of Exercise of any Warrants, the Company shall issue, or cause the transfer
agent for the Common Stock, if any, to issue a certificate or certificates for
the number of full shares of Common Stock to which such holder is entitled,
registered in accordance with the instructions set forth in the election to
purchase. All shares of Common Stock issued upon the exercise of any Warrants
shall be validly authorized and issued, fully paid and nonassessable, and free
from all taxes, liens and charges created by the Company in respect of the issue
thereof, and shall be previously unissued shares. Each person in whose name any
such certificate for shares of Common Stock is issued shall for all purposes be
deemed to have become the holder of record of the Common Stock represented
thereby on the Date of Exercise of the Warrants resulting in the issuance of
such shares, irrespective of the date of issuance or delivery of such
certificate for shares of Common Stock.
Section 2.5 Certificates for Unexercised Warrants. In the event that less
than all of the Warrants represented by a Warrant Certificate are exercised, the
Warrant Agent shall execute and mail, by first-class mail, within 30 days of the
Date of Exercise, to the registered holder of such Warrant Certificate, or such
other person as shall be designated in the election to purchase, a new Warrant
Certificate representing the number of full Warrants not exercised. In no event
shall a fraction of a Warrant be exercised, and the Warrant Agent shall
distribute no Warrant Certificates representing fractions of Warrants under this
or any other section of this Agreement. Final fractions of shares shall be
treated as provided in Section 4.14.
Section 2.6 Reservation of Shares. The Company shall at all times reserve
and keep available for issuance upon the exercise of Warrants a number of its
authorized but unissued shares of Common Stock that will be sufficient to permit
the exercise in full of all outstanding Warrants.
Section 2.7 Disposition of Proceeds. The Warrant Agent shall account at
least monthly (or more frequently upon the request of the Company, provided that
in no event shall the Warrant Agent be required to account more frequently than
weekly) to the Company with respect to Warrants exercised and concurrently
deliver to the Company all funds.
- 6 -
<PAGE>
ARTICLE III
CALL OF WARRANTS
Section 3.1 Right to Call. The Company may, at its option, call for
redemption all or any portion of the then outstanding Warrants at a call price
of $.05 per Warrant (the "Call Price"), at any time after the Separation Date,
provided that the Current Market Price of the Common Stock, as determined
pursuant to Section 4.13, shall have been greater than or equal to 200% of the
initial Unit offering price for a period of 15 consecutive trading
days ending on the day prior to the date that notice of such call shall have
been given to the Warrant Agent by the Company pursuant to Section 4.11.
The foregoing notwithstanding, in no event shall the Representatives' Options be
subject to redemption by the Company under any circumstances as long as the
Representatives' Options are held by the Representatives or any of the following
transferees of the Representatives: (a) one or more officers or partners of the
Representatives (or the officers or partners of any such partner); (b) any other
underwriting firm or member of the selling group which participated in the
Offering (or the officers or partners of any such firm); (c) a successor to
either of the Representatives or the officers or partners of such successor; (d)
a purchaser of substantially all of the assets of either of the Representatives;
or (e) a transferee by operation of law.
Section 3.2 Payment of Call Price. On or prior to the opening of business
on the Call Date (as defined in Section 4.9), the Company will deposit with
Warrant Agent funds in form satisfactory to the Warrant Agent sufficient to
purchase all the Warrants which are to be called. Payment of the Call Price will
be made by the Warrant Agent upon presentation and surrender of the Warrant
Certificates representing such Warrants to the Warrant Agent at its Principal
Office.
Section 3.3 Call in Part. In the event the Company shall determine to call
less than all the Warrants, the Warrants chosen to be called shall be selected
by the Warrant Agent in such manner as the Warrant Agent shall deem fair and
equitable, including without limitation selection by lot.
ARTICLE IV
ADJUSTMENTS AND NOTICE PROVISIONS
Section 4.1 Adjustment of Exercise Price. Subject to the provisions of this
Article IV, the Exercise Price in effect from time to time shall be subject to
adjustment, as follows:
- 7 -
<PAGE>
(a) In case the Company shall at any time after the date hereof (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 shares of Common Stock issuable upon exercise of the
Warrants 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 holders of the Warrants after such time
shall be entitled to receive the aggregate number and kind of shares which, if
such Warrants had been exercised immediately prior to such time, such holders
would have owned upon such exercise 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, 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 determined pursuant
to Section 4.2 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). 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
- 8 -
<PAGE>
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 shareholders 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 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 4.1(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 shareholders 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, 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.
Section 4.2 Current Market Price. For the purpose of any computation under
this Article IV, 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 (a) 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
- 9 -
<PAGE>
trading (b) 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 or (c) 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, as determined by reference to the "pink
sheets" published by the National Quotation Bureau or, if not so published, by
such other method of determining the market value of a share of Common Stock as
the board of directors of the Company shall in good faith from time to time deem
to be fair, whose determination shall be conclusive absent manifest error shall
be used.
Section 4.3 No Adjustments to Exercise Price. 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 Article IV are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article IV shall be made to the nearest
cent or to the nearest one thousandth of a share, as the case may be.
Section 4.4 Deferral of Adjustments to Exercise Price. In any case in which
this Article IV 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 holders of the
Warrants, if any holder has exercised a 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 such exercising holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
Section 4.5 Adjustment to Number of Shares. Upon each adjustment of the
Exercise Price as a result of the calculations made in Sections 4.1(b) or 4.1(c)
hereof the Warrants 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 the Warrants 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.
- 10 -
<PAGE>
Section 4.6 Reorganization. In case of any capital reorganization, other
than in the cases referred to in Section 4.1 hereof, or the consolidation or
merger of the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property), or the sale of the property of the
Company as an entirety or substantially as an entirety (collectively such
actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Warrant (in lieu of the number of
shares of Common Stock theretofore deliverable) the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock which would otherwise have been deliverable upon the exercise of such
Warrant would have been entitled upon such Reorganization if such warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of Warrant holders so
that the provisions set forth herein shall thereafter be applicable, as nearly
as possible, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. Any such adjustment shall be made by and set forth in
a supplemental agreement between the Company, or any successor thereto, and the
Warrant Agent and shall for all purposes hereof conclusively be deemed to be an
appropriate adjustment. The Company shall not effect any such Reorganization,
unless upon or prior to the consummation thereof the successor corporation, or
if the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of shares of the Common Stock outstanding at the effective
time thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the registered holder of any Warrant Certificate such
shares of stock, securities, cash or other property as such holder shall be
entitled to purchase in accordance with the foregoing provisions. In the event
of sale or conveyance or other transfer of all or substantially all of the
assets of the Company as a part of a plan for liquidation of the Company, all
rights to exercise any Warrant shall terminate 30 days after the Company gives
written notice to each registered holder of a Warrant Certificate that such sale
or conveyance of other transfer has been consummated.
Section 4.7 Reclassifications. In case of any reclassification or change of
the shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value or from no par value to a specified par value, or as a
- 11 -
<PAGE>
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the holders of the Warrants shall
have the right thereafter to receive upon exercise of the Warrants solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification or change by a holder
of the number of shares of Common Stock for which the Warrants might have been
exercised immediately prior to such reclassification or change. Thereafter,
appropriate provision shall be as nearly equivalent as practicable to the
adjustments in Article IV. The above provisions of this Section 4.7 shall
similarly apply to successive reclassifications and changes of shares of Common
Stock.
Section 4.8 Verification of Computations. Whenever the Exercise Price is
adjusted as provided in this Article IV, the Corporation will promptly obtain a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors (who may be the regular auditors of the
Corporation) setting forth the exercise price as so adjusted and a brief
statement of the facts accounting for such adjustment, an will make available a
brief summary thereof to the Warrant Agent and to the holders of the Warrant
Certificates, at their addresses listed on the register maintained for the
purpose by the Warrant Agent.
Section 4.9 Exercise Price Not Less Than Par Value. In no event shall the
Exercise Price be adjusted below the par value per share of the Common Stock.
Section 4.10 Notice of Certain Actions. 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 4.7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
- 12 -
<PAGE>
(e) to take any other action which would cause an adjustment to the
Exercise Price;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the Warrant Agent. Such notice shall specify the date on which
the books of the Company shall close, or a record be taken, for determining
holders of Common Stock entitled to receive such stock dividend or other
distribution of such rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, lease, other disposition,
liquidation, dissolution, winding-up or exchange or other action shall take
place or commence, as the case may be, and the date as of which it is expected
that holders of record of Common Stock shall be entitled to receive securities
or other property deliverable upon such action, if any such date has been fixed.
The Company shall cause copies of such notice to be mailed to each registered
holder of a Warrant Certificate. Such notice shall be mailed, in the case of any
action covered by Subsection 4.9(a) or 4.9(b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of
receiving such payment or offer; in the case of any action covered by Subsection
4.9(c) or 4.9(d) above, at least 10 days prior to the earlier of the date upon
which such action is to take place or any record date to determine holders of
Common Stock entitled to receive such securities or other property; and in the
case of any action covered by Section 4.9(e) above, no more than 30 days after
such action.
Section 4.11 Notice of Call. Notice of any call for redemption shall be
given to the Warrant Agent by the Company not less than 20 days and not more
than 45 days prior to the date established for such call (the "Call Date") and
such notice shall be mailed to all registered holders of Warrant Certificates to
be called by the Warrant Agent promptly after the Company shall have given such
notice to the Warrant Agent. Each such notice of call will specify the Call Date
and the Call Price. The notice will state that payment of the Call Price will be
made by the Warrant Agent upon presentation and surrender of the Warrant
Certificates representing such Warrants to the Warrant Agent at its Principal
Office, and will also state that the right to exercise the Warrants will
terminate at 5:00 P.M., New York City time, on the business day immediately
preceding the Call Date. The Company will also make prompt public announcement
of such redemption by news release and by notice to any national securities
exchange on which the Warrants are listed for trading.
Section 4.12 Notice of Adjustments. Whenever any adjustment is made
pursuant to this Article IV, the Company shall cause notice of such adjustment
to be mailed to the Warrant Agent within 15 days thereafter, such notice to
include in reasonable detail (i) the events precipitating the adjustment, (ii)
the computation of any adjustments, and (iii)
- 13 -
<PAGE>
the Exercise Price, the number of shares or the securities or other property
purchasable upon exercise of each Warrant after giving effect to such
adjustment. The Warrant Agent shall within 15 days after receipt of such notice
from the Company cause a similar notice to be mailed to each registered holder
of a Warrant Certificate.
Section 4.13 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Article IV, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments.
Section 4.14 Fractional Shares. The Company shall not be required upon the
exercise of any Warrant to issue fractional shares of Common Stock which may
result from adjustments in accordance with this Article IV to the Exercise Price
or number of shares of Common Stock purchasable under each Warrant. If more than
one Warrant is exercised at one time by the same registered holder, the number
of full shares of Common Stock which shall be deliverable shall be computed
based on the number of shares deliverable in exchange for the aggregate number
of Warrants exercised. With respect to any final fraction of a share called for
upon the exercise of any Warrant or Warrants, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price of a share of Common Stock calculated in
accordance with Section 4.2.
ARTICLE V
OTHER PROVISIONS RELATING TO
RIGHTS OF REGISTERED HOLDERS
OF WARRANT CERTIFICATES
Section 5.1 Rights of Warrant Holders. No Warrant Certificate shall entitle
the registered holder thereof to any of the rights of a shareholder of the
Company, including without limitation the right to vote, to receive dividends
and other distributions, to receive any notice of, or to attend, meetings of
shareholders or any other proceedings of the Company.
Section 5.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates. If
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company in its discretion may direct the Warrant Agent to execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Warrant
Certificate, or in lieu of or in substitution for a lost, stolen or destroyed
Warrant Certificate, a new Warrant Certificate for the number of Warrants
represented by the Warrant Certificate so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction of such
Warrant
- 14 -
<PAGE>
Certificate, and of the ownership thereof, and indemnity, if requested, all
satisfactory to the Company and the Warrant Agent. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges incidental thereto as the
Company or Warrant Agent may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at
any time enforceable by anyone.
ARTICLE VI
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER,
AND CANCELLATION OF WARRANT CERTIFICATES
Section 6.1 Split Up, Combination, Exchange and Transfer of Warrant
Certificates. Prior to the Exercise Deadline, Warrant Certificates, subject to
the provisions of Section 6.2, may be split up, combined or exchanged for other
Warrant Certificates representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Warrant Agent at its Principal Office and shall
surrender the Warrant Certificate or Warrant Certificates so to be split up,
combined or exchanged at said office. Subject to any applicable laws, rules or
regulations restricting transferability, any restriction on transferability that
may appear on a Warrant Certificate in accordance with the terms hereof, or any
"stop-transfer" instructions the Company may give to the Warrant Agent to
implement any such restrictions (which instructions the Company is expressly
authorized to give), transfer of outstanding Warrant Certificates may be
effected by the Warrant Agent from time to time upon the books of the Company to
be maintained by the Warrant Agent for that purpose, upon a surrender of the
Warrant Certificate to the Warrant Agent at its Principal Office, with the
assignment form set forth in the Warrant Certificate duly executed and with
Signatures Guaranteed. Upon any such surrender for split up, combination,
exchange or transfer, the Warrant Agent shall execute and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Warrant Agent shall not be required (a) to issue,
register the transfer of, or exchange any Warrant separate from a Unit prior to
the date the Warrant is separable from the Common Stock and exercisable as
provided in Section 2.2 hereof (b) to issue, register the transfer of or
exchange any Warrant during a period beginning at the opening of business 20
days before the day of the mailing of a notice of call of Warrants selected for
call under Section 3.1 and ending at the close of business on the day of such
mailing or (c) to register the transfer of or exchange
- 15 -
<PAGE>
any Warrant so selected for call in whole or in part, except, in the case of any
Warrant be called in part, the portion thereof not to be called. The Warrant
Agent may require the holder to pay a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any split up,
combination, exchange or transfer of Warrant Certificates prior to the issuance
of any new Warrant Certificate.
Section 6.2 Cancellation of Warrant Certificates. Any Warrant Certificate
surrendered upon the exercise of Warrants or for split up, combination, exchange
or transfer, or purchased or otherwise acquired by the Company, shall be
cancelled and shall not be reissued by the Company; and, except as provided in
Section 2.6 in case of the exercise of less than all of the Warrants evidenced
by a Warrant Certificate or in Section 5.1 in case of a split up, combination,
exchange or transfer, no Warrant Certificate shall be issued hereunder in lieu
of such cancelled Warrant Certificate. Any Warrant Certificate so cancelled
shall be destroyed by the Warrant Agent unless otherwise directed by the
Company.
Section 6.3 Agreement of Warrant Certificate Holders. Every holder of a
Warrant Certificate by accepting the same consents and agrees with the Company
and the Warrant Agent and with every other holder of a Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be registered on the
books of the Company maintained for that purpose by the Warrant Agent only
if surrendered at the Principal Office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer, with Signatures
Guaranteed; and
(b) prior to due presentment for registration of transfer, the Company
and the Warrant Agent may deem and treat the person in whose name the
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company
or the Warrant Agent) for all purposes whatsoever, and neither the Company
nor the Warrant Agent shall be affected by any notice to the contrary.
ARTICLE VII
PROVISIONS CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
Section 7.1 Payment of Taxes and Charges. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to the
Warrant Agent for the
- 16 -
<PAGE>
payment of, all transfer taxes and charges that may be imposed by the United
States or any state upon the Company or the Warrant Agent in connection with the
issuance or delivery of shares of Common Stock upon the exercise of any
Warrants, but any such taxes in connection with the issuance of Warrant
Certificates or certificates for shares of Common Stock in any name other than
that of the registered holder of the Warrant Certificate surrendered shall be
paid by such registered holder; and, in such case, the Company shall not be
required to issue or deliver any Warrant Certificate or certificates for shares
of Common Stock until such taxes shall have been paid or it has been established
to the Company's satisfaction that no tax is due.
Section 7.2 Resignation or Removal of Warrant Agent. The Warrant Agent may
resign its duties and be discharged from all further duties and liabilities
hereunder after giving 30 days' notice in writing to the Company, except that
such shorter notice may be given as the Company shall, in writing, accept as
sufficient. Upon comparable notice to the Warrant Agent, the Company may remove
the Warrant Agent; provided, however, that in such event the Company shall
appoint a new Warrant Agent, as hereinafter provided, and the removal of the
Warrant Agent shall not be effective until a new Warrant Agent has been
appointed and has accepted such appointment. If the office of Warrant Agent
becomes vacant by resignation or incapacity to act or otherwise, the Company
shall appoint in writing a new Warrant Agent. If the Company shall fail to make
such appointment within a period of 30 days after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the registered holder of any Warrant Certificate, then the
registered holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. The Warrant Agent
hereby agrees to take any such action as may be necessary to provide for the
orderly transfer of its responsibilities hereunder to the new Warrant Agent. Any
new Warrant Agent appointed hereunder shall execute, acknowledge and deliver to
the former Warrant Agent last in office, and to the Company, an instrument
accepting such appointment under substantially the same terms and conditions as
are contained herein, and thereupon such new Warrant Agent without any further
act or deed shall become vested with the rights, powers, duties and
responsibilities of the Warrant Agent and the former Warrant Agent shall cease
to be the Warrant Agent; but if for any reason it becomes necessary or expedient
to have the former Warrant Agent execute and delivery any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the former Warrant
Agent.
Section 7.3 Notice of Appointment. Not later than the effective date of the
appointment of a new Warrant Agent, the
- 17 -
<PAGE>
Company shall cause notice thereof to be mailed to the former Warrant Agent and
the transfer agent for the Common Stock, and shall forthwith cause a copy of
such notice to be mailed to each registered holder of a Warrant Certificate.
Failure to mail such notice, or any defect contained therein, shall not effect
the legality or validity of the appointment of the successor Warrant Agent.
Section 7.4 Merger of Warrant Agent. Any company into which the Warrant
Agent may be merged or with which it may be consolidated, or any company
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, shall be the successor Warrant Agent under this Agreement without further
act, provided that such company would be eligible for appointment as a successor
Warrant Agent under the provisions of Section 7.2 hereof. Any such successor
Warrant Agent may adopt the prior countersignature of any predecessor Warrant
Agent and distribute Warrant Certificates countersigned but not distributed by
such predecessor Warrant Agent, or may countersign the Warrant Certificates in
its own name.
Section 7.5 Company Responsibilities. The Company agrees that it shall (i)
pay the Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder and will reimburse the Warrant Agent upon demand for all expenses,
advances, and expenditures that the Warrant Agent may reasonably incur in the
execution of its duties hereunder (including fees and expenses of its counsel);
(ii) provide the Warrant Agent, upon request, with sufficient funds to pay any
cash due pursuant to Section 3.12 upon exercise of Warrants; and (iii) perform,
execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all further and other acts, instruments and
assurances as may reasonably be required by the Warrant Agent for the carrying
out or performing by the Warrant Agent of the provisions of this Agreement.
Section 7.6 Certification for the Benefit of Warrant Agent. Whenever in the
performance of its duties under this Agreement the Warrant Agent shall deem it
necessary or desirable that any matter be proved or established or that any
instructions with respect to the performance of its duties hereunder be given by
the Company prior to taking or suffering any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established, or such instructions may be
given, by a certificate or instrument signed by the Chairman, Chief Executive
Officer, the President, a Vice President, the Secretary or the Treasurer of the
Company and delivered to the Warrant Agent. Such certificate or instrument may
be relied upon by the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement; but in its discretion the
Warrant Agent may in lieu
- 18 -
<PAGE>
thereof accept other evidence of such matter or may require such further or
additional evidence as it may deem reasonable.
Section 7.7 Books and Records. The Warrant Agent shall maintain the
Company's books and records for registration and registration of transfer of the
Warrant Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Warrant Certificates, the number of
Warrants evidenced on its face by each Warrant Certificate and the date of each
Warrant Certificate.
Section 7.8 Liability of Warrant Agent. The Warrant Agent shall be liable
hereunder for its own negligence or willful misconduct. The Warrant Agent shall
act hereunder solely as an agent for the Company and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not be
liable for or by reason of any of the statements of fact or recitals contained
in this Agreement or in the Warrant Certificates (except its counter-signature
thereof) or be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only. The Warrant Agent
will not incur any liability or responsibility to the Company or to any holder
of any Warrant Certificate for any action taken, or any failure to take action,
in reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed by the Warrant Agent to
be genuine and to have been signed, sent or presented by the proper party or
parties. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof by the
Company or in respect of the validity or execution of any Warrant Certificate
(except its counter-signature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Warrant Certificate; nor shall it be responsible for the making of any
adjustment required under the provisions of Article IV hereof or responsible for
the manner, method or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock or other securities to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any shares of Common Stock
or other securities will when issued be validly authorized and issued and fully
paid and nonassessable.
Section 7.9 Use of Attorneys, Agents and Employees. The Warrant Agent may
execute and exercise any of the rights or powers hereby vested in it or perform
any duty hereunder either itself or by or through its attorneys, agents or
employees.
Section 7.10 Indemnification. The Company agrees to indemnify the Warrant
Agent and save it harmless against any and
- 19 -
<PAGE>
all losses, expenses or liabilities, including judgments, costs and counsel fees
arising out of or in connection with its agency under this Agreement, except as
a result of the negligence or willful misconduct of the Warrant Agent.
Section 7.11 Acceptance of Agency. The Warrant Agent hereby accepts the
agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth.
Section 7.12 Changes to Agreement. Neither the Company nor the Warrant
Agent may, by supplemental agreement or otherwise, alter or change the rights,
privileges or immunities of the registered holders of the Warrant Certificates
without the prior written consent of the Representatives.
Section 7.13 Assignment. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns.
Section 7.14 Successor to Company. The Company will not merge or
consolidate with or into any other corporation or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor
corporation, unless the corporation resulting from such merger, consolidation,
sale or transfer (if not the Company) shall expressly assume, by supplemental
agreement reasonably satisfactory in form and substance to the Warrant Agent and
delivered to the Warrant Agent, the due and punctual performance and observance
of each and every covenant and condition of this Agreement to be performed and
observed by the Company.
Section 7.15 Notices. Any notice or demand required by this Agreement to be
given or made by the Warrant Agent or by the registered holder of any Warrant
Certificate to or on the Company shall be sufficiently given or made if sent by
certified mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
Attn: Barry Mindes,
Chairman of the Board
Any notice or demand required by this Agreement to be given or made by the
registered holder of any Warrant Certificate or by the Company to or on the
Warrant Agent shall be sufficiently given or made if sent by certified mail,
postage prepaid, addressed (until another address is filed in writing with the
Company by the Warrant Agent), as follows:
- 20 -
<PAGE>
American Stock Transfer & Trust Company
[TO BE SUPPLIED]
Any notice or demand required by this Agreement to be given or made by the
Company or the Warrant Agent to or on the registered holder of any Warrant
Certificate shall be sufficiently given or made, whether or not such holder
receives the notice, if sent by first-class mail, postage prepaid, addressed to
such registered holder at his last address as shown on the books of the Company
maintained by the Warrant Agent. Otherwise such notice or demand shall be deemed
given when received by the party entitled thereto.
Section 7.16 Defects in Notice. Failure to file any certificate or notice
or to mail any notice, or any defect in any certificate or notice pursuant to
this Agreement, shall not affect in any way the rights of any registered holder
of a Warrant Certificate or the legality or validity of any adjustment made
pursuant to Section 3.1 hereof, or any transaction giving rise to any such
adjustment, or the legality or validity of any action taken or to be taken by
the Company.
Section 7.17 Governing Law. The laws of the State of New York shall govern
this Warrant Agreement and the Warrant Certificates.
Section 7.18 Standing. Nothing in this Agreement expressed and nothing that
may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, the Warrant Agent, and the registered holders of the Warrant
Certificates any right remedy or claim under or by reason of this Agreement or
of any covenant, condition, stipulation, promise or agreement contained herein;
and all covenants, conditions, stipulations, promises and agreements contained
in this Agreement shall be for the sole and exclusive benefit of the Company and
the Warrant Agent and their respective successors, and the registered holders of
the Warrant Certificates.
Section 7.19 Headings. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 7.20 Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts shall together constitute but one and the same instrument.
- 21 -
<PAGE>
Section 7.21 Conflict of Interest. The Warrant Agent and any shareholder,
director, officer or employee of the Warrant Agent may buy, sell or deal in any
of the Warrant Certificates or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company, including without limitation as trustee under
any indenture or as transfer agent for the Units, Common Stock or any other
securities of the Company, or for any other legal entity.
Section 7.22 Availability of the Agreement. The Warrant Agent shall keep
copies of this Agreement available for inspection by holders of Warrants during
normal business hours at its Corporate Trust Department. Copies of this
Agreement may be obtained upon written request addressed to:
International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
- 22 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
INTERNATIONAL SPORTS WAGERING INC.
By:_______________________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:_______________________________________
Name:
Title:
- 23 -
<PAGE>
Exhibit A
[FORM OF PUBLIC WARRANT CERTIFICATE]
Warrants
CUSIP No.
INTERNATIONAL SPORTS WAGERING INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
NOT EXERCISABLE BEFORE 9:30 A.M.,
NEW YORK CITY TIME, ON [TWO YEARS AFTER
EFFECTIVE DATE] 1998 OR AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON
[THE EFFECTIVE DATE] 2001
THIS CERTIFIES THAT:
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above, each of which represents the right to
purchase one fully paid and nonassessable share of Common Stock, par value
$0.001 per share (the "Common Stock"), of International Sports Wagering Inc., a
Delaware corporation (the "Company"), at the initial exercise price (the
"Exercise Price") of $__________, at any time after the shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby have been registered
under the Securities Act of 1933, as amended, or such other action as may be
required by federal or state law relating to the issuance or distribution of
securities shall have been taken, but not before 9:30 A.M., New York City time,
on [two years after effective date], 1998, or such earlier date (i) as
Barington Capital Group, L.P. (the "Barington") may determine or (ii) 30 days
after the Company may determine at any time after one year, provided, that the
last sale price of the Units has been at least 200% of the initial Unit
offering price for a period of 15 consecutive trading days ending
within 15 days of such Company determination or after the Expiration Date
hereinafter referred to, by surrendering this Warrant Certificate, with the
Form of Election to Purchase on the reverse side hereof duly executed at the
office maintained pursuant to the Warrant Agreement hereinafter referred to
for that purpose to American Stock Transfer & Trust Company, or its successor
as warrant agent (any such warrant agent being herein called the "Warrant
Agent"), and by paying in full the Exercise Price, plus transfer taxes, if
any. Payment of the Exercise Price shall be made in United States currency,
by certified check or money order payable to the order of the Company.
The Warrants have been issued pursuant to a public offering of Units (the
"Units"), each Unit consisting of one share of Common Stock and one Warrant. The
shares of Common Stock and the Warrants included in each Unit shall not be
separable until two years following the date of issuance, or such shorter period
as the Representatives shall
<PAGE>
determine (the "Separation Date").
Upon certain events provided for in the Warrant Agreement hereinafter
referred to, the Exercise Price and the number of shares of Common Stock
issuable upon the exercise of each Warrant are required to be adjusted.
The Warrants, or any portion thereof, are subject to call for redemption by
the Company at a call price of $0.05 per Warrant, at any time after the
Separation Date, provided that the Current Market Price (as defined in the
Warrant Agreement) per share of the Common Stock shall have been greater than or
equal to 200% of the initial Unit offering price for a period of 15 consecutive
trading days ending within 30 days of the date that the notice of such call (the
"Call Notice") is given by the Company to the Warrant Agent.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
expiration date (the "Expiration Date") which will be the earlier of [the
effective date], 2001, and the business day next preceding the call date
specified in the Call Notice. All Warrants evidenced hereby shall thereafter
become void.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate in whole or in
part upon surrender of this Warrant Certificate at the office of the Warrant
Agent maintained for that purpose with the Form of Assignment on the reverse
side hereof duly executed, with signatures guaranteed by a member firm or a
national securities exchange, a commercial bank or a trust company located in
the United States, or a member of the National Association of Securities
Dealers, Inc., or other eligible guarantor institution which is a participant in
a signature guarantee program (as such terms are defined in Reg. 240.17Ad-15
under the Securities Exchange Act of 1934, as amended) acceptable to the Warrant
Agent. Upon any such transfer, a new Warrant Certificate or Warrant Certificates
representing the same aggregate number of Warrants will be issued in accordance
with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
- 2 -
<PAGE>
No fractional shares will be issued upon the exercise of Warrants. As to
any final fraction of a share which the Registered Holder of one or more Warrant
Certificates, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay the cash value thereof determined as provided in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of ________, 1996, between the Company and the Warrant Agent
(the "Warrant Agreement"), and is subject to the terms and provisions contained
in said Warrant Agreement, to all of which terms and provisions the Registered
Holder consents by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a shareholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of shareholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile Corporate Seal.
INTERNATIONAL SPORTS WAGERING
INC.
By:______________________________________
Seal
Attest:
_______________________________________
Countersigned: AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent
Dated:____________________________ By:_______________________________________
- 4 -
<PAGE>
FORM OF
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to excercise ______ of the
Warrants represented by this Warrant Certificate and to purchase the shares of
Common Stock issuable upon the excercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE
TO:_____________________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)
DELIVER
TO:_____________________________________________________________________________
(NAME)
at______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby excercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not excercised be
issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$__________ by certified check or money order payable in United States currency
to the order of the Company.
- 5 -
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by the Underwriter / /
2. The exercise of this Warrant was solicited by ________________ / /
3. If the exercise of this Warrant was not solicited, please check the
following box. / /
Dated:___________________________________
_________________________________ ___________________________________
(Insert Social Security or (Signature of registered
other identifying number holder)
of holder)
___________________________________
(Signature of registered holder,
if co-owned)
NOTE: Signature must conform in all respects to name of holder as specified on
the face of the Warrant Certificate.
- 6 -
<PAGE>
FORM OF
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant Certificate, with respect to the number of Warrants set
forth below:
Name of Assignee Address No. of Warrants
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint Attorney to make such
transfer on the books of International Sports Wagering Inc. maintained for that
purpose, with full power of substitution in the premises.
Dated:__________, 19__.
_____________________________________ ___________________________________
(Insert Social Security or Signature
other identifying number
of holder)
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
Signature Guaranteed:
- 7 -
<PAGE>
Exhibit B
[FORM OF REPRESENTATIVE'S WARRANT CERTIFICATE]
No.________ _________ Warrants
INTERNATIONAL SPORTS WAGERING INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
NOT EXERCISABLE BEFORE 9:30 A.M.,
NEW YORK CITY TIME, ON [TWO YEARS AFTER
EFFECTIVE DATE] 1998, OR AFTER 5:00 P.M.
NEW YORK CITY TIME, ON [THE EFFECTIVE DATE], 2001
THIS CERTIFIES that:
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above, each of which represents the right to
purchase one fully paid and nonassessable share of Common Stock, par value
$0.001 per share (the "Common Stock"), of INTERNATIONAL SPORTS WAGERING INC., a
Delaware corporation (the "Company"), at the initial exercise price (the
"Exercise Price") of $_____, at any time after the shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby have been registered
under the Securities Act of 1933, as amended, or such other action as may be
required by federal or state law relating to the issuance or distribution of
securities shall have been taken, but not before 9:30 A.M., New York City time,
on [two years after the effective date], 1998, or such earlier date (i) as
Barington Capital Group, L.P. may determine or (ii) 30 days
after the Company may determine at any time after one year, provided, that the
last sale price of the Units has been at least 200% of the initial Unit
offering price for a period of 15 consecutive trading days ending
within 15 days of such Company determination or after the Expiration
Date hereinafter referred to, by surrendering this Warrant Certificate, with the
Form of Election to Purchase set forth hereon duly executed at the office
maintained pursuant to the Warrant Agreement hereinafter referred to for that
purpose to American Stock Transfer & Trust Company, or its successor as warrant
agent (any such warrant agent being herein called the "Warrant Agent"), and by
paying in full the Exercise Price, plus transfer taxes, if any. Payment of the
Exercise Price shall be made in United States currency, by certified check or
money order payable to the order of the Company.
Upon certain events provided for in the Warrant Agreement hereinafter
referred to, the Exercise Price and the number of shares of Common Stock
issuable upon the exercise of each Warrant are required to be adjusted.
<PAGE>
No Warrant may be exercised after 5:00 P.M., New York City time, on the
expiration date (the "Expiration Date") which will be [THE EFFECTIVE DATE],
2001. All Warrants evidenced hereby shall thereafter become void.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate in whole or in
part upon surrender of this Warrant Certificate at the office of the Warrant
Agent maintained for that purpose with the Form of Assignment set forth hereon
duly executed, with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank or a trust company located in the United
States, or a member of the National Association of Securities Dealers, Inc., or
other eligible guarantor institution which is a participant in a signature
guarantee program (as such terms are defined in Reg. 240.17Ad-15 under the
Securities Exchange Act of 1934, as amended) acceptable to the Warrant Agent.
Upon any such transfer, a new Warrant Certificate or Warrant Certificates
representing the same aggregate number of Warrants will be issued in accordance
with instructions in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
No fractional shares will be issued upon the exercise of Warrants. As to
any final fraction of a share which the Registered Holder of one or more Warrant
Certificates, the rights under which are exercised in the same transaction,
would otherwise be entitled to purchase upon such exercise, the Company shall
pay the cash value thereof determined as provided in the Warrant Agreement
hereinafter referred to.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement, dated as of ____________, 1996, between the Company and the Warrant
Agent (the "Warrant Agreement"), and is subject to the terms and provisions
contained in said Warrant Agreement, to all of which terms and provisions the
Registered Holder consents by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a shareholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of shareholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until
- 2 -
<PAGE>
it shall have been countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile Corporate Seal.
INTERNATIONAL SPORTS WAGERING INC.
By:_________________________________________
Attest:_____________________________________
__________________________________________
Seal
Countersigned:
as Warrant Agent
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent
Dated:__________________ By:_______________________________________
- 3 -
<PAGE>
FORM OF
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise __________ of the
Warrants represented by this Warrant Certificate and to purchase the shares of
Common Stock issuable upon the exercise of said Warrants, and request that
certificates for such shares be issued and delivered as follows:
ISSUE
TO:_____________________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER)
DELIVER
TO:_____________________________________________________________________________
(NAME)
at______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of full Warrants not exercised be
issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$______________ by certified check or money order payable in United States
currency to the order of the Company.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by the Underwriter / /
2. The exercise of this Warrant was solicited by ______________ / /
3. If the exercise of this Warrant was not solicited, please check the
following box. / /
Dated:___________________
- 4 -
<PAGE>
______________________________________
(Signature of registered holder)
______________________________________
(Insert Social Security or
other identifying number of
holder)
______________________________________
(Signature of registered holder,
if co-owned)
NOTE: Signature must conform
in all respects to name of
holder as specified on the face
of the Warrant Certificate.
- 5 -
<PAGE>
FORM OF
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant Certificate, with respect to the number of Warrants set
forth below:
Name of Assignee Address No. of Warrants
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint ________________________
Attorney to make such transfer on the books of INTERNATIONAL SPORTS WAGERING
INC. maintained for that purpose, with full power of substitution in the
premises.
Dated:_________ 19__.
_______________________________
Signature
________________________________
(Insert Social Security or other
identifying number of holder)
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
<PAGE>
INDEMNIFICATION AGREEMENT
This agreement, made and entered into this ____ day of _______, 1996
("Agreement"), by and between International Sports Wagering Inc., a Delaware
corporation (the "Corporation"), and ______________ ("Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve as
directors, officers or in other capacities unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the Corporation; and
WHEREAS, the current difficulty of obtaining adequate insurance and the
uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Corporation's stockholders and that the Corporation should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Corporation on the condition that
Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
ARTICLE I
Definitions
For purposes of this Agreement, the following terms shall have the meaning
given here:
1.01 "Board" means the Board of Directors of the Corporation.
<PAGE>
1.02 "Change in Control" means a change in control of the Corporation
occurring after the Effective Date (as defined herein) of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Corporation is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) the Corporation is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
1.03 "Corporate Status" describes the status of a 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, employee benefit plan or
enterprise.
1.04 "Disinterested Director" means a director of the Corporation who is
not a party to, as of any time of determination thereof, the Proceeding (as
defined herein) in respect of which indemnification is sought by the Indemnitee.
1.05 "Effective Date" means the date a registration statement filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, registering securities issued by the Corporation, is effective.
1.06 "Enterprise" shall mean the Corporation and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the request of the Corporation as a
director, officer, employee or agent.
-2-
<PAGE>
1.07 "Expenses" shall include but not be limited to all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types actually and reasonably incurred by him in connection
with prosecuting, defending, preparing to prosecute or defend, investigating, or
being or preparing to be a witness in a Proceeding.
1.08 "Good Faith" shall mean Indemnitee having acted in good faith and in a
manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal Proceeding,
having had no reasonable cause to believe Indemnitee's conduct was unlawful.
1.09 "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporate law and neither presently is, nor in
the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
1.10 "Proceeding" includes any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other threatened, pending or completed proceeding
whether civil, criminal, administrative or investigative, other than one
initiated by Indemnitee. For purposes of the foregoing sentence, a "Proceeding"
shall not be deemed to have been initiated by Indemnitee where Indemnitee seeks
pursuant to Article VIII of this Agreement to enforce Indemnitee's rights under
this Agreement or his rights to indemnification under the Certificate of
Incorporation or Bylaws of the Corporation or Delaware law, or were Indemnitee
seeks to enforce any rights he may have under any directors' and officers'
liability insurance policy maintained by the Corporation.
ARTICLE II
Term of Agreement
This Agreement shall continue until and terminate upon the later of: (i) 10
years after the date that Indemnitee shall have ceased to serve as a director,
officer, employee and/or agent of the Enterprise; or (ii) the final termination
of all
-3-
<PAGE>
Proceedings commenced prior to the date referred to in (i) above in respect of
which Indemnitee is granted rights of indemnification or advancement of Expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Article VIII
of this Agreement relating thereto.
ARTICLE III
Services by Indemnitee, Notice of Proceedings
3.01 Services. Indemnitee agrees to serve as a director and/or officer of
the Corporation. Indemnitee may at any time and for any reason resign from such
position.
3.02 Notice of Proceeding. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
ARTICLE IV
Indemnification
4.01 In General. In connection with any Proceeding, the Corporation shall
indemnify, and advance Expenses to, Indemnitee as provided in this Agreement and
to the fullest extent permitted by applicable law in effect on the date hereof
and to such greater extent as applicable law may thereafter from time to time
permit.
4.02 Proceedings Other Than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4.02 if, by reason of Indemnitee's Corporate Status,
Indemnitee was or is, or is threatened to be made, a party to any Proceeding,
other than a Proceeding by or in the right of the Corporation. Indemnitee shall
be indemnified against Expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with such Proceeding or any claim, issue or matter therein, if
Indemnitee acted in Good Faith.
4.03 Proceedings by or in the Right of the Corporation. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4.03 if, by
reason of Indemnitee's Corporate Status, Indemnitee was or is, or is threatened
to be made, a party to any Proceeding brought by or in the right of the
Corporation to procure a judgment in its favor. Indemnitee shall be indemnified
against Expenses, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by Indemni-
-4-
<PAGE>
tee or on Indemnitee's behalf in connection with such Proceeding or any claim,
issue or matter therein, if Indemnitee acted in Good Faith. Notwithstanding the
foregoing, no such indemnification shall be made in respect of any claim, issue
or matter in such Proceeding as to which Indemnitee 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 Proceeding shall
have been brought determines that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such portion of the settled amount,
Expenses, judgments, and fines as such court deems proper.
4.04 Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall be
indemnified against all Expenses actually and reasonably incurred by Indemnitee
or on Indemnitee's behalf in connection therewith.
ARTICLE V
Advancement of Expenses
Notwithstanding any provision to the contrary in Article VI, the
Corporation shall advance all reasonable Expenses which, by reason of
Indemnitee's Corporate Status, were charged to or incurred by or on behalf of
Indemnitee in connection with any Proceeding, within twenty days after the
receipt by the Corporation of a statement or statements from Indemnitee
requesting such advance or advances whether prior to or after final disposition
of such Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or accompanied
by an undertaking by or on behalf of Indemnitee to repay any Expenses if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses.
ARTICLE VI
Procedures for Determination of
Entitlement to Indemnification
6.01 Initial Request. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Corporation a written request, including therein
or therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Corporation
shall promptly advise the Board in writing that Indemnitee has requested
indemnification.
-5-
<PAGE>
6.02 Method of Determination. A determination (if required by applicable
law) with respect to Indemnitee's entitlement to indemnification shall be made
by the Board by a majority vote of the Disinterested Directors (even though less
than a quorum). In the event that there are no Disinterested Directors, or if a
majority of the Disinterested Directors so directs, the determination shall be
made by Independent Counsel in a written opinion to the Board, a copy of which
shall be delivered to Indemnitee, or by the stockholders of the Corporation, as
determined by such quorum of Disinterested Directors or by a majority of the
Board, as the case may be. If a Change in Control has occurred and Indemnitee so
requests, the determination shall be made by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee.
6.03 Selection, Payment, Discharge of Independent Counsel. In the event the
determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 6.02 of this Agreement, the Independent Counsel
shall be selected, paid, and discharged in the following manner:
(a) The Independent Counsel shall be selected by the Board, and the
Corporation shall give written notice to Indemnitee advising
Indemnitee of the identity of the Independent Counsel so selected.
(b) Following the initial selection described in clause (a) of this
Section 6.03, Indemnitee may, within seven days after such written
notice of selection has been given, deliver to the Corporation a
written objection to such selection. Such objection may be asserted
only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section
1.09 of this Agreement, and the objection shall set forth with par-
ticularity the factual basis of such assertion. Absent a proper and
timely objection, the person so selected shall act as Independent
Counsel. If such written objection is made, the Independent Counsel so
selected may not serve as Independent Counsel unless and until a court
has determined that such objection is without merit or Indemnitee
has delivered a written withdrawal of such objection to the
Corporation.
(c) Either the Corporation or Indemnitee may petition the Court of
Chancery of the State of Delaware or other court of competent ju-
-6-
<PAGE>
risdiction if the parties have been unable to agree on the selection
of Independent Counsel (if applicable) within 20 days after submission
by Indemnitee of a written request for indemnification pursuant to
Section 6.01 of this Agreement. Such petition may request a
determination whether an objection to the party's selection is without
merit and/or seek the appointment as Independent Counsel of a person
selected by the Court or by such other person as the Court shall
designate. A person so appointed shall act as Independent Counsel
under Section 6.02 of this Agreement.
(d) The Corporation shall pay any and all reasonable fees and expenses
of Independent Counsel incurred by such Independent Counsel in con-
nection with acting pursuant to this Agreement, and the Corporation
shall pay all reasonable fees and expenses incident to the
procedures of this Section 6.03, regardless of the manner in which
such Independent Counsel was selected or appointed.
6.04 Cooperation. Indemnitee shall cooperate with the person, persons or
entity making the determination with respect to Indemnitee's entitlement to
indemnification under this Agreement, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including reasonable attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
6.05 Payment. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination.
ARTICLE VII
Presumptions and Effect of Certain Proceedings
7.01 Burden of Proof. In making a determination with respect to entitlement
to indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accor-
-7-
<PAGE>
dance with Section 6.01 of this Agreement, and the Corporation shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
7.02 Effect of Other Proceedings. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in Good Faith.
7.03 Reliance as Safe Harbor. For purposes of any determination of Good
Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's
action is based on the records or books of account of the Enterprise, including
financial statements, or on information supplied to Indemnitee by the officers
of the Enterprise in the course of their duties, or on the advice of legal
counsel for the Enterprise or on information or records given or reports made to
the Enterprise by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care by the Enterprise. The provisions
of this Section 7.03 shall not be deemed to be exclusive or to limit in any way
the other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
7.04 Actions of Others. The knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement.
ARTICLE VIII
Remedies of Indemnitee
8.01 Application. This Article VIII shall apply in the event of a Dispute.
For purposes of this Article, "Dispute", shall mean any of the following events:
(a) a determination is made pursuant to Article VI of this Agreement that
Indemnitee is not entitled to indemnification under this Agreement;
(b) advancement of Expenses is not timely made pursuant to Article V of
this Agreement;
(c) the determination of entitlement to be made pursuant to Section 6.02
of this Agreement had not been made within 60 days after re-
-8-
<PAGE>
ceipt by the Corporation of the request for indemnification;
(d) payment of indemnification is not made pursuant to Section 4.05 of
this Agreement within ten (10) days after receipt by the Corporation
of written request therefor; or
(e) payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
indemnification pursuant to Article VI of this Agreement.
8.02 Adjudication. In the event of a Dispute, Indemnitee shall be entitled
to an adjudication in the Court of Chancery of the State of Delaware or in any
other court of competent jurisdiction, of Indemnitee's entitlement to such
indemnification and advancement of Expenses. Alternatively, Indemnitee, at
Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator sitting in New York, New York, pursuant to the rules of the
American Arbitration Association. The Corporation shall not oppose Indemnitee's
right to seek any such adjudication or award in arbitration.
8.03 De Novo Review. In the event that a determination shall have been made
pursuant to Article VI of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Article VIII shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. In any such proceeding or arbitration, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
8.04 Corporation Bound. If a determination shall have been made pursuant to
Article VI of this Agreement that Indemnitee is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding or
arbitration absent a prohibition of such indemnification under applicable law.
8.05 Procedures Valid. The Corporation shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Article VIII
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Corporation is bound by all the provisions of this
Agreement.
-9-
<PAGE>
8.06. Expenses of Adjudication. In the event that Indemnitee, pursuant to
this Article VIII, seeks a judicial adjudication of or an award in arbitration
to enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Corporation and
shall be indemnified by the Corporation against, any and all expenses (of the
types described in the definition of Expenses in Section 1.07 of this Agreement)
actually and reasonably incurred by Indemnitee in such adjudication or
arbitration, but only if Indemnitee prevails therein. If it shall be determined
in such adjudication or arbitration that Indemnitee is entitled to receive part
but not all of the indemnification of advancement or expenses sought, the
expenses incurred by Indemnitee in connection with such adjudication or
arbitration shall be appropriately prorated.
ARTICLE IX
Non-Exclusivity, Insurance, Subrogation
9.01 Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-Laws, any
agreement, a vote of stockholders or a resolution of Disinterested Directors, or
otherwise. No amendment, alteration, rescission or replacement of this Agreement
or any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by such Indemnitee in Indemnitee's Corporate Status
prior to such amendment, alteration, rescission or replacement.
9.02 Insurance. The Corporation may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise.
9.03 Subrogation. In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
9.04 No Duplicative Payment. The Corporation shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
-10-
<PAGE>
ARTICLE X
General Provisions
10.01 Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's heirs, executors and administrators.
10.02 Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid,
illegal or unenforceable) shall not in any way be affected or impaired
thereby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by
the provision held invalid, illegal or unenforceable.
10.03 No Adequate Remedy. The parties declare that it is impossible to
measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives the claim or defense that such party has an adequate remedy at law, and
such party shall not urge in any such action or proceeding the claim or defense
that the other party has an adequate remedy at law.
10.04 Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
-11-
<PAGE>
10.05 Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
10.06 Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
10.07 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
If to Indemnitee, to:
As shown with Indemnitee's signature below.
If to the Corporation, to:
International Sports Wagering Inc.
201 Lower Notch Road
Little Falls, New Jersey 07424
Attn: Chairman Of The Board
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attn: Richard M. Hoffman, Esq.
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
10.08 Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
10.09 Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters herein
agreed upon. This Agreement replaces in full all prior indemnification
agreements or under-
-12-
<PAGE>
standings of the parties hereto, and any and all such prior agreements or
understandings are hereby rescinded by mutual agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INTERNATIONAL SPORTS WAGERING INC.
By________________________________
Its_______________________________
INDEMNITEE
__________________________________
Print name:
Address: _________________________
__________________________________
-13-
<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
November 11, 1996
